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“International Human Resource Management, 5e by Ibraiz Tarique, Dennis Briscoe and Randall
Schuler has long been regarded as one of leading resources in the field. This new edition rein-
forces that reputation and brings the content up to date with contemporary trends in research
and practice. Written by three of the leading scholars in the area, the volume is distinguished by
its combination of insights from academic research and rich insights into IHRM in practice. It
is comprehensive, accessible and authoritative, and should be required reading for any student
or reflective practitioner of IHRM.”

–David Collings, Dublin City University, Ireland, and
Senior Editor of the Journal of World Business

“This excellent book, a leader in the field, comprehensively covers the field of International
Human Resource Management and focuses on the HRM issues and challenges facing firms as
they internationalise their business operations. Each chapter provides a clear exposition and
critique of the specialist literature, and case studies are used to provide rich insights into cur-
rent practice. The combination of sound theory and examples from practice around the globe
provides an important and up to date contribution to the field. The book is well geared to
students interested in the international dimensions of HRM, and the excellent links between
international strategy and HRM give students an in depth knowledge of the people manage-
ment challenges faced by MNC managers in a globalised business world.”

–Hugh Scullion, Established Professor of International Management,
Cairnes School of Business and Economics, NUI Galway, Ireland

“This edition of the book does a wonderful job of framing IHRM issues in the evolving, strategic
context of running an international business. Pedagogically, the many practical applications and
graphical presentations beautifully illustrate concepts and frameworks that will help readers
grasp the rich content that the book provides.”

–Wayne F. Cascio, Robert H. Reynolds Chair in Global Leadership, University of
Colorado Denver, USA, and Senior Editor of the Journal of World Business

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International Human Resource
Management
Fifth edition
Thoroughly updated and expanded, the fifth edition of International Human Resource Man-
agement focuses on international human resource management (IHRM) within multinational
enterprises (MNEs). The book has been designed to lead readers through all of the key topics
of IHRM in a highly engaging and approachable way. In addition to the key topics and rich
pedagogy students have come to expect, chapters have been updated, including an expanded
chapter on Comparative and National Culture. Uncovering precisely why IHRM is important
for success in international business, and how IHRM policies and practices function within the
multinational enterprise, this comprehensive textbook provides an outstanding foundation for
understanding the theory and practice of IHRM. It is essential reading for all students, instruc-
tors, and IHRM professionals.

Ibraiz Tarique is an Associate Professor of Management and Director of Global HR programs
at the Lubin School of Business, at Pace University in New York City, USA. He teaches at the
executive, graduate, and undergraduate levels.

Dennis Briscoe is Professor Emeritus of International Human Resource Management at the
University of San Diego, USA, and owner/consultant at International Management and Person-
nel Systems (IMAPS).

Randall Schuler is Distinguished Professor of Strategic International Human Resources at the
School of Management and Labor Relations at Rutgers University, USA, and Research Professor
at the Lancaster University School of Management, UK, as well as the University of Zurich,
Switzerland.

Routledge Global Human Resource Management Series
Edited by Randall S. Schuler, Susan E. Jackson, Paul Sparrow and Michael Poole

Routledge Global Human Resource Management is an important new series that examines human
resources in its global context. The series is organized into three strands: content and issues in global
human resource management (HRM); specific HR functions in a global context; and comparative
HRM. Authored by some of the world’s leading authorities on HRM, each book in the series aims
to give readers comprehensive, in-depth and accessible texts that combine essential theory and best
practice. Topics covered include cross-border alliances, global leadership, global legal systems, HRM
in Asia, Africa, and the Americas, industrial relations, and global staffing.

Managing Human Resources in Cross-Border
Alliances
Randall S. Schuler, Susan E. Jackson and
Yadong Luo

Managing Human Resources in Africa
Edited by Ken N. Kamoche, Yaw A. Debrah,
Frank M. Horwitz and Gerry Nkombo Muuka

Globalizing Human Resource Management
Paul Sparrow, Chris Brewster and Hilary Harris

Managing Human Resources in Asia-Pacific
Edited by Pawan S. Budhwar

International Human Resource Management,
Second edition
Policy and practice for the global enterprise
Dennis R. Briscoe and Randall S. Schuler

Managing Human Resources in Latin America
An agenda for international leaders
Edited by Marta M. Elvira and Anabella Davila

Global Staffing
Edited by Hugh Scullion and David G. Collings

Managing Human Resources in Europe
A thematic approach
Edited by Henrik Holt Larsen and Wolfgang
Mayrhofer

Managing Human Resources in the
Middle-East
Edited by Pawan S. Budhwar and Kamel Mellahi

Managing Global Legal Systems
International employment regulation and
competitive advantage
Gary W. Florkowski

Global Industrial Relations
Edited by Michael J. Morley, Patrick Gunnigle
and David G. Collings

Managing Human Resources in North America
Current issues and perspectives
Edited by Steve Werner

Global Leadership
Research, Practice, Development
Edited by Mark Mendenhall, Gary Oddou, Allan
Bird and Martha Maznevski

Global Compensation
Foundations and Perspectives
Edited by Luis Gomez-Mejia and Steve Werner

Performance Management Systems: A Global
Perspective
Edited by Arup Varma, Pawan S. Budhwar and
Angelo DeNisi

Managing Human Resources in Central and
Eastern Europe
Edited by Michael J. Morley, Noreen Heraty and
Snejina Michailova

Global Careers
Michael Dickmann and Yehuda Baruch

Global Leadership (2nd edition)
Research, Practice, Development
Mark E. Mendenhall, Joyce S. Osland, Allan Bird,
Gary Oddou, Martha L. Maznevski, Michael J.
Stevens, Günter K. Stahl

Manager-Subordinate Trust
A Global Perspective
Edited by Pablo Cardona and Michael J. Morley

Managing Human Resources in Asia-Pacific
(2nd edition)
Edited by Arup Varma and Pawan S. Budhwar

Human Resource Management and the
Institutional Perspective
Edited by Geoffrey Wood, Chris Brewster, and
Michael Brookes

International Human Resource Management
(5th edition)
Policies and Practices for Multinational
Enterprises
Ibraiz Tarique, Dennis Briscoe, and Randall
Schuler

International Human
Resource Management
Policies and Practices for
Multinational Enterprises

Fifth edition

Ibraiz Tarique
Dennis R. Briscoe
Randall S. Schuler

First published 1995
by Prentice Hall
Fifth edition published 2016
by Routledge
711 Third Avenue, New York, NY 10017

and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 1995, 2004, 2008, 2012, 2016 Taylor & Francis

The right of Ibraiz Tarique, Dennis R. Briscoe, and Randall S. Schuler to
be identified as authors of this work has been asserted by them in accord-
ance with sections 77 and 78 of the Copyright, Designs and Patents
Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or reg-
istered trademarks, and are used only for identification and explanation
without intent to infringe.

[First edition published by Prentice Hall 1995]

[Fourth edition published by Routledge 2011]

Library of Congress Cataloguing-in-Publication Data

Briscoe, Dennis R., 1945–
International human resource management : policies and practices for
multinational enterprises / Ibraiz Tarique, Dennis R. Briscoe, Randall S.
Schuler. — 5th edition.
pages cm
Includes bibliographical references and index.
1. International business enterprises—Personnel management.
I. Tarique, Ibraiz. II. Schuler, Randall S. III. Title.
HF5549.5.E45B74 2012
658.3—dc23
2015001046

ISBN: 978-0-415-71052-7 (hbk)
ISBN: 978-0-415-71053-4 (pbk)
ISBN: 978-1-315-88500-1 (ebk)

Typeset in Berling Roman and Futura
by Apex CoVantage, LLC

Contents

List of Figures ix
List of Exhibits xi
List of Case Studies xiii
List of IHRM in Actions xiv
List of End-of-Book Integrative Cases xv
List of Acronyms xvi
Acknowledgments xix
Foreword xxi

Introduction 1

section 1: strategic context 11

Introduction to Section 1 11

1 The Internationalization of Human Resource Management 13

2 Strategic International Human Resource Management 36

3 Design and Structure of the Multinational Enterprise 66

4 International Mergers and Acquisitions, International Joint
Ventures, and Alliances 91

section 2: national and cultural context 119

Introduction to Section 2 119

5 Country and Company Culture and International Human
Resource Management 121

viii Contents

6 International Employment Law, Labor Standards, and Ethics 153

7 International Employee Relations 196

section 3: global talent management 219

Introduction to Section 3 219

8 International Workforce Planning and Staffing 221

9 International Recruitment, International Selection,
and Repatriation 245

10 International Training and Management Development 288

11 International Compensation, Benefits, and Taxes 328

12 International Employee Performance Management 378

13 Well-being of the International Workforce and
International HRIS 409

14 Comparative IHRM: Operating in Other Regions
and Countries 427

section 4: role and future of ihrm 469

Introduction to Section 4 469

15 The IHRM Department, Professionalism, and Future Trends 471

Integrative Cases 499
Index 509

Figures

I.1 Chapter Map 3
1.1 Who Needs International Human Resource Management? 24
2.1 Basic Elements of the Strategic Management Process 38
2.2 Evolution of the Multinational Enterprise 41
2.3 Auxiliary Methods of Internationalization 47
2.4 MNE Business Strategy 50
2.5 Headquarters’ International Orientation (Senior Executives) 52
2.6 MNE IHRM Strategy 55
2.7 Integrative Framework of Strategic International Human Resources

Management in MNEs 57
3.1 MNE Organizational Structure 70
3.2 Functional Structure 76
3.3 Product Structure 76
3.4 Geographic Structure 77
3.5 Matrix Structure 78
4.1 International Mergers and Acquisitions Process of Combination 96
4.2 HR Issues in the Three Stages of IM&As 97
4.3 Four Approaches to Integration in International Mergers and Acquisitions 101
4.4 Four-stage Model of HR Issues in International Joint Ventures 105
5.1 The Three Layers of Culture 125
5.2 Development of Cross-cultural Competence 127
6.1 Umbrella of CSR Programs 187
8.1 The International Workforce Planning and Staffing Process 222
8.2 Factors that Impact International Workforce Planning 224
9.1 Successful Expatriate Experience 253
9.2 Organizational Support for Repatriates 275
10.1 Effectiveness of Homogeneous and Heterogeneous Teams 299
11.1 The Balance Sheet 351
12.1 A Model of IPM in an MNE 385

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Exhibits

1.1 Drivers of Internationalization of Business 15
1.2 The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets) 20
1.3 IHRM Questions for International Strategy 28
3.1 Best Practices for the Effective Management of Cross-border

and Virtual Teams 83
5.1 Geert Hofstede’s Cultural Dimensions 128
5.2 Trompenaar’s and Hampden-Turner’s Cultural Dimensions 132
5.3 Global Leadership and Organizational Behavior Effectiveness

(GLOBE): Cultural Dimensions 135
6.1 ILO Declaration on Fundamental Principles and Rights at Work 156
6.2 United Nations Global Compact Principles of Interest to IHRM 158
6.3 The Scope of Selected European Union Directives Affecting the Labor

and Social Policy of Businesses Operating in Member States 166
6.4 Protected Classes for Discrimination Prohibition in Select Countries 177
6.5 Guidance on How an MNE Might Design a Code of Conduct and Ensure an

Effective Implementation of Ethical Standards for Worldwide Operations 185
7.1 Trade Union Membership, Selected Countries 198
7.2 Seven Approaches to Labor/employee Relations in the Global Context 205
7.3 Local Union Environment Issues That MNEs Need to Consider 209
8.1 International Staffing Approaches 229
8.2 Traditional International Assignees and Local Nationals 231
8.3 Types of International Assignees 234
8.4 Questions to Better Manage a Global Workforce 238
9.1 Employment Options for International Transfers 247
9.2 The 21st-century Expatriate Manager Profile 254
9.3 Definition of Expatriate Failure 261
9.4 Reasons for Expatriate Failure 262
9.5 Best Practice in IA Selection 270

xii Exhibits

10.1 The Match of Training Techniques to Country Culture 294
10.2 Skills of the Transnationally Competent Manager Versus Those

of the Traditional International Manager 307
10.3 Five-Phase Process for Designing Effective CCT Programs 317
11.1 Hourly Compensation Costs for Production Workers in

Manufacturing, 2011 333
11.2 Average Annual Hours Per Year Per Person in Employment 338
11.3 Paid Vacation Days and Legally Mandated Paid Holidays 340
11.4 Types of Equity Compensation 343
11.5 The 10 Most Expensive Countries/cities in the World 355
11.6 Balance Sheet Example 356
11.7 Cost Estimate for Three-year Assignment 359
11.8 Average Tax Wedge 365
12.1 Shifts in Western PM 380
12.2 Globalization of Key Elements in the Design, Implementation,

and Evaluation of the PM System of an MNE 387
12.3 Criteria for Appraisal of International Assignees 395
12.4 Raters of International Assignee Performance 397
12.5 Use of Different Types of Rater in PAs of Expatriates 398
13.1 Issues to Consider When Designing Expatriate Crisis

Management Programs 416
14.1 World’s 30 Largest Cities (2015 and 2025) 430
14.2 Population and Labor Force Characteristics (Europe) 433
14.3 Population and Labor Force Characteristics (North America) 436
14.4 Population and Labor Force Characteristics (Asia) 440
14.5 Population and Labor Force Characteristics (Latin America

and Caribbean) 444
14.6 Population and Labor Force Characteristics (Africa) 448
15.1 International Relocation Services 476
15.2 The Datafication of HR 488

Case Studies

1.1 Yarn Paradise: World’s Biggest Online Yarn Store (Turkey) 33
2.1 The Early Evolution of Manufacturing Firms: Ford Motor Company Goes

International* (USA) 61
3.1 Capgemini: A Transnational Organization (France) 87
4.1 BCE’s Acquisition of Teleglobe International (Canada) 113
5.1 Internationalization and Cross-cultural Expansion of a Local

Manufacturer: Barden (US) and FAG (Germany) 147
6.1 Non-Compete Agreements and Intellectual Property: Value

Partners SA (Italy) and Bain & Company (USA) Conflict in Brazil 191
7.1 Global Industrial Relations at Ford Motor Company (USA/Global) 216
8.1 Firms Woo Executives from “Third” Countries (Global) 241
9.1 A World Marketplace for Jobs in Project-Based Work Environment

(Global) 278
10.1 Management Training in Africa (Malawi) 321
11.1 Compensation Problems with a Global Workforce

(Global, Thailand, Philippines, Japan, Bolivia) 373
12.1 Cross-Cultural Performance Evaluation in Thailand: The Case

of Richard Evans, Expatriate Managing Director
(Switzerland/Thailand/UK) 403

13.1 Global Health and Safety Concerns (Global, Romania, UK, Ghana) 423
14.1 The Impact of HR on Innovation: A Six-Country Comparison (Global) 455
15.1 Becoming an HR Transnational at Germany’s OBI (Germany) 492

IHRM in Actions

IHRM in Action 1.1 Creating a Global Accounting Firm 17
IHRM in Action 1.2 CEOs’ Perspectives on Globalization 22
IHRM in Action 1.3 Developing a Global Appetite for Fish and Chips 29
IHRM in Action 2.1 Implementing a Global Strategy at a Japanese Pharmaceutical 39
IHRM in Action 3.1 Moving HR from International to Global 75
IHRM in Action 4.1 Lessons Learned by GE in Cross-Border Acquisitions 102
IHRM in Action 5.1 Turning McDonalds into a Global Brand 123
IHRM in Action 6.1 Developing Global Labor Standards at Levi Strauss 182
IHRM in Action 7.1 Cross-Border Worker Representation at Hewlett-Packard 211
IHRM in Action 8.1 Dealing with Labor Shortages in the Netherlands 226
IHRM in Action 9.1 Locating Near the Talent with a Global Workforce 251
IHRM in Action 9.2 Repatriation at Monsanto 274
IHRM in Action 10.1 Global Management Development Program at

Colgate Palmolive 302
IHRM in Action 11.1 Developing a Global Compensation Program at

Colgate Palmolive 330
IHRM in Action 12.1 Expatriate Performance Management at Nokia 390
IHRM in Action 13.1 The Need for Emergency Medical on Travel in Niger 414
IHRM in Action 15.1 IHRM in a Global Mining Company 478

End-of-Book Integrative Cases

Case 1 Fred Bailey: An Innocent Abroad 499
Case 2 Bavarian Auto Works in Indonesia (Germany/Indonesia) 503

Acronyms

ADA Americans with Disabilities Act
ADEA Age Discrimination in Employment Act
APEC Asia-Pacific Economic Cooperation
ASEAN Association of South East Asian Nations
BOK Body of Knowledge
BRIC Brazil, Russia, India, China
BT Business Traveler
C&B Compensation and Benefits
CBT Computer-Based Training
CEE Central and Eastern Europe
CEO Chief Executive Officer
CFO Chief Financial Officer
CIPD Chartered Institute of Personnel and Development
COLA Cost of Living Allowance
CSR Corporate Social Responsibility
EEA European Economic Area
EFTA European Free Trade Agreement
EPI Efficient Purchaser Index
ESOP Employee Stock Ownership Plan
ESPP Employee Stock Purchase Plan
ETUC European Trade Union Confederation
EU European Union
FCN Friendship, Commerce, and Navigation Treaty
FCPA Foreign Corrupt Practices Act
FDI Foreign Direct Investment
FTAA Free Trade Area of the Americas
Fx Exchange Rate
GATT General Agreement on Trade and Tariffs

xviiAcronyms

GEC Global Employment Company
GHRIS Global Human Resource Information System
GI Global Integration
GLOBE Global Leadership and Organizational Behavior Effectiveness
GPHR Global Professional in Human Resources
GUFs Global Union Federations
HCN Host-Country National
HQ Headquarters
HR Human Resources
HRCI Human Resource Certification Institute
HRIS Human Resource Information System
HRM Human Resource Management
IA International Assignee or International Assignment
IB International Business
ICC International Chamber of Commerce
ICFTU International Confederation of Free Trade Unions
IE International Employee
IHR International Human Resources
IHRM International Human Resource Management
IJV International Joint Venture
ILO International Labor Organization
ILP International Labor Organization
IMF International Monetary Fund
INS Immigration and Naturalization Service
IPM International Performance Management
IPO Intellectual Property Office
IT Information Technology
ITUC International Trade Union Confederation
JV Joint Venture
LR Local Responsiveness
M&A Merger and Acquisition
MNE Multinational Enterprise
NAALC North American Agreement on Labor Cooperation
NAFTA North American Free Trade Agreement
NGO Non-Governmental Organization
OECD Organization for Economic Cooperation and Development
OEEC Office of European Economic Cooperation
PA Performance Appraisal
PCN Parent-Country National
PCT Patent Cooperation Treaty
PM Performance Management
PRC People’s Republic of China

xviii Acronyms

R&D Research and Development
SAR Stock Appreciation Rights
SEC Securities and Exchange Commission
SHRM Society for Human Resource Management
SIHRM Strategic International Human Resource Management
SME Small- and Medium-sized Enterprises
SOX Sarbanes-Oxley
TCN Third-Country National
T&D Training & Development
TI Transparency International
TNC Transnational Corporation
TUAC Trade Union Advisory Committee
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UK United Kingdom
US United States

Acknowledgments

We are grateful to many individuals who have provided valuable information, insights,
cases, and assistance in completing this book. They include: Susan E. Jackson, Rutgers Uni-
versity; Paul Sparrow and Cary Cooper, Lancaster University Management School; Jyotsna
Bhatnagar and Rakesh Sharma, Management Development Institute India; Chris Brew-
ster, Reading University; Yadong Luo, University of Miami; Ingmar Björkman, the Swed-
ish School of Economics; James Hayton, University of Warick; Shaun Tyson and Michael
Dickmann, Cranfield School of Management; Gary Florkowski, University of Pittsburgh;
Cal Reynolds, Calvin Reynolds & Associates; Hugh Scullion, National University of Ireland;
Dave Collings, Dublin City University; Vlad Vaiman, California Lutheran University; Stu
Youngblood, Texas Christian University; Bruno Staffelbach, University of Zurich; Bill Cas-
tellano, Rutgers University; Ed Schuler, The Schuler Group; Gerold Frick, Aalen Univer-
sity; Manfred Stania, Stania Management; Martin Hilb, University of St. Gallen; Christian
Scholz, University of Saarlandes; Mark Saxer, Saxer Consulting; Nigel Shaw and Nadia
Wicki de la Puente, Novartis; Michael Morley, University of Limerick; Charles Galunic and
Isable Assureira, INSEAD; Simon Dolan, ESADE; Georges Bachtold, Blumer Machines
Company; Darryl Weiss, Lockheed Martin Orincon, San Diego; Jerry Edge, RMC Consult-
ants; Joann Stang, Solar Turbines (retired); Bernie Kulchin, Cubic Corporation; Ben Shaw,
Bond University; Ed Watson, KPMG; Gardiner Hempel, Deloitte & Touche; Wayne Cascio
and Manuel Serapio, University of Colorado-Denver; Bob Grove, San Diego Employers’
Association (retired), Jason Exley, MSI, Denver, CO; Shaista Khilji, The George Washing-
ton University; Akram Al Ariss, Toulouse Business School; and Elaine Farndale, Pennsylva-
nia State University.

A special thanks to Lisbeth Claus, Willamette University, for her permission to use her
contributions to the fourth and fifth editions.

Dr. Schuler thanks many students at Rutgers University in the Department of Human
Resource Management for their teaching and writing suggestions, and the department’s
webmaster, Renee Walker, for her work on the construction of his global website.

Dr. Briscoe thanks his graduate students at the University of San Diego and at the many
other schools in the some 19 countries where he has taught IHRM, and particularly his

xx Acknowledgments

most recent graduate assistant, Chanyu Miao, for her help in research into IHRM and
country HR practices.

Dr. Ibraiz Tarique is indebted to his father, Dr. Asif Tarique, who passed away in Janu-
ary 2015, for teaching him the value of cultural diversity. Dr. Asif Tarique (an international
marine biologist by profession) was a global citizen who had a true passion for cultural
diversity developed from living in numerous countries and experiencing different cultures,
people from all walks of life, poetry, and languages. Dr. Ibraiz Tarique is grateful to his
father for an upbringing as a “third culture kid” (a child who grows up in a culture other
than that of his or her parents).

Dr. Ibraiz Tarique gives thanks to his family for providing unwavering support to work
on this book. He is thankful to both co-authors for providing the guidance, encourage-
ment, and support to contribute to the fifth edition. For Dr. Ibraiz Tarique, working with
Dr. Schuler and Dr. Briscoe has been one of the best experiences. Dr. Ibraiz Tarique is
thankful to all the individuals who helped in the research for this book. He would like to
thank the Lubin School of Business, Pace University, and his excellent colleagues for sup-
porting his interests in international human resource management. Finally, he would like to
thank his students (both current and past) who continuously inspire him and remind him
every day that learning is a lifelong process.

And last, Dr. Briscoe acknowledges the support from his wife, Georgia, who provided
inspiration and example during a particularly difficult time for her during the writing of
this fifth edition as well as the example being set by his son, Forrest, who is now showing
his father how the role of professor can be so fulfilling. He also acknowledges how great it
has been to work with his co-authors, Ibraiz Tarique and Randall Schuler. They went above
and beyond the call of duty to provide the support and effort necessary to complete the
project within tight deadlines. Their contributions made the final product much better.

Finally the authors thank the many great people at Routledge for their wonderful assis-
tance and support throughout this project, in particular, the Global HRM Series senior
editor, Sharon Golan.

Thank you all!

Ibraiz Tarique
Dennis Briscoe

Randall Schuler
January 2016

Foreword

Global HRM is a series of books edited and authored by some of the best and most
well-known researchers in the field of human resource management. This series is aimed
at offering students and practitioners accessible, coordinated and comprehensive books
in global HRM. To be used individually or together, these books cover the main areas in
international and comparative HRM. Taking an expert look at an increasingly important
and complex area of global business, it is a groundbreaking series that answers a real need
for useful and affordable textbooks on global HRM.

Several books in the Global HRM series are devoted to human resource management
policies and practices in multinational enterprises. Some books focus on specific areas of
global HRM policies and practices, such as global leadership, global compensation, global
talent management and global labor relations. Other books address special topics that
arise in multinational enterprises, such as managing HR in cross-border alliances, manag-
ing global legal systems, and the structure of the global HR function. There is also a book
of global human resource management cases. Several other books in the series adopt a
comparative approach to understanding human resource management. These books on
comparative human resource management describe HRM topics found at the country level
in selected countries. The comparative books utilize a common framework that makes it
easier for the reader to systematically understand the rationale for the similarities and dif-
ferences in findings across countries.

The fifth edition of International Human Resource Management, written by Ibraiz Tari-
que, Dennis Briscoe and Randall Schuler, serves as the foundation book for all the other
books that focus on specific areas of global HRM policies and practices, and for the books
that address special topics such as alliances, strategies, and structures and legal systems. As
such, its 15 chapters provide the broadest possible base for an overview of all the major
areas in the field of international human resource management. As with all the books in
the Global HRM series, the chapters are based upon the most recent and classic research,
as well as numerous examples of what multinational enterprises are doing today. This latest
edition of this foundation book contains numerous updates and revisions that make the

xxii Foreword

book even more relevant and useful to the reader, whether university student or practi-
tioner. More material has been put into tables and exhibits to help summarize a lot of
information, thus making it more quickly accessible and more interesting for the reader.

This Routledge series, Global HRM, is intended to serve the growing market of global
scholars and practitioners who are seeking a deeper and broader understanding of the role
and importance of human resource management in companies that operate throughout
the world. With this in mind, all books in the series provide a thorough review of existing
research and numerous examples of companies around the world. Mini-company stories
and examples are found throughout the chapters. In addition, many of the books in the
series include at least one detailed case description that serves as convenient practical illus-
trations of topics discussed in the book. The companion website for this book contains
additional cases and resources for students and faculty to use for greater discussions of the
topics in all the chapters.

Because a significant number of scholars and practitioners throughout the world are
involved in researching and practicing the topics examined in this series of books, the
authorship of the books and the experiences of the companies cited in the books reflect a
vast global representation. The authors in the series bring with them exceptional knowledge
of the human resource management topics they address, and in many cases the authors are
the pioneers for their topics. So we feel fortunate to have the involvement of such a distin-
guished group of academics in this series.

The publisher and editor have played a very major role in making this series possible.
Routledge has provided its global production, marketing and reputation to make this series
feasible and affordable to academics and practitioners throughout the world. In addition,
Routledge has provided its own highly qualified professionals to make this series a reality.
In particular, we want to indicate our deep appreciation for the work of our series editor,
Sharon Golan. She has been very supportive of the Global HRM series and has been inval-
uable in providing the needed support and encouragement to us and the many authors
and editors in the series. She, and the entire Routledge staff, has helped make the process
of completing this series an enjoyable one. For everything they have done, we thank them
all. Together we are all very excited about the Global HRM series and hope you find an
opportunity to use International Human Resource Management, fifth edition, and all the
other books in the series!

Randall S. Schuler, Rutgers University and the Lancaster
University School of Management

Susan E. Jackson, Rutgers University and the Lancaster
University School of Management

Paul Sparrow, Manchester University Management School
July 2015

This book is about international human resource management (IHRM). That is, it is about
human resource management in a global context. The conduct of business is increasingly
global in scope, and managing human resources has become even more important in the
successful conduct of global business. The motives for writing this book originally—to pro-
vide a professional and academic overview for an understanding of the design and imple-
mentation of IHRM policy and practice—continue in this edition. This fifth edition has
also been written to update this most important but fast changing discipline. As with the
previous editions, the majority of the book discusses the IHRM issues faced by multi-
national enterprises (MNEs) of all sizes, primarily—but not exclusively—from the per-
spective of the parent company or headquarters. But it also provides increasing attention
to other forms of international organizations as well, such as governments, non-profits,
and non-governmental organizations (NGOs). Since MNEs increasingly manage their
workforces on a global basis, this edition not only examines global management of parent
companies’ workforces, with globalized policies, shared services, and global centers of HR
excellence, but also provides increased focus on management of workforces in subsidiaries,
international joint ventures, and global partnerships.

In the previous two editions, a major effort was made to obtain relevant examples from
many different countries. This effort has continued in the fifth edition. So the examples
in the chapters as well as the end-of-chapter cases (in the book and on the text website)
draw from many small and medium-sized companies (many of which will be new to the
reader) from many countries, as well as some traditional and well-known large firms,
which come from both large and small countries.

SECTIONS AND CHAPTERS

This book is divided into four sections (see Figure I.1 to understand how the topics relate
to each other) and 15 chapters. The first two sections set the scene for International Human
Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and

Introduction

Introduction2

explain why IHRM is so important to the success of international business, describing the
context of global business as it relates to IHRM. Section 1 “Strategic Context,” describes
the key strategic components of the context within which IHRM operates. Each of these
components represents a critical part of the global environment that determines the nature
of IHRM. Section 2, “National and Cultural Context,” describes three important aspects of
the country and/or national environments that determine the cultural and legal contexts
within which IHRM operates. Then Section 3, “Global Talent Management,” describes the
IHRM policies and practices that are shaped by the context described in the first two sec-
tions. These seven chapters provide a comprehensive and thorough overview of the policies
and practices of IHRM. These policies and practices are described both from a central-
ized, headquarters-focused perspective, as well as from the local perspective of subsidiaries,
joint ventures, partnerships, and contractors. Finally Section 4, “Role and Future of IHRM,”
describes the nature of today’s IHRM department, the professionalization of IHRM, and
takes a look at future trends in the field. Now we describe the chapters briefly.

Chapter 1 introduces the globalization of business and describes how that has changed
the nature of IHRM. It describes the evolving nature of IHRM as it meets the needs of
changing multinational enterprises and explains how this has led to the development of
strategic IHRM in helping MNEs attain sustainable competitive advantage in the global
marketplace. This chapter also describes the basic nature and development of IHRM, dif-
ferentiates IHRM from domestic HRM, and discusses some of the difficulties experienced
in that development.

Chapter 2 describes the various responsibilities of IHRM and links them to the pursuit
of international business strategies. The strategic decision to “go international” is one of the
most important components of the IHRM environment. IHRM must understand these
strategic choices and should contribute input to them in order to contribute to their suc-
cessful achievement. This chapter also examines IHRM strategy and its relation to overall
MNE business strategy, focusing on how varying approaches to MNE business strategy
affect the nature of IHRM strategy. Finally this chapter explains how IHRM changes and
contributes to the development of those various MNE strategies.

Chapter 3 discusses the growing complexities in designing the structure of multina-
tional firms and the important role that IHRM plays in those design decisions. The con-
duct of international business is increasingly complex, involving the need to—at the same
time—focus on central control and influence and local adaptation to customers and cul-
ture. Too often these efforts fail, at least partially because of inadequate attention to issues
within the responsibility of IHRM. This chapter describes the contributions that IHRM can
and should make to the success of these organizational choices.

Chapter 4 describes the role of IHRM in cross-border mergers and acquisitions, interna-
tional joint ventures, and international alliances. Cross-border acquisitions, joint ventures,
teams, and alliances of various sorts are increasingly the means by which firms choose to
go international and thus they constitute one of the most important components of the
context for IHRM. Much of the chapter describes the role of IHRM and the IHR profes-
sional in designing, facilitating, and implementing these four specific types of cross-border

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Introduction4

combinations. All four types of these combinations are increasingly used and IHRM can and
should play a major role in helping ensure the success of their design and implementation.

Chapter 5, starting Section II, expands the theme that is revisited frequently through-
out the text: the critical importance of country and corporate culture. Cultural differ-
ences impact everything that is done in international business and are, if possible, even
more important to everything that IHR managers do. Success in international business
requires a thorough understanding of cultural factors, and IHRM is involved both with
helping provide that expertise to the firm as well as having to incorporate such under-
standing in its own global activities. Thus this introduction to IB and IHRM, by necessity,
includes an introduction to the concepts of country and corporate culture. The chap-
ter also discusses the importance of culture in both the conduct and the interpretation
of IHRM research, explaining how culture affects both our understanding of IHRM and
its impact. Like everything else, culture influences what we know and what we think we
know about IHR.

Chapter 6 describes international aspects of the legal and regulatory environment,
another of the key components in the context of IHRM. Just as is true for HRM in a
domestic context, there are many aspects of law that impact the practice of human resource
management when working in the global arena. This chapter discusses five of these aspects:

â– â–  international employment law and the institutions that develop and apply it;
â– â–  major legal systems and their key differences;
â– â–  goals of the various international trade agreements
â– â–  major issues international employment issues impacting HR;
â– â–  immigration/visas, personal, data protection, anti-discrimination, harassment, ethical

standards, CSR, and corporate governance.

All of these areas of the legal and regulatory environment related to the conduct of IHRM
are increasingly important to the successful contribution of IHR managers and all have a
growing impact on IHR and firms operating in the global business environment.

Chapter 7 examines the broad nature of international labor standards, global employ-
ment law and regulations, and international ethics and social responsibility. First, this chap-
ter looks at the institutional context of international business. International organizations
have promulgated labor standards for MNEs. Next, this chapter looks at the global legal
environment in which the MNE operates. It focuses on compliance with national and supra-
national laws. Further, a number of comparative regulatory issues are discussed that affect
the MNE such as immigration controls, data protection, anti-discrimination and harassment,
termination and reduction in force, and intellectual property. Finally, this chapter looks at
international ethics, its relation to culture, and how ethical dilemmas must be solved

Chapter 8 provides an introduction to the overall concern with planning, forecasting, and
staffing the global enterprise. Chapter 8 begins by providing a description of the constantly
changing labor markets around the world and discusses how MNEs plan for creating their
workforces from those labor markets. The nature of those markets in various countries, in

Introduction 5

terms of their demographic characteristics, the skills and abilities of their individuals, and
their accessibility and cost varies dramatically from country to country and region to region
and can be a major determinant in the success of international decisions such as where to
locate operations. Chapter 8 also provides an overview of the many options that MNEs
have available to them for that staffing.

Chapter 9 focuses on the IHRM responsibility for staffing, but primarily on the issue of
expatriation and repatriation, the movement of employees of MNE from either the parent
company to a foreign subsidiary or from a foreign subsidiary to another subsidiary or to
the parent firm. This chapter examines the difficulties experienced in the selection and
management of expatriates and repatriates and suggests some of the approaches successful
MNEs use to ensure positive experiences with those expatriates and repatriates. In addi-
tion, the chapter discusses problems that MNEs are experiencing with women and other
types of non-traditional expatriates.

Chapter 10 focuses on the training and development of the MNE’s global workforce.
This includes training of host-country workforces, training and preparation of international
assignees, and global management development, including the nature and development
of a global mindset, the competencies of global managers, and the nature of management
development programs in a global context. This chapter has provided both many examples
and research and writing of what firms from around the world are currently doing to offer
successful global training and development programs. It is now up to IHR managers in
other firms to use what was described here to develop successful global training and devel-
opment programs in their own organizations.

Chapter 11 describes the complex area of compensation, benefits, and taxes for both
international assignees as well as for local workforces. The chapter presents IHRM prac-
tices related to the development of compensation and benefit programs among MNEs and
describes seven alternative approaches to compensation for expatriates. The chapter also
discusses the many problems that MNEs confront as they try to design and implement
global compensation and benefit programs throughout their global operations. Lastly, the
chapter discusses many of the various approaches taken to compensation and benefits, such
as vacation and pension practices, in a number of different countries.

Chapter 12 addresses the crucial issue of performance evaluation and performance man-
agement for international assignees and managers in foreign operations. It describes the
many difficulties encountered in trying to implement an effective PM system in the inter-
national arena, not the least of which is figuring out how to accommodate in the evaluation
process factors stemming from the nature of the local cultural environment. It is clear that it
is inadequate to simply apply a PM process designed at the home-country level for domestic
use to the international setting. The chapter ends with a discussion of a number of sugges-
tions and guidelines for improving the process of implementing an effective IPM system.

Chapter 13 describes topics of importance to the IHR manager: employee health and
safety in the context of the foreign subsidiary and joint venture, and health, safety, and
security for global business travelers and employees on international assignments and their
families. Often, because health and safety practices differ so much from country to country,

Introduction6

responsibility for them is left in the hands of subsidiary (local) HR managers. Neverthe-
less, MNEs must understand and cope with local and international health and safety reg-
ulations, the widely variable practices faced in different countries, and strategic business
decisions that may influence workforces and employee relations in multiple locations. This
chapter also discusses the important topic of HRIS.

Chapter 14 provides an overview of the wide variances in HR practices from country
to country and region to region. International enterprises have the necessity to understand
local HR policies and practices so as to make intelligent decisions as to the practical fit of
headquarters’ policies with tradition and law in local jurisdictions. This chapter focuses on
five specific regions: Europe, North America, Asia, Latin America, and Africa. Within each
region, key HRM issues are examined with implications for HRM policies and practices.
In addition, this chapter discusses various HRM issues that converge among regions and
countries, including managing two generations of employees including older workers, dis-
crimination and the glass ceiling, and gaps in talent supply and demand.

Chapter 15, the last chapter, provides a glimpse at the challenges that confront IHRM.
These challenges include the organizational advancement and the professionalization of
IHRM. International HR managers have to further develop their understanding of their
global enterprises and, as a consequence, will become better integrated into the planning
and strategic management of those enterprises. As these challenges are met and IHR man-
agers further develop their global HR competencies, multinational firms will find them-
selves developing world-class IHR departments. What this chapter demonstrates is that
only when such an integrated, responsive, and accepted IHRM is developed will IHRM
reach its potential and take its rightful place in the management of today’s successful global
enterprises.

TERMINOLOGY

In the 15 chapters of this fifth edition of International Human Resource Management, a
number of terms are used to refer to organizations that conduct international business.
In general, the term MNE (multinational enterprise) is used to refer to all organizations
that conduct business outside their countries of origin. Today, this can apply to bricks-and-
mortar firms as well as virtual firms with primarily only a website. The term MNE is used
rather than MNC (multinational corporation—which is often a more commonly used
term) because in many countries there is no form of legal ownership equivalent to the
American corporation, from whence derives the term MNC. So we chose a term that can
be used with wider application without being tied technically to the legal structure of one
particular country. Thus, in this text the generic term “enterprise” is used to refer to any
type of organization involved with international business. For small- and medium-sized
MNEs, the term SME is sometimes used. Generally, the term MNE is used throughout the
book. When appropriate, SME will be used to highlight special characteristics of small- and
medium-sized MNEs. We have also increased the discussion of non-business organizations,

Introduction 7

such as governments, NGOs, and non-profit organizations, many of which have more inter-
national exposure than do many business enterprises.

MNEs can be described as operating multi-domestically, internationally, globally, or
transnationally. While these terms often seem to be used interchangeably, some distinc-
tions can be made (for details about the differences as they relate to IHRM, refer to Chap-
ter 3). For example, the term “global” refers to enterprises that operate all over the world
and have consistent policies and practices throughout their operations. Such MNEs have
a high percentage of international turnover or sales (over 50 percent outside their home
countries) and a high percentage of employees outside their home countries, as well, with
operations in a large number of countries, and a global perspective and attitude reflected in
their business strategies and in their mission statements. These firms tend to have a highly
centralized (or, at least, regionalized) policy, at least as it applies to financial issues and
sharing of resources and innovations and world-class standards for their global products
and services.

In contrast, transnational firms are global in scope but decentralized and localized in
products, marketing strategies, and operations. That is, they take advantage of their global
presence to gain access to resources (ideas, technology, capital, people, products, and ser-
vices) and develop economies of scale, while at the same time maintaining a local pres-
ence that is seen as comparable to that of domestic competitors. The other terms, such
as “multinational” or “international,” generally refer to MNEs that have not yet developed
their levels of international operations to this extent. Because more and more enterprises
are moving in the direction of being more global, in thought at least, if not in action, the
word “global” is used in the title of the series of which this book is a part. But the word
“international” is used in the title and chapter headings of this text to reinforce the reality
that IHRM policies and practices are often and mostly not standardized and centralized, as
might be implied with the use of the term “global.”

Thus most of the topics, policies, and practices discussed throughout this text are cur-
rently applicable to most enterprises, and are likely to soon apply to most others. In this
text, if the terms global, multinational, or international enterprise make a difference to the
particular topic, policy, or practice being discussed, then an attempt is made to make it
clear through explanation or the use of the terminology as to which type of enterprise is
being described.

PEDAGOGY

Each chapter begins with “Learning objectives.” These are the main objectives that we
would like to see you focus on as you consider the material in the chapter. Although key
terms are defined in the chapter when they first appear, they are also defined on the website
under “Glossary.” Of course you will learn more than these particular objectives and terms.

Each chapter offers a case study at the end that illustrates the current experiences of a
particular multinational enterprise.

Introduction8

Each chapter contains a case study at the end illustrating current experiences of multi-
national enterprises. In addition, at the end of each chapter there are “Discussion questions”
that might be answered individually or in small teams. These are provided to allow the
reader to apply many of the ideas in the chapter to other situations. To help instructors and
readers identify cases and IHRM in Actions from specific regions or countries, there are two
matrices that list countries down the left side and with IIA and cases vertically across top.

The end-of-book materials include the notes that are used in each of the chapters. These
materials reflect the relevant classic and contemporary academic research worldwide and
the experiences and stories of multinational enterprises. To add even more relevant infor-
mation as it unfolds, the reader is encouraged to visit numerous websites that are availa-
ble and suggested here. Additional websites and other materials are found on the website
designed for this book: www.routledge.com/textbooks/globalhrm.

At the end of the book are two integrative cases. These cases illustrate the challenges
in trying to become a successful MNE, the importance of international human resource
policies and practices, and the impact of the local country environment on the effectiveness
of those policies and practices.

Finally there are author and subject/company indexes. These are to provide the reader
with further information about the various topics covered in this book as well as the many
authors whose work has been used to compile this book.

There is an extensive website for this book, which includes:

â– â–  history of the development of IHRM;
â– â–  list of major websites for research on IHRM topics;
■■ instructor’s manual, with slides for lectures, sample syllabi, exam questions, and dis-

cussion guides for end-of-chapter discussion questions and for the discussion questions
that accompany the cases in the text.

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The first section of the book, “Strategic Context,” has four chapters:

â– â–  Chapter 1: The Internationalization of Human Resource Management
â– â–  Chapter 2: Strategic International Human Resource Management
â– â–  Chapter 3: Design and Structure of the Multinational Enterprise
â– â–  Chapter 4: International Mergers and Acquisitions, Joint Ventures, and Alliances

S E C T I O N 1

Strategic Context

These chapters set the scene for International Human Resource Management: Policies and
Practices for Multinational Enterprises, fifth edition, and explain why international human
resource management is important for the success of international business. Together they
describe the important components of the strategic context within which international
human resource management policies and practices are designed and implemented. Each
of these components represents an important part of the strategic context that determines
the nature of IHRM. Chapter 1 describes the content and importance of international
human resource management practices and policies. Chapter 2 links these international
human resource management practices and policies to a multinational enterprise’s (MNE’s)
business strategy. Chapter 3 describes the various choices MNEs have in the ways they
divide themselves across geographically dispersed units around the world and the impli-
cations for the design and implementation of international human resource management
practices and policies. Chapter 3 also describes the various structure options available to
the MNE in combining those geographically dispersed units and the implications for the
design and implementation of international human resource policies and practices. Finally,
Chapter 4 describes the role of international human resource management practices and
policies in three unique international structures of MNEs: international mergers and acqui-
sitions, international joint ventures, and international alliances.

This page intentionally left blank

In the future, there will be no markets left waiting to emerge.
HSBC Corporation1

A company’s actions should be consequent to its beliefs. We believe that our ability to
win is due in no small part to our people, whom we consider a competitive advantage.

Peter Brabeck-Letmathe
Chairman, Nestle2

Learning Objectives

This chapter enables the reader to:

â– â–  Describe the many drivers of the internationalization of business.
â– â–  Describe the growth and spread of internationalization.
â– â–  Describe the different settings of international human resource management.
â– â–  Explain the development of international human resource management.

C h a p t e r 1

The Internationalization
of Human Resource
Management

Over the last 50 years, the economies of the world have become increasingly integrated.3
This has been driven by many forces and led by what is now referred to as the multinational
enterprise (MNE)—and more recently contributed to by internationalized government agen-
cies (such as the United Nations and the World Trade Organization), small- and medium-sized
enterprises (SMEs), countries through their state- and family-owned enterprises, born-global
organizations, and non-governmental organizations (NGOs). As all forms of organization
have increased their global activities, all of their management functions have required
adaptation to the global environment, including human resource management (HRM).

Strategic Context14

This book is about the policies and practices of HRM in those organizations that operate
in the global economy.

This first chapter introduces the concept of internationalization and how it has impacted
HRM, how that led to the development of international human resource management
(IHRM), and why IHRM has become so critical to the success of global organizations.
In addition, this chapter explains why IHRM is so different from traditional and purely
domestic HRM. Broadly defined, the field of international human resource management is
the study and application of all human resource management activities as they impact the pro-
cess of managing human resources in enterprises in the global environment. HRM in the MNE
is playing an increasingly significant role in providing solutions to business problems at the
global level. Consequently, there is a need to examine how HRM policies and practices can
best support the rapid advance of globalization. That is, this chapter is about the interna-
tionalization of HRM (referred to in this text as International HRM or IHRM).4

International human resource management is the study and application of all human
resource management activities as they impact the process of managing human
resources in enterprises in the global environment.

The following provides a short summary of what is driving the internationalization of
business and its impact on HRM. Markets for most goods and services are global—with
every firm or industry experiencing competitors from multiple countries; increasing
cross-border investment; expanding number and value of cross-border joint ventures, part-
nerships, and alliances; increasing numbers of small, internet-based, multinationals (often
referred to as micro-MNEs); and increasing numbers of people who cross borders (legally
and illegally). Thousands of firms and millions of people work outside their countries of
origin and millions of people work in their home countries for foreign-owned enterprises.
Firms everywhere face foreign competition. And inputs to business activity (financial,
labor, materials, technology, supplies, and consultancies) are now available everywhere at
world-class quality, price, and speed, creating global standards and competition in virtually
every industry and sector.

5.27 million Americans worked for foreign-owned subsidiaries in 2010 in the United
States (the most recent data published by the Bureau of Economic Analysis: http://
www.bea.gov/scb). A similar number of foreigners worked for foreign subsidiaries of
American firms overseas. This phenomenon can be found in many countries.

What this implies is that every business and every person confronts constant global
pressure for competitive excellence. Business, as well as other activities such as politics,

The Internationalization of HRM 15

travel, environmental concerns, and sports, has become a truly international activity, with
every aspect of every organization affected, including HRM. Thus the purpose of this intro-
ductory chapter is to provide a framework for understanding how this pervasive interna-
tionalization is affecting HRM—and to introduce how IHRM today is carrying out its new
obligations and how it is changing to meet the demands of this interconnected world.

THE DRIVERS OF INTERNATIONALIZATION OF BUSINESS

Many enterprises, large and small, from all countries (developed economies and emerging)
are already global—or are in the process of going global. There are many drivers of this
internationalization of business, the most important of which include the items listed in
Exhibit 1.1.

EXHIBIT 1.1: Drivers of Internationalization of Business

Driver Impact on internationalization

Decreased trade barriers
through trade agreements and
treaties

Negotiated to facilitate and increase trade between
member countries (e.g., WTO, EU, NAFTA, ASEAN,
MERCUSOR)

Search for new markets and
reduced costs

New markets and lower-cost operations found in other
countries

Rapid and extensive global
communication

Made possible with new technologies and facilitates
international collaboration and easier communication
and control among dispersed operations

Rapid development and
transfer of new technology,
including improved
transportation

Technological advances are now global, created
everywhere, and shared across borders, making
global commerce possible

Increased travel and migration,
exposure to new countries and
cultures

Billions of people experience other countries and
cultures every year and develop new attitudes and
expectations

Knowledge sharing across
borders

With global education, travel, trade, and the Internet,
knowledge and ideas are spreading across borders
rapidly

E-commerce By its nature is international and is increasing rapidly
Continued overleaf

Strategic Context16

Together these drivers are creating new global realities for all organizations—large and
small, publicly traded, privately held, family-owned, government-owned, web-based, and
NGOs. When businesses internationalize (for more about this process, refer to Chapters 2
through 4), HRM responsibilities, such as recruiting and hiring, management development,
performance management, compensation, employee benefits, health and safety, and labor
relations, take on international characteristics, requiring international HRM professionals
to facilitate HRM practices with a global focus.

THE GROWTH AND SPREAD OF INTERNATIONALIZATION

Because of the rapid development of these drivers, internationalization is spreading faster
than ever. It has led some observers to refer to it as globalization and to define it as:

the inexorable integration of markets, nation-states, and technologies to a degree
never witnessed before—in a way that is enabling individuals, corporations, and
nation-states to reach around the world farther, faster, deeper, and cheaper than
ever before and in a way that is enabling the world to reach into individuals, cor-
porations, and nation-states farther, faster, deeper, and cheaper than ever before.5

Both terms—internationalization and globalization—refer to the ever-increasing interac-
tion, interconnectedness, and integration of individuals, companies, cultures, and countries.
The expanding connections between people, companies, countries, and cultures are real,

Driver Impact on internationalization

Homogenization of culture and
consumer demands

Increasingly, consumer demands are the same
everywhere

Global Internet and social
media, television, music,
movies, sports, publications,
news

All media are now shared everywhere and
participated in by everyone, creating global
expectations

Competitiveness of emerging
market MNEs and SMEs

Internationalization largely came from developed
countries; now there are innovative and competitive
firms everywhere; much world economic growth is
now located in emerging markets

EXHIBIT 1.1 Continued

The Internationalization of HRM 17

powerful, all-encompassing, and increasing in importance. Because of this, international
business continues to grow in terms of the numbers and types of enterprises conducting
business across borders, the amount of foreign direct investment (FDI), and the value of
trade between countries.

The United Nations estimates (2010) that there are more than 82,000 large multina-
tional enterprises (referred to by the UN as transnationals) with more than 870,000 affil-
iates that employ more than 77 million people worldwide (not counting sub-contractors
and outsourcing).6 And these numbers grow every year. Even though the amount of new
FDI dropped rather dramatically during the 2007–2009 global economic and financial cri-
sis, it began to recover by 2010 and by 2012–2013 it had recovered to the pre-crisis level.7
Even during the crisis, the economic and financial health of the major emerging markets,
such as the BRIC(S) countries (Brazil, Russia, India, and China—to which South Africa
has been added), remained fairly robust. Indeed, emerging markets are now providing the
major growth in the world’s economy.

Internationalization began with large firms from the major developed countries, pri-
marily the US, the UK, Germany, France, and Japan. But international business is no longer
only—or even primarily—the domain of well-known firms from the large or developed
countries. Surveys show that enterprises from small, or developing and emerging markets
are also contributing increasingly to global trade as are the tens of thousands of entre-
preneurial but global micro-MNEs. For an example, refer to IHRM in Action 1.1, which
illustrates how a small—200-employee—accounting business in Salem, Oregon, grew into
a global business (now one of the top 100 accounting firms in the US, with branches in
a number of other locations, including other countries. In addition, for another example,
refer to the case at the end of the chapter, which profiles Yarn-Paradise, a small, entrepre-
neurial business—referred to as a micro-MNE—in Turkey, with Internet customers around
the world.

IHRM in Action 1.1: Creating a Global Accounting Firm

A 200-employee accounting firm may not top your list of global businesses with
IHRM issues, but it should. Aldrich Kilbride & Tatone (AKT), an Oregon, US,
accounting firm, has operated since 1973 in the small town of Salem. Wanting to
grow the business, it made a number of strategic decisions to add services and loca-
tions. It opened two offices in Mumbai and Coimbatore (India) and merged with
Grice Lund & Tarkington, an accounting firm based in San Diego, California. Rather
than outsourcing, a route commonly used by accounting firms, AKT decided to estab-
lish its Indian offices through direct investment and hire its own year-round staff. Yet,
because of the cyclical nature of the tax business, it had to overcome major hurdles
to increase efficiency and create sustainable careers for its employees, regardless of

Strategic Context18

Fifty years ago the US economy accounted for 53 percent of global Gross Domestic
Product (GDP), but today it accounts for less than 28 percent of global GDP (or less than
20 percent in terms of global purchasing power parity), albeit both of a much larger US
GDP and of a very much larger global economy.8

Not only is the world economy much larger in absolute terms, but an ever-increasing
number of countries are participating in a significant way. For many, the world is becoming
flat (in the sense that no country has a commercial advantage in any particular indus-
try), and we are entering an era of globality, with everyone competing with everyone from
everywhere for everything.9 For example, one measure of this is the ever-growing num-
ber of countries whose publicly held enterprises are represented among the world’s larg-
est MNEs (and, of course, there are also many thousands more SMEs and family-owned
enterprises—from large and small and both developed and emerging economies—that
don’t show in the surveys or rankings but that also play a significant role in the conduct
of international commerce). The next couple of paragraphs summarize a number of these
rankings and illustrate how quickly globalization is expanding.

For example, the Fortune Global 500 (which is a ranking of the largest publicly traded
and reported firms in the world, based on their revenues) now (2013) includes companies
from 38 countries—obviously including firms from a number of emerging markets.10
A dozen years ago there were only 25 countries represented. Today (2013), Forbes’ Global
2000 list (a ranking of the largest public companies based on a composite of sales, prof-
its, assets, and market value) includes firms from 63 countries.11 All regions of the world
are represented, indicating how global business has become: Asia-Pacific (715 companies),
Europe/Middle East/Africa (606), United States (543), and the Americas (143). In 1999,
the Wall Street Journal began a list of the largest firms as determined by their market cap-
italization. The largest 25 firms (based on this metric) were from five countries [US (19),
Japan (3), Germany (1), UK (1), and Finland (1)].12 But by 2013, there were seven (quite

location. The biggest hurdles, initially, included computer security, file sharing, and
time zones. But it soon realized that culture differences and maintaining a similar
organizational culture in each of its locations was an additional challenge. While AKT
encourages each office to form teams of experts who can focus on specific customer
needs, it also early on faced the challenge of deploying its Indian tax professionals
when the frantic US tax season was done. AKT decided to partner with one of Eng-
land’s top firms. Now, from May through December (the heavy time pressure for the
US tax season ends in April), AKT’s India staff work to prepare the tax returns of
their English partner’s clients. The global expansion of this small US accounting firm
(now one of the top 100 accounting firms in the US with partnerships and offices all
over the US and world) proved to be successful for employees and customers alike,
because of the attention paid to people issues.

The Internationalization of HRM 19

different) countries represented [US (14), China (4), UK (2), Switzerland (2), Australia
(1), Brazil (1), and the Netherlands (1)].13 In addition, the London Financial Times devel-
oped a list of the top Global 500 firms (based on market capitalization in all the major stock
markets from around the world). In 2013, the FT list included firms from 35 countries.14

When business publications first started developing these lists, their primary focus was
on ranking the largest global firms. But with the increasing integration of the global econ-
omy, these publications have become additionally interested in analyses of more specific
characteristics. For example, Fortune magazine developed a list of the top global companies
for leaders.15 This analysis of approximately 10,000 companies worldwide was narrowed
to 45 companies from 16 countries, with the top 20 companies found in eight different
countries. Fortune magazine also developed a list of the most powerful women in the global
economy, which profiled women from 21 different countries.16 Bloomberg Businessweek
has developed, among its many lists, the Global InfoTech 100, the world’s most important
information technology firms, based on a composite ranking of shareholder return, return
on equity, total revenues, and revenue growth.17 This list includes firms from 24 countries,
large and small, developed and emerging. Bloomberg Businessweek has also developed a list
of the 100 Best Global Brands, which includes firms from 13 countries, which is also based
on a composite score—of marketing and financial data and expert evaluations.18 In addi-
tion, Bloomberg Businessweek has developed a list of the 50 most innovative companies,19
based on a global survey of executives plus stock returns and three-year revenue and mar-
gin growth. In the 2010 results, “fifteen of the top 50 are Asian—and for the first time since
the rankings began in 2005, the majority in the top 25 are based outside the U.S.” A final
example demonstrating the internationalization of business includes a ranking of the 100
best-performing CEOs in the world by the Harvard Business Review.20 In this ranking, 67
firms were from developed countries, six were from the Asian tigers, 22 were from the
BRIC countries, and five were from new emerging market countries.

All of these surveys focus on large, publicly traded firms. The key reason, of course,
is that data about these firms are readily available from their stock market and govern-
ment filings. The surveys do not, however, include private and family-held businesses or
government-owned enterprises (no matter how large), because they do not typically pub-
lish their financial results. Some privately held firms (such as superbrands in the UK and
the Hangzhou Wahaha Group in China), family-owned firms (such as Ikea in Sweden
and Gianni Versace in Italy), as well as government-owned enterprises (such as Japan Post
and China National Pharmaceutical Group) are among the world’s largest and most global
firms. In many countries, large privately held, family-owned and -run, and government-owned
businesses contribute a major component to the size of their economies. And then, of course,
there are also hundreds and thousands of SMEs in most countries that sell and purchase in
the global marketplace.

The United Nations Conference on Trade and Development (UNCTAD) tracks the
world’s transnational corporations (TNCs), analyzing how important these firms are to the
global economy. As part of this effort, UNCTAD developed the TNI—Transnational Index,
based on the composite of a firm’s average percentage of its foreign assets, foreign sales, and

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Strategic Context22

foreign employment to its total assets, sales, and employment, which identifies the relative
importance of foreign business activity to the world’s largest firms. Exhibit 1.2 shows the
top 20 non-financial transnationals ranked by the value of their foreign assets. The table
illustrates that the largest firms by foreign assets are not necessarily the largest by sales, num-
ber of employees, or as percentages-of-total figures. For example, this table shows that Gen-
eral Electric has the highest absolute value of foreign assets of all transnationals tracked by
UNCTAD, yet their TNI places them quite a way down the overall rankings (TNI = 48.8).

These many surveys and rankings illustrate that the global economy increasingly involves
all kinds of products and services from all kinds of organizations located in virtually every
country in the world. This is radically different from the situation of even a few years
ago, when only a few countries and a relatively few companies participated widely in the
global economy. In addition, this internationalization is proceeding at an unanticipated and
unprecedented rate. The opening of markets and the appearance of competitive foreign
firms and their products in virtually every marketplace puts intense pressure on every
enterprise to develop the capacity to operate at lower costs and with greater speed, quality,
customer service, and innovation, both at home and abroad. As a consequence, HR is called
upon to recruit, select, develop, and retain workforce talent that can achieve this global
competitiveness in a world that is increasingly complex and challenging. IBM’s chairman,
Samuel Palmisano, indicates that IBM’s survey of global CEOs shows that coping with this
new world is seen as the most significant challenge they face (see IHRM in Action 1.2).21
And one of the most difficult components of that challenge is finding the employees and
management that are needed, which is directly the responsibility of IHRM.

IHRM in Action 1.2: CEOs’ Perspectives on Globalization

Introductory letter from Samuel J. Palmisano, Chairman, President, and CEO of IBM
In a very short time, we’ve become aware of global climate change; of the geopo-

litical issues surrounding energy and water supplies; of the vulnerabilities of supply
chains for food, medicine and even talent; and of sobering threats to global security.

The common denominator? The realities—and challenges—of global integration
[these are all issues that connect across borders].

We occupy a world that is connected on multiple dimensions, and at a deep
level—a global system of systems. That means, among other things, that it is subject
to systems-level failures, which require systems-level thinking about the effectiveness
of its physical and digital infrastructures.

It is this unprecedented level of interconnection and interdependency that under-
pins the most important findings contained in this report. Inside this revealing view

The Internationalization of HRM 23

into the agendas of global business and public sector leaders, three widely shared
perspectives stand in relief:

■■ The world’s private and public sector leaders believe that a rapid escalation
of “complexity” is the biggest challenge confronting them. They expect it to
continue—indeed, to accelerate—in the coming years.

â– â–  They are equally clear that their enterprises today are not equipped to cope
effectively with this complexity in the global environment.

■■ Finally, they identify “creativity” as the single most important leadership compe-
tency for enterprises seeking a path through this complexity.

What we heard through the course of these in-depth discussions is that events,
threats, and opportunities aren’t just coming at us faster or with less predictabil-
ity; they are converging and influencing each other to create entirely unique sit-
uations. These first-of-their-kind developments require unprecedented degrees of
creativity—which has become a more important leadership quality than attributes
like management discipline, rigor or operational acumen.

As always, our biennial examination of the priorities of CEOs around the world
provides terrific insight into both the world as they see it, and ultimately, what sets
the highest-performing enterprises apart. For me personally, I find one fact especially
fascinating. Over the course of more than 1,500 face-to-face interviews with CEOs
and other leaders, with not a single question containing the term “Smarter Planet”—
and yet the conversations yielded primary findings that speak directly to exactly what
IBM has been saying about the challenges and opportunities of this fundamental shift
in the way the world works.

DIFFERENT SETTINGS OF INTERNATIONAL HUMAN
RESOURCE MANAGEMENT

Internationalization of HRM occurs in many different settings. For practical purposes, HR
managers in most types of organizations will confront at least some aspects of internation-
alization. That is to say, the internationalization and technology factors (refer to the list of
drivers earlier in this chapter) that have led to there being “no place to hide” from the inter-
nationalization of business have also led to there being no place to hide for HRM profession-
als. HRM professionals find themselves having to deal with—and must therefore understand
and become competent in—IHRM issues in almost every job setting (see Figure 1.1.).
The following provides a short summary of the most significant of these settings.

Strategic Context24

Headquarters of Multinationals

This setting involves working as an HRM professional in the central or regional headquar-
ters of the traditional MNE. This setting receives most of the attention in research and
literature about the internationalization of business and is, by far, the most common situ-
ation for HR managers who confront international responsibilities. The focus is from the
center (headquarters) out to the subsidiaries and sub-contractors, developing and oversee-
ing HRM practices in all foreign operations and administering the movement of employees
between headquarters and foreign locations. Increasingly, the movement of employees is
also between foreign subsidiaries and headquarters and between foreign locales—all often
referred to generically as international assignees. It can also mean that HRM professionals
are likely to find themselves working on international assignments. The case in at least
some MNEs involves IHRM becoming a major strategic partner in the organization’s global
planning and in talent management of the global workforce, relegating many of the inter-
national assignee responsibilities to centralized shared service centers, or outsourcing them
to specialized service providers. Typically, headquarters either applies its parent company
HRM policies and practices directly to its foreign subsidiaries, or it tries to merge its HRM
policies and practices with those that are common in the host countries of their subsid-
iaries. However, it is common that a local HR manager will handle HR in the subsidiary,
even if he or she is primarily responsible for implementing centralized (from headquarters)
HRM policies and practices.

Home-country Subsidiaries of Foreign-owned Firms

The second common setting for IHR involves the HR manager working in his or her home
country but being employed by a local subsidiary or acquisition of a foreign MNE. Now
the HR manager is likely be on the receiving end of policy and practice coming from the
foreign headquarters, reversing the role as experienced by the HR manager in the first
situation. This HR manager will typically have to integrate a local national culture plus
the foreign organizational culture into his or her local operations. This role has received
little attention (except when a major legal or culture clash occurs), but is by no means

Headquarters
of

multinationals

Home-country
subsidiaries of
foreign-owned

firms

Domestic firms
(e.g.,

immigrant
employees)

Government
agencies and

non-
governmental
organizations

FIGURE 1.1 Who Needs International Human Resource Management?

The Internationalization of HRM 25

uncommon in many countries. Examples of such situations would involve local HR manag-
ers working in the local subsidiaries or acquisitions of MNEs in places like Central Europe
(auto companies, pharmaceutical companies, tobacco companies, telecommunications
firms), India (software developers, call centers), China (manufacturing facilities, services),
Africa (energy and extraction firms), and Latin America (commodity and natural resource
firms, retail companies, banks), or even, maybe especially, HR managers working in the
local subsidiaries of the large multinationals in Asia, Latin America, the US, and Europe,
such as for Siemens, Walmart, Novartis, Johnson & Johnson, or IBM.

The different communication styles, worker motivation philosophies, and organiza-
tional structures and frequent lack of understanding of the host country cultures, markets,
employment laws and practices, even language itself, by the parent company can cause
major problems for the local HR manager, and thus force the host country HR manager
to confront aspects of internationalization that are just as difficult as those confronted by
the home country HR manager working at headquarters having to deal with the “export”
of policy and practices.

Domestic Firms

Although they may be overlooked, another important setting for IHRM is the purely
domestic (local) firm, such as a hospital, farm, dry cleaners or laundry, ski or beachside
resort, road or building construction contractor, or restaurant (or the purely domestic oper-
ation of an MNE, such as a local fast food or real estate franchise or a local petrol station).
In many countries (particularly true in most locales in Europe and North America), these
types of firms also confront many of the complexities of international business, particularly
as they relate to IHRM. These complexities include:

â– â–  the hiring of employees who come from another country, culture, and language (recent
immigrants) or their families (who may have been born in the new country, and may
be, therefore, now citizens, but who may still be more familiar with the language and
culture with which they grew up at home than with that of their new country); as
well as

â– â–  having to deal with competition from foreign firms for customers and suppliers;
â– â–  or for capital which may well come from foreign-owned firms, or competition from

these firms for resources, including employees.

The hiring—or recruiting—of immigrants (or even the first generation since immigration)
in local, domestic firms can lead to many of the same internationalization concerns as those
faced by traditional MNEs, such as how to merge the cultures, languages, and general work
expectations of employees from multiple countries, and how to respond to employees who
bring to their new work situations sometimes very different languages and very different
attitudes toward supervision and have very different expectations related to the practice

Strategic Context26

of management and IHRM (such as performance management and compensation). Thus,
even in the domestic firm, HR managers must develop much of the knowledge and expe-
rience necessary to succeed in an international environment.

In addition, traditionally local, domestic firms can find themselves “going global,” which
can involve the establishing of small offices in other countries (e.g., a small accounting or
architectural firm opening an office in a foreign locale, either to tap into talent for its home
office operations or to provide an entrée into the foreign location). Or they might find
themselves needing to recruit talent “overseas” in order to meet their needs for specialized
skills that are in short supply in their home locales. In either case, the HRM challenges are
not much different than those confronted by IHR managers in large MNEs.

Even though these domestic companies tend to be relatively small, increasingly they
are what are referred to as “domestic multinationals.” These are successful, initially small,
domestic companies—frequently in emerging markets—that are going abroad and becom-
ing MNEs themselves. Examples of such firms include Pliva (generic pharmaceuticals, Cro-
atia), Mittal (steel, India), Tata Consulting Services, Infosys, and Wipro (IT services, India),
Lukoil (oil, Russia), Gazprom (oil and gas, Russia), Haier (home appliances, China), Mahin-
dra & Mahindra (tractors and cars, India), Sadia (food and beverages, Brazil), Harry Rams-
den’s Fish and Chips (UK), Embraer (aerospace, Brazil), Koc (diversified industries, Turkey),
Cemex (building materials, Mexico), and Comex (paint manufacturer and retailer, Mexico)
to name just a few. These companies have become global players in their respective indus-
tries and are demonstrating the potential of reaching the top ranks of global competitors.22

Government Agencies and Non-governmental
Organizations

Even though this text primarily discusses IHRM from the perspective of MNEs, many
other types of organizations are also global in scope and are concerned with many of the
same international HRM issues. For example, government agencies such as the foreign
ministries of countries and their embassies and the hundreds of non-governmental organi-
zations (NGOs) that send hundreds of people from their parent countries to their overseas
operations and often also employ many local and third-country people to staff their activ-
ities around the globe, such as religious organizations including the Catholic Church, LDS
Church, Moon Church, Life Church; and humanitarian organizations such as World Vision,
Care, Mercy Corps, Red Cross, Habitat for Humanity, and Doctors Without Borders.

In addition, there are an increasing number of agencies that are global by purpose and
function—such as the United Nations and all of its agencies,23 the World Bank, the World
Trade Organization (WTO), the Organization for Economic Cooperation and Develop-
ment (OECD), the Association of Southeast Asian Nations (ASEAN), and the EU with its
large concentration of employees in Brussels, Strasbourg, and Luxembourg. Many IHRM
responsibilities for these organizations are similar to those faced by their commercial coun-
terparts. Indeed, many of them have experience with international operations over a longer

The Internationalization of HRM 27

period of time than is true for most firms and have accumulated much significant expertise
on how to best handle international HRM challenges. Challenges associated with recruit-
ing, compensating, and managing employees in multiple countries are not much different
for the International Red Cross or the World Health Organization than they are for IBM.
HR managers in these types of organizations must also be internationally savvy in order
to effectively carry out their responsibilities, and they often have much experience from
which they can teach their private sector counterparts.

THE DEVELOPMENT OF INTERNATIONAL HUMAN
RESOURCE MANAGEMENT

The previous paragraphs point out that HR managers, no matter the type of organization
for which they work, can and do confront aspects of IHRM. The extent of this involvement
will vary according to a number of factors, such as the degree of development of the global
strategy of the organization, and will invariably increase with time. But as the general inter-
nationalization of business increases in extent and intensity, HR managers are being called
upon to contribute increasing expertise to that internationalization.

One aspect of internationalizing HRM that makes the task difficult and complex comes
from the following: whether local HR managers are from headquarters, from the host country,
or from a third country, they end up being sandwiched between their own national cultures
and legal traditions—and experiences—and the cultures and practices of the firm, whether
at headquarters or at the local affiliate. HR managers at the local, regional, and headquarters
levels must learn to integrate and coordinate policies and practices taking place in diverse
environments and with people of diverse backgrounds. Plus they are frequently also looked
to for expertise in helping other managers be successful in their cross-border endeavors.

For example, some of the IHRM-related questions that need to be answered within an
MNE as it establishes its international strategy include the items in Exhibit 1.3.

Since most organizations today experience one or more aspects of international HRM,
the success or failure of those enterprises is often a function of how they handle their IHRM
issues. As a consequence, a new set of competencies has developed within the HR function.
The section below discusses some of the issues surrounding these new competencies.

Some of the differences between HRM and IHRM include the following, with IHRM
being responsible for:

â– â–  More HR functions and activities, for example, the management of international assign-
ees, including such things as foreign income and social taxes, foreign work visas, and
assistance with international relocations.

â– â–  A broader expertise and perspective, including knowledge about foreign countries, their
employment laws and practices, and cultural differences.

■■ More involvement in employees’ lives, as the firm relocates employees and their families
from country to country.

Strategic Context28

EXHIBIT 1.3: IHRM Questions for International Strategy

1 Do we have knowledgeable staffing for a global strategy?
2 Are the countries being considered for global expansion good from an IHRM point of

view, such as will it be easy to operate within a different set of employment laws?
3 Does the firm have adequate personnel to implement foreign operations?
4 How many employees will need to be relocated? How many local employees will we

need to hire and does the local labor force have the necessary skills?
5 Will we be able to find and recruit the talent necessary for international operations?
6 Should we pursue centralized or localized HRM policies?

â– â–  Dealing with and managing a much wider mix of employees, adding considerable com-
plexity to the IHRM management job—with each of the various types of international
employees requiring different training, staffing, compensation, and benefits programs.

â– â–  More external factors and influences, such as dealing with issues stemming from multiple
governments, country laws, cultures, currencies, and languages.

â– â–  A greater level of risk, with greater exposure to problems and difficulties and, thus,
exposure to much greater potential liabilities for making mistakes in HRM decisions
(for example, political risk and uncertainties, legal compliance issues, and early return
of employees from foreign assignments).

In addition to these factors, the geographic dispersion, multiculturalism, different legal and
social systems, and the cross-border movement of capital, goods, services, and people that
are faced by the international firm add a need for competency and sensitivity that is not
found in the domestic firm. The personal and professional attitudes and perspectives of the
IHR manager must be greatly expanded to handle the multiple countries and cultures con-
fronted in the global arena—both to manage their IHRM responsibilities and to contrib-
ute to successful international business strategies by their firms—beyond those that their
domestic HRM counterparts must develop. Typical domestic HR managers do not have
the global contacts or networks that become necessary to learn about and to handle the
new global responsibilities. They don’t typically have any experience with the business and
social protocols needed to interact successfully with foreign colleagues or with the forms of
organizational structure used to pursue international strategies (such as international joint
ventures or cross-border acquisitions). And the still relatively limited body of literature and
publicly available seminars and training programs make it much more difficult to develop
the competencies needed to successfully manage the IHRM function.

The example of Harry Ramsden’s (see IHRM in Action 1.3) illustrates just how difficult
it can be to make the move to being an international firm.24

The Internationalization of HRM 29

IHRM in Action 1.3: Developing a Global Appetite for
Fish and Chips

Deep-fried fish and chips have long been a popular snack in England. One of Eng-
land’s premium fish-and-chip shops, Harry Ramsden’s, which was founded in Guise-
ley, West Yorkshire, in 1928, is one of the few that have opened shops at multiple
locations. By 1994 the company had eight branches in Britain, with more scheduled
for opening, one in Dublin, Ireland, and one in Hong Kong. Harry Ramsden’s man-
agers, however, dissatisfied with this success, wanted to turn Harry Ramsden’s into a
truly global enterprise.

As a start, the company had set up its first international operation in Hong Kong.
According to finance director Richard Taylor, “We marketed the product as Britain’s
fast food, and it proved extremely successful.” Within two years the Hong Kong ven-
ture was generating annual sales equivalent to its most-successful UK operations. Half
of the initial clientele in Hong Kong were British expatriates, but within a couple of
years, more than 80 percent of customers were ethnic Chinese, illustrating the rela-
tive ease with which at least some products and services, such as a country’s favorite
food, can transfer to another country and culture.

Emboldened by this success, Harry Ramsden’s began to open additional overseas
branches, in such places as Melbourne, Australia, as well as in other more exotic locales,
such as Singapore, Dubai in the United Arab Emirates, Saudi Arabia, Walt Disney
World in the US, and Japan. In the first experimental shop in Tokyo, Japan, for exam-
ple, the Japanese took to this product, despite their traditional aversion to greasy food.

Richard Taylor stated their international strategy:

We want Harry Ramsden’s to become a global brand. In the short term the
greatest returns will be in the UK. But it would be a mistake to saturate the
UK and then turn to the rest of the world. We’d probably come a cropper
when we internationalized. We need experience now.

As of 2006, Harry Ramsden’s had 170 owned and franchised outlets in the UK and
internationally, and had become both Britain’s longest-established restaurant chain
and the biggest fish-and-chips shop brand in the world. However, due to some poor
location decisions and problems with staffing and management, some international
locales have been closed, and over the last 10 years the chain has been sold a couple of
times, including most recently—in 2010—to Boparan Ventures Limited, a British fish
and food company, with ambitions to once again further expand Harry Ramsden’s in
the UK and overseas. Clearly global knowledge and human resources capability set
limits on how far and how fast a firm can “go international.”

Strategic Context30

EVOLUTION OF THE INTERNATIONAL HUMAN
RESOURCE MANAGEMENT PROFESSIONAL

Some large MNEs, such as Royal Dutch Shell, Unilever, and Ford Motor Company, have
long histories of conducting international business, going back 100 years or more. By neces-
sity of having to manage operations in many countries, these firms developed—at least at
the headquarters level—considerable international HRM expertise. Even so, the specific
management function called “international human resource management” is relatively new
as a professional and academic area of practice and interest.

The two largest national human resource management professional associations are the
Chartered Institute for Personnel and Development (CIPD) in the UK and the Society for
Human Resource Management (SHRM) in the US. Many other countries have their own
professional HR associations and most, including the US and the UK, belong to the much
larger umbrella organization called the World Federation of Personnel Management Asso-
ciations (WFPMA), now with over 60 national HRM professional societies as members.

Yet, it has only been in the last 30 years or so that HRM service providers (such as train-
ing firms, relocation firms, accounting firms, employment law firms, and HRM consulting
firms) have developed a special focus on IHRM. SHRM and CIPD and a number of uni-
versities are now providing conferences and training seminars and courses on topics related
to IHRM, as do many IHRM service providers, consultant groups, and other IHRM-related
organizations. For details about CIPD, for example, see Sparrow, Brewster, and De Cieri’s
Globalizing Human Resource Management, 2nd edition, in the series on global HRM of
which this book is a member, a series that is itself a sign of the growing attention to IHRM,
being the first major series of books covering many of the policies and practices of IHRM.

A turning point in the professionalization of IHRM occurred with the establishment of
the GPHR (Global Professional in Human Resources) certification by the Human Resource
Certification Institute (HRCI) in the US in 2003. The professionalization of IHRM is fur-
ther discussed in Chapter 15. The body of knowledge for this exam is codified into six
domains (all of which are covered—at least the international aspects—in this book or the
additional books in the Global HRM series published by Routledge). The domains—for
international HRM—include:

â– â–  Strategic HR Management;
â– â–  Global Talent Acquisition and Mobility;
â– â–  Global Compensation and Benefits;
â– â–  Organizational Effectiveness and Talent Development;
â– â–  Workforce Relations and Risk Management;
â– â–  Core Knowledge of IHRM.

HRM professionals can attain certification in these domains based on their experience and
the passing of an examination, verifying their understanding of the body of knowledge in

The Internationalization of HRM 31

IHRM. Increasingly, the GPHR exam is attracting HRM professionals from around the
world.

As a business discipline and an academic field of study, IHRM may well still be in its
youth; yet it is very real and firmly established. There are many reasons for its youth,
some of which have to do with the generally limited role of HRM within many firms,
including some of the large MNEs, and some of which have to do with the lack of
international knowledge and experience of HR managers themselves. With the increas-
ing globalization discussed in the first sections of this chapter, HRM professionals have
been called upon to manage a number of new (global) activities for which they often
have little or no preparation, to work alongside HRM professionals from other countries
with whom they have had little prior interaction, and to adapt their HRM policies and
practices to multicultural and cross-cultural environments, with which they have little
experience.

Since the field of HRM focuses primarily on local staffing and employment issues, its
professionals have often been the last ones in their firms to focus on the impact of increas-
ing internationalization, the last ones to take on international assignments, and thus often
the last ones on the management team to contribute as fully fledged strategic partners in
the internationalization of their firms. Today this is changing. IHRM professionals are now
much more proactive in dealing with many new challenges and issues, including:25

â– â–  Attracting, engaging, and retaining thousands of MNE employees in many different coun-
tries to achieve strategic global business objectives. This not only includes engaging
employees and executives in many countries but also the role and importance of inter-
nationally mobile employees.

â– â–  Aligning core HRM policies and practices with the new requirements of competing inter-
nationally, while simultaneously responding to local issues and requirements in each
country of operation.

â– â–  Enhancing global competencies and capabilities within the IHRM department, includ-
ing developing global centers of excellence, shared service centers, global talent man-
agement, and mastering the necessary HR due diligence in cross-border mergers and
acquisitions.26

These challenges, along with many others, are the focus of the next 14 chapters. The next
three chapters in Section 1 discuss various aspects of the structure of MNEs and the role
IHRM plays in their development. Section 2 discusses three important aspects of the cul-
tural and legal context within which IHRM must operate. Section 3 includes six chapters
on the many aspects of the policies and practices of IHRM—including staffing, compen-
sation, health and safety, performance management, and a comparison of HR practices in
differing countries and regions around the world—while Section 4 describes the nature of
the IHRM department, further aspects of the developing professionalism of IHRM, and
trends in the future development and challenges of IHRM.

Strategic Context32

CONCLUSION

This chapter introduced international human resource management in the context of the
increasing importance of international business. It illustrated how economic activity around
the world has become increasingly integrated and pervasive and thus how it has impacted
the development and evolution of HRM in the MNE. One of the most difficult challenges
to international operations is the management of their human resources. An effective and
informed HR department is vital to the success of all organizations with international oper-
ations. As a result, as organizations have internationalized, so has HRM.

DISCUSSION QUESTIONS

1 What forces have been driving the increased internationalization of business?
2 What are the various organizational situations in which an HR manager might be

involved with aspects of internationalization?
3 What are the major differences between domestic and international HR?

The Internationalization of HRM 33

CASE STUDY 1.1: Yarn Paradise: World’s Biggest
Online Yarn Store (Turkey)

Yarn Paradise was created by Ferit Göksen, who was born and raised in Kaseri, Turkey. After
attending college, he relocated to Istanbul to obtain his MBA from Marmara University, where
he became interested in international trade and development. After he received his degree
in 2001, he and his partner began selling different items on the eBay platform in Istanbul.
In 2004, he combined his technology skills with his partner’s traditional business skills and
together they founded GSC Tesktil. “After a few years, we wanted to focus on a specific
product. We noticed there was a market for yarn, and we decided to try selling it on eBay.”
Today, the business successfully utilizes the power and reach of the Internet marketplace to sell
yarn products worldwide. Yarn Paradise has two websites—www.yarnparadise.com and www
.iceyarns.com—and also sells on ebay.com.

The company employs between 15 and 20 people. “It’s great to be able to give 20 differ-
ent families in my community a job,” explains Ferit, even though 98 percent of the company’s
sales are outside of Turkey. While that was not his original intention, the Internet allowed Ferit
to reach customers all over the world. About 35–36 percent of sales are to the US and the rest
are divided between European countries and Asia. “Yarn Paradise has sold to almost every
country in the world including Norway, France, Germany, the UK, Denmark, Sweden, Canada,
Australia, Malaysia, New Zealand, Thailand, Trinidad, Ecuador, Egypt, Haiti, and many more.
Sometimes I have never even heard of the country, until I get ready to ship the product,” says
Ferit. Obviously, there is still much room for growth. Yarn Paradise uses companies like DHL and
UPS to help with shipping and logistics. While most transactions are quick and seamless, there
are some problems in countries where online commerce is still new, such as Eastern Europe.
The biggest issue for Yarn Paradise is customs and customs duties. Buyers are often surprised
by them and this creates a bad customer experience.

Source: eBay inc (2014). Micro-multinationals, global consumers, and the WTO, Report from a global
conference at the 2013 WTO Public Forum on e-commerce and trade, downloaded at http://www.ebay
mainstreet.com/sites/default/files/eBay-WTO-PF2013.pdf

Discussion Questions

1 Yarn Paradise is a micro-MNE. What is likely to be its next stage of growth? What will be
its next human resource challenges stemming from further growth?

2 Based on the case study describe important HR issues facing the company.

NOTES

1 HSBC corporate website: http://www.hsbc.com/about-hsbc/advertising/in-the-future.
2 Source: http://www.nestle.com/asset-library/documents/investors/others/nestle_ar_2013_en_letter.pdf.

Strategic Context34

3 There have been many books written on internationalization and globalization. Here is a sampling of
some of the recent better ones: Bhagwati, J. (2004, 2007), In Defense of Globalization, Oxford/New
York: Oxford University Press; Friedman, T. L. (2005, 2006, 2007), The World Is Flat: A Brief History of the
Twenty-First Century (versions 1.0, 2.0, 3.0), New York: Farrar, Straus and Giroux; Friedman, T. L. (2008),
Hot, Flat, and Crowded, New York: Farrar, Straus and Giroux; Sirkin, H. L., Hemerling, J. W., and Bhat-
tacharya, A. K. (2008), Globality: Competing with Everyone from Everywhere for Everything, New York:
Business Plus; Steger, M. B. (2003), Globalization: A Very Short Introduction, Oxford: Oxford University
Press; Stiglitz, J. E. (2003), Globalization and Its Discontents, New York: W. W. Norton & Co.; and Wolf,
M. (2004), Why Globalization Works, New Haven, CT and London: Yale University Press.

4 For a complete overview of the field of international human resource management, please see the full set
of books on various IHRM policies and practices and varying regional and country approaches in the
Routledge Global HRM series.

5 Friedman, T. L. (1999). The Lexus and the Olive Tree, New York: Farrar, Straus and Giroux.
6 United Nations Conference on Trade and Development, World Investment Report 2010 (most recent report

available), New York and Geneva: United Nations.
7 Ibid.
8 CIA World Factbook (2013). www.cia.gov.cia/publicationsfactbook; World Bank: www.world-bank

.org/WEBSITE/EXTERNAL/DATASTATISTICS; Bureau of Economic Analysis, US Department of Commerce:
www.bea.gov/national/xls/gdplev.xls.

9 Friedman (2005, 2006, 2007); Sirkin et al. (2008).
10 The Fortune Global 500 (2013). Fortune, July.
11 De Carlo, S. (Sr. Editor) (2013). The world’s biggest public companies, Forbes, April 17. http://www

.forbes.com/sites/scottdecarlo/2013/04/17/the-worlds-biggest-companies.
12 Wall Street Journal, 2013.
13 WSJ, 2013.
14 Financial Times Global 500 (2013), 17th Annual, as of 28 March, http://www.ft.com/intl/indepth/ft500.
15 Burke, D., Hajim, C., Elliott, J., and Tkaczyk, C. (2007). The top companies for leaders, Fortune, Octo-

ber 1, pp. 109–116.
16 Fortune 50 most powerful women, downloaded 03/07/2010 from: www.CNNMoney.com/Fortune/

rankings.
17 The InfoTech 100 (2013), Bloomberg Businessweek, June 1, pp. 41–42.
18 100 Best Global Brands (2013), Bloomberg Businessweek, September 28, pp. 50–56.
19 Arndt, M., and Einhorn, B. (2010), The 50 most innovative companies, Bloomberg Business Week,

April 25, pp. 34–40.
20 Hansen, M. T., Ibarra, H., and Peyer, U. (2013), The best performing CEOs in the World, Harvard Business

Review, 91: ½, Jan.–Feb., 81–95.
21 Excerpted from the introductory letter from John Palmisano, Chairman, President, and CEO of IBM, to

the 2010 report Capitalizing on Complexity: Insights from the IBM Global Chief Executive Officer Study.
Downloaded July 4, 2010, from: ftp://public.che.ibm.com/common/ssi/pm/xb/n/gbe03297usen/GBE
03297USEN.PDF.

22 Business Week (2006), Emerging giants, July 31, pp. 41–49; O’Neill, J. (2001), Building better global
economic BRICs. Research Report, New York: Goldman Sachs; Sirkin et al, (2008); Stengel, R. (2010), The
Global Forum, Time, February 8, p. 4.

23 Fernandez, F. (2005). Globalization and Human Resource Management: Adapting Successful UN Prac-
tices for the Private and Public Sectors, New York: HNB Publishing.

24 Abrahams, P. (1994). Getting hooked on fish and chips in Japan, Financial Times, May 17; updated in
2014 from websites: www.harryramsdens.co.uk; http://en.wikipedia.org/wiki/Harry_Ramsden’s; www
.market-reports.co.uk; www.telegraph.co.uk/HarryRamsdens-new-owner-mulls-Asian-expansion.html.

25 Based on Sparrow, P., Brewster, C., and De Cieri, H. (2012), Globalizing Human Resource Management,
2nd ed., London: Routledge; Brewster, C., and Sparrow, P. (2008), Les noveaux róles et les defies et la

The Internationalization of HRM 35

GRHi (The new roles and challenges of the IHRM function), in Waxin, M.-F., and Barmeyer, C. (eds.), Ges-
tion des Ressources Humaines, France: Editions Liaisons Rueil-Malmaison, pp. 507–547; Faugoo, Deep-
ika (2009), Globalization and its impact on human resource management, competitive advantage and
organizational success in modern day organizations, in Odrakiewicz, P. (ed.), Innovation in Management:
Cooperating Globally, Poznan: Poznan University College of Business and Foreign Languages, Poznari:
PWS BiJo Publications, pp. 529–535; Fernandez (2005); Schramm, J. (2008), Workplace trends: An
overview of the findings of the latest SHRM Workplace Forecast, SHRM Workplace Visions, 3, 1–8;
Scullion, H., Collings, D. G., and Gunnigle, P. (2007), International human resource management in the
21st century: Emerging themes and contemporary debates, Human Resource Management Journal, 17(4),
309–319.

26 Sparrow et al. (2012); Briscoe, D. R. (2008). Talent management and the global learning organization,
in Vaiman, V., and Vance, C. M. (eds.), Smart Talent Management: Building Knowledge Assets for Com-
petitove Advantage, Cheltenham, UK, and Northampton, MA: Edward Elgar, pp. 195–216; Farndale, E.,
Scullion, H., and Sparrow, P. (2010), The role of the corporate HR function in global talent management,
Journal of World Business, 45(2), 161–168; Fernandez (2005); Schuler, R. S., Jackson, S. E., and Tari-
que, I. (2010). Framework for global talent management: HR actions for dealing with global talent chal-
lenges, in Scullion, H., and Collings, D. (eds.), Global Talent Management, London: Routledge, pp. 17–36;
and Tarique, I., and Schuler, R. S. (2010), Global talent management: Literature review, integrative frame-
work, and suggestions for further research, Journal of World Business, 45(2), 122–133.

I think as a company, if you can get those two things right—having a clear direction
on what you are trying to do and bringing in great people who can execute on the
stuff—then you can do pretty well.

Mark Zuckerberg
CEO, Facebook1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the development of SIHRM and the process of international strategic
management.

â– â–  Describe the evolution of the MNE in terms of various stages of internationaliza-
tion and the methods firms use to enter international markets.

â– â–  Describe the process for developing MNE strategy and IHRM strategy and the
relationship between the two.

â– â–  Understand the extent and nature of research into the practice of strategic IHRM.

C h a p t e r 2

Strategic International Human
Resource Management

This chapter is about Strategic International Human Resource Management (SIHRM). While
the first chapter described the new global business realities and introduced IHRM,2 this
chapter describes international business strategy and how IHRM supports and enhances
the international business strategies of the firm.

MNEs, in order to be successful in the global marketplace, must develop strategies to
conduct business that take advantage of global resources and markets. In order for IHRM
managers to make an effective contribution to that success, they must contribute to and
be a part of the global strategic management of the business. Strategic management refers

Strategic International HRM 37

to the approaches that managers employ in running a company and that are derived from
the firm’s vision and objectives.

Since firms differ in their levels of international development and in the extent of their
international operations, IHRM managers must develop the capabilities to assist in that
development and in those various levels of global operation. This chapter provides an intro-
duction to how these variances in the strategic development of the international activities
of firms influence IHRM and how SIHRM supports those varying strategies and activities.

As outlined in Chapter 1, the new realities for MNEs, including reduced transportation
and information costs around the world and the removal of social and political barriers to
trade, are making the globalization of business proceed at unexpected and unprecedented
rates.3 The opening of markets and the appearance of competitive foreign firms places pres-
sures on virtually every major (and most minor) industries in virtually every country. These
developments impact HRM on a number of fronts.4 The increased intensity of competition
places great pressure on firms to develop the capacity to operate at lower costs and with
greater speed, quality, customer service, and innovation, both at home and abroad. IHRM is
called upon to hire, develop, and retain the workforce that can achieve this global compet-
itiveness, often in dozens of countries. Therefore, this chapter introduces the contribution
of IHRM to the strategic management of the MNE and introduces the ways in which the
global strategy impacts the management of IHRM.

The chapter starts with a general description of the process of international strategic
management and then follows with an explanation of the evolution of international busi-
ness strategy and describes how IHRM fits into the overall strategic management of the
MNE. This includes describing the links of global business strategy to the performance
of HR responsibilities in international business and discussing the outcomes that a stra-
tegically managed international business might expect from effectively tying together an
international business strategy and SIHRM. The chapter then summarizes the findings of
research studies on the nature and role of strategic IHRM.

STRATEGIC INTERNATIONAL HUMAN RESOURCE
MANAGEMENT: AN INTRODUCTION

SIHRM is the part of IHRM that focuses on creating and implementing IHRM policies
and practices that help achieve an MNE’s international vision and objectives, that is, its
international strategy. It also involves the strategic management of the IHR function and
department itself.

In an ideal world, a firm conducting international business will be actively engaged in
strategic planning and strategic management process on a global basis (see Figure 2.1). Based
on an organization’s vision, goal, and mission, the organization will regularly perform an
environmental analysis or scan (of its external threats and opportunities and its organiza-
tional strengths and weaknesses) and from that analysis develop its global strategies, which
are then implemented for global success. Finally, evaluation of success of implementation

Strategic Context38

of chosen strategy is needed to make any changes and re-evaluate the strategy, with what-
ever changes are called for by the results of the evaluation (this is the feedback loop of the
model). Still in this ideal world, all components of the firm will be closely integrated into
that planning and will be involved with similar strategic planning within their own areas
of responsibility.

As mentioned earlier, strategic management, in general, is the array of competitive moves
and business approaches that managers employ in running a company and that are derived
from the firm’s vision and objectives. In crafting a strategic course, management is saying that
“among all the paths and actions we could choose, we have decided to go in this direction
and rely on these particular ways of doing business.”5 A strategy signals an organization’s
commitment to specific markets, competitive approaches, and ways of operating. A compa-
ny’s strategy is thus the “game plan” its management has for positioning the firm in its chosen
market arena, for investing money and people in the development of particular business
capabilities, for developing sustainable competitive advantage, for pleasing its customers,
and, thus, for achieving superior business performance. These strategies are developed in
either or both of two ways: pro-actively, as a forward-looking plan to deal with anticipated
market forces, or reactively, as a response to what the firm is experiencing in the marketplace.
In most firms, strategies that are developed stem from a combination of these forces.

Organizational
Vision, Mission,

and Goals

Environmental
Scanning

Global Strategy
Formulation

Global Strategy
Implementation

Evaluation and
Control

FIGURE 2.1 Basic Elements of the Strategic Management Process

A strategy signals an organization’s commitment to specific markets, competitive
approaches, and ways of operating. A company’s strategy is thus the “game plan” its
management has for positioning the firm in its chosen market arena, for investing
money and people in the development of particular business capabilities, for devel-
oping sustainable competitive advantage, for pleasing its customers, and, thus, for
achieving superior business performance.

Senior executives devise specific strategies for their organizations because of two very
compelling needs:

■■ the need to actively shape how their firm’s business will be conducted;
â– â–  the need to mold the independent decisions and actions initiated by departments, man-

agers, and employees across the company into a coordinated, company-wide game plan.

Strategic International HRM 39

Both motives have become increasingly complex in today’s global business environment.
Yet . . .

Among all the things managers do, nothing affects a company’s ultimate success
or failure more fundamentally than how well its management team charts the
company’s long-term direction, develops competitively effective strategic moves
and business approaches, and implements what needs to be done internally to
produce good day-in/day-out strategy execution. Indeed, good strategy and good
strategy execution are the most trustworthy signs of good management.6

In terms of HR, many of the same issues arise—albeit in a much more complex way—when a
firm’s strategic planning “goes international” as when its strategic planning is concerned only
with domestic issues. When management begins to develop and implement global strategic
plans, they also begin to concern themselves with global human resource issues.7 Indeed,
HR issues are among the most critical issues for successfully competing in the international
marketplace. And because of that, HR should be providing input to the international strate-
gic decision making at every step, helping with mission and goal setting, the environmental
scan, design of specific strategies, and, of course, helping to implement the chosen strategies.

Once the decision is made to go international (whether this is a pro-active or reactive
choice), the task of all managers—including HR managers—is to implement that decision,
to convert the strategic plan into action and get on with whatever needs to be done to
achieve the international vision and targeted objectives.

The following IHRM in Action is a story of a Japanese pharma company, Takeda, tracing
the decision to become more global and how that impacted all parts of the organization.8
In order to effectively implement this decision, Takeda needed to change its internal cul-
ture, starting at the top, which included—among other things—many HR decisions and
programs, from hiring key non-Japanese executives with outside experience, changing the
core language to English, first at the top and increasingly throughout the organization, and
recruiting Japanese employees who had studied abroad.

IHRM in Action 2.1: Implementing a Global Strategy at
a Japanese Pharmaceutical

Takeda is one of Japan’s oldest and largest pharmaceutical groups, a family business
founded by the Takeda family seven generations ago. The last member of the Takeda
family to chair the firm, Kunio Takeda, began the process of turning the strategic
focus of the firm to the outside. The basic challenge that Mr. Takeda had to address
was: How does a company change its corporate culture to adapt to a focus on new
and different markets outside the home country?

Strategic Context40

The first major decision was to appoint someone as president from outside the
Takeda family. Yasuchika Hasegawa was appointed as Takeda’s president in 2003. He
not only was not a member of the Takeda family, but he had also spent long periods
working outside of the country, a major shift in traditional Japanese organizational
practice.

As Mr. Hasegawa indicated: “The Japanese market has very slow growth. We were
left behind. We had no choice but globalization,” he says in excellent English, the leg-
acy of more than a decade working for the company in Germany and then the US as
Takeda began to sell off its non-medicine divisions and to diversify into foreign mar-
kets. For his first six years overseas, Kunio Takeda (chairman of Takeda Enterprises)
was his direct boss and mentor. He undertook a drastic reorganization by refocusing
on a much more diversified group. When Mr. Hasegawa was asked to take the presi-
dency (the first non-Takeda to be so asked), he felt that Mr. Takeda had finished his
role with the restructuring and the next phase was to globalize. And thus began many
steps to implement this new strategy to “go international.”

Mr. Hasegawa accelerated an ambitious program of overseas acquisitions, such as
Nycomed of Switzerland, as well as the recruitment of high-level outsiders to the
very top of the business at home. He created an international advisory board, bringing
in Karen Katen of Pfizer and Sidney Taurel from Eli Lilly, as well as Tachi Yamada,
a Japanese-born executive who had spent his adult life based in the US. He left
non-Japanese leaders to run the group’s international divisions, and recruited others
to the headquarters in Tokyo and Osaka, including Paul Chapman, an American who
now co-ordinates research and development.

Two years after Mr. Takeda stepped down, Mr. Hasegawa put Mr. Yamada on the
main board. And a year later he added two other heads to Takeda divisions who have
even fewer cultural connections to the country. In conjunction with these personnel
decisions, he also switched the working language at senior levels to English, both for
board meetings and his larger global leadership committee, aided by simultaneous
translation. At more junior levels, he introduced a requirement for high levels of Eng-
lish proficiency among recruits, and aggressively recruited non-Japanese staff, who he
encourages to work for extended periods in Japan. The reforms were not easy—resisted
by members of the Takeda family as well as by other senior executives. But Mr. Haseg-
awa explained the needs to expand internationally: “There was strong resistance. There
is a big cultural difference, but Japan is now only 35 percent of our business. Our chal-
lenge is to globalize more rapidly. To make changes, you need a core group of support.”
He has also taken a pragmatic approach, for example by boosting his English-speaking
recruitment drive by hiring 300 Japanese who had been studying abroad.

His reforms are far from finished, and critics suggest the linguistic challenges are
nothing compared with the efforts he must make to boost innovation and co-ordinate
with Nycomed, whose main business is focused on emerging markets and has a heavy

Strategic International HRM 41

It has all been made possible through the close involvement of the HR department in
the strategic implementation of this new global strategy.

EVOLUTION OF THE MULTINATIONAL ENTERPRISE

In order to place IHRM in the strategic context of the MNE, it is necessary to have an
appreciation for the development of the international firm. As a firm internationalizes, it
moves through stages and in each stage it must make a choice of methods for market entry
(see Figure 2.2).

These market entry choices will partially be dictated by the firm’s own internationali-
zation approach, the options it has in particular countries (due to legal requirements and
opportunities), the timing of its entry into the market (early versus late entrant), and the

Stage 5
Operations through International Alliances, Partnerships, and Consortia
Operations through International Mergers and Acquisitions
Operations through International Joint Ventures

Stage 4
Operations through Wholly Owned Subsidiaries

Stage 3
Operations through Contracting/Sub-Contracting
Operations through Franchising
Operations through Licensing

Operations Abroad

Stage 2
Sales Subsidiary/Local Sales Office

Stage 1
Exporting
Portfolio Investment

IHRM Involvement

FIGURE 2.2 Evolution of the Multinational Enterprise

generic drug component. Takeda’s international expansion began conservatively with
a joint venture with Abbott of the US before expanding through acquisitions. And
now with the efforts of Mr. Hasegawa—and his many global recruits, both Japanese
and non-Japanese—this historic Japanese firm is now one of the truly global pharma-
ceutical giants.

Strategic Context42

risks it wants to bear. All of these forms of international involvement create major coordi-
nation and integration challenges, and thus are aspects of international business that IHRM
professionals must thoroughly understand in order to provide senior managers with the
advice they need for designing effective global businesses. An important point here is that
as firms pass through the various stages, they increase their degree of international activ-
ity, and as firms increase their levels of international activity, their IHRM responsibilities
become increasingly complex.

Often, IHRM is expected to provide expertise in helping the executive team make the
market entry choices and to evaluate which choices work best and under which circum-
stances, including assessing the particular strengths and weaknesses of the firm and its man-
agers and evaluating labor force issues in various international options. The story of Takeda
described above provides one example of how IHRM can help make the kinds of decisions
required to make these transitions successful.

Stage 1 of the Internationalization Process

Portfolio Investment

At the simplest level of involvement, a firm may just decide to make financial investments
in foreign firms, buying shares of stock, much as it could do within its own domestic equi-
ties markets. In general, HR is not likely to be very involved in this form of international
business activity.

Exporting

Historically, this has been the initial step of internationalization for most firms and usually
occurs while the firm is relatively small. Due to a foreign inquiry (often unsolicited) as to
the possibility of buying or selling the firm’s product(s) or the desire by the firm to expand
beyond its domestic markets, many firms begin to export their products or services to for-
eign markets through the use of direct sales to foreign customers (via direct mail or Internet
sales, for example), or they sell through import/export firms or through foreign distributors.

At this stage, there is relatively little impact on the organization and IHRM, other than
possible training opportunities to ensure that employees have the knowledge necessary to
carry on cross-border commerce (or staffing to recruit the few employees whose responsi-
bilities under this scenario are international).

Stage 2 of the Internationalization Process

Sales Subsidiary/Local Sales Office

If foreign sales or purchasing increase in importance, the firm will assign a sales manager
or purchasing agent responsibility for international sales. This individual may travel to

Strategic International HRM 43

foreign countries in which the firm has sales but is likely to be chosen purely for reasons
of sales or purchasing experience or product or service knowledge. If direct export sales
or imports are successful enough, the firm is likely to next establish its own sales or
purchasing offices in those countries where sales or imports are large enough to warrant
such efforts.

The next three stages in the evolution involve establishing operations abroad, that is,
producing the products or services directly in foreign countries.

Stage 3 of the Internationalization Process

Operations through Licensing

Licensing the rights to manufacture or market one’s product(s) or service(s) is an
option for “going international” that does not involve the setting up of directly owned
subsidiaries. In this stage, the firm usually locates foreign firms that have the experience
to manufacture (and sometimes market) their products—with minimal technology
transfer—in order to bypass import duties and to provide the simplest avenue to local
sales.

Operations through Franchising

Franchising is another form of licensing. Here the organization puts together a package of
the “successful” ingredients that made them a success in their home market and then fran-
chises this package to overseas investors. The franchisor may help out by providing training
and marketing the services or product. McDonald’s is a popular example of a franchising
option for expanding in international markets.

Because franchise businesses, such as McDonald’s, are usually owned locally, the impact
on IHRM, other than a role in training local franchisees in staffing and other HR practices
and skill training of new employees, is pretty minimal.

Operations through Contracting/Sub-Contracting

A similar strategy for entrance into foreign markets is to contract the manufacture or
assembly of a firm’s products to an existing local firm. Increasingly, as firms manage their
supply chains on a global basis, they sub-contract all or most of their manufacturing to
firms abroad, in order to take advantage of lower labor and operating costs. Typically the
firm will only have a few individuals who will travel to the foreign locales in order to trans-
fer whatever technology is necessary and to monitor the quality of the manufacturing and
final products.

The next two stages in the evolution process involve the assembly and then manufac-
ture of products directly in the foreign country.

Strategic Context44

Stage 4 of the Internationalization Process

Wholly Owned Subsidiaries

Until quite recently, the most common way to enter international markets (beyond
sub-contracting and exporting) was to conduct business through wholly owned foreign
subsidiaries. Still, this is a popular form of entry into other countries. Subsidiaries can
be developed in a number of ways, including through greenfield or brownfield projects or
through acquisition of existing foreign-owned businesses. The development of a subsidiary
through a greenfield project involves acquiring an open (green) “field” in order to build
the subsidiary facilities from scratch. A brownfield project involves the purchase of exist-
ing facilities (buildings) and developing the subsidiary inside those facilities (sometimes
referred to as a turnkey operation). The third alternative is often seen as providing the eas-
iest access to new (foreign) markets and involves the acquisition of an existing enterprise
that is already established in the target country.

From an IHRM standpoint, a start-up project (greenfield or brownfield) requires staff-
ing (usually with a combination of personnel from headquarters and local nationals) and
creating all IHRM policies and practices for a totally new workforce (there is a choice of
transferring all policies and practices from the parent’s headquarters or basically adopting
the policies and practices that are common in the new country—or, possibly, a combination
of these two options).9 An acquisition, however, poses different challenges—either accept-
ing the IHRM practices of the acquired firm or partially or totally changing them to those
of the new parent firm. In both choices, however, the major challenge for the firm and for
IHRM is to integrate the acquired firm’s practices (and its workforce) with those of the par-
ent. In all cases, the knowledge base and competencies required of the parent firm’s IHRM
department are clearly more complex and complicated than is the case prior to investment
in any foreign subsidiaries. The effectiveness with which IHRM and the firm manages these
issues goes a long way toward determining the success or failure of the venture.

Stage 5 of the Internationalization Process

Operations through International Joint Ventures (IJVs)

In recent years, the structure of choice for many businesses, including firms such as Kel-
logg10 and Jaguar Land Rover,11 as they go international, is the international joint venture,
in which two or more firms (at least one from each of at least two countries) create a new
business entity (the joint venture) with shared ownership and managerial responsibilities.
IJVs have become extremely common and are covered in more detail in Chapter 4.

Operations through International Mergers and Acquisitions (IM&As)

For many MNEs and industries, IM&A is the preferred market entry method in both devel-
oped and emerging markets in order to most easily consolidate the scope of activities and

Strategic International HRM 45

the parent firms’ positions in the global marketplace. Even so, foreign acquisitions often
face national (local) economic protectionism sentiments and anti-trust laws. Similar to
IJVs, IM&As are discussed in detail in Chapter 4.

Operations through International Alliances, Partnerships,
and Consortia

These are defined as informal or formal partnerships or agreements that do not result in
an independent legal entity. Firms using these methods do not necessarily replace their
wholly owned subsidiaries. But rather they develop less formal structures, such as alliances,
partnerships (e.g., in research and development projects), and other forms of linkages to
operate internationally. Alliances are discussed more fully in Chapter 4.

Auxiliary Methods of Internationalization

In addition to the above methods, organizations can also use a variety of auxiliary methods
to internationalize their operations. Auxiliary methods refer to approaches firms can use to
further internationalize their operations at any stage. Figure 2.3 illustrates two of the most
popular methods, outsourcing12 and off-shoring.13

Outsourcing

This is a form of sub-contracting. Beginning in the 1990s, firms began to sub-contract
on a major scale with foreign firms to do more than produce their products. With
the development of computers and the Internet, making long-distance control easier,
firms began to contract out other business processes, such as information technology
and business processes including call centers, accounting, claims processing, customer
service, and data analysis, to other firms in their home country and in other countries.
Typically, the initial reason for outsourcing to a third party (whether a single function
or an entire business process) was to reduce costs, but improving quality (because
the service provider specializes in the outsourced function) and freeing company
resources for greater focus on core competencies have also become reasons given for
outsourcing. The term “outsourcing” was developed to describe this process of con-
tracting with an external firm to provide products or services that would otherwise
be completed internally.

In all cases, outsourcing success depends on three factors:

â– â–  Executive-level support in the client organization for the outsourcing mission;
â– â–  Ample communication to affected employees;

Strategic Context46

■■ The client’s ability to manage its service providers, ensuring delivery of quality
service and support to the client and to customers.

The outsourcing professionals in charge of the work on both the client and provider
sides (including HRM) need a combination of skills (all in a cross-cultural setting)
in such areas as negotiation, communication, project management, human resource
management (employee assignment and management, compensation and benefits,
training, employee relations, performance management, etc.), and the ability to
develop and understand the terms and conditions of the contracts and agreements.

Off-shoring

Often the terms off-shoring and outsourcing are used interchangeably. However, as
originally conceived, the concepts have different meanings. As used here, off-shoring
differs from outsourcing in that off-shoring involves the relocation of one or more
aspects of a firm’s business processes to a location in another country for the pur-
pose, at least initially, of lowering costs. That is, the function is now performed by an
entity owned by the firm but staffed with foreign personnel in an off-shore location
(although sometimes at least some of the employees are relocated from the home
locale). This can include any business process, such as operations, manufacturing, or
services. So, the unit performing the process in a foreign country is still a part of the
parent firm and the employees are employees of the parent. Thus the HR responsi-
bilities of staffing, training, compensating, employee relations, and performance man-
agement are the same, albeit in another country’s legal system and culture, as they are
with the function being performed “at home.”

Though off-shoring (and off-shore outsourcing) saves businesses labor costs as
well as other expenses associated with personnel, it also contributes to an atmos-
phere of anxiety among workers who feel their jobs are being threatened.1

The primary issues that companies should consider when they think about relo-
cating operations or services off-shore are:

■■ organization’s expertise in managing remote locations;
â– â–  caliber and skill sets of the foreign labor force;
â– â–  cost of labor, language skills on both sides;
â– â–  level of technology use and capability;
â– â–  cost and reliability at the foreign location;
â– â–  country infrastructure;
â– â–  political stability;
â– â–  enforceability of intellectual property rights and business contracts;
â– â–  general maturity of the business environment.2

Strategic International HRM 47

FIGURE 2.3 Auxiliary Methods of Internationalization

Obviously, many of these issues are of primary focus for IHRM and thus must be
understood by IHRM, and the IHRM department must develop the expertise to deal
effectively with them.

1 Outsourcing—what is outsourcing? Retrieved from www.sourcingmag.com, 12/11/2006.
2 Definition retrieved (2014) from http://en.wikipedia.org and www.investordictionary.com. See

also, Blinder, A. E. (2006). Offshoring: The next Industrial Revolution? Foreign Affairs, 85(2),
113–128; Erber, G., and Sayed-Ahmed, A. (2005). Offshore outsourcing—A global shift in the
present IT industry. Intereconomics, 40(2), 100–112; and Friedman, T. L. (2005). The World Is Flat:
A Brief History of the Twenty-First Century, New York: Farrar, Straus and Giroux.

Regus Professional Services and SBC International in Hong Kong are two examples
of firms that provide service centers for international firms located or headquartered in
Hong Kong, offering suites of services ranging from financial administration duties, such
as accounting and payroll, to office space, photocopying, human resources, and trusted
in-house advice on issues such as local employment law, company registration services,
trademark registration, taxation, etc.14 By helping foreign firms in Asia to outsource these
types of services, firms like Regus and SBC help these firms make the transition to becom-
ing culturally effective organizations.

The Born-global Firm

Although many existing firms internationalize through stages, some new enterprises, espe-
cially but not exclusively in the IT industry, are born global and almost immediately oper-
ate across the globe. The reasons they operate in key global markets from their inceptions
essentially stem from the nature of their products (Internet products, IT applications, and
other highly specialized products with global niches), the global networking and possi-
ble partnering on projects of the engineers and scientists involved, and the marketing by
these firms through the Internet. In addition, the lowering of market entry barriers as a
result of the democratization of the sources of competitive advantage (venture capital, IT
resources, intellectual capital, etc.) in a flat world also provides global access. The IHRM
activities of these firms are focused primarily on frequent international business travel
of key individuals and legal protection of intellectual property rights (patents and trade-
marks) in the various countries in which they operate, the hiring of key local staff, and the
management of international project teams for local client service. As mentioned in the
first chapter, when any firm creates a website (announcing either a product or service)—it

Strategic Context48

is global. Anyone, anywhere, can (and will) access that site and some will want to buy the
site’s products or services. A “classic” example of this involves the experiences of Ama-
zon.com when they initially went “live” with their website. On the first day of operation,
Amazon received inquiries and orders from dozens of countries, a situation they had not
anticipated. In addition, as suggested earlier, many “born global” enterprises are created by
people from multiple countries who have met each other online or at global professional
or trade conferences who decide to work together in a new enterprise to use their joint
skills and ideas.

IHRM and the Evolution of Internationalization

The point of the above discussion is to demonstrate that businesses typically pass through a
number of stages as they increase their degree of internationalization, although this pattern
is changing with the increase of service businesses and the development of internet-based
and dot.com businesses that can follow different patterns and because of the increased use
of cross-border partnerships and alliances. Not all businesses pass through all of these stages
as they progress from being purely domestic firms to global ones. In general, though, most
companies experience most of these stages. These stages are important to the discussion
of IHRM because each stage makes unique demands on the HR department. The HRM
function in a firm just beginning to internationalize faces very different responsibilities and
challenges than does the IHRM department in a multinational firm with several worldwide
subsidiaries.

As firms increase their levels of international activity, their organizational structures
(discussed in the next chapter) and IHRM responsibilities become increasingly complex.
Many older, large multinational (particularly manufacturing) firms that now have numer-
ous subsidiaries all over the world began their foreign activities by exporting. As this stage
became successful for them, they typically proceeded to establish sales offices overseas
to market their exports. Where and when the sales offices were able to develop suffi-
ciently large markets, plants to assemble imported parts were established, and, finally, the
complete product was manufactured locally, sometimes for local sales and sometimes for
export. These overseas operations typically mimicked the firm’s domestic operations. Even-
tually, then, these firms have moved toward stages 4 and 5 of the evolution process.

In some ways this is a simplistic view of the development of international firms. In
recent years, new patterns have developed. Some firms have used complete assembly or
manufacturing plants as their means of initial entry to certain countries, normally to take
advantage of cheap labor or sources of material, manufacturing products for export, such
as is often the case for American and Asian firms in the maquiladora sector of the Mexican
economy. Others have internationalized through sub-contracting or licensing their manu-
facturing. Still others have used franchising or joint ventures or partnerships to internation-
alize. And still others acquire their foreign operations directly. Of course, as soon as firms

Strategic International HRM 49

put up websites to offer (or even just to describe) their products or services, they become
international immediately as they receive foreign inquiries and orders online. Many firms,
of course, end up relying on some combination of these entry strategies.

The pattern of development experienced in different industries also varies widely. Busi-
nesses in extraction industries, such as oil and mining, set up foreign subsidiaries to man-
age their extraction (and sometimes processing) operations. Banks, such as Citibank, or
insurance companies, such as Lloyd’s, may initially locate in a foreign country in order
to provide services to home-country clients who are active in the foreign country. Firms
such as McDonald’s typically sell franchises to local individuals, but often have to first
prepare an infrastructure in foreign locations in order to provide their foreign businesses
with the quality and types of inputs needed before they establish their local outlets. And
department store or grocery store chains, such as Walmart, CarreFour, Toys “R” Us, Ikea, or
Safeway, may acquire existing similar businesses or enter foreign markets by building new
stores similar to those in their home countries.

MNE BUSINESS STRATEGY

As shown in Figure 2.2, firms in stage 4 and beyond become a complex system of linked
units that includes at least a headquarters and several geographically dispersed subsidiaries.
An MNE’s business strategy provides a direction for managing the various subsidiaries. The
nature of an MNE’s business strategy is primarily guided by the extent of integration and/or
local responsiveness required by the firm to manage its worldwide operations.15 Integration
versus local responsiveness refers to the varying degree of required interconnectedness
of the MNE’s various subsidiaries with each other and with headquarters. Integration is
defined as the extent to which the subsidiaries and the headquarters develop a unified
whole and can thus provide the MNE with a variety of competitive advantages such as
economies of scale (being able to utilize all of the firm’s global resources), improved qual-
ity, and standardization.16 In contrast, local responsiveness is defined as the extent to which
subsidiaries respond to local differences, which involves the modification of products or
services in order to fully meet local customer needs, respond to local competition and
culture, remain compliant with various government regulations, more readily attract local
employees, and penetrate local business networks.17

Integration and local responsiveness form a framework (see Figure 2.4) that can be used
to describe an MNE’s business strategy.18 The horizontal axis shows the degree of local
responsiveness (from low to high). The vertical axis shows the degree of integration (from
low to high). This framework highlights the conflicting demands on MNEs in terms of
these two countervailing forces (integration versus local responsiveness) and can be used
to categorize the strategy of an MNE into four types:19 1) International; 2) Multi-domestic;
3) Global; and 4) Transnational. The following provides a brief overview of these types of
MNE business strategies:

Strategic Context50

International Business Strategy

This is the simplest business strategy, requiring quite limited local responsiveness as well
as quite limited integration. An organization with this strategy markets and sells the same
product or service locally and internationally. This is the type of strategy that begins with
export or import and may be limited to licensing or sub-contracting. It typically involves
no overseas offices or operations, other than possibly small sales offices.

Multi-domestic Business Strategy

MNEs with this strategy use an approach that responds to the high needs, values, and
demands of the local market. This strategy is mostly used by MNEs with a multi-domestic
organizational structure (see Chapter 3). With subsidiaries in multiple countries, these sub-
sidiaries typically operate independently within each country, independently of operations
in other countries, and often fairly independently, even, of the parent company headquar-
ters. In this strategy, MNEs generally view each national market as a specialized market for
its particular subsidiaries’ products and services. Examples of organizations using this type
of strategy include Nestlé and Bridgestone.20

As independent as subsidiaries in this approach often become, the organization’s
operations in a number of countries may reach such size and importance that the firm

Local Responsiveness
HiLow

Low

Hi

Integration

Global Transnational

Multi-domesticInternational

FIGURE 2.4 MNE Business Strategy
Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Read-
ings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Managing Across
Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.

Strategic International HRM 51

begins to see a need for an increased level of integration with headquarters—on at least a
regional basis. At this point, the MNE may coordinate its major country subsidiaries with
regional headquarters in order to more effectively manage its international operations. The
regional operations are normally created through an assumption that countries within
a region share some common characteristics such as cultures, geographic proximity, or
stage of economic development. See Case Study 2.1 (end of the chapter) which tells the
internationalization story of one well-known automotive firm—Ford Motor Company. It
built auto manufacturing plants in many countries early in its history and early in the his-
tory of the automobile industry, illustrating how many firms have developed into global
firms over the last 100 years and how these firms created—largely through trial and error
and response to ever-changing economic circumstances—the many approaches to the
conduct of international business.

Global Business Strategy

MNEs with this strategy take a unified approach that is implemented for all countries
regardless of their cultural and national differences. Thus there is a high degree of centrali-
zation or integration. Products and services will be increasingly designed for and marketed
to customers all over the world. This strategy is mostly implemented by MNEs through a
global organizational structure (see Chapter 3). The subsidiaries are tightly connected to
the headquarters, and are heavily dependent on resources, brand identities, ideas, policies,
and know-how from the headquarters. Examples of organizations using type of stragey
include Lenova and Infosys.21

The experiences of global MNEs suggest that running a global company is an order of
magnitude more complicated than managing a multinational or international firm. The global
corporation looks at the whole world as one market. It manufactures, conducts research,
raises capital, and buys supplies wherever it can do the job best. It keeps in touch with tech-
nology and market trends all around the world. National boundaries and regulations tend to
be irrelevant, or at least a mere hindrance. Corporate headquarters might be anywhere.

Transnational Business Strategy

MNEs with this strategy use an approach that attempts to maximize both responsiveness
and integration. They are both global and multi-domestic at the same time. In the sense
that the transnational firm has a global focus, it is similar to the global firm, described in
the previous section. But it differs from the global firm in that, rather than developing
global products and services, the transnational works hard to localize, to be seen not as a
global firm but as a local firm, albeit one that draws upon global expertise, technology, and
resources. The transnational firm operates as a global network, with each subsidiary given
responsibility related to its capabilities and strategic mission. This strategy is mostly imple-
mented by firms through a transnational organizational structure (see Chapter 3). Exam-
ples of companies using this type of strategy include Procter & Gamble, and Bertelsmann.22

Strategic Context52

Headquarters’ International Orientation
and MNE Business Strategy

One aspect of MNE’s business strategy that has been relatively well discussed and studied
involves the orientation of senior executives, usually referred to with terms such as eth-
nocentrism, regio-centrism, poly-centrism, and geocentrism.23 The key strategic issue in
these orientations (or mindsets) is the degree of domination of the MNE headquarters over
subsidiary management and HR practices as compared to the degree of localization of sub-
sidiary practices. Normally these orientations are explained in the context of progressive
development over time from one mindset to another, as a firm develops greater interna-
tional experience and sophistication. There are three different types of orientations, as illus-
trated in Figure 2.5: Ethnocentrism,24 poly-centrism or regio-centrism, and geocentrism.

Overall, it would be expected that IHRM policies and practices would be as centralized
(similar to integration) or decentralized (similar to local responsiveness) as the overall stra-
tegic mindset of the firm. In firms with an ethnocentric orientation, IHRM practices for
international operations tend to copy parent company practices and are very centralized.
In firms with a poly-centric mindset, IHRM practices tend to be decentralized and local
subsidiaries tend to be much more likely to be left alone to follow local HRM practice. As
shown in Case 2.1 at the end of the chapter, Henry Ford had a very poly-centric mindset,
although initially he merely reproduced his original operations from the US in his foreign
operations. And in firms with a geocentric orientation, IHRM practices tend to be more

THE ORIENTATION OF SENIOR EXECUTIVES

Degree of domination of the MNE headquarters over subsidiary management and HR practices
as compared to the degree of localization of subsidiary practices

ETHNOCENTRISM

This is the initial orientation of
many managers, especially those
from a more homogeneous national
population and culture or from a
country with a strong patriotic
culture. In this orientation,
managers use ahome-country
standard as a reference in
managing international activities.
The outlook is one of centralized
decision-making and high control
over operations. Managers with
such a mindsetare likely to follow
an international business strategy
or a global business strategy of
maintaining control from the
home-country and parent-firm
headquarters, and replicating
home-country systems and
procedures and structure abroad.

POLY-CENTRISM OR
REGIO-CENTRISM

Poly-centrism or regio-centrism is
the next level of development or
evolution of the managerial
orientation. Here, as international
investment and involvement
increase, host-country cultures and
practices assume increased
salience. This poly-centric
mindset may be expanded to
include a number of similar
countries in a region, with host-
country standards increasingly
used as a reference point in
managing company operations.
The strategies typically followed
are likely to be multinational (or
multi-domestic) strategies that
emphasize decentralized and
autonomous operations of wholly
owned subsidiaries.

GEOCENTRISM

When a firm reaches this level of
orientation, a geocentric mindset
will have developed and been
adopted. Here the managerial
outlook is one of creating a global
network and a preference for
following a transnational strategy
that is integrative and
interdependent among various
elements of the global
organization.

With a geocentric orientation,
IHRM practices tend to be more
eclectic, borrowing best practices
from around the world, rather than
giving preference necessarily to
either headquarters or local
practices.

FIGURE 2.5 Headquarters’ International Orientation (Senior Executives)

Strategic International HRM 53

eclectic, borrowing best practices from around the world, rather than giving preference
necessarily to either headquarters or local practices.

IHRM STRATEGY

As IHRM becomes more involved with helping organizations be successful in their inter-
national endeavors, it hopefully will develop a strategic focus itself. That is, it will develop
its own strategies to hire, manage, and retain the best employees (employees who will help
achieve the organization’s global strategies) throughout the organization’s international busi-
ness activities, and it will thus contribute to the firm’s overall international strategic planning.

IHRM strategy is defined as the creation and implementation of IHR practices that
help achieve an MNE’s international vision and objectives, i.e., its business strategy. It also
involves the strategic management of the HR function and department itself. Similar to
the MNE’s business strategy, a firm’s IHRM strategy serves as a guiding principle that
helps to shape and govern the firm’s international activities, particularly as they relate to
the firm’s HR, worldwide. IHRM strategies are implemented through IHRM policies and
practices—which are the subjects of the chapters of Section 3.

IHRM Strategy Formulation

Historically, basic trade-offs have come into play when managers have considered where
in the organization certain decisions should be made. For IHRM, the central trade-off pits
pressures for centralization against the need for decentralization. Centralization is very
similar to the notion of integration and refers to the concentration of authority and deci-
sion making toward the top (HQs) of an organization. Decentralization is very similar to
the notion of local responsiveness and is defined as the dispersion of authority and deci-
sion making to operating units throughout the organization. In the international context,
this involves the degree of centralization or decentralization of corporate authority and
decision making throughout a firm’s global operations.

This tension between integration (centralization) and differentiation (localization) is
becoming a major dilemma for IHRM and large global firms. As mentioned previously
firms must become simultaneously more highly differentiated and more integrated or coor-
dinated. Local nationals may feel that they can run operations in their own countries, even
though their firms now require a global perspective and global qualifications. Local laws
and practices may dictate certain HR practices and yet an international perspective may
require different approaches to routine HR responsibilities.

MNEs are frequently both praised and criticized for being tools of global integration.
There are many forces for convergence, or the use of parent-company policies and pro-
cedures throughout a firm’s global operations. MNEs face strong incentives to maximize
economies of scale in research and development, purchasing, production, and markets, and
encounter relatively low barriers to the dissemination of technologies and best practices.

Strategic Context54

These incentives and low barriers encourage the continued use in foreign locales of prac-
tices and procedures found to work well “at home.” Of course, all of this is supported by
overall firm strategies to internationalize and country cultures that encourage the view that
our (company and country) way is best.

On the other hand, many firms in the past evolved in such a way in their international
operations that their local and regional offices became, in many ways, independent organ-
izations (again, refer to the Ford Motor Company story in Case 2.1). Even in markets
where adaptation to local circumstances is mandatory, MNEs work hard to bridge the gap
between global and local and to identify ways of reconciling global integration, e.g., in pro-
duction, with the required extent of local responsiveness, e.g., in marketing and product
design and in management and HR practices. Thus MNEs function as motors of a process
of international convergence that may ultimately make national differences rooted in insti-
tutional and cultural characteristics less relevant or even disappear.

In addition to convergence due to company-wide policies, though, there are also endur-
ing sources of divergence, such as attempts by local subsidiaries to become centers of
excellence. Furthermore, there is considerable evidence demonstrating that cultural and
institutional differences play a role in the manner in which seemingly universal techniques
and procedures (globally applied) are implemented (in varying ways) within differing
countries. In the end, however, the critical strategic decision for the IHRM department (as
well as for the business as a whole) is the resolution of the dilemma created by the conflict
between centralization for control and international (internal) control of policies and prac-
tices and decentralization to meet local requirements (localization). As was expressed in
the first chapter, there is no easy answer to this choice: should the MNE superimpose prac-
tices (e.g., HRM practices) on its international subsidiaries and other forms of operations
(with the local HR office run by an HR manager from the parent firm), or should it allow
subsidiaries to follow local customs, laws, and practices as much as possible (with the local
HR office usually run by a local national HR manager)?

The experiences of long-term multinational firms suggest that the trend is to move
toward more local control and management over time, which is consistent with the pattern
described in the first part of this chapter. And yet, as is discussed in greater detail later in
the book, successful multinational firms have found ways (such as cross-national manage-
ment training, cross-national assignments for management development and promotions,
and cross-national project teams) to develop a common set of values and culture to ensure
worldwide pursuit of a common corporate vision and objectives. Indeed, some firms are
seeking ways to develop globally consistent HR practices throughout all of their operations
as a way to reinforce a common corporate culture.

IHRM Strategies and MNE Business Strategies

The overall effectiveness of an IHRM strategy is contingent on the context in which it is
used. An IHRM strategy’s effect on organizational effectiveness is always dependent on
how well the IHRM strategy fits with and supports an MNE’s business strategy.

Strategic International HRM 55

Similar to an MNE’s business strategy, IHRM strategy has to deal with the issue of
whether to standardize IHRM policies and practices from headquarters, or to localize them
to meet local conditions, or do both (e.g., combination of core policies established by HQs
with localized practices to accommodate local culture and practices).

There are three types of IHRM strategies25 that can be aligned with MNE business strat-
egy and headquarters’ international orientation (see Figure 2.6).

Autonomous IHRM Strategy 26

As shown in Figure 2.6, this type of IHRM strategy has a low degree of global integration
and a high degree of local responsiveness. Each subsidiary has the freedom to develop and
implement its own IHRM policies and practices that support local rules and conditions. An
MNE with this type of IHRM strategy most likely has a decentralized HR function with a
small HR department at headquarters and the majority of key HR decisions made at the
subsidiary level.27 This IHRM strategy is most suitable when an MNE has a multi-domestic
business strategy and a poly-centric or regio-centric IHR orientation.

Receptive IHRM Strategy 28

As illustrated in Figure 2.6, this form of IHRM strategy has a high degree of global inte-
gration and a low degree of local responsiveness. Each subsidiary is tightly connected with
headquarters with very little freedom to adapt to the local conditions. An MNE with this

Local Responsiveness
HiLow

Low

Hi

Integration

Receptive Active

Autonomous

FIGURE 2.6 MNE IHRM Strategy
Adapted from Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants:
The case of subsidiaries in Taiwan. Journal of International Business Studies, 26, 531–554.

Strategic Context56

type of IHRM strategy is more likely to have a centralized HR function with a large HR
department that exercises considerable control over key HR decisions.29 This IHRM strat-
egy is most suitable when an MNE has a global business strategy and an ethnocentric IHR
orientation.

Active IHRM Strategy 30

As Figure 2.6 shows, this type of IHRM strategy has a high degree of global integration
and a high degree of local responsiveness. This strategy balances both, global integration
and local responsiveness. An MNE with this type of IHRM strategy is more likely have
a transition HR function with considerably more control over HR decision making than
autonomous IHRM strategy but less than in a receptive IHRM strategy.31 HR at corporate
headquarters and HR at the subsidiary try to balance the control over HR decision making.
This strategy is most suitable when an MNE has a transnational business strategy and a
geocentric HR orientation.

RESEARCH ON STRATEGIC IHRM

Research on SIHRM has been growing in recent years.32 This research has extended our
understanding of SIHRM, yet there is still much that is not known about the factors that
influence it. The existing research on SIHRM has found, as would be expected, that local
culture and national managerial orientation influence the nature of HR practice; that the
degree of global mindset influences the nature of an MNE’s global strategy; and that global
strategy influences the degree of global focus in the HR strategy.33 In addition, it has been
found that following appropriate global HR practices—rather than only using the parent
firm’s HR practices—was associated with the later stages of an organization’s life cycle
(as the MNE matures) and with better organizational performance.34 Large global Japa-
nese and European MNEs were found to be more likely to pursue global HR practices
than was the case for similar American firms. Or, stated the other way around, American
firms are more likely to pursue localization of IHR than are their Japanese or European
counterparts.35

In general, this research has dealt with some form of linkage between headquarters’
(corporate) international focus (for example, their degree of ethnocentrism or geocentrism)
and HR policy and practice in foreign subsidiaries. If HR strategy must implement corpo-
rate strategy, then the extent to which HR practice in foreign subsidiaries reflects corporate
international business strategy is an important consideration.36 But as is typically observed
by researchers, the examination of IHR strategy is in its infancy. Even though a number of
models have been put forward to speculate on the possible linkages (with limited support-
ing data), there is still much more to examine to understand the complexities of SIHRM.
Both the responses and the choices are more numerous and complex in practice than these
models have yet demonstrated.

Strategic International HRM 57

Models/Frameworks for Understanding SIHRM

In an effort to understand the role of IHRM in MNEs, scholars and researchers have sug-
gested several SIHRM models or frameworks. Each of these has some very useful and inter-
esting contributions to IHRM. Here we present one of the earliest models37 for describing
how IHRM is connected to the different strategic requirements of the MNE.

Figure 2.7 illustrates a model with five parts:

1 strategic MNE components;
2 exogenous factors;
3 endogenous factors;
4 IHRM issues, functions, and policies and practices; and
5 MNE concerns and goals.

Taken as a whole, the model enables researchers and consultants to discuss various compo-
nents of SIHRM and their relationships.

Strategic MNE Components

This part of the model includes two components: the inter-unit linkages and internal opera-
tions. Inter-unit linkages focus on how MNEs manage the different geographically dispersed
operating units and describe how they balance the competing pressures for differentiation

STRATEGIC MNE
COMPONENTS

• Inter-unit linkages
• Internal operations

EXOGENOUS FACTORS
• Industry characteristics
• Country/regional

characteristics

ENDOGENOUS FACTORS
• Structure of international

operations
• Headquarters’ international

orientation
• Competitive strategy
• Experience in managing

international operations

MNE

CONCERNS
AND GOALS
• Competitiveness
• Efficiency
• Local
responsiveness
• Flexibility
• Learning and
transfer

IHRM
ISSUES

• Inter-unit linkages:
control/ variety

• Internal operations:
local sensitivity/
strategic fit

IHRM
FUNCTIONS

• Orientation
• Resources
• Location

IHRM POLICIES/
PRACTICES

• Staffing
• Appraising
• Compensating
• Developing

FIGURE 2.7 Integrative Framework of Strategic International Human Resources Management in MNEs
Source: Adapted from Schuler, R., Dowling, P., and DeCieri, H. (1993). An integrative framework of strategic interna-
tional human resource management. International Journal of Human Resource Management, 4, 722–776

Strategic Context58

and integration. Internal operations, in contrast, describe how each unit operates within
its local environment, laws, politics, culture, economy, and society. Section 1 of this book
discusses issues related to this part of the model.

Exogenous Factors

These factors describe forces that are external to the firm that are largely beyond an MNE’s
control but can create challenges that affect an organization’s IHRM issues, functions, pol-
icies and practices. These exogenous factors can include national culture, economic condi-
tions, political system, legal environment, and workforce characteristics.

Section 2 of this book discusses issues related to this part of the model.

Endogenous Factors

These factors describe the issues and concerns that are internal to the firm and include
structure of the organization, stage of internationalization, business strategy, and headquar-
ters’ international orientation.

The above three parts of the model affect IHRM function and associated issues, policies
and practices. Indeed, the key strategic MNE objective is to balance the needs of variety
(diversity), coordination, and control for purposes of global competitiveness, flexibility,
and organizational learning while controlling and coordinating that variety. However, the
nature of this balance is expected to vary depending on the exogenous and endogenous
factors.

IHRM Issues

IHRM issues are HR issues that result from the inter-unit and intra-unit needs and chal-
lenges. As mentioned earlier the MNE has components spread across several nations, but
it still remains a single enterprise and therefore must consider how to balance competing
pressures for integration and local responsiveness. These issues of integration and local
responsiveness are often facilitated by human resource management policies and practices,
and therefore are important components in IHRM.

IHRM Functions

IHRM functions include the resources (time, energy, money) allocated to the human
resource department or unit, and the location of those resources and HR decision making.
The resources devoted to and the location of IHRM operations can be expected to vary
considerably across MNEs and the IHRM function can take a variety of structural forms,
including centralized, decentralized, and transition.

Strategic International HRM 59

IHRM Policies and Practices

IHRM policies and practices involve the development of general guidelines on how indi-
viduals will be managed and specific HR initiatives or activities. This includes both formal
policies of the organization and the actual daily practices that employees experience and
include those related to planning, staffing, appraising, compensating, training and develop-
ing, and labor relations. Section 3 of this book focuses on this part of the model, discussing
the core policies and practices of IHRM.

MNE Concerns and Goals

This part of the model can be defined in terms of utilizing and integrating appropriate
IHRM practices and policies that enhance overall performance of the MNE on several cri-
teria, both short term and long term. The five criteria include:

â– â–  Global competitiveness (How can IHRM policies and practices help provide compet-
itive advantage?)

â– â–  Efficiency (How much can IHRM help make the MNE more efficient by delivering
the most effective human resources that will deliver world-class products and services
worldwide?)

â– â–  Local responsiveness (How much can IHRM help the MNE be locally responsive and
globally competitive at the same time?)

â– â–  Flexibility (How much can IHRM help the MNE be more flexible in adapting to
changing conditions—internal and external?)

â– â–  Organizational and transfer of learning (How much can IHRM facilitate learning and
transfer of this learning across geographically dispersed units?)

The chapters of Section 3 focus on the answers to these questions, on how IHRM policies
and practices help the firm achieve these critical outcomes.

CONCLUSION

This chapter presented the concept of strategic international human resource management.
The chapter described the evolution of the MNE in terms of various stages of internation-
alization and the methods firms use to enter international markets. The integration-local
responsiveness framework was used to describe how MNEs form business strategies and
how the business strategies impact and are impacted by IHRM. The chapter then explained
how IHRM strategy is formed and described the three types of IHRM strategies that are
normally found in organizations. Finally, the chapter closed with a discussion of advanced
topics in SIHRM.

Strategic Context60

DISCUSSION QUESTIONS

1 How has the multinational enterprise evolved? How have the changes in MNEs
affected IHRM?

2 What are the various choices that MNEs have for entry into international business?
How do the functions of HR vary with these various choices?

3 What is the link between SIHRM and IHRM? Why is it important for IHRM to be
strategic?

4 How does IHRM strategy vary with an MNE’s business strategy?
5 What are some of the IHRM challenges faced by an MNE with a transnational business

strategy?
6 What are the pros and cons of centralization and decentralization of the IHRM

function?

Strategic International HRM 61

CASE STUDY 2.1: The Early Evolution of Manufacturing
Firms: Ford Motor Company Goes International (USA)

Ford Motor Company has been in business for over 100 years and when it comes to a global
mindset, Ford is ahead of most of its competitors, although this was not always the case.

Early in its history, Ford was like many large firms, which often sent people off to other major
countries to set up companies just like the one back home. The first Henry Ford, the founder of
the Ford Motor Company, was in many ways an internationalist, because within a few years
of establishing his company in the US he was opening manufacturing and assembly plants all
over the world—the first of which was a Model T assembly plant in Trafford Park, England, in
1911—that were essentially smaller versions of the original plant in Detroit. Over the years
Ford evolved into a collection of local country and regional fiefdoms.

But by the mid-1920s (even earlier in some countries), a sense of local pride had developed
in the Ford plants in many countries around the world. These countries all began to develop
their own automotive companies. Suddenly there were local automotive companies in the UK,
in France, Germany, Australia, all making their own vehicles. Nations wanted to assert their
independence and saw the automotive industry as a means of investing in their own economies.
Indeed, some early automotive pioneers in other countries even began to export their own cars
to other countries as well as develop their own plants elsewhere. The Europeans exported, the
Americans exported, the Japanese exported—that was the way the competitive game was
being played. This was the beginnings of the “multi-domestic” structure for large multinational
corporations, as described in this chapter.

In the 1960s, though, regionalism began to develop with the emergence of the European
Common Market, NAFTA, ASEAN, and other regional trading groups. Countries kept their own
political systems and social values but formed economic trading blocs. So . . . big companies
established regional headquarters within the various major trading blocs. Ford Europe, Ford
Asia-Pacific, and Ford South America were established in this period. This was when most of the
regional and functional fiefdoms (with each region becoming very independent) became firmly
entrenched at Ford. (This is what is referred to in the text as the “regional” corporate structure,
an extension of the “multi-domestic” structure.) The fiefdoms were excellent at what they did:
they squeezed every last ounce of efficiency out of the regional model. For example, back in
the period of nationalism, Ford had multiple accounting activities around the world—there were
15 in Europe alone. The regional model got it down to four: one in Europe, one in the US, one
in Asia-Pacific, and one in South America. But even with that efficiency, Ford felt that the model
didn’t work anymore.

Today Ford is moving to a fourth stage of economic evolution with the globalization of all
aspects of its international operations: accounting, capital, communications, economic pol-
icy, trade policy, human resources, marketing, advertising, brands, etc. The auto industry
around the world has become globalized. Germany and Japan produce cars in the US,
Korea produces cars in Eastern Europe, the US produces cars in Mexico and China, and
India, Malaysia, China, and Mexico export cars and parts throughout the world. And there

Strategic Context62

is ongoing consolidation of auto companies throughout the world as firms such as Renault
(France) acquired Nissan (Japan), Ford (US) acquired Volvo (Sweden), Tata (India) acquired
Jaguar (UK/US), and Ford has just announced that Geely (China) is acquiring Volvo (Sweden).
Ford now manufactures and distributes automobiles in at least 120 markets (some articles
suggest 200 markets!) on six continents, with 176,000 employees (a major downsizing from
over 350,000 in the last decade) in more than 80 plants worldwide (a downsizing from
about 110 plants less than a decade ago). In addition, the automotive industry has become
an electronics-driven industry. It is increasingly a business that requires huge investments in
technology and intellectual capital, not only for constant innovations in development and man-
ufacturing, but in automobiles themselves. And now it is technology and human capital that
have globalized.

Sources: www.Ford.com (2014); www.NYTimes.com/FordMotorCompany (2014); Lapid, K. (2006).
Outsourcing and offshoring under the general agreement on trade in services. Journal of World Trade,
40(2), 341–364; Neff, J. (2006). Ford announces corporate realignment. Autoblog, December 14; Wet-
laufer, S. (1999). Driving change: An interview with Ford Motor Company’s Jacques Nasser. Harvard
Business Review, March–April, 77–80; and Whitney, K. (2006). Ford: Driving learning and developing
the “Way Forward.” Chief Learning Officer, 5(5), 44–47.

NOTES

1 Source: “10 Quotes on leadership from Mark Zuckerberg,” see http://www.ceo.com/technology_and_
innovation/10-quotes-on-leadership-from-mark-zuckerberg/. Accessed Nov. 2, 2014.

2 Sheehan, M., and Sparrow, P. (2012). Introduction: Global human resource management and economic
change: A multiple level of analysis research agenda. The International Journal of Human Resource Man-
agement, 23(12), 2393–2403; Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in
IHRM. Edward Elgar Publishing, Cheltenham, UK; Edwards, P. K., Sánchez, R., Tregaskis, O., Levesque, C.,
McDonnell, A., and Quintanilla, J. (2013). Human resource management practices in the multinational
company: A test of system, societal, and dominance effects. Industry and Labour Relations Review, 66,
588–696; Zheng, C. (2013). Critiques and extension of strategic international human resource manage-
ment framework for dragon multinationals. Asia Pacific Business Review, 19(1), 1–15.

3 Evans, P., Pucik, V., and Bjorkman, I. (2010). The Global Challenge: Frameworks for International Human
Resource Management, New York: McGraw-Hill/Irwin; Brockbank, W. (1997). HR’s future on the way to
a presence, Human Resource Management, Spring, 36(1), 65–69.

4 Ibid.; Vance, C. M., and Paik, Y. (2011). Managing a Global Workforce: Challenges and Opportunities in
International Human Resource Management, 2nd ed., London and New York: M.E. Sharpe; Albrecht, M. H.
(ed.) (2001). International HRM: Managing Diversity in the Workplace, Oxford, UK: Blackwell Publishers;
Marquardt, M. J. (1999). The Global Advantage: How World-Class Organizations Improve Performance
Through Globalization, Houston: Gulf Publishing; Harttig, M. A., Strozik, M., and Mukherjee, A. (2010).
Global workforce planning. Benefits & Compensation International, 40(1), 19; Lertxundi, A., and Landeta, J.
(2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource man-
agement systems. The International Journal of Human Resource Management, 23(9), 1788.

5 Thompson, A. A., Jr., and Strickland, A. J., III (1998). Strategic Management: Concepts and Cases,
10th ed., New York: McGraw-Hill.

6 Ibid.

Strategic International HRM 63

7 Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in IHRM. Cheltenham, UK: Edward
Elgar Publishing; Bremmer, I. (2014). The new rules of globalization. Harvard Business Review, 92(1/2),
103–107; Walker, J. W. (2001). Are we global yet? in Albrecht, M. H. (ed.), International HRM: Man-
aging Diversity in Workplace, Oxford, UK: Blackwell Publishers, pp. 71–75; Bartlett, C. (1983). How
multinational organizations evolve, Journal of Business Strategy, Summer, 1, 10–32; Dowling, P. J., Welch,
D. E., and Schuler, R. S. (1999). International Human Resource Management, 3rd ed., Cincinnati, OH:
South-Western College Publishing; Fadel, J. J., and Petti, M. (2001). International HR policy basics, in
Albrecht, M. H. (ed.), International HRM, Oxford, UK: Blackwell Publishers, pp. 76–78; Harzing, A.-H.
(1995). Strategic planning in multinational corporations, in Harzing, A.-H., and Ruysseveldt, J. V. (eds.),
International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.

8 Adapted from, A new corporate focus, Financial Times, Feb. 5, 2013, p. 14 (Business Life Section).
9 Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation

of their human resource management systems. The International Journal of Human Resource Management,
23(9), 1788; Ando, N. (2011). Isomorphism and foreign subsidiary staffing policies. Cross Cultural Man-
agement, 18(2), 131–143; Colakoglu, S., Tarique, I., and Caligiuri, P. (2009). Towards a conceptual
framework for the relationship between subsidiary staffing strategy and subsidiary performance. The Inter-
national Journal of Human Resource Management, 20(6), 129; Collings, D. G., Scullion, H., and Morley,
M. J. (2007). Changing patterns of global staffing in the multinational enterprise: Challenges to the con-
ventional expatriate assignment and emerging alternatives. Journal of World Business, 42(2), 198; Peng,
G. Z., and Beamish, P. W. (2014). MNC subsidiary size and expatriate control: Resource-dependence and
learning perspectives. Journal of World Business, 49(1), 51–62.

10 Source: http://newsroom.kelloggcompany.com/2012–09–24-Kellogg-Company-And-Wilmar-International
Limited-Announce-China-Joint-Venture.

11 Monaghan, A. (28 November 2014). Jaguar Land Rover seals Chinese joint venture, The Telegraph, UK.
Retrieved from www.telegraph.co.uk.

12 See for example Ghauri, P. N., and Santangelo, G. D. (2012). Multinationals and the changing rules of com-
petition: New challenges for IB research. Management International Review, (2), 145; Lapid, K. (2006).
Outsourcing and offshoring under the General Agreement on Trade in Services, Journal of World Trade,
40(2), 431–364; Contractor, F. J. (2011). Global Outsourcing and Offshoring: An Integrated Approach to
Theory and Corporate Strategy. Cambridge: Cambridge University Press; Robinson, M. and Kalakota, R.
(2005). Offshore Outsourcing: Business Models, ROI and Best Practices, 2nd ed., Alpharetta, GA: Mivar
Press; and Robinson, M., Kalakota, R. and Sharma, S. (2006). Global Outsourcing: Executing an Onshore,
Nearshore or Offshore Strategy, Alpharetta, GA: Mivar Press.

13 See, for example, Linares-Navarro, E., Pedersen, T., and Pla-Barber, J. (2014). Fine slicing of the value chain
and offshoring of essential activities: Empirical evidence from European multinationals. Journal of Business
Economics & Management, 15(1), 111–134; Schwörer, T. (2013). Offshoring, domestic outsourcing and
productivity: Evidence for a number of European countries. Review of World Economics, 149(1), 131–149;
definition retrieved from http://en.wikipedia.org and www.investordictionary.com. See also, Blinder,
A. E. (2006). Offshoring: The next industrial revolution?, Foreign Affairs, 85(2), 113–128; Erber, G.,
and Sayed-Ahmed, A. (2005). Offshore outsourcing—A global shift in the present IT industry, Intereco-
nomics, 40(2), 100–112; and Friedman, T. L. (2007). The World Is Flat: A Brief History of the Twenty-First
Century, New York: Farrar, Straus and Giroux.

14 Setting a trend for world to follow (2011), South China Morning Post, Feb. 7, downloaded from ProQuest
at http://search.proquest.com/docview/849412056?accountid=13044.

15 See Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Read-
ings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Man-
aging Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.

16 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA:
Harvard Business School Press.

Strategic Context64

17 Ibid.
18 Harzing, A-W. (2000). An empirical analysis and extension of the Bartlett and Ghoshal typology of multi-

national companies, Journal of International Business Studies, 31(1), 101–120; Harzing, A-H (2004). Strat-
egy and structure of multinational companies, in Harzing, A-H, and Ruysseveldt, J. V. (eds.), International
Human Resource Management, London, UK: Sage Publications, pp. 33–64; Bartlet, C., and Ghoshal, S.
(2010). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School
Press. Also see Drahokoupil, J. (2014). Decision-making in multinational corporations: Key issues in inter-
national business strategy. Transfer: European Review of Labour & Research, 20(2), 199–215.

19 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA:
Harvard Business School Press; Harzing, A-W. (2000). An empirical analysis and extension of the Bart-
lett and Ghoshal typology of multinational companies, Journal of International Business Studies, 31(1),
101–120; Harzing, A-H (2004). Strategy and structure of multinational companies, in Harzing, A-H and
Ruysseveldt, J. V. (eds.), International Human Resource Management, London: Sage.

20 Rothaermel, F. (2013). Strategic Management: Concepts and Cases, New York: Irwin McGraw Hill.
21 Ibid.
22 Rothaermel, F. (2013).
23 Chakravarthy, B., and Perlmutter, H. V. (1985). Strategic planning for a global economy. Columbia Jour-

nal of World Business, Summer, 3–10; Kobrin, S. J. (1994). Is there a relationship between a geocentric
mind-set and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Perlmutter,
H. V. (1969). The torturous evolution of the multinational corporation, Columbia Journal of World Business,
January–February, 9–18.

24 See Story, J. P., Barbuto, J. E., Luthans, F., and Bovaird, J. A. (2014). Meeting the challenges of effective
international HRM: Analysis of the antecedents of global mindset. Human Resource Management, 1, 31;
Gupta, A.K., and Govindarajan, V. (2002). Cultivating a global mindset, Academy of Management Exec-
utive, 16, 116–125; Kedia, B. L., and Mukherji, A. (1999). Global managers: Developing a mindset for
global competitiveness. Journal of World Business, 34, 230–251.

25 Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants: The
case of subsidiaries in Tawian, Journal of International Business Studies, 26, 531–554.

26 Ibid.
27 See Scullion, H., and Paauwe, J. (2004). International human resource management: Recent developments

in theory and empirical research, in Harzing, A. W. and Ruysseveldt, J. V., International Human Resource
Management, London: Sage Publications, pp. 65–88.

28 Ibid.
29 Scullion, H., and Paauwe, J. (2004).
30 Ibid.
31 Ibid.
32 See, for example, Jackson, S. E., Schuler, R. S., and Jiang, K. (2014). An aspirational framework for strate-

gic human resource management. The Academy of Management Annals, 8(1), 1–56; Caligiuri, P. (2014).
Many moving parts: Factors influencing the effectiveness of HRM practices designed to improve knowledge
transfer within MNCs. Journal of International Business Studies, 45(1), 63–72; Zheng, C. (2013). Critiques
and extension of strategic international human resource management framework for dragon multination-
als. Asia Pacific Business Review, 19(1), 1–15; Fan, D., Zhang, M., and Zhu, C. (2013). International
human resource management strategies of Chinese multinationals operating abroad. Asia Pacific Business
Review, 19(4), 526–541; Ananthram, S., and Chan, C. (2013). Challenges and strategies for global
human resource executives: Perspectives from Canada and the United States. European Management
Journal, 31(3), 22; Andersen, T. J., and Minbaeva, D. (2013). The role of human resource management
in strategy making. Human Resource Management, 52(5), 809; An, D., Zhang, M. M., and Zhu, C. J.
(2013). International human resource management strategies of Chinese multinationals operating abroad.
Asia Pacific Business Review, 19(4), 526; Festing, M. (2012). Strategic human resource management
in Germany: Evidence of convergence to the U.S. model, the European model, or a distinctive national

Strategic International HRM 65

model? The Academy of Management Perspectives, 26(2), 37; Kramar, R., and Parry, E. (2014). Strategic
human resource management in the Asia Pacific region: Similarities and differences? Asia Pacific Journal
of Human Resources, 52(4), 400; Liang, X., Marler, J. H., and Cui, Z. (2012). Strategic human resource
management in China: East meets West. The Academy of Management Perspectives, 26(2), 55; Sparrow,
P. (2012). Globalising the international mobility function: The role of emerging markets, flexibility and stra-
tegic delivery models. The International Journal of Human Resource Management, 23(12), 2404; Clark, K.,
and Lengnick-Hall, M. L. (2012). MNC practice transfer: Institutional theory, strategic opportunities
and subsidiary HR configuration. International Journal of Human Resource Management, 23(18),
3813–3837; De Cieri, H., and Dowling, P. J. (2012). Strategic human resource management in multi-
national enterprises: Developments and directions, in Stahl, G. K., Björkman, I., and Morris, S. S. (eds.),
Handbook of Research in International Human Resource Management, 2nd ed., Northampton, MA:
Edward Elgar Publishing, pp. 13–35; Chung, C., Bozkurt, Ö., and Sparrow, P. (2012). Managing
the duality of IHRM: Unravelling the strategy and perceptions of key actors in South Korean MNCs.
International Journal of Human Resource Management, 23(11), 2333–2353; Harvey, M., Fisher, R.,
McPhail, R., and Moeller, M. (2013). Aligning global organizations’ human capital needs and global
supply-chain strategies. Asia Pacific Journal of Human Resources, 51(1), 4; Perkins, S. J., and Shortland,
S. M. (2006). Strategic International Human Resource Management: Choices and Consequences in
Multinational People Management, 2nd ed., London: Kogan Page; Schuler, R. S., Budhwar, P. S., and
Florkowski, G. W. (2002). International human resource management: Review and critique, International
Journal of Management Reviews, 4 (1), 41–70; Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993).
An integrative framework of strategic international human resource management, Journal of Manage-
ment 19(2), 419–459; Schuler, R. S., and Tarique, I. (2007). International HRM: A North American
perspective, a thematic update and suggestions for future research, International Journal of Human
Resource Management, 18(5), 717–744.

33 Beechler, S., Bird, A., and Raghuram, S. (1993). Linking business strategy and human resource manage-
ment practices in multinational corporations: A theoretical framework, Advances in International Compar-
ative Management, 8, 199–215; Hannon, J. M., Huang, I.-C., and Jaw, B.-S. (1995). International human
resource strategy and its determinants: The case of subsidiaries in Taiwan, Journal of International Business
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ate managers and strategic international human resource management in SMEs, Thunderbird, International
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and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Lei, D., Slocum,
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34 Caliguiri, P.M., and Stroh, L. K. (1995). Multinational corporation management strategies and international
human resource practices: Bringing international HR to the bottom line, International Journal of Human
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35 Yip, G. S., Johansson, J. K., and Ross, J. (1997). Effects of nationality on global strategy, Management
International Review, 37 (4), 365–385.

36 See, e.g., Perkins and Shortland (2006).
37 Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993). An integrative framework of strategic international

human resource management. Journal of Management, 19(2), 419.

The world has been going global for centuries, but that will mean very different things
in the 21st century than it meant in the 19th or 20th. To be a leader in the future will
mean thinking globally, and not only about geography.

Samuel J. Palmisano
Former CEO, IBM1

Learning Objectives

This chapter will enable the reader to:

â– â–  Explain the fundamentals of organizational design and structure and explain the
process of designing an MNE.

â– â–  Describe the basic characteristics associated with different organizational structures.
â– â–  Explain the implications for IHRM from the different structures.
â– â–  Describe the importance of teams, networking, and the need for learning in MNEs.

C h a p t e r 3

Design and Structure of the
Multinational Enterprise

One of the challenges for HR in international firms is to become an organizational archi-
tect. International organizations need appropriate structure in order to effectively con-
duct business in the chaotic and interconnected global economy. An important source
of sustainable global competitive advantage is designing your organization for knowledge
creation and sharing across borders and, thus, supporting learning and innovation on a
global basis. The traditional needs for control and integration when applied across national
borders in the highly complex global economy make the problems of organizational design
especially difficult.

Accordingly, this chapter is about organizational design and structure for the success-
ful conduct of international business. The development and complexity of international

Design and Structure of the ME 67

business is forcing firms to create new forms of organization and new applications of old
forms, and these efforts are creating new challenges for management in general and IHRM
in particular. Firms are having to cope with a greater number of countries (and their politics,
governments, and cultures), protect a greater level of foreign investment, deal with greater
overall political uncertainties, develop new mental mindsets, and manage an increasing
number of sites and partnerships in order to learn faster and better than their competitors
and, thus, to grapple effectively with today’s global economy.2

This chapter starts with an introduction to organizational design and structure by focus-
ing on the complexities involved in designing and structuring international organizations.
Then the chapter describes how the pressures of integration and local responsiveness
(introduced in Chapter 2) influence the design and structure of the organizations that
international firms use to carry out their international activities. Then the chapter provides
an overview of the various structures that international firms use as they evolve in their
conduct of international business. Next the chapter describes the implications for IHRM
from the different structures. And finally the chapter discusses the role of networks, global
teams, and global learning organizations in maintaining complex organizational structures.

INTERNATIONAL ORGANIZATIONAL DESIGN AND
STRUCTURE: AN INTRODUCTION

Organizational design refers to the process or style used by management to arrange these
various components. In contrast, organizational structure refers to the formalized arrange-
ment of organizational components such as the headquarters, subsidiaries, business units/
divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and
reporting relationships in an organization. Organizational design is the process whereas
organizational structure is the outcome.

The design process and the organizational structure that results from the process—from
an internationalization perspective—is essentially based on four factors:3

Organizational design is the process used by management to determine the formal
arrangement of components such as the headquarters, subsidiaries, business units/
divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks,
and reporting relationships in the organization.

1 the firm’s forms and stages of international development (see Chapter 2, Figure 2.1);
2 the amount of cross-border coordination required by the firm’s strategy (that is, the

degree of desired integration versus the degree of acceptable and/or necessary localiza-
tion) (Chapter 2);

3 the nature and extent of host governments’ activities in the economic process; and
4 the diversity and complexity of the MNE’s business operations.

Strategic Context68

To a large degree, this concerns the form of development and inter-connectedness of an
MNE’s various subsidiaries and alliances. Such subsidiaries and international alliances can
range in structure from simple sales offices to complete, stand-alone operations (wholly
or partially owned), formal joint ventures, and less formal partnerships of various kinds,
as introduced in Chapters 2 and 4. More specifically they can take on one or more of the
following three forms:4

1 The subsidiary or partnership can be a start-up (initially, probably a sales office), that
can be used to establish the firm’s international business; in such a case it usually will
take the structural form of reporting directly to an executive in the domestic structure
or to the head of an international and/or geographic division.

2 Once the firm has a well-established international business, it will extensively use its
subsidiaries and alliances to support its business strategy. In such a case the firm is likely
to develop a structure using a multidimensional network of business centers.

3 When the firm reaches the level of having a high proportion of assets/sales/employees
outside of its home country, the subsidiaries become leaders in creating new market
share and competitive advantages which are then transferred to the global network,
and even back into the home country. In this case, the structure will be an even more
complex network of multiple business centers with a strong focus on the integration of
these many centers.

In all circumstances, the structure necessary to conduct international business is more com-
plex than is the case for a purely domestic firm.

Convergence vs. Divergence

In the past, MNEs have dealt with the complexity of international business by trying
to simplify their operations and organizations. This has often led to development of
common policy and practice throughout their global operations and to simple forms
of organization, typically copying their domestic organizational structures. This has
minimized the problem of management and control in the global context, since the
assumption was that if managers could handle domestic organizations, then they could
also manage effectively the structures and systems duplicated to handle international
commerce, transferring parent-company products, technology, and management style to
foreign operations.

Major MNEs (ones with longer-term experience and with greater foreign invest-
ment and number of employees) have discovered that this doesn’t work very well. The
global economy is too complex and unpredictable. Other countries and cultures don’t
always accommodate the parent company products, styles, and culture. MNEs have often
needed to develop more complex structures to deal with this complexity and to develop
new managerial skills to deal with multiple cultures, languages, and ways of conducting
business.

Design and Structure of the ME 69

DESIGNING THE MULTINATIONAL ENTERPRISE

The basic problem that underlies the ability of firms to organize globally is the challenge of
figuring out how to coordinate and balance the opposing forces of integrating their foreign
operations with each other and with the parent firm while at the same time allowing the nec-
essary autonomy and local control needed to meet unique national and cultural interests.5 This
is what has been referred to in earlier chapters as the integration-local responsiveness problem.

MNEs need integration and sharing of learning and experience, and they typically seek
common policies in a number of areas related to overall performance, such as financial
objectives, yet they need to allow localized adaptation to cultural differences. The empha-
sis on increased layers and size of formal structure and more sophisticated systems has in
fact slowed down communication, learning, and decision making, and limited international
firms’ abilities to adapt effectively to local differences. Thus MNEs are turning increasingly
to reduced size of business units, increased numbers of smaller business centers, and infor-
mal networks for improved communication, control, and coordination, as described later
in the chapter.6 As Jay Galbraith, one of the foremost researchers on issues related to the
design of the global corporation, says, “Organizing a company to do business on a global
scale remains one of the most complex organizational responsibilities.”7 And coping with
the challenge of combining centralized control and integration with localized product and
managerial adaptation creates one of the most significant of those complexities.

It should be obvious that no one type of international organization structure embodies
the right system for all firms. Rather, the MNE needs to be a multidimensional network
of businesses, countries, and functions. Global customers are demanding single points of
business contact and global strategies seek simplified reporting structures. In response, firms
are being forced into four- and five-dimensional networks, as discussed through the rest of
this chapter. Thus global managers need to be trained and developed to operate effectively
with multidimensional structures as well as multiple types of structures.

INTERNATIONAL ORGANIZATIONAL STRUCTURE CHOICES

Organizational structure refers to the formalized arrangement of organizational compo-
nents such as the headquarters, subsidiaries, business units/divisions, and functional units
within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting
relationships in an organization. Two frameworks can be used to describe an MNE’s organ-
izational structure.

FRAMEWORK 1: ORGANIZATIONAL STRUCTURE IN TERMS
OF INTEGRATION AND LOCAL RESPONSIVENESS

The first framework is based on the above discussion. Accordingly, the basic organizational
challenge to MNEs has always been the integration of activities that take place in different

Strategic Context70

countries and coordination of foreign subsidiaries with headquarters. The basic global
structure, then, of every MNE can be described in terms of an integration and local respon-
siveness framework (see Figure 3.1). This framework highlights the conflicting demands on
MNEs in terms of these two countervailing forces (integration versus local responsiveness)
and can be used to describe an MNE’s structure and strategy (basic strategy was described
in Chapter 2).8 The horizontal axis shows the extent of local responsiveness (high versus
low). The vertical axis shows the degree of integration (high versus low).9

This approach (the integration-responsiveness grid) categorizes the internationalized
structure of the firm—in terms of the HQ-subsidiaries relationship—into four types: 1)
international; 2) multinational; 3) global; and 4) transnational.10

Local Responsiveness

HiLow

Low

Hi

Integration

Global Structure
Centralized Hub

Transnational Structure
Integrated Network

Multidomestic Structure

Decentralized Federation

International Structure

Coordinated Federation

HH

HH

S

S

S

S

S

S

S

S

SS

SS

SS

SS

Key

H = Headquarters
S = Subsidiary

= Weak link
= Strong link

FIGURE 3.1 MNE Organizational Structure
Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings
in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998). Managing Across Bor-
ders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A. (2004) Strategy and Struc-
ture of Multinational Companies, in Harzing, A. W. K., and Van Ruysseveldt, J. (eds.), International Human Resource
Management, 2nd ed., London: Sage Publications, pp. 33–64.

Design and Structure of the ME 71

These various structures are inter-related. Just as firms differ in their stages of interna-
tionalization, so too do they differ in terms of the structures they adopt in their interna-
tional operations. The specific international structure chosen or developed influences the
type of IHRM policies and practices necessary for effective international operation. Coping
with the complexities of the structure turns out to be one of the most difficult areas in
which IHRM can make a strategic contribution to a firm’s international business strategy.

International Organizational Structure11

Organizations with an international structure face weak pressures for local responsiveness or
differentiation and weak pressures for worldwide integration. As shown in Figure 3.1, this
type of structure resembles a coordinated federation. Foreign subsidiaries may be depend-
ent on headquarters for resources and limited direction but will still have major freedom to
adapt to local conditions. Coordination and control by headquarters is likely to be even less
important than in the multi-domestic structure and certainly less important than the global
structure (we discuss this next). Since foreign operations in this condition are fairly limited,
HRM decisions, policies, and practices will be of limited significance in the subsidiaries.

Multi-domestic Organizational Structure

Organizations with a multi-domestic structure face strong pressures for local responsive-
ness or differentiation and weak pressures for worldwide integration. As illustrated in Fig-
ure 3.1, a multi-domestic firm has subsidiaries in multiple countries, with these subsidiaries
typically operating independently within each country, independently of operations in
other countries, and often fairly independent, even, of the parent company headquarters.
The MNE will have significant operations (assembly, manufacturing, service centers, R&D,
branch offices) in many countries and may well reach the condition where half or more of
its sales and employment is in foreign countries. Often these multi-domestic subsidiaries
become almost independent fiefdoms, as described in the Ford Motor Company case at the
end of Chapter 2.

Key personnel in the multi-domestic subsidiary offices—at least initially—are often
from the company’s home office with key decisions initially made at corporate headquar-
ters. Thus, although the subsidiaries are largely staffed by people from the countries in
which they are located, managers from the home office may retain authority in key areas
(such as profitability and compensation bonuses), yet the subsidiary management increas-
ingly focuses inward. The MNE at this level of development generally views each national
market as a specialized market for its particular subsidiary’s products. Each subsidiary con-
centrates its efforts on the nation in which it is located.

The HR department’s role at this stage becomes more complex and difficult. Now
HQ’s HRM may initially provide a number of services—such as relocation, compensation,

Strategic Context72

and benefits for employees (international assignees) working in these foreign (to them)
locations—but they must also coordinate the HRM activities and practices of the many
subsidiaries, seeking both consistency with the culture and policies of the parent company
and accommodation of local values and practices. But, over time, these subsidiaries are likely
to become increasingly independent of HQ. In addition, training for international assignees
(from the parent company or from foreign locales), local nationals, and parent-company
employees to handle foreign assignments and interaction with foreign counterparts will
also increase from that experience under the international structure.

As independent as subsidiaries often become, in this structure the organization’s opera-
tions in a number of countries may reach such size and importance that there is increased
need for integration with corporate headquarters. The MNE may organize country sub-
sidiaries from a close geographic region into a regional division with regional headquar-
ters in order to coordinate operations on a regional basis, again as described in the Ford
Motor Company case in Chapter 2. This will probably involve first organizing to conduct
business in only one or two regions, such as Europe or Latin America (for an American
firm) or maybe North America (for a European or Asian firm) or Asia (for an Asian or
European firm). The HRM impacts in this regional structure are similar to those in the
multi-domestic structure, although they will be managed from a regional headquarters. An
assumption made is that countries within a region share some common characteristics such
as country culture, geographical proximity, or stage of economic development.

Global Organizational Structure

Organizations with a global organizational structure face strong pressures for worldwide
integration but face weak pressures for differentiation or local responsiveness. As illustrated
in Figure 3.1, this type of structure resembles a centralized hub. These organizations struc-
ture their foreign subsidiaries into worldwide lines of business that are heavily managed
and controlled by headquarters. Assets and resources are centralized. Foreign subsidiaries
are heavily dependent on these assets and resources from the headquarters. Relative to
subsidiaries in multi-domestic and international structures, “global” subsidiaries have much
less freedom.

In recent years, many MNEs with this type of organizational structure have worked to
develop a corporate culture or mindset with the intention to become blind to the impor-
tance of national borders. That is, the desire is to operate in such a way as to not have to
be concerned with national cultural and legal differences. Even though most businesses
still organize on a regional basis and adaptation to local customer preferences may still be
necessary, products and services are increasingly designed for and marketed to customers
all over the world. This is particularly true for industrial products, that is, for products
sold from business to business, such as computer chips or machine tools or construction
equipment. The best technology and innovative ideas are sought everywhere and applied
to markets throughout the world. Products and services are created where costs are the

Design and Structure of the ME 73

lowest, quality is the highest, and time to delivery is the shortest, and delivered wherever
demand is sufficient. And resources (money, material and parts, insurance, even people) are
sought from wherever the best quality for cost can be found. Reaching this organizational
structure is not merely a matter of company size or experience in internationalization.
Sometimes it is a reflection of the nature of the pressures of the particular industry; often,
it reflects a purposeful, strategic decision to “go global.”

At this structural level, the role of the HR department must again shift. Key HR deci-
sions are made at the headquarters and implemented worldwide. Employees are hired
everywhere in the world, wherever the necessary skills, training, and experience can be
found. Worldwide policies are developed and implemented for many aspects of HR respon-
sibility, possibly based on practices followed in numerous places around the world. Manage-
ment promotions will require international experience and managers and executives will
be developed from all major countries or regions of operation. At the same time, increased
sophistication in locating certain HRM practices will become even more important, as the
firm tries to become a global enterprise.

This usually means fewer expatriates in local subsidiaries, an increased use of
third-country nationals, and broader-based multinational composition of corporate boards
and top-management and technical teams. And in most firms this means trying to develop
or maintain an international corporate culture that transcends national boundaries and
national cultures. Key employees need to be multilingual, experienced in a number of
countries, and culturally sensitive, and their countries of origin make little difference.

Transnational Organizational Structure

Organizations with a transnational organizational structure face strong pressures for world-
wide integration and for differentiation or local responsiveness. As shown in Figure 3.1,
these organizations resemble an integrated and interdependent global network of subsid-
iaries that have the ability to manage across national boundaries, retaining local flexibility
while achieving global integration. This form of organization has a truly global focus, mak-
ing resource decisions without reference to national origins, sharing its ideas and technology
with all of its units on a global scale, while cultivating a local character in all of its individ-
ual businesses. It is characterized by an interdependence of resources and responsibilities
across all business units regardless of national boundaries. Subsidiaries are integral parts of
a complete transnational system with both global and local objectives. IHRM policies and
practices are based on a collaborative process between headquarters and subsidiaries.

Bartlett and Ghoshal suggested that many firms were evolving into this new form of
international business that they termed “transnational.”12 In the sense that the transnational
firm has a global focus, it is similar to the global firm, described in the previous section.
But it differs from the global firm in that, rather than developing global products, services,
brands, and standardized processes and policies and procedures, the transnational organiza-
tion works hard to localize, to be seen not only as a global firm, but as a local firm as well,

Strategic Context74

albeit one that draws upon global expertise, technology, and resources.13 In a transnational
firm, the focus is simultaneously on global integration, local responsiveness, and knowledge
sharing among the different parts of the organization.

The transnational firm is often put forth as the direction in which all international firms
are headed. The salient management and HR question may be how to manage the complex,
national (cultural) diversity that this level of global business activity experiences. When
integration is needed (as in joint ventures and in the development of global workforces),
cultural diversity needs to be valued and utilized while minimizing its negative impacts;
but when cultural diversity is needed to differentiate products and services to meet the
needs of local markets, new corporate practices and organizational designs are required.

The Globally Integrated Structure

In addition to the four structural types just discussed (multi-domestic, international, global,
and transnational), a popular model is a globally integrated enterprise that is very dif-
ferent in structure and operations.14 Samuel Palmisano, the former chairman and CEO
of IBM, described the difference between a 20th-century multinational and a 21st-
century globally integrated enterprise as follows. In a multinational model, companies
build local production capacity within key markets, while performing other tasks on a
global basis. In contrast, in the globally integrated enterprise, strategy, management, and
operations—which take place in many different locations—are integrated into production
of goods and services to deliver value to clients worldwide. This integrated model is made
possible because of shared technologies, global IT systems, and global communications
infrastructure. In a globally integrated structure, different operations, expertise, and capa-
bilities (especially as is the case for service organizations, as IBM now describes itself)—
again, located around the world—allow the enterprise to connect with its customers, using
all the resources of the firm, and engage in collaborative innovation to solve the customers’
problems and challenges. HR activities in the globally integrated firm internally reflect the
same laws of global integration as those provided to the external clients. Talent and exper-
tise within the MNE flow to where they create the most value.

However, the differences between multi-domestic, global/transnational, and globally
integrated firms are significant. In the traditional multi-domestic enterprise, freestanding
subsidiaries or stand-alone foreign operations may be so loosely affiliated that valuable
opportunities for economies of scale, joint marketing efforts, or shared technology and
innovations may be lost. Country or regional operations and functional experts can develop
attitudes of strong independence that can result in the loss of benefits that arise from shar-
ing product ideas and technologies across national boundaries (refer to the Ford Motor
Company case in the previous chapter). The transnational firm creates a structure and
management system that takes advantage of global capabilities while allowing local subsid-
iaries to operate as independent businesses. The globally integrated enterprise tends to be
more network-based. Whichever structure is developed, the global HR roles and activities
must shift to meet the needs of the organization.

Design and Structure of the ME 75

Reaching this stage of development is not merely a matter of company size or experi-
ence in internationalization. Sometimes it is a reflection of the nature of the pressures of
the particular industry, but often it reflects a purposeful, strategic decision to “go global.”
IHRM in Action 3.1 describes a moderately sized firm, the Ferro Corporation, which made
a powerful shift to being a global MNE.15

FRAMEWORK 2: ORGANIZATIONAL STRUCTURE
IN TERMS OF BUSINESS UNITS/DIVISIONS

The second framework16 for describing organizational structure is relatively more detailed
and describes the organizational structure in terms of the business units/divisions within
the headquarters and subsidiaries (refer to Figure 3.2). The traditional choices include 1)
functional division structure; 2) product division structure; 3) geographic division struc-
ture; and 4) global matrix division structure.

IHRM in Action 3.1: Moving HR from International to
Global

The Ferro Corporation, a $1 billion manufacturer of coatings, plastics, specialty
chemicals, and ceramics, has been a successful international enterprise for almost
three quarters of a century and is now becoming a model for being a global company.
Several of its foreign operations, particularly those in Europe and Latin America,
have existed for as much as 70 years. About two thirds of its employees are non-US
nationals, and over 60 percent of its revenues and profits are derived from foreign
operations.

Despite its impressive international record, only recently has Ferro begun to see
itself as a global company. According to David B. Woodburg Ferro’s vice-president of
human resources at that time, “There was quite a bit of sharing of information and
technology among our operations in various countries, but each foreign division or
subsidiary operated highly independently, formulating much of its own strategy for
manufacturing, marketing, finance, and human resources.”

Since then Ferro has reorganized its corporate structure to focus on products
and business lines across international borders. “Each business thinks of the world as
its marketplace now,” says Woodbury. “We’re developing broad-based global strate-
gies, with increased communications and a greater sharing of assets throughout the
world.”

High on that list of “shared assets” is human resources. “We realize there is a strong
need for global managers,” says Woodburg. “We have to identify, train and develop
people with an international outlook, skills, and experience. Like all other facets of
the corporation, human resources has to evolve into a global operation.”

Strategic Context76

Functional Division Structure17

Departments in a functional structure are organized according to functions, e.g., operations,
marketing, finance, accounting (see Figure 3.2). Subsidiaries either report directly to the
CEO or the VP of operations or to marketing or manufacturing. Organizations that are in
the early stages of internationalization usually have this divisional structure. In addition,
this divisional structure is most likely found in firms with an international organizational
structure.

Product Division Structure18

Departments in this structure are organized according to their product divisions (see Fig-
ure 3.3). Each of the product lines contains all of the business functions such as finance,

Function A
(e.g., Marketing)

Function B
(e.g., Research

and Development)

Function C
(e.g., Operations)

Function D
(e.g., Accounting)

Corporate
Headquarters

FIGURE 3.2 Functional Structure

Function A
(e.g., Marketing)

Function B
(e.g., Research

and
Development)

Function C
(e.g.,

Operations)

Function A
(e.g., Marketing)

Function B
(e.g., Research

and
Development)

Function C
(e.g.,

Operations)

Product A Product B Product C Product D

Corporate
Headquarters

FIGURE 3.3 Product Structure

Design and Structure of the ME 77

marketing, and accounting. That is, all functional activities are controlled by a product
group. This divisional structure is most likely to be found in firms with a global organiza-
tional structure. Managers at the headquarters make most of the product decisions and
input from subsidiaries is very limited.

Geographic Division Structure19

In this structure, the product division typically gives way to a geographic divisional structure
with each region becoming an independent division reporting directly to the CEO. Each
region has its own set of specialized functions (see Figure 3.4). Country or regional man-
agers in each area are provided with substantial autonomy to adapt the strategies of the
parent country product divisions to fit the specificity of the local conditions. Firms with a
multi-domestic organizational structure are more likely to use this type of divisional structure.

As the need for more business centers increases, for example to accommodate additional
countries and for additional research and development centers to adapt products to local
customers, the simple hierarchical functional, product, and geographic divisional structures
turn out to be inadequate to handle the complexities of the needs of today’s MNEs, which
often have multiple organizational forms and networks. The organizational needs of the
modern MNE must be a mix of functional, product, and geographic divisional structures.

Global Matrix Structure20

As concerns for cost control compete with concerns for integration and cross-fertilization
across national borders, firms tend to look for ways to coordinate all the many critical
components of the firm: country subsidiaries, product lines, local and global customers,

Function A
(e.g., Marketing)

Function B
(e.g., Research

and
Development)

Function C
(e.g.,

Operations)

Function A
(e.g., Marketing)

Function B
(e.g., Research

and
Development)

Function C
(e.g.,

Operations)

Region A
(e.g., Asia-Pacific)

Region B
(e.g., North
America)

Region C
(e.g., EMEA)

Region D
(e.g., Latin
America)

Corporate
Headquarters

FIGURE 3.4 Geographic Structure

Strategic Context78

business functions, research and development, regional and central headquarters, etc. Thus,
other combinations of the critical variables are developed to include structures to integrate
the traditional business functions with country and product (see Figure 3.5). Often these
organizational designs have evolved as the firm has increased its global presence and tried
to cope more effectively with the complexities it encounters.

These matrix structures involve two or more lines of reporting. Typically there will be a
country “leg” to the matrix with managers reporting to a local national boss plus reporting
to a product group or regional or headquarters functional office, as well. Sometimes there
are three or more legs and they may be given equal importance (solid-line reporting) or
may have different levels of priority, with a solid line for direct reporting and dotted line
for more indirect reporting relationships.

These structures cause a new set of dilemmas and require a new set of skills. The many
diverse demands of global business require the global firm to give management focus to
both the local and the corporate levels. The matrix doesn’t resolve this dilemma, it just
makes it a permanent part of the management environment. At best, the matrix structure
allows local and global realities to be reconciled; at its worst, it allows individual managers
to pursue narrow objectives without regard to their impact on the other legs of the matrix,
that is, on the other parts of the organization. Problems with divided loyalties and multiple

Product B

Product C

Product D

Region A Region B Region C Region D

Corporate
Headquarters

FIGURE 3.5 Matrix Structure

Design and Structure of the ME 79

bosses have to be resolved. Ultimately, managers working in a global matrix organization
must learn to think more broadly and, as stated earlier, to develop network skills to nego-
tiate resources, resolve trade-offs, and to manage through influence and persuasion, not
necessarily through direct authority.

At the level of the individual, the central dilemma that many managers face in this
organizational need for integration is that of divided loyalties. Loyalty is local, that is, peo-
ple are more loyal to the colleagues they socialize with, see daily, and spend time with.
If the formal organizational structure requires interaction with strangers (particularly
strangers in another country—even if that other country is headquarters), it is only to be
expected that priority attention will flow to the local colleagues, unless significant effort is
put into developing the relationships across borders. Interestingly, attitudes about loyalty
vary according to country culture and to functional specialty. For example, managers in
Spain and France prefer loyalty to the remote (normally central) part of the organization
while managers in the UK, Ireland, and China prefer loyalty to local colleagues. HRM was
one of the functions that most preferred loyalty to local colleagues. But, clearly, HR must
get involved with training managers in the need to foster both local and central relation-
ships and must foster such relationships themselves.

IHRM AND INTERNATIONAL ORGANIZATIONAL
DESIGN AND STRUCTURE

As mentioned earlier organizational design refers to the process or style used by leaders
and managers to arrange the various components of organizational structure. This process
is increasingly complex and to a large degree presents mostly new and complex organiza-
tional and people issues, such as cross-border negotiations, cultural sensitivities, coordina-
tion and control across national boundaries and time zones, cross-border and cross-cultural
teamwork, and global learning and integration. As the number of countries and cultures
and variety of international business activities, as well as the use of cross-border teams
and task forces, continue to increase, the more important IHRM has become in helping
firms make sure that their globalization works. When designing organizations, IHRM is
guided by the extent of desired integration versus the degree of acceptable and/or neces-
sary differentiation.

IHRM needs to not only be able to support the organizational structure of the MNE
and deliver the glue technology that these different groupings need to integrate, but it
must also organize itself to effectively deliver HR transactional services for all locations of
the MNE. The traditional IHRM view of how to best organize itself, in the early stages of
internationalization, was focused on either servicing the subsidiary’s HR needs (with out-
sourced help) at arms-length from the HQ, or hiring local HR country managers to deliver
these services on location. However, both options had major drawbacks. HQ HR managers
are often simply incapable (and dangerously unknowledgeable) in managing HR practices
outside of their own countries (due to both their lack of international exposure and to

Strategic Context80

the legal and cultural complexity of host countries) and locals, although knowledgeable
to deliver transactional HR services in their local countries, may not be cost-effective and
often lack the strategic HR components in their jobs that are used by HQs to implement
corporate programs in the local environment.

To remedy some of these shortcomings and as a result of the capabilities provided
through modern IT and communication technologies, a new organizational form has been
emerging to deliver HR transactional services in the MNE. This new structure for the deliv-
ery of HR services throughout an MNE’s global operations is referred to as “shared services”
and “centers of excellence.” In a shared service model, individual country operations can
specialize in varying aspects of international HR services and then, given the power of
intranets, countries can access these centers of excellence without having to develop them
all themselves. In this way, all of the MNE’s foreign operations can have available world-
class IHRM capabilities.

FORMAL STRUCTURE AND BEYOND

The challenge for the management of MNEs and their IHR departments is to learn how to
manage all of these networks and linkages. Here is a short introduction to networks, one of
the most important forms of linkage.

Networks

One of the most important competencies that holds together these complex global busi-
nesses are the informal networks that individual managers develop throughout the many
centers of the firm. These networks work only if the managers who interact with each other
to get their planning and implementation done know and trust each other well enough to
work out their different purposes. It requires constant attention to the skills of integration
and to management development programs that have as one of their major foci the build-
ing of such networks and the competencies of integration.

Firms have tried a number of strategies to hold these complex global businesses together
with increasingly complex formal structures—including multiple dimension matrixes, with
formal reporting structures that include product lines, functional responsibilities, country
business units, regional and parent-country headquarters, multiple specialty centers such
as R&D and product development and global training and development, and cross-border
acquisitions, IJVs, partnerships, and virtual teams, described in the next chapter.

Because of these multiple and complex layers, informal networks of relationships
develop in order to handle the practical components of day-to-day business activity, such
as business planning. Such informal networks only work if the people that need to interact
and coordinate have a shared super-ordinate vision of the direction of the overall firm and
their parts in it, high capacity for self-control and willingness to collaborate, and capacity

Design and Structure of the ME 81

to negotiate their differences. This requires constant attention to the application of what
Evans calls “glue technology,” or the management development technology of integration,
that is, management development practices that have as a primary purpose the integration
of the management and executive workforce of the firm and the building of the necessary
competencies to use the resulting networks in an effective way.21 Such global management
development programs are discussed more fully in Chapter 10 on International Training
and Management Development.

Use and Management of Cross-border Teams

Given the increasing complexity of organizations, much of the work that needs to get done
in a global enterprise requires a high degree of interaction and interdependence between
globally dispersed organizations and between people in various, globally dispersed sections
of those organizations. This interaction is often relegated to a work group, or team.22 And,
increasingly, these teams are made up of people from multiple and varying organizations
(or parts of the same organization), geographic locations, countries, cultures, languages,
ways of thinking and working, and time zones. Often they have the characteristics of “vir-
tual” teams, that is, they don’t meet face-to-face and are not co-located; they are widely
geographically dispersed.

Types of Cross-border Teams

These cross-border teams come with many different names: global teams, multinational,
multicultural, transnational, transcultural, geographically distributed or geographically dis-
persed, non-co-located or out-of-sight teams. All of these terms refer to the phenomenon of
people working together in teams, with common goals, but who are not physically located
in the same place and often do not meet but rather conduct their “business” via electronic
means. In this book, such teams will generally be referred to by the term cross-border
teams, since this is the primary structure of interest in this chapter and the phrasing that
seems to be most commonly used.

Challenges of Cross-border Teams

These cross-border teams represent a dramatic change in the ways managers function and
they present two major new challenges.23 Both of these challenges stem from issues related
to the physical separation of workers and managers made necessary by globalization24 and
made possible by modern technology.25

The first challenge has to do with managing people you can’t see. Managers must make
the transition from managing activities to managing projects and their results. The second
managerial challenge is to redefine the role of management itself, since the “virtual” nature
of cross-border teams creates much uncertainty as to whether managers still have a role

Strategic Context82

to play in managing employees who are no longer present in the same locale. As a con-
sequence, these teams tend to be largely self-managing, with the members working very
interdependently and coordinating via the internet.

Popularity of Virtual Teams

The goal in this discussion of cross-border teams is to provide enough understanding of
the problems and their solutions so that IHRM managers can provide the necessary advice,
training, and facilitation to ensure their global firms can gain the intended and possible
benefits. (More detail is available in the Schuler, Jackson, and Luo book, Managing Human
Resources in Cross-Border Alliances, in this series.26) Learning to manage these teams will
become increasingly more important as such virtual teams become more prevalent for
several reasons:

â– â–  The complexity of global business requires the interaction and networking of people
with multiple competencies from many different locations.

â– â–  Virtual teams save firms the money involved in travel for teams to meet or to relocate
team members so they can be together.

â– â–  Technology such as the internet, video teleconferencing, and Skype makes it much
easier for cross-border teams to meet in a virtual fashion. These teams can function in
one or both of two different modes:27

1 They can do everything (or most things) face-to-face, which requires extensive
travel to get team members together (and which eliminates one of the reasons for
using such teams in the first place, that is, their ability to meet electronically); or

2 They can do most of their work in virtual mode, relying on electronic technology
to facilitate their interaction.

Best Practices in the Management of Virtual Teams

Many problems arise with over-reliance on virtual teams and on teams meeting in virtual
mode, although one unanswered question is whether younger people who “grow up” using
the computer and are much more used to interaction with others via a computer monitor
or cell phone might be better able to interact effectively without the need for face-to-face
time and be able to trust out-of-sight team members well enough to overcome these prob-
lems. The use of e-mail may increase the quantity of interaction, but some studies suggest
the quality decreases.28

Most studies, in fact, suggest that the critical variable in the successful functioning of
virtual teams is the level of trust between team members. This seems to be a function of the
amount of time the team has spent in “face-to-face” time, particularly at the beginnings of
the life of the team.29 Some experience with virtual teams also suggests that the “half-life”

Design and Structure of the ME 83

of trust in virtual teams, i.e., the time it takes before the level of trust falls below some
dangerous threshold, is less than three months.30 What this indicates is that virtual teams, in
order to maintain healthy working relationships, probably need to meet face-to-face every
three months or so.

Managers supervising the physically remote legs of the global firm now have the
additional challenge of managing these “virtual” teams. As already indicated, these
teams operate across barriers of distance, and differing cultures, time zones, and tech-
nologies. Most management training still assumes that management skills are applied
face-to-face and in the manager’s own culture, which is no longer the reality for many
of these managers. Using the old skills to manage these new remote operations results

EXHIBIT 3.1: Best Practices for the Effective Management
of Cross-border and Virtual Teams31

â– â–  Develop an e-mail protocol, to include appropriate topics, frequency and time of
use, definition of urgency, who should participate and when, the importance of
respect in use of titles, definition and use of deadlines, etc.

â– â–  Select the appropriate people for virtual team membership, including people who
are self-starters, have strong communication skills, and have good virtual-team
skills (can use e-mail well, etc.).

â– â–  Identify from the beginning the team member who will have the team
leadership role.

â– â–  Keep virtual team projects focused on the task, with clear goals, targets, and
deadlines.

â– â–  Provide adequate face-to-face social time to build the trust necessary to work
well in a virtual format.

â– â–  Celebrate the reaching of targets and completion of projects.
â– â–  Identify the barriers to collaboration that you want to overcome and work

together to resolve them.
â– â–  Provide cultural mentors to the team to deal with cross-cultural problems and

misunderstandings and IT technicians to help with technology problems.
â– â–  Identify what people should do when a crisis occurs, including whom to contact

and the decision-making hierarchy within the group.
â– â–  Identify the ground rules for virtual teamwork, including establishing regular

times for group interaction, setting up firm rules for communication, using visual
forms of communication whenever possible, establishing rules for sharing project
information outside the team, etc.

Strategic Context84

in too much travel, inappropriate attempts to micro-manage (since trust and relation-
ships have not been developed), and concerns about personal visibility with remote
staffs. Managers in these new organizations need to gain the skills of relationship
building and teamwork from long distance. Exhibit 3.1 illustrates some of the lessons
learned about the effective management of cross-border and virtual teams.

The Global Learning Organization

Ultimately, the “tie” that binds the global firm together is the intellectual and social
capital it has in the experience, knowledge, and skills held by its employees around the
world and its abilities to share, and use that knowledge on a global basis. In today’s world,
where the only sustainable competitive advantage any firm has is its ability to learn and
innovate faster than its competitors and react more quickly to continual volatility and
change, creating a culture of learning and nurturing, and facilitating that learning across
borders may be the only avenue to success.32 In today’s global economy, “change is com-
plex and messy, [so] many stick with the known for fear of the unknown. . . . It is much
more reassuring to stay as you are . . . than to try to make a fundamental change when
you cannot be certain that the effort will succeed.”33 Yet a firm has to do it, in order to
survive and thrive in today’s environment. It has to take the risk to find ways to facilitate
learning so that change is possible. As John Browne, former CEO of BP Amoco, put it,
“learning is at the heart of a company’s ability to adapt to a rapidly changing environ-
ment.”34 From a global perspective, this means a firm must facilitate learning on a global
basis—across borders, across parts of the organization in different country locales, within
global and virtual teams, with people on foreign assignments and after they return from
those assignments, and in international joint ventures and cross-border partnerships and
alliances.

As Peter Senge says, “perhaps for the first time in history, humankind has the capacity
to create far more information than anyone can absorb, to foster far greater interdepend-
ency than anyone can manage, and to accelerate change far faster than anyone’s ability to
keep pace.”35 Thus the challenge to firms is that learning on a global basis must become a
central managerial focus. Technology alone (such as creating IT databases and repositories
of knowledge and experience) will not solve the challenge. Nor will merely stating prin-
ciples and values of collaboration. People must want to use such knowledge sources and
must be willing to contribute their own “learnings” to them. In the end, people must be
committed to:

1 the importance of learning;
2 the need to share and use information.

Design and Structure of the ME 85

In turn, the MNE (and IHRM) needs to create the organizational culture and structure and
the HR policies and practices that encourage and facilitate such attitudes and behaviors.
This is the essence of learning in organizations and knowledge management.36

In terms of the conduct of international business, the global firm must use its people who
have international experience and knowledge and who have been posted to international
assignments, spreading them throughout the organization. It must ensure that individuals
coming back from overseas assignments are provided new jobs that use the knowledge
and skills learned overseas and are given opportunities to share that learning. In order for
a firm to reap the benefits of global learning, it is imperative that its valuable expatriate
employees remain with the organization long enough to share their experiences—and pre-
sumably even longer, to contribute to the firm’s ongoing globalization. Since learning is
so important, and learning across borders (taking advantage of the global experiences and
multinational learning of a global firm’s global workforce) is so necessary, then carefully
managing employees on foreign assignments to ensure successful expatriation and repatri-
ation would seem essential. (These issues are discussed in detail in Section 3, Global Talent
Management.)

Special efforts also need to be made to expose employees and managers “at home” to the
products and processes of foreign subsidiaries and foreign acquisitions and partners, and
vice versa, including visits to each other’s operations to observe and learn through direct
interaction. The firm must spread employees and managers from the countries of its opera-
tions throughout its organization, including at the very highest levels of the executive team
and the board of directors itself. Only in these ways can the global firm make effective use
of any processes or technologies that have been adopted to facilitate learning on a global
scale, such as talent directories, intranets for sharing information, etc.

CONCLUSION

This chapter has focused on the difficult task of designing organizational structure for
the complexities of the modern international enterprise. First, it described how the con-
flicting demands on MNEs in terms of two countervailing forces (integration versus local
responsiveness) influences the design and structure of the organizations that international
firms use to carry out their international activities. Then the chapter provided an over-
view of the various structures that international firms have utilized as they have evolved
in their conduct of international business. Next the chapter described the implications for
IHRM of the different structures. And finally the chapter discussed the role of networks,
global teams, and global learning organizations in maintaining complex organizational
structures.

Strategic Context86

DISCUSSION QUESTIONS

1 Using materials from Chapter 3, explain how market entry methods are related to
organizational structure.

2 What are the various choices that MNEs have for designing organizational structure?
How do they differ from an HR point of view?

3 How can IHRM help to ensure the success of firms with a global organizational struc-
ture and a transnational organizational structure?

4 How do networks and learning organizations help to ensure an MNE’s competitive
advantage?

Design and Structure of the ME 87

CASE STUDY 3.1: Capgemini: A Transnational
Organization (France)

Capgemini, founded in 1967 and headquartered in Paris, France, is Europe’s largest IT soft-
ware and services group. The firm has taken all available means (organic growth, acquisitions,
and alliances) to become Europe’s number 1 in computer services and consulting and, as of
2014, among the top five of the world’s IT management and services consultancies. Its almost
140,000 people work in over 40 countries. For example, in 2000 Capgemini acquired Ernst &
Young Consulting and in 2002 they spun off their Sogeti Group as a wholly owned subsidiary
specializing in IT consulting and outsourcing, which now has over 20,000 employees working
in 7 countries.

The original merger of Cap, a computer services group, and Sogeti, a business management
and information processing company, brought together operations in the UK, the Netherlands,
Switzerland, and Germany, with a head office in France. Further acquisitions brought in a large
number of small groups throughout Europe and the US. This expanded its coverage to IT con-
sulting, customized software, outsourcing services, and education and training. In recent years,
this strategy has expanded Capgemini’s work to countries such as India, the Czech Republic,
and Sweden, with major partnerships with major software firms such as SAP and Microsoft.
Moreover, they now have operations in Asia-Pacific (including Australia and China) and Latin
America. In 2013, sales increased by 12 percent in Asia-Pacific and Latin America. Similarly,
revenue increased by 16 percent in Australia. Global expansion is important to Capgemini.

Capgemini has always been highly decentralized, but its internal strategy has been that
when any of its branches reached 150 personnel, the branch is split in two. This gives the firm
greater flexibility in responding to variations in local demand. Decision making and direct cus-
tomer service are facilitated with smaller teams.

Capgemini has developed information pooling systems to ensure that innovative solutions
developed in one country or business will be rapidly disseminated to other countries and busi-
nesses. These include electronic bulletin boards and extensive electronic and voicemail facili-
ties, plus the organizational culture of informal networks of professionals who work frequently
together in project teams.

The challenges for this fast-growing transnational have major HR components, e.g., integrat-
ing its wide variety of organizations into a group with a common culture capable of working
within a complex web of ownership relationships, while benefiting from the strengths of the
relationships that exist among its “family” of committed, semi-autonomous professionals. Inter-
nally, Capgemini and its IHR team work to clarify and coordinate roles, objectives, systems, and
resources, particularly its skilled professional staff, across countries and markets. For example,
its Genesis project took two years to achieve this integration, but now Capgemini sees itself as
coming much closer to achieving its aim to be a modern transnational enterprise.

Sources: Capgemini website (2014), http://www.capgemini.com; also http://en.wikipedia.org/wiki/
Capgemini; Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London:

Strategic Context88

International Thomson; and Segal-Horn, S., and Faulkner, D. (2010). Understanding Global Strategy,
Andover, Hampshire, UK: South-Western Cengage Learning EMEA.

Discussion Questions

1 What makes a firm a “transnational enterprise”?
2 Does Capgemini meet the criteria for being a transnational? Why or why not?
3 What are the HR implications of being a transnational? What makes HRM in a transna-

tional different from HRM in, for instance, a multi-domestic firm?
4 What kinds of problems do you see in Capgemini’s strategy for structuring its business?

NOTES

1 Source: Change is the only constant, The Business Times, Feb. 14, 2014. Also mentioned in IBM Centennial
Lecture, March 31, 2011 (www. http://www.ibm.com/ibm/files/Y856416N01277W70/centennial_lec
ture_erich_clementi_austria_preparedremarks.pdf).

2 Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit
and Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans; Pucik, V., and Bjorkman, I. (2010). The
Global Challenge: Frameworks for International Human Resource Management, New York: McGraw-Hill;
Bartlett, C. A., and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Boston:
Harvard Business School Press; Galbraith, J. R. (1998). Structuring Global Organizations, in Mohaman,
S. A., Galbraith, J. A., and Lawler, E. E., III (eds.), Tomorrow’s Organization: Crafting Winning Capabilities
in a Dynamic World, San Francisco: Jossey-Bass, pp. 103–129.

3 Galbraith, J. R. (1998), Structuring global organizations, in Mohrman, S. A., Galbraith, J. R., and Lawler,
E. E., III, (eds.), Tomorrow’s Organizations: Crafting Winning Capabilities in a Dynamic World, San Fran-
cisco: Jossey-Bass, pp.103–129. Also see Galbraith, J. R. (2014). Designing Organizations: Strategy,
Structure, and Process at the Business Unit and Enterprise Levels, San Francisco: Jossey-Bass & Pfeiffer
Imprints, Wiley; Galbraith, J. R. (2010). The multi-dimensional and reconfigurable organization. Organiza-
tional Dynamics, 39(2), 115–125.

4 Based on ibid.
5 Evans, P. A. L. (1992). Human resource management and globalization. Keynote address delivered to the

2nd International Conference of the Western Academy of Management, June 24–26, Leuven, Belgium;
Evans, P., Pucik, V., and Barsoux, J.-L. (2002). The Global Challenge: Frameworks for International Human
Resource Management, Boston: McGraw-Hill Irwin; and Galbraith, J. R. (2000). Designing the Global
Corporation, San Francisco: Jossey-Bass.

6 Evans, P. A. L. (1992).
7 Galbraith, J. R. (2000), p. 1.
8 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and

Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998).
Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Har-
zing, A. (2004) Strategy and Structure of Multinational Companies, in Harzing, A. W. K., and Van Ruyssev-
eldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.

9 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and
Readings in Cross-Border Management, Boston: Irwin McGraw Hill.

Design and Structure of the ME 89

10 Ibid.
11 Ibid.
12 Pucik, V., and Evans, P. (2004). The human factor in mergers and acquisitions, chapter 8, in Morosini,

P. and Steger, U. (eds.), Managing Complex Mergers, Real World Lessons in Implementing Successful
Cross-cultural Mergers and Acquisitions, London: Prentice Hall, pp.161–187; Bartlett and Ghoshal (2010).

13 Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London: International
Thomson Business Press.

14 Palmisano, S. J. (2006). Multinationals have to be superseded, Financial Times, June 12: 19.
15 Source: http://www.ferro.com/About/History/(2014). Adapted from E. Brandt, Global HR. Personnel

Journal, March 1991. Also see Bartlett, C. A., and Ghoshal, S. (2010). Managing Across Borders: The
Transnational Solution, Boston: Harvard Business School Press; Segal-Horn and Faulkner (1999).

16 This has been the traditional perspective to describe organizational structure. For early work on this topic
see Rumelt, R. (1986). Strategy, Structure, and Economic Performance (Rev. ed.), Boston, MA: Harvard
Business School Press; Chandler, A.D., Jr. (1962). Strategy and Structure: Chapters in the History of the
American Industrial Enterprise. Cambridge, MA: MIT Press; Miles, R., and Charles S. (2003). Organi-
zational, Strategy, Structure and Process, Stanford: Stanford University Press. For more current work see
Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and
Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans.

17 Palmisano (2006).
18 Ibid.
19 Ibid.
20 For more information on the Global Matrix Structure see Galbraith, J. R. (2013). Matrix management:

structure is the easy part. People & Strategy, (1), 6; Galbraith (2014).
21 Evans, P. A. L. (1992), op. cit., p. 4.
22 See Rabotin, M. (2014). Connecting virtual teams: global, virtual teams must learn how to align behaviors

and collaborate across cultures and around the world. T+D, (4), 32; Magnusson, P., Schuster, A., and
Taras, V. (2014). A process-based explanation of the psychic distance paradox: Evidence from global
virtual teams. Management International Review, (3), 283; Zander, L., Zettinig, P., and Makela, K. (2013).
Leading global virtual teams to success. Organizational Dynamics, (3)., 228; Hoch, J. E., and Kozlowski,
S. J. (2014). Leading virtual teams: Hierarchical leadership, structural supports, and shared team leader-
ship. Journal of Applied Psychology, (3), 390; Erez, M., Lisak, A., Harush, R., Glikson, E., Nouri, R., and
Shokef, E. (2013). Going global: Developing management students’ cultural intelligence and global iden-
tity in culturally diverse virtual teams. Academy of Management Learning & Education, 12(3), 330–355;
Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge: Media richness, cultural
difference and language commonality. Journal of World Business, 48(3), 398–406; Armstrong, D. J., and
Cole, P. (1995). Managing distances and differences in geographically distributed work groups, in Jack-
son, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC: American Psychological
Association, pp. 187–215; Cascio, W. F. (2000). Managing a virtual workplace, Academy of Manage-
ment Executive, 14(3), 81–90.

23 This section borrows heavily from Cascio, W. F. (2000). Managing a virtual workplace, Academy of Man-
agement Executive, 14(3), 81–90.

24 Marquardt, M. J., and Horvath, L. (2001). Global Teams: How Top Multinationals Span Boundaries and Cul-
tures with High-Speed Teamwork, Palo Alto, CA: Davies-Black; Moran, R. T., Harris, P. R., and Stripp, W. G.
(1993). Developing the Global Organization, Houston, TX: Gulf Publishing; Odenwald, S. B. (1996). op
cit.; and O’Hara-Devereaux, M., and Johansen, R. (1994). Globalwork: Bridging Distance, Culture, and
Time, San Francisco: Jossey-Bass. Also see Cramton, C. D., and Hinds, P. J. (2014). An embedded model of
cultural adaptation in global teams. Organization Science, 25(4), 1056–1108; Zander, L., Mockaitis, A. I.,
and Butler, C. L. (2012). Leading global teams. Journal of World Business, 47(4), 592; Sullivan, B. (2013,
Jul 04), International teams must also be local. Financial Times.

Strategic Context90

25 Duarte, D. L., and Snyder, N. T. (2006). Mastering Virtual Teams, San Francisco: Jossey-Bass; and
O’Hara-Devereaux and Johansen (1994).

26 Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-border Alliances,
London: Routledge.

27 Duarte and Snyder (2006).
28 Evans, Pucik, and Barsoux (2002).
29 Ibid., 314–315.
30 Armstrong, D. J., and Cole, P. (1995). Managing distances and differences in geographically distributed

work groups, in Jackson, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC:
American Psychological Association, pp. 187–215; Cramton, C. D. (2002). Finding common ground in
dispersed collaboration. Organizational Dynamics, 30(4), 356–367; De Meyer, A. (1991). Tech talk: How
managers are stimulating global R&D communication, Sloan Management Review, 32(3), 49–66.

31 This list is adapted from Solomon, C. M. (1998). Building teams across borders. Workforce, 3(6), 12–17;
Solomon, C. M. (2001). Managing virtual teams. Workforce, 80, 60–64; and Johnson, C. (2002). Manag-
ing virtual teams. HR Magazine, 47(6), 68–73. Also see Goodman, N., and Bray, S. M. (2014). Preparing
global virtual teams for success. Training, 51(5), 64–65; Klitmøller, A., and Lauring, J. (2013). When
global virtual teams share knowledge: Media richness, cultural difference and language commonality.
Journal of World Business, 48(3), 398; Purvanova, R. K. (2014). Face-to-face versus virtual teams: What
have we really learned? The Psychologist Manager Journal, 17(1), 2.

32 See, for example, Berry, H. (2014). Global integration and innovation: Multicountry knowledge genera-
tion within MNCs. Strategic Management Journal, 35(6), 869–890; Shieh, C., Wang, I., and Wang, F.
(2009). The relationships among cross-cultural management, learning organization, and organizational
performance in multinationals. Social Behavior and Personality, 37(1), 15–30.; Blomkvist, K. (2012).
Knowledge management in MNCs: The importance of subsidiary transfer performance. Journal of Knowl-
edge Management, 16(6), 904–918; Najafi-Tavani, Z., Giroud, A., and Andersson, U. (2014). The
interplay of networking activities and internal knowledge actions for subsidiary influence within MNCs.
Journal of World Business, 49(1), 122–131; Hocking, J., Brown, M., and Harzing, A. (2007), Balancing
global and local strategic contexts: Expatriate knowledge transfer, applications, and learning within a
transnational organization, Human Resource Management, 46(4), 513; Klitmøller, A., and Lauring, J.
(2013). When global virtual teams share knowledge: Media richness, cultural difference, and language
commonality. Journal of World Business, 48(3), 398–406; McGuinness, M., Demirbag, M., and Bandara,
S. (2013). Towards a multi-perspective model of reverse knowledge transfer in multinational enterprises:
A case study of Coats plc. European Management Journal, 31(2), 179–195.; Fang, Y., Wade, M., Delios,
A., and Beamish, P. W. (2013), An exploration of multinational enterprise knowledge resources and foreign
subsidiary performance. Journal of World Business, 48(1), 30–38.; Kotter, J. (2012), Accelerate! Harvard
Business Review, November, 2–13.

33 Daft, R. (2002). The Leadership Experience, 2nd ed., Orlando, FL: Harcourt College, 582.
34 Prokesch, S. E. (1997). Unleashing the power of learning: An interview with British Petroleum’s John

Browne. Harvard Business Review. Sept.–Oct., 148.
35 Senge, P. (2006). The Fifth Discipline (updated and revised). New York: Doubleday/Currency, 69.
36 Jackson, S.E., and Schuler, R.S. (2001). Turning Knowledge into Business Advantage, Financial Times,

January 15: Special Section, Part 14.

We form partnerships to help us make our products and services more sustainable
and help us improve the communities in which we operate. . . . Together we can help
solve the world’s greatest challenges.

DuPont Corporation1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the basic nature of international mergers and acquisitions, international
joint ventures, and international alliances.

â– â–  Explain the major IHRM implications from international mergers and acquisi-
tions, international joint ventures, and international alliances.

■■ Define the IHRM professional’s role in implementing effective international
mergers and acquisitions, international joint ventures, and international alliances.

C h a p t e r 4

International Mergers and
Acquisitions, International Joint
Ventures, and Alliances

This chapter examines the most common approaches to “going international,” in addition
to the options of starting a foreign operation “from scratch” as described in the previous
chapters. These approaches involve forming one or more types of international combina-
tion. In this chapter we discuss the three most common types of combination.

International mergers and acquisitions (e.g., one firm from one country acquires a firm
in another country), international joint ventures (e.g., two or more firms from two or more
countries create a new and separate—legal—business entity), and international alliances
(e.g., two or more firms enter into formal or informal partnerships that do not involve the
creation of a new and separate legal entity). The chapter starts with a general discussion

Strategic Context92

of some basic concepts in international combinations. Then the chapter discusses IHRM
issues in international mergers and acquisitions and international joint ventures. And
finally the chapter closes with a general discussion of IHRM issues in international
alliances.

INTERNATIONAL COMBINATIONS: AN INTRODUCTION

All of these forms of international combination can be viewed as forms of partnership and
thus create major coordination and integration challenges, as is true of all forms of part-
nership.2 All of these involve areas of international business that IHRM professionals must
thoroughly understand in order to provide senior managers with the advice they need for
designing effective global businesses.

International mergers and acquisitions, joint ventures, and alliances of various types are
increasingly used by firms to gain access to new global markets and global resources, such
as technology and skilled people.3 The number and value of such cross-border deals con-
tinues to increase dramatically. Recent examples of significant cross-border mergers and
acquisitions include:4

â– â–  Microsoft (USA) and Nokia (Finland);
â– â–  Pfizer (USA) and Polocard (Poland);
â– â–  Google (USA) and Schaft (Japan);
â– â–  Samsung (South Korea) and Nanoradio (Sweden);
â– â–  Takeda Pharmaceutical (Japan) and Nycomed (Norway).

Older cross-border deals include:

â– â–  British Petroleum (BP) (United Kingdom) and Amoco (USA);
â– â–  Daimler Benz (Germany) and Chrysler (USA);
â– â–  BMW (Germany) and The Rover Group (United Kingdom).

Firms of every size and type from many different countries are using mergers or acquisi-
tions to access or expand their global businesses.5

There are a number of pressures causing this wave of international acquisitions, includ-
ing both a felt need to constantly grow the business—by acquiring a foreign competitor—to
compete more successfully with other global firms and to achieve world-class market
entry and industry leadership or to acquire assets and resources (usually technological
and knowledge-based) needed to compete and that would otherwise be too expensive,
take too long, or would just be impossible to develop internally.6 When acquisition is the
choice for entry into a new market, it is usually seen as a quicker and more effective way
to develop a presence in a local market than to build such capability from scratch.

M&A, Joint Ventures, and Alliances 93

Other Types of International Combinations

There are a number of other forms of international combinations.7 In some cultures or
countries, partnerships are, if not the only way to enter the marketplace, at least the “smart-
est” way, either because foreigners can, for practical purposes, only do business in the coun-
try through local partnerships—joint ventures or other forms of combinations—either
because relationships (established through the partnerships) are of primary importance to
doing business in that culture or because the government requires such local partnering.
International combinations, in general, refer to partnerships between firms that have their
headquarters in different countries.

Two broad categories of international combinations include equity combinations and
those that involve no shared equity investment.8 Equity-based international combinations
involve long-term relationships—with one partner buying all or most of the equity in the
other partner—and that requires active day-to-day management by the controlling partner
of a wide variety of business issues in the combined firm. International mergers and acqui-
sition (IM&A) and international joint ventures (IJV) are two major types of equity-based
international combinations. IJVs are defined as legally and economically new and separate
organizational entities created by two or more parent firms that collectively invest financial
as well as other resources in the new entity in order to pursue certain objectives. In an inter-
national joint venture, the new entity will have a new headquarters that will include par-
ticipation from both partners and will likely be located in the country of the joint venture.
In an international M&A, one firm buys controlling or full interest in another firm with the
understanding that the buyer will determine how the combined operations will be managed.

Non-equity international combinations share profits, responsibilities, and resources
according to specific contractual relationships—but do not involve one party buying equity
in the other party. Each company cooperates as a separate legal entity, bears its own liabil-
ities, and has the freedom to organize its own resources, production processes, and opera-
tions. Non-equity international combinations include joint exploration projects (e.g., in the
energy sector), research and development consortia (e.g., in the pharmaceutical sector),
co-production agreements (e.g., in the manufacturing sector), co-marketing arrangements
(e.g., in consumer durable sectors), and long-term supply agreements (e.g., the retail sector).

Record of Success and Failure

Some surveys suggest that a large percentage (often reported to be over 50 percent) of
international acquisitions, joint ventures, and partnerships fall short of their objectives and
at least one-third are dissolved within a few months or years.9 “Most organizations do not
have the knowledge, experience, or capability to manage alliances to maximize returns
on all sides.”10 As with mergers and acquisitions, international alliances can also be set
up for the long-term and need to be governed throughout as relationships. Indeed, many
top executives of multinational firms have not changed their “mental models” from the

Strategic Context94

command-and-control approach often used in the past for mergers or acquisitions to the
necessarily participatory, relation-building nature of a successful international acquisition,
joint venture, or alliance.

Typically the reasons for pursuing an acquisition or international alliance are financial
or strategic in nature due to perceived compatibility of or synergism in operations, prod-
ucts, services, markets, or technologies. Firms usually decide that an international merger
or acquisition or joint venture (or, for that matter, a divestiture—creating an acquisition
opportunity for someone else) will yield increased value and profits or improved market
position for any one of five different reasons:11

1 It enhances industry consolidation (thus helping to eliminate expensive overcapacity),
which is typically the situation when the overall market is mature and where market
opportunities are flat or shrinking.

2 It enables geographic expansion into neighboring regions for a newly internationaliz-
ing, heretofore local, firm.

3 It enhances expansion into new markets for revenue growth, in which the opportuni-
ties will not wait for internal development.

4 It involves acquisition of new technology or products or knowledge when the firm
doesn’t have the resources to develop the product or technology internally.

5 It involves combining with one or more other firms in order to realize a synergy that
will form a preeminent firm with superior market advantages or economies of scale,
often when new industry configurations are being created by new technologies.

Due Diligence

In order to achieve these objectives (which, as pointed out above, happens all too rarely)
firms need to conduct thorough preliminary due diligence to assess carefully the “real” val-
ues to be gained by acquisition of or partnering with potential target firms. However, in the
typical situation,

People often just jump into the deal and then [later] come the realization that
you have to work at it. . . . There are no easy mergers or acquisitions. Mergers
[and acquisitions] need to be more thoughtful, more precise with regard to their
objectives, more deliberate with regard to their people and processes and yet be
done in a rapid time.12

Effective due diligence prior to the eventual “marriage of the firms” tends to be highly
underrated. Many global ventures fall prey to failure or reduced levels of success because
this crucial research effort doesn’t reveal the weaknesses or incompatibilities of a prospec-
tive foreign business partner.

M&A, Joint Ventures, and Alliances 95

Often the only due diligence that is performed involves a detailed audit of financial and
legal issues and possibly product and market compatibilities or synergies. This normally
includes a review of things like annual reports, financial statements, product brochures,
corporate legal documents, and other documents relating to the prospective partner’s busi-
ness practices. General information consisting of credentials and certifications (such as ISO
certifications) concerning principals, activities, and other requirements significant to the
potential venture is also usually audited.

As a result, the typical due diligence review of the target firm during the pre-combination
phase of partnering rarely considers the critical people, organizational, and HR issues
that may well provide the eventual reasons for the success or failure of the combina-
tion. The HR complications often include issues such as overestimation of the abili-
ties of the partner firm; an exaggerated assumption of the synergies available from the
combination; inadequate attention to the incompatibilities of the firms’ programs, ways
of conducting business, and cultures; and unwillingness to prepare for the frequently
experienced loss of productivity and staff after the merger or acquisition is completed.
Add to these problems the typical differences experienced between legal and cultural
systems in different countries, and it becomes easier to understand the necessity of HR
due diligence (in addition to the normal financial and operations due diligence) prior to
any international acquisition or international alliance and of paying attention to the nec-
essary post-merger people integration issues. And yet, “globalization mandates alliances
[and cross-border acquisitions], makes them absolutely essential to strategy. . . . Like it
or not, the simultaneous developments that go under the name of globalization make
alliances—entente—necessary.”13

INTERNATIONAL MERGERS AND ACQUISITIONS
AND THE ROLE OF IHRM

This section outlines the typical process followed by firms as they proceed through acquisi-
tion planning and implementation. In the best of circumstances, HR plays a significant role
in the successful planning for and implementation of IM&As.

Process of Combination

The actual process of combination usually proceeds through three stages, as illustrated in
Figure 4.1.14 Every stage has its special problems and considerations. These stages are pretty
much the same for the establishment of IM&As as for IJVs and international alliances,
although there are enough unique characteristics for both IJVs and international alliances
that those differences will be addressed in separate sections of the chapter.

The stages of combination include the following:

Strategic Context96

Initial target screening
and pre-bid courtship
of the potential target
firm

Phase 1
Pre-combination

Decision about how to
implement the deal

Phase 2
Combination
planning and

signing of
agreement

HR plays a key role in
helping to facilitate
the integration with
the merged firm

Phase 3
Post-combination

and implementation
of deal

FIGURE 4.1 International Mergers and Acquisitions Process of Combination

Phase 1: Pre-combination

This first phase involves the initial target screening and pre-bid courtship of the potential
target firm, the “due diligence” review of the target company, the price-setting and negoti-
ation of the approach the partners will take to the combination, and the agreement on the
contract wording of the deal. HR should be closely involved with each of these steps, par-
ticularly the due diligence process, since many aspects of the integration will involve issues
of primary concern to HR and the workforce. This process of due diligence is discussed in
more detail in the next section.

Phase 2: Combination Planning and Signing of the Agreement

Once the deal has been negotiated, this second phase involves deciding how to implement
the deal, discovering and working through differences and different ideas about the deal,
and actually signing the agreement. Here, too, HR should play a major role in providing
advice on how to implement the deal and anticipating problems that will occur during the
implementation.

Phase 3: Post-combination and Implementation of the Deal

Once the deal has been consummated, the hard work of implementation must be exe-
cuted. In this third phase, HR has a key role in helping to facilitate the integration with the
merged firm. One critical aspect of HR’s role will be in creating and providing employee
communication about the nature of the merger and about the vision for the business that
will result after the merger has been consummated. In addition, HR will perform a critical

M&A, Joint Ventures, and Alliances 97

role in training employees to accept and to fit into the new situation, in developing new
assignments and staffing, in designing the new compensation and benefits systems, etc.

Problems that will be encountered in Phase 3 implementation should be addressed dur-
ing the thorough due diligence in Phase 1 and implementation planning in Phase 2. Since
this is often not done, it is little wonder that many combinations across national boundaries
come unwound in a relatively short period of time.

Figure 4.2 summarizes the HR issues in the three stages of IM&As.

Due Diligence and the Role of HRM

One of the primary reasons for the high failure rate in cross-border acquisitions and joint ven-
tures involves the lack of attention prior to “signing the agreement” as well as during the imple-
mentation phase to issues related to HRM. Increasingly, the lack of people and organization
fit is coming to be seen as the main factor explaining why businesses fail to reap the benefits.15

Stage 1:
Pre-combination

â–  Identifying reasons for the IM&A
â–  Forming IM&A team/leader
â–  Searching for potential partners
â–  Selecting a partner
â–  Planning for managing the process of the IM and/or A
â–  Planning to learn from the process

Stage 2: Combination
and integration

â–  Selecting the integration manager
â–  Designing/implementing teams
â–  Creating the new structure/strategies/leadership
â–  Retaining key employees
â–  Motivating the employees
â–  Managing the change process
â–  Communicating to and involving stakeholders
â–  Deciding on the HR policies and practice

Stage 3: Solidification
and assessment

â–  Solidifying leadership and staffing
â–  Assessing the new strategies and structures
â–  Assessing the new culture
â–  Assessing the new HRM policies and practices
â–  Assessing the concerns of stakeholders
â–  Revising as needed
â–  Learning from the process

FIGURE 4.2 HR Issues in the Three Stages of IM&As
Source: R. S. Schuler, S. E. Jackson, and Y. Luo, Managing Human Resources in Cross-Border Alliances (Routledge Pub-
lishing, 2004). Used by permission.

Strategic Context98

Regrettably, many aspects of the potential partner that often determine success or
failure are ignored or minimized during the due diligence process. Many of these relate
to HRM, such as the compatibilities or differences in the corporate cultures and likely
employee losses and the effect on later executive succession. The reasons for failure usu-
ally have more to do with the incompatibility of people, cultures, and/or HR systems than
with problems with the originally perceived financial or strategic benefits. These issues are
discussed in the next section, showing their importance to the likelihood of success. The
actual due diligence process as it involves HRM can be quite complex. Thus the following
describes both the process itself and suggested content for any IHRM-related due diligence.

Preparation

â– â–  The primary point of due diligence from an HRM perspective is that HRM profes-
sionals should be involved. The development of a checklist of critical issues and the
identification of task force membership should be prepared ahead of time. HRM pro-
fessionals should take the initiative to ensure that critical HRM issues are considered
before the combination becomes a “done deal.”16

â– â–  Pre-determine an action plan and checklist of HR items to evaluate.
â– â–  Create a SWAT team of the key people that would be called into action as soon as

executives begin to consider a foreign combination. Characteristics of such a team
should include personal traits such as being inquisitive, having non-directive interview-
ing skills, the ability to “read” people, and the ability to recognize when they are not
getting the full story, as well as, of course, the necessary cross-cultural, language, and
HR business expertise. Planning should include when and how the SWAT team would
operate.

â– â–  These individuals should have the technical and professional ability to know what
to look for and how to find it, familiarity with HR issues such as compensation and
benefits financial data, differing accounting systems, differing employment law require-
ments, sensitivity to cultural and language differences, awareness of possible union and
labor differences, and objectivity.

â– â–  Forming and communicating the new organizational culture to all employees.

Content (Specific Issues to Assess During
HR’s Due Diligence)

■■ General “people” issues. These are issues that impact the whole organization and all
employees.

■❏ The national and corporate cultures of both the acquiring and the acquired firms.17

■❏ Comparison of key executive approaches to strategy, management, and decision
making.

M&A, Joint Ventures, and Alliances 99

■❏ Hidden “skeletons in the closet,” such as pending lawsuits, executive scandals,
secret executive compensation promises, labor problems, etc.

■❏ Managerial succession plans and identification of key people in both firms.
■❏ Management capabilities.
■❏ Quality and depth of employee skills.

â– â–  Language skills/concerns.
â– â–  Specific IHR issues, particularly incompatibilities between acquiring and acquired

firms.

■❏ Adequate funding of obligations, such as pension and health care plans.
■❏ Foreign employment regulations, both legal requirements and enforcement practices.
■❏ HR department status, practices, policies, and organization.
■❏ Merger of corporate cultures.

Once these issues are assessed, the HR team must focus on the many specific areas of HR
policy and practice that typically vary significantly from country to country, as described
below.

Staffing

Staffing practices—such as recruiting, hiring decisions, legal requirements, work contracts,
job placement, job descriptions, etc.—can vary in significant ways between firms, particu-
larly when the firms come from different countries and cultures.

Compensation

Compensation practices—such as pay levels, pay comparisons, valuation of differing jobs,
form and delivery of pay, extra month’s pay, bonuses—can vary dramatically and can cause
major problems when integrated across firms.

Benefits

Government mandated and/or provided benefits, voluntary benefits, benefits considered as
part of income or not, cost of benefits—such as health care, holidays, vacations, medical and
family leave, pensions—can all cause major problems when merged across borders.

Training and Management/Career Development Programs

The importance and frequency and methods of delivery of training, and the presence of
management development and career development programs are likely to vary from total
absence to extensive inclusion. Making such diversity compatible can be quite complex
and can lead to major differences of satisfaction between firms.

Strategic Context100

HR Information Systems

Merging HR information systems (workforce and employee data) will be difficult because
of technical incompatibilities, legal differences between countries, and varying values
related to maintenance of such information.

Unionization/Nature of Labor Relations/Labor Contracts

Parties to cross-border acquisitions and joint ventures cannot ignore consideration of coun-
try union and labor relations regulations and practices. Every country has its own legalities
and traditions and most firms also have their own histories and practices.

Employee Involvement/Works Councils

Many countries require formal employee involvement in the management of their firms.
Such works councils and co-determination practices need to be assessed and integrated
into any cross-border planning.

Process of Integration

Once the due diligence has been completed, and the formal merger/acquisition process of
combination has been completed, the firms must plan and implement the integration of
the firms. Yet, organizational integration in the aftermath of mergers or acquisitions is often
reported as being problematic.18

One frequently mentioned cause of integration problems is a general resistance to change.
It is assumed that people seek stability and that any major change to one’s employer such
as an acquisition is anxiety provoking. Employees in both the acquired and the acquiring
firms feel frustration, shock and apathy, and insecurity. This can hamper the day-to-day
operations of both firms, among other things because teamwork can break down and peo-
ple may start behaving destructively. Stress can become a common feature. Often employ-
ees lose faith in their organization’s willingness to live up to expectations, promises, and
legitimate demands. A lack of commitment, loyalty, and loss of enthusiasm can often result.
Employees may lose their sense of identity and membership while the acquiring firm is
viewed as being obsessed with controlling the acquired firm. Indeed, the most mobile of
employees (in both firms, but for sure in the acquired firm) are likely to leave, making later
recovery and integration even more difficult.

One of the sources of this resistance to change involves employees’ sense of (or worry
about) loss of their corporate (and, in this international context, national) culture and
values. The process of acculturation (individuals and organizations adapting and reacting
to each other’s cultures) can take place in a number of different ways, not all of them
healthy.19 As much as both parties typically state the merger or acquisition is a combination

M&A, Joint Ventures, and Alliances 101

of equals, in practice one group always dominates in the acculturation process. Thus, the
process of acculturation can result in any of the following (see Figure 4.3):

â– â–  Portfolio: Maintain separate cultures;
â– â–  Blending: Choose the best element from each culture;
â– â–  New Creation: Develop a new culture that fits the new organization;
â– â–  Assimilation: Assign legitimacy to one culture and expect assimilation by members of

the other culture.

The point is that assimilation is not always the result of the merger or acquisition of one
firm by another. When there is a lack of agreement on the preferred adaptation process by
the acquired and acquiring firms (due to things like the attractiveness of the acquirer to the
acquired or the degree of similarity of the firms or the degree of existing multiculturalism
of the acquiring firm, or whether or not the acquisition was hostile), problems will occur
and integration may not happen.

How organizational combinations are handled affects the bottom line. Specifically, prof-
its and revenues are impacted by the sharing of synergies and best practices from both
companies. If the combination is not handled properly, the costs can be high such as lower

BlendingPortfolio

Maintain separate cultures

AssimilationNew Creation

Choose the best element from each culture

Assign legitimacy to one culture and expect
assimilation by members of the other culture

Develop a new culture that fits the
new organization

FIGURE 4.3 Four Approaches to Integration in International Mergers and Acquisitions
Source: Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border Alliances,
London/New York: Routledge, p. 90.

Strategic Context102

productivity, loss of key talent, and an emergence of organizational cynicism and negative
cultural effects. In some notable cases, such as the merger between Renault and Volvo and
the merger between Chrysler and Mercedes-Benz, the resulting combinations suffered from
cultural difficulties. Perhaps the most difficult aspect to manage is cultural integration.20

Since cultural integration is often so problematic, how can it be managed effectively?
In general, in order to assess the possibilities, HRM professionals might want to ask the
following questions:

â– â–  Have cultural gaps and differences been identified and addressed?
â– â–  Is there an executive leadership group, including participants from the acquired part-

ner’s senior leadership team, visibly leading the change process?
â– â–  Has the shared vision of the new organization been created and communicated to all

employees with clearly defined goals, roles, and responsibilities? (See the BCE case at
the end of this chapter.)

â– â–  Has a link been made between the business strategy and the quality, skills, and number
of people to achieve the business plan?

â– â–  Has a decision to consolidate the processes and procedures around compensation,
incentives, and recognition programs been made?

â– â–  Is there a plan to consolidate or maintain existing retirement benefits and health and
welfare benefits?

â– â–  Are measures and rewards established, communicated, and aligned with the organiza-
tion’s desired state?

An example (see the IHRM in Action) of the “lessons learned” from many acquisitions in
the integration process in a major MNE can be seen in the experiences of GE Capital (one
of the world’s largest providers of credit).21

IHRM in Action 4.1: Lessons Learned by GE in
Cross-Border Acquisitions

Over the years and as the result of experience with many, many acquisitions, GE
Capital Services’ acquisition-integration process has been discussed, debated, tested,
changed, and refined. It is now well established and codified. The following are some
of the lessons they have learned about how to ensure the success of an acquisition.

Lesson 1: Acquisition integration is not a discrete phase of a deal and does not
begin when the documents are signed. Rather, it is a process that begins with the
early due diligence and runs through the ongoing management of the new enterprise.

Lesson 2: Integration management is a full-time job and needs to be recognized as
a distinct business function, just like operations, marketing, or finance.

M&A, Joint Ventures, and Alliances 103

The Separation Process

Interestingly, the separation process (divestiture) is very similar to the acquisition process.
Most of the issues of concern to IHR during a divestiture can be viewed as being similar to
those examined during the acquisition process, except they are from the other side of the
transaction, whenever the firm being purchased is a part of another, larger firm. The parent
of the firm being sold needs to also be careful to do thorough due diligence to assess issues
such as the impact on union contracts and pension liabilities (as well as other promises and
liabilities) and the impact on the parent firm, which is trying to improve its own financial
and operational situation. Dissolution, or divestiture, or de-merging, or spinning off, or
selling off parts of an existing enterprise is often the result of a merger or acquisition that
didn’t work out well because the original planning was inadequate.22

Summary

In the process of international M&A, IHR professionals, in order to ensure they provide the
critical business advice expected of them, need to make sure they are prepared to provide
procedural and content advice to their executives in all three phases of planning, signing, and
implementing, especially for issues related to due diligence, impact of culture, and specific IHR

Lesson 3: Decisions about management structure, key roles, reporting relation-
ships, layoffs, restructuring, and other career-affecting aspects of the integration
should be made, announced, and implemented as soon as possible after the deal is
signed—within days, if possible. Creeping changes, uncertainty, and anxiety that last
for months are debilitating and immediately start to drain value from an acquisition.

Lesson 4: A successful integration melds not only various technical aspects of the
businesses involved but also the different cultures. The best way to integrate cultures
is to get people working together quickly to solve business problems and accomplish
results that could not have been achieved before.

Even with the 10 and more years spent on refining the acquisition integration pro-
cess and making “best practices” available via the intranet, including things like com-
munication plans, 100-day plans, functional integration checklists, workshop agendas,
consulting resources, and human resource department support, the process remains
an ongoing challenge. Every acquisition is unique, with its own business strategy,
personality, and culture. Thus, GE Capital continues to strive to make every new
acquisition integration better than the last. Maybe the most important lesson that
GE Capital has learned is that the competence to make the integration process work
must always be worked on—it is never fully attained.

Strategic Context104

post-merger, program-integration issues. The degree to which all of these items need to be
assessed and addressed and the nature of the solutions that will be required will depend on:23

■■ the firm’s strategic purpose and desired results;
â– â–  the degree of planned operational integration of the resulting firm;
■■ management’s orientation and intention for the resulting firm; and
â– â–  cultural environment factors.

Ultimately, the success of the acquisition may well depend on the abilities that the IHR
team bring to the discussion, preparation, and implementation.

IHRM AND INTERNATIONAL JOINT VENTURES

The above discussion of IHR in IM&A was based on relatively extensive experience and
literature. Similar literature is not as extensive, however, for the last subjects in this chapter:
IJVs and international alliances. Nevertheless, as indicated early in the chapter, these forms of
international combination are increasingly important and need to be understood by IHRM
students and practitioners. The Schuler, Jackson, Luo book, Managing Human Resources in
Cross-Border Alliances, in this series, was written in part to help address this very reality.24

When a firm acquires an existing entity in another country, the central problem is to
integrate an existing firm and its culture and practices into the parent firm. In an interna-
tional joint venture (IJV), a new legal entity is created. Although there are a number of
definitions of an IJV, a typical definition is:

A separate legal organizational entity representing the partial holdings of two or
more parent firms, in which the headquarters of at least one is located outside
the country of operation of the joint venture. This entity is subject to the joint
control of its parent firms, each of which is economically and legally independ-
ent of the other.25

Examples of international joint ventures include:

â– â–  Verizon Wireless: Parent firms include Vodafone Group (United Kingdom) and Verizon
Communications (USA);

â– â–  Transatlantic Joint Venture: Parent firms include Air France (France), KLM (Nether-
lands), Alitalia (Italy), and Delta (USA);

â– â–  Starbuck Coffee Japan, Ltd: Parent firms include Sazaby League (Japan) and Starbucks
Coffee International (USA).

Thus the central challenge in an IJV is to create a new firm, with all its dimensions, culture,
and practices. This new entity can emulate one or more of the partners; that is, it can be

M&A, Joint Ventures, and Alliances 105

some form of integrated entity, drawing on the culture and practices of the partners. Or it
can be designed to be an entirely new organization, separate from the cultures or practices
of the partners.26 One of the keys to success of an IJV is for the partners to be clear about
and to agree on which one of these choices is being pursued. Lack of clarity on this issue
can lead to conflicting expectations for the performance of the resulting organization and
will typically lead to unmet expectations and eventual dissolution of the venture.

This section describes HR responsibilities related to international joint ventures. The aim
is to describe the HR practices and policies that influence the success of IJVs, drawing on
the studies that have focused on HR and IJVs.27 As far back as the mid-1970s, IJVs replaced
wholly owned subsidiaries as the most widespread form of US multinational investment28
and has also become a favored form of foreign entry for firms from many other countries,
as well. In general, IJVs have become a major (if not, the major) form of entry into most
new global markets.29

Schuler et al. (2004) developed a model to help understand the complexities in the
process of creation and implementation of IJVs (refer to Figure 4.4). The four stages of the
IJV process include:

1 Formation: the partnership stage;
2 Development: the IJV itself;

Stage 1: Formation: the
partnership

â–  Identifying the reasons for forming the IJV
â–  Planning for the utilization of its potential benefits
â–  Selecting a manager for new business development
â–  Finding potential partners
â–  Selecting the partner(s)
â–  Understanding control, building trust, managing conflict
â–  Negotiating the arrangement

Stage 2: Development: the
IJV itself

â–  Locating the IJV and dealing with the local community
â–  Establishing the appropriate structure
â–  Getting the IJV management team

Stage 3: Implementation:
the IJV itself

â–  Establishing the vision, mission, values, culture, and strategy
â–  Developing the HRM policies and practices
â–  Dealing with unfolding issues
â–  Staffing the IJV

Stage 4: Advancement:
the IJV and beyond

â–  Learning between partners
â–  Transferring the new knowledge to the parents
â–  Transferring the new knowledge to other locations

FIGURE 4.4 Four-stage Model of HR Issues in International Joint Ventures

Source: Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border
Alliances, London/New York: Routledge, p. 37.

Strategic Context106

3 Implementation: the IJV itself; and
4 Advancement: the IJV and beyond.

The rest of this section on IJVs will expand on and explain these stages.

Stages 1 and 2: Formation and Development of the IJV

Reasons for IJVs

Reasons for entering into IJV agreements (not so different from the reasons for interna-
tional acquisitions, except for the reduced risk, since it is shared in a new, separate entity)
include the following:30

â– â–  to gain knowledge about local markets, culture, and local ways of doing business in
order to transfer that knowledge back to the parent firm, i.e., to learn from the joint
venture partner;

■■ to gain access to the partner’s product technology, product knowledge, or methods of
manufacturing;

â– â–  to satisfy host government requirements and insistence;
â– â–  to gain increased economies of scale without more direct investment;
â– â–  to gain local market image and channel access;
â– â–  to obtain vital raw materials or technology;
â– â–  to spread the risks with the foreign partners;
â– â–  to improve competitive advantage in the face of increasing global competition; and
â– â–  to become more cost-effective and efficient in the face of increased globalization of

markets.

The overriding motive in most joint ventures seems to be the desire by one or all parties
to gain knowledge and learn from their partner(s). Obviously for a firm to learn from a
partner, the partner must have some level of willingness to share what they know. If all
partners wish to learn from the others, then to be successful, all the partners must be
willing to share. This is often a source of conflict, in itself, particularly where there is not a
sufficient level of trust among the partners. In this case, sharing will tend to be minimized
and the original objective will be stymied. Often, the central strategy for learning from the
IJV has to do with the choices for staffing. “Transfer of staff between the JV and the par-
ent firms can provide a mechanism for sharing information, for learning from each other’s
abilities and expertise, and for the creation of synergies related to product development.”31
But if the wrong people are chosen to staff the IJV, that is people with poor interpersonal
or cross-cultural skills or limited technical ability, this objective of the partners may be
difficult to achieve.

M&A, Joint Ventures, and Alliances 107

Track Record

The prior section of this chapter spent considerable space on the importance of HRM due
diligence to the eventual success of IM&As. Everything said there also applies to the devel-
opment of international joint ventures. The compatibilities of the partners’ cultures (both
corporate and country), styles of management and decision making, HR practices, etc., are
critical to the development of a successful IJV, as well.32

As with M&As, the high failure rate and managerial complexity of IJVs also suggests
that particular examination of the human resource issues is required here, as well.33 As far
back as 1987, Shenkar and Zeira pointed out that even though IJVs had become the “most
widespread form of . . . multi-national involvement, the substantial failure rate and mana-
gerial complexity suggest that a closer examination of human resource issues is required.”34
The reasons for failure are many and complex, but for any particular situation will include
one or more of the following, many of which are directly or indirectly within the respon-
sibility of HR:35

â– â–  There is a poor selection of partner(s).
■■ Partners don’t clarify each others’ goals and objectives or have differing goals.
â– â–  The negotiating teams lack JV experience.
â– â–  The parties do not conduct adequate or realistic feasibility studies.
â– â–  The parties lack clarity about the real capabilities of their partners.
■■ The partners fail to do adequate due diligence and thus don’t learn enough about each

other, which can be particularly true for cultural issues.
â– â–  The parties fail to judge realistically the impact of the venture on the parent organiza-

tions, particularly the loss of control and possibly profits, at least in the short run.
â– â–  There is too little thought during the design phase of the new venture to organizational

and managerial issues.
â– â–  The partners fail to adequately integrate their activities.
â– â–  There is unequal commitment to the partnership or unequal contribution (real or per-

ceived) to the joint venture.
â– â–  The partners do not trust each other.
â– â–  The parties to the venture make a poor selection of personnel to staff the JV.
â– â–  The managers from the parent firms do not get along.
â– â–  The established local partner does not assign its best people to the JV.
â– â–  One of the partners is a government, so that there is a built-in variance in objectives

(profit versus possible political goals, for example).
â– â–  There are divergent national interests.
■■ There is “bad faith” on the part of one or more of the partners, that is, one or more of

the partners has always planned on only extracting something of value from the part-
nership without giving anything in return, even though they claim otherwise during
negotiations.

Strategic Context108

â– â–  The loyalty and commitment of the assigned managers is unclear (or is only to their
assigning firm).

â– â–  The local employees resent the privileged position of assigned expatriate managers,
particularly if they are only assigned to the JV on a temporary basis.

■■ The new entity cannot decide which parents’ rules to follow (or which ones to estab-
lish, if there are to be new rules).

â– â–  There is a failure to adapt the business practices of the new venture to the local culture.

If the partners to an IJV can’t cope with the demands of managing a joint venture (that is,
dealing effectively with a partner), then it may be better for the partners to use non-equity
forms of cooperation, such as partnerships or international alliances (as addressed in the
next section), which can take the form of agreements for cross-marketing, cross-production,
licensing, or research-and-development consortia and can be terminated with relative ease
if insurmountable problems arise.36

Those who have studied IJVs find that some of the keys to creating a successful joint
venture require the partners to seek complementary strategies and technical skills and
resources among prospective partners, accept their mutual dependency, resolve issues
related to differences in size of the partners, ensure the compatibility of the partners’
operating policies and practices, work to eliminate communication barriers between the
partners and between the new IJV management team and the IJV employees, and take
strong steps to develop trust and commitment among the partners.37

Stage 3: Implementation of the IJV

Role of HRM in IJVs

From a human resource management point-of-view, the lessons learned from successful
joint ventures include:38

â– â–  When national and corporate cultures are blended, the partners need to spend time
building trust; understanding and accommodating each others’ interests.39

â– â–  Job design can be enhanced when the partners are willing to learn from one another.
â– â–  Recruitment and staffing policies should be well-defined in the early stages of the

venture.40

â– â–  Orientation and training of employees should focus on preparing employees to deal
with the social context of their jobs, as well as the development of technical skills, for
the new organization.41

â– â–  Performance appraisals need clear objectives and clearly assigned accountabilities, lib-
eral time frames in which to achieve results, and built-in flexibility related to changing
market and environmental demands of the new venture.42

â– â–  Compensation and benefit policies should be uniform to avoid employee feelings of
inequity.

M&A, Joint Ventures, and Alliances 109

â– â–  Career opportunities must be ensured for local managers relative to managers assigned
to the JV from the parents.

â– â–  In the early stages of the venture, the partners must agree on suitable terms for rela-
tions with any unions.

â– â–  The partners must establish the specific role of HR within the new venture (since the
partners’ HR policies and practices are likely to differ).

â– â–  HR managers in the JV must become process experts, managing issues like communi-
cation with employees about the new organization, expected nature of the integration
of the partners in the JV.

■■ HR must implement the necessary training (e.g., cultural—both corporate and national,
and technical), integrated and consistent compensation and benefit systems, and per-
formance management systems that will give the IJV its own identity.

Stage 4: Advancement of the IJV

Since one of the main reasons for creating IJVs involves the desire of the partners to learn
from each other, this becomes one of the central foci for determining the success or failure of
an IJV. And if learning is taking place, the partners must ensure the transfer of the new knowl-
edge to the partners, both within the IJV itself as well to the parent firms outside the IJV.

IHRM AND INTERNATIONAL ALLIANCES

As mentioned previously, international alliances are defined as informal or formal partner-
ships or agreements that do not result in an independent legal entity. These have become
much more common and popular in recent years.43 They provide ways to increase capa-
bilities and to enter new markets in relatively low-risk and low-cost ways. As important as
international acquisitions have become, the use of international alliances and partnerships
may have become even more important.44 They take many forms, for example, outsourc-
ing, information sharing, web consortia, joint marketing, and research projects. The most
radical take the form of corporate partnerships like Coca Cola’s and Proctor and Gamble’s
alliance to market their non-fizzy beverages and snacks. Technology companies like IBM,
pharmaceutical firms like Pfizer, and diversified manufacturers like Siemens and General
Electric have partnering built into their operating plans, both for joint research partner-
ships and for joint marketing efforts.45

In most modern partnerships, the three most important reasons their members form
international alliances are growth, access to competencies like technology and research
capability, and expansion into new markets. E-mail, file-sharing, and web-based confer-
encing and collaboration tools make international alliances across corporate and national
boundaries workable. In the past, the route to growth was paved with mergers and acquisi-
tions. What firms lacked they could acquire. This is still a popular approach. But as indicated

Strategic Context110

in the previous section, trying to create a competency your firm lacks is costly, time con-
suming, and often fails.46 Too often, the best of the acquired assets (the acquired firm’s
people) leave for other firms (often the competition). M&As are often ruinously expensive
(with the inflated stock market) in terms of debt accrued, cash depleted, equity diluted, and
key employees lost through subsequent downsizings and voluntary turnover. International
alliances have become the solution to the problem. International alliances, relative to IJVs
and IM&As are the cheapest and least-risky way to grow and build—or acquire—technology
and resources: no dilution of stock, no dangerous leveraging of the balance sheet, and if
managed well, no loss of talent. If the deal doesn’t work, it can be dissolved.47

Options for Managing International Alliances

As with IM&As and IJVs, there are a number of choices for the design of an international
alliance. These include the following:48

â– â–  the operator model, where there is one dominant partner;
â– â–  the shared model, where the organization draws on culture and practices from both

partners; and
â– â–  the autonomous model, where a new organizational culture and management struc-

ture is purposely developed.

The partners need to discuss and agree on which model for the international alliance they
wish to pursue in order to forestall subsequent misunderstandings and conflict.

General HR Issues

There are a number of concerns that might be referred to as simply “people and general
management issues” in international alliances for which HR might be expected to be the
source of expertise and advice. If they are not addressed by HR, they are likely to not be
addressed at all.49 Most of these issues are similar to those faced by IM&As and IJVs, as well:

â– â–  Organizational structure and reporting relationships: a clear managerial structure is
often non-existent in a partnership, and staff members—including HR professionals—
tend to report to many people.50 Partnerships tend to not have the traditional pyrami-
dal management structure of the partner firms. They are usually established as projects,
with typical project structure and with project members assigned temporarily from
other areas of the partner firms, with employees having multiple responsibilities, some
in the partnership and some in the parent firms.

â– â–  Culture: as with all other forms of international organization, both national and corpo-
rate cultures need to be assessed for incompatibilities. This is important for all interac-
tions within the partnership and between the partnership and the parent firms.

M&A, Joint Ventures, and Alliances 111

■■ Pre-alliance due diligence: This requires that the parties be aware of any “skeletons in
the closet” of their potential partners, e.g., scandals involving senior executives, recent
negative media stories, nepotism (employment of family members), etc.

â– â–  Global workforce: Since the international alliance will involve employees and man-
agers from more than one culture, the cross-cultural skills of involved executives also
need to be assessed, both of those executives that will be assigned to the international
alliance and those who must work with the international alliance.

â– â–  Management capabilities: Will the international alliance get high priority for assign-
ment of top talent by all partners? If the latter is the case, assessing the quality of the
talent to be assigned becomes particularly important, if the partners are truly commit-
ted to the success of the partnership.

Role of IHRM in International Alliances

Depending on the size of the international alliance itself, there may well be IHR profes-
sionals assigned to it.51 Typically, the IHR professional assigned to an international partner-
ship or international alliance has not only to deal with many more decision makers (from
all of the partners), thus having to exercise much greater negotiation skills, but also tends
to have to take on more extensive responsibilities, combining those of a local nature and
those of an international nature.

Different Rules Often Apply

For example, people who work in partnerships are still employees of the separate part-
ners, thus may not only be difficult to “supervise” but in terms of legal status may also not
fall under employment protection statutes of the locale of the alliance. This may give the
partnership greater flexibility with respect to compensation and job assignments, but may
also create significant liability when “employees” are covered by the laws of their parent
employer, such as under sexual harassment claims. Under tax laws, employees—from var-
ious partner parents—assigned to a partnership may not be entitled to the same benefit
plans, thus causing problems of perceived unfairness and inequity.

CONCLUSION

International combinations or some forms of partnerships have become very popular
in recent years. Yet a high percentage of these combinations fail to achieve financial or
strategic objectives. This is often due to inadequate attention to issues of concern to the
human resource function. This chapter examined the process of combination and provided
a framework and content for performing a thorough due-diligence review of the IHRM
policies and practices of firms being considered for cross-border alliances. Such a review

Strategic Context112

is explained as critical to the success of such international combinations. These combina-
tions include IM&As, IJVs, and international alliances. Much of the chapter describes the
role of IHRM and the IHR professional in designing, facilitating, and implementing these
three specific types of international combinations. All three types of these combinations are
increasingly used and IHRM can and should play a major role in helping ensure the success
of their design and implementation.

DISCUSSION QUESTIONS

1 Some managers argue that IJVs are fraught with problems and all but doomed to fail-
ure. Do you agree with this statement? Why or why not?

2 Name three well-known MNEs that have formed international mergers or acquisitions
during the last few years. Are they successful? What role does HRM play in facilitating
success in international mergers or acquisitions?

3 What are the advantages and disadvantages of working for an IJV? An international
alliance?

4 What are some of the reasons that an MNE would choose international expansion
through an acquisition? An IJV? An alliance? What are the variables that would influ-
ence the decision? Which choice do you think is best for the likely benefit of the firm?

M&A, Joint Ventures, and Alliances 113

CASE STUDY 4.1: BCE’s Acquisition of Teleglobe
International (Canada)

Lance Richards, former international director of HR at Teleglobe, has been through a number
of major cross-border acquisitions and alliances. These included British Telecom with MCI and
GTE with Bell Atlantic and then with Teleglobe and BCE. These experiences have taught Lance
that in any cross-border acquisition or alliance, making sure that employees know what is going
on, who is in charge, and where the combined organization is heading needs to be in the very
front of any HR initiatives. Some of the specific lessons for guaranteeing success in an acquisi-
tion that Lance has learned include:

â– â–  The CEOs (of both the acquiring and the acquired firms) must be visible to the employees
and must continuously interact with them.

■■ Both companies must communicate—clearly, constantly, and quickly.
â– â–  The dialogue with employees must be two-way. Employees must have a way to feed ques-

tions and concerns back to the business and people in charge, and then to get answers.

As Lance puts it, in many acquisitions and alliances the corporate heads roll out a well-crafted
vision of the new entity, how it will lead the market, and how it will now be able to leap ahead
of its competitors. But for the average employee, all they want to hear is what is going to hap-
pen to their particular jobs. In M&A activity, where the intellectual capital that resides in the
employees is often (or should be) the overriding concern, it is important, at the end of the day,
to remember that employees are concerned about things like making their next car payments or
paying the next term’s tuition for their child.

The BCE acquisition of Teleglobe (completed in November 1, 2000) provided a great exam-
ple of how to handle employee expectations and concerns with professionalism and candor.
BCE Inc., is the largest communications company in Canada and provides a variety of services
such as broadband communications and content services to private and public customers.
Simultaneously with the after-market-hours announcement to the public, all employees received
an e-mail with a link to a pre-recorded streaming video, with messages from the chairmen of
both firms. They clearly outlined the reasons for the acquisition, as well as the benefits, and then
committed to maintain clear communications throughout the process of merging the two firms.

A Q&A board was established on the companies’ intranets, accessible in all 43 countries
where the firms had employees, with a promise to answer most questions within five business
days. Within a month, BCE had appointed a new CEO. Within a week of his arrival he held
the first of several meetings with employees. Initially, he made presentations in person in all of
the firms’ primary employment cities, then changed to a live, multi-country broadcast format,
followed by conference calls for outlying countries. Simultaneously, he launched a series of
breakfast and lunch meetings with 15 to 20 employees, which continued for months, wherever
his travels took him. In consequence, the new CEO won much favor with employees for his
candor and style. The key was that Teleglobe International (and BCE) immediately opened a

Strategic Context114

variety of one- and two-way communications venues for all employees, and ensured that there
was a steady flow of information to everyone. Even though major financial problems with the
acquisition led to divestiture of Teleglobe after about two years, the strong employee commu-
nications did result in quite limited voluntary employee turnover and led to strong engagement
from employees, leading to a continuing healthy BCE.

Sources: www.bce.ca (2014); Richards, L. J. (2001). Joining forces. Global HR, April, 31–33.

Discussion Questions

1 Why were these various forms of communication so successful? Which do you think
were most important? Why? Which barriers stand in the way of using these forms of
communication?

2 What content is necessary for this form of communication? What do employees need
(want) to hear? What difference does it make?

3 Does this sort of communication need to come from the top? Can someone else, such as the
head of HR, provide the information with equal success?

NOTES

1 Source: Dupont Corporate Website (2014), Dupont Collaborations http://www.dupont.com/corporate-
functions/our-approach/sustainability/collaboration.html. Accessed Dec. 10, 2014.

2 See, for example, World Investment Report 2014, United Nations Conference on Trade and Development,
UNCTAD; Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border
Alliances, London: Routledge; Reuer, J., and Ragozzino, R. (2014). Signals and international alliance for-
mation: The roles of affiliations and international activities. Journal of International Business Studies, 45(3),
321–337; World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development, New
York and Geneva: United Nations Conference on Trade and Development.

3 Ibid.
4 We used a variety of sources to identify recent and old mergers and acquisitions. Sources include: World

Investment Report 2014, United Nations Conference on Trade and Development, UNCTAD; Mergent online
database; Bloomberg Businessweek; Fortune magazine.

5 See Summers, N. (2104). The 2014 M&A boom: Almost $ trillion and growing, Bloomberg Businessweek,
April 24, 2014; Baigorri, M., Campbell, M., and Kirchfeld, A. (2014). Mergers are back in fashion—for
now. Bloomberg Businessweek, (4373), 50–51; Mergers and Acquisitions review, Financial Advisors,
2013. Thomson Reuters; Brakman, S., Garretsen, H., Charles Van, M., and Arjen Van, W. (2013).
Cross-border merger and acquisition activity and revealed comparative advantage in manufacturing indus-
tries. Journal of Economics and Management Strategy, (1), 28; Wyss, S. (2012). Growth strategy: Merg-
ers and acquisitions. Chain Store Age, 88(2), 30–32; Lester T. (2001). Merger most torrid, Global HR,
June, 10–12, 15–16.

6 Based on an interview with Heinrich von Pierer, CEO of Siemens, by Javidan, M. (2002), reported in,
Siemens CEO Heinrich von Pierer on cross-border acquisitions, Academy of Management Executive, 126
(1), 13–15; and Karnitschnig, M. (2003). For Siemens, move into U.S. causes waves back home, The Wall
Street Journal, Sept. 8, pp. A1, A8.

M&A, Joint Ventures, and Alliances 115

7 Schuler, Jackson, and Luo (2004).
8 Ibid.
9 See McLetchie, J., and West, A. (2010). Beyond Risk Avoidance: A McKinsey Perspective on Creating

Transformational Value from Mergers. McKinsey & Company; McKinsey & Company, Coopers & Lybrand,
and American Management Association, reported in Marks, M. L. (1997), From Turmoil to Triumph: New
Life After Mergers, Acquisitions, and Alliances, New York: Lexington Books.

10 Reported in Bates, S. (2002). Few business alliances succeed, report reveals, in Executive Briefing, HR
Magazine, May, 12.

11 Bower, J. L. (2001). Not all M&As are alike—and that matters, Harvard Business Review, March, 93–101.
Also see Kullman, E. (2012). DuPont’s CEO on executing a complex cross-border acquisition. Harvard
Business Review, 90(7/8), 43–46.

12 Beard, M. (1996). quoted in Bourrie, S. R., Merger misery, Colorado Business, October, 82.
13 Ohmae, K. (1989). The global logic of strategic alliances, Harvard Business Review, March–April, 143.
14 In the last few years a number of references have been published dealing with the management of mergers

and acquisitions. These include: Krug, J., Wright, O., and Kroll, M. (2014). Top management turnover fol-
lowing mergers and acquisitions: Solid research to date but still much to be learned. Academy of Manage-
ment Perspectives, 28(2), 143–163; Adomako, S., Gasor, G., and Danso, A. (2013). Examining human
resource managers’ involvement in mergers and acquisitions (M&As) process in Ghana. Journal of Man-
agement Policy & Practice, 14(6), 25–36.; Buiter, J. M., and Harris, C. M. (2013). Post-merger influences
of human resource practices and organizational leadership on employee perceptions and extra-role behav-
iors. SAM Advanced Management Journal, (4), 14; Castro-Casal, C., Neira-Fontela, E., and Alvarez-Perez,
M. (2013). Human resources retention and knowledge transfer in mergers and acquisitions. Journal of
Management and Organization, (2), 188; Lee, D., Kim, K., Kim, T., Kwon, S., and Cho, B. (2013). How
and when organizational integration efforts matter in South Korea: A psychological process perspective
on the post-merger integration. International Journal of Human Resource Management, 24(5), 944–965;
Lupina-Wegener, A. A. (2013). Human resource integration in subsidiary mergers and acquisitions: Evi-
dence from Poland. Journal of Organizational Change Management, 26(2), 286–304; Gill, C. (2012).
The role of leadership in successful international mergers and acquisitions: Why Renault-Nissan succeeded
and DaimlerChrysler-Mitsubishi failed. Human Resource Management, 51(3), 433–456; Marks, M., and
Mirvis, P. H. (2011). A framework for the human resources role in managing culture in mergers and acqui-
sitions. Human Resource Management, 50(6), 859–877.

15 Coffey, J., Garrow, V., and Holbeche, L. (2002). Reaping the Benefits of Mergers and Acquisitions: In
Search of the Golden Fleece, Oxford, UK: Butterworth-Heinemann, 9. All of the major references in this
chapter that involve mergers and acquisitions, joint ventures, and alliances expand on this point. In addi-
tion, some of this section is adapted from McClintock, F. W. (1996). Due diligence and global expansion,
World Trade Center San Diego Newsletter, p. 6; and Greengard, S. (1999). Due diligence: The devil in
the details. Workforce, October: 68–72.

16 Adapted from Richard, L. J. (2001). Joining forces, Global HR, June, 20.
17 Reported in Hopkins, M. (2002). HR going global . . ., Global HR, April, 31–33.
18 Adapted from Kleppestø, S. (1998). A quest for social identity—The pragmatics of communication in merg-

ers and acquisitions, in Gertsen, M. C., et al. (eds.), op cit., pp. 147–166.
19 Berry, J. W. (1980). Acculturation as varieties of adaptation, in Padilla, A.M. (ed.), Acculturation Theory,

Models and Some New Findings, Boulder, CO: Westview Press, pp. 9–25; Gertsen, M. C., Sıderberg,
A-M, and Torp, J. E. (1998), Different Approaches to the Understanding of Culture in Mergers and Acquisi-
tions, in Gertsen, M. C., et al. (eds.), op cit., pp. 17–38.

20 Ibid.
21 See website http://www.ge.com/news/company-information/ge-capital (2014). Adapted from Ashkenas,

R. N., DeMonaco, L. J., and Francis, S. C. (1998). Making the deal real: How GE Capital integrates acqui-
sitions, Harvard Business Review, January–February, 165–178.

Strategic Context116

22 See, for example, Owen, G., and Harrison, T. (1995). Why ICI chose to demerge, Harvard Business
Review, March–April, 133–142.

23 M&A cultural considerations (2001). Reported in International Mobility Management Newsletter, 2nd quar-
ter, 7.

24 Schuler, Jackson, and Luo (2004); Schuler, R., Tarique, I., and Jackson, S. (2004). Managing Human
Resources in Cross-Border Alliances, in Cooper, C., and Finkelstein, S. (eds.), Advances in Mergers and
Acquisitions, Volume 4. New York: JAI Press, pp. 103–129.

25 Schenkar, O., and Zeira, Y. (1987). Human resources management in international joint ventures: Direc-
tions for research, Academy of Management Review, 12(3), 547.

26 Schuler, Jackson, and Luo (2004); Cyr, D. J. (1995). The Human Resource Challenge of International Joint
Ventures, Westport, CN: Quorum Books.

27 See, for example, Schuler, R., and Tarique, I. (2012). International joint venture system complexity and
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28 Hladik, K. J. (1985). International Joint Ventures: An Economic Analysis of U.S.-Foreign Business Partner-
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29 Barkema, H. G., Shenkar, O., Vermeulen, F., and Bell, J. H. J. (1997). Working abroad, working with
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30 This list draws heavily on Schuler (2001). See also: Vaidya, S. (2012). Trust and commitment: Indicators of
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zational Dynamics, Autumn, 39–53; Inkpen, A. C. (1998). Learning and knowledge acquisition through
international strategic alliances, Academy of Management Executive, 12(4), 69–80; Isabella, L. A. (2002).
Managing an alliance is nothing like business as usual, Organizational Dynamics, 31(1), 47–59.

40 Schifrin, M. (2001). Best of the web: Partner or perish, Forbes, May 21, 26–28.
41 Ibid.

Strategic Context118

42 Schifrin, M. (2001).
43 Reported in You are not alone, Fortune, special advertising section, May, 2001, S2–S3.
44 Schifrin, M. (2001).
45 Fang, E., and Zou, S. (2009), Antecedents and consequences of marketing dynamic capabilities in inter-

national joint ventures, Journal of International Business Studies, 40, 742–761.
46 Michaels, J. W. (2001), Best of the web: Don’t buy, bond instead, Forbes, May 21, 20.
47 Adapted from Applegate, J. (1996), Alliances quick way to grow: Links to Bombay firm open doors for

architect, The Denver Business Journal, October 4–10, 3B.
48 Galbraith, J. R. (1995), Designing Organizations: An Executive Briefing on Strategy, Structure and Process,

San Francisco: Jossey-Bass.
49 See, e.g., Schuler, R., and Tarique, I. (2012). International joint venture system complexity and human

resource management, in I. Björkman and G. Stahl (eds.), Handbook of Research in IHRM, Cheltenham:
Edward Elgar Publishing, pp. 393–414; Cascio and Serapio (1991); Fedor, K. J., and Werther, W. B., Jr.
(1996). The fourth dimension: Creating culturally responsive international alliances, Organizational
Dynamics, Autumn, 39–53; Isabella, L. A. (2002). Managing an alliance is nothing like business as usual,
Organizational Dynamics, August, 47–59; Schuler et al. (2000); and Sunoo (1995): 28–30, 32–34.

50 Demby, E. R. (2002). Keeping partnerships on course, HR Magazine, December, 49–53.
51 Quoted in Demby (2002).

The chapters in this section expand the theme that is revisited frequently throughout the
text: the importance of external factors that influence the MNE and IHRM in a variety of
ways. Together these factors represent the national and cultural context. Chapter 5 intro-
duces the concepts of country and corporate culture and how these impact everything
that is done in IHRM. The chapter also discusses the importance of culture in both the
conduct and the interpretation of IHRM research, explaining how culture affects both our
understanding of IHRM and its impact. Chapter 6 describes international aspects of the
legal, regulatory environments, ethical behavior, and labor standards in the international
arena. Finally, Chapter 7 examines the nature of employee relations and how each coun-
try’s own, unique, union and employee representation institutions make the environment
for employee relations quite complex for MNEs. All of these factors of the national and
cultural context constitute the environment within which IHRM policies and practices are
designed and implemented.

The second section of the book, “National and Cultural Context,” has three chapters:

â– â–  Chapter 5: Country and Company Culture and International Human Resource
Management

â– â–  Chapter 6: International Employment Law, Labor Standards, and Ethics
â– â–  Chapter 7: International Employee Relations

S E C T I O N 2

National and
Cultural Context

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At United Airlines: The word “foreign” is losing its meaning.
United Airlines Corporation1

Learning Objectives

This chapter will enable the reader to:

â– â–  Define and explain the concept of culture.
â– â–  Explain the importance of culture in international business (IB).
â– â–  Describe the basic research findings of G. Hofstede and F. Trompenaars.
â– â–  Explain the importance of culture to IHRM.
â– â–  Describe the importance of culture and the difficulties encountered in IHRM

research.

C h a p t e r 5

Country and Company Culture
and International Human
Resource Management

This chapter provides a look at one of the most important aspects of the external context
for IHRM.2 Many of the most important and difficult challenges to the conduct of inter-
national human resource management stem from the differences encountered in various
countries’ and MNEs’ cultures. Often these differences clash when firms conduct business
in more than one country and with enterprises located in many countries. This can become
a particularly salient challenge when businesspeople lack knowledge of or sensitivity to
these differences, resulting in their making mistakes in both their business policies and
practices and their personal interactions. Even when they know the differences, they can
mistakenly assume that their own country’s or company’s ways of doing things provide the
best way to conduct business. Thus they can make decisions and behave in ways that alien-
ate their foreign counterparts, the people with whom they interact from other countries or
companies, such as foreign customers, suppliers, and employees, or they make mistakes that

National and Cultural Context122

lead to business and/or personal problems. Giving preference to one’s own country and
company culture can also result in the overlooking or dismissing of better ways of doing
things that can be found in other countries and their enterprises.

As two long-time participants in the IB environment put it:

More than any other aspect of the business experience, our knowledge and under-
standing of culture affects the outcome of business ventures. Without insight
into the ways of others, we can’t expect to develop credibility, nurture goodwill,
inspire a workforce, or develop marketable products. And that directly trans-
lates to bottom-line results. Culture affects the way we develop and maintain
relationships. It plays a significant role in determining success with colleagues
and partners, and helps us grasp how to evolve into respected leaders around the
world. Understanding culture fundamentally affects how we run our business,
what characteristics to look for in selecting people, how to develop global talent,
how to conduct meetings, and how to manage employees and work with teams.3

Knowledge about and competency in working with varying countries and organizational
cultures is one of the most important issues impacting the success of IB activity and of
IHRM. Therefore, this chapter provides a definition and an overview of the nature and
importance of national and company cultures and their impacts on IHRM as well as pro-
viding guidance as to how IHRM can perform its role within MNEs as the advisor and
trainer on how to learn from cultural differences and how to use those differences in ways
to help build global competitive advantage. This chapter examines the results of major
research on culture as well as the findings of major research in IHRM (since it is so closely
impacted by culture) and its role in understanding the impact of culture on the global
organization and on IHRM.

THE NATURE AND IMPORTANCE OF CULTURE

Every country has at least some variances from all others, e.g., its history, government, and
laws. Because of all of these differences, the more countries with which an MNE interacts,
the more complex and difficult conducting business becomes. Today, it is common for
MNEs to interact with customers and firms in dozens of other countries. So, one of the cen-
tral causes of these difficulties has to do with the critical nature of the differences between
the national cultures of these various countries.

Variances in people’s values, beliefs, and behavior patterns (for example, what they con-
sider to be right and wrong, normal and not normal) are critically important to such IB
activities as cross-national negotiations, sales interactions between people from different
countries, management of the performance of employees from different countries, the
understanding and treatment of contracts between firms from different countries, and all
HR responsibilities, such as recruiting and hiring, compensation, training, labor relations,
and performance management.

Countr y and Company Culture and IHRM 123

People working for organizations that operate in the international arena (whether in
business, government, or the non-profit sector), including HR practitioners, need a context
into which they can place the culture(s) they know and the new ones they encounter, so
they can modify their own and their firms’ behaviors in order to be more effective in both
business and social situations. They need a way to cope with the significant constraints
imposed by cultural differences between countries. Indeed, dealing with these cultural
differences may provide the most important factor in determining whether or not their
international ventures succeed or fail.

The following paragraphs illustrate one example of a well-known firm (McDonald’s
hamburger restaurants) going international and some of the issues it confronted in coping
with the cultures of the countries into which it expanded.4

IHRM in Action 5.1: Turning McDonalds into a Global
Brand

An example of how even mass-market suppliers are heeding cultural diversity is illus-
trated by McDonald’s. The Big Mac is so quintessentially American that “McWorld”
has become an epithet for the homogenization of world tastes by the US. McDonald’s
discovered that the global popularity of the McDonald’s product was increasingly
qualified by exceptions.

The international division sustained McDonald’s throughout much of the 1990s
and 2000s. Domestic sales were in trouble and it was the company’s local adaptations,
introduced by franchisees and national coordinators, which showed the most sales suc-
cess, registering 15 years of sustained revenue growth. More importantly, the autonomy
first ceded to foreign operators now has become the policy of the whole corporation.

When the Indonesian currency collapsed in 1998, potato imports became too
expensive. Rice was substituted and later maintained. In Korea, roast pork was substi-
tuted for beef, while soy sauce and garlic were added to the bun in much of south-east
Asia. Austria introduced “McCafes” offering a variety of local coffee blends, which
is now a mainstay at McDonald’s restaurants throughout much of the world. And
there are many other adaptations as well, such as beer in Germany and soy- and
lamb-based burgers in India.

Yet in key values of quality, cleanliness, speed, and branding, McDonald’s remains
uniform. “Decentralisation does not mean anarchy,” says McDonald’s. “Those things
aren’t negotiable.”

More recently, McDonald’s opened its first restaurant in Ho Chi Minh City, Viet-
nam.5 The establishment of McDonald’s was good for the company and the country,
according to the businessman who brought McDonald’s to Vietnam.6 He further said,
“McDonald’s is a very careful organization,” and “If you show up in a market you’ve
got to do things right.”

National and Cultural Context124

The next few pages present a model for developing this awareness and understanding
so as to enable IHR managers to more effectively cope with their international responsibil-
ities, to interact more effectively with their international colleagues, and to enhance their
learning from their exposure to and experience with HR practices in other countries.

A Definition and Description of Culture

There have been many definitions of “culture” offered over the years. For the purposes of
this text the following definition is used: culture is the characteristic way of behaving and
believing that a group of people have developed over time and share in common. In the
context of this book, the “groups” whose cultures will be discussed are the people from a
particular country or region and the members of a particular company. Of course, the con-
cept is also used to describe the values and behaviors of other groups, such as members of
particular professions, certain industries, age groups, and racial groups.

Definition of Culture

Culture is the characteristic way of behaving and believing that a group of people have
developed over time and share in common.

â– â–  Gives them a sense of who they are, of belonging, of how they should behave
â– â–  Provides them with the capacity to adapt to circumstances (because the culture

defines what is the appropriate behavior in that circumstance) and to transmit
this knowledge to succeeding generations (in the case of countries) or to new
employees (in the case of organizations).

■■ Affects every aspect of the management process—how people think, solve prob-
lems, and make decisions (for a country or firm)

As Schell and Solomon phrase it:

Learned and absorbed during the earliest stages of childhood, reinforced by
literature, history, and religion, embodied by . . . heroes, and expressed in . . .
instinctive values and views, culture is a powerful force that shapes our thoughts
and perceptions. It affects the way we perceive and judge events [and other
people], how we respond to and interpret them, and how we communicate
to one another in both spoken and unspoken language. Culture, with all of
its implications [and forms], differs in every society. These differences might
be profound or subtle; they might be obvious or invisible. Ever present yet

Countr y and Company Culture and IHRM 125

constantly changing, culture permeates the world we know and molds the way
we construct or define reality.7

When a firm enters a new country and performs activities such as creating job definitions
and classifications and hiring, using only its home-country practices, it can cause significant
alienation and lack of trust, which can have further ramifications, for example, in making it
difficult to obtain a quality workforce.

Understanding Culture as Layers of Meaning

One of the complexities that makes “culture” so difficult to deal with is its multiple layers
of meaning. There are many readily observable things about the culture of a country, a
region, or a firm that differ quite obviously from those of other countries, regions, and firms.
These characteristics, including such things as food, art, clothing, greetings, and historical
landmarks, are clearly visible. Sometimes these are referred to as artifacts, or manifestations,
of underlying values and assumptions.8 But those underlying values and assumptions are
much less obvious.

One way to understand this concept is illustrated in Figure 5.1, which represents culture
as a series of concentric circles, or multiple layers, as in an onion.9 The layers of culture

Surface culture

Hidden culture

Invisible culture

FIGURE 5.1 The Three Layers of Culture

National and Cultural Context126

model presents a way to understand culture, with each layer moving from the outside to
the inside, representing less and less visible, or less explicit, values and assumptions, but
correspondingly more and more important values and beliefs for determining attitudes and
behaviors. These layers include:

â– â–  Surface or explicit culture (the outside layer): Things that are readily observable, such as
dress, food, and ways of eating, architecture, customs (such as how to greet other people
and the importance of relationships), body language, gestures, etiquette, and gift giving.

â– â–  Hidden culture (the middle layer): Values, religions, and philosophies about things like
child rearing, views of what is right and wrong.

■■ Invisible or implicit culture (the core): The culture’s universal truths, the bases for all of
a culture’s values and beliefs.

This approach to an understanding of culture is used throughout this book as various
business and IHR practices, such as preparing employees for international assignments or
developing compensation and motivation practices for application in foreign operations,
are described and evaluated.

As people develop an ability to work successfully with differing cultures, they typically
go through a process such as that illustrated in Figure 5.2, “Development of cross-cultural
competence.” This approach to building knowledge about another person or group’s behav-
ior and values and eventually adapting to or being able to integrate with that other person’s
or group’s behaviors and attitudes assumes that people must first understand their own
cultural values and beliefs before they can develop an appreciation and respect for other
people’s cultural differences, which then precedes the eventual ability to move toward
reconciliation and integration with different national and organizational cultures.

All three stages are challenging. All three stages require progressing from basic education
and training about one’s own and others’ cultures through gaining experience with other
cultures to reflecting on and then developing an openness about and finally a willingness to
seek feedback about one’s own values and behaviors in relation to the foreign culture(s).
Ultimately, as was found in an extensive study of the development of global executives,
people learned best to deal with the complexities of “foreign” cultures by living in those
cultures.10 But the other steps illustrated in Figure 5.2 are also important in developing
what is referred to here as “cultural competency.”

The recent experiences of ConAgra Foods in China illustrate this process.11

When ConAgra came to China five years ago, the firm had high hopes and big worries.
Prior to this, the company entered the Japanese market and repeatedly ran into obsta-
cles like communication breakdowns, cultural missteps, and missed deadlines. While those
problems were eventually straightened out, ConAgra knew it could not afford to make the
same mistakes in China. Intent on finding someone who could help their managers shorten
the cultural distance, the company’s manager of human resources who was responsible for
international organization, hired Carla Kearns, founder of TLI-The Mandarin School, based
in Toronto, to provide its executives with intercultural business training and coaching.

Countr y and Company Culture and IHRM 127

Ms. Kearns teaches companies to understand the fundamental values that Western and
Chinese cultures see differently and that, if ignored, can wreak havoc on their bottom line.
They include concepts of time, hierarchy, individualism, personal relationships, and saving
face. Most novice foreign business professionals in China probably know to exchange busi-
ness cards with both hands and the correct seating arrangements at banquets, but to gain
agreement and to seal the deal, executives need to learn a more nuanced approach. TLI and
Ms. Kearns were successful in these efforts for ConAgra, allowing them to become quite
successful in their move into China.

For more information about preparation and training for learning to accept and adapt
to one or more “foreign” cultures, refer to Chapter 10, on global training and management
development.

Awareness
Increased
awareness of
one’s own
cultural
perspective

Respect
Appreciate
cultural
differences

Reconciliation
Resolve differences
Integration
Adaptation

Education

Experience

Reflection

Openness

Feedback

Increasing
transcultural competence

FIGURE 5.2 Development of Cross-cultural Competence

National and Cultural Context128

EXHIBIT 5.1: Geert Hofstede’s Cultural Dimensions

COUNTRY AND REGIONAL CULTURES

An increasing number of researchers are assessing whether or not the wide variety of cul-
tures around the world can be reduced to a more limited set of cultures with similar
characteristics. If so, it would greatly reduce the number of problems associated with deter-
mining management and HR practices in various countries.

The Research of Geert Hofstede

The best known of the studies of national culture (and the first major study of cultural val-
ues in a large sample of countries) was performed by Dr. Geert Hofstede in the subsidiaries
(initially in 53 countries) of one of the major multinational corporations, now known to
have been IBM.12 In particular, this study focused on identifying country differences and
regional similarities on the basis of a series of work-related factors. Exhibit 5.1 provides a
short summary of the factors identified in this research.13

Cultural dimension Description

Power distance Degree of acceptance of power distance between bosses and
subordinates. Degree to which the less powerful members of a
society accept and expect that power is distributed unequally, i.e.,
that hierarchy is legitimate. In cultures with low power distance,
people expect that power is distributed rather equally, and are
furthermore also likely to accept that power is distributed to less
powerful individuals. The emphasis is on challenging authority,
expecting autonomy and independence. As opposed to this,
people in high power distance cultures will likely both expect and
accept inequality and steep hierarchies. There is high respect for
authority, resulting in centralized power, acceptance of autocratic
authority and direct supervision. Countries ranked high on power
distance include Malaysia, Guatemala, Panama, Philippines, and
Mexico. Countries ranked low on power distance include Austria,
Israel, Denmark, New Zealand, and Ireland.

Individualism or
collectivism

Degree of individualism or collectivism. This dimension focuses
on relationships between the individual and the group. Highly
individualistic cultures believe that the individual is the most
important. Decisions are based on individual needs and interests.

Countr y and Company Culture and IHRM 129

Cultural dimension Description

In individualist cultures, people speak out, question, can be
confrontational and direct. Highly collectivist cultures on the other
hand believe the group is the most important and exhibit primary
loyalty to the group (family, caste, tribe, region, organization).
Decisions are based on what is best for the group. In collectivist
cultures, people blend in, avoid conflict, use intermediaries.
Greater emphasis is placed on the welfare of the group to which
the individual belongs, where individual wants, needs, and
dreams are set aside for the common good. Countries ranked
high on individualism and thus low on collectivism include USA,
Australia, Great Britain, Canada, and the Netherlands. Countries
ranked high on collectivism and low on individualism include
Guatemala, Ecuador, Panama, Venezuela, and Colombia.

Uncertainty
avoidance

Degree of uncertainty avoidance or tolerance for ambiguity.
This dimension refers to the need for formal rules and policies
and the extent to which people feel threatened by uncertain or
ambiguous situations. It focuses on how people adapt to changes
and cope with uncertainty. The majority of people who live in
cultures with a high degree of uncertainty avoidance are likely
to feel uncomfortable in uncertain and ambiguous situations and
will welcome rules for guiding their behaviors and attitudes. They
tend to believe in absolute truth and to trust people with high
perceived expertise. People who live in cultures with a low degree
of uncertainty avoidance are likely to thrive in more uncertain
and ambiguous situations and environments and will tend to
resist having too many rules and policies. They are more likely to
accept relativity in beliefs and values. Countries ranked high in
uncertainty avoidance and low in tolerance for ambiguity include
Greece, Portugal, Guatemala, Uruguay, and Belgium. Countries
ranked low in uncertainty avoidance and high in tolerance for
ambiguity include Singapore, Jamaica, Denmark, Sweden, and
Hong Kong.

Masculinity versus
femininity

Degree of masculinity or femininity in social values. This dimension
focuses on the extent to which a society stresses achievement
versus nurture. The masculinity side of this dimension represents
a preference in society for achievement, heroism, assertiveness,
and material rewards for success. Masculinity is seen to be
the trait that emphasizes ambition, acquisition of wealth, and
differentiated gender roles. Society at large is more competitive.

Continued overleaf

National and Cultural Context130

Cultural dimension Description

Its opposite, femininity, stands for a preference for cooperation,
modesty, caring for the weak, and for quality of life. Femininity is
seen to be the trait that stresses caring and nurturing behaviors,
sexual equality, environmental awareness, and more fluid gender
roles. Society at large is more consensus oriented. Countries
ranked high on masculinity include Japan, Austria, Venezuela,
Italy, and Switzerland. Countries ranked high on femininity
include Sweden, Norway, Netherlands, Denmark, and
Costa Rica.

Longterm
versus short-term
orientation

Degree of long-versus short-term orientation. This dimension was
added after the original four dimensions. The consequences for
work-related values behavior springing from this dimension are
rather hard to describe, but some characteristics include:

■ Long-term orientation—acceptance that business results
may take time to achieve; employees valuing a long-term
relationship with their employers

■ Short-term orientation—results and achievements are set, and
can be reached within a specific time-frame; employees will
potentially change employers quite often

Countries ranked high on long-term orientation include China,
Hong Kong, Taiwan, Japan, and South Korea. Countries
ranked high on short-term orientation include Pakistan, Nigeria,
Philippines, Canada, Zimbabwe, Great Britain, and United States.

Pragmatic
versus normative
orientation

Degree of pragmatic versus normative orientation. This dimension
describes how people in the past, as well as today, relate to the
fact that so much that happens around us cannot be explained.
In societies with a normative orientation most people have a
strong desire to explain as much as possible. People in such
societies have a strong concern with establishing the absolute
truth and a need for personal stability. They exhibit great respect
for social conventions and traditions, a relatively small propensity
to save for the future, and a focus on achieving quick results. In
societies with a pragmatic orientation, most people don’t have a
need to explain everything, as they believe that it is impossible
to understand fully the complexity of life. The challenge is not to
know the truth but to live a virtuous life. In societies with a

EXHIBIT 5.1 Continued

Countr y and Company Culture and IHRM 131

Cultural dimension Description

pragmatic orientation, people believe that truth depends very
much on the situation, context, and time. They show an ability
to accept contradictions, to adapt according to circumstances;
they show a strong propensity to save and invest; and they show
thriftiness and perseverance in achieving results. Countries ranked
high on pragmatic orientation include South Korea, Taiwan,
Japan, China, and Germany. Countries ranked high on normative
orientation include Egypt, Mozambique, Malta, Nigeria,
Dominican Republic, and Colombia.

Indulgence versus
restraint

Degree of allowed individual indulgence of basic human drives
versus social restraint of such behavior. Indulgence stands for
a society that allows relatively free gratification of basic and
natural human drives related to enjoying life and having fun.
Restraint stands for a society that suppresses gratification of
needs and regulates it by means of strict social norms. Countries
ranked high on indulgence include Venezuela, Mexico, El
Salvador, Nigeria, Angola, and Colombia. Countries ranked
high on restraint include Pakistan, Egypt, Latvia, Albania,
Bulgaria, and Estonia.

Sources: www.geert-hofstede.com (the Hofstede Center); Hofstede, G. (2001). Culture’s Conse-
quences, 2nd ed., Thousand Oaks, CA/London: Sage Publications; Hofstede, G., Hofstede, G. J.,
and Minkov, M. (2010). Cultures and Organizations: Software of the Mind, 3rd ed., New York:
McGraw-Hill.

Hofstede found not only that certain countries consistently show similarities based on
the presence of these characteristics but also that there are clearly differences between the
various groupings of countries on these value dimensions. The significant conclusion for
MNEs was that the idea was wrong that managerial and organizational systems as devel-
oped and practiced in the parent country and parent company of an MNE should be—or
could be—imposed upon all of the MNE’s foreign subsidiaries.14 As is discussed in more
detail toward the end of this chapter, such large-scale research is difficult and expensive.
And, not surprisingly, such research has been very difficult to replicate, although ongoing
research in the original firm of Hofstede’s research (IBM) as well as by new researchers
in different organizations is generally confirming both the cultural characteristics and the
country profiles.15

National and Cultural Context132

The Research of Fons Trompenaars and Charles
Hampden-Turner

Dr. Fons Trompenaars and Dr. Charles Hampden-Turner published results of a similar
large-scale study (over 15,000 employees from over 50 countries, again from one firm with
long-term global experience, Royal Dutch Shell).16 Even though they focused on differ-
ent aspects of culture—such as how different cultures accord status to members of their
cultures, the varying attitudes toward time and nature, and differing attitudes toward indi-
viduals and groups and resulting relationships between members of society—their overall
conclusions are quite similar to those of Hofstede. Trompenaars and Hampden-Turner con-
cluded that what distinguishes people from one culture compared with another is where
these preferences fall in one of the following seven dimensions. Exhibit 5.2 illustrates these
dimensions.

EXHIBIT 5.2: Trompenaar’s and Hampden-Turner’s
Cultural Dimensions

Cultural dimension Description

Universalism versus
particularism (emphasis
on rules versus
relationships)

Universalism places a high importance on laws, rules,
values, and obligations. Universalists try to deal fairly
with people based on these rules, but rules come before
relationships. In contrast, particularism suggests that
each circumstance, and each relationship, dictates the
rules to live by. Particularists’ responses to a situation
may change, based on what’s happening in the
moment, and who’s involved. Typical universalist cultures
include the US, Canada, the UK, the Netherlands,
Germany, Scandinavia, New Zealand, Australia, and
Switzerland. Typical particularistic cultures include Russia,
Latin America, and China.

Individualism versus
communitarianism (the
individual versus the
group)

Individualism emphasizes personal freedom and
achievement. Individualists believe that you make your
own decisions, and that you must take care of yourself.
In contrast, communitarianism suggests that the group is
more important than the individual. The group provides
help and safety, in exchange for loyalty. The group
always comes before the individual. Typical individualist
cultures include the US, Canada, the UK, Scandinavia,

Countr y and Company Culture and IHRM 133

Cultural dimension Description

New Zealand, Australia, and Switzerland. Typical
communitarian cultures include countries in Latin America,
Africa, and Japan.

Neutral versus emotional
(range of emotions
expressed)

In neutral cultures people make a great effort to control
their emotions. Reason influences their actions far
more than their feelings. People don’t reveal what
they’re thinking or how they’re feeling. In contrast, in
emotional cultures people want to find ways to express
their emotions, even spontaneously, at work and in
social situations. In emotional cultures, it’s welcome and
accepted to show emotion. Typical neutral cultures include
the UK, Sweden, the Netherlands, Finland, and Germany.
Typical emotional cultures include Poland, Italy, France,
Spain, and countries in Latin America.

Specific versus diffuse
(range of involvement
with other people)

In specific cultures people keep work and personal lives
separate. As a result, they believe that relationships
don’t have much of an impact on work objectives, and,
although good relationships are important, they believe
that people can work together without having good
relationships. In diffuse cultures people see an overlap
between their work and personal lives. They believe
that good relationships are vital to meeting business
objectives, and that their relationships with others will be
important, whether they are at work or meeting socially.
People spend time outside work hours with colleagues
and clients. Typical specific cultures include the US,
the UK, Switzerland, Germany, Scandinavia, and the
Netherlands. Typical diffuse cultures include Argentina,
Spain, Russia, India, and China.

Achievement versus
ascription (basis for
according status to other
people)

In achievement cultures people believe that you are what
you do, and they base your worth accordingly. These
cultures value performance, no matter who you are. In
ascription cultures, people believe that you should be
valued for who you are. Power, title, and position matter
in these cultures, and these roles define behavior. Typical
achievement cultures include the US, Canada, Australia,
and Scandinavia. Typical ascription cultures include
France, Italy, Japan, and Saudi Arabia.

Continued overleaf

National and Cultural Context134

Since the reporting of these studies by Hofstede and Trompenaars and Charles
Hampden-Turner, other researchers and consultants have reported similar findings or
developed alternative ways to categorize cultural values. For example, the Global Lead-
ership and Organizational Behavior Effectiveness (GLOBE) research project (one of the
most comprehensive studies yet, performed by a large multinational team of professors)

Cultural dimension Description

Sequential time versus
synchronous time (how
people manage time)

In sequential time cultures people like events to happen
in order. They place a high value on punctuality,
planning (and sticking to your plans), and staying
on schedule. In these cultures, “time is money,” and
people don’t appreciate it when their schedules are
thrown off. In synchronous time cultures people see the
past, present, and future as interwoven periods. They
often work on several projects at once, and view plans
and commitments as flexible. Typical sequential-time
cultures include Germany, the UK, and the US. Typical
synchronous-time cultures include Japan, Argentina, and
Mexico.

Internal direction versus
outer direction (how
people relate to their
environment)

In internal direction cultures people believe that they
can control nature or their environment to achieve
goals. This includes how they work with teams and
within organizations. In outer direction cultures people
believe that nature, or their environment, controls them;
they must work with their environment to achieve goals.
At work or in relationships, they focus their actions on
others, and they avoid conflict where possible. People
often need reassurance that they’re doing a good
job. Typical internal-direction cultures include Israel,
the US, Australia, New Zealand, and the UK. Typical
outer-direction cultures include China, Russia, and Saudi
Arabia.

Sources: Trompenaars, F. (1992/1993). Riding the Waves of Culture: Understanding Diversity in
Global Business, Burr Ridge, IL: Irwin; Trompenaars, F., and Hampden-Turner, C. (2004). Manag-
ing People across Cultures, West Sussex: Capstone; http://www.mindtools.com/pages/article/
seven-dimensions.htm.

EXHIBIT 5.2 Continued

Countr y and Company Culture and IHRM 135

EXHIBIT 5.3: Global Leadership and Organizational
Behavior Effectiveness (GLOBE): Cultural Dimensions

Cultural dimension Description

Assertiveness The degree to which individuals are assertive, confrontational, and
aggressive in their relationships with others

Future orientation The extent to which individuals engage in future-oriented behaviors
such as delaying gratification, planning, and investing in the future

Gender
differentiation

The degree to which a collective minimizes gender inequality

Uncertainty
avoidance

The extent to which a society, organization, or group relies on
social norms, rules, and procedures to alleviate unpredictability of
future events

Power distance The degree to which members of a collective expect power to be
distributed equally

Institutional
collectivism

The degree to which organizational and societal institutional
practices encourage and reward collective distribution of resources
and collective action

In-group
collectivism

The degree to which individuals express pride, loyalty, and
cohesiveness in their organizations or families

Performance
orientation

The degree to which a collective encourages and rewards group
members for performance improvement and excellence

Humane
orientation

The degree to which a collective encourages and rewards individuals
for being fair, altruistic, generous, caring, and kind to others

Sources: http://www.inspireimagineinnovate.com/PDF/GLOBEsummary-by-Michael-H-Hoppe.pdf;
House R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., and Gupta V. (2004). Culture, Leadership,
and Organizations. The GLOBE Study of 62 Societies. Thousand Oaks, CA: Sage; Chhokar, J. S.,
et al. (eds.) (2007). Culture and Leadership across the World: The GLOBE Book of In-Depth Studies
of 25 Societies, Mahwah, NJ: Lawrence Erlbaum.

categorized countries on nine cultural dimensions including assertiveness, future orien-
tation, gender differentiation, uncertainty avoidance, power distance, institutional collec-
tivism, in-group collectivism, performance orientation, and humane orientation,17 which
exhibit much overlap, even synthesizing of, the factors reported by Hofstede and Trompe-
naars. Exhibit 5.3 summarizes the GLOBE findings.

National and Cultural Context136

Country Cultural Clusters

Because the number of different national and ethnic cultures is so great, the efforts by
Hofstede, Trompenaars, and others, to cluster countries with similar cultural profiles and
to identify a limited set of variables with which one can understand cultural differences
have been welcomed by firms working in the international arena. The hope for these
efforts is that they can simplify the problems encountered in adjusting to varying national
cultures by limiting the number of significantly different countries or regions. The results
of several studies suggest groupings of the following countries, based on their cultural
similarities:18

â– â–  Anglo. Australia, Canada, Ireland, New Zealand, South Africa, United Kingdom, United
States.

â– â–  Arab. Abu-Dhabi, Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates.
â– â–  Far Eastern. Hong Kong, China, Indonesia, Malaysia, Philippines, Singapore, Vietnam,

Taiwan, Thailand.
â– â–  Germanic. Austria, Germany, Switzerland.
â– â–  Latin American. Argentina, Chile, Colombia, Mexico, Peru, Venezuela.
â– â–  Latin European. Belgium, France, Italy, Portugal, Spain.
â– â–  Near Eastern. Greece, Iran, Turkey.
â– â–  Nordic. Denmark, Finland, Norway, Sweden.
â– â–  Independent. Brazil, India, Israel, Japan, South Korea.

People with extensive international experience will probably suggest that some of these
groupings hide significant within-group (between countries that are in the same group)
differences (such as would be experienced among the different countries in the Far East-
ern cluster).19 Nevertheless, the various research efforts to identify countries with similar
cultural characteristics do suggest that the countries in each group indeed exhibit signifi-
cant similarities in their cultural profiles.

These kinds of studies—even if they only confirm managers’ assumptions about certain
country characteristics—can provide some guidance to general managers and HR managers
as they structure policies and practices in foreign operations and activities. At a minimum,
these studies provide support for decentralizing many aspects of organizational structure
and management and offer suggestions for creating regional divisions for managing at least
some aspects of the highly complex global firm.

The Observations of an Experienced Practitioner

One interesting and practical approach to understanding cultural differences is based on
the observations and experiences of Richard Gesteland over a 30-year career as expatriate

Countr y and Company Culture and IHRM 137

manager and international negotiator in many countries.20 Gesteland has observed that
variances in four general patterns of cross-cultural business behavior provide critical help
in understanding international marketing, negotiating, and managing. These four patterns
include:

■■ Deal focus versus relationship focus. Gesteland states that this focus on “making or doing the
deal” rather than “building relationships” provides the “Great Divide” between business
cultures, with differences in this focus often proving to be exceedingly difficult to bridge.

â– â–  Informal versus formal cultures. Problems occur here when informal business travelers
from relatively egalitarian cultures cross paths with more formal counterparts from
hierarchical societies.

â– â–  Rigid-time (monochronic) versus fluid-time (polychronic) cultures. One group of the
world’s cultures worships the clock while another group is more relaxed about time
and scheduling, focusing instead on relationships with the people around them.

■■ Expressive versus reserved cultures. Expressive people communicate—verbally, nonver-
bally, and in writing—in radically different ways from their more reserved counterparts,
which often causes great confusion that can spoil the best efforts to market, sell, source,
negotiate, or manage people across cultures.

These four patterns suggest some similarities to and additional verification of those pub-
lished by researchers, such as Hofstede and Trompenaars. And they suggest some slight
differences, with an emphasis on what has been crucial to the practice of international
management and negotiation.

The Dangers of Oversimplification

The attempts to isolate country variances and then to group countries and regions with
similar profiles and to minimize the variables with which we try to understand cultural
differences can simplify the management (and IHR management) task of figuring out how
to interact effectively in various countries. But this may oversimplify the understanding of
cultural differences.21 For example, Brannen expresses the concern that the focus on coun-
try differences falls short on two levels:

1 That it provides little explanation of within-group differences, that is, it treats countries
or cultures as homogeneous wholes, with everyone within the country or culture being
alike; and

2 It provides little understanding of how cultures change, that is, it tends to treat cultures
as a given—impermeable and static.22 Brannen suggests that experience shows that
cultures are not nearly as homogeneous nor as static as these studies suggest. There are
considerable differences within cultures and cultures do, in fact, change over time.

National and Cultural Context138

COUNTRY CULTURE VERSUS MNE CULTURE

Just as countries develop unique patterns of values, norms, beliefs, and acceptable behavior,
so also do companies. Most MNEs take great pride in their “organizational cultures,” which
reflect, at least initially, the values of their founders and evolve to create corporate person-
alities that give employees a template for how to behave, including how to make decisions,
the importance and acceptance of operational concerns such as continual improvement,
safety, and ethics, and how to treat fellow employees and customers.

For many firms, these organizational values take precedence over country cultures, par-
ticularly when there is a conflict between the two. For example, many large MNEs that
originate in Scandinavian countries may feel very strongly about the assignment of women
to senior management positions and will do this even in cultures where it is rare (and not
supported by cultural norms) for women to have these types of appointments. Or MNEs
from Western countries may feel strongly in favor of egalitarian and participative manage-
ment styles and compensation practices and may decide that these values are so important
that they will pursue strategies to implement these practices in their foreign operations,
even though local culture supports a very different set of values. In addition, Asian MNEs
might emphasize strong group loyalty and discussion, with deference to senior employ-
ees, in the ways they operate and make decisions, even in their foreign subsidiaries, and
even when this is not an accepted or understood way to operate by local employees and
managers.

CULTURAL CONVERGENCE AND/OR DIVERGENCE

One major issue that affects the relationship between national culture and corporate cul-
ture has to do with the conflict between centralization/standardization and localization/
customization, as has been discussed a number of times already. This dilemma may never
be fully resolved, and it will come up again, as it affects various aspects of IHRM policy and
practice. But this is one of the consequences of the major cultural differences as described
in this chapter. Even a huge MNE, such as McDonald’s, the fast-food restaurant chain,
struggles with insistence throughout the world on corporate standards for customer service
and quality of product, while also trying to adopt local ideas for menu that meet local tastes
and practices.

One of the continuing controversies that surrounds any discussion of the role of culture
in IB is whether or not, due to increasing globalization, there is a growing convergence of
cultural values and characteristics across countries.23 There is some evidence to support
both the point of view that modern technology and the modernizing of industries around
the world is influencing firms to adopt similar “best practices” (convergence)24 as well as
support for the view that countries’ cultural values and practices continue to exert quite

Countr y and Company Culture and IHRM 139

strong influences on their business and HR practices (divergence).25 It is likely that reality
is somewhere in between:

Convergence and divergence perspectives may represent polar extremes. As
most firms struggle to find the optimal trade-off between globalization and
localization, that is, “glocalization,” perhaps the reality is closer to a more bal-
anced or middle-ground view called “cross-vergence,” or the intermixing of cul-
tural systems between different countries.26

This issue of convergence versus divergence in cultural variance around the world is dis-
cussed throughout this text as it applies to various HR practices, such as in Chapter 12
in the discussion of global performance management, and particularly in Chapter 14 on
comparative HRM. In any case, as the global economy continues to grow, it is likely that
cultural differences will influence IB and IHRM practices in multiple and complex ways.
Management and HR practices are likely to be both influenced by the practices of large
MNEs from the developed economies as well as by the values and practices from the larg-
est emerging economies, referred to as the BRIC (Brazil, Russia, India, China) countries,
and from smaller, yet successful economies, such as Austria, Switzerland, the Scandinavian
countries, South Korea, Singapore, and Hong Kong, creating potentially many different, yet
successful, hybrid management systems.

RESEARCH IN IHRM

One of the reasons for the apparent slow pace of development of IHRM stems from the
problems inherent in researching international organizational issues. This is largely due to
the significant and complex impact of culture on such research.

IB research began to develop in the 1970s (along with the expansion of IB).27

Cross-cultural management research, however, remained largely limited throughout the
1970s and 1980s and, even now, represents only a small percentage of published research
on management and organizational topics.28 In addition, at least until recently, much of
the published research was from an Anglo perspective, much of it performed by American
(or American-trained) or European researchers,29 and mostly done in the top industrial-
ized or developed countries.30 Research published by non-Western scholars (or published
in non-English language sources), such as in Western and Eastern Europe and Japan
and in emerging economies, such as the BRIC countries, has gone largely unnoticed in
the US, in particular, and in other major English-speaking countries.31 And among the
business disciplines, management, organization, and HRM have been among those topics
receiving the least attention.32 All of this has contributed to the lack of research related
to IHRM.

National and Cultural Context140

The limited research published on international and comparative management and
organization in general, and IHRM in particular, has also been criticized as lacking in ana-
lytical rigor, relying too heavily on description of organizational practices (as opposed to
critically evaluating such practices), being expedient in research design and planning, and
lacking the sustained effort needed to develop case material and other types of longitudinal
studies.33

There are numerous reasons for this. Multinational—or cross-border or cross-cultural—
research is expensive, takes more time, and typically involves more travel than domestic
research, and often requires skills in multiple languages, sensitivity to multiple cultures,
and cooperation among numerous individuals from different countries, companies, and,
often, governments. All of this combines (and conspires) to make such research quite
difficult, if not impossible for many researchers. Throw in problems with cultural differ-
ences among researchers and at research sites, translation problems (see the next few para-
graphs), interpretation variances among multinational research teams, and difficulties with
research designs such as the use of control groups and the creation of equivalent groups for
comparison purposes, and one can see some of the reasons for the lack of rigorous research
in international HRM in particular, and to a lesser extent, international management in
general.34

The amount of research into topics of relevance to IHRM continues to grow, with the
quantity and quality expanding.35 However, as described above, and as with all research
into topics related to international business (if not all areas of international research), there
are a number of issues that make such research difficult to perform, difficult to describe,
and difficult to get published.36 The following is a short introduction to issues related to the
conduct of research into IHRM, which should help those interested in both the conduct
and the reporting of such research as well as help readers to evaluate the research that is
reported, both of an empirical and of a more general, anecdotal nature.

General Frustrations

International management researchers have reported frustration with four particular
problems:

â– â–  Inconsistent and vague definitions of terms like culture and performance.
â– â–  Inaccurate translation of key terminology (see the next few paragraphs).
â– â–  Difficulty in obtaining representative or equivalent samples of research subjects. It is

very hard to isolate the variables of interest in different cultures.
■■ Difficulty in isolating cultural differences—versus identifying cultural characteristics

that might be common across varying cultures—amid varying national economic and
political realities (such as stages of development of the countries or cultures being
studied and the nature of their political systems).

Countr y and Company Culture and IHRM 141

Forms of IHRM Research

IHRM research has basically taken one of three forms. These are:

â– â–  Cross-cultural, i.e., the study of issues or practices, comparing one country to another.
â– â–  Multicultural, i.e., the study of a practice or issue in a number of countries or cultures.
â– â–  HR practices in other countries, i.e., describing HR practices in one or more countries

that are “foreign” to the researcher.

However, the majority of the published research has been of the first variety, primarily due
to the many problems with conducting cross-border studies, as described earlier.

The Specific Case of Employee Surveys 37

Although most IHRM research is conducted by academic researchers (with some done by
consultants and practitioners), some is conducted by in-house scientists. One of the func-
tions of IHRM research is to help firms evaluate their IHRM practices. One of the common
methods used for such in-house research is employee surveys. Even though surveys may
be relatively simple in terms of research design, they are still impacted by all of the issues
described in this section. Every issue, from translation and item equivalence, to union or
works council reviews, to length of time to administer, to varying privacy guidelines or atti-
tudes, to methods for administration, to difficulties in working with multinational teams,
to varying acceptance of such data gathering in different countries, can cause problems.

Basic Assumptions

The basic models and/or assumptions that underlie cross-cultural research have been
described as falling into the following three “camps.” The perspective of a particular
researcher will obviously influence the approach taken, the types of questions examined,
the type of data or information sought, and the interpretation and generalizability of the
results.38

â– â–  Universal. A researcher with a universalist assumption has the attitude that there exist
some universal cultural characteristics; his or her research task is to identify them and
thus demonstrate that certain management and HR practices will work anywhere.

â– â–  Situational. A researcher with this perspective maintains that there are different man-
agerial practices for different situations; thus his or her task is to identify the cultural
situations in which HR or management practices differ or which practices differ based
on which cultural variables.

National and Cultural Context142

â– â–  Convergent. A researcher with this perspective begins with a view (and tries to verify)
that countries with similar industrial and cultural backgrounds will converge to a com-
mon set of management practices as they approach similar levels of economic maturity.

Specific Difficulties

Some of the specific reasons for the difficulties in doing international/comparative manage-
ment and IHR research and getting it published include the following.

The Particular Focus of the Researcher(s)

There are often the following two foci described:

â– â–  Emic. Trying to identify culture-specific aspects of concepts/behavior, i.e., differences
across cultures.

â– â–  Etic. Trying to identify culture-common aspects, i.e., the same across all cultures.

These terms have been borrowed from linguistics: a phonemic system documents meaningful
sounds specific to a given language, and a phonetic system organizes all sounds that have mean-
ing in any language. Both approaches provide legitimate research orientations, but if a researcher
uses an etic approach (i.e., assumes universality across cultures) when there is little or no sup-
port for doing so, or vice versa, it makes the results difficult to interpret—or leads to errors in
research design and interpretation—and will cause problems with review and publishing.

These approaches obviously interact with the universalist versus situational perspec-
tives. A universalist approach will look for evidence to suggest that there is really only
“one best way” and that countries that have practices that diverge will eventually converge
to the best way. Thus a longitudinal perspective becomes quite important. Most cultural
research is pretty static—that is, it doesn’t take into account a long-enough perspective
to show that pressures even within a culture (or, broader, within the global environment)
can lead to significant changes and adaptation. So, if the distinction between emic and etic
approaches is ignored in research design, or if unwarranted universality assumptions are
made, major methodological difficulties can arise.

Language Problems

Language problems are at the root of many of the problems encountered in conducting
cross-national research (this is discussed in more detail later).

Measurement and/or Methodological Problems

Measurement and methodological problems can occur when conducting research in multi-
ple cultures and/or languages (for example, attempting to get equivalence in the meaning

Countr y and Company Culture and IHRM 143

of terms in various languages, particularly in questionnaire and interview research).39
“Measurement error occurs when the measure or scale employed fails to reflect the correct
extent to which the subject possesses the attribute being measured.”40 These errors can
arise because of flaws in scale design or mathematical properties, problems with instrument
validity, or because of incorrect application of the scale. These are general methodological
problems and can occur in any type of research. However, the complexities of cross-national
research add additional problems involving issues such as the reliability of the measures in
terms of equivalence of language in different versions of the instrument and equivalence in
various versions of the instruments, themselves.41 In addition, the cross-cultural researcher
needs to be aware of the need for equivalence of administration of research and of response
to the research in different national or cultural locales.

Equivalence Problems in Cross-cultural Research

The three critical equivalence issues that arise in conducting cross-cultural and cross-national
research include:42

â– â–  Metric (stimulus) equivalence. This deals with trying to ensure that the psychometric
properties of various forms of the research instruments, such as questionnaire surveys
or interviews, which have to be translated into languages different from the original
form, are the same; this is usually accomplished through back translation, i.e., hav-
ing translators convert the translated forms back into the original language, to see
if the back-translated questionnaire is the same as the original. Most cross-cultural
research focuses here, and this step is pretty much required of all such research, in
order to get published. But, as is demonstrated in the next few paragraphs, more is
needed.

â– â–  Conceptual equivalence. The concern here is to ensure that not only do the words trans-
late the same, but that they have the same meaning in different cultures and produce
the same level of consistency in results, i.e., the measurement results are similar. For
example, in a cross-cultural survey administered in China, South Korea, Japan, and the
US, researchers found significant effects attributable not only to country differences
but also to the type of scale used, e.g., Likert or semantic differentials.43 The authors’
conclusion was that reactions to various attitude scales are culturally bound and, thus,
the scales need to be matched to country situations.

â– â–  Functional equivalence. This form of equivalence is concerned with ensuring that the
terms used and the translations developed are viewed in each culture in similar ways,
which requires having “insider” knowledge about the culture, adequate to determine
what various cultures value and what the concepts really mean in each culture so as to
produce “functional” similarity. In addition, functional equivalence is concerned with
ensuring that the concepts work the same way and are implemented the same way in
each culture.

National and Cultural Context144

The point here is that the results achieved through cross-cultural research may be due
to the nature of the research itself (the scales, the language, the wording, the translations,
administration, etc.) rather than with any “real” differences in the variables being studied.
In addition, there are two more issues that need to be considered:

â– â–  Subjectivity of the topics themselves. There can be differences between cultures in how
they approach the very concept of doing research. The emphasis in Western research is
on objectivity and specificity (at least, as viewed within Western cultural norms). But
there are potentially a number of points at which people from non-Western (and even
some from within Western) cultures would view research differently. For example,
the choice of topics to research, that is, the topics that are seen as most important to
research, are likely to vary from country to country. And topics, themselves, are likely
to be viewed very differently and approached very differently in different cultures. For
example, US business (males) have traditionally shown a bias for action but French
business (males) prefer thought before action. Whether action or thought comes first
could well be researched using objective measurement; but which is the “correct” man-
agerial bias is subjective. And, indeed, women in either culture may view this issue
differently yet.

â– â–  Factors other than culture. Lastly, there may also be factors other than culture that make
interpreting the results of cross-cultural and cross-national research very problem-
atic. For example, a review of research published in Arabic showed conflicting results
over preferences for various leadership or management styles in Arab countries.44 The
author concluded that management styles used in these countries varied with situa-
tional factors other than culture.

Research Content in IHRM

Traditionally, the majority of published IHRM research and writing has been related to the
selection and preparation of expatriates (now more commonly referred to as international
assignees). Gradually more research interest has been focused on local foreign workforces
and on other HRM practices in MNEs and in foreign operations. Clearly there are many
practices of importance in IHRM that are gaining increased attention from researchers and
writers. This is reflected in the chapters throughout the rest of this book.

IMPACT OF CULTURE ON IHRM

The discussion in this chapter has illustrated just how important culture is in the conduct
of international business and international HRM. Indeed, every aspect of IB and IHRM is
impacted by national and organizational culture. Every topic throughout the rest of this

Countr y and Company Culture and IHRM 145

book is influenced by the realities of varying country and company cultures. This is true for
the HR management of international assignees as well as for the HR management of local
workforces in subsidiaries and joint ventures.

A study by the Society for Human Resource Management (SHRM) in the US suggests
that the situations in which particular cultural influences on IHRM are important include:45

â– â–  recruiting and hiring practices;
â– â–  building business relationships;
â– â–  the role and use of multiple languages and communication;
â– â–  perceptions of organizational justice (such as fairness in treatment, quality of treat-

ment, and fairness of outcomes);
â– â–  decision making;
â– â–  performance evaluations and feedback;
â– â–  management and leadership development;
â– â–  development of a global mindset; and
â– â–  varying perspectives on careers across cultures.

CONCLUSION

This chapter has described the concepts of national and MNE cultures and discussed
their importance to the successful conduct of international business and international
human resource management. It described the basic research findings of two of the best
known researchers, Geert Hofstede and Fons Trompenaars, and the conclusions of one
of the most-experienced international executives, Gesteland. The chapter also described
the importance of culture to IHRM and the importance of culture to and its impact on
the difficulties encountered in conducting IHRM research. Cultural differences impact
international business and IHRM in ways that make both much more challenging and com-
plex. MNEs and their managers need understanding and appreciation for these differences
as well as cultural competencies in working within these varying cultural contexts.

This chapter has only provided an introduction and a frame of reference. The concepts
and ideas are utilized throughout the rest of the text to help describe the complexities and
challenges of IHR. The chapter has provided a framework within which the rest of IHRM
and this book can be understood.

DISCUSSION QUESTIONS

1 How would you define or describe the concept of culture?
2 How is the research of Trompenaars and Charles Hampden-Turner similar to or differ-

ent from that of Hofstede?

National and Cultural Context146

3 What do you consider to be the most important factors of culture in terms of their
impact on business?

4 Are national cultures converging or diverging?
5 What are the most important difficulties in conducting research on IHRM that stem

from differences in national cultures and languages?

Countr y and Company Culture and IHRM 147

CASE STUDY 5.1: Internationalization and Cross-cultural
Expansion of a Local Manufacturer: Barden (US)
and FAG (Germany)

The experiences of Barden, a precision ball-bearing manufacturer based in Danbury, Connecti-
cut, illustrate how workforce planning has become a global activity even for a local firm. In the
late 1980s, Barden had an opportunity to significantly increase its business. In order to achieve
this, it needed to increase its hourly labor force by about 125 employees over the next year.
However, the local Danbury labor market was experiencing unprecedented low unemployment.
The human resource department thought they could find enough new employees, but indicated
they would have to be very creative (for example, by using bonuses to current employees
for successful referrals, open houses to recruit applicants, etc.) and, importantly, by recruiting
recent immigrants whose English was likely to be very poor.

In the past, Barden had found that, for example, Portuguese immigrants became very reli-
able, long-term employees. Barden had used a “buddy” system to help new employees learn
their jobs and to acquire an adequate “Barden” work vocabulary. But it was clear that this
would be inadequate to prepare—in a short period of time—the large new group of potential
employees that had been identified. It turned out that there were a significant number of bright
recent immigrants from a large and diverse number of countries (e.g., Laos, Cambodia, Bra-
zil, Colombia, the Dominican Republic, Guatemala, Chile, Lebanon, Pakistan, Thailand, and
Yemen), but who spoke little or no English.

To become functioning, qualified Barden employees, newcomers would have to master the
basic “Barden” vocabulary and be able to look up standard operating procedures as well as
material safety data sheets, and master basic shop mathematics, measurement processes, and
blueprint reading. This was a major challenge for the immigrants, even though many of them,
it was discovered, had received surprisingly good educations back in their home countries.
In order to teach these new employees enough English to pay their way, a language training
firm, Berlitz, was retained to develop a special, intensive course in cooperation with Barden’s
training unit. In a fairly short period of time six groups of eight new employees were taught
through this special program. All the students were put on the payroll while they met with a
Berlitz instructor for four hours a day for 15 consecutive workdays during work hours.

The program had a number of effects, beyond enabling Barden to fill its employment needs
to meet its new corporate growth strategy and to integrate this veritable United Nations group
into its workforce. The confidence level of the students soared as they used their new language
abilities. Barden’s supervisors were impressed—and gained some new cross-cultural aware-
ness and competence as well (which came in handy over the next decade as Barden became
an international company). And the word spread to the community with the positive result of
attracting new high-quality recruits.

In 1991, Barden became affiliated with FAG, a German company in Schweinfelt, Germany,
and Stratford, Canada, and later developed subsidiaries in the UK, as well. Today, Barden/
FAG is recognized as the industry leader in the manufacture of ball-bearings to super-precise/

National and Cultural Context148

super-critical tolerances, for machine tools and special machinery and equipment in the aero-
space, automotive, and medical industries. And their success has been recognized as deriving,
at least in a major way, from their diverse and multicultural workforce.

Sources: Schuler, R. S. and Walker, J. W. (1990). Human resource strategy: Focusing on issues and
actions. Organizational Dynamics, summer, 4–20; updated 2014 at: www.bardenbearings.com.

Discussion Questions

1 Are immigrants a good source of workers to fill vacant positions? What are some of the
barriers to employing immigrants? Are immigrants always welcomed by every country to
fill job vacancies?

2 Do current global demographics accommodate or require the hiring of foreign immigrants?
Should a consideration for foreign immigrants be part of every firm’s workforce strategy?
How do host-country and third-country hires relate to the hiring of immigrants?

3 What cultural barriers had to be crossed with the hiring of immigrants at Barden? What
cultural challenges do you think were experienced with the affiliation of Barden with FAG
of Schweinfelt, Germany, and Stratford, Canada?

4 How would you (as Barden HR manager) have dealt with the need for new employees and
then global expansion?

NOTES

1 Source: a UAL billboard in the terminal at Germany’s Frankfurt Airport.
2 Much of this chapter is based on Schneider, S., Barsoux, J-L., and Stahl, G. (2014). Managing across

Cultures, 3rd rev. ed., Upper Saddle River, NJ: Pearson Education Limited; Steers, R., Nardon, L., and
Sánchez-Runde, C. (2013). Management Across Cultures: Developing Global Competencies, New York:
Cambridge University Press; Chanlat, J-F., Davel, E., and Dupuis, J-P. (2013). Cross-Cultural Management:
Culture and Management Across the World, London/New York: Routledge; Primecz, H., Romani, L., and
Sackman, S. (2012). Cross-Cultural Management in Practice: Culture and Negotiated Meanings, Chelten-
ham, UK/Northampton, MA: Edward Elgar.

3 Schell, M. S., and Solomon, C. M. (1997). Capitalizing on the Global Workforce, Chicago: Irwin, p. 9.
4 Adapted from F. Trompenaars and C. Hampden-Turner (2001). Cultural answers to global dilemmas. Finan-

cial Times, Jan. 15, p. 14.
5 See Vietnam gets a taste for the Big Mac: Country’s first McDonald’s serves 400,000 customers in first

month, Daily Mail.com (24, March 2014) website: http://www.dailymail.co.uk/travel/article-2586011/
Vietnams-McDonalds-serves-400–000-customers-month.html#ixzz3GtYlXJPy; Ives, M. (Feb 7, 2014).
McDonald’s opens in Vietnam, bringing Big Mac to fans of Banh Mi, New York Times website: http://www.
nytimes.com/2014/02/08/business/international/mcdonalds-chooses-its-moment-in-vietnam.html?_r=2.

6 Maresca, T. (Feb 10, 2104). The first McDonald’s in Vietnam opened Saturday in Ho Chi Minh City.”,
USA Today website: http://www.usatoday.com/story/money/business/2014/02/09/vietnam-mcdonald
s-ho-chi-minh-city/5337103/.

7 Schell and Solomon (1997), p. 8.

Countr y and Company Culture and IHRM 149

8 See, for example, Hofstede, G., Hofstede, G. J., and Minkov, M. (2010). Cultures and Organizations:
Software of the Mind, 3rd ed., New York: McGraw-Hill; Hofstede, G. (2001). Culture’s Consequences,
2nd ed., London: Sage; Schneider, S., Barsoux, J-L., and Stahl, G. (2014). Managing Across Cultures, 3rd
rev. ed., Upper Saddle River, NJ: Pearson Education Limited; Hooker, J. (2003). Working Across Cultures,
Stanford, CA: Stanford Business Books; Moore, K. (2003). Great global managers, Across the Board,
May–June, 40–44; Peterson, B. (2004). Cultural Intelligence, Yarmouth, ME: Intercultural Press; Stroh,
L. K., Black, J. S., Mendenhall, M. E., and Gregersen, H. B. (2005). International Assignments, Mahwah,
NJ/London: Lawrence Erlbaum Associates; Thomas, D.C., and Inkson, K. (2009). Cultural Intelligence,
2nd ed., San Francisco: Berrett-Koehler Publishers; Trompenaars, F. (1992/1993). Riding the Waves of
Culture: Understanding Diversity in Global Business, Burr Ridge, IL: Irwin, chapter 1; and Trompenaars,
F., and Hampden-Turner, C. (2004). Managing People Across Cultures, West Sussex, England: Capstone
Publishing Ltd.

9 Schell and Solomon (1997); Hofstede (1991). Cultures and organizations: Software of the mind. London:
McGraw-Hill; Trompenaars (1992/1993); Trompenaars and Hampden-Turner (2004).

10 McCall, M. W., Jr., and Hollenbeck, G. P. (2002). Developing Global Executives: The Lessons of Interna-
tional Experience, Boston, MA: Harvard Business School Press.

11 Levin, D. (2010). Helping to bridge a cultural divide in China, International Herald Tribune, Dec. 22, 4.
12 Hofstede, G. (2001); Hofstede (1991); Hofstede, G. (2001); Hofstede, G. (2002). Cultural constraints in

management theories, CRN News, 7(4), 1–3, 12–13, 16, 19, 22–23.
13 Source: www.geert-hofstede.com (the Hofstede Center) 4/18/14; www.BusinessMate.org 4/18/14;

www.andrews.edu/~tidwell/bsad560/hofstede.html 4/18/14; Hofstede, G. (2001).
14 See, for example, Hofstede, G. (1984). Clustering countries on attitudinal dimensions: A review and syn-

thesis, Academy of Management Review, 9(3), 389–398; Hofstede, G. (1983). The cultural relativity of
organizational theories, Journal of International Business Studies, 14(2), 75–90.

15 Saari, L., and Schneider, B. (2001). Global employee surveys: Practical considerations and insights, paper
presented at Going global: Surveys and beyond, workshop at the annual conference, Society of Industrial/
Organizational Psychology, San Diego, April.

16 Hampden-Turner, C., and Trompenaars, F. (2012). Riding the Waves of Culture: Understanding Diversity
in Global Business, 3rd ed., New York: McGraw-Hill; Hampden-Turner, C., and Trompenaars, F. (1993).
The Seven Cultures of Capitalism, New York: Currency/Doubleday; Trompenaars, F. (1992/1993); and
Trompenaars, F., and Hampden-Turner, C. (2004).

17 To learn more about GLOBE see Dorfman, P., Javidan, M., Hanges, P., Dastmalchian, A., and House,
R. (2012). GLOBE: A twenty-year journey into the intriguing world of culture and leadership. Journal of
World Business, (4), 504; Javidan, M., Dorfman, P. W., Mary Sully de, L., and House, R. J. (2006). In the
eye of the beholder: Cross-cultural lessons in leadership from Project GLOBE. Academy of Management
Perspectives, (1), 67; Javidan, M., and House, R. J. (2000). Cultural acumen for the global manager,
Organizational Dynamics, 29(4), 289–305; Globe Research Team (2002). Culture, Leadership, and
Organizational Practices: The GLOBE Findings, Thousand Oaks, CA: Sage; and Graen, G. B. (2006). In
the eye of the beholder: Cross-cultural lessons in leadership from Project GLOBE, Academy of Management
Perspectives, 20(4), 95–101; and the response to this analysis: House, R. J., Javidan, M., Dorfman, P. W.,
and de Luque, M. S. (2006). A failure of scholarship: Response to George Graen’s critique of GLOBE,
Academy of Management Perspective, 20(4), 102–114.

18 See Ronen, S., and Shenkar, O. (2013). Mapping world cultures: Cluster formation, sources and impli-
cations. Journal of International Business Studies, 44(9), 867–897; Ronen, S., and Shenkar, O. (1985).
Clustering countries on attitudinal dimensions: A review and synthesis, Academy of Management Review,
10(3), 435–454; Ronen, S., and Shenkar, O. (1988). Using employee attitudes to establish MNC regional
divisions, Personnel, August, 32–39.

19 See, for example, Earley, P. C., and Erez, M. (eds.) (1997). New Perspectives on International Indus-
trial/Organizational Psychology, San Francisco: The New Lexington Press; Gesteland, R. R. (1999).

National and Cultural Context150

Cross-cultural Business Behavior: Marketing, Negotiating and Managing Across Cultures, Copenhagen,
Denmark: Copenhagen Business School Press; Gundling, E. (2003). Working Globesmart, Palo Alto, CA:
Davies-Black Publishing; Hodge, S. (2000). Global Smarts: The Art of Communicating and Deal-making
Anywhere in the World, New York: Wiley; Moran, R. T., Harris, P. H., and Moran, S. V. (2007). Managing
Cultural Differences, 7th ed., Burlington, MA: Butterworth-Heinemann; and Scherer, C. W. (2000). The
Internationalists, Wilsonville, OR: Book Partners.

20 Gesteland (1999).
21 Brannen, M. Y. (1999). The many faces of cultural data, AIB Newsletter, first quarter, 6–7.
22 Ibid.
23 See, for example, Festing, M. (2012). Strategic human resource management in Germany: Evidence of

convergence to the U.S. model, the European model, or a distinctive national model? The Academy of
Management Perspectives, (2), 37; Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational
enterprises: Transfer or adaptation of their human resource management systems. International Journal of
Human Resource Management, 23(9), 1788–1807; Škerlavaj, M., Su, C., and Huang, M. (2013). The
moderating effects of national culture on the development of organisational learning culture: A multilevel
study across seven countries. Journal for East European Management Studies, 18(1), 97–134; Brewster, C.
(2012). Comparing HRM policies and practices across geographical borders, in Stahl, G. K., Björkman, I.,
and Morris, S. S. (eds.), Handbook of Research in International Human Resource Management, 2nd ed.,
Cheltenham: Edward Elgar, pp. 76–96; Mayrhofer, W., and Brewster, C. (2012). Handbook of Research
on Comparative Human Resource Management, Cheltenham: Edward Elgar; Peretz, H., and Fried, Y.
(2012). National cultures, performance appraisal practices, and organizational absenteeism and turnover:
A study across 21 countries. Journal of Applied Psychology, 97(2), 448–459; Mayrhofer, W., Brewster,
C., Morley, M. J., and Ledolter, J. (2011). Hearing a different drummer? Convergence of human resource
management in Europe—a longitudinal analysis. Human Resource Management Review, 21(1), 50–67;
Sparrow, P., Schuler, R. S. and Jackson, S. (1994). Convergence or divergence: Human resource practice
and policies for competitive advantage worldwide. International Journal of Human Resource Management,
5(2), 267–299.

24 Mayrhofer, W., Brewster, C., Morley, M. J., and Ledolter, J. (2011); Brewster, C. (2012); Huo, Y. P., Huang,
H. J., and Napier, N. K. (2002). Divergence or convergence: A cross-national comparison of personnel
selection practices, Human Resource Management, 41(1), 31–44; Von Glinow, M. A., Drost, E., and
Teagarden, M. (2002). Converging on IHRM best practices: Lessons learned from a globally distributed
consortium on the theory and practice, Human Resource Management, 41(1), 123–140.

25 Yongsun, P., Chow, I., and Vance, C. M. (2011). Interaction effects of globalization and institutional forces
on international HRM practice: Illuminating the convergence-divergence debate. Thunderbird International
Business Review, 53(5), 647–659; Drost, E., Frayne, C., Lowe, K., and Geringer, M. (2002). Benchmarking
training and development practices: A multi-country comparative analysis, Human Resource Management,
41(1), 67–85; Gerhart, B., and Fang, M. (2005). National culture and human resource management:
Assumptions and evidence, International Journal of Human Resource Management, 16(6), 971–986;
Pucik, V. (1997). Human resources in the future: An obstacle or a champion of globalization? Human
Resource Management, 36(1), 163–167.

26 Vance and Paik (2011). The concept of “crossvergence,” originated in Ralston, D., Holt, D., Terpstra, R. H.,
and Yu, K.-C. (1997). The impact of national culture and economic ideology on managerial work values:
A study of the United States, Russia, Japan, and China, Journal of International Business Studies, 28(1),
177–207. See also Shimoni, B., and Bergmann, H. (2006). Managing in a changing world: From multicul-
turalism to hybridization—The production of hybrid management cultures in Israel, Thailand, and Mexico,
Academy of Management Perspective, August, 76–89.

27 Pierce, B., and Garvin, G. (1995). Publishing international business research: A survey of leading journals,
Journal of International Business Studies, 26(1), 69–89.

28 Adler, N. J. (1983). Cross-cultural management research: The ostrich and the trend, Academy of Manage-
ment Review, 8(2), 226–232; Pierce and Garvin (1995).

Countr y and Company Culture and IHRM 151

29 Boyacigillar, N., and Adler, N. J., (1991). The parochial dinosaur: Organizational science in a global
context, Academy of Management Review, 16(2), 262–290.

30 Thomas, A. S., Shenkar, O., and Clarke, L. (1994). The globalization of our mental maps: Evaluating the
geographic scope of JIBS coverage, Journal of International Business Studies, 25(4), 675–686.

31 Thomas, A. S., et al. (1994); Hickson, D. J. (1996). The ASQ years then and now through the eyes of a
Euro-Brit, Administrative Science Quarterly, 41(2), 217–228.

32 Inkpen, A., and Beamish, P. (1994). An analysis of twenty-five years of research in the Journal of International
Business Studies, Journal of International Business Studies, 25(4), 703–713; Melin, L. (1992). Internationali-
zation as a strategy process, Strategic Management Journal, 13, 99–118; Parker, B. (1998). Globalization
and Business Practice: Managing Across Borders, Thousand Oaks, CA: Sage; Thomas et al. (1994).

33 Dowling, P. J. (1988). International HRM, in Dyer, L. (ed.), Human Resource Management: Evolving Roles
and Responsibilities, Washington, DC: Bureau of National Affairs; Earley, P. C., and Singh, S. H. (2000).
Introduction: New approaches to international and cross-cultural management research, in Earley, P. C.,
and Singh, S. H. (eds.), Innovations in International Cross-cultural Management, Thousand Oaks, CA: Sage;
McEvoy, G. M., and Buller, P. F. (1993). New directions in international human resource management
research, paper presented at the Academy of International Business annual meeting, Maui, HI, Octo-
ber 21–24; Tayeb, M. (2001). Conducting research across cultures: Overcoming drawbacks and obsta-
cles, International Journal of Cross-cultural Management, I(1), 91–108; Triandis, H. C. (1998). Vertical and
horizontal individualism and collectivism: Theory and research implications for international comparative
management, Advances in International Comparative Management, XII, Greenwich, CT: JAI Press, 7–35.

34 See, for example, Zhan, G. (2013). Statistical power in international business research: Study levels and
data types. International Business Review, (4), 678; Peterson, M. F., Arregle, J., and Martin, X. (2012).
Multilevel models in international business research. Journal of International Business Studies, (5), 451;
Michailova, S. (2011). Contextualizing in international business research: Why do we need more of it
and how can we be better at it?. Scandinavian Journal of Management, (1), 129; Geringer, J., and Pend-
ergast, W. (2012). Firmly rooting international business research in the soil of relevance: Integration and
recommendations. Thunderbird International Business Review, 54(2), 263–269; Aguinis, H. and Henley,
C. (2003). The search for universals in cross-cultural organizational behavior, Organizational Behavior:
The State of the Science, 2nd ed., Mahwah, NJ/London: Lawrence Erlbaum Associates; Baruch, Y. (2001).
Global or North American? A geographical-based comparative analysis of publications in top manage-
ment journals. International Journal of Cross-cultural Management, 1 (1), 109–125; Bond, M. H. (1997).
Adding value to the cross-cultural study of organizational behavior: Reculer pour mieux sauter, in Earley,
P. C., and Erez, M. (eds.) New Perspectives on International Industrial/Organizational Psychology, San
Francisco: The New Lexington Press, pp. 256–275; Earley, P. C., and Mosakowski, E. (1995). Experimen-
tal international management research, in Punnett, B. J., and Shenkar, O. (eds.) Handbook for International
Management Research, Cambridge, MA: Blackwell Publishers, pp. 83–114; Gelfand, M. J., Holcombe,
K. M., and Raver, J. L. (2002). Methodological issues in cross-cultural organizational research, in Rogel-
berg, S. G. (ed.), Handbook of Research Methods in Industrial and Organizational Psychology, Malden,
MA: Blackwell Publishers, pp. 216–241; GLOBE Research Team (2002). Culture, Leadership, and Organi-
zational Practices: The GLOBE Findings, Thousand Oaks, CA: Sage; Graen, G. B., Hui, C., Wakabayashi,
M., and Wang, Z.-M. (1997). Cross-cultural research alliances in organizational research, in Earley, P. C.,
and Erez, M. (eds.), New Perspectives on International Industrial/Organizational Psychology, San Fran-
cisco: The New Lexington Press, pp. 160–189; House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., and
Gupta, V. (2004). Culture, Leadership, and Organizations. The GLOBE Study of 62 Societies, Thousand
Oaks, CA: Sage; Mattl, C. (1999). Qualitative research strategies in international HRM, in Brewster, C.,
and Harris, H. (eds.) International HRM: Contemporary Issues in Europe, London: Routledge; and Wright,
L. L. (1995). Qualitative international management research, in Punnett, B. J., and Shenkar, O. (eds.), Hand-
book for International Management Research, Cambridge, MA: Blackwell Publishers, pp. 63–81.

35 See specific academic journals and trade publications dedicated to IHRM such as The International Journal
of Human Resource Management, Journal of Global Mobility, The Asia Pacific Journal of Human Resources,

National and Cultural Context152

South Asian Journal of Global Business Research, South Asian Journal of Human Resources Management,
International Journal of Manpower, The Journal of Chinese Human Resource Management, and Human
Resource Management International Digest among others; for example, Aycan, Z., Kanungo, R. N., Men-
donca, M., Yu, K., Deller, J., Stahl, G., and Kurshid, A. (2000). Impact of culture on human resource
management practices: A ten-country comparison, Applied Psychology: An International Review, 49,
192–221; and (the most recent publication from this group) Sackett, P. R., Shen, W., Myors, B., Lievens, F.,
Schollaert, E., Van Hoye, G., Cronshaw, S. F., Onyura, B., Mladinic, A., Rodriguez, V., Steiner, D. D.,
Rolland, F., Schuler, H., Frintrup, A., Nikolaou, I., Tomprou, M., Subramony, S., Raj, S. B., Tzafrir, S., Bam-
berger, P., Bertolino, M., Mariana, M., Fraccaroli, F., Sekiguchi, T., Yang, H., Anderson, N. R., Evers, A.,
Chernyshenko, O., Englert, P., Kriek, H. J., Joubert, T., Salgado, J. F., König, C. J., Thommen, L. A., Chuang,
A., Sinangil, H. K., Bayazit, M., Cook, M., and Aguinis, H., Perspectives from twenty-two countries on
the legal environment for selection, in Farr, J. L., and Tippins, N. T. (eds.) (2010). Handbook of Employee
Selection, Clifton, NJ: Psychology Press, pp. 651–656.

36 Caligiuri, P.M. (1999). The ranking of scholarly journals in the field of international human resource man-
agement, International Journal of Human Resource Management, 10 (3), 515–518; House, R. H., Hanges,
P. J., Antonio Ruiz-Quintanilla, S., Dorfman, P. W., Javidan, M., Dickson, M., Gupta, V., and GLOBE Coun-
try Co-investigators (1999). Cultural influences on leadership and organizations: Project GLOBE, in Mob-
ley, W. H., Gessner, M. J., and Arnold, V. (eds.), Advances in Global Leadership, Vol. I, Stamford, CT: JAI
Press; House, R. J., Wright, N. S., and Aditya, R. N. (1997). Cross-cultural research on organizational lead-
ership: A critical analysis and a proposed theory, in Earley, P. C., and Erez, M. (eds.), New Perspectives on
International Industrial/Organizational Psychology San Francisco: The New Lexington Press.

37 Harzing, A., Brown, M., Koster, K., and Zhao, S. (2012). Response style differences in cross-national
research: Dispositional and situational determinants. Management International Review, (3), 341; Harzing,
A.W., Reiche, B.S., and Pudelko, M. (2013). Challenges in international survey research: A review with
illustrations and suggested solutions for best practice. European Journal of International Management,
vol. 7, no. 1, 112–134; Saari, L., and Schneider, B. (2001). Global employee surveys: Practical consid-
erations and insights, paper presented at “Going Global: Surveys and Beyond,” workshop at the annual
conference of the Society for Industrial/Organizational Psychology, San Diego, CA, April.

38 Lubatkin, M. H., Ndiaye, M., and Vengroff, R. (1997). The nature of managerial work in developing
countries: A limited test of the universalist hypothesis, Journal of International Business Studies, fourth quar-
ter, 711–733; Punnett, B. J., and Shenkar, O. (eds.) (1996). Handbook for International Management
Research, Cambridge, MA: Blackwell Publishers; Sparrow, P., Brewster, C., and Harris, H. (2004). Glo-
balizing Human Resource Management, Routledge, London; and Vance and Paik (2011).

39 Mullen, M. R. (1995). Diagnosing measurement equivalence in cross-national research, Journal of Interna-
tional Business Studies, 15 (3), 573–596.

40 Cavusgil, S. T., and Das, A. (1997). Methodological issues in empirical cross-cultural research: A survey of
the management literature and a framework, Management International Review, 37 (1), 81.

41 Cavusgil and Das (1997); Douglas, S. P., and Craig, S. (1983). International Marketing Research, Engle-
wood Cliffs, NJ: Prentice Hall; Samiee, S., and Jeong, I. (1994). Cross-cultural research in advertising: An
assessment of methodologies, Journal of the Academy of Marketing Science, 22 (3), 205–217.

42 Mullen (1995).
43 Yu, J. H., Keown, C. F., and Jacobs, L. W. (1993). Attitude scale methodology: Cross-cultural implications,

Journal of International Consumer Marketing, 6 (2), 45–64.
44 Mattl (1999).
45 Lockwood, N. R., and Williams, S. (2008). Selected Cross-Cultural Factors in Human Resource Man-

agement, SHRM Research Quarterly, Third-Quarter, Alexandria, VA: the Society for Human Resource
Management.

Baker & McKenzie has been global since inception. Being global is part of our DNA.
Baker & McKenzie Corporation, the world’s largest

global employment law firm1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the three major legal systems and their key differences.
â– â–  Describe international labor law and standards and explain their impacts.
â– â–  List and describe the goals of the various international trade agreements.
â– â–  Describe how EU directives impact IHRM.
â– â–  Identify the major issues impacting HR with regard to immigration/visas, personal

data protection, anti-discrimination and harassment, termination and reduction
in force, and intellectual property.

â– â–  Integrate existing employment laws and regulations, ethical standards, CSR, and
corporate governance into IHRM policies and practices.

C h a p t e r 6

International Employment Law,
Labor Standards, and Ethics

One of the most important components of the global context for IHRM is employment
law and regulation and their application. Thus, this chapter is about international employ-
ment law and labor standards and ethics in the global economy. All global firms must
contend with varying employment laws in the countries in which they conduct business,
as well as abide by whatever international standards also exist.2 Typically, foreign laws and
practices differ considerably from what MNEs are familiar with at home. So there can be
considerable risk of making mistakes, pursuing risky strategies, and putting the enterprise at

National and Cultural Context154

considerable legal liability from not understanding adequately what these laws, standards,
and codes require.

When an employee is in Japan one day and Mexico the next, or an employee in the UK
meets with a colleague from Sweden to finalize a project in Spain, or executives from any-
where are making strategic decisions about operations anywhere else, their organizations
must make sure that any number of standards (based in legislation or country culture) are
not violated. In addition to varying from country to country, statutes and regulations are
also continually being revised and updated, making it difficult and exceedingly complex to
stay current and legal.

International standards, national trade agreements, commercial diplomacy efforts with
governments, and varying country laws and cultures all impact how MNEs must operate.
National, supranational, and extra-territorial laws have varying legal and regulatory impacts
on nation-states and their actors (firms, labor organizations, regulatory bodies, and individ-
uals). In addition to legal compliance, a number of other IHR regulatory issues also have an
impact on the activities of MNEs (such as immigration controls, cross-border data privacy
protections, discrimination regulations, termination and reduction-in-force regulations, and
intellectual property protections). Finally, moving beyond a pure concern with compli-
ance with the law, there is growing legal and public concern with MNEs showing ethical
conduct in their relationships with all of their stakeholders, being responsible corporate
citizens, and establishing transparent corporate governance mechanisms. Failure to comply
with local employment laws and any regional or international employment standards that
apply can carry liabilities at many levels, including of course legal and financial liabilities,
but also can include the potential consequences of negative employee and public opinion,
stockholder unrest, consumer dissatisfaction, and hostile local governments.

Seven general areas are discussed in this chapter:

1 the general legal context in differing countries;
2 international employment law and enforcement;
3 comparative employment law;
4 extra-territorial application of national law;
5 enforcement of national law to local foreign-owned enterprises;
6 immigration law; and
7 international labor standards and ethics.

THE INSTITUTIONAL LEGAL CONTEXT
OF INTERNATIONAL BUSINESS (IB)

The legal environment in which MNEs and their IHR managers operate is quite complex.
At least three different major legal systems operate in the nations of the world.3 In general,
law establishes rules for behavior, usually enforced through a set of institutions. It shapes
government, economics, and society in numerous ways and serves as a primary social
mediator of relations between people, between people and organizations, and between

Employment Law, Labor Standards, and Ethics 155

organizations. As a consequence, each of these three legal systems has its own unique
methodologies for creating laws, for developing the content of laws, and for enforcing laws.
These three systems include the common law system as developed in England and its colo-
nies, including the US, the civil code approach (often referred to as the Napoleonic code),
as developed in France, and religious law, the most common form of which, today, is Islamic
law, or Sharia, as practiced in a number of Islamic states, such as Saudi Arabia and Iran.

Common Law

Under common law, a constitution enunciates a few, long-standing, general principles to
which everyone is subject. The law, then, is based on tradition as stated in the constitution,
past practices, and legal precedents set by courts through interpretation of the constitution,
legislative statutes, and past rulings. Under common law, legislation and statutes tend to be
quite general, the specifics developing over time. Interpretation when there is a question
or disagreement is done in court, typically before a jury, and typically for the purpose of
deciding whether the general law applies to the situation. Under common law, legislation
tends to establish basic principles, with precedence and practice determining what people
can and cannot do.

Civil Code or Law

A civil law or code is based on an all-inclusive system of written rules, of which there
are three types: commercial, civil, and criminal. Statutes tend to be very specific, defining
people’s basic rights and duties, in some cases even tracing these rights and duties back
as far as to early Roman law. Enforcement and interpretation in civil law is a problem of
determining whether or not a person did something that was not allowed under the code.

Religious Law

The third form of law is religious law, the most common of which is Islamic law, or Sharia,
which refers to the “way” Muslims should live or the “path” they must follow. It is derived
from the sacred text of Islam (the Qur’an) and Traditions (Hadith) gathered from the
life of the Islamic prophet, Muhammad. Traditionally, Islamic jurisprudence interprets and
refines Sharia (often by senior religious figures) by extending its principles to address new
questions. Islamic judges apply the law; however, modern application varies from country
to country. Sharia deals with many aspects of life, including crime, politics, economics,
banking, business, contracts, family, sexuality, hygiene, and social issues, where personal
standards for behavior, as interpreted from the Qur’an, take precedence in all aspects of
life. Islamic law is now the most widely used religious law, and thus one of the three most
common legal systems of the world.

National and Cultural Context156

Having to cope with three very different legal systems makes it necessary for firms
to understand the differences in order to know what to expect and how to behave with
regard to the law and regulatory systems, particularly as it relates to their management and
human resource management policies and practices, such as standards proscribing discrim-
ination for various groups (which will vary between countries) and determining holiday
and termination standards (which, again, will vary between countries). These systems not
only apply to firms in their operational and management decisions, but also to employees
and their families in their everyday lives. If employees (and their managers), particularly
those on international assignment, and their families are not briefed carefully on how the
particular local set of laws, police authorities, and courts operate, they can (and often do)
find themselves in major difficulties, often for reasons they don’t understand.

In order for IHR managers from MNEs to develop policies and practices that stay within
the laws and regulations of each country in which they operate, they need to be familiar
with those laws, regulations, and enforcement mechanisms (or, as is often the alternative,
to rely heavily on the expertise of local legal consultants).

ESTABLISHMENT OF LABOR STANDARDS
BY INTERNATIONAL INSTITUTIONS

In addition to these general legal systems, a number of international institutions are also
involved with establishing labor standards that apply to most (or many) countries and to
their enterprises that conduct business across borders.4 Gradually these institutions are
developing a certain level of consensus on basic employment rights. These generalized
standards are shown in Exhibit 6.1. The International Labour Organization’s (ILO) Dec-
laration on Fundamental Principles and Rights at Work are not only accepted by various
international groups, but also by regional political affiliations and by national legislatures,
which are gradually incorporating them into local law and jurisprudence.

EXHIBIT 6.1: ILO Declaration on Fundamental Principles
and Rights at Work

â– â–  freedom of association and the effective recognition of the right to collective
bargaining;

â– â–  elimination of all forms of forced or compulsory labor;
â– â–  effective abolition of child labor;
â– â–  elimination of discrimination in respect of employment and occupation.

Source: http://www.ilo.org/declaration/lang—en/index.htm.

Employment Law, Labor Standards, and Ethics 157

International Organizations

A number of international organizations such as the United Nations (UN), the Interna-
tional Labour Organisation (ILO), the Organization for Economic Cooperation and Devel-
opment (OECD), the World Bank, and the International Monetary Fund (IMF) have all
promoted labor standards that impact employees and labor relations within MNEs. Some
of these standards are voluntary while others are technically binding for member states of
the international body. The following provides a short description of these bodies and the
standards they have promulgated.

United Nations

The UN plays a relatively insignificant role in establishing employment laws or standards.
Until recently, the UN only operated in this domain through agencies such as the Interna-
tional Labour Organisation (see below). Internally, the UN has primarily focused on the
social dimensions of international trade through its Conference on Trade and Develop-
ment (UNCTAD), with its focus on the transnational corporation,5 and through regional
economic commissions (such as the Economic and Social Commission for Asia and the
Pacific). This has developed primarily through the convening of conferences and the com-
missioning of studies to focus on the social impacts of liberalized trade and the increased
importance of transnational corporations.

In recent years, however, the UN has also tried to take on a more active role, particularly
within the context of applying and giving visibility to its Statement of Universal Human
Rights. In July 2000, the United Nations General Assembly adopted the Global Compact
that calls on businesses around the world to embrace 10 universal principles in the areas of
human rights, labor standards, and the environment.6 Exhibit 6.27 lists the Compact princi-
ples that directly involve IHR. As is the case with most international standards, the Global
Compact is not a regulatory instrument, but rather a voluntary initiative that relies on public
accountability, transparency, and disclosure to complement regulation and to promote sus-
tainable growth and good citizenship through committed and creative corporate leadership.

International Labour Organisation (ILO)8

Established in 1919, the ILO has as its primary goal the improvement of working con-
ditions, living standards, and the fair and equitable treatment of workers in all countries.
It is composed of member states with representatives from governments, employers, and
workers. This tri-partite structure has remained as the mechanism through which the ILO
carries on its work. The ILO currently has 1859 member countries and is the only really
global organization that deals with labor issues, such as stating generally accepted employ-
ment standards that apply to all members.

National and Cultural Context158

EXHIBIT 6.2: United Nations Global Compact
Principles of Interest to IHRM

â– â–  Human rights

■❏ “Businesses should support and respect the protection of internationally pro-
claimed human rights”; and

■❏ “Make sure that they are not complicit in human rights abuses.”

â– â–  Labor

■❏ “Businesses should uphold the freedom of association and the effective recogni-
tion of the right to collective bargaining”;

■❏ “The elimination of all forms of forced and compulsory labour”;
■❏ “The effective abolition of child labour”; and
■❏ “The elimination of discrimination in respect of employment and occupation.”

Source: United Nations Global Compact: http://www.unglobalcompact.org/abouttheGc/TheTen-
principles/index.html

The ILO sets two types of labor standards—conventions and recommendations—in
industrial categories. Conventions are international treaties that are legally binding for the
member states once they are ratified by them. Recommendations are non-binding guide-
lines that assist countries in the implementation of conventions. In 2000, the member
nations of the ILO finally voted overwhelmingly to adopt the ILO Declaration of Funda-
mental Principles and Rights at Work (see Exhibit 6.1). An annual report examines trends
toward compliance with each of the principles.

The Organization of Economic Cooperation
and Development (OECD)

Established in 1960, the OECD evolved from the Organization for European Economic
Cooperation (OEEC) that was formed by a number of European nations to administer
the US Marshall plan to rebuild the war-ravaged economies of Europe at the end of World
War II. Its focus is broader than that of the ILO as it coordinates economic policy among
the industrialized countries and addresses globalization issues through the promotion of
economic, environmental, and social policy among its members. OECD membership has
gradually expanded to its current 34 members10—all industrialized countries that have
developed to an agreed-upon threshold of per capita GDP and a demonstrated willingness

Employment Law, Labor Standards, and Ethics 159

to adhere to OECD standards and agreements. In addition OECD has cooperation with
more than 7011 non-member states that act as observers.

The OECD has many directorates dealing with many aspects of economic and social
development, including a Directorate for Employment, Labour, and Social Affairs. Its main
objective is to research issues related to these topics, such as changing employment pat-
terns, the relationship of wages and working conditions to levels of employment, and the
status of women in the workforce. The Directorate is not focused on the development of
labor standards, per se.

However, one area of concern of the OECD has been the development of a set of
Guidelines for MNEs. These guidelines aim to help businesses, labor unions, and NGOs by
providing them with a global framework for responsible business conduct. In addition, the
guidelines include strict standards for corporate behavior in areas including employment
relations.

Since the OECD is a voluntary organization, it cannot set binding labor standards but
only sets forth voluntary guidelines. These guidelines are issued under the umbrella of a
“chapeau” agreement (i.e., a guiding framework for local laws and regulations) and pro-
vide recommendations on responsible business conduct for MNEs operating in or from
adhering countries. Many OECD member states have used these guidelines as the basis for
domestic laws concerning corporate behavior.

World Bank and International Monetary Fund (IMF)

Both the World Bank (founded in 1944)12 and the IMF (founded in 1945)13 have under-
taken extensive research on the relation between trade policy reform and labor markets
(wages, unemployment, etc.). Their primary interest has been in protecting “social safety
nets” in the phasing and sequencing of their programs. For example, where structural
reforms that they have introduced (such as privatization of government-owned sectors
of the economy or reductions in protective tariffs) have led to significant retrenchment
of jobs (such as in the public sector), they have introduced programs including severance
payments and worker retraining schemes.

International Trade Organizations and Treaties

There are a number of international trade organizations and regional trade treaties that
are pursuing, to greater or lesser extents, common labor standards throughout their areas
of concern. The best known (and most fully developed) of the regional trade agreements
is the European Union (EU), but they also include the North American Free Trade Agree-
ment (NAFTA), Mercosur/Mercosul, and ASEAN, among other less-developed regional
agreements. The following provides a short overview of key efforts in the arena of labor
and employment standards.

National and Cultural Context160

World Trade Organization (WTO)

The WTO (established in 1995)14 is the international body in which multilateral tariff
reductions are negotiated, reductions in non-tariff trade barriers are negotiated, and inter-
national trade disputes are reviewed and adjudicated.15 It replaced the earlier General
Agreement on Trade and Tariffs (GATT). To this point in time, the WTO has not taken any
direct action to define labor standards. But it is under constant pressure, primarily from the
developed countries, and among them, primarily the US and the EU, to examine ways to
link labor codes and human rights issues with tariff reductions.

Some industrial nations and labor advocates think the WTO should use trade sanctions
as a means of pressuring countries that, in their opinion, are violating “core labor rights,” a
term that covers such matters as the use of child labor and forced labor and denial of the
right to organize free trade unions. Advocates of such WTO sanctions argue that a country
with lower standards for labor rights (which result in lower costs for labor) has an unfair
cost advantage for its exports. Thus, they argue, it is an appropriate topic for consideration
by the WTO. There has been considerable discussion within the WTO about ways to be
involved with labor issues, such as linking with the ILO. But thus far, there is no consensus
to do so nor on how to do it. Indeed, the general consensus appears, for now at least, to be
for the WTO to defer to the ILO in the pursuit of global labor standards.

European Union (EU)

The European Union is the most highly developed economic trade treaty. It began as the
European Economic Community (EEC—or just EC) under the Treaty of Rome in 1957
as an economic union (a “common market”), designed around reduced tariffs and freer
trade. The EC originally included the six Western European countries of France, Germany,
Italy, and the Benelux countries. Today the EEC has grown to an enlarged European Union
(EU) of 2816 member states (with another 617 countries on a “waiting” list) and has become
a social and political union as well. As the number of countries has increased, so also has
the size of the member population, with a population now estimated (2014) to be about
507.418 million people, and it has become the world’s largest integrated trading bloc. The
political structure of the EU consists of five distinct institutions (the European Parliament,
the Council of the EU, the European Commission, the Court of Justice, and the Court of
Auditors), each with specific responsibilities.19

Of particular interest to IHR is what is referred to within the EU as the social dimen-
sion.20 The Social Charter of the EU, first adopted in 1989 and implemented in 1992, sets
out 12 principles of fundamental rights of workers. Since the original adoption of these
principles, the EU has been translating them into practice through directives, with the
intent of defining a minimum set of basic rules to be observed in every member country.
The intent is to raise the standards in the poorer countries, while encouraging countries

Employment Law, Labor Standards, and Ethics 161

that want to do so, to move to even higher levels of worker protections or to, at least, main-
tain their already higher standards. Of course, these principles and standards apply to all
firms, locally owned or foreign owned, that operate within the EU.

Under the Maastricht Treaty of 1991, the following protocols with regard to the various
areas of social policy were agreed for EU-wide adoption:

â– â–  Require unanimous agreement by all member states: social security, social protections,
individual terminations, representation/collective defense including co-determination,
third country national employment conditions, and financial aid for employment promotion.

â– â–  Require a qualified majority vote: issues related to the environment, safety and health,
working conditions, information and consultation, equal opportunity—labor market
opportunities/treatment at work, and integration of persons excluded from the labor
market.

â– â–  Exempt (i.e., left to the discretion of individual states): levels of pay, right of associa-
tion, and rights to strike or lockout.

Under the Treaty of Amsterdam in 1998, the EU included an Employment “chapter” in
the basic treaty, with the purpose of promoting throughout all member states a high level
of employment and social protection. Employment policy remains the responsibility of
individual member states, but the new chapter on employment policy has the intention
of providing a common and central focus on employment policy, including improving the
employability of the labor force (particularly young workers and long-term unemployed),
encouraging and facilitating entrepreneurship, encouraging greater adaptability of busi-
nesses and their employees (by modernizing work arrangements, such as flexible work
arrangements and tax incentives for in-house training), and strengthening the policies for
equal opportunity (tackling gender gaps in some economic sectors, reconciling conflicts
between work and family life, facilitating reintegration into the labor market, and promot-
ing integration of people with disabilities).

The EU has passed many directives (discussed later) that address specific areas of con-
cern with the overall objectives of the Social Charter. It is necessary for IHR managers in
any enterprise doing business within the EU to understand these regulations and to ensure
that their firm’s policies and practices abide by them. It is no longer possible to locate an
MNE’s operations in any specific country within the EU with the strategy of hoping to find
“softer” employment standards and regulations. Now EU directives apply to all member
states and as the number of member countries has increased to 28, the task of ensuring
compliance within the EU has become even more extensive and complicated. The Euro-
pean Social Fund was established under the Social Charter with the purpose of promoting
the geographical and occupational mobility of workers by focusing development funds on
training and retraining schemes, particularly for younger workers and women, migrants,
workers threatened with unemployment in restructuring industries, workers with disabili-
ties, and workers in small- and medium-sized enterprises.

National and Cultural Context162

On December 1, 2009, the Lisbon Treaty went into force.21 This most recent organizing
document of the EU was negotiated to strengthen the role of the European Parliament and,
in general, improve democracy throughout the institutions of the now 28-member EU.
Included in the Lisbon Treaty were a number of steps of importance to the overall Social
Charter. For example, it reinforced the Charter of Fundamental Rights, signed in 2000,
including a number of social rights, such as personal data protection, the rights of asylum,
equality before the law and non-discrimination, equality between men and women, the
rights of children and elderly people, and important social rights such as protection against
unfair dismissal and access to social security and social assistance.

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement, between Canada, the United States, and Mex-
ico, came into force in 1994,22 aimed at promoting greater trade and closer economic ties
between the three member countries. However, it provoked considerable protests from
groups, such as labor unions, that were concerned about possible negative effects that
such freer trade might have on employment, wages, and working conditions. As a response,
the three member countries negotiated a supplemental (side) agreement on labor issues.
This agreement (the North American Agreement on Labor Cooperation—NAALC) was
included in NAFTA in 1993. Under this agreement, all three countries are committed to
respect and enforce their own labor laws but, in addition, the NAALC provides mecha-
nisms for problem-solving consultations when there are differences in policy and practice
and provides ways to evaluate these varying patterns of practice by independent commit-
tees of experts.

For a number of recent years, largely out of the scrutiny of the public or the media, all
countries in the Western Hemisphere (with the exception of Cuba) met to negotiate a free
trade agreement for the Hemisphere (referred to as FTAA, or the Free Trade Area of the
Americas).23 One of the objectives of the FTAA was to include labor standards that would
be even more inclusive than those enumerated in the Social Charter of the EU (refer to
the previous section) or any other existing trade agreement. Originally, the plan was for
the negotiations to be completed by 2005 and for the member countries to implement the
agreement by 2006. But various countries expressed difficulties with parts of the agree-
ment during the negotiations in late 2005 and now the final signing of this agreement has
been postponed until the problems can be resolved. Some critics have suggested that it
may be impossible (which may even be a good thing, they suggest) to resolve these difficul-
ties.24 In essence, the lesser-developed countries of the Americas have resisted the approach
of the more developed countries. For example, the lesser-developed countries have wanted
to retain protections for their agricultural industries while the more developed countries
have wanted a reduction of these protections to provide open markets for their agricultural
products. The result has been that the US has moved forward to negotiate bilateral trade
agreements with single countries.

Employment Law, Labor Standards, and Ethics 163

Latin American and Asian Trade Agreements

A number of trade treaties have been organized and signed among countries in both Latin
America and Asia. Although some of them have mentioned concern over labor rights, none
has incorporated specific language guaranteeing such rights within the treaty. Here is a
short summary of the most significant of these treaties.

Mercosur/Mercosul is a “common market” agreement signed in 1991 for the free circu-
lation of goods and services and the adoption of common trade and tariff policies between
four Latin American countries (Argentina, Brazil, Paraguay, and Uruguay). Shortly after
conclusion of the treaty, the Ministers of Labor of the four countries issued a declaration
noting the need to take into account labor issues to ensure that the process of integration
of the members’ economies would be accompanied by real improvement and relative
equality in the conditions of work in the four member countries. In 1994, the Presi-
dents of the states issued a joint statement stressing the relevance, for the establishment
of a common market, of issues related to employment, migration, workers’ protection,
and the harmonization of the labor legislation of the four countries. A tripartite (labor,
management, and government) working sub-group was established in order to deal with
labor relations, employment, and social security issues. In the final structure established
in 1994, an Economic and Social Consultative Forum was established to make recom-
mendations to the central commission about labor and social issues. Thus, labor and
social issues form a part of the institutional structure of Mercosur, but it remains an
advisory role.

The Andean Community was originally established as the Andean Pact in 1969, but has
been known as the Andean Community since 1997. Member countries include Bolivia,
Colombia, Ecuador, Peru, and Venezuela. The goal of the Andean Community is to achieve
a balanced and harmonious development of the member countries under equitable con-
ditions through integration and economic and social cooperation. As of now, there is no
specific attention to labor issues.

The Association of Southeast Asian Nations (ASEAN) was founded in 1992 with the goal
to accelerate economic growth, social progress, and cultural development and promote
peace and stability in the south-east Asian region. The original ASEAN member states
included Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand, with additional
countries joining since then (Vietnam, 1995; Laos and Myanmar, 1997; and Cambodia,
1999). ASEAN has undertaken a number of studies concerning the social dimensions and
impacts of the liberalization of trade within the member states. So far, however, the mem-
bers have not developed standards for member states, although it is expected that this will
happen in the future.

Asia-Pacific Economic Cooperation (APEC) was founded in 1989 with the purpose to
facilitate and enhance economic growth, trade, investment and cooperation among its 21
member economies in the Asia-Pacific region. Its membership represents about 40 percent
of the world’s population, about 54 percent of its GDP, and about 44 percent of world

National and Cultural Context164

trade, thus it involves a significant portion of the world’s economy. It operates in a cooper-
ative manner with open dialogue based on non-binding commitments. However, it has not
yet focused specifically on labor issues.

Commercial Diplomacy

As MNEs expand across the globe, learning to manage their relationships with the vari-
ous governments and with the complex set of regulatory issues that affect their activities
and business sectors has, of course, needed to be a major focus. Often this is referred to
as commercial diplomacy, which is an emerging interdisciplinary field that refers to the
processes of influencing foreign government policy and regulatory decisions that affect
global trade. It is not just restricted to the efforts of commercial attaches and trade offi-
cials who negotiate tariffs and quotas on imports, but it also involves many other areas of
IB, such as:

â– â–  Trade negotiations (tariff and non-tariff trade barriers; political interests; trade agree-
ments; etc.).

â– â–  Impact of policy on decision making (business interests, macro-economic impact, pub-
lic opinion).

â– â–  Government regulations (affecting banking, accounting, telecommunications, etc.).
â– â–  Legislation (anti-trust/competition law, EU directives, Sarbanes-Oxley in the US, etc.).
â– â–  Standards (health, safety, environment, data privacy, product safety, labeling, etc.).
â– â–  Industrial subsidies (agricultural, R&D, etc.).
â– â–  Corporate conduct (human rights, corruption and bribery, corporate governance, and

corporate social responsibility—CSR).

While commercial diplomacy efforts are usually conducted by trade officials, they also
include officials in various other governments and ministries, industry and professional
associations, unions, non-governmental organizations (NGOs), and the international
departments of MNEs. Because of IHR’s concern with the international strategies of their
firms, and their activities involved with establishing operations in foreign countries, they
often are called upon to add value (provide information, analyze, consult, negotiate, etc.)
to these commercial diplomacy activities.

THE GLOBAL LEGAL AND REGULATORY
CONTEXT OF MNES

IHR managers need to understand international employee relations from all perspectives.
For many IHR managers, their responsibilities allow them relative autonomy to develop

Employment Law, Labor Standards, and Ethics 165

IHR policy and make decisions that can be applied in all countries. Since there is such a
“patchwork” of varying legislative powers (at national, international, and extra-territorial
levels), IHR must:

â– â–  Comply with the laws of the countries in which they operate, requiring knowledge of
local laws and regulations.

â– â–  Comply with international standards and supra-national regulations, requiring knowl-
edge of international labor standards and supra-national binding regulations.

■■ Comply with extra-territorial laws of their headquarters’ country, requiring knowledge
of extra-territorial laws.

National Laws and Regulations

As stated in the early part of this chapter, every country’s employment laws vary signifi-
cantly from every other country’s employment laws, making this area of the IHRM envi-
ronment very complex. In addition, as more and more firms operate in countries outside
their original “home” borders, judicial systems within many countries are beginning to take
into consideration laws from the parent countries of the MNEs that now operate within
their jurisdictions, in addition to their own laws, making it increasingly difficult for MNEs
to ignore either their own home-country laws in their foreign operations or the laws of
their host countries.

One of the greatest mistakes IHR can make is to think that corporate HR at HQ can
navigate alone the myriad of local laws and regulations. Because of this, most MNEs employ
domestic HR practitioners (local HR generalists, HR country and regional managers) in the
countries in which they operate. In addition, they use international employment lawyers
as well as local attorneys to advise them with compliance. Even just understanding local
laws is often not sufficient since the basis of the legal system can be radically different in
different countries.

Supra-national Laws

International organizations, like the ILO and the OECD, and trade agreements and trea-
ties, like the EU and NAFTA, have developed “binding” agreements, standards, and legal
instruments for their affected member states. These institutions involve memberships of
multiple countries. Thus their standards and laws apply to many countries and are referred
to as “supra-national” laws. Note, however, that the notion of “binding” in many of these
supra-national organizations implies that the laws and/or standards can be either “directly”
or “indirectly” binding. Directly binding, at the member country level, requires “transpo-
sition” of the “standard” or “treaty” into the laws of the country. Typically, the member

National and Cultural Context166

states must guarantee implementation via their national laws within a specific time frame.
On the other hand, indirectly binding means that the stated rights and standards, though
not directly passed into law, still infer obligations to individual employees and to their
employers.

The EU has been the most prolific in passing laws that apply to its member states. The
EU employs a variety of legal instruments, such as regulations, directives, decisions, opin-
ions, and recommendations, with the first three being binding for member states.

EXHIBIT 6.3: The Scope of Selected European Union
Directives Affecting the Labor and Social Policy of
Businesses Operating in Member States

Acquired Rights

Protects and preserves the rights of workers when the undertaking, business, or part of
a business in which they are engaged is transferred between employers as a result of a
legal transfer or merger.

Transfer of Undertakings (TUPE) Regulations

Governs the transfer of undertakings and protects the rights of employees in a transfer
situation. Employees enjoy the same terms and conditions, with continuity of employment,
as they did with the previous employer (transposition of the acquired rights directive into
the laws of the member states). Includes business transfers of a stable economic entity
retaining its identity and service provision changes (outsourcing, insourcing, and sub-
contracting) for labor-intensive activities. TUPE regulates whether dismissals, as part of
the transfer of operations, will be fair or unfair and affects information and consultation
requirements and pension liabilities.

European Works Council

Regulates transnational information and consultation (I&C) on work matters as soon as
there are two member states involved. It establishes the rights and procedures to I&C by
requiring the establishment of Europe-wide works councils (EWCs) in undertakings of
1,000 employees in all member states combined, or at least 150 in each of at least two
member states. If there is a pre-existing agreement on transnational I&C that covers the
EU workforce, the directive does not apply but the agreement can be renewed when it
expires; if not it falls under the directive. If there is no pre-existing agreement, the directive
applies and central management is responsible for setting up EWC and I&C procedures.

Employment Law, Labor Standards, and Ethics 167

Redundancies

Provides procedures (I&C phase) for making a defined number of employees redundant
within a defined period of time.

Fixed-Term Work

Deals with the use of contract workers and protects fixed-term contract employees from
comparable less favorable employment practices and benefits. Stipulates that a continu-
ous fixed-term contract for four or more years is considered employment as a permanent
employee.

Information and Consultation

Establishes a general framework and obligation of employers for I&C with employees.
Applies to “undertakings” with a least 100 employees/establishments of at least 50 employ-
ees. The directive sets only a general framework for I&C and leaves the practical arrange-
ments (such as works councils, trade unions, etc.) to be worked out by the member states.

Working Time

Provides a definition of working time and determines minimum rest periods, the maximum
working week (48-hour average over 16 weeks), minimum annual leave, paid holidays,
night and shift work.

Protection of Individuals with Regard to the Processing of Personal Data
and the Free Movement of Such Data

Protects the right of privacy via strict limitations on the processing and transmission of
personal data, wholly or partly, by automatic means. Affects HRIS, payroll systems, but
also transmission of personal information via corporate Internet, email, fax, and voice-
mail to countries outside the EU that do not provide adequate data protection. The US is
considered by the EU as a country that does not provide “adequate data protection” and
has negotiated a special agreement with the EU (safe harbor).

Pregnancy and Maternity Leave; Parental Leave

Establishes measures to protect the health and safety of pregnant women, new mothers,
female workers who are breastfeeding, including minimum leave time for pregnancy and
childbirth and later to working parents.

Social Security

Avoids the loss of social security benefits when employees move within the EU for employ-
ment. Applies to employed and self-employed workers who reside in a member state and

National and Cultural Context168

to whom legislation of a member state applies. The general principle is that the employee
is subject to the social security legislation of the work state. Exceptions (subject to social
security legislation of home country) include secondment and simultaneous employment
in two or more member states.

Terms of Employment

Regulates the terms of the employment contract and requires a written statement of the
main terms of employment. If no written contract has been drafted, one is implied.

EU Pension Funds

Aims to harmonize pension legislation across EU member states, protect pension funds
and their beneficiaries, and reduce the cost of operating multiple pension funds. Allows
the establishment of pan-European pension funds subject to detailed rules.

Fair Treatment and Non-Discrimination

Provides for equal treatment for men and women in working life; prohibits discrimination
based on sex or marital or family status, race and ethnic origin, religion or belief, sexual
orientation, disability, age; requires equal pay to women for equal work.

Sources: Birk, D. h.c. R. (2007). European Social Charter; Blanpain, R. (2010). European Labour
Law, in Blanpain, R. (edit.), International Encyclopedia for Labour Law and Industrial Relations,
The Hague, The Netherlands: Kluwer Law International; Keller, W. L., and Darby, T. J. (eds.) (2003,
2010, and annual updates). International Labor and Employment Laws, Washington, DC: Bureau
of National Affairs; EU websites: http://ec.europa.eu/atoz_en.htm; http://ec.europa.eu/social/
main.jsp?langId=en&catId=750.

Of the different EU legal instruments, the directives have the greatest impact on the
practice of IHR as there are several EU directives that deal with employment issues. A sum-
mary of selected EU directives affecting labor and social policy is given in Exhibit 6.3. This
list of EU directives clearly illustrates how encompassing is the Social Agenda within the EU.

The intention of EU directives is to harmonize legislation between the various member
states by setting a common framework. Although member states must ensure a transposi-
tion into their national legislation that conforms to the general principles of a directive, the
actual transposition details may vary substantially in the different member states. Overall,
EU directives have been very effective (i.e., all member states have transposed the desired
protective measures into their legislation). But, in spite of the EU’s attempts to harmonize
employment legislation, there is still an significant degree of diversity between the member
states, and the differences in employment laws between even the three major European

Employment Law, Labor Standards, and Ethics 169

countries (United Kingdom, France, and Germany), and between the Old Europe and the
New Europe (enlargement countries), remain considerable. The content of the Social Agenda
components of the recently implemented Lisbon Treaty, as described earlier, illustrates just
how serious the EU is with regard to employment rights). In addition, a lot more is expected
from EU case law in the future (as existing directives and legislation are interpreted through
the judicial systems of the EU). IHR practitioners must remain alert to these developments.

Extra-territorial Laws

In general, laws have the presumption of non-extraterritoriality, meaning that they only
apply to the sovereign territory of the nation that enacted them. Unless a law explic-
itly states that it applies to a territory outside of that country, it is presumed to apply
only within the country of jurisdiction. Some laws, however, have been designed with
extra-territorial intent written into them. As a result, every MNE must consider the applica-
tion of its parent-country laws to its overseas operations (referred to as the extra-territorial
application of national law). In general, international jurisprudence holds that MNEs are
accountable to the laws of the countries where they operate. However, there are some
exceptions to this general rule. More than any other nation, the US has enacted a number
of laws that it expects to be applied extra-territorially by its US-based MNEs. US laws with
extra-territorial intent include most of its anti-discrimination legislation, its Foreign Cor-
rupt Practices Act (FCPA), and the Sarbanes-Oxley Act (SOX). In particular, in terms of
application to employment rights, US multinationals must comply with the extra-territorial
application of three particular US anti-discrimination statutes, meaning these laws provide
protection for US citizens working for US companies in their overseas operations. In 1991,
the US Congress amended the Americans with Disabilities Act (ADA) and Title VII of the
Civil Rights Act of 1964 to give extra-territorial effect to those laws. Earlier, in 1984, the
Age Discrimination in Employment Act of 1967 (ADEA) was also given extra-territorial
effect. Title VII prohibits discrimination and harassment on the basis of sex, race, national
origin, color, and religion. The ADA prohibits discrimination against disabled individuals,
and requires employers to make reasonable accommodation for those disabilities. And the
ADEA prohibits discrimination on the basis of age against individuals age 40 and older and
sets standards for retirement age.

The effect of these amendments was to grant American citizens working anywhere in
the world, for a US-owned or controlled company, the right to sue in the US court for
alleged violations of these acts, wherever they occur. For example, an employee of an Amer-
ican firm (who is a US citizen) who believes she has been subjected to any form of discrim-
ination in a foreign assignment may bring a lawsuit in the United States to pursue these
claims. Under any circumstance, the law of the foreign country in which a firm operates
takes precedence, although in US courts, the viability of the defense of an act that is legal in
the foreign jurisdiction but is illegal under US law is still unsettled. There is no doubt that,
from a US perspective, US extra-territorial laws apply to US citizens when working for US

National and Cultural Context170

companies worldwide. An as-yet unsettled legal question is whether the US extra-territorial
laws also apply to non-US citizens working in foreign subsidiaries of a US company.

Potentially, this issue of extra-territoriality could extend from any country’s legislation—
and thus needs to be considered within any MNE, not just US-based MNEs. The prob-
lem for IHR becomes trying to determine which nation’s laws govern a company’s labor
practices. Is it the extra-territorial law of the HQ/home country of the MNE or the local
host country law? The fact that a law is extra-territorial (in this case usually from the
US) does not necessarily mean that it applies universally (e.g., to all its employees every-
where). Which law applies (home or host) depends on the dynamics of control, location,
and citizenship of the MNE. The standard that is used to resolve this question is what is
referred to as the “integrated enterprise test”: the more integrated the global operations
of the MNE, the more likely the extra-territorial law will apply in the host country and
extend to non-US citizens. Four factors determine the extent to which two operations are
determined to be integrated:

1 the interrelation of their operations;
2 common management;
3 centralized control of labor relations, e.g., a common collective-bargaining agreement;
4 common ownership or financial control.

Application of National Law to Local
Foreign-owned Enterprises

The general “rule” for MNEs is that they must abide by the laws of the countries in which
they do business. Thus the issue of whose laws apply can also be viewed from the perspec-
tive of any country in terms of how it applies its laws to foreign-owned and operated firms
within its national borders. Or it can be viewed from the perspective of the firm, as it tries
to understand how it must operate its foreign subsidiaries and joint ventures. At a mini-
mum, the MNE must understand that the local laws apply, not its home laws, although,
as described above, MNEs from some countries, such as the US, may also find themselves
subject to their home laws, at least in terms of treatment of their home-citizen employees
(international assignees) in their foreign operations. So, for example, giving preference in
job assignments or promotions to a firm’s expatriates over qualified local employees may
run afoul of local non-discrimination laws.

Treaty rights can also impact the operations of foreign companies within host juris-
dictions. For example, since the end of World War II, the US has negotiated treaties with
some 20 countries that are referred to as Friendship, Commerce, and Navigation (FCN)
treaties. Among other things, these treaties provide that companies from each country
can make employment decisions within the territories of the other party that give pref-
erences to key personnel from their home countries.25 Specifically, an FCN treaty gives

Employment Law, Labor Standards, and Ethics 171

foreign companies who establish themselves in the US the right to engage managerial,
professional, and other specialized personnel “of their choice” in the US, even if giving
such preferences might violate US anti-discrimination laws. (Of course, the opposite is
also true: US firms can give precedence to their American employees in their operations
in the foreign country with which the US has such a treaty.) For example, a Japanese com-
pany in the US can reserve its most senior executive positions for Japanese only. And US
firms in Japan can give priority to American executives. A number of foreign companies
that have been sued in US courts for national origin discrimination (i.e., giving preference
in employment decisions in their local subsidiaries to their parent-country nationals) have
used a defense that their FCN treaties give them the right to do that. US courts and legal
experts have not developed a consensus as to whether or not such treaties provide that
type of protection.

There are other complexities in US law that often require that each specific situation—
particularly those involving treatment of US employees and parent-country nationals
in foreign-owned subsidiaries in the US—needs to be interpreted separately. The bot-
tom line is that IHR managers in MNEs need to make sure they understand the local
legal landscape before establishing employment policy and practice in those foreign
operations.

COMPARATIVE LAW

Employment laws vary from country to country. Important areas of concern to the MNE
IHR director include immigration regulations, data privacy, anti-discrimination laws, ter-
mination laws, and intellectual property protection. Many of these areas overlap, making
it important for IHR managers (and their firms’ legal advisors) to know these connections
and to consider them as firms make decisions that affect their workforces in the countries
in which they operate.

Immigration/Visas

Every country exercises control over its definition of citizenship and the immigration
that it allows into its territory. Some countries, such as Japan, allow very limited immi-
gration. Others like the US, Canada, and Israel, even though they may exercise control
over who is granted immigration rights, admit large numbers of immigrants every year.
And still others, such as the UK and France, have generally allowed immigration from
citizens of their former colonies. A country’s attitudes about immigration vary according
to its particular employment needs at any point in time (as well as according to other
political and humanitarian concerns). And these change over time, as attitudes and needs
change.

National and Cultural Context172

Virtually every country requires a work permit or visa whenever a “foreign” person
is transferred to or takes on a job in its country for a period of six months or more. Of
course, there are typically many other situations that can also trigger the requirement for
a visa, even if the work will only last a couple of days. And, in recent years, due to the
increased threats from various forms of terrorism, all visa requirements have become more
difficult to meet in virtually every country. The activities that will trigger the need for such
special visas and the amount of time required to process such visas vary from country to
country and from situation to situation. Because of this, IHR managers must be sure, for
example, when decisions are being made about sending employees on foreign assignments
for anything from short-term business trips to longer-term relocations for a number of
months or years, that the necessary visas are applied for and that an adequate amount of
time is allowed to be able to gain the necessary approvals for such travel and transfers.
Immigration law firms that specialize in helping firms acquire the necessary visas and work
permits often provide the information needed to make such judgments.

Gaining approval of these various visas can be complicated and very time-consuming,
expensive, and difficult, as countries tighten their procedures for even business-related and
tourist visas. Firms that hire immigrants, move people around the globe, and seek talent
all over the world must manage this complexity in order to effectively staff their global
operations. HR’s tactical role consists of anticipating roadblocks in the visa application
process, being aware of application procedures to follow in different countries (or using
the services of a specialized firm), and complying with the necessary record keeping and
tracking of visas.

The EU creates a special case in terms of visas because of the treaty provisions for free
movement of labor within its member countries. For transfers within the European region,
there is no need to obtain visas. Having a valid identity card or passport is sufficient as EU
nationals have the right of residence in any EU host country and the host country will issue a
residence permit for any national of a member state. However, there are still some exceptions
for some of the new EU members, where transition measures for free movement of labor are
in place.

Personal Data Privacy/Protection

With the advent of the Internet and the ease of global communication, facilitating the
sharing and distribution of information, concern over the protection of information about
individuals (for example, employees and customers) has become of increasing concern in
many countries.26 Often, that concern is based in those countries’ constitutional guarantees
of protection of individual privacy. In other countries, such data protection is a function of
cultural attitudes and values.

In Europe, these protections are particularly strong.27 Because of this, in 1998 the EU
issued a directive on the protection of employee privacy. Of particular interest to MNEs

Employment Law, Labor Standards, and Ethics 173

operating in Europe, under the terms of the directive (refer to Exhibit 6.3), personal
data on European employees, including international assignees working in Europe, can-
not be transferred out of the EU unless the country in which the data recipient resides
has acceptable privacy protection standards in place. In any case, any firm transferring
employee data from Europe to the US (or anywhere else outside Europe) must pay
close attention to how such information is managed and shared with third parties. This
has been of particular concern to American MNEs in Europe, since there has not been
consensus in the US on how to provide adequate privacy protections, as of now want-
ing to rely more on self-regulation and laws applying to only particular sectors, such
as health care and financial institutions. In late 2000, the EU agreed to a “safe harbor”
principle from the US in which American firms that agree to abide by the basic Euro-
pean privacy standards will certify to the US Department of Commerce that they are in
compliance, which will be reviewed by the EU. Such certified firms will be able to trans-
fer data on European and international assignees from Europe to the US. The potential
liability for American firms that do not certify compliance with basic European privacy
laws through this “safe harbor” procedure is to lose their rights to do business anywhere
in the EU.

Adding to these concerns are the widespread and increasing use of social media (such
as Facebook, LinkedIn, Twitter, Google Plus+, Instagram, and YouTube) and search engines
(such as Google, Yahoo!, Bing) on computers, cell phones, and e-tablets, that enable the
global sharing of personal data with minimal controls. The technology (and acceptance) for
such social networking is advancing faster than companies and governments can develop
rules and regulations to control it. Plus there is increasing evidence that younger people
that have grown up with the use of this technology have very different views (greater
rejection) of the need to control content and sharing on social media. These realities make
it ever clearer that IHRM must try to stay ahead of changes in technology and its use, as
well as keeping abreast of various national jurisdictions in their attempts to regulate issues
such as the protection of personal data.

Anti-discrimination

Around the world, countries are passing legislation to protect the rights of employees and
job candidates to be free from discrimination and harassment based on their gender, race,
color, religion, age, or disability. The laws in place in many countries, such as the US and
now in the EU, are pretty well developed, although within the EU there has been a distinct
lack of uniformity in many of these areas, with the possible exception of sex discrimi-
nation.28 Until the turn of the millennium, many EU countries had not yet even moved
beyond approval of protections as put forth by the ILO. However, in 2003, directives went
into effect in the EU requiring all member states to pass legislation prohibiting discrimina-
tion on the basis of race, gender, disability, age, sexual orientation, family status, and religion

National and Cultural Context174

or belief. And, as indicated earlier in this chapter, under the Lisbon Treaty, these rights have
been finally institutionalized within the 34 member states of the EU.

Anti-discrimination laws are clearly an area of international labor standards to which
every MNE must pay very close attention.29 And because of national and regional cul-
tures that in the past may have allowed practices that are now being prohibited, making
sure that all managers and employees of the global firm abide by these new stand-
ards presents a major challenge to IHR. Although there is considerable convergence
developing, there are still some significant variances. Since courts in some countries are
beginning to refer to the laws of parent countries in cases involving MNEs within their
jurisdictions, it certainly suggests that IHR and their MNEs must pay close attention to
these differences.

Of particular interest is the issue and treatment of sexual harassment. The cultural inter-
pretation around the world as to what constitutes such harassment and the legal framework
protecting employees from harassment and bullying varies extensively between countries.
The EU, UN, and ILO all address sexual harassment in the workplace. Several industrial-
ized countries have specific sexual harassment prohibitions (e.g., Australia, Canada, France,
New Zealand, Spain, Sweden, and the United States).30 In these countries, sexual harass-
ment in the workplace is protected by one of four different types of constraints (equal
employment opportunity law, union contracts, tort/contract law, or criminal law). In the
US, the sexual harassment prohibition is also applied extra-territorially. As this issue has
received increased attention, an increasing number of countries have begun to consider
prohibitions against sexual harassment in the workplace.31 Indeed, a recent report of a
global survey found that 10 percent of employees around the world report they have been
harassed sexually or physically bullied at work.32 The poll of approximately 12,000 people
in 24 countries revealed considerable differences in reported levels of harassment between
countries, with some large emerging market countries reporting the highest levels, but also
showing that this is an issue that is gaining attention worldwide, irrespective of a country’s
basic cultural values.

Exhibit 6.4 provides a list of the anti-discrimination coverage of laws in 12 sample
countries. This exhibit illustrates the high degree of variability among countries in this
significant area of law. All multinational countries need to pay close attention to these
laws as they conduct business around the globe. This also illustrates that most countries
now include some sort of mention of legal coverage against sexual or moral harassment,
as well.

Termination and Reduction in Force

In most countries, individual employment is protected by an employee contract that defines
the terms and conditions of employment, including that it cannot be ended unilaterally
or arbitrarily by the employer. The concept of “employment-at-will,” as practiced in the
United States (where the employer, with a few exceptions, has the right to terminate an

Employment Law, Labor Standards, and Ethics 175

EXHIBIT 6.4: Protected Classes for Discrimination
Prohibition in Select Countries

European Union Sex, marital or family status, race and ethnic origin, religion or
belief, sexual orientation, disability, age; equal pay for equal work

Brazil Sex, age, color, family situation, pregnancy, union membership;
equal pay for equal work; sexual harassment

Bulgaria Age, caste, disability, language, nationality, race or ethnicity, region,
religion, sex-gender-gender identity, sexual orientation, marital
status, + EU

China Nationality, race, sex, religion, disability, age, migrant workers,
health status; equal pay for equal work; sexual harassment;
protection of children and minors

Germany Race or ethnic origin, sex or sexual orientation, religion or secular
belief, disability, age; sexual harassment + EU

India India lacks a comprehensive anti-discrimination law for the private
sector. Nevertheless, the Constitution prohibits the state from
discrimination on the basis of religion, race, caste, sex, and place of
birth and allows positive discrimination (affirmative action) based on
discrepancies in gender, social or financial background, or traditional
caste-based disadvantage. Legislative acts address employee
discrimination with respect to recruitment, wages, work-transfers, and
promotion for men and women, people with disabilities, and socially
and educationally backward classes of citizens.

Indonesia Sex, ethnic group, race, religion, skin color, political alliance;
special protection for women and child workers (<16); no sexual
harassment law (but criminal code provides basis for filing sexual
harassment complaint)

Mexico Undeveloped, but constitutional protections against discrimination
on basis of sex, race, religion, age, political views, nationality;
discrimination law defines equal opportunity for persons based on
ethnic or national origin, gender, age, disability, social or financial
conditions, health condition, pregnancy, language, religion, opinion,
sexual preference, marital status; limited protection for sexual and
moral harassment, equal pay for equal work, child labor

Russia Gender, race, nationality, language, social origin, property
status, place of residence, religious beliefs, affiliations with social
associations, pregnancy, and children; no special legislation on
sexual or moral harassment

Continued overleaf

National and Cultural Context176

United Kingdom Age, disability, gender, marriage and civil partnerships, pregnancy
and maternity, race, religion or belief, sex and sexual orientation;
sexual harassment

United States Age (over 40), sex, national origin, race, color, religion, disability,
veteran status, pregnancy and genetic information; sexual
harassment

Source: Based on Baker & McKenzie (2012). The Global Employer: Focus on Termination, Employ-
ment Discrimination, and Workplace Harassment Laws, Baker & McKenzie International, a Swiss
Verein with law firms around the world, US Headquarters, Chicago; plus individual country websites.

employee at will—and the employee has the right to quit at any time for any reason), does
not exist in most countries. In most countries, employers’ rights to terminate, layoff, reduce,
restructure, move, outsource, or sub-contract work (and, therefore, workers) is highly con-
strained. In most countries, including the US, employees (or work) cannot be terminated
on grounds of health and safety, pregnancy or maternity, asserting a statutory right, union
activity, or the basis of one’s gender, race, religion, or disability. In general, firms need to
search for alternative employment (within the firm or externally, if nothing is available
internally) and consult with their unions, works councils, and the individuals affected (typi-
cally at least 30 days prior to taking action if 20 to 100 people will be involved, and 90 days
prior if 100 or more people are to be made redundant).33 This includes any outsourcing,
work transfers to other countries, and sub-contracting.

In terms of pure reductions in force, generally only three situations are seen as accept-
able excuses:

1 business closure;
2 workplace closure; and
3 diminishing economic need for the work.

All of these situations involve requirements for notice and consultation with employees
and/or their representatives.

In addition to notice of workforce redundancies, most countries also require payments
to terminated employees. Indeed, in most countries it is very difficult to terminate any
employee for any reason, even with notice and consultation. Particularly when the ter-
mination involves a number of employees (that is, it involves a downsizing, relocation, or
significant layoff), notice and consultation are both necessary. However, even when termi-
nations are possible and done, they usually still require significant severance payments to

EXHIBIT 6.4 Continued

Employment Law, Labor Standards, and Ethics 177

all individuals involved. Such payments are often required even when the termination is
for disciplinary or poor performance. Separation practices differ between countries but still
illustrate both the legal requirements for dismissals and the severance payment formula.34
In most countries, the amount of severance pay is pro-rated by the employee’s age, years of
service, and last rate of pay or salary.

In some countries, employers will find it difficult to terminate employees at all. In Portugal,
for example, all terminations are legal actions that must be defended in court, while in coun-
tries such as Germany, where there is a strong tradition of reliance on works councils, ter-
minations are topics for mandatory consultation. Also, in many countries, all employer-paid
benefits become what are referred to as acquired rights, that is, once offered, they cannot
be taken away, even in the case of redundancies of any type, e.g., in acquisitions, employee
transfers, work transfers, or closing of offices. Employers cannot move work or workers to
new countries or locales and, in the process, create new compensation, benefits, or work
designs that are less than in the previous location. In many countries, particularly in Europe,
and in EU law, more specifically, the employee has “acquired rights” to his or her existing
levels of compensation and benefits and to the nature of his or her work that cannot be
reduced by either moving the employee or the work to another location. After notification
and consultation, often MNEs “buy” their ways out of these liabilities by negotiating settle-
ments with affected workers to compensate them for their acquired rights. But they cannot
just unilaterally reduce the benefits. And the ultimate point is that redundancies of any type
can be, at least in many countries, quite expensive and require close attention from IHR.

Intellectual Property

The concept of “intellectual property” includes forms of employee creation (sometimes, in
the past, referred to as industrial property) such as patented inventions and/or discoveries,
trademarks, geographic indications, and industrial and product designs as well as items
that can be copyrighted such as literary and artistic works such as novels, poems, and
plays, films, musical works, artistic works such as drawings, paintings, photographs, and
sculptures, and architectural designs. Although it may not at first be obvious, there are sev-
eral links between intellectual property and IHR. For example, inventions and intellectual
contributions, which are a result of an individual’s employment, are usually considered by
the employer to be its property. As a consequence, employers take a number of steps to
ensure that such “property”—referred to as trade secrets (such as client and customer lists),
product and process technologies, and patents—are either filed for legal protection (pat-
ented) or are protected through non-disclosure agreements with their employees (mean-
ing the employees do not have the right to share or give this information to anyone else,
particularly, of course, competitors, or to use the information for their own personal gain).
Also, publications such as the many training materials and product/service manuals that an
employer develops for use by their employees and customers are copyrighted in order to
protect them from use by outside people.

National and Cultural Context178

The situation of protection of intellectual and property rights is especially complicated
when operating internationally because different countries have different conceptions of
what constitutes property and vary in their practices related to its protection. In addition,
there is no international institution that has the capability to extend intellectual and copy-
right protection to the MNE worldwide.35

With regard to industrial property, each country usually has an intellectual property
office (IPO) or an administrative unit within the government that is in charge of adminis-
tering the system of IP rights acquisition and maintenance. Depending on the country, these
offices have varying ranges of resources. Poorer countries tend to have fewer resources for
screening and approving pending applications for new patents and for maintaining databases
of protected patents. The World Industrial Property Organization (WIPO) is a specialized
agency of the UN responsible for the promotion of the protection of IP worldwide. WIPO
administers the multiple international treaties and develops conventions for its member
states. The Patent Cooperation Treaty (PCT) dramatically reduces the duplication of efforts
with regard to patents (filing, researching, and execution) in different countries and allows
for filing in a single national office. As an international procedural mechanism, if offers a
trademark owner the possibility to have his trademark protected in several countries by
simply filing one application directly with his own national or regional trademark office.

With regard to copyright, there is no single statute that extends copyright protection
worldwide; rather, each country has its own copyright laws. There are, however, a number of
bilateral agreements and international treaties among countries regarding copyright protec-
tion. Most countries abide by one of two international agreements: the Berne Convention
(which provides national and automatic protection) and the Universal Copyright Convention
(which provides only national protection). National treatment (minimal protection) means
that local laws apply to all copyright infringements that take place within the country even
if the original work was created elsewhere. Automatic protection means that local laws apply
even to works that have not satisfied the country’s required formalities (copyright notice
and/or registration). To ensure full copyright protection, MNEs must investigate whether the
country in question is a member of the Berne Convention or Universal Copyright Conven-
tion, and whether they have entered into any trade agreements with the country in which
the original work was created. They must research the local laws of the countries that are
NOT Berne Convention members as well as those for which any applicable trade agreements
do not have an automatic protection provision and comply with any required formalities,
such as registration with the national copyright office for these countries.

One additional consideration, particularly in firms with highly specialized technology
or other forms of intellectual property that is critical to their ability to compete, involves
different countries’ attitudes about non-compete agreements. These agreements, signed by
employees as part of their individual employment contracts, restrict their going to work
within some particular time period for a competitor, setting up on their own a new com-
peting business, or taking competitive-critical information with them to their new (former
competitor) employer.36 MNEs must take care to write these non-compete agreements in
understandable language (not legal jargon) and translate these agreements into the local
languages of the countries in which they operate (often required by local law).

Employment Law, Labor Standards, and Ethics 179

THE INTERNATIONAL FRAMEWORK OF ETHICS
AND LABOR STANDARDS

The conduct of international business increasingly involves concerns about the values and
practices of MNEs when they conduct business outside their countries of origin.37 Interna-
tional governing bodies, non-governmental organizations (NGOs), labor organizations, and
special interest groups increasingly raise questions about the “ethical” nature of the busi-
ness practices of many MNEs, often particularly as they relate to employment practices.
Concerns over the impact of globalization, worker exploitation, and increasing inequities,
particularly in less developed countries, are increasing, even though levels of poverty have
declined and general population well-being has seemed to improve. Because of this, confu-
sion about business rules, ethics, and HR policies and practices has intensified.38

This last section in this chapter provides an overview of concerns about international
business ethics, particularly as they relate to IHRM. International ethics looks at what’s
right and wrong in business conduct across borders and the impact of cultural (country and
company) variances on ethical conduct of MNEs. International ethics also deals with issues
of corruption and bribery, and the various ethical dilemmas that MNEs face in the conduct
of their international activities. Because MNE ethics, particularly issues that relate directly
to employee relations, are often relegated to IHR, the primary focus here is the impact of
ethics on global HR practices.

International Ethics and Culture

In the area of global ethics, even the best-informed, best-intentioned executives often have
to rethink their assumptions. What works in an enterprise’s home country may be viewed
very differently in another country, which may have very different standards or perceptions
of what is ethical conduct.39 Evidence even suggests that not only is there variance among
countries and cultures, but even among different industries.40 Often one’s national perspec-
tive clouds one’s view of another country or culture’s way of doing things. Even if there
is relative agreement on basic human values (for example, refer to the United Nations
Universal Declaration of Human Rights) and ethical principles around the world (a point
with which some would disagree), clearly there is considerable variance in what might
be referred to as the ethical climate in different countries.41 That is, differing country cul-
tures view various employment and business conduct issues, such as bribery, gifts or favors,
tax evasion, or child labor, differently. Thomas Donaldson, one of the world’s top experts
on international ethics, tells the story of an expatriate manager of a large US company
operating in China who fired an employee caught stealing and turned him over to local
authorities, according to company policy.42 Later, the manager was horrified to learn that
the employee had been executed by local authorities for breaking an important law against
stealing from one’s employer. Obviously, the cultural context in which the company policy
was formulated was vastly different from the cultural context in which the manager carried
out the policy.

National and Cultural Context180

Ethical relativism suggests that what is right is whatever a society defines as right.
There are no absolute rights or wrongs.

In order to understand ethical variances such as this, ethicists describe possible
approaches as being on a continuum, from ethical relativism to ethical absolutism. On
one end of the continuum lies ethical relativism, which suggests that what is right is what-
ever a society defines as right. This definition may be at the individual (individual rela-
tivism) or at the societal (cultural relativism) level. In the relativistic view, there are no
absolute rights or wrongs; rather the values of the individual or the society are sovereign
in deciding what is right or wrong for that culture as long as no laws prohibit the behavior.
In this perspective, if a society says that women shall not be paid the same as men for
the same work or that child labor is all right, those rules would be seen as right for that
society at that point in time. Under ethical relativism, there can be no external frame of
reference for judging that one society’s set of rules is better—or worse—than another’s.
So, under ethical relativism, IHR managers who try to impose their values on HR prac-
tices in a host country are guilty of what is often referred to as ethical imperialism, or
ethical chauvinism. Under the philosophy of ethical relativism, it is entirely appropriate
to follow local practices regarding the treatment of employees. Though appearing on
the surface to be a liberal, open-minded approach, this view may result in actions that
home-country constituencies (at least from the Western industrialized countries) would
find entirely unacceptable, such as child labor or gross inequality. This view of “when in
Rome, do as the Romans do,” is challenged when one considers whether someone from
an outside culture can really have a local understanding of what’s right or wrong in that
particular culture. Ethical relativism takes a particularistic view of the culture, namely
that there are no universal standards, rather differing evaluation rules are based on the
context or the situation.

Ethical absolutism is the view that there is a single set of universal ethical standards or
principles, which apply at all times, in all circumstances, in all cultures.

The opposite position is called ethical absolutism. This is the view that there is a single
set of universal ethical standards or principles, which apply at all times, in all circumstances,
in all cultures. This universalistic approach views moral values and principles as eternal
and that they apply universally and equally in all places and times. This more standardized
approach is often reflected in an MNE’s global code of ethics (i.e., a set of universal prin-
ciples that, under no circumstances, should ever be violated). This might be very useful to
an IHR manager, as it would suggest which local practices—even though they may be quite

Employment Law, Labor Standards, and Ethics 181

different from those of the parent country—are morally acceptable because they do not
violate universal principles and those which are not morally acceptable and must not be
followed, because they do violate such universal principles. The problem with this view is
specifying what the universal principles are and developing a logical case for why these, and
only these, principles are truly universal. In adopting the values of a single culture or reli-
gion as universal one runs the risk of ethical imperialism. Thus both of these philosophies
create potential problems for the IHR manager, for MNE employees around the world,
and especially for international assignees who are posted to foreign subsidiaries. In order
to deal with these extremes, some have suggested that situations often compel the MNE,
through collaboration and/or imagination, to develop unique responses to cross-cultural
ethical dilemmas, ones that try to find common ground among disparate moral views. This
has been referred to as cosmopolitanism.43 Such an approach calls for reconciling seemingly
opposing differences in ethical choices and requires debate, effort, and compromise. But
such solutions are far from easy for the diverse employees of the MNE and its international
managers.

Cosmopolitanism calls for reconciling seemingly opposing differences in ethical
choices and requires debate, effort, and compromise. But such solutions are far from
easy for the diverse employees of the MNE and its international managers.

Ethical Dilemmas in IHRM

One of the basic ethical dilemmas for IHR and MNEs involves what management should
do when an employment practice that is illegal or viewed as wrong in the home country is
legal or acceptable in the host country.44 Examples might include sex or race discrimination
in hiring, job placement, or compensation; use of child labor; or providing unsafe working
conditions. Thomas Donaldson has tried to provide a framework for decision making in a
multinational environment that tries to resolve these possible ethical dilemmas.45 Don-
aldson states that the task is to “tolerate cultural diversity while drawing the line at moral
recklessness.”46 In some ways, his approach is absolutist because it relies on a statement of
30 fundamental international rights (which have been recognized by international bod-
ies, such as the United Nations, the ILO, and the OECD). Among these, maybe 10 or so
apply directly to issues of concern to IHRM. These include the rights to freedom of phys-
ical movement; ownership of property; freedom from torture; a fair trial; non-discrimina-
tory treatment; physical security; freedom of speech and association; a minimal education;
political participation; freedom to work in fair and safe conditions, and to earn a decent
standard of living. Organizations need to avoid depriving individuals of these rights wher-
ever they do business (even though, in some countries, some of these “rights” are not very
well recognized or agreed to).

The following IHRM in Action illustrates this point:47

National and Cultural Context182

However, the rights discussed above alone do not always provide sufficient practical
guidelines for operating in an international environment. When IHR managers and the
management of MNEs are trying to decide if their organizations can follow a practice that

IHRM in Action 6.1: Developing Global Labor Standards
at Levi Strauss

Levi Strauss has global sourcing and operating guidelines that address workplace issues.
The company uses these guidelines to select business partners who will manufacture its
products. Established in 1992, its guidelines were [among] the first created by a multi-
national company for its business partners. The terms of engagement detail everything
from environmental requirements to health and safety issues. Among them: wages, dis-
crimination, child labor, and forced- or prison-labor issues. To create these guidelines,
the company used the Principled Reasoning Approach (a decision-making tool that
Levi Strauss uses to teach its employees how to translate ethical principles into behav-
ior). And to launch them, it conducted audits of contractors it was using worldwide.

Levi Strauss discovered that in Bangladesh, it had two contractors using workers in
the factories who appeared to be underage. International standards have set a reason-
able working age for factories at 14. When the company brought it to the attention
of the factory owners, the owners asked the company what it wanted the factory to
do. There were no birth certificates so there was no way to know exactly how old
these children were. Also, even if the children were younger than 14, they would very
likely be a significant contributor to the family income and probably would be forced
into other ways for making a living that would be more inhumane than working in a
factory—such as prostitution or begging.

“So, we were faced on the one hand with a set of principles that were very clear,
but hard to implement, and on the other with the reality of underage workers and
severely impacting their family incomes,” says Richard Woo, senior manager for global
communications for Levi Strauss. The solution? “The contractor agreed not to hire
any more underage workers,” he says. They also hired a physician to examine chil-
dren who seemed to be less than 14 years old using growth charts identified by the
World Health Organization. Although not hiring young workers may force them to
find work elsewhere, Levi Strauss’ position is to be ethically responsible for business
issues it can control—such as responsible child labor conditions—as opposed to social
conditions in a country that it has no control over.

Levi Strauss also negotiated for the contractors to remove the under-14 workers
they already had from the production line and continue to pay them wages as if
they were still working. In exchange, Levi Strauss covered the cost of the children’s
uniforms, tuition, and books so they could go to school. When the underage workers
reach the age of 14, they are offered back their original factory jobs. The contractors
complied with all this, “to maintain the contracts with us,” says Woo.

Employment Law, Labor Standards, and Ethics 183

is legal and morally acceptable in the host country but not in the parent country, Donaldson
suggests they ask themselves a series of questions in the ethical decision-making process.

First, ask why the practice is acceptable in the host country but not at home. Answers to
this question fall into two categories:

1 because of the host country’s relative level of economic development; or
2 for reasons unrelated to economic development.

If the answer is 1, the next question is whether the parent country would have accepted the
practice when (or if) it was at that same level of economic development. If it would have (or
did), the practice is permissible. An example might be the building of a fertilizer plant that
provides a product necessary for the feeding of the population of the country, despite the fact
that there is a risk of occupational disease for employees working in the plant. If the parent
firm (or the parent country) were willing to accept this risk for itself under similar circum-
stances, then the building of such a plant would be all right within Donaldson’s framework.
The second answer, that the difference is not based on economic considerations, requires a
more complicated decision process. The manager must ask two additional questions:

1 Is it possible to conduct business successfully in the host country without undertaking
the practice?

2 Is the practice a clear violation of a fundamental right?48

The practice is permissible only if the answer to both questions is no. That is, the practice
is acceptable if it is critical to doing business in the country and it does not violate a fun-
damental right. Otherwise, the organization should refuse to follow the local practice. For
example, in the past, in Singapore, it has been common to see help-wanted ads seeking
“Chinese women, age 21–28.” This type of advertisement violates US (and other countries’)
laws and mores regarding age, gender, and ethnic discrimination. Would it be permissible
from an ethical point of view for a US or EU subsidiary in Singapore to run an ad like that?
(Note that legally, extra-territoriality of the US anti-discrimination legislation may apply to
a US company operating in Singapore if the company meets the integrated enterprise test.)
According to Donaldson, the answer is no because the discrimination is not tied to the level
of economic development, is not necessary for doing business in Singapore, and violates
fundamental international rights to nondiscriminatory treatment (a right that is codified
in the resolutions of a number of international bodies, such as the United Nations and the
International Labour Organisation, as well as in national laws in the EU and in the US).

There can be many difficulties when discussing issues of ethical attitudes and practices
in various countries. Obviously, the gap between policy and practice can often be quite
wide. Solutions to the problem of child labor, for example, are not necessarily easy to
develop in a way that benefits the parties involved.49

Ethical issues have become a top concern to executives of MNEs as well as of govern-
ments and non-governmental organizations. There is a growing desire to find approaches to
these issues that would both provide protection for the rights of employees worldwide as

National and Cultural Context184

well as provide guidelines for organizations that enable them to conduct business in ways
that benefit all of their constituencies: customers, employees, owners/shareholders, suppli-
ers, and communities in which they conduct business. Many organizations and individuals
have proposed guiding principles to balance the extremes.50 IHR must proactively consider
these global ethical issues, usually incorporated in a global code of business conduct, and
entertain some of the solutions being suggested to these problems.

In the end, the assurance of ethical behavior and conduct of firms that conduct business
outside their home borders depends on the attitudes and behaviors of their managers, at
home and abroad. Accordingly, it is suggested that businesses can take three steps to help
ensure that their employees (managers at home, expatriates abroad, and their parent and
foreign employees) behave not only appropriately, but also ethically:51

1 Develop a clearly articulated set of core values as the basis for global policies and
decision making.

2 Train international employees to ask questions that will help them make business deci-
sions that are both culturally sensitive and flexible within the context of those core
values.

3 Balance the need for policy with the need for flexibility or imagination.

Given these three points as general guidelines for an overall approach, Exhibit 6.5 illus-
trates a list of steps that provide some guidance on how an MNE might design a code
of conduct and ensure an effective implementation of ethical standards for worldwide
operations.52

The treatment of ethics in international context is very complex indeed. Yet, MNEs
must confront the issue in their daily operations and resolve these difficult dilemmas. IHR,
through education, training, and problem solving needs to play an integral role in raising
the awareness of its firm’s employees regarding ethical behavior.

Corporate Social Responsibility (CSR), Corporate
Governance, and Sustainability

Many MNEs are beginning to pay attention to their roles as corporate citizens. CSR, cor-
porate governance, and sustainability are taking on greater importance in the operation of
MNEs, and IHR is increasingly playing an important role in implementing these activities
in their global organizations.

CSR

CSR is the continuing commitment by businesses to not only behave ethically, but also
contribute to the economic development of the communities in which they operate and
to improve the quality of life of their workforces, their families, as well as society at large.

Employment Law, Labor Standards, and Ethics 185

EXHIBIT 6.5: Guidance on How an MNE Might
Design a Code of Conduct and Ensure
an Effective Implementation of Ethical
Standards for Worldwide Operations

Guideline Description

Reasons for developing
a global ethics program

Be clear about the reasons for developing a global ethics
program—even if it is for compliance reasons (at home or
abroad). Is it an opportunity to build bridges across varying
cultures and constituencies or a way to instill a common set
of corporate principles and values in order to unite the firm
and its customers and suppliers around the world? Design
and implement conditions of engagement for suppliers and
customers that fit them into the ethics code.

Formalize standards Treat corporate values and formal standards of conduct
as absolutes, that is, once the program is developed, do
not allow for local variations (except within the standards
established in the program—see the rest of these guidelines).

Consult all stakeholders Consult broadly with people who are affected, including
international personnel who will need to implement the
program and junior-level managers who may be the people
implementing the program in the future. Allow foreign
business units to help formulate ethical standards and
interpret ethical issues.

Choose the words
carefully

Many terms do not translate effectively into other languages.
Even the term (or concept of) “ethics” does not translate
well into many other languages and cultures. Alternatives,
such as managerial responsibility, corporate integrity, or
business practices are less culturally loaded and easier to
translate.

Translation of codes Translate the code carefully—when communicating the code
to operations in foreign locales, the firm must be careful
to translate the meanings and to screen for parent-country
biases, language, and examples.

Translate the “ethics
code” training materials

Translate the “ethics code” training materials (that is, don’t
leave it only in the parent-company home language).
The training materials and activities need to be carefully
translated and carefully presented.

Designate an ethics
officer

Designate an ethics officer for overseas operations—for all
regions where there are a large number of employees, a

Continued overleaf

National and Cultural Context186

CSR encourages MNEs to be aware that they produce both benefits and harm simply by
the fact that they operate globally. Therefore, they should be as concerned about their
global ecological footprints, or the impact of their actions (and inactions) on the natural
environment, as they are about generating growth and profits.

The social responsibility of MNEs can be viewed on a continuum of providing value
from stockholder to external stakeholder. While past thinking emphasized that organiza-
tions were expected only to meet the needs of their shareholders, customers, and employ-
ees, current thinking implies that organizations must also be explicit about the economic
and social benefits that they bring to society.53 Putting environmental concerns and people
equity issues on an equal footing with shareholder return (also called the triple bottom line)
is now considered a CSR responsibility of large MNEs. To take it even one step further, the
social responsibility of businesses and business people is commensurate with their social

Guideline Description

local ethics officer should be appointed, preferably a native
who knows the language and customs of the region.

Highlight international
law

Speak of international law, not just parent-country law.
Acceptance is greater when the reference is to “the law in
many countries,” or the codes of the UN, or the ILO, or even
the OECD.

Recognize the business
case

In host countries, support efforts to decrease institutional
corruption. And exercise moral imagination in dealing with
cultural differences that conflict with your ethical standards.
Be identified as the international firm with strong integrity
but one that cares about local conditions. Companies with
such reputations often gain a competitive edge both with
consumers as well as with government agencies.

Recognize the common
threads

While it is important to understand and be aware of the
significant cultural differences that exist, fundamentally,
people around the globe are more alike than they are
different. They share many of the same priorities, interests,
and basic ethical principles. Most of the time, the real
challenge is how to communicate these principles effectively.

Source: Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review,
Sept.–Oct., 48–62.

EXHIBIT 6.5 Continued

Employment Law, Labor Standards, and Ethics 187

Business
Ethics

Human
Resources

Environmental
Management

Labor &
Human Rights

AccountabilitySustainability

Community
Involvement &

Economic
Development

Corporate
Structure &

Governance

CSR PROGRAMS

FIGURE 6.1 Umbrella of CSR Programs
Based on: Phillips. R., and Claus, L. (2002). Corporate social responsibility and global HR: Balancing the needs of the
corporation and its stakeholders. International Focus, SHRM.

power (such as size, financial resources, visibility). This is referred to as the iron law of social
responsibility. Responsible MNEs are expected by their external stakeholders to focus on
sustainability management and make sure that when they meet their present needs, they do
so without compromising the ability of future generations to meet their needs.

CSR consists not only of a mindset but also of a set of deliberate actions that MNEs
take to fulfill their social responsibilities. Many different types of activities fall under the
umbrella as depicted in Figure 6.1.

There are several reasons why MNEs are increasingly paying attention to CSR. It
enhances their reputations in the marketplace, may reduce business and legal risks, attracts
customers and increases customer loyalty, averts pressure from investors and fund man-
agers, and attracts and retains employees who desire to work for responsible companies.
Many MNEs consult with other organizations (NGOs, consulting firms, etc.) to implement
and improve their CSR programs. They also pay attention to social investment firms (who
manage investment portfolios that only include companies considered to be socially and/
or environmentally responsible), social entrepreneurs (who build business models around
socially responsible or environmentally sustainable products that compete with them in
the marketplace), and social-venture capitalists (who seek out promising social entrepre-
neurs in whom to invest).

IHR managers are increasingly becoming the implementers of CSR programs in MNEs.
Recommendations for ensuring the success of CSR programs include the following:

■■ Develop a global CSR policy—such a policy must be an integral part of the overall
organizational strategy.

National and Cultural Context188

■■ Obtain a high level of support—CSR activities, such as any change activity, must clearly
come with senior management support to enhance its implementation.

■■ Communicate—increase awareness of CSR activities and clearly communicate the
CSR policy.

■■ Create a CSR culture—foster a culture that confronts difficult questions about ethics,
the environment, and social responsibility.

■■ Provide adequate training—educate and train managers and employees on the MNE’s
code of conduct, the CSR activities, and the prescribed behaviors and activities.

■■ Install reporting and advice mechanisms—encourage employees to report questionable
conduct and ask for help with their own ethical dilemmas (without retaliation).

■■ Include CSR in management’s performance management—evaluate and reward
employees for integrating company values in their daily work life.

■■ Communicate—use ongoing communication to keep the message alive and share sto-
ries and lessons learned.

■■ Lead by example—as with any managerial activity when actors are not leading by
example, but are allowed to deviate from the principles without consequences, the
CSR initiatives will not be taken seriously.

Corporate Governance

Corporate governance refers to the basis upon which decisions are made in organizations.
It also involves the structure and relationships that determine how corporate objectives are
first set and then met and regulated by the different performance-monitoring mechanisms
(such as the management team, board of directors, investors, and shareholders). In light
of many corporate scandals that have particularly plagued Western MNEs (for example,
Anderson Consulting, Enron, WorldCom, Tyco International, Peregrine Systems, and Sie-
mens), it is not surprising that this subject has received increased attention and is being reg-
ulated through legislation. The 2002 Sarbanes-Oxley Act in the US is an extra-territorial
federal US law that requires compliance with enhanced standards for all US public com-
pany boards, management, and public accounting firms, and must be applied at home and
abroad. It is a direct result of these corporate scandals.

Sustainability is the meeting of the needs of the present without compromising the ability
of future generations to meet their own. Do management decisions meet these criteria?

â– â–  Is the decision fair to employees?
â– â–  Is the decision sustainable in the long run?
â– â–  Is the decision green in terms of pollution and the carbon footprint?
â– â–  Is the decision-making process transparent and open for scrutiny?

Employment Law, Labor Standards, and Ethics 189

Sustainability

Sustainability is increasingly entering the attention of MNEs. The Bruntland Commission
defined sustainability “as meeting the needs of the present without compromising the abil-
ity of future generations to meet their own.”54 Savitz and Weber in The Triple Bottom Line
argue for the discovery of the sustainability sweet spot which they define as “the common
ground shared by your business interests (those of your financial stakeholders) and the
interests of the public (your non-financial stakeholders).”55 For HR, the sustainability sweet
spot is the place where the pursuit of organizational interests seamlessly blends with the
pursuit of employee interests.

In the future, international HR practitioners will increasingly be called to defend man-
agement decisions made in MNEs in terms of the following factors:

1 Is the decision fair to employees?
2 Is the decision sustainable in the long run?
3 Is the decision green in terms of pollution and the carbon footprint?
4 Is the decision-making process transparent and open for scrutiny?

Development of a Strategic Global Code
of Conduct Policy

The implication of this complexity in global employment law, regulation, standards, and
ethics is that MNEs need to develop strategic policies that establish a code of conduct
that defines acceptable behavior in terms of employment relations for their far-reaching
managerial and employee workforces.56 These codes of conduct should be defended as
the “company culture,” a culture that insists on and supports abiding by all national and
international employee relations regulations and, further, defines what is seen as legal and
ethical behavior when dealing with these regulations. Without this, the firms and their
managers and employees can face any or all of the following: criminal liability, damaged
individual careers, employee disengagement, damaged firm global reputations, lowered
share prices, organizational and managerial confusion, misdirected workforce behavior, and
even possible risk of total organizational disruption.

The point is, senior management must insist that this support for organizational ethics is
the “way they want to run their business,” that, for example, sexual or racial discrimination
(or harassment) is not wanted because it limits the firm’s ability to work as a team; such
behavior is divisive, and it is just not wanted. Having such policy removes the possibility of
managers disagreeing with certain practices because they perceive them to go against local
or national cultural practices that vary from those in an MNE’s parent country. In this way,
the decision to abide by certain labor standards is based on the defined company culture
and policies, not on any given individual’s biases or preferences nor on reference to any
particular country’s perceived cultural practices.

National and Cultural Context190

CONCLUSIONS

This chapter has examined the broad nature of international labor standards, global employ-
ment law and regulations, and international ethics and social responsibility. First, this chap-
ter looked at the institutional context of international business. International organizations
have promulgated labor standards for MNEs. Next this chapter looked at the global legal
environment in which the MNE operates. It focused on compliance with national and
supranational laws. Further, a number of comparative regulatory issues were discussed that
affect the MNE such as immigration controls, data protection, anti-discrimination and har-
assment, termination and reduction in force, and intellectual property. Finally, this chap-
ter looked at international ethics, its relation to culture, and how ethical dilemmas must
be solved.

DISCUSSION QUESTIONS

1 Why are local employment laws important to IHRM? Are some laws more important
than others? If so, which ones?

2 Why are international employment standards important to IHRM? Are some standards
more important than others? If so, which ones?

3 Which employment laws and standards are most important for MNEs to pay attention
to? Why?

4 Choose an employment-related HR ethical dilemma and analyze its ethical dimen-
sions, including recommendations on how HR should deal with it.

5 What are sustainable HR practices and how do they affect employees?
6 How can HR discover the sustainability sweet spot(s) of an organization when it comes

to employment relations?

Employment Law, Labor Standards, and Ethics 191

CASE STUDY 6.1: Non-Compete Agreements and
Intellectual Property: Value Partners SA (Italy)
and Bain & Company (USA) Conflict in Brazil

Value Partners, headquartered in Milan, Italy, and recognized as one of the major European
management consulting firms with clients in 40 countries and offices in 15 cities, was founded
in 1993 by former partners of the Italian offices of McKinsey & Company. They opened their
first overseas offices in São Paulo, Brazil, and Buenos Aires, Argentina, in 1994. By the end of
1997, its São Paulo office had 20 employees producing annual revenues of about US$5 mil-
lion, assisting both Italian clients and local companies.

Rival Bain & Company, a major management consultancy, was founded in 1973 by seven
former partners from the Boston Consulting Group, and is headquartered in Boston. Bain estab-
lished its São Paulo office in October 1997 and by early November had hired away almost all
of Value Partners’ staff.

Value Partners filed criminal charges in Brazil and New York against Bain, alleging breach
of trust and loyalty of its former employees (pirated away by Bain) and theft of confidential and
proprietary information. The New York court ruled that the case would be more conveniently
and efficiently dealt with in Brazil under the doctrine that New York was not the most convenient
place to hear the case. Unfortunately for Value Partners, Brazilian law offered none of the US’s
significant compensatory and punitive damages for employee disloyalty and theft of intellectual
property. However, the New York federal court also made it clear that Value Partners was per-
mitted to re-file the lawsuit against Bain in a more convenient forum.

So Value Partners re-filed the case in Boston, the site of Bain headquarters. After a five-week
trial, the jury found Bain & Company liable for unfair competition and tortuous interference and
awarded Value Partners US$10 million in compensatory damages (the full award sought). The
trial court, after awarding another US$2.5 million of interest, denied all Bain’s post-trial motions.

As labor markets become global and firms develop new forms of relations with workers in for-
eign locales (such as IT workers or call centers in overseas locations), it becomes increasingly diffi-
cult to control the movement of workers from one employer to another and their taking of intellectual
property (such as product or process technology or customer lists and preferences) from their cur-
rent employer to their new one. Because the rules (and cultures) are so different from one country to
another, it becomes very difficult to enforce any non-compete agreements in employment contracts.

This situation shows how difficult it can be to enforce covenants, like non-compete agree-
ments, particularly in situations involving firms from outside countries. The more reasonable a
restrictive covenant is, the more likely it is that courts worldwide will enforce it. But in some
jurisdictions, such as in Latin America and the US state of California, non-compete clauses in
employment contracts are considered illegal. Nevertheless, generally speaking, the shorter the
time period of the restraint and the more narrowly defined the people covered, the more likely
it is to be enforced across borders.

Sources: Hall, L. (2001). Protecting your vital assets. Global HR, July–August, 46–52; update (2014):
http://en.wikipedia.org/wiki/Bain_&_Company; http://en.wikipedia.org/wiki/ Value_Partners.

National and Cultural Context192

Discussion Questions

1 Identify and compare the law(s) related to protection of intellectual property and non-compete
agreements in three to five different countries.

2 Should employees be free to move at will from employer to employer? Should there be any
constraints on this freedom of movement? Should employers be free to “pirate” employees
from competitors?

3 What can HR do to minimize the impact of this sort of employee mobility?
4 Have the web and the Internet (and social media) changed the importance of intellectual

property? Have they changed the way employers view IP? Have they changed the way
employees view IP? How about the view of legal systems and cultures in various countries?
How are they changing?

NOTES

1 Printed on literature of Baker and McKenzie, the world’s largest global employment law firm.
2 See, for example, Florkowski, G. W. (2006). Managing Global Legal Systems, London/New York: Rout-

ledge, in the Global HRM series; and Baker and McKenzie (2012). The Global Employer: Focus on Termi-
nation, Employment Discrimination, and Workplace Harassment Laws, Baker & McKenzie International, a
Swiss Verein.

3 See, for example, http://en.wikipedia.org/wiki/Law; Florkowski, 2006.
4 Much of the information in this section comes from documents of the International Labour Organisation,

Geneva, Switzerland, such as the report on International Organizations by their Working Party of the Social
Dimensions of the Liberalization of International Trade; and from Blanpain, R. (ed.) (original publication
1997, with frequent looseleaf updates), International Encyclopedia for Labour Law and Industrial Relations,
The Hague, The Netherlands: Kluwer Law International; Bronstein, A. (2009). International Comparative
Labour Law: Current Challenges, Geneva: ILO and Hampshire, England: Palgrave Macmillan;

Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010). International Labor and Employment Laws, Vols. I and II,
Washington, DC: The Bureau of National Affairs, International Labor Law Committee, Section of Labor and
Employment Law, American Bar Association.

5 See, for example, the World Investment Report (most recent edition, 2009), published by UNCTAD. Refer
to the UNCTAD website at http://www.unctad.org for information on UNCTAD’s work and access to exten-
sive data about global foreign direct investment from and to various countries and the role of transnational
corporations.

6 Berkowitz, P.M. (2003). Avoidance of risks and liabilities through effective corporate compliance, paper
presented at the 4th Annual Program on International Labor and Employment Law, Center for American
and International Law, Dallas, TX, 10 September; www.unglobalcompact.org; www.wikipedia.org/wiki/
United_Nations_Global_Compact.

7 See United Nations Global Compact: http://www.unglobalcompact.org/abouttheGc/TheTenprinciples/
index.html

8 Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010); www.ilo.org.
9 Source: International Labour Organisation.
10 Source: Organisation for Economic Co-operation and Development (OECD): http://www.oecd.org/

about/membersandpartners/list-oecd-member-countries.htm.
11 Source: Official website of the Organisation for Economic Co-operation and Development (OECD): http://

www.oecd.org/about/membersandpartners/.

Employment Law, Labor Standards, and Ethics 193

12 Source: Official website of the World Bank: http://www.worldbank.org/en/about/history.
13 Source: Official website of the International Monetary Fund: http://www.imf.org/external/about/hist

coop.htm.
14 Source: Official website of the World Trade Organization: http://www.wto.org/english/thewto_e/

whatis_e/whatis_e.htm.
15 Florkowski, 2006; Murphy, E. E., Jr. (2001). The World Trade Organization, in Keller, W. L. (ed.). Interna-

tional Labor and Employment Laws, 2001 Cumulative Supplement to Volume 1, Washington, DC: Bureau
of National Affairs and International Labor Law Committee Section of Labor and Employment Law of the
American Bar Association, pp. 44–1 to 44–13.

16 Source: Official website of the European Union: http://europa.eu/about-eu/countries/index_en.htm.
17 Ibid.
18 Source: Demographics of the European Union, http://en.Wikipedia.org, 2014. Accessed July 7, 2014.
19 Source: Official website of the European Union: http://europa.eu/about-eu/institutions-bodies/index_en.htm.
20 Carby-Hall, J. R. (2006). The Charter of Fundamental Rights of the European Union—the social dimension,

Managerial Law, 48 (4), 430–446; Federation of European Employers, The European social dimension (2014).
available on their website: http://www.fedee.com/histsoc.html, accessed July 7, 2014; Nielsen, R. and
Szyszczak, E. (1997) The Social Dimension of the European Union, 3rd ed., Copenhagen: Handelshøjskolens
Forlag/Copenhagen Business School Press; Orbie, J. and Babarinde, O. (2008). The social dimension of glo-
balization and EU development policy: Promoting core labour standards and corporate social responsibility.
Journal of European Integration/Revue d’Intégration Européenne, 30 (3), 459–477; Orbie, J. and Tortell, L.
(eds.) (2009). The European Union and the Social Dimension of Globalization, London: Routledge.

21 Official website of the European Union: http://europa.eu/lisbon_treaty/index_en.htm. Accessed July 8, 2014.
22 Source: Official website of the Office of the United States Trade Representative: http://www.ustr.gov/trade-

agreements/free-trade-agreements/north-american-free-trade-agreement-nafta. Accessed Jan. 15, 2014.
23 Manley, T. and Lauredo, L. (2003). International labor standards in free trade agreements of the Americas,

paper delivered at the 4th Annual Program on International Labor and Employment Law, Dallas, Texas, 30
September–1 October.

24 Official website of the FTAA: www.ftaa-alca.org.
25 Darby, T. J. (2001). Extraterritorial application of U.S. laws, in W. L. Keller (ed.) International Labor and

Employment Laws, 2001 Cumulative Supplement to Volume 1, Washington, DC: The Bureau of National
Affairs and the International Labor Law Committee Section of Labor and Employment Law of the American
Bar Association, 50 (52), 50–74.

26 Hall, L. (2001b). Data dangers, Global HR, October, 24–28; Kremer-Jones, B. (2002). Think before you
send. Global HR, July/August, 52–59; Liptak, A. (2010). When American and European ideas of privacy
collide, The New York Times, Feb. 26, http://www.nytimes.com/2010/02/28/weekinreview/28liptak.
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privacy of employees based in Europe. SHRM Global Perspectives 1(1),1, 6–7 (originally published in
HRWIRE, by the West Group); Wugmeister, M. H. and Lyon, C. E. (eds.) (2009). Global Privacy and Data
Security Law, Arlington, VA: Bureau of National Affairs.

27 Society for Human Resource Management (2000). Are you EU privacy-compliant? International Update
(newsletter of the SHRM Institute for International HRM, which later became the SHRM Global Forum),
No. 3, 10; Martinez, M. N. (1999). European law aims to protect employee data. International Update
(newsletter of the SHRM Institute for International HRM, now the SHRM Global Forum), No. 1, February, 1,
3; Minehan, M. (2001). Complying with the European privacy data directive. SHRM Global Perspective,
No. 5, 1, 6–8; Minehan, M. and Overman, S. (2000). Companies to begin EU safe harbor registration.
HR News, December, 19 (12), 1–2; Wellbery, B. S. and Warrington, J. P. (2001). EU data protection
requirements and employee data: December 2001, International Focus White Paper of the SHRM Global
Forum, Alexandria, VA: Society for Human Resource Management; and Wellbery, B. S., Warrington, J. P.,
and Howell, R. (2002). EU data protection requirements: An overview for employers. Employment Law,
(Morrison and Foerster Newsletter), 14 (1), 1–12.

National and Cultural Context194

28 See, for example, It’s a man’s world, business study finds, report on World Bank study, AOL News, down-
loaded from http://www.aolnews.com/world-bank-study-shows-business-laws-in-most-countries-hold-. . . .
Accessed Aug. 16, 2014.

29 See, for example, Baker & McKenzie (2000). Worldwide Guide to Termination, Employment Discrimina-
tion, and Workplace Harassment Laws, Chicago, IL: Commerce Clearing House; Conway, M. E. (1998).
Sexual harassment abroad. Global Workforce, September, 8–9; Eurobarometer (2007). Discrimination in
the European Union, Brussels: European Commission; Javaid, M. (2002). Race for knowledge. Global HR,
November, 59–60; Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010); and Mackay, R. and Cormican,
D. (2002). The trouble with religion. Global HR, December/January, 26–30.

30 Webb, S. (1994) Shockwaves: The Global Impact of Sexual Harassment, London: MasterMedia, Ltd.;
World Bank (2010). It’s a man’s world, business study finds, reported in AOL News, downloaded from
http://www.aolnews.com/world/article/world-bank-study-shows-business-laws-in-most-countries-hold-. . . .
Accessed Aug. 16, 2014.

31 www.de2.psu.edu/harassment/generalinfo/international.html. Accessed Feb. 11, 2007; ILO (2007).
ABC of Women Workers’ Rights and Gender Equality, 2nd ed., Geneva: ILO; Kaufmann, C. (2007). Glo-
balization and Labour Rights: The Conflict between Core Labour Rights and International Economic Law,
Oxford/Portland, OR: Hart Publishing.

32 Leonard, B. (2010). Report: 10 percent of employees report harassment at work, http://www.shrm.org/
hrdisciplines/global/Articles/Pages/GlobalHarassment.aspx. Accessed Sept. 23, 2010.

33 Baker & McKenzie (2012). The Global Employer: Focus on Termination, Employment Discrimination,
and Workplace Harassment Laws, a Swiss Verein, Baker & McKenzie; Berkowitz, P.M., Reitz, A. E. and
Müller-Bonanni, T. (eds.) (2008). International Labor and Employment Law, 2nd ed., Vols. I and II, Chicago,
IL: Section of International Law, American Bar Association; Blanpain, R. (2010); Keller, W. L. and Darby,
T. J. (2003 and 2010).

34 Adapted from International Labour Organization (2000). Termination of Employment Digest: A Legislative
Review, Geneva: International Labour Organization; and Shillingford, J. (1999). Goodbye, adios, sayo-
nara. HR World, July/August, 27–31 (data on separation practices from Drake Beam Morin).

35 See, for example, Friedman, P. (2010). China’s plagiarism problem, downloaded on 6/2/2010 from Forbes.
com: http://www.forbes.com/2010/05/26/china-cheating-innovation-markets-economy-plagiarism . . . .

36 Hall, L. (2001a). Protecting your vital assets, Global HR, July/August, 46–52.
37 Briscoe, D. R. (2011). Globalization and international labor standards, codes of conduct, and ethics: An

international HRM perspective, in Wankel, C. and Malleck, S. (eds.), Globalization and Ethics, Information
Age Publishing, pp. 1–22.

38 Briscoe, D. R. (2000). International Focus: Global Ethics, Labor Standards, and International HRM, Alex-
andria, VA: Society for Human Resource Management White Paper, Winter; Digh, P. (1997). Shades
of gray in the global marketplace. HR Magazine, April, 91–98; Florkowski, G., Schuler, R. S. and Bri-
scoe, D. R. (2004). Global ethics and international HRM, in Berndt, R. (ed.). Challenges in Management,
vol. 11: Competitiveness and Ethics, Berlin: Springer; Kumar, B. N. and Steinman, H. (eds.) (1998). Ethics
in International Management, Berlin: de Gruyter; Gesteland, R. R. (1999) Cross-Cultural Business Behav-
ior, Copenhagen, Denmark: Copenhagen Business School Press; and Morgan, E. (1998) Navigating
Cross-Cultural Ethics: What Global Managers Do Right to Keep from Going Wrong, Burlington, MA:
Butterworth-Heineman; Perkins, S. J. and Shortland, S. M. (2006). Strategic International Human Resource
Management, 2nd ed., London/Philadelphia: Kogan Page; Tsogas, G. (2009). International Labour Reg-
ulation: What have we really learnt so far? Relations Industrielles/Industrial Relations (Université Laval).
64 (1), 75–94; Vickers, M. R. (2005). Business ethics and the HR Role: Past, present, and future. Human
Resource Planning, 28, 26–32.

39 Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, September–
October, 48–62; Singer, A. W. (1991). Ethics: Are standards lower overseas? Across the Board, Septem-
ber, 31–34.

Employment Law, Labor Standards, and Ethics 195

40 Schlegelmilch, B. B. and Robertson, D.C. (1995). The influence of country and industry on ethical percep-
tions of senior executives in the U.S. and Europe. Journal of International Business Studies, Fourth Quarter,
859–881.

41 Adler, N. J. with Gundersen, A. (2008). International Dimensions of Organizational Behavior, 5th ed.,
Mason, OH: Thomson South-Western; Armstrong, R. W. (1996). The relationship between culture and
perception of ethical problems in international marketing. Journal of Business Ethics, 15 (11), 1199–1208;
Fleming, J. E. (1997). Problems in teaching international ethics. The Academy of Management News,
March, 17; McNett, J. and Søndergaard, M. (2004). Making ethical decisions, in Lane, H. W., Maznevski,
M. L., Mendenhall, M. E., and McNett, J. (eds.). Handbook of Global Management: A Guide to Manag-
ing Complexity, Malden, MA/Oxford: Blackwell Publishing; Moran, R. T., Harris, P. R. and Moran, S. V.
(2007). Managing Cultural Differences, 7th ed., Burlington, MA/Oxford: Butterworth-Heinamann.

42 Donaldson, T. (1996). Values in tension: Ethics away from home, Harvard Business Review, Sept.–Oct.,
48–62.

43 Buller, P. F. and McEvoy, G.M. (1999). Creating and sustaining ethical capability in the multinational cor-
poration, Journal of World Business, 34 (4), 326–343.

44 This section is adapted from Fisher, C. D., Shoenfeldt, L. F., and Shaw, J. B. (1993). Human Resource Man-
agement, 2nd ed., Boston, MA: Houghton Mifflin; Original sources: Stace, W. T. (1988). Ethical relativity
and ethical absolutism, in Donaldson, T. and Werhane, P. H. (eds.) Ethical Issues in Business, Englewood
Cliffs, NJ: Prentice Hall, pp. 27–34; Shaw, W. and Barry, V. (1989) Moral Issues in Business, Belmont, CA:
Wadsworth, pp. 11–13; and Donaldson, T. (1989) The Ethics of International Business, New York: Oxford
University Press.

45 See, for example, Donaldson, T. (1996).
46 Donaldson, T. (1989), p. 103.
47 Adapted from Solomon, C. M., Jan. 1996, Put your ethics to a global test, Personnel Journal, p. 239.
48 Donaldson, T. (1989), p. 104.
49 Cullen, H. (2007). The Role of International Law in the Elimination of Child Labor, Leiden/Boston: Martinus

Nijhoff Publishers; Heppler, B. (2008). Is the eradication of child labour “within reach”? Achievements
and challenges ahead, in Nesi, G., Nogler, L. and Pertile, M. (eds.), Child Labour in a Globalized World:
A Legal Analysis of ILO Action, Hampshire, England/Burlington, VT: Ashgate Publishing, pp. 17–428.

50 Donaldson, T. (1996).
51 Digh, P. (1997).
52 Adapted from Tansey, L. A. (1996). Taking ethics abroad. Across the Board, June, 56, 58; Donaldson, T.

(1996).
53 Phillips. R. and Claus, L. (2002). Corporate social responsibility and global HR. Balancing the needs of the

corporation and its stakeholders. International Focus. SHRM, 1–7.
54 United Nations, Our Common Future: Report of the World Commission on Environment and Development,

accessed at www.un-documents.net/ocf-02.htm#1. Accessed 7 July 7, 2014.
55 Savitz, A. and Weber, K. (2006). The Triple Bottom Line, San Francisco, CA: Jossey-Bass, p. 3.
56 Paskoff, S. M. (2003). Around the world without the daze: Communicating international codes of conduct,

paper presented to the 4th Annual Program on International Labor and Employment Law, The Center for
American and International Law, Dallas, Texas, 1 October.

I would say this. We’ve had a great relationship with our workforce. I don’t look at
them as union and nonunion but as Ford workers. . . . We have a lot of second-, third-,
fourth-, fifth- and even sixth-generation workers at Ford in our company. . . . Those
employees helped pull the auto company (through the dark days).

William Clay Ford, Jr.
Executive Chairman, Ford Motor Company1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the nature of union membership around the world.
â– â–  Describe the evolution and make-up of global industrial relations.
â– â–  Explain the relationship between unions and MNEs.
â– â–  Describe the various strategies with which MNEs approach global labor relations.
â– â–  Describe the various approaches taken to non-union worker representation.
â– â–  Explain the litigation risks in international labor relations.

C h a p t e r 7

International Employee
Relations

This chapter is concerned with the international context of a topic that comes with many
names, for example, employee relations, employment relations, labor relations, union rela-
tions, industrial relations. Here we will primarily use the term: employee relations. Since
this text is concerned with the international context, we will use the term: international
employee relations (IER). Normally this content deals primarily with the development of
and current status of labor unions, primarily in manufacturing and extraction industries
and the public sector. However, in recent years, many countries have developed alternatives

International Employee Relations 197

to unions to represent the interests of employees, such as works councils, co-determination,
and workers’ cooperatives, and manufacturing has become a smaller component of most
countries’ labor forces, that is, the service and information technology sectors have become
the largest sectors in most countries’ economies. So this chapter uses the term employee
relations to cover worker relations in its broadest context in all economic and government
sectors as well as in an international sense, dealing with unions as well as other forms of
employee representation.

Labor lawyers and HR practitioners are often unfamiliar with labor and employment
policy laws, institutions, and practices in countries other than their own. Because the laws
and customs of labor relations tend to be unique to each country, the employee and labor
relations practices of MNEs need to vary as well. Indeed, MNEs are likely to face unfamiliar
employee relations practices and unplanned-for restrictions in their foreign operations. As
was emphasized in the last chapter, MNEs have to manage according to the employment
laws of the countries in which they operate.

The most important point to understand about employee relations in the global context
is that every country is different. Every country has developed its own particular set of val-
ues, practices, and regulations concerning the relationship between employees and employ-
ers. Thus businesses (and NGOs, charities, and governments) that operate internationally
must develop understanding of and flexibility to deal with multiple approaches to unions
and other forms of employee representation. The primary intent of this chapter, therefore,
is to help readers understand this diversity of approaches in order to be able to manage
their employment relations effectively. More specifically, this chapter provides an over-
view of labor or employment relations in the global arena and reviews a number of issues
related to international employee relations, including international union membership, the
evolution of international labor relations, alternative worker representative approaches,
such as works councils and co-determination, and the policies and practices of MNEs in
international employee relations.2

GLOBAL UNION MEMBERSHIP

Comparing union membership in different countries is as difficult as analyzing and com-
paring most other forms of international data. For example, accepting the integrity of data
about union membership in different countries and being able to compare data with regard
to union density (the percentage of the labor force in any given country that belongs to a
union) is faced with problems like these: the sources of the basic information, definitions
of terms, the nature of the statistical coverage of the reported data, reporting errors in the
data, the quality of recording mechanisms for creating the data, the difficulties in keeping
track of special groups who are outside the legal employment market, and the selection of
the employment base for calculating union density. All of these issues vary considerably
from country to country and thus make it difficult to compare and assess topics as simple
as the actual union membership and density in various countries. Exhibit 7.1 displays union

National and Cultural Context198

EXHIBIT 7.1: Trade Union Membership,
Selected Countries

Country Trade union membership as
a % of paid employment

Australia 18.2

Bermuda 23.0

Canada 31.4

Chile 14.6

China 41.2

Denmark 83.6

Ireland 29.5

Japan 17.9

Malaysia 9.3

Mauritius 25.4

New Zealand 20.5

Norway 71.8

Peru 1.8

Singapore 35.5

Sweden 80.9

Switzerland 19.8

United Kingdom 25.8

United States 11.3

Source: International Labor Organization (based on 2012 data),
http://laborsta.ilo.org/xls_data_E.html

density for a number of countries. Data for Japan and the United States are provided for
comparison. Even among this set of developed countries, the union densities are quite varied.

A second issue involves the strength of trade unions, which is usually measured by the
size of union membership (relative to the number of people eligible to join a union). How-
ever, this measure does not really reflect what unions do nor how effective they are, but
rather focuses on potential union bargaining pressure as based in the number of members.3
The assumption often is that the more members a union has, the more influence it can

International Employee Relations 199

exert in bargaining. Yet when a country’s laws require employers to deal with all unions,
no matter how small or when the unions represent all employees, no matter the size of
the union’s membership, these assumptions do not represent the reality “on the ground.”
In some countries, unions represent all workers even though only a small percentage are
members, while in other countries unions only represent those who are actual members. In
some countries, managers and professionals like engineers and scientists belong to unions
while in other countries they don’t, and in some countries, unions are seen as partners
with management, while in other countries there is a long-standing antagonism between
unions and firms (or between employees and their employers). In the former communist
countries, unions used to be partners with management yet in most of these countries the
communist party (and government) are now working to develop relationships similar to
those found in non-communist countries. Thus, in some countries where unions are strong,
their actual membership is small (e.g., Germany), while in other countries where unions
may not be strong, their membership may actually be quite large (e.g., Mexico, Japan).
Absolute union membership as a percentage of the workforce is largest in countries like
Sweden while absolute membership is lowest in countries like the US. In countries such as
China, unions are just beginning to develop traditional roles.

EVOLUTION OF INTERNATIONAL LABOR
RELATIONS AND ORGANIZATIONS 4

Although in the 19th century some aspects of the early union movement developed as a
very international movement (after all, “l’Internationale” was the fight song of the union
movement), fairly quickly unions became more nationalist and protectionist in nature,
largely as a result of country variances in industrialization (which created much of the
impetus for the development of unions) and the impact of two 20th-century world wars.
However, at the end of World War II and partially due to the dividing of the world into a
Western/capitalist sector and a Communist-dominated sector and the resulting Cold War
between these two sectors, the international federations of labor divided into two factions:
a Western-oriented group and a communist-supported group (and, as mentioned above,
the roles of unions in these two very different economic and government systems were
radically different as well). Then, with the end of the cold war in 1989–1991, and the
rapid development of global trade, the traditional national focus of trade unions began
to become once again more global.5 Today, largely due to the uncontrolled growth of the
power of MNEs, there is strong interest in the labor movement to cross borders and join
together for the achievement of their common labor-related missions. The major institu-
tions of the international trade union movements are now using the term “international”
in their names. And over the last 50 years, or so, trade unions from different nations have
combined in cross-border federations to create the beginnings of an international trade
union structure in an attempt to develop some international focus and capabilities to deal
more effectively with MNEs and their globalization. At the same time, employers have also

National and Cultural Context200

created equivalent trade associations to provide a cross-border and cross-industry voice for
global labor relations.

The following is a short summary of the international federations and labor union
organizations.

World Federation of Trade Unions (WFTU)

The WFTU was established in 1945 to bring together trade unions around the world in a
single organization modeled after the UN. After a split in 1949, when many Western trade
unions formed the International Confederation of Free Trade Unions (ICFTU), the WFTU
is now primarily a federation of state-run unions from communist countries. Despite the
fall of communist regimes in the Soviet Union and Eastern Europe, and the defection of
many of its national unions in several Central and Eastern European (CEE) countries, the
WFTU has declined to join the ICFTU and subsequently formed the International Trade
Union Confederation (ITUC).

The International Confederation of Free
Trade Unions (ICFTU)

The ICFTU is an international confederation of national trade unions established in 1949
after a split with the WFTU. It grouped the major unions in the Western world. The ICFTU
was dissolved in 2006 to join the ITUC.

The International Trade Union Confederation (ITUC)

The ITUC is an umbrella organization of national trade union federations (154 countries
and 168 million workers) to defend workers’ rights in the era of globalization. The ITUC’s
primary mission is the promotion and defense of workers’ rights and interests, through
international cooperation between trade unions and through global campaigning and advo-
cacy within the major global institutions.6

European Trade Union Confederation (ETUC)

The ETUC was established in 1973 to promote the interests of working people at the Euro-
pean level and to represent them in EU institutions. Its prime objective is to promote the
European Social Model by being actively involved in economic and social policy making at
the highest level, working with all EU institutions.

International Employee Relations 201

World Confederation of Labour (WCL)

The WCL is an international trade union confederation inspired by the basic values of
Christian humanism. It unites autonomous and democratic trade unions from countries all
over the world, but mainly from Third World countries. In the last few years the WCL has
adopted a critical attitude toward the neo-liberal model of economic globalization (where
global free trade is promoted as the highest and best value) and questions its legitimacy.

Trade Union Advisory Committee (TUAC) to the OECD

The TUAC is an international trade union organization that has consultative status with
the OECD. It is the interface for labor unions with the OECD and its various committees,
particularly those that focus on worker and human rights (for more information about the
OECD and its work on workers’ rights, refer to Chapter 6 on International Employment
Law, Labor Standards, and Ethics).

Global Union Federations (GUFs)

A GUF is an international federation of national and regional trade unions representing
specific industrial sectors and occupational groups. Most major unions are members of
one or more GUFs that represent the interests of their members. Currently there are 10
specific industry sectors or occupation groups with GUFs: education; building and wood-
workers; journalists; metalworkers; textile, garment and leather workers; transport workers;
food, agriculture, hotel, restaurant, catering, tobacco and allied workers; public services;
chemical, energy, mine and general workers; and union network.

UNIONS AND MULTINATIONAL ENTERPRISES

In spite of the above-described developments in the labor movement, unions (and, there-
fore, labor relations) exist and operate mostly at the local and national level, even though
a number of unions have the term international in their names and belong to international
federations. The increase in global trade and in the number of MNEs has led to concern by
trade unions about this primarily national and local focus by unions. Their major concern is
that multinational firms can manipulate local unions (and, therefore, workers) in collective
bargaining by having the ability to move work to areas of the world that either have no
unions or where unions are weak or where, in general, wages and benefits are lower and
working conditions are less protected (and, thus, the costs of labor are lower). And because
unions are not organized on a global basis, and there are no international laws requiring

National and Cultural Context202

bargaining on a cross-border basis, and because unions tend to be primarily focused on
local and national concerns of their members (and thus sometimes find it difficult to work
together with unions in other countries who often have different concerns), they per-
ceive that the power balance between unions and MNEs is totally skewed toward business.
MNEs operate in many countries and often in many industries. In contrast, unions almost
always have membership in only one country and normally in only one industry. And thus
unions can typically bring pressure to bear on only a small segment of an MNE—one indus-
try (or even one firm within one industry) within one country.

What is currently happening in Australia illustrates the complexities for unions (local)
and MNEs (international). A number of automobile companies have built manufacturing
plants in Australia, e.g., Ford, General Motors, Holden, and Toyota.7 By December 2013,
two-thirds of the auto industry had announced it was pulling out, citing the excessive costs
of producing cars in Australia with its limited market. Toyota was due (under an earlier
contract) to pay two small pay increases in 2014, in spite of a likely decision to end produc-
tion in Australia by 2016 or 2017. But the enterprise agreement with the union normally
requires (upheld by the courts) a vote on “no extra claims” before it could call for a vote
on the pay increases. Toyota had been expressing concerns over the Australian culture (and
not just its arcane union practices, but also its attitudes about overtime, loose attitudes
about attendance, and overall work performance). This new effort by the auto workers
union to “punish” Toyota shows a labor relations “face” that Toyota is clearly unfamiliar
with. But this is still a conflict between a local union and a large multinational.

In spite of what has been said above about the development of international confedera-
tions of unions, there has been very little cooperation between unions at the collective bar-
gaining level across national borders, and there are no union structures similar to or parallel
to that of MNEs, so that, for example, international unions have not been able to negotiate
global agreements with MNEs that would apply to all of its operations around the world
(although some recent collective bargaining agreements in the airline industry—which by
its very nature is international—have moved in that direction).

In practical terms, what this means to labor relations is that unions view MNEs as being
able to:

â– â–  Locate work in countries with lower social protections and lower wages and benefits
(often this means countries with no unions or very weak unions), staying away from
countries with stronger unions and stronger protections and higher wages and benefits.

â– â–  Force workers in one country, faced by competition from workers in other countries, to
“bid down” their wages and benefits in order to keep their jobs.

â– â–  Take advantage of differences in legally mandated benefits for workers by restructuring
the operations in countries where the costs of workforce adjustments are lowest and
thus force excessive dislocation burdens on workers in these low-benefit countries.

â– â–  Outlast workers in the event of a labor dispute in one country because cash flows (and
the ability to maintain business) are at least partially maintained by operations in coun-
tries where there are no disputes.

International Employee Relations 203

One result is that unions are beginning to look for ways to exercise influence over labor
relations on a cross-border and multinational scale. National trade union federations and
more recently established international federations and GUFs (as described above) are
providing assistance to national unions in dealing with MNEs and have become closely
involved with institutions like the ILO and the OECD, working with them to develop,
enhance, and enforce their covenants and declarations on labor standards. Their ultimate
goal is to develop transnational bargaining, although right now there are no laws or reg-
ulations that require such negotiations nor any international bodies that could enforce
them. As described in the previous chapter, the ILO and OECD guidelines are trying to go
beyond merely suggesting that MNEs abide by the industrial relations statutes in force in
each of the countries in which they operate. And national courts are beginning to defer to
or consider these international standards or a firm’s parent-country laws when adjudicat-
ing labor disputes. This has been accomplished at least partially because of the pressures
of these international union federations. Nevertheless, at this time these guidelines and
standards are only as effective as individual firms and governments are willing to allow, as
adherence to them is essentially voluntary.

Some interesting labor disputes in different parts of the world show the increasing pres-
sure unions are putting on MNEs. When Renault (a French company) closed its Belgian
plant in Vilvoorde, Belgium, and laid off 3,100 people (1997), the Belgian Labor Court
ruled that Renault broke the rules on worker consultation, which require consultation
ahead of layoffs. When Marks & Spencer (a British firm) (2001) announced that it was
closing its 18 French stores (and laid off 1,500 employees), the French employees obtained
a court ruling that M&S had violated French labor law. Rather than closing, the stores
were eventually sold to French retailer Galeries Lafayette. At Siemens in Germany (2004),
although workers accepted a workweek extension from 4 days to 40 hours without extra
pay, it demonstrated the role of the union as protector of employment by avoiding out-
sourcing over 4,000 jobs. In the United Kingdom, the unofficial strike of British Airways
baggage handlers in sympathy for Gate Gourmet (2005) forced the caterer to settle the
dispute and offer enhanced redundancy deals to its employees. In Mexico, the National
Mining Union took on Grupo Mexico (2006) after 65 miners were killed in a mining acci-
dent. Wildcat strikes at over 70 Mexican companies paralyzed the mining and steel indus-
try after government action failed to support labor. These strikes demonstrated the political
power of organized employees. An example of a recent labor dispute includes the dispute
between Kimberly Clark (USA based) in Turkey (union group: Tümka-İş).8

There still remain a number of barriers to multinational bargaining. In addition to the
global power of MNEs and the fractured nature of unions, and the unwillingness of nations
to get involved under the existing lack of international governing covenants, other obstacles
also will need to be overcome in order for progress to occur in movement toward multina-
tional bargaining:9

â– â–  The widely varying industrial relations laws and practices among different countries.
â– â–  The lack of any central, international authority for labor relations or global labor law.

National and Cultural Context204

â– â–  Major economic and cultural differences among different countries.
â– â–  Employer opposition.
â– â–  Union reluctance at the national level, because the national leadership often fears that

multinational bargaining will transfer power from them to an international leadership.
â– â–  Absence of a centralized decision-making authority for unions.
â– â–  Lack of coordination of activities by unions across national boundaries.
â– â–  Differing national priorities.
â– â–  Employee unwillingness to subordinate local concerns to concerns of workers in other

countries.

As MNEs become more global and more connected across borders they must deal with
these international labor organizations as well as the widely varying national and local
unions. It is inevitable that multi-country, maybe even multi-employer and multi-union,
negotiations involving employers and unions from multiple countries will develop. Busi-
ness global issues are already part of the “relevant facts” for negotiations in many MNEs.
And this will only increase in prevalence and importance. Before global labor relations
evolve very far, however, the following types of questions will need to be addressed:

â– â–  What rules will apply to the resolution of disputes?
â– â–  What rules will apply to the process of negotiations?
â– â–  What law will cover the negotiations, e.g., between companies in two or more coun-

tries or between companies and their unions in multiple countries?

In spite of all of the above, unions have achieved a major impact on protection of indi-
vidual worker rights, and union activities have resulted in the enactment of pro-labor and
pro-employee legislation, especially in the EU and Japan. Many of the EU directives and
agreements (e.g., parental leave directive, part-time work directive, fixed-term contracts
directive, home working and teleworking framework agreement) are a result of union pres-
sure and unions have often become strong social partners with government and manage-
ment. In some EU countries, trade unions can invite the government to extend compulsory
application of a collective agreement across geography and/or an entire industry sector.

In Japan, there is a different history of development of unions. Yet, even though the
structure of unions in Japan is radically different than that present in Europe and the
EU, Japanese unions can also claim major impact on employment relations and employee
rights, such as lifetime employment practices and protection of seniority. Now the chal-
lenge being confronted by unions is to develop global mechanisms to accommodate and/or
deal with the reality of global commerce.

MNES AND LABOR RELATIONS

MNEs must share decision-making power with unions (and/or other representatives of
employees, such as works councils) and, often, agencies of government, to greater or lesser

International Employee Relations 205

degrees throughout the world but almost always to some degree. For many businesses,
what they confront in their foreign operations is often quite different than what they deal
with at home. So, responsibility for labor relations is frequently left to those who are most
likely to be familiar with local practice, that is, the HR (or labor relations) managers at the
level of the local subsidiary or joint venture.

MNEs often develop worldwide approaches to issues such as executive compensation,
but such a worldwide approach to labor and employee relations is quite rare. IHR depart-
ments within MNEs follow one of these seven approaches to labor/employee relations in
the global context (see Exhibit 7.2).

US firms (and, sometimes, Asian) that have strong anti-union or at least very adver-
sarial approaches to labor relations tend to operate at the levels of options 5, 6, or 7 (see

EXHIBIT 7.2: Seven Approaches to Labor/Employee
Relations in the Global Context

Continued overleaf

1 Hands off (by
headquarters of the
parent firm)

In this approach, responsibility for labor/employee
relations is left totally in the hands of local managers in the
host countries.

2 Monitor In this approach, headquarters IHR managers will try
to forestall major problems for the parent company by
asking intelligent and insightful questions about labor
and employment responsibilities at each of their foreign
locations. But primary responsibility still stays in the hands
of local managers.

3 Guide and advise This approach is a step beyond mere monitoring. Here IHR
managers from headquarters will provide ongoing advice
and guidance to subsidiary managers on how to conduct
labor and employee relations, usually based on policies
of headquarters. Of course, this requires a higher degree
of knowledge about local labor relations regulations and
practices. Still, overall control stays in the hands of local
staff.

4 Strategic planning At this level of involvement, international labor relations
issues are fully incorporated into the MNE’s strategic
planning. Management of all aspects of the global firm,
including labor and employee relations, is integrated into
a centralized program, particularly for policy purposes.
Local control may still exist, but all labor relations practices
will follow this global strategy.

National and Cultural Context206

Exhibit 7.2). These firms try to ensure that their headquarters’ approaches are followed as
much as possible in their foreign operations. Of course, in many countries (e.g., where there
are works councils and/or union negotiations are mandated), these firms must deal with
third parties, whether they want to or not.

Still, much autonomy is often possible. And because each country is so different in its evolu-
tion of labor relations law and practice, leaving primary responsibility for labor and employee
relations to the local level is often the only workable approach. Usually, this is achieved with
certain overlying strategic objectives providing some guidance from headquarters.

It is not the intention of this book to provide in-depth coverage of union relations in var-
ious countries. Rather, a very limited sampling of the variations of the law and practice of
labor relations is provided to inform students and IHR managers with a sense of the impor-
tance of understanding the impact of those variations on MNE operations around the globe.
The case at the end of this chapter that describes the global labor relations scene for Ford
Motor Company discusses a firm that has had global operations for almost 100 years.10
Obviously, for an MNE like Ford, global labor relations are indeed quite complex.

One difficulty for IHR managers in assessing the power or importance of unions in var-
ious countries arises from the inconsistencies between countries in how they count mem-
bership and the differences in who is covered by union contracts. For example, even though
a relatively low percentage of workers belong to unions in France (about 9 percent), the
unions play a very important role in determining government policy and legislation con-
cerning all workers and toward general industrial policy, and employers are required by

5 Set limits and
approve exceptions

MNEs that follow this approach to their international
labor/employee relations provide even more specific
centralized control over local practices. Subsidiaries are
allowed freedom of action only within quite narrowly
defined limits, and any efforts to try different approaches
must be approved by headquarters.

6 Manage from
headquarters

In this scenario, local subsidiary staffs have no freedom
of policy or practice in their labor/employee relations
activities. Indeed, all labor relations actions are directed
by staff from headquarters.

7 Integration of
headquarters IHR and
local management

In this final approach, labor and employee relations in the
field, as managed by local (country) HR and management,
are fully integrated with IHR assistance from headquarters,
with common strategy and policy.

EXHIBIT 7.2 Continued

International Employee Relations 207

law to negotiate with any union present (represented by as few as one employee) and to
implement national policies on wage rates, and so on.11 In fact, about 90–95 percent of
all workers in France are covered by the contracts negotiated by unions, even though the
actual membership of unions is quite low. In most Scandinavian countries, retired workers
are still union members, although this is not usually the case elsewhere, and professionals
such as teachers and members of professional associations, such as engineers, are sometimes
included and sometimes not.

An additional problem is created by the rapid pace of change in employee relations
so that data only a few years old can be out-of-date by significant amounts. Nevertheless,
relative differences between countries remain quite obvious (refer to Exhibit 7.1).12 As
illustrated, some countries have quite low union membership (which doesn’t necessarily
indicate how many workers are covered by the contracts negotiated), while other countries
have much higher union membership, such as Denmark and Sweden.

In terms of the patterns of labor relations practices themselves, some countries have
developed industrial relations systems patterned after the laws and traditions of other
countries. And yet others have pursued unique avenues to labor relations. Within this
milieu, each country has developed a tradition and legal framework that reflects its own
special history and political and social experiences. As a consequence, firms that conduct
business on a multinational or transnational basis must understand and cope with a great
deal of diversity in the performance of industrial relations around the world. This typ-
ically leads to decentralizing the labor relations function (much as is also true of the
general HRM function), providing subsidiaries with considerable autonomy in managing
employee relations.

EVOLUTION OF LABOR RELATIONS
IN DIFFERENT COUNTRIES

The next few paragraphs provide a very short glimpse at the evolution of labor relations
in a number of countries around the world. In some countries (e.g., Canada, the United
States, Germany, and Japan), the focus of union activity is basically economic. That is,
unions involve themselves primarily with economic issues of concern to their members,
such as setting wage rates, determining hours of work, and ensuring job security. This is
usually manifested through some form of union-management collective bargaining. This
form of labor relations is often referred to as business unionism.

In other countries, particularly England, France, Italy, and those in Latin America, unions
tend to be very political and generally achieve their objectives through political action
rather than through direct collective bargaining. This is often referred to as political union-
ism. This is not to say that “business-focused” unions don’t try to influence government to
achieve legislation favorable to their members and that “politically focused” unions don’t
participate in collective bargaining. But the historical pattern for business unions has been
the former forms of activity, rather than the latter. And the opposite has been true for

National and Cultural Context208

political unions. In addition, in some countries, union activity is focused on industry-wide
or even nationwide bargaining between federations of unions and associations of employers
while in other countries union relations are very decentralized, taking place almost exclu-
sively at the level of the local firm between a local union representing workers at a single
firm with that firm.

Thus, even in industrialized (and usually heavily unionized) countries, major differences
in labor relations can be found relative to issues such as (1) the level at which bargaining
takes place (national, regional, industry, or single firm, even a single workplace); (2) the
types of workers involved (craft, industrial, service, government, profession); (3) degree
of centralization of union-management relations; (4) the scope of bargaining, that is, the
topics that are usually included in negotiations and contracts; (5) the degree to which the
government is involved or can intervene; (6) the degree to which employment issues, such
as wage rates and benefits, are determined by legislative action versus collective bargaining;
and (7) the degree of unionization. In order to be effective in labor relations throughout
the operations of an MNE, IHR managers need to understand these issues and differences
in each of the countries in which they conduct business.

And as a last general point, economic and political issues of concern to management
and unions are not static. They are constantly changing. Globalization, technological and
job changes, and changing demographics are heavily impacting the role and importance of
unions (and companies, for that matter) in most countries, as well.13

Interestingly, US (and, often, Asian) MNEs often face even more difficult problems in
understanding and coping with industrial relations around the world than is the case for
many other MNEs, since their labor relations are quite different in many respects from
those practiced in other countries. As an example from one important perspective, here is
a quick summary of the primary features of the US labor relations scene:

â– â–  Only non-supervisory and non-managerial employees have the right to organize or join
unions.

â– â–  Typically, professional and technical workers do not form or join unions.
â– â–  The only employees who belong to unions (and that can thus bargain with the

employer) work for employers where a majority of those employees have voted in free
but secret elections for union representation.

â– â–  Contracts between such unions and employers are negotiated primarily at the local
level between a single union and a single employer.

â– â–  Such collectively bargained contracts are legally enforceable and typically last for three
years.

â– â–  The only mandatory subjects for bargaining are wages, hours, and working conditions.
â– â–  Both unions and employers are restricted in their behaviors toward each other by a

considerable amount of regulation.
â– â–  Disagreements over the meaning of contracts are handled through established griev-

ance procedures (not by renegotiating the contract), settled by union and management
acting together and settled in the case of impasse by a privately hired, neutral arbitrator.

International Employee Relations 209

This highly decentralized, “business” unionism (although extensively regulated) is signif-
icantly different from the form of unionism present in most other countries.14 In most
countries, labor relations practices are very different, even opposite, to these characteristics.
Thus many US (and Asian) MNEs have difficulty coping with the diversity of labor rela-
tions practices, because their experiences and familiarity may well not provide adequate
guidance for how to conduct labor relations in other countries.

There are also a number of issues concerning the local union environment that MNEs—no
matter which country they come from—must consider. MNEs will need to seek answers
to the specific types of questions regarding global labor relations practices wherever they
operate (see Exhibit 7.3):

All of the questions in Exhibit 7.3 illustrate potentially significant differences between
labor relations practices in different countries. This is just one of the many areas of com-
plexity with which IHR managers and MNEs must learn to cope.

EXHIBIT 7.3: Local Union Environment Issues
That MNEs Need to Consider

Existing trade
unions

What is the nature of the unions in the particular country? Is
recognition of a union an entitlement or not?

Level of
organization

How are unions organized (by firm, region, industry, national, craft)?
Are unions company-wide, regional, or national? Are there multiple
unions within firms, so that the MNE must negotiate with multiple,
often competing unions, within the same subsidiary or organization?

Scope of unions Is the focus general or industry specific? Is most bargaining being
conducted on a national and/or industry-wide level, applying to all
or most employers and employees?

Affiliations Are there political or religious affiliations? Are the unions associated
with political parties and if so, which ones? Are they related to
religious organizations; which ones?

Type of workers Who belongs? Who is covered by the contracts? Is there white-collar
unionization? Do managers belong to unions, such as the dirigenti in
Italy? Are there closed-shop requirements or practices? That is, is the
situation such that employees must belong to the union(s)?

Union density What is the percentage of employees covered by collective
bargaining agreements?

Vision of unions Where does the focus of labor relations lie? Is it collective
bargaining or individual representation or both? Is it economics or

Continued overleaf

National and Cultural Context210

politics? What is the nature of the plant or site-level role of unions?
Are there shop stewards? Are there works councils? And, if so, are
they independent or essentially arms of the unions?

Negotiation
partner

With whom does the firm have to negotiate? Who is the negotiation
partner at company level? What is the role of government in
bargaining? Employer’s associations: What is the nature and role
of the employers’ associations in each country? Which associations
exist? Should the MNE belong (why, why not)? What does
membership entail, do most employers join, and can the firm avoid
joining? Is there an obligation or recommendation to align with any
of them?

Operation
method

What is the procedure for labor relations in the workplace? Is there
a legal obligation to install employee representative bodies in the
company and comply with information and consultation procedures:
What are the information and consultation requirements? Are
ballots compulsory? Are there specific rights and protections for
employee representatives?

Types of union
agreement

What are the important issues typically covered by union
agreements. What topics are contained in the contracts? Are they
specific or general in nature?

Binding force
of union
agreements

Are agreements concluded at national, industry, and company
level? What is the nature of the contracts or agreements with
unions? Are the contracts enforceable? Are they breakable
for any reason? When and under what circumstances are
contracts renegotiated? If there are disagreements over
the meaning or application of the terms of the contract,
how are they determined? Is the contract renegotiated?
Are work stoppages used? Is some form of mediation or
arbitration used? Does the government play an active role in
negotiations?

Strikes and
industrial action

Under what circumstances can unions strike? For what reasons can
and do unions go on strike? What forms of industrial action are
common? If strikes occur are they legally regulated? Is ‘secondary’
industrial action common and/or legal? What sanctions are
available to employers who find themselves the subject of industrial
action?

Operating
union-free

Is it possible to operate union-free? Can healthy employee relations
be fostered in a union-free environment?

EXHIBIT 7.3 Continued

International Employee Relations 211

NON-UNION WORKER REPRESENTATION

In many countries, additional forms of worker representation have evolved. Three such
alternative institutions are described here.

Works Councils

Works councils are a critical component of worker relations in many countries, particularly
in Europe.15 In many countries in Europe, particularly the Netherlands, Germany, France,
Hungary, and Italy, there is a long tradition of worker rights to participate in decision mak-
ing relevant to the operation of their employers. These rights are in addition to rights of
organization and collective bargaining. Many other countries, such as the United States,
Japan, China, Australia, Mexico, and the UK, do not have such histories and do not have
built into their industrial relations systems the concept or practice of works councils. This
makes it essential that IHR managers from such countries gain an understanding of what is
involved in these works council requirements and/or retain professional legal advice.

Essentially, these works councils (which are made up of elected representatives of the firm’s
workforce) have the right to receive information and to provide consultation relative to many
decisions a firm makes (particularly, to ease the social consequences of restructurings by com-
panies and within industries). The extent to which the councils have authority to approve
employment-related (or even more broadly, enterprise) decisions varies from country to country.
For example, since many countries in Europe have long involvement with works councils, the
European Union has gradually been passing directives that require employers with more than
50 employees in all member countries (or 20 in any single country) to inform and consult with
their workforces—through works councils or other, equivalent forums—on employment-related
matters such as job security, work organiza tion, and terms and conditions of employment.16
Under the most recent directive, member countries must pass legislation requiring works coun-
cils in every employer with more than 50 employees and establishing the obligation to inform
and consult. Once the legislation is passed, employers—if they don’t do it on their own—can be
compelled to set up an “inform and consent” arrangement if workers request it.

IHRM in Action 7.1 describes the efforts of the first American firm (Hewlett Packard)
to establish an IC framework in the UK.17

IHRM in Action 7.1: Cross-Border Worker Representation
at Hewlett-Packard

The merger of Hewlett Packard and Compaq in May 2002 triggered extensive con-
sultation with workers in Europe. Under EU requirements, such corporate mergers

National and Cultural Context212

In addition, an earlier EU directive required all employers with more than 1,000
employees throughout the EU and with at least 150 employees in each of two countries,
to establish a European-wide works council to receive information and consultation on all
decisions that cut across country boundaries. Under this directive, larger employers not
only need to establish country-required works councils (which under the new directive,
all countries must require), but must also establish a European-wide council. Firms that
operate in Europe, but that come from countries where the concept of a works council
does not exist, must learn to adapt to the EU requirements. This means that any decisions
such as plant or office closings, work restructuring or transfer of work from one country to
another—including outsourcing and sub-contracting, and employment downsizings—all
require firms to inform and consult with their councils prior to implementation of such
decisions. In some countries, such as Germany, the council must agree with the nature of
the decision and its planned implementation; in other countries, such as the UK, extensive
consultation about the impact and planned efforts to mitigate them, are required.

In October 2001, the EU adopted legislation giving companies operating in the EU
the possibility of forming a central European company, also known as a “Societas Euro-
peae” (SE), instead of having to form individual companies under the laws of each of
the individual member countries. This way MNEs operating in Europe can form a single,
centralized, entity to avoid the complexities of the different regulations in each of the
countries in which they operate a business. The critical issue here is that, relative to

require companies with 1,000 or more employees in the EU, with at least 150 of
those in each of two or more member states, to consult with their employee repre-
sentatives (through their works councils) on any business decisions contemplated as
a result of the merger, such as layoffs, restructuring, and changed work arrangements
(all of which were triggered by the merger).

Because of that experience, Hewlett Packard took the initiative under the new EU
Inform and Consult Directive and the pending UK enabling legislation to become the
first US firm in the United Kingdom to announce an “Inform and Consult” framework
that was approved by its workforce. At quarterly meetings, HP’s management con-
sulted with and informed their employee representatives on matters such as HP UK
business strategies, financial and operational performance, investment plans, organi-
zational changes, and anticipated critical employment decisions, such as layoffs, out-
sourcing, workforce agreements, and health and safety.

Key UK HP managers plus HP employee representatives elected to the HP Con-
sultative Forum from each of the four UK business units meet on a quarterly basis.
Wally Russell, HP’s European employee relations director says, “My own preference
is that we be the master of our own destiny. So let’s work together now to [develop]
a model that suits HP’s culture. . . .”

International Employee Relations 213

employee involvement, the MNE does not need to establish an employee involvement
mechanism where none already exists and this gives them, then, a way to establish a
single, Europe-wide, employee-involvement procedure. While most works councils are
found in continental European countries, other countries (e.g., Argentina, Bangladesh,
Japan, Thailand, and South Africa) also have them. These works councils can be com-
posed of both management and employee representatives (e.g., Denmark, Belgium);
composed of employee representatives and overseen by a member of management (e.g.,
Japan, France); or composed of employee representatives without management oversight
(e.g., Austria).

It should be noted that the minimum firm or location size for installation of works
councils differs from country to country and the number of works council members var-
ies with the number of local employees. Although works councils are core instruments
of employee relations and representative bodies for information and consultation, the
country-to-country variation is substantial. In some countries (e.g., Germany) they may
even make joint decisions with management (co-determination) (see the next section).

Co-determination

Some countries, such as Germany, go a step further than informing and consultating with
works councils. Germany has evolved a procedure referred to as “Mitbestimmung” or
co-determination. Co-determination is a legal requirement in which employees are rep-
resented on supervisory boards or boards of directors and participate in major strategic
decisions (that is, employees are not just consulted but management must obtain their
agreement).

Co-determination differs from works councils in the sense that it includes a decision-
making component. Most EU companies have some form of participation of employee
representatives in the company’s decision-making process. Only three countries have no
national legislation regarding board-level representation (Belgium, Italy, and UK).

Employee involvement (in most EU countries) lies on a continuum, from operational
issues to full strategic decision making, from simple informing and consultation to works
councils and co-determination. Employee involvement may range from pure attendance
with an advisory role (e.g., France, although employees there may take a more active role,
insisting on power similar to full acceptance or agreement on decisions that affect them) to
membership and co-decision powers (e.g., Germany).

There are three corresponding systems of co-decisions:

1 Dual system: where the supervisory board (on which employee representatives have 1/3
of the members) supervises the board of directors (e.g., Austria, Germany, Denmark);

2 Single-tier system: where there is only one board of directors and the employees have
one or two representatives;

3 Mixed system: obligatory participation but only advisory role (e.g., France).

National and Cultural Context214

Worker Co-operatives 18

A third form of employee relations involves worker co-operatives. Today, the best-known
of these are the set of co-operatives based in the Basque country of northern Spain (head-
quartered in the small town of Mondragon), called the Mondragon Co-operative Corpora-
tion (MCC). This complex of worker-owned businesses and other institutions (e.g., schools,
social security, and banks) was begun in the mid-1940s by a local priest to deal with local
problems of poverty, lack of education, and lack of economic opportunity in the Basque
provinces of northern Spain and southern France, with the work co-operatives founded in
1956 by the priest and five young local engineers. These co-operatives have expanded and
evolved to now involve over 100,000 people, of which over 65,000 are worker-owners,
with annual sales now larger than US$20 billion with US$1 billion in net profits, and
with 225 companies (industrial, retail, and financial), including 150 co-operatives, in many
countries.

The MCC has been very successful for many reasons. These include: being located in a
Basque culture that has historically involved community co-operation and being founded
and encouraged by a very activist Catholic priest who believed that Catholic social teach-
ings about the dignity of people included work and the rights of workers, the importance
of family, community, and participation in work. This priest believed that if this concept of
participation could be applied to economic issues, it would mean workplaces owned and
managed by workers themselves. Thus, an economic system open to everyone, democratic
in operation, with worker-owner solidarity and equality has evolved with evident success.
It is a model that many have studied, but few have been able to emulate. Even so, it does
clearly provide an alternative approach to employee-employer relations.

LITIGATION RISKS IN GLOBAL EMPLOYEE RELATIONS

One of the most important pressures for IHRM and MNEs in international employment
law and employee relations is the increased possibility of litigation. These risks involve
errors in judgment and decisions in foreign jurisdictions, and mistakes when dealing with
foreign employees and international assignees. In recent years there has been a significant
upward trend toward holding MNEs accountable in various courts for their protections (or
lack thereof) of employee and human rights in their foreign operations. Increasingly, MNEs
are being sued in their home jurisdictions on the basis of allegations of breaches arising
from the firm’s activities in foreign jurisdictions. In the past, MNEs have been able to block
such actions on the basis that the home courts were not the appropriate jurisdictions in
which to litigate the disputes. However, recent cases are illustrating that this defense may
not be sufficient as foreign courts are increasingly willing to hold parent firms accountable
under both their parent-country laws and those of the foreign country in which such liti-
gations are initiated.

International Employee Relations 215

CONCLUSIONS

This chapter has focused on the nature of employee-employer relations in the global con-
text. This is the last chapter in this section of the text that deals with aspects of the con-
text within which IHRM operates. Each aspect has been presented in the framework of
importance in which it impacts IHRM policy and practice. As described in this chapter, the
primary form in which employee relations has developed involves the form and activity of
labor unions, although the chapter also summarizes three alternative forms of employee
involvement and representation: works councils, co-determination, and co-operatives.

The chapter described and discussed the nature of unions, at local, national, and inter-
national levels, as well as the ways in which MNEs interact with those unions. Numer-
ous examples were provided to illustrate the diversity of unions and employee relations
in differing countries, showing how complex the employee relations environment is for
MNEs, which have to cope with different forms of unions and local cultures and regula-
tions related to employee relations in every country in which they do business.

Lastly, the chapter describes works councils (committees of elected employees with
whom firms must inform and gain consent for business decisions that involve employees),
co-determination (situations in which employees have the right to sit on boards of supervi-
sors or directors, with varying powers to impact business decisions that impact employees),
and co-operatives (a form of worker-ownership and management of business firms, the best
example of which evolved in northern Spain but now has operations around the world).

DISCUSSION QUESTIONS

1 How do the various labor standards promulgated by international organizations affect
the MNE? What is the nature of their impact?

2 How do European Union directives (such as those developed in the area of HR) impact
member states and MNEs?

3 How is the labor movement evolving as a response to increased globalization?
4 What are non-union workers representations? Do you think we will see more of these

types of representations in the future?

National and Cultural Context216

CASE STUDY 7.1: Global Industrial Relations at Ford Motor
Company (USA/Global)

Ford Motor Company manufactures cars, trucks, and parts in 30 countries, with approximately
181,000 employees worldwide. It negotiates contracts with 56 different unions in every coun-
try where it manufactures except six (where there are no unions). In some countries, such as
Italy, it must also negotiate with salaried staff and managers, who are also unionized.

Because of this great variety of unions and countries, bargaining takes on as many different
forms as there are countries. For example, in Australia, all major issues are first discussed by
sub-committees at the local level, which, after agreement is reached, are then taken to the full
national bargaining committee for Ford Motor. In contrast, in Germany, negotiation is done for
all auto companies and auto unions at the same time through the national employers’ association
and the national metalworkers’ union, which represents workers at all automotive companies.

Even with this complicated bargaining reality, or maybe because of it, bargaining is handled
almost exclusively at the local (country) level, with minimal coordination on a global level. As
can be imagined, this not only causes coordination problems for the many unions involved, but
also for Ford Motor Company itself. In spite of this, the office of the Director of International
Labor Affairs Planning and Employee Relations (now consolidated in the office of Global Man-
ufacturing and Labor Affairs) in Ford’s headquarters in Dearborn, Michigan, is literally only one
person. As the Director of International Labor Affairs said, “because I work in so many coun-
tries, one of my primary roles is to educate all the parts of the business in the US about what is
going on around the world and how that affects the business.”

Sources: Excerpted from a presentation by David Killinger, Director, International Labor Affairs, on Ford
Motor Company’s global labor relations, delivered at the Faculty Development Seminar on International
HRM at the University of Colorado, Denver, June 8, 2000; Ford Annual Report 2013 (http://corporate.
ford.com/our-company/investors/reports-financial-information/annual-reports).

Discussion Questions

1 Compare union relations in two major countries. How are the unions (and employers)
organized? What is the nature and role of bargaining? What role does the government
play? Are there additional forms of employee representation?

2 What problems do you see for MNEs that must bargain with unions in multiple countries?
How would you advise those problems be resolved?

3 What do you predict for the future of unions and union relations in the global economy? Why?

NOTES

1 Source: Mentioned in Morganteen, Jeff (Thursday, 27 Mar 2014), Labor unions saved Ford in our “darkest”
hour: Bill Ford. CNBC, http://www.cnbc.com/id/101529786. Accessed April 7, 2014.

International Employee Relations 217

2 For more detail, refer to the volume in this series on these topics: Morley, M. J., Gunnigle, P. and Collings,
D. G. (2006). Global Industrial Relations, London/New York: Routledge.

3 Visser, J. (2006). Union membership statistics in 24 countries, Monthly Labor Review, January, 38–49.
4 This short summary is based on the following: Baker & McKenzie (2009). Worldwide Guide to Trade

Unions and Works Councils, Chicago, IL: CCH Inc.; Bamber, G. J., Lansbury, R. D. and Wailes, N. (eds.)
(2010). International and Comparative Employment Relations, 5th ed., Thousand Oaks, CA: Sage Publica-
tions; Ferner, A. and Hyman, R. (eds.) (1998). Changing Industrial Relations in Europe, 2nd ed., Oxford,
UK/Malden, MA: Blackwell Publishers; Hansen, E. D. (2001). European Economic History, Copenhagen,
DK: Copenhagen Business School Press; Hyman, R. (2001). Understanding European Trade Unionism,
London/Thousand Oaks, CA: Sage Publications; Keller, W. L. and Darby, T. J. (eds.) (2009). International
Labor and Employment Laws, 3rd ed., Washington, DC: The Bureau of National Affairs and the Interna-
tional Labor Law Committee Section of Labor and Employment Law, American Bar Association; Morley,
M. J., Gunnigle, P. and Collings, D. G. (eds.) (2006).

5 Cf., ICTUR (2005). Trade Unions of the World, 6th ed., London: John Harper Publishing.
6 William, F. and Williamson, H. (2006). International unions form body to defend workers’ rights in era of

globalization. Financial Times, November 2.
7 Potter, B. (2014), Australian workplace culture partly to blame for Toyota’s exit, The Australian Finan-

cial Review, Feb. 11, retrieved at http://www/smh.com.au/business/commment-and-analysis/
australian-workplace-culture-partly-to-blame-for-toyotas-exit-20140211–32djv.html#ixzz2tXZ9MiGt.
Accessed Feb. 15, 2014.

8 Kimberly Clark Workers in Turkey End 43-day Strike with Gains (2014). IndustriALL Global Union website:
http://www.industriall-union.org/kimberly-clark-workers-in-turkey-end-43-day-strike-with-gains. Accessed
March 1, 2014.

9 Rothman, M., Briscoe, D. R. and Nacamulli, R. C. D. (eds.) (1992). Industrial Relations Around the World,
Berlin: Walter de Gruyter; Levinson, D. L., Jr. and Maddox, R. C. (1982). Multinational corporations and
labor relations: Changes in the wind? Personnel, May–June, 70–77.

10 Excerpted from a presentation by David Killinger, Director, International Labor Affairs, on Ford Motor Com-
pany’s global labor relations, delivered at the Faculty Development Seminar on International HRM at the
University of Colorado, Denver, 8 June 2000.

11 Baker & McKenzie (2009); Goetschy, J. (1998). France: The limits of reform, in Ferner, A. and Hyman, R.
(eds.) (1998). Changing Industrial Relations in Europe, 2nd ed.; Keller and Darby (eds.) (2009); Schneider,
B. (2004), Global industrial relations, presentation to the Faculty Development Program in International
Human Resource Management, June 7–11, Denver, CO.

12 Frege, C. (2006), International trends in unionization, in Morley, M. J., Gunnigle, P. and Collings, D. G.
(eds.), pp. 221–238; and Gooderham, P., Morley, M., Brewster, C. and Mayrhofer, W. (2004). Human
Resource Management: A universal concept? in Brewster, C., Mayrhofer, W. and Morley, M. (eds.), Human
Resource Management in Europe, Oxford: Elsevier, pp. 1–25.

13 Refer to Part II: Contemporary developments in global industrial relations, in Morley, Gunnigle, and Coll-
ings (eds.) (2006).

14 Bamber, G. J., Lansbury, R. D., and Wailes, N. (eds.) (2010). International and Comparative Employment
Relations, 5th ed.; and Rothman, M., Briscoe, D. R., and Nacamulli, R. C. D. (eds.) (1993) Industrial Rela-
tions Around the World: Labor Relations for Multinational Companies.

15 See, for example, Baker & McKenzie (2009); Gill, C. (2006), Industrial relations in Western Europe, in Mor-
ley, Gunnigle, and Collings (eds.) Global Industrial Relations, London/New York: Routledge, pp. 71–85;
and Keller and Darby (eds.) (2009).

16 Fox, A. (2003). To consult and inform, HR Magazine, October, 87–92.
17 Adapted from Fox, A. (2003). To consult and inform, HR Magazine, October, 87–92.
18 This section deals primarily with Mondragon (Spain) workers’ cooperatives. The information is drawn from

Herrera, D. (2009). Mondragon Cooperative Corporation: The ten core principles and their foundations,

National and Cultural Context218

lecture to course on the Mondragon co-operatives, delivered in Mondragon, Spain, 7 July; Kasmir, S.
(1996). The Myth of Mondragon, Albany, NY: State University of New York Press; MacLeod, G. (1997).
From Mondragon to America, Sydney, Nova Scotia, Canada: University College of Cape Breton Press;
MCC (2007). Corporate Management Model, Mondragon, Spain: Mondragon Corporacion Coopera-
tivia; Ormaechea, J. M. (1993). The Mondragon Cooperative Experience, Mondragon, Spain: Mondragon
Corporacion Cooperativa; and Whyte, W. F. and Whyte, K. K. (1991). Making Mondragon: The Growth
and Dynamics of the Worker Cooperative Complex, Ithaca, NY: ILR Press.

S E C T I O N 3

Global Talent Management

The third section of this book is titled “Global Talent Management” and has seven
chapters:

â– â–  Chapter 8: International Workforce Planning and Staffing
â– â–  Chapter 9: International Recruitment, Selection, and Repatriation
â– â–  Chapter 10: International Training and Management Development
â– â–  Chapter 11: International Compensation, Benefits, and Taxes
â– â–  Chapter 12: International Employee Performance Management
â– â–  Chapter 13: Well-being of the International Workforce and International HRIS
â– â–  Chapter 14: Comparative IHRM: Operating in Other Regions and Countries

Taken together, the above chapters provide a comprehensive overview of the essential
body of IHRM policies and practices. These IHRM policies and practices serve to attract,
select, develop, evaluate, compensate, and retain employees, as well as provide for their
safety and well-being. So this section of the book concentrates on specific IHRM pol-
icies and practice that MNEs can use in the context of the operation of an MNE from
its home-country, headquarters perspective as well as from the perspective of IHRM at
the local level, which is important to the operation of foreign-owned firms and subsidi-
aries and other forms of cross-border ventures and alliances. Chapters 8 and 9 focus on
the attracting and selecting policies and practices. Chapter 8 discusses the nature of and
problems associated with workforce planning and staffing for global enterprises including
an overview of the many options that MNEs have available to them. Chapter 9 builds
on the previous chapter and discusses the planning and staffing issues in the MNE with
primary focus on the selection of international assignees (IAs). It also describes many of
the issues confronted in the IA selection process and best practices in dealing with those
issues including the all-important issue of repatriation. Chapter 10 focuses on training and
development in the MNE, focusing on training and preparation issues for expatriates as

Global Talent Management220

well as local employees in foreign operations and on leadership and management devel-
opment in MNEs. Chapter 11 discusses compensation and benefits issues in MNEs, again
focusing primarily on these issues for expatriates, but also on describing MNE attempts to
design and apply common compensation and benefits programs for their operations and
employees around the world. Chapter 12 focuses on the many issues related to the man-
agement of employee performance in the international arena. And Chapter 13 describes
the many issues surrounding health, safety, and security for global business travelers and
international assignees and their families and the design of crisis management programs to
deal with these issues. Chapter 14, the last chapter in Section 3, provides an overview of
the wide variation in effective and appropriate IHRM policies and practices across regions
of the world. MNEs have the necessity to understand local HR policies and practices so as
to make informed and effective decisions as to the practical fit of headquarters’ policies and
practices with tradition and law across the many regions of the world.

The quality of a firm’s talent is central to its ability to learn, innovate, and perform. Having
the right talent, at the right place, at the right time, and at the right price is an important
global issue for every enterprise.2 International workforce planning and staffing refers to the
process of estimating employment needs, recruiting, selecting, and repatriating talent in
organizations with operations in different countries (see Figure 8.1). The challenge of staff-
ing the global enterprise is both complex and difficult. In addition to normal home-country
hiring responsibilities, MNE staffing includes staffing in all foreign operations plus the
highly challenging responsibilities connected to relocation of employees from one country
to another. In today’s talent shortage environment, staffing by MNEs has become the cen-
tral problem of global talent management.

Our leaders search for the brightest talent from around the world and give them the
resources they need to be the best at what they do.

Samsung Corporation1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the process of international workforce forecasting and the challenges
involved in planning the international workforce for an MNE.

â– â–  Explain the many options available to MNEs for staffing their operations in terms
of the different types of international employees that MNEs can draw on to staff
their operations in the global marketplace.

â– â–  Describe the implications of the different staffing options and the various types
of employees for the MNE.

C h a p t e r 8

International Workforce
Planning and Staffing

Global Talent Management222

INTERNATIONAL
WORKFORCE

PLANNING
INTERNATIONAL

RECRUITING
INTERNATIONAL
SELECTION AND

PLACEMENT

REPATRIATION

Chapter 8 Chapter 9

FIGURE 8.1 The International Workforce Planning and Staffing Process

Until quite recently, MNE staffing policies and practices were developed from the per-
spective of headquarters and the culture of the parent country, involving primarily concerns
about employees sent on expatriate assignments to foreign subsidiaries and the staffing of
local employees at home and in host country subsidiaries. But today, staffing policies and
practices have become much more complex, involving a mobile, global workforce, located
in acquired enterprises in foreign locales, plus those located in traditional subsidiaries, joint
ventures, and partnerships, and involving local hires, hires from countries around the world,
and employees from any operation on assignment to any other operation. Partially as a
result of this globalizing of staffing, one of the recent trends has included a shift in the
numbers of workers in MNEs from Western countries to a growing number from emerging
markets. MNEs have even gone outside the boundaries of their organizations in their search
for talent by using outsourcing, offshoring, insourcing, and, sometimes open source talent.3

This chapter introduces the nature of and problems associated with the planning for the
staffing of MNEs’ international operations. The chapter begins by describing the challenges
involved in planning the international workforce for an MNE. And then it describes the
many options now being reviewed by MNEs for staffing their operations around the world.
Lastly, it presents some of the problems presented in trying to evaluate which approach
works best when.

INTERNATIONAL WORKFORCE PLANNING

The objective of global workforce planning is to estimate employment needs of the MNE
and to develop plans for meeting those needs. The term workforce applies to an enter-
prise’s employees. The term labor force applies to the pool of potential employees, the labor
market, from which a firm attracts and hires its workforce. The size—and location—of
the potential labor force from which a firm recruits employees varies according to many
factors, such as the participation rates of men and women in various locations, the overall

Workforce Planning and Staffing 223

unemployment rate, whether only local people would be expected to apply for particular
jobs, whether people with the necessary education or skills are available locally, etc. As has
been stated a number of times, one of the characteristics of today’s global economy that
adds complexity to HR management is the broad scope of enterprises’ operations—likely
to be spread all over the world, in dozens if not hundreds of locations, using an equally
large number of languages, dealing with a like number of cultures, and subject to various
employment laws. The labor pool from which MNEs recruit staff is therefore also located
in all those places, speaking all those languages, expressing all that diversity of cultural val-
ues and behaviors, and regulated by widely varying employment laws.

As a consequence, enterprises with international operations must find staff in whatever
location(s) they operate (or relocate the staff they need—if unavailable locally—to those
locations), learn to recruit and hire in multiple locations and cultures, and deploy staff
where it makes most sense for the enterprise. In the best of circumstances, HR profession-
als will be asked to provide information about the adequacy of local labor markets prior
to their firms’ decisions about where to locate their global operations and/or whether to
participate in any cross-border acquisitions, joint ventures, or alliances. But, if not prior
to such decisions, at least after such decisions are made, HR will be tasked with ensuring
the timely staffing of the new or existing international operations. Because of the possible
shortage of many skilled workers, the acquisition and deployment of talent is a key global
HR imperative. In today’s global environment, successful organizations of the future will
be those who can attract the best global talent and nurture, develop, and retain it by having
a compelling work environment and sophisticated succession management strategies.4

FACTORS THAT IMPACT INTERNATIONAL
WORKFORCE PLANNING

There are several factors that can impact the process of international workforce planning,
illustrated in Figure 8.2.

Availability of Data

One of the major obstacles to MNE workforce planning is the lack of accurate data about
labor forces in many countries, particularly in less developed and emerging economies.
Ideally, data about such labor force characteristics as participation rates (percentage of men
and women of working age who work or look for work), levels and quality of education
and literacy, availability of skill training, language skills, and unemployment rates, by coun-
try and metropolitan areas within countries, would be available to help IHR plan for their
firms’ local workforces. When available, these data are usually prepared by an agency of
the government, or sometimes by international agencies, such as the International Labour

Global Talent Management224

Interna�onal
Workforce
Planning

Availability of data

Popula�on characteris�cs:
shortages and surpluses

Increasing diversity of labor
forces and workforces

Labor mobility:
emigra�on and immigra�on

Brain drain and job expor�ng

FIGURE 8.2 Factors That Impact International Workforce Planning

Organization (ILO) or the Organization for Economic Cooperation and Development
(OECD). But in many emerging markets such government agencies don’t always exist or
the data they provide are inadequate, inaccurate, and/or politically motivated. In any case,
they often do not provide data that are adequate for IHRM departments to be able to
assess whether the people with the necessary skills and education are available or can be
developed in any particular location in the numbers necessary to staff planned or acquired
operations.

This usually implies that IHR professionals must develop such data from independent
sources. Sometimes, such data is available from international or local consultancies. And,
often, adequate information can be accessed from sources such as local chambers of com-
merce, embassies, firms that aid foreign companies in local employee sourcing, etc. In addi-
tion, IHR managers can often get some of the information they need from other firms that

Workforce Planning and Staffing 225

have prior experience in that particular foreign locale. The key point is that MNEs should
not make the assumption that local labor forces will be adequate to provide the talent they
need (although this is exactly what is typically done—leaving it up to HR to locate and
hire the necessary workforce). This adequacy should be one component of the executive
decision-making process for where and with whom to do business. In any case, it is IHR
that is expected to provide such information.

Population Characteristics: Shortages and Surpluses5

Probably the most important labor force issue for developed economies is their aging pop-
ulations and the resulting labor shortages, with more people retiring than entering the labor
force to replace them, although the 2007 to 2009 global recession with its consequent high
levels of unemployment may have forestalled the importance of this concern. In contrast,
the labor force issue of concern in most developing and emerging economies is their large
young labor forces who often lack the skill sets that jobs in MNEs require.

To a significant extent, these characteristics determine the nature of the labor pool in
various countries, although other issues also contribute. Male and female labor force par-
ticipation rates vary so much from country to country that this factor alone has a major
impact on the size of any country’s labor pool.6 Of course, today, technology makes it pos-
sible to use workers from almost any location without them having to relocate to where
the employer is. And where people want to live may also influence MNEs in their decisions
as to where to locate their work.

In terms of aging, countries such as Japan, Germany, and the UK have a large percentage
of their populations aged over 60 while countries such as India, Mexico, and South Africa
have a small percentage of their populations aged over 60, with much higher percentages
of their populations under the age of 25.7 In some ways, these opposing profiles provide
balance in the global labor force, with the surplus of young workers in the developing econ-
omies providing labor for the aging and shrinking labor forces in the developed countries.
This happens in many ways, including the importing of workers and the exporting of jobs,
through foreign direct investment, cross-border joint ventures and partnerships, outsourc-
ing and subcontracting, and offshoring.

The following IHRM in Action8 illustrates another example of how firms are coping
with the labor shortage, in this case how the Dutch have dealt with it by hiring the retired.
Indeed, all of these responses to labor shortages are intertwined, as countries seek new
ways to deal with the shortages. Various countries and firms are discussing the preferences
of using various hiring options, ranging from immigrants to retirees to working mothers to
robots and computers. Not all options are equally desired in different cultures and coun-
tries. And these shortages suggest to MNEs that are pursuing strategies to extend their
global operations into developed countries that they must take into consideration the pos-
sible lack of availability of the types of employees they may need to staff those operations.

Global Talent Management226

For firms that want to conduct business in emerging markets, IHRM’s role in ensuring a
qualified local workforce can be critical. For example, when the Edinburgh-based marine
service firm BUE Marine moved into Azerbaijan’s capital, Baku, to take advantage of its
natural resources, it faced a large number of HR challenges, ranging from nepotism and
theft to low skills and overstaffing and deceitful résumés. What they found was that when
companies want a foothold in a developing country, they need to research labor costs, cul-
tural differences, benefits, legal jurisdictions, and how to hire people locally, as well as the
role that government plays in contracts and enforcement.9 It falls upon IHRM to forestall
labor problems and to provide information to senior executives on the costs of dealing with
(or not) these kinds of such critical issues.

INCREASING DIVERSITY OF LABOR FORCES
AND WORKFORCES

One of the results of increased globalization, modern technology, and global communi-
cations on the global labor market is that people with the education and skills needed in

IHRM in Action 8.1: Dealing with Labor Shortages in the
Netherlands

Frans Tuijntjes, a former pilot who has flown all over the world, is now selling men’s
clothing and loving it. Recruiting the elderly—men and women who are either bored
in retirement or need to supplement their pensions—is a new Dutch strategy to
combat their labor shortage. In a program referred to as 65+, the Dutch created an
employment agency designed specifically for recruiting the elderly.

Dutch companies find that their older employees are unusually motivated, experi-
enced, and loyal. A short time ago, the Dutch welfare state was subsidizing retirement
and encouraging people to retire early. Many people opted out. But now, with a labor
shortage due to low birth rates over the last 40 years and fast economic growth in the
Dutch economy, firms are finding the tight labor market is hampering growth because
they can no longer fill vacancies.

Interestingly, the labor shortage is prompting a national debate [in the Netherlands
as elsewhere] on some sensitive issues: How many more immigrants should be let into
the country? Can the government force people to retrain? Should the government
raise the retirement age and by how much?

At any rate, the retired Dutch who have gone back to work are finding it a reward-
ing experience. Frans Tuijntjes, the retired pilot, says, for example, “I’ve sold airplanes,
so I figured I could sell a suit.” He says his part-time job at Marks & Spencer is a lot
of fun because he gets to meet a lot of people and he can use his many skills, such as
practicing his multiple languages.

Workforce Planning and Staffing 227

today’s global economy are increasingly available everywhere, making potential employees
available from all racial and ethnic origins and nationalities.10 This has the effect of dra-
matically increasing the level of employee diversity with which global firms must cope.
In addition, employees in the global firm come from many groups that in the past and
in many countries did not participate much in the labor market, including the young
and/or old, male and/or female, disabled, married or single, people from various religious
affiliations, etc.

Labor Mobility: Emigration and Immigration

The world is experiencing migration (emigration and immigration) on an unprecedented
scale. Some of it is voluntary and some of it is forced. Some of it is legal and some of it is
considered illegal. Some of it is planned and purposeful and some of it is unplanned and
without direct purpose. However, in all cases, it is creating mobility of workers in such large
numbers that formal and informal emigration has to be taken into consideration as MNEs
examine their options for developing their global workforces.

Millions of people work outside their home countries, either as traditional expatriates
(on assignment by their employers) or hired to emigrate to fill vacant jobs in other coun-
tries. Some countries like the Philippines purposefully manage a percentage of their labor
force to work in other countries every year. Others, such as Mexico, lose many workers
with unofficial migration to their neighbors. And some, like Estonia, Romania, and Poland,
lose many workers (legitimately) to other countries in their region, such as in this case to
other countries in the European Union. In addition, millions are forced from their homes
because of civil unrest or natural disasters and become permanent refugees. And some
trade treaties such as the one that created the foundation for the European Union (1957
Treaty of Rome) include provisions to facilitate movement of workers between countries.
This allows people to seek the best possible work opportunities, facilitates EU firms in cre-
ating high-quality workforces by drawing on talent from throughout the EU membership,
and eventually levels the wage and benefits “playing field” across the member states, so that
firms do not gain advantages or disadvantages because of differences in wages or in govern-
ment practices between countries. Other treaties such as NAFTA, Mercosur, and ASEAN
do not yet include such labor mobility provisions, but if the EU is developing the model
for such regional trade treaties, it may only be a matter of time before other regions begin
to look at ways to facilitate labor mobility as well (refer to the discussion of these treaties
in Chapter 6 on employment law).

Brain Drain and Job Exporting

One of the major concerns created by the increasingly mobile labor force is what many
countries, particularly emerging and developing countries, refer to as a brain drain, as their
educated and skilled citizens leave for jobs with better pay in the developed countries.

Global Talent Management228

From the point-of-view of developing countries, it is often wrong for firms from the rich
countries to recruit and relocate their citizens after the major resources that they have
expended on educating and training their citizens. They feel they need these human
resources for the development of their own economies.

An alternative to this brain drain, and one that is increasingly pursued by many global
firms and is encouraged by the governments of developing economies, is to export the work
and jobs from the developed economies to developing countries, through subsidiaries, joint
ventures, outsourcing, and offshoring. Both sides can benefit from this arrangement: the
firm gets top talent from the foreign countries in a period and location of labor shortage in
their home country and at a lower cost and the developing country gets to hold on to its
top talent and gets jobs and income from the MNEs.

In summary, today’s typical MNE, with operations in multiple countries (from dozens
to over 100 countries), has a workforce that spans the globe. The task of IHR managers in
these firms is to facilitate the hiring of competent, high-performing talent that enables sus-
tainable, competitive advantage throughout the global marketplace. Planning for and hiring
such a workforce is a complex activity. It involves determining what education and skills are
needed and figuring out where to find that talent and how to recruit it and hire it. This is
difficult enough for local hires for local operations. It is much more difficult for global oper-
ations. The first part of this chapter has described some of the complexities in that process.

The labor market is different in every country—and often also between regions within
countries. The challenges for collecting or creating the information necessary for workforce
planning and forecasting are often difficult to overcome. And yet the health of today’s
MNE is a function of IHRM’s ability to match their firms’ workforce forecasts with the
supply of global talent. Indeed, “In a fast-changing global economy, world-class workforce
planning is the key to success.”11 With global workforce forecasts and plans in place, MNEs’
next moves are to fulfill those plans through recruiting and staffing, the subject of the rest
of this chapter.

INTERNATIONAL STAFFING APPROACHES12

Staffing for the MNE involves hiring at the local level (in both the parent country and in
all foreign locations where it does business or has operations of any kind) as well as man-
agement of the mobile workforce, that is, the employees who are hired in one locale and
are relocated for varying times and purposes to other locales. In staffing the MNE, firms can
use four approaches,13 as illustrated in Exhibit 8.1. Three approaches are mostly used to
staff important positions in subsidiaries such as managerial and executive positions.14 Each
approach has its own advantages and disadvantages.

It is important to note that as Exhibit 8.1 implies, IHR staffing practice is challenged
by the problems associated with recruiting, hiring, training, compensating, managing per-
formance and welfare, and retaining and deploying a global workforce, sourced from mul-
tiple locations and managed under the constraints of multiple national cultures and legal
systems.

Workforce Planning and Staffing 229

EXHIBIT 8.1: International Staffing Approaches

ETHNOCENTRIC STAFFING
APPROACH

ADVANTAGES DISADVANTAGES

MNEs tend to hire from the HQ
country and send employees on
international assignment to the
subsidiaries

This approach is used when:

â–  There is a strong need
for the HQ to control the
subsidiaries.

â–  The subsidiaries are
in early stages of
development.

â–  There is a lack of local
talent.

â–  MNEs that have a global
business strategy are
most likely to use this
approach.

â–  Quickly fill key
positions in
subsidiaries when
local talent is not
available.

â–  Allows HQ to
control and
coordinate
subsidiary
operations, and to
maintain a common
corporate culture
across subsidiaries.

â–  Allows parent-
company nationals
(PCNs) to acquire
international
experience.

â–  Costly because PCNs
are used.

â–  Tension between
PCNs and host-
country nationals
(HCNs) (e.g., because
of compensation
differences).

â–  Prevents or slows the
career development
process of HCNs.

POLYCENTRIC STAFFING
APPROACH

ADVANTAGES DISADVANTAGES

MNEs prefer to use locals from
the subsidiary country

This approach is used when:

â–  Need for localizing
operations becomes
important for competitive
advantage.

â–  Each subsidiary is relatively
autonomous and adapts to
its local conditions.

â–  MNEs that have a
multi-domestic business
strategy are most likely to
use this approach.

â–  Access to local
communities and
markets.

â–  Sends signal to the
local community
and government
that subsidiary is
committed to the
local culture.

â–  Relatively less costly
than PCNs.

â–  Locals may not be
committed to the MNC.

â–  Locals may not be able
to acquire international
experience.

â–  For locals, career
development and
promotion opportunities
may be limited.

Continued overleaf

REGIO-CENTRIC
STAFFING APPROACH

ADVANTAGES DISADVANTAGES

MNEs tend to favor using
people from a specific region
This approach is used when:
â–  There is a strong need to

organize subsidiaries into
regions.

â–  Each region works
as a unique unit with
considerable autonomy.

â–  The MNE has several
regional headquarters.

â–  Key positions are filled
by third-country nationals
(TCNs) and HCNs.

â–  Reduces costs by
sharing resources
within a region.

â–  Managers can develop
region-specific
expertise.

â–  Able to respond to
specific needs of a
region.

â–  Lack of multicultural
perspective.

â–  Career opportunities
limited to specific
regions.

â–  Not easy for
region-based
managers to move to
company HQs.

GEOCENTRIC
STAFFING APPROACH

ADVANTAGES DISADVANTAGES

MNEs source talent from
anywhere in the world,
regardless of nationality
This approach is used when:
â–  MNE has a network of

subsidiaries with various
degrees of centralization
and decentralization.

â–  Highly integrated process
across subsidiaries.

â–  MNEs that have a
transnational business
strategy are most likely to
use this approach.

â–  Employees can
develop a geocentric
mindset.

â–  Hires the best talent
available.

â–  Career opportunities
for top performers are
truly global.

â–  Employees can
work with other
employees from
different geographic,
cultural, and regional
backgrounds.

â–  Managing a
large number of
international assignees
can be costly (e.g.,
relocation and training
costs).

â–  Managing work
authorizations in
several countries is a
complex process.

â–  Requires a very high
level of communication
among employees
from several countries.

Based on Scullion, H. and Collings, D. (2006). Global Staffing, London: Routledge; Collings,
D. and Scullion, H. (2006). Global staffing, in Stahl, G. K. and Björkman, I. (eds.) Handbook of
Research in International Human Resource Management, Cheltenham, UK, Edward Elgar; Harzing
(2004); Borg, M. and Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W.
and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., Thousand
Oaks, CA/London: Sage Publications, pp. 251–282.

EXHIBIT 8.1 Continued

Workforce Planning and Staffing 231

Traditional International Assignees and Local Nationals

Until quite recently, staffing of MNEs was simplistically described as involving only three
types of international employees: parent-country nationals (PCNs), host-country nationals
(HCNs), and third-country nationals (TCNs)15 (see Exhibit 8.2).

Most of the IHR literature has concerned itself with PCNs, When PCNs are transferred
(posted/assigned/relocated) to another country, to work in a foreign subsidiary or other

EXHIBIT 8.2: Traditional International Assignees
and Local Nationals

Strengths Weaknesses

Parent-country
nationals

Employees of the
MNE who are
citizens of the
country where the
MNE’s corporate
headquarters is
located

■ Familiar with the MNE’s
corporate cultural values,
goals, and objectives

â–  International experience may
lead to career opportunities

â–  Provides control over the
subsidiary’s operations

â–  Effective transfer of
corporate values culture
and knowledge from HQ to
subsidiary and vice versa

â–  Cross-cultural adjustment
to the new culture can be
difficult

â–  Can clash with local
government’s policy of
promoting local hires

â–  Can be costly (e.g.,
relocation, compensation,
possibility of failure)

â–  Repatriation process can be
challenging and difficult

Host-country
nationals

Employees of the
MNE who work
in the foreign
subsidiary and
are citizens of the
country where the
foreign subsidiary
is located

â–  Familiarity with the local
cultural, economic, political
and legal environment

â–  Relatively less costly (e.g.,
limited or no relocation,
local compensation
levels)

â–  Can respond effectively
to the host country’s
requirements for localization
of the subsidiary’s operations

â–  Accepted by the local
colleagues, workers,
employees, and government
officials.

â–  Lacks familiarity with
parent-country culture

â–  Lowers or reduces the ability
to maintain control over the
subsidiary operations

â–  May not be the most
qualified

â–  Low loyalty to HQ

Continued overleaf

Global Talent Management232

Strengths Weaknesses

Third-country
nationals

Employees of
the MNE who
are citizens of a
country other than
the parent country
or the country of
the subsidiary
to work in one
of its foreign
subsidiaries

â–  Generally viewed as a
compromise between PCNs
and HCNs

â–  Less expensive to maintain
than PCNs

â–  Can add skills not available
in country of the subsidiary

â–  Can add diversity/
multiculturalism to the work
environment

â–  Easier to relocate (e.g.,
move from subsidiary to
subsidiary)

â–  Lacks familiarity with
parent-country culture and
MNE corporate culture

â–  Mobility may be limited
due to travel restrictions
in certain countries or
locations

â–  May not be accepted well
by the local nationals

Based on Scullion, H. and Collings, D. (2006). Global Staffing, London: Routledge; Collings, D.
and Scullion, H. (2006). Global Staffing, in Stahl, G. K. and Björkman, I. (eds.) Handbook of
Research in International Human Resource Management, Cheltenham, UK, Edward Elgar; Harzing
(2004); Borg, M. and Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W.
and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., Thousand
Oaks, CA/London: Sage Publications, pp. 251–282.

EXHIBIT 8.2 Continued

type of operation (such as a joint venture or alliance) of the MNE for more than one year,
they are generally referred to as expatriates or international assignees. Historically, the term
“expatriate,” as used by companies, referred to employees who were relocated from the
parent company or headquarters to foreign subsidiaries or “overseas” operations. Today, the
term “international assignee” is more generally used to describe the process of moving any
employee from one country to another for a period of more than one year, while staying in
the employment of the same firm.

When expatriates return home, they are referred to as repatriates. Administering the
traditional expatriate has historically been the primary time-consuming responsibility of
the IHR manager and staff (and the primary research focus of academics).

Most of the literature in IHRM that deals with expatriates or international
assignees—individuals who are or have been on international assignments—has assumed
that all employees who are on foreign assignments are traditional expatriates. Studies have
invariably referred to “international assignment experience” or “expatriate” to simply refer

Workforce Planning and Staffing 233

to anyone who has been on an international assignment for more than one year. But, as
with everything else in IHRM, international assignments have also become more com-
plex. So, the next few paragraphs provide an introduction to the many different types of
international assignees (IAs), before the chapter describes in more detail the many issues
surrounding recruiting and staffing for international assignments.

It is important to point out that when host-country nationals (HCNs) are relocated
to the headquarters of the parent firm, generally for assignments of one year or less, for
the purpose of learning the organization and its products and culture, they are gener-
ally referred to as inpatriates (although they are probably viewed by themselves and their
home-country families, colleagues, and friends as expatriates from their home countries).
Inpatriation is discussed in the next chapter.

Purpose(s) of Assignments

There have been a number of approaches to describing the purposes for sending people
on international assignments.16 In general, these purposes can be combined into two broad
categories: demand-driven and learning-driven. The demand-driven purposes include using
IAs as general managers or directors, for subsidiary start-ups and to roll out new products,
for technology transfer, to solve problems, to perform functional tasks such as account-
ing, sales, and manufacturing, and for organizational control. The learning-driven purposes
include management development (of both international business skills and general man-
agement skills for both PCNs and HCNs), transfer of knowledge, and the socialization
of locals into the corporate culture and values. Except for the need for general managers,
increasingly all of these purposes are being pursued with shorter-term assignments (busi-
ness travel, commuters, or transfer for less than a year, for sure less than three years),
rather than the more common three- to five-year relocations found in years past.17 Some
of the demand-driven purposes are being converted to permanent transfers or what is often
referred to as localization.

As more firms globalize and develop more operations in an ever-increasing number of
locations, they have begun to create additional options for staffing foreign work assign-
ments. One consequence of this has been an effort to find a better term to describe the
many types of international employees, as a replacement for “expatriate.” Thus terms such
as “international assignee,” “transpatriate,” even “transnational” have been used by various
companies in attempts to find a term that might describe anyone on a foreign assignment.
None has been found, as will be shown in the next section, which covers all types of foreign
employees. The term most often used today, “international assignee,” is generally used as a
“catch-all” term but mostly refers to the traditional PCN on a typical expatriate assignment
as well as to the inpatriate and other HCNs and TCNs who are moved from subsidiary to
subsidiary. Yet, even with a generally expressed dissatisfaction with the term “expatriate,”
observation at many recent IHRM conferences suggests it is difficult to break the habit of
the use of this term.

Global Talent Management234

Today’s Diversity of International Employees

Even though the use of expatriates has seemed to be the logical choice for staffing inter-
national operations, at least for start-ups, technology transfer, and major managerial
positions, such as director general and sales manager, several current problems with the
use of expatriates has led MNEs to seek other options for achieving their objectives in
their foreign operations. Some of these issues include making mistakes in the choice of
employees for international assignments, the high cost of these assignments, difficulties
in providing adequate training and support for employees and their families on inter-
national assignments and the resulting problems with their adjustment to the foreign
situation, too-frequent failures of international assignees, local countries’ desires for hir-
ing local employees and managers, problems encountered in managing repatriates, and a
growing suspicion that local hires may actually perform better.18 One result of this is that
many MNEs are finding that it no longer makes sense to give all attention and priority
to expatriates.

Indeed, international managers can and do come from just about everywhere, not just
the HQ of the traditional large MNE.19 Exhibit 8.3 provides a summary of the many

EXHIBIT 8.3: Types of International Assignees

Local hires or
nationals

Employees who are hired locally (a host-country national hired under
a polycentric staffing approach).

Domestic
internationalists

Employees who never leave home but conduct international business
with customers, suppliers, and colleagues in other countries (via
telephone, teleconference, email, fax, or even snail mail).

International
commuters

Employees who live in one country (typically their home country) but
who work in another (host) country and regularly commute across
borders to perform aspects of their work. They may live at home
in one country yet commute on a daily or weekly basis to another
country to work.

Frequent
business trips

Employees who, on a frequent basis, take international trips that last
a few days, weeks, or months at a time. These international trips
usually include travel to a variety of countries or continents to visit
MNE sites or customers.

Short-term
international
assignees

Employees on assignments that last less than one year but more than
a few weeks (increasingly being used to substitute for longer-term
international assignments and typically do not include the relocation
of the employee’s family).

Workforce Planning and Staffing 235

International
assignees

This is an international assignment that lasts more than one year and
includes full relocation. This is the traditional expatriate and the focus
of most research and surveys about international employees. These
international assignments may be intermediate-term assignments
(12 to 24 months) or long-term assignments (24 to 36 months).

Localized
employees

Often referred to as localization, this normally refers to the situation
where an employee is sent to work in a foreign country but hired as
a local employee (with some allowances for relocation). This may be
because they really want to work in that country, often because they
marry a local spouse or for some other reason want to spend the rest
of their careers in that location. It may also involve an international
assignee who is converted to permanent local status once the
assignment period is over. Obviously, this option reduces the overall
costs for the MNE.

Permanent cadre
or globalists

These are employees who spend essentially their whole careers in
international assignments, moving from one locale to another.

Stealth
assignees

This is the term used to describe international assignees who are
relocated by their managers without ever informing HR (that is, they
“fly under the radar”), so that they do not show up in the records,
benefits, and support systems used to manage such employees. Many
short-term assignees fall under this category.

Immigrants (A) This refers to traditional TCNs, employees who are hired to work in a
foreign subsidiary but whose home of citizenship is another country,
thus they become immigrants to the country of the subsidiary.

Immigrants (B) These are people hired by the parent firm (either in country or as
new immigrants and brought into the country) to work in the parent
country. Making things even more complex, immigrants may be born
in a foreign country and raised in the parent (of the firm) country;
they may be born and raised in a foreign country and then later in
life immigrate; or they may be born in the parent country of foreign
immigrant parents and raised in either the parent country or their
native (foreign) country. Any of these possibilities creates varying
skills and cultural competencies.

Internships
(temporary
immigrants)

These are workers brought into a firm’s home country to work for
short (six months to two years) periods as interns or trainees, used
especially to fill in for labor shortages.

Returnees These are emigrants who are hired (or selected, if already employed
by the firm) to return to their home countries to work for the firm
there.

Continued overleaf

Global Talent Management236

Boomerangs These are individuals who have emigrated and are hired by firms
in the firm’s parent country to return to their original homes or are
foreigners with experience in the firm’s parent country, who have
returned to their original homes and are now hired to work in the
foreign (to the firm, but home to the individual) country

Second-
generation
expatriates

These are naturalized citizens (immigrants who have become
citizens) and are sent on foreign assignments to countries other than
their countries of birth. The assumption is that since they have lived
through the “expatriate” experience once, they should be better able
(than those without this experience) to handle it the second time.

Just-in-time
expatriates

These are ad hoc or contract expatriates, who are hired from outside
the firm just as they are needed and just for one assignment.

Reward or
punishment
assignees

These are employees who are late in their careers and who are
either given a desirable foreign assignment to enjoy and to pad their
pensions for when they retire in a couple of years (pay is higher on
foreign assignments) or are sent to a difficult locale or undesirable
assignment as a way to sideline them to finish out their careers,
rather than have to discipline or terminate them because of marginal
performance.

Outsourced
employees

This is the situation that occurs when the MNE decides to pay
someone else (in another country) for the services of an “employee”
or group of employees. That is, the firm moves work to another
country, subcontracting to a local firm to do the work. If the
employees stay in the employ of the firm, yet are located in a foreign
locale, this is generally referred to as offshoring. In recent years,
global employment companies (GECs) have evolved, which provide
a few employees or whole staffs for overseas locations. Some firms
use their own GEC to house all of their globally mobile employees,
simplifying pay and benefits, since everyone in the GEC gets the
same pay and benefits, no matter where they work within the firm,
possibly with cost-of-living adjustments. Other firms use independent
GECs to staff overseas work.

Virtual IEs This is the situation where all or most of the work is performed across
borders via electronic media: tele conferences, email, telephone,
video conferences, fax, etc. Virtual cross-border teams are discussed
in more detail in Chapter 10, Training and Development.

Self-initiated
foreign workers

This term refers to individuals who travel abroad (usually as tourists or
students) but who seek work as they travel and are hired in the

EXHIBIT 8.3 Continued

Workforce Planning and Staffing 237

foreign location, often by firms from their home countries. They may
also be individuals who travel to foreign countries seeking work in
those countries. In either case, the initiative is taken by the individuals
who are purposely seeking work in a foreign country. Or they are
individuals who travel to another country for schooling or training
and then stay to work.

Retirees This refers to the hiring of a firm’s retirees for short-term foreign
assignments.

different types of international employees that MNEs draw on to staff their operations in
the global marketplace.20 There are many different options available to MNEs, and there
are probably even more examples that the authors have yet to come across.

INTERNATIONAL STAFFING CHOICES:
IMPLICATIONS FOR MNES

IHRM professionals need to develop an appreciation for the fact that their responsibili-
ties related to their international employees (IEs) vary according to the particular form of
international employee and their countries of operation, the type of foreign operation (for
example wholly owned subsidiary or international joint venture), or the firm’s phase of
globalization.21

This increased variety of employees presents all sorts of new challenges for the selection,
preparation, deployment, and management of a global workforce. Not the least of these is
the increased need by all managers—and for IHR managers in particular—to increase their
cross-cultural awareness, knowledge, and skills, their foreign language abilities, and their
overall management competencies within this new international setting.

For example, firms have much to learn about how to manage the performance of a
global workforce. The performance management of traditional expatriates, themselves, is
not always handled well (this is discussed in Chapter 12), even though many global enter-
prises have many years of experience dealing with them. But the cross-national interaction
among all the many different types of international employees described in this chap-
ter and between global managers and IEs creates many new performance management
problems, which become even more difficult as the variety of employees expands. All of
these become critical concerns: the impact of national culture on performance and how
it is defined, on standards for performance, on the review-ability of reviewers, on who
reviews (their cultural experience and savvy), etc.22

Pay and support services are also likely to be structured differently for a short-term
business traveler sent on an assignment for six months to finalize the start-up of a new

Global Talent Management238

foreign subsidiary than for a manager sent for three to five years to run such a subsidiary.
Differences would also be pretty important between the pay and support services of the
immigrant or foreign student (and each of these would be different from each other) hired
to return home to work in a foreign subsidiary in comparison to a person who makes a
career out of moving from one foreign assignment to another. Compensation issues are
discussed in more depth in Chapter 11.

Exhibit 8.4 highlights some of the types of questions that IHR and the global enterprise
need to address in order to better manage their global workforces. These questions can help
guide readers as they read the rest of the chapters in this section.

EXHIBIT 8.4: Questions to Better Manage
a Global Workforce

1 What is the extent of the use of each type of IE?

2 How does the preparation and support for each type of IE vary? What form does
the preparation and support take for each type of IE?

3 Does the international strategy or structure of the firm influence the type of IE
employed? Or, stated from the other direction, which type of IE tends to be used
under which strategy (international, multi-domestic, global, transnational) or
structure (subsidiary, joint venture, alliance, sub-contract) or managerial orientation
(ethnocentric, region-centric, geo-centric)?

4 Which international-business or cross-cultural competency is required by which type
of international employee? For example, does every type of international employee
require full cross-cultural preparation, training, and support? Does every type need
full knowledge of how to conduct international business?

5 Which performance management problems arise for which type of international
employee? And which solutions are most appropriate?

6 Are there specific management, organizational, and IHR outcomes that differ
according to the type of international employee? For example, do difficulties
with performance or retention vary with type of international assignment? Do the
staffing, training, compensation, and management solutions also vary with the type
of international assignment?

7 For which type of work and business purposes—management, sales, control,
technology transfer, business development, product development, management
development—are the various types of international employees used? Why?
Which is most effective? Will the outsourcing and offshoring of this type of work
continue? What will be the impact on the domestic workforces of MNEs that
do this?

Workforce Planning and Staffing 239

Purposes for these various employment or assignment situations will vary significantly.
For example, these purposes could include any of the following: an ongoing assignment to
perform manufacturing operations, a project team to install a new product, a short-term
negotiation of a deal, intermediate-term transfer of technology, longer-term managerial
and control assignments (managing director, comptroller), personal developmental assign-
ments, or assignments to start new operations. Obviously the end result that is sought in
each situation is different and the skills and competencies sought by the employing organ-
ization should also vary according to the purpose of the assignment. At the same time, the
need for cross-cultural understanding and competency may be similar.

â– â–  Which types of international employee are most cost-effective? Which provide the best
business results? The extent of the cost variances and the ability of IHRM to measure
and to manage these differences (and the extent to which IE choices are made based on
these differences) needs to be examined. In the authors’ experience, even though the
costs of IE assignments are rarely measured, the benefits are almost never measured,
making any assessment of ROI of foreign assignments almost always impossible. Since
MNEs are under constant and strong cost pressures, it would seem that this should be
an area for major attention (and for payoff from results of such attention).

â– â–  What are the best practices among various types of international firms in terms of the
utilization of various types of international employees?

â– â–  Do varying types of IE experience result in differential amounts of stress or other
forms of personal problems? Recently, researchers have begun to look at issues such as
stress as associated with varying forms of international activity, seeking, for example, to
identify the extent and nature of particular problems associated with different types of
international assignments.23

The answers to the types of questions suggested here and the analyses of these problems
can go a long way toward helping to fill the business need for ensuring the best (most effec-
tive, productive/profitable, and cost-efficient) utilization of employees in this increasingly
complex global business environment. In order for IHR to adequately fulfill its mission in
support of the MNE’s staffing, it needs to clarify which type of international employee
works best when and for which purpose.

Managing a global workforce creates many issues for IHRM.24 This chapter has provided
an introduction. The rest of this section provides detail of the many components of the whole
process. Most of the section deals with the management of international assignees. But, as
this chapter has pointed out, firms with a global workforce in multiple countries must also
cope with local workforces as well as the mobility of employees from country to country.

CONCLUSION

This chapter provides an introduction to planning, forecasting, and staffing the global enter-
prise. It began by providing a description of the constantly changing labor markets around

Global Talent Management240

the world and discussed how MNEs plan for creating their workforces from those labor
markets. The nature of those markets in various countries, in terms of their demographic
characteristics, the skills and abilities of their individuals, and their accessibility and cost
varies dramatically from country to country and region to region and can be a major deter-
minant in the success of IB decisions such as where to locate operations. The chapter also
provided an overview of the many options that MNEs have available to them for that
staffing.

DISCUSSION QUESTIONS

1 Why is planning and forecasting a global workforce so difficult?
2 Why are so many countries bothered by their “brain drains”?
3 If you are given the opportunity in your next job to go on an extended foreign assign-

ment, what types of support programs would you expect or ask for? If you are working
in IHRM, what policy or practices would you create to deal with foreign assignments?

4 What are the trends over the next 10 years in global staffing for many MNEs?

Workforce Planning and Staffing 241

CASE STUDY 8.1: Firms Woo Executives from “Third”
Countries (Global)

In the new world of a global workforce and firms’ foci on global talent management, multi-
national firms are tapping more “third-country” nationals for overseas posts. The increase in
operations in emerging markets, the high costs of traditional international assignments, and
shortages of needed skills in many markets has led to the search for employees from countries
other than the parent country of headquarters or the host country of subsidiaries, employees
who are referred to as “third-country” nationals (TCNs). These TCNs often win jobs because
they speak several languages (particularly English and the host-country language) and know an
industry and or foreign country well. The average number of third-country nationals continues
to rise from year to year, according to consultants such as Organization Resources Counselors.

Pioneer Hi-Bred International employs 29 TCNs in key jobs abroad, triple the number five
years earlier, partly because they accept difficult living conditions in Africa and the Middle
East. Raychem has a dozen such foreigners in top European posts, up from eight a few years
ago. “The numbers are going to increase” as Europe’s falling trade barriers ease relocation,
suggests Edward Keible, a senior vice-president. A Frenchman runs the company’s Italian sub-
sidiary, a Belgian is a sales manager in France, while a Cuban heads the unit in Spain.

Scott Paper, whose ranks of TCN managers has grown from two to 13 within a couple of
years, says it will step up its recruitment of young foreigners “willing to move around Europe or
around the Pacific,” says Barbara Rice, their HR chief.

Sources: European Migration Network Focused Study 2013: Attracting Highly Qualified and Qualified
Third Country Nationals, European Commission; Baker & McKenzie (2014). Mobilizing the work force
globally. The Global Employer, (2), 1–3; Fouad, S., Hahm, W. and Leisy, B. (2010). Managing Today’s
Global Workforce, New York: Ernst & Young; Lubblin, J. S. (1991). Firms woo executives from “third coun-
tries,” Wall Street Journal, September 16, B1

Discussion Questions:

1 What culture-related problems and issues do you see in these uses of third-country nationals?
2 How can those culture-related concerns be understood and dealt with?
3 What role does international HR need to take in coping with the cultural issues presented

by the use of TCNs?
4 Are there other alternatives for finding enough talent to fill global needs?

NOTES

1 Source: Samsung corporate website (www.samsung.com). Values and pphilosophy. Retrieved from http://
www.samsung.com/us/aboutsamsung/samsung_group/values_and_philosophy/. Accessed Nov. 24, 2014.

Global Talent Management242

2 Sparrow, P., Scullion, H., and Tarique, I. (eds.) (2014). Strategic Talent Management: Contemporary Issues
in International Context, Cambridge: Cambridge University Press; Collings, D. (2014). Integrating global
mobility and global talent management: Exploring the challenges and strategic opportunities. Journal of
World Business, 49, 253–261, Tarique, I., and Schuler, R. S. (2010). Global talent management: Literature
review, integrative framework, and suggestions for further research. Journal of World Business, 45(2),
122–133.

3 This term refers to the ability of firms to use the input of non-employees for in-house projects, much like the
development of “open source” software. Sometimes this is referred to as the “Wiki Workplace,” which
refers to the use of mass collaboration, which is taking root in the workplace connecting internal teams
to external networks or individuals facilitated by the Web 2.0 platform for collaboration. As a result, the
boundaries of the organization are extended in terms of the workforce that can be accessed by the firm.
See, The wiki workplace, in Tapscott, D. and Williams, A.D. (2006). Wikinomics: How Mass Collaboration
Changes Everything, New York: Portfolio Penguin Group, pp. 239–264.

4 Kelly, L. K. (Heidrick and Struggles) (2007). Mapping global talent. Essays and Insights,, Economist Intelli-
gence Unit, London: The Economist.

5 There are many references on this subject—although there has been far less attention to it during the
2007–2010 global recession. Even so, many employers have expressed difficulties in finding employees
with the high level of skills they need, even during a period of high unemployment. Here are only a few
of the references to labor shortages: 2013 Talent Shortage Survey, Research Results, Manpowergroup
(www.manpowergroup.com); Spears, V. P. (2012). Global talent shortage worries multinationals more than
revolution or recession. Employee Benefit Plan Review, 67(2), 27; Boardman, M. (1999). Worker “dearth”
in the twenty-first century, HR Magazine, June, 304; Golzen, G. (1998). Skill shortages around the globe.
HR World, November–December, 41–53; Herman, R., Olivo, T., and Gioia, J. (2003). Impending Crisis:
Too Many Jobs, Too Few People, Winchester, VA: Oakhill Press; Johnston, W. B. (1991). Global work
force 2000: The new world labor market. Harvard Business Review, March–April, 115–127; Leonard, S.
(2000). The labor shortage, Workplace Visions, 4, 1–7; Patel, D. (2001). HR trends and analysis: The
effect of changing demographics and globalization on HR. Global HR, July–August, 9–10.

6 Female labor force participation rates as % of active (employed plus unemployed) population between the
ages of 15 and 60. Rates published by OECD, 2013. www.oecd.com, Accessed 15 Sept. 15, 2013.

7 Estimates from data provided by the World Bank, World Development Indicators. Available at www.world-
bank.com/world-development-indicators. Accessed Oct. 13, 2014.

8 Adapted from, Amid shortage of workers, Dutch find reward in hiring the retired (2000). San Diego
Union-Tribune, April 23, p. A–29.

9 Hall, L. (2001). Talent mapped out, Global HR, April, 30, quoting Alan Tsang, Managing Director for Asia
of the search and selection firm Norman Broadbent.

10 Friedman, T. L. (2005). The World Is Flat, New York: Farrar, Straus and Giroux.
11 Sullivan, J. (2002). Plan of action, Global HR, October, 22.
12 See, for example, Caligiuri, P., Lepak, D., and Bonache, J. (2010). Global Dimensions of Human Resources

Management: Managing the Global Workforce, New York: Wiley; and Dickman, M. and Baruch, Y.
(2011). Global Careers, London/New York: Routledge.

13 Perlmutter, H. V. and Heenan, D. A. (1986). Cooperate to compete globally. Harvard Business Review,
March/April, 135–152.

14 Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W. and Van Ruysseveldt, J. (eds.),
International Human Resource Management, 2nd ed., Thousand Oaks, CA/London: Sage Publications,
pp. 251–282.

15 See, for example, Harzing (2004).; Caliguiri, Lepak, and Bonache 2010; Fernandez, F. (2005). Glo-
balization and Human Resource Management, New York: HNB Publishing; Gross, A. and McDonald, R.
(1998). Vast shortages in talent keep employers searching. International HR Update, July, 6; Melton, W. R.
(2005). The New American Expat, Yarmouth, ME: Intercultural Press; Schell, M. S. and Solomon, C. M.

Workforce Planning and Staffing 243

(1997). Capitalizing on the Global Workforce, Chicago: Irwin; Stroh, L. K., Black, J. S., Mendenhall, M. E.,
and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy, Research, and Prac-
tice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Vance, C. M. and Paik, Y. (2010). Managing a
Global Workforce, 2nd ed., Armonk, NY/London: M. E. Sharpe. The terms PCN, TCN and HCN were first
introduced into the IHRM literature by Patrick Morgan, at that time (1986) director of international HR at
Bechtel: Morgan, P. (1986). International human resource management: Fact or Fiction? Personnel Admin-
istrator, 31 (9), 43–47.

16 See, for example, Edström, A. and Galbraith, J. R. (1977). Transfer of managers as a coordination and
control strategy in multinational organizations. Administrative Science Quarterly, 22 (June), 248–263;
Harzing, A.-W. (2001a). Of bears, bumble-bees, and spiders: The role of expatriates in controlling foreign
subsidiaries. Journal of World Business, 36 (4), 366–379; Hays, R. (1974). Expatriate selection: Insuring
success and avoiding failure. Journal of International Business Studies, 5 (1), 25–37; Roberts, K., Kossek,
E. E. and Ozeki, C. (1998). Managing the global work force: Challenges and strategies, Academy of
Management Executive, 12 (4), 6–16; Tahvanainen, M. (1998). Expatriate Performance Management,
Helsinki: Helsinki School of Economics Press; and Tung, R. L. (1991). Selection and training of personnel
for overseas assignments. Columbia Journal of World Business, 16 (1), 68–78.

17 Carpenter, M. A., Sanders, W. G. and Gregersen, H. B. (2001). Bundling human capital with organiza-
tional context: The impact of international assignment experience on multinational firm performance and
CEO pay. Academy of Management Journal, 44 (3), 493–511; Harzing, A.-W. (2001a); Harzing, A.-W.
(2001b). Who’s in charge? An empirical study of executive staffing practices in foreign subsidiaries.
Human Resource Management, 40 (2), 139–158; Stahl, G. T., Miller, E. L. and Tung, R. L. (2002). Toward
the boundaryless career: A closer look at the expatriate career concept and the perceived implications of
an international assignment. Journal of World Business, 37 (3), 216–227; and Tung, R. L. (1998). Ameri-
can expatriates abroad: From neophytes to cosmopolitans. Journal of World Business, 33 (2), 125–144.

18 Adler, N. J. with Gundersen, A. (2008). International Dimensions of Organizational Behavior, 5th ed.,
Mason, OH: Thomson/South-Western; Bachler, C. (1996). Global inpats: Don’t let them surprise you.
Personnel Journal, June, 54–56; Forster, N. (2000). The myth of the international manager, International
Journal of Human Resource Management, 11, 126; Groh, K. and Allen, M. (1998). Global staffing: Are
expatriates the only answer? Special report on expatriate management. HR Focus, March, 75–78; Mine-
han, M. (1996). Skills shortage in Asia, HR Magazine, 41, 152; Tung, R. (1987). Expatriate assignments:
Enhancing success and minimizing failure, Academy of Management Executive, 1 (2), 117–126.

19 Black, J. S., Morrison, A. J. and Gregersen, H. B. (1999). Global Explorers: The Next Generation of Lead-
ers, New York/London: Routledge; Fernandez, F. (2005). Globalization and Human Resource Manage-
ment, New York: HNB Publishing; Ferraro, G. (2002). Global Brains: Knowledge and Competencies for
the Twenty-first Century, Charlotte, NC: Intercultural Associates; Hodge, S. (2000). Global Smarts: The
Art of Communicating and Deal-making Anywhere in the World, New York: Wiley; Keys, J. B. and Fulmer,
R. M. (eds.) (1998). Executive Development and Organizational Learning for Global Business, New York/
London: International Business Press; McCall, M. W., Jr. and Hollenbeck, G. P. (2002). Developing Global
Executives: The Lessons of International Experience, Boston, MA: Harvard Business School Press; Moran,
R. T., Harris, P. R. and Moran, S. V. (2007). Managing Cultural Differences, 7th ed., Burlington, MA/Oxford:
Butterworth-Heinemann; Rosen, R., Digh, P., Singer, M. and Phillips, C. (2000). Global Literacies: Lessons on
Business Leadership and National Cultures, New York: Simon & Schuster; Scherer, C. W. (2000). The Interna-
tionalists: Business Strategies for Globalization, Wilsonville, OR: Book Partners; Stroh et al. (2005); Vance,
C. and Paik, Y. (2011), Managing a Global Workforce, 2nd ed., Armonk, NY/London: M. E. Sharpe.

20 This is just a summary. If the reader would like more information, more complete descriptions, and refer-
ences to support these different types of international employees, please contact the lead author, Dr. Dennis
Briscoe, at [email protected]

21 See, for example, Adler, N. and Ghadar, F. (1990). Strategic human resource management: A global
perspective, in Pieper, R. (ed.), Human Resource Management: An International Comparison, Berlin: de

Global Talent Management244

Gruyter, pp. 235–260; Black, J. S., Gregersen, H. B. and Mendenhall, M. E. (1992); Stroh, L. K., Black,
J. S., Mendenhall, M. E., and Gregersen, H. B. (2005). International Assignments: An Integration of Strat-
egy, Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Evans, P., Pucik, V., and
Björkman, I. (2011). The Global Challenge: International Human Resource Management, 2nd ed., New
York: McGrawHill/Irwin; Luthans, F., Marsnik, P. A., and Luthans, K. W. (1997). A contingency matrix
approach to IHRM, Human Resource Management, 36(2), 83–199; and Shenkar, O. (1995). Contingency
factors in HRM in foreign affiliates, in Shenkar, O. (ed.), Global Perspectives of Human Resource Manage-
ment, Englewood Cliffs, NJ: Prentice Hall, pp. 197–209.

22 Borkowski, S. C. (1999). International managerial performance evaluation: A five country comparison.
Journal of International Business Studies, 30(3), 533–555; Briscoe, D. R. (1997). Assessment centers:
Cross-cultural and cross-national issues, in Riggio, R. E. and Mayes, B. T. (eds.), Assessment centers: Research
and applications [Special Issue], Journal of Social Behavior and Personality, 12(5), 261–270; Caligiuri,
P.M. (1997). Assessing expatriate success: Beyond just “being there.” New Approaches to Employee Man-
agement, vol. 4, 117–140; Gregersen, H. B., Hite, J. M., and Black, J. S. (1996). Expatriate performance
appraisal in U.S. multinational firms, Journal of International Business Studies, 27(4), 711–738; Milliman,
J., Nason, S., Gallagher, E., Huo, P., Von Glinow, M. A., and Lowe, K. B. (1998). The impact of national
culture on human resource management practices: The case of performance appraisal. Advances in Inter-
national Comparative Management, 12, 157–183; and Oddou, G., and Mendenhall, M. (2000). Expa-
triate performance appraisal: Problems and solutions, in Mendenhall, M. and Oddou, G. (eds.), Readings
and Cases in International Human Resource Management, 3rd ed., South Western, pp. 213–223.

23 See, for example, DeFrank, R. S., Konopaske, R., and Ivancevich, J. M. (2000). Executive travel stress: Perils
of the road warrior. Academy of Management Executive, 14(2), 58–71; and Harris, H. (2000). Alternative
forms of international working, Worldlink, 10(4), 2–3.

24 This introduction to the rest of this section of the text is partially based on Boudreau, J. W. (2010). IBM’s
Global Talent Management Strategy: The Vision of the Globally Integrated Enterprise, Alexandria, VA: Soci-
ety for Human Resource Management; CARTUS and National Foreign Trade Council (2010). Navigating
a Challenging Landscape, Global Mobility Policy and Practice Survey, New York: Authors; Deloitte Devel-
opment LLC (2010). Smarter Moves: Executing and Integrating Global Mobility and Talent Programs, New
York: Deloitte Touche Tohmatsu; and Gerdes, D. R. and Kessler, J. H. (eds.) (2010). Mobilizing the work
force globally—best practices to maintain compliance and manage staffing needs, in Baker & McKenzie,
The Global Employer, XV (2). May issue.

People who work at BP as an expat often describe their position overseas as one of the
most fulfilling and valuable experiences they’ve ever had.

BP Corporation1

Learning Objectives

This chapter will enable the reader to:

â– â–  Describe the broad issues involved in staffing subsidiaries with international
assignees or expatriates.

â– â–  Describe the various issues involved in recruiting international assignees or
expatriates.

â– â–  Describe the general process of selection of international assignees (IAs) for inter-
national assignments and the issue of failure in an IA assignment and reasons
for it.

â– â–  Describe the characteristics of successful IA selection programs and exemplary
practices.

â– â–  Explain the essential nature of repatriation.

C h a p t e r 9

International Recruitment,
International Selection,
and Repatriation

The previous chapter introduced the complex responsibilities of international workforce
planning and staffing for firms that operate in a multinational environment. In addition to
normal domestic hiring responsibilities—which in today’s global economy often involve
the recruitment and selection of employees from numerous nationalities and cultures—the
international staffing manager takes on a number of new responsibilities, including recruit-
ing and staffing the traditional types of employees utilized by international businesses
(e.g., PCNs, HCNs, and TCNs). This chapter focuses primarily on the issue of recruiting,

Global Talent Management246

selecting, and repatriating traditional PCNs, or expatriates, although some of the chapter dis-
cusses the selection of the other traditional types of international employees (HCNs and
TCNs) as well.

â– â–  Recruiting involves searching for and attracting qualified applicants to create a pool of
candidates for screening for possible hiring.

â– â–  Selecting focuses on gathering and analyzing information about applicants in order to
select the most suitable person or persons for the job.

â– â–  Repatriating refers to the process of bringing international assignees (IAs) and their
families back “home” from their foreign assignments.

STAFFING WITH EXPATRIATES
OR INTERNATIONAL ASSIGNEES

Typical employment practices for managerial, marketing, and technical operations posi-
tions in foreign subsidiaries, particularly in the early stages of “going international,” place
heavy emphasis on the use of expatriates.2 There are many reasons that MNEs transfer
personnel from one country to another. But the key reasons still appear to be for their tech-
nical or functional expertise, for control, and to start new operations.3 In addition, MNEs
are increasingly recognizing the importance of international experience for higher-level
managerial positions, making development through an international assignment an increas-
ingly prominent focus, as well (although, as will be shown later in this chapter, the rhetoric
may be stronger than the reality).4

Historically, the term “expatriate,” as used by companies, referred to employees who were
relocated from the parent company or headquarters to foreign subsidiaries or “overseas”
operations. Today, the term “international assignee” is more generally used to describe any
employee who is relocated from one country to another for a period of more than one year,
while staying in the employment of the same firm. Both terms are used throughout this text.

Exhibit 9.1 illustrates the four common options used by MNEs to staff their foreign
operations. The first option in Exhibit 9.1—secondment, while remaining an employee of
the parent firm—is the most commonly used practice to relocate expatriates—either from
headquarters out to subsidiaries or from subsidiaries to headquarters or to other subsid-
iaries. The other options—transfer of employment, global employment company, and dual
employment are used less frequently.

Even though global enterprises are using multiple ways and multiple types of employees
to staff their international businesses, there is still major interest in and use of traditional
international assignees (option 1 in Exhibit 9.1). Many large multinationals that have been
international for a long time, such as Unilever, the large Anglo-Dutch consumer products
firm, Royal Dutch Shell, an Anglo-Dutch oil company, and Ford Motor Company, move
managers from subsidiary to subsidiary and country to country (as well as from HQs out to
subsidiaries) to help build global relationships and to develop a common corporate identity

Recruitment, Selection, and Repatriation 247

and business culture among their management ranks, as well as to ensure they have the
necessary talent in the right location at the right time.

Increasing use of international assignees. In the typical MNE of any size, there are diver-
gent forces operating relative to the use of international assignees:

â– â–  Larger MNEs use a greater number and percentage of local hires, but they also need
international experience in their management team. So to develop this experience,
they are increasingly likely to move managers from the parent company or regional
HQs, as well as their foreign managers, to assignments in countries other than their
countries of origin.

â– â–  Firms that are newly developing their international businesses, of which there are a
constantly increasing number, typically rely heavily on international assignees from the
home office for the development of that business, both because they trust their exist-
ing managers more than unknown foreign managers and because they lack experience
in working with foreign operations and it seems easier to establish their new foreign
businesses with their existing managers.

EXHIBIT 9.1: Employment Options for
International Transfers

Who will be the employer? The typical options involve one of these four:

1 Secondment—the employee remains employed by the home country employer (nor-
mally headquarters but sometimes a subsidiary) and is “loaned” or seconded to work
for an entity (normally a subsidiary or sometimes headquarters) in the host country.
This is the typical expatriate or inpatriate.

2 Transfer of Employment—the employee is terminated by the home country employer
and is rehired by a new employer in the host country.

3 Global Employment Company—the employee is terminated by the home country
employer and transferred to the employment of a global employment company
(GEC). The GEC in turn seconds the employee to work for an entity in a host country.
Sometimes the GEC is owned by the home country employer and services all the
subsidiaries of the parent firm.

4 Dual Employment—the employee maintains more than one employment relationship
simultaneously during the course of the assignment (that is, works for two or more
employers with split payroll).

Source: Baker & McKenzie (2014). The Global Employer: Focus on Global Immigration and Mobil-
ity, Baker & McKenzie International, a Swiss Verein with member law firms around the world.

Global Talent Management248

â– â–  Sometimes there is simply a shortage of qualified skills in local nationals, although,
with global communications and hundreds of thousands—if not millions—of students
from the developing world getting higher education in developed countries and many
developing or emerging economies providing world-class education to millions of their
own citizens, this is rapidly becoming less of a concern. A more pressing concern is the
lack of supervisory and managerial skills in these emerging markets.

Several studies show that the number of international assignees is increasing, and the pre-
diction5 is that the absolute numbers will continue to grow as global business opportunities
are expanding, especially in large markets like China and India.

It is important to keep in mind that the number of international assignees can vary with
the stages of international operations. The use of international assignees (especially from
HQs) is high during the initial stages of foreign operations in order to implement opera-
tional and office start-up—and all that is involved with this in a new country, technology
transfer—including production and management technologies, and product-knowledge
transfer. The number of international assignees will then decline as the firm’s local man-
agers and technical and functional staff assimilate this knowledge. The number may later
expand, again, as local operations become increasingly integrated into a global operational
framework. In addition, as enterprises become more global, they develop a need for inter-
national managers with greater international experience as they develop their worldwide
competitive advantages. However, at this stage, these global managers may well come from
any country, not necessarily, or even primarily, from the country of the parent company.

Thus, the global movement of employees is essential to multinational organizations
doing business in different countries. As stated by Baker & McKenzie, the world’s largest
global employment law firm: “Getting the right people to the right places at the right time
with proper support in a lawful manner is critical to the success of global business.”6

THE INTERNATIONAL RECRUITMENT FUNCTION

Recruitment is defined as the process that involves searching for and attracting qualified
applicants to create an applicant pool for open positions. Recruitment is highly dependent
on the workforce planning process discussed in the previous chapter. Recruiting begins after
an organization’s immediate and long-term labor needs are defined. For example, several
questions7 such as the following need to be addressed before the recruiting process can start:

â– â–  How many positions does the organization need to fill? Are these needs short term (less
than a year) or long term (greater than a year)?

â– â–  Does the organization need applicants for short-term assignments or long-term
assignments?

â– â–  What compensation strategy does the organization want to pursue? That is, does the
organization intend to offer compensation packages that are below market average, at
market average, or above market average?

Recruitment, Selection, and Repatriation 249

■■ Does the organization seek applicants who differ from the company’s current employ-
ees? How will this affect the recruiting process?

â– â–  What type of competencies does the organization seek in new applicants?

Once the number, types, and quality of employees being sought are specified, then organ-
izations need to determine which labor markets—which are potentially widely geograph-
ically dispersed—are most likely to provide the employees desired. This process of finding
candidates is referred to as sourcing, and there are two broad recruiting sources available to
organizations: internal recruiting sources and external recruiting sources.

Internal recruiting sources focus on global candidates from within the organization and
include:8

â– â–  Global talent management inventories: Electronic records of work-related information
for employees from throughout the organization including their knowledge, skills and
abilities, education, past performance, interests, etc.

â– â–  Attendees from in-house global leadership programs: Educational programs designed to
provide global leadership competencies to high potential employees.

â– â–  Former/current expatriates: Individuals who have been on foreign assignments or are
currently on an assignment.

â– â–  Nominations: Recommendations from current or potential supervisors and/or former
or current expatriates.

â– â–  Internal job posting/intranet: Job advertisement that can only be viewed by current
employees, usually posted on the company’s intranet system. It is expected that
employees with an interest in an international assignment will look for these postings
and apply when they see a job for which they have an interest.

â– â–  International succession planning programs: Internal programs designed to prepare high
potential employees for overseas positions such as “look-see visits” or “short-term
developmental” foreign assignments.

Internal recruiting sources are often favored because they reduce labor costs, are valued by
employers and employees, and can enhance the reputation of the company as an employer
of choice. However, internal recruiting sources can also limit the size and to some extent
the quality of the applicant pool, and may encourage infighting and inbreeding.

External recruiting sources locate candidates from outside the organization and include:9

â– â–  Employee referrals: Recommendations from current employees or expatriates.
â– â–  Job fairs: Organized events where employers and potential applicants can meet each other.
■■ Company Internet sites: Companies’ dedicated career websites that allow potential

applicants to learn about employment opportunities within the organization. Each
country/region/subsidiary within the firm may have its own dedicated career website.

â– â–  Executive search firms: Recruiting firms that specialize in particular types of individuals,
jobs, or industries. Particularly helpful here are search firms with global networks and
contacts.

Global Talent Management250

â– â–  Professional associations or networks: Members of professional associations and net-
works are potential applicants (e.g., LinkedIn) or may provide a platform or network
for connection to possible international assignments.

â– â–  Competing firms: Current expatriates or former expatriates from competitor firms are
potential applicants. Recruiting existing employees from other firms is referred to as
employee raiding, which can be unethical or illegal in certain environments or countries.

â– â–  Generic global leadership programs for the public (offered by consulting firms or train-
ing companies) or offered in universities and colleges: Most of these programs typically
prepare interested managers or senior-level students for global leadership positions.

Managers should always use multiple recruiting sources so as to increase diversity and to
generate a larger pool of applicants.

Although all of the above recruiting sources may be used to find candidates for foreign
assignments (PCNs or TCNs) or HCNs for local hires, attracting candidates to work inter-
nationally raises an important challenge for MNEs10—how to find individuals interested in
a specific international assignment as well as those interested in permanent international
careers.11 MNEs need to use recruiting sources that find candidates with high receptivity to
international careers,12 which refers to an individual’s attitude toward international careers
and is one of the most frequently studied factors in assessing why people undertake careers
in international work.13

Several factors influence an individual’s receptivity to an international career or willing-
ness to accept an international assignment (these factors are described in more detail in the
selection section later in the chapter):14

â– â–  job suitability/technical ability;
â– â–  cultural adaptability;
â– â–  personality characteristics;
â– â–  desire for foreign assignment;
â– â–  the maturity of the candidate;
â– â–  ability to handle foreign language(s);
â– â–  possession of a favorable outlook on the international assignment.

In addition to the above factors, there are other factors that can influence receptivity to
international careers:

â– â–  prior international experience;
â– â–  age;
â– â–  gender;
â– â–  family status;
â– â–  marital status;
â– â–  education;
â– â–  destination country;
â– â–  opportunities for career support;
â– â–  company culture;

Recruitment, Selection, and Repatriation 251

â– â–  career and repatriation planning;
â– â–  length of the foreign assignment;
â– â–  overseas health care plan;
â– â–  income tax equalization policy;
â– â–  host country housing assistance;
â– â–  spouse job assistance;
■■ spouse’s willingness to travel overseas;
■■ children’s education allowance.

Another challenge for MNEs, especially if recruiting candidates from an external labor
market, is to develop an employer reputation15 that attracts candidates to the organization.
Employer reputation—sometimes referred to as employer brand—refers to the evaluation
by potential candidates of an organization as a desirable place of work and to seek interna-
tional experience. An organization’s employer reputation is strongly based on the signals
or messages the organization sends to individuals outside the organization. These signals
can come through the media (e.g., newspapers and business magazines), former employ-
ees, recruiting advertisements, customer reactions to company products and services, and
company websites, and can include information about potential compensation, benefits,
prestige, and career advancement. For potential candidates, employer reputation is critical
since most candidates’ understanding of an organization is limited to the employer’s repu-
tation in the marketplace rather than the organization’s actual HR policies and practices.16

The final challenge for MNEs is to manage talent shortages that occur when employers
cannot find workers with the needed competencies.17 Talent shortages occur in countries
during times of economic boom, as well as in times of economic uncertainty.18 This is more
serious in the service sector, especially when economic conditions improve.19

In the context of talent shortages, the challenge for MNEs to develop strategies to attract
high performers and specialists. Location (where to find talent) becomes a critical issue.

The following IHRM in Action illustrates this point:

IHRM in Action 9.1: Locating Near the Talent with a
Global Workforce

Today, it is still important to be located near your customers. But in the war for talent, it
may be equally as important to be located in the best place to attract the high performers
and specialists your business needs. Over the last few years, specific locations have arisen
as preferred places to live and work. High talent employees can establish themselves in
locales that enable them to create the life-work balance that meets their current needs.

So, where are such places?
As it turns out, people don’t look so much at countries as they do at cities, and

often it is small cities that provide the lifestyles they are looking for. For example, it

Global Talent Management252

THE INTERNATIONAL SELECTION FUNCTION

Selection refers to the process of gathering and analyzing information about applicants in
order to select the most suitable person or persons for the job. The selection decision for
international assignees is critically important. Errors in selection can have major negative
impact on the success of overseas operations as well as on the careers of relocated managers.

Selection Decisions

A good selection decision will identify, and/or most likely predict, IAs who are likely to
perform well on the assignment (in a different culture) and to remain in their foreign
assignments until the end of their contracts.20 In addition, a good selection decision will
predict IA who are most likely to stay committed to their organizations while on the
assignment and after returning from the assignment.21

Successful expatriate experience

From the perspective of HQs, an important consideration in making good selection decisions
is to fully understand the process of a “successful expatriate experience” (see Figure 9.1).

As with all HRM activities, a thorough job analysis of the assignment (including an
examination of the foreign work environment and culture) is necessary in order to make
appropriate international assignment selections. Thus, the first step in understanding the
process of a “successful expatriate experience” is to fully analyze the requirements in both
technical and cultural terms of the jobs to which expatriates will be assigned (see Part
A in Figure 9.1) as well as of the country of assignment (see Part B in Figure 9.1).22 Based

includes Groningen, a small, obscure town in the north of the Netherlands, and Ein-
dhoven, another small town—but major business location—in the Netherlands. Of
course, the traditional, popular big cities continue to have appeal, but there are also
new areas that are attracting the talent that today’s MNEs need.

In Europe, this would include an area marked on a map by a gentle curve drawn
from Barcelona, across southern France, northern Italy, Switzerland, and southern
Germany, an area that already boasts the highest per capita income level in the world.
The big cities of interest in Europe still include Amsterdam, Brussels, London, Paris,
Nice, Berlin, Milan, Dublin, and Zurich. In Asia, these cities would include Sydney
and Brisbane, Auckland, Singapore, Kuala Lumpur, Tokyo, Seoul, and Shanghai. If a
global firm cannot find talent where its customers want them to locate, then maybe
it needs to figure out where the talent is and go there.

Recruitment, Selection, and Repatriation 253

on this information, the candidate is evaluated for his/her ability to successfully live and
work overseas (Part C in Figure 9.1). If the candidate is selected, then he/she is prepared
for the overseas assignment (Part D in Figure 9.1), and supported during the assignment
depending on the length of the assignment (Part E in Figure 9.1). Then the IA is prepared

A. ANALYSIS OF TECHNICAL AND CULTURAL
TERMS OF JOB REQUIREMENTS

• Technical requirements
• Managerial responsibilities
• Cultural requirements
• Interaction with local nationals and local

community

B. ANALYSIS OF COUNTRY OF ASSIGNMENT

• General mores/values
• Political/legal/socio-economic

environment
• Social institutions
• Standard of living

C. EVALUATION OF CANDIDATE/CRITERIA FOR
SELECTION

• Availability
• Job abilities
• Personality characteristics
• Career status
• Desire for assignment
• Family situation
• Gender
• Language skills

D. PREPARATION OF CANDIDATE/FAMILY

• Pre-assignment site visit
• Job/country orientation
• Cross-cultural training
• Language training
• Compensation/benefits/taxes
• Housing counseling
• Counseling by repatriate(s)
• Local sponsorship

E. LENGTH OF ASSIGNMENT

• Short-term
• Long-term

F. REPATRIATION PREPARATION

• Sponsor “back home”
• Career counseling
• Culture re-orientation

G. RETURNING TO HOME COUNTRY

• Adjustment to home country
• Adjustment to job/work
• Expected career progression
• Expected career development

FIGURE 9.1 Successful Expatriate Experience
Source: Adapted from Briscoe, D. R. and Gazda, G. M. (1989). The successful expatriate, Proceedings: Managing in
Global Economy, third biannual international conference, Eastern Academy of Management, Hong Kong, November.

Global Talent Management254

to repatriate to the home country (Part F in Figure 9.1), and eventually returns to the home
country (Part G in Figure 9.1).

Shortage of Potential IAs

Increasingly the problem of selection of international assignees involves finding employ-
ees with the necessary skills to function successfully in the new “global” environment and
convincing them to take on the assignment. Because of dual career families, disruption of
employees’ lives, employee work-life balance concerns, and uncertainty about the impact
of a foreign assignment on their careers, employees are becoming increasingly reluctant to
take on international assignments.23

Competency Profile

The competency profile of an assignee is an important aspect of the selection decision-
making process. Exhibit 9.2 lists the skills that are being cited as important for the
twenty-first-century expatriate manager.24 In the words of two MNE executives:25

“The top 21st-century manager should have multienvironment, multicountry,
multifunctional, multicompany, multi-industry experience,” according to Ed Dunn, cor-
porate vice president of Whirlpool Corp. Michael Angus, chairman of Unilever PLC, adds,
“Most people who rise toward the top of our business will have worked in at least two
countries, probably three. They will probably speak another language and they most cer-
tainly will have worked in different product areas.”

EXHIBIT 9.2: The 21st-century Expatriate Manager
Profile

Core skills Managerial implications

Multidimensional
perspective

Extensive multi-product, multi-industry, multifunctional,
multicompany, multicountry, and multienvironment experience.

Proficiency in
line management

Track record in successfully operating overseas strategic business
units and/or a series of major overseas projects.

Prudent decision-
making skills

Competence and proven track record in making the right strategic
decisions.

Resourcefulness Skillful in getting him/herself known and accepted in the host
country’s political hierarchy.

Cultural
adaptability

Quick and easy adaptability into the foreign culture—individual
with as much cultural mix, diversity, and experience as possible.

Recruitment, Selection, and Repatriation 255

Core skills Managerial implications

Cultural sensitivity Effective people skills in dealing with variety of cultures, races,
nationalities, genders, religions. Sensitive to cultural difference.

Ability as a
team builder

Adept in bringing a culturally diverse working group together to
accomplish the major global mission and objectives of the enterprise.

Physical fitness and
mental maturity

Endurance for the rigorous demands of overseas assignments.

Curiosity and
learning

Constant interest in learning about all aspects of international
cultures, foreign countries, and global business.

Augmented skills Managerial implications

Computer literacy Comfortable exchanging strategic information electronically.

Prudent negotiating
skills

Proven track record in conducting successful strategic business
negotiations in multicultural/multinational environments.

Ability as a
change agent

Proven track record in successfully initiating and implementing
strategic and global organizational changes.

Visionary skills Quick to recognize and respond to strategic business opportunities
and potential political and economic upheavals in the host country.

Effective delegatory
skills

Proven track record in participative management style and ability
to delegate in cross-cultural environments.

International
business skills

Proven track record in conducting business in the global
environment.

Sources: Black, J. S. (2006). The mindset of global leaders: Inquisitiveness and duality, in Mobley,
W. H. and Weldon, E. (eds.), Advances in Global Leadership, vol. 4, pp. 181–200; Black, J. S., Mor-
rison, A. and Gregersen, H. (1999). Global Explorers: The Next Generation of Leaders, New York:
Routledge; Howard, C. G. (1992). Profile of the 21st-century expatriate manager, HR Magazine,
June, 96; Marquardt, M. J. and Berger, N. O. (2000). Global Leaders for the 21st Century, New York:
State University of New York Press; and Rosen, R., Digh, P., Singer, M. and Philips, C. (2000). Global
Literacies: Lessons on Business Leadership and National Cultures, New York: Simon and Schuster.

Placing high importance on the alignment of selection decisions with corporate strategy
and goals is also becoming more common.26 Successful global firms link their global staffing
decisions to their global business goals. The more important the international strategy and
the more complex the structure developed to implement that strategy, the more critical are
the international staffing decisions.

Global Talent Management256

Selection decisions also need to consider the receiving (host country) managers and
location. Successful international assignments make demands not only on the IA but also
on both the receiving manager and company as well as the sending manager and com-
pany.27 Often the sending manager has little (or no) international experience and, there-
fore, does not have a clear idea of what it takes to handle a foreign assignment—and may
also downplay the importance of the difficulties of the foreign assignment. And receiving
managers may have the same problems—they have not worked at headquarters or else-
where outside their home countries and they do not know what strengths it takes for a
successful expatriate assignment. Thus, the sending company can have a negative impact
on the success of the IA by relying on domestic experience for guidance on how to manage
and evaluate the IA and not understanding the pressures of the foreign environment. And
the receiving firm may compound the problems by not understanding the perspective of
the parent company.

From the viewpoint of persons being considered for international assignments, studies
suggest that two specific factors—in addition to a strong personal interest in getting a for-
eign experience, usually based on having previously enjoyed living overseas—are primary
in their decisions to take on such an assignment: increased pay and perceived improved
career opportunities. This suggests the importance of paying close attention to the follow-
ing factors when making selections for international assignments.

Criteria for Selection

The specific criteria an MNE uses to select its IAs play a major role in determining their
future successes or failures in their international assignments. First this section takes a look
at a number of criteria that are used by various global firms to select their IAs. Then the
section examines the consequences of making mistakes in either choosing IAs or in prepar-
ing and supporting them in their assignments or in helping them make a successful return
to home at the end of their international assignments. The most important selection criteria
for international assignments include job suitability/technical ability, cultural adaptability,
and desire for international assignment.

â– â–  Job suitability/technical ability. Most firms primarily base their choices for interna-
tional assignments on candidates’ technical expertise.28 That is, the primary focus is on
their ability to perform the target job requirements. Experience suggests, however, that
all the other topics discussed in this text are at least as important as the individual’s job
competencies. Nevertheless, at least in smaller and medium-sized firms (and, regret-
tably, still too often in larger firms), the parent-company supervisor usually makes the
choice of individual to be sent on an international assignment and that choice is usually
based on the individual’s perceived ability to fill a perceived (and usually immediate)
functional or technical need in the foreign operation.

â– â–  Cultural adaptability. Experience in MNEs suggests that cultural adaptability is at
least as important to the successful completion of an overseas assignment as is the

Recruitment, Selection, and Repatriation 257

individual’s technical ability.29 Expatriates must be able to adjust to their new and
often alien environments while effectively delivering their technical and managerial
expertise. They must graciously accept their new cultures but not at the expense of not
getting their jobs done. While technical expertise is usually important (and the primary
reason most firms send a particular expatriate to a foreign assignment), the principal
difficulty faced by most expatriates lies in the inabilities of the managers and their
families to adapt to the foreign cultures. Maybe not surprisingly, American firms tend
to be more likely to place the most emphasis on the individual’s work experience and
expertise than is the case for many MNEs from other countries, and as a consequence
tend to experience more difficulties with expatriate adjustment.

One of the most important components of cultural adaptability is cross-cultural
adjustment,30 which refers to the extent to which individuals are psychologically com-
fortable living in a new culture and is conceptualized as an individual’s reactions to
and feelings about working in the host country (work adjustment), about interacting
with host country nationals (interaction adjustment), and about the general non-work
environment in the host country (general adjustment).31

â– â–  Personality characteristics.32 Researchers have found that successful and well-adjusted
international assignees tend to share certain personality traits. Certain personality char-
acteristics enable international assignees to be open and receptive to learning the norms
of new cultures, to initiate contact with host nationals, to gather cultural information,
and to handle the higher amounts of stress associated with the ambiguity of their
new environments. The Big Five personality traits33 have been related to cross-cultural
adjustment, work performance, and IAs’ desires to terminate their assignments.34 The
Big Five personality traits include:

1 Extroversion (extent to which an individual is sociable, active, talkative, fun loving, and
affectionate)35

2 Agreeableness (extent to which someone is cooperative, sociable, forgiving, tolerant,
and argumentative)36

3 Conscientiousness (the degree to which an individual is purposeful, hardworking,
organized, dependable, and self-disciplined)37

4 Emotional stability (describes individuals in terms of anxiety, calmness, self-confidence,
worry, insecurity, and nervousness)38

5 Openness to experience (extent to which an individual is original, intellectual, curious,
creative, imaginative, and conventional)39

â– â–  One of the most important personality characteristics, with respect to predicting IA
success is openness to experience.40 IAs high on openness to experience are likely to:41

■❏ correctly assess the social environment in the new culture;
■❏ accurately perceive and interpret the new culture;
■❏ have fewer rigid views of right and wrong, and what is appropriate and inappropri-

ate in the new culture; and
■❏ accept the values, norms, and accepted behaviors in the new culture.

Global Talent Management258

â– â–  Desire for foreign assignment (candidate and family). Since adaptation to the foreign
culture is so important to an IA’s performance, his or her desire for that foreign assign-
ment is critical to their willingness to make the necessary efforts to adjust. This needs
to be assessed in the early stages of candidate review.

In addition to the above criteria, selections for international transfer are also most success-
ful when the following factors are also evaluated:42

â– â–  The maturity of the candidate (i.e., being a self-starter, able to make independent deci-
sions, having emotional stability, sensitive to others who are different, and having a
well-rounded knowledge of on- and off-the-job subjects to facilitate discussion with
foreign colleagues and contacts who are often quite knowledgeable and interested in
such topics).

â– â–  Ability to handle foreign language(s). Local language ability has shown to be positively
related to international assignee success.43

â– â–  Possession of a favorable outlook on the international assignment and locale by the
expatriate and his or her family (i.e., s/he wants to go overseas).

â– â–  And possession of appropriate personal characteristics, such as excellent health, this
being an appropriate time in the individual’s career and family life, individual resource-
fulness, adaptability, and desire to learn and experience new things and new people;
all are related to increasing the likelihood that a foreign assignment will be successful.

Testing for Successful IAs

Several companies and consultants have compiled profiles of successful IAs and, from
these, developed IA selection tests.44 These profiles are then used to screen potential IA
candidates on the generally valid assumption that candidates with similar profiles are more
likely to do well in international assignments. These profiles usually include factors such
as experience, education, personal interests and activities, signs of flexibility, family situa-
tion, and desire for such assignment. Some of the tools are basically self-assessment tools
for candidates for international assignments and their partners, to allow them and their
employers to assess their readiness for such an assignment. And some of the tools provide
information to help coach candidates on any necessary preparation they need for a success-
ful assignment.

When an organization first begins to develop international business, it normally doesn’t
have the luxury of developing its own international managers in-house. And it may not
have employees who already have the necessary knowledge and experience or cultural and
language competencies. It will need to recruit such people from the outside or acquire the
expertise from consulting firms. Of course, many firms pursue international opportunities
with inexperienced managers and salespeople, but this inevitably leads to months, and
often years, of frustration while these managers “learn the [international] business.” Such
expertise can also sometimes be recruited from the overseas countries themselves. And,

Recruitment, Selection, and Repatriation 259

over the long term, future foreign managers can often be recruited from local universities
of either the country of the parent firm or the countries in which the firm is operating.

Selection Methods

Different organizations rely on differing procedures in their selection of individuals for
international assignments. They rely on varying criteria, as summarized above. And they
use one or more of the following in application of those criteria. This is just a short sum-
mary of selection methods and illustrates that methods used in selection for international
assignments are probably not much different from the methods used in domestic staffing
decisions. As with everything international, however, the differences lie in the impact of
culture in how these procedures are applied and in the focus in each procedure.

â– â–  Interviews (IA and spouse/partner) may be best done with a representative of the
home country (representing the technical requirements of the position), a represent-
ative of the host country (possibly the host manager), and an interculturalist, i.e.,
someone with the ability to assess the candidate’s and family’s ability to adjust to the
foreign culture.

â– â–  Formal assessment. There are a number of formal assessment instruments designed by
industrial psychologists that primarily evaluate a candidate’s personal traits and compe-
tencies that have been found to be important to successful foreign culture adjustment,
such as adaptability, flexibility, openness to new experiences, and good interpersonal
skills.45 Critical here is whether such instruments are reliable and valid for predicting
expatriate success. IHR or other managers who seek to use such instruments need to
make sure they get evidence of their reliability and validity from any consultant or
manager that is requesting their use.

â– â–  Committee decision. In many large MNEs, the process of selecting individuals for inter-
national assignments is a committee decision, a committee made up of someone from
corporate HR, home country HR, host country manager, director of development, and
the individual’s functional manager with a decision based on the individual’s prefer-
ences, assessment of past performance and future potential, needs of the foreign assign-
ment, and developmental needs of the individual candidate.

■■ Career planning. The choice of IA may be made as one step in the individual’s career
and succession plan with the MNE.

â– â–  Self-selection. Many MNEs use some combination of the above procedures but rely,
in the end, on self-selection by the candidate (after being accepted through the above
“screens”). In particular, the MNE is interested in candidates taking the time (and usu-
ally using some type of formal self-assessment instrument) to look at the issues involved
with relocation to a foreign country and culture and assessing whether they think they
are ready or have the necessary skills, experience, or attitudes to be successful in the
overseas assignment.46 Such self-assessment may result in the individual realizing they

Global Talent Management260

aren’t ready now for such a move, but that they would like to take such an assignment
at some later time in their career. So, rather than relocating now, they begin a process
to gain the skills and experiences necessary to be chosen for such an assignment at a
later date. This self-assessment process then is part of a larger career planning process.
Candidates may also self-opt out when they realize the importance of their family
members (and their lack of desire to relocate to another country) in making the inter-
national assignment successful.

â– â–  Internal job posting and individual bid, usually then combined with interviews and/
or other assessment actions.

â– â–  Recommendations from senior executives or line managers with overseas human
resource needs.

â– â–  Assessment centers. A few organizations use assessment centers as a tool for evaluating
candidates for suitability for foreign assignments.47 But it is rare for MNEs to ade-
quately think through the impact of culture on all the aspects of assessment centers,
including everything from the nature of the exercises used to the cultural sensitivities
of the evaluators used, in order to be able to use such a tool to assess IA candidates for
international assignments.

The actual selection methods used are probably an extension of procedures used for domes-
tic staffing decisions. Thus, there may be an ad hoc nature to this, using whatever technique
seems easiest and quickest given the circumstances surrounding any particular need for
an IA. Smaller firms are likely to use less formal and more ad hoc procedures, while larger,
more experienced firms are likely to have developed more formal and standardized proce-
dures. The primary outcome of the selection process is to choose individuals who will stay
for the duration of their global assignments and who will accomplish the tasks for which
they were sent abroad. Executives who make these choices should, therefore, consider both
enterprise-based as well as individual- and family-based factors to enhance the probability
that the international assignment will be successful.

MISTAKES AND FAILURES

MNEs want to select managers who, with their families, will be most able to adapt to
another country and who also possess the necessary expertise to get the job done. Many
firms that lack experience in international operations often overlook the importance of
cultural adaptation. Indeed, even more experienced firms may do this as well. This atti-
tude, combined with firms’ inclinations to choose employees for foreign relocation because
of their technical competencies, generally leads to individuals being sent on international
assignments without the benefit of training or help in acculturation.48 This may—and all
too often does—lead to failures in foreign assignments with individuals returning home
early, or even being dismissed in the foreign locale.

Success or failure is a more complex issue than simply not completing the assignment.49
Success or failure for international assignees is usually defined in terms of three types of

Recruitment, Selection, and Repatriation 261

failure: drop out, finishing the assignment but without cultural adaptation or acceptance
of the local experience, or turnover upon repatriation. An IA drop-out returns early from
the assignment but usually stays with the company. Although this is considered a failure,
in fact, it is better than not realizing at all that the assignment was a mistake. In a failure
with assignment completion but without job or cultural adaptation, the IA does not return
early but performs poorly and is ineffective in the assignment. As a result of this type of
failure the IA may initiate projects that are costly and not effective, damage relationships
with the local employees, or drive out high potential local nationals. A last type of failure is
when the assignee leaves the company within a short period of time (usually thought of as
within one year) after repatriation. This is the most costly type of failure for the company.

These three forms of assignment failure are the traditional forms of failure that MNEs
have focused on. However, international assignment failure can also be defined in terms
of personal dissatisfaction with the experience, lack of adjustment to local conditions, lack
of acceptance by local nationals, or the inability to identify and train a local successor (see
Exhibit 9.3). In addition, a number of factors seem to influence the severity of expatriate
failure rates (and help to explain why Japanese and European firms don’t experience the

EXHIBIT 9.3: Definition of Expatriate Failure

â– â–  usually defined in terms of early return home or termination;
â– â–  but could also be defined in terms of:

■❏ poor quality of performance in foreign assignment;
■❏ employee not fully utilized during assignment;
■❏ personal dissatisfaction with experience (by expatriate or family);
■❏ lack of adjustment to local conditions;
■❏ no acceptance by local nationals;
■❏ damage to overseas business relationships;
■❏ not recognizing or missing overseas business opportunities;
■❏ inability to identify and/or train a local successor;
■❏ leave soon after repatriation;
■❏ not use foreign experience in assignment after repatriation.

â– â–  Compounding factors:

■❏ length of assignment;
■❏ degree of concern about repatriation;
■❏ overemphasis in selection on technical competence to disregard of other neces-

sary attributes;
■❏ degree of training for overseas assignment;
■❏ degree of support while on overseas assignment.

Global Talent Management262

high rates of expatriate failure experienced by many American firms). These include length
of assignment (longer assignments appear to be based on the employer’s willingness to pro-
vide the IA with more time to adjust and to “get up to speed” in job performance, which
is more common among Japanese and European firms), receipt of training and orientation
(with training and orientation about the new country and culture being associated with
more successful adaptation), the lack of participation by HR in the selection process, too
much emphasis placed on expatriates’ technical expertise to the exclusion of other attrib-
utes that might aid in adaptation, and lack of support provided by home office for IAs and
their families while on foreign assignment.

A number of surveys and studies have found the most important factors in the early
return of expatriates lie in the inability of their families (and/or themselves) to adjust
to the foreign assignment.50 To the extent that preparation is provided, often the parent
company will provide that preparation only for the new transferee, not to his or her family.
In addition, after arrival in the foreign locale, IAs have the advantage of personal contacts
and involvement with their colleagues at work, while their spouses and families are often
left on their own to “figure out” their new surroundings and to develop local relationships,

EXHIBIT 9.4: Reasons for Expatriate Failure

â– â–  inability of spouse/partner to adjust or spouse/partner dissatisfaction;
â– â–  inability of expatriate to adjust;
â– â–  other family-related problems;
â– â–  mistake in candidate/expatriate selection or just does not meet expectations;
■■ expatriate’s personality or lack of emotional maturity;
■■ expatriate’s inability to cope with larger responsibilities of overseas work;
■■ expatriate’s lack of technical competence;
■■ expatriate’s lack of motivation to work overseas;
â– â–  dissatisfaction with quality of life in foreign assignment;
â– â–  dissatisfaction with compensation and benefits;
â– â–  inadequate cultural and language preparation;
â– â–  inadequate support for IA and family while on overseas assignment.

Sources: Adapted from National Foreign Trade Council (NFTC), Society for Human Resource Man-
agement (SHRM), and GMAC Global Relocation Services (GMAC GRS)/Windham International
Global Relocation Trends Annual Survey Reports, 2000–2014; Stroh, L. K., Black, J. S., Menden-
hall, M. E. and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy,
Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; and Tung, R. L. (1987).
Expatriate assignments: Enhancing success and minimizing failure. Academy of Management Exec-
utive, 1 (2), 117–126.

Recruitment, Selection, and Repatriation 263

often with little understanding of the culture and an inability to speak or read the language.
Thus the individual expatriate often finds adjustment easier and less “lonely” than does his
or her spouse and family. Exhibit 9.4 lists the most common reasons for expatriate failure,
when defined as early return or termination from the foreign assignment.51

Of course, the IA’s inability to adjust and/or experience of difficulty in merging with
the new culture can also be major handicaps.52 Too often, expatriates bring stereotypes
and prejudices against the foreign culture—as well as strongly felt biases in favor of their
own culture’s ways of doing things—that keep them from feeling comfortable in their new
foreign assignments.53

MNE Mistakes in IA Selection

MNEs typically do a number of things that lead to problems with their international assign-
ees.54 These include:

â– â–  Decision to relocate people made with too little lead time.
â– â–  Assignees not provided with any or adequate pre-relocation cultural training and/or

language training.
â– â–  Spouses or partners not included in the decision to relocate.
â– â–  Spouses/partners and kids not included on pre-assignment visits.
â– â–  Spouses/partners and kids not included in language lessons.
â– â–  Spouses/partners and kids not included in cultural training.
â– â–  Spouses/partners do not receive counseling on jobs and other opportunities.
â– â–  Spouses have no home office contact.
â– â–  Little or no support is provided for IA or family before or after arrival in the host

country.

Challenges to Successful Staffing with IAs

All of this discussion points to the reality that there are many challenges to MNEs in their
quests to ensure that the best employees are selected for international assignments. The
following paragraphs summarize eight specific issues: spouses and partners, language, fam-
ily, women expatriates, lifestyle, localization (or “going native”), career development, costs,
and inpatriation.

Spouses or Partners

It is not just the business situation that determines expatriate success. There are also a
number of personal and cultural issues that are also important. For example, research by
ORC (Organization Resources Counselors) found that international HR managers believe

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that dual-career-couple overseas assignments are among the top five challenges they face.55
According to a survey by Bennett Associates of accompanying career spouses, worldwide,
active involvement in the career of the accompanying spouse is the type of assistance pre-
ferred by dual-career couples above all other possible interventions.56

According to surveys by Runzheimer International and ORC, nearly 50 percent of firms
offer some form of spouse assistance for dual-career international assignees.57 Of those
firms, 87 percent provide ad hoc interventions (helping in ways that seem necessary) but
only 13 percent have formal policies. Support programs for spouses fall into three broad
categories: personal adjustment, career maintenance, and offset of loss of income. These
surveys find that support services by employers for trailing spouses were critical to their
satisfaction with their foreign relocations. The types of interventions found in these surveys
to be desirable included the following:

â– â–  Pre-acceptance assessment sessions and site visits.
â– â–  Career and life planning counseling.
â– â–  Pre-departure and re-entry job hunting trips.
â– â–  Couple/family counseling.
â– â–  Specially adapted cross-cultural/language training.
â– â–  Relocation assistance to help spouse settle in and network quickly.
â– â–  Search firm retained to help spouse find employment.
â– â–  Company employment or consulting opportunities.
â– â–  Intra- and inter-company networking and job search assistance.
â– â–  Visa and work permit assistance.
â– â–  Shorter-term assignments for expatriate employee.
â– â–  Commuter marriage support.
â– â–  Tuition and/or training reimbursement.
â– â–  Paying for professional development trips.
â– â–  Arranging and paying for child care provisions.
â– â–  Partial compensation replacement for spouse.
â– â–  Increased employee compensation, bonus, and non-cash benefits.
â– â–  Re-entry outplacement services (to find job upon return to home country).
â– â–  Tax equalization for second income.
■■ Spouse “inconvenience” or incentive payment.
■■ Set allowance to be applied to a “cafeteria” selection of assistance programs.

Language

One of the continuing issues with both IAs and foreign workforces concerns the issue of
language. As mentioned earlier the ability to speak and understand the local language has
shown to be positively related to international assignee success.58 Do IAs on foreign assign-
ment need to learn the language of the country to which they are posted? And to what
extent do local employees need to know or learn the language of the parent firm? Like

Recruitment, Selection, and Repatriation 265

concern with cultural differences, concern with language differences also impacts most of
international business. And it certainly is an issue with the selection of IAs.

Even though English has become the international language of business, with most large
MNEs using English among their top management around the world, it is just as important
for international assignees to have a working knowledge of the language of the countries to
which they are assigned as it is for the local management of subsidiaries to speak the lan-
guage of the parent firm. IAs need to speak their customers’ and colleagues’ languages—if
their business relationships are going to flourish.59 MNEs approach the need to provide
language training in a variety of ways, but they typically find the increased numbers of
employees who can speak foreign languages an asset in the development of their global
businesses.

Foreign language training provides employees with language skills that are needed to
communicate with co-workers and individuals in other countries.60 In surveys of expatri-
ates, language is often mentioned as the most important personal or professional challenge
in their assignments.61 An expatriate living in Germany says, “Speaking only English during
an assignment is a big mistake. You can be a friend and a colleague speaking English, but to
be ‘one of them,’ you must speak their language.”62 An expatriate living in Brazil offers the
advice: “Persevere with the language at all costs.”63 Often, one major factor in the inability
of MNEs to fill key expatriate assignments is the lack of language expertise and prepara-
tion. And as is discussed in this section, many firms do not provide any opportunities for
language training.

English has become the international language of business for a number of reasons.64
Even so, not all interactions are likely to take place in English, particularly within the host
country. As stated above, dealing with customers, suppliers, and employees is often best
done in the local language. Still, transnational exchanges are more and more expected to
take place in English. It is in fact now estimated that estimated that, after Chinese (Manda-
rin), English is the most commonly used language in the world.65 One result of this may be
that employing local nationals that are fluent in English may be as important as requiring
expatriates to be fluent in the local language(s). Even so, it is clear that an ability to speak
the local language is still quite important—for IAs to deal with local nationals and local
customers and suppliers, as well as to adapt to the host culture (and be accepted into that
culture), both of which are major keys to successful expatriate assignments.

Family

Many of the challenges presented by IAs involve their families. Increasingly, the types
of managers and specialists that either seek foreign assignments or are asked by their
employers to relocate have spouses (or partners) and/or children. Often the spouses or
partners are involved in their own careers (as discussed in the first topic of this section
on challenges). If the IA candidate has an unmarried partner, it is likely to be quite dif-
ficult for the MNE to acquire a visa for the partner. The IAs may have problems with
their adolescent children, health problems with family members, dependent parents who

Global Talent Management266

they have responsibility for, marital conflicts, or mental health problems of their own,
such as depression—or even something like a flying phobia, or special education require-
ments for their children (such as children with disabilities or learning problems or gifted
children—or even children getting ready for college). In addition, candidates for expatria-
tion (or members of their families) with medical problems like AIDS, substance or alcohol
abuse, or problems like multiple sclerosis, can cause what may seem like insurmountable
problems for IHRM and the firm in being able to get overseas work visas. These types of
individual or family problems are both a problem in expatriate selection as well as posing
problems for acceptance into and adaptation to foreign cultures. And yet firms, in order to
find the numbers of expatriates they need and stay away from possible charges of illegal
discrimination in staffing decisions, must accept and find ways to accommodate IA candi-
dates with these types of problems.

Many of these concerns make a health screening of the international assignee and her
or his spouse and family members advisable, both to determine if a health problem exists
that might either preclude relocation or be aggravated by a relocation or need special sup-
port services. Often even minor health problems are not treatable in the foreign country
because qualified health professionals or facilities are not available.

Probably the most important of the family challenges today revolve around the
dual-career couple and problems with relocating non-married partners. In both cases, an
IA candidate’s partner can pose difficult-to-resolve challenges for IHR.

Women Expatriates

Most IAs are men. Gradually, over the last 25 years or so, the percentage of women on
international assignments, as determined by surveys, has increased from about 5–6 percent
to 20–22 percent today.66 This low percentage may have as much to do with stereotypes
about foreign acceptance of women in professional or managerial roles as to the reali-
ties in the host countries.67 Early research showed that one of the key factors in women
not receiving overseas assignments was that selecting executives generally assumed that
women would not be accepted in the foreign culture.68 Other barriers to women receiv-
ing international assignments include their dual-career marriages, domestic managers not
choosing them, perceptions that women were not interested in such assignments, etc.69 In
recent years the number of women who have successfully taken on foreign assignments,
even to countries such as Japan, Brazil, and China, has risen considerably, although it still is
a relatively small proportion of the total IA population, except in some industries, such as
banking.70 Of course the assignment of women IAs, except in very specialized professional
positions, is likely to remain limited to some countries such as Saudi Arabia.71

The evidence, though, suggests that the fact that there are only a comparatively few
women working abroad for MNEs may be due more to bias and stereotyping in the home
country and company than to prejudicial treatment or limitations in the host country or
foreign subsidiary.72 Women are not only as likely to welcome such opportunities as are
their male colleagues (for the same reasons their male counterparts seek them), but they

Recruitment, Selection, and Repatriation 267

often perform better than their male colleagues, even in traditionally male-dominated cul-
tures, such as in Asia and the Middle East.73

Typically, female expatriates are treated first as representatives of their firms or as pro-
fessionals, and rarely experience the bias that the stereotypes from their home firms pre-
sume. This isn’t meant to imply that women never experience stereotyping and treatment
in line with cultural norms that may not accept women in the workplace, except in very
menial tasks. This does happen.74 But the evidence suggests that women are frequently
quite successful in international assignments.75

In addition, women expatriates also have trailing spouses and unmarried partners
and families to consider, and thus need to be given the same considerations received by
their male counterparts. Women are clearly interested in international positions and have
demonstrated that they can perform well in global assignments.76 Increased global compe-
tition pressures MNEs to make the best use of all of their resources, including their women
employees.77

Lifestyle

Increasingly MNEs are having to deal with employees who either seek foreign assignments
or who are eligible for such postings who live what might be referred to as “alternative”
lifestyles that may not be acceptable in target foreign locations. This might involve “gay”
or unmarried couples or single parents or employees who live with their parents or who
are taking care of elderly parents. Or it just might concern employees who are involved in
outside-of-work activities that are very important to the individual and they may not be
able to pursue them in the host location. All of these situations create challenges for IHR
to overcome.

Localization or “Going Native”

One challenge that has been confronted by many MNEs involves expatriates that stay
for an extended period (usually at the firm’s request, but sometimes at the IA’s request)
in a foreign assignment (beyond their original assignments).78 This becomes an issue
because IAs in this situation continue to draw their expatriate allowances and incentives,
even though they have learned to live “like locals.” These particular IAs may be critical to
the success of the foreign operations, which may make it difficult to change their status.
Often they have married a local and are raising a family in the foreign locale. To deal
with this issue, many firms have developed policies, such as requiring that all IAs con-
vert to a local compensation package if they stay on their assignment for longer than the
assignment contract period. Even with such a policy, it still creates problems for dealing
with this particular situation. Without such a policy, this can be an especially challenging
problem.

Global Talent Management268

Career Development

Since it is often expected that an international assignment is highly developmental, and
since many firms now expect managers above some level in the organization to have inter-
national experience, it is becoming more common to make a posting to a foreign assign-
ment a critical part of an individual’s career plan.79 The challenge is to manage this process,
both from the standpoint of the organization (where key managers may have their own
ideas as to who they want to fill open foreign positions) and the individual, who may not
see the career advantages. The firm may state the importance to one’s career advancement,
but observation suggests that IAs on return to the parent firm are not always given assign-
ments that use or take advantage of the foreign experience.

Costs of International Assignments

From the firm’s perspective, a major IA challenge is to contain costs. Moving employees
from country to country is expensive, both in direct remuneration (compensation and
benefits) and the administration of their relocation expenses. Consequently, many MNEs
are searching for ways to reduce the costs.80 For example, MNEs are dealing with these
high costs by replacing IAs with more short-term assignments and extended business trips,
outsourcing the administrative aspects of managing IAs, and looking for ways to reduce the
compensation incentives and add-ons that make international assignments so expensive.
And at least some MNEs are recognizing they can minimize the costs of failed assignments
through developing better selection processes, better preparation and orientation, better
destination support services for both IAs and their families, and improved repatriation pro-
cesses. But even though firms say IAs are too expensive, some surveys find that many firms
are not doing much to counter the high costs.81

Inpatriation

As mentioned in the previous chapter, the term “inpatriate” was developed to describe
particular employees (HCNs or TCNs) who are relocated from a foreign subsidiary or joint
venture to the parent company in the HQ country. This posting is usually for a relatively
short period of time (from a few months to one or two years) and is for the purpose of
teaching the “subsidiary” employee about the products and culture of the parent firm and
to introduce the employee to the operations, ways of thinking, and corporate culture of
the headquarters.82 Increasingly, these assignees are also used to fill functional or technical
needs in the parent company for a limited period of time or to serve on multinational
teams for a specified period of time. The challenges of selecting and managing inpatriates
are basically the same as those for expatriates. From the standpoint of the foreign subsidi-
ary, the inpatriate is an “expatriate,” going on a foreign assignment. From the standpoint of
headquarters, the individual is an inpatriate. In this situation, the issues for IHRM are to
consider the experiences of headquarters in receiving relocated employees—in addition to
the “normal” issues related to the experiences of any relocated employees.

Recruitment, Selection, and Repatriation 269

SUCCESSFUL EXPATRIATION AND “BEST PRACTICES”

Expatriation success is the flip side of the issue of expatriate failure. Typically, expatriate
success is defined as:

1 completion of the foreign assignment (achieving the original goals and objectives);
2 cross-cultural adjustment while on assignment; and
3 good performance on the job while on the foreign assignment.83

Sometimes these factors are viewed as a unitary construct, that is, they are seen as a pack-
age of issues that go together to define a successful assignment. But research shows them
to be separate constructs, meaning that each needs attention.84 This demonstrates that the
foreign environment (company and national culture and practices), local management,
technical skills, and expatriate personal characteristics all ultimately play a role in expatri-
ate success.

A number of IHR consulting practices, surveys, and research projects have identified
what might be considered “exemplary practices” in the selection of IAs.85 A summary of
these findings can be found in Exhibit 9.5. Following these suggestions will go a long way
toward helping IHR be successful in its management of international assignees.

Host-Country Nationals

In general, MNEs staff their subsidiaries—at least below the top management levels—with
local nationals (AKA host-country nationals, HCNs). At times, these workers may be sup-
planted by TCNs, described in the next section, and international assignees from the home
office or region. Of course, whether or not there are enough potential employees with ade-
quate training, education, and technical, business, managerial, and language skills is always
of utmost importance to an MNE strategy of staffing with HCNs. In the case where the
decision is made to locate a subsidiary or business unit in a country where the local popula-
tion lacks the necessary education or training (or there is a shortage of the types of workers
the MNE needs, as is increasingly the case, for example, in China86), then IHR must find
other ways to staff the necessary workforce, for example by training locals, hiring TCNs, or
bringing in parent-company international assignees.

Relying on Local Managerial Talent

Expensive international assignees and their not-infrequent failures in assignments, combined
with a general trend toward local staffing (using and developing local talent), regiocentrism
(using regional talent), and geocentrism (a truly global approach to resources, markets, and
staffing), has led in recent years to a greater reliance on local managers in foreign opera-
tions.87 Foreign nationals already know the language and culture and do not require huge

Global Talent Management270

EXHIBIT 9.5: Best Practice in IA Selection

â– â–  Involve HR in global strategic planning.
â– â–  Link each assignment to corporate strategies.
â– â–  Involve HR in assignment decisions and support services.
â– â–  Help assignees and their families make the smoothest transition into, during, and out

of assignments.
â– â–  Utilize an assessment process that promotes the selection of the best employees for

international positions.
â– â–  Administer consistent international assignments through comprehensive programs that

cover each step from design of the assignment to return of the employee and family.

More specifically, these reports suggest:

â– â–  Periodically, review relocation policies and practices to ensure fit with the current
business and strategic situation.

â– â–  Train home office staff in dealing with international assignees.
â– â–  Be honest about the job and location when recruiting candidates for foreign assignments.
â– â–  Provide adequate lead time for relocation.
â– â–  Involve spouse/partner/family at the outset of the expatriation process (i.e., at the

beginning of the selection process).
â– â–  Provide language and cultural training for IA and family.
â– â–  Recognize the importance of dual-career and trailing spouse/partner issues, finan-

cially and otherwise (pre-departure job counseling, networking contacts, education
and training, job hunting assistance, legal assistance for work permits, career assis-
tance upon repatriation, etc.).

â– â–  Provide pre-assignment site visit for whole family.
■■ Don’t neglect repatriation issues.

Sources: GMAC Global Relocation Services/Windham International, National Foreign Trade
Council, and SHRM Global Forum (2014 and previous years). Global Relocation Trends Annual
Survey Report, New York: GMAC GRS/Windham International; Lomax, S. (2001). Best Practices
for Managers and Expatriates, New York: John Wiley & Sons; Stroh, L. K., Black, J. S., Menden-
hall, M. E. and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy,
Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Vance, C. M. and Paik,
Y. (2006). Managing a Global Workforce, Armonk, NY: M. E. Sharpe.

relocation expenditures. In addition, host-country governments tend to look favorably on
a greater degree of local control and the development and use of local personnel and may
even have passed legislation that requires the use of local workers in foreign enterprises and
JVs. Indeed, some countries require that most staff come from the local labor force. On the

Recruitment, Selection, and Repatriation 271

negative side, however, local managers may have an inadequate knowledge of home-office
goals and procedures and may have difficulty with the parent-company language. Thus the
staffing of foreign positions—particularly key managerial and technical ones—is necessarily
decided on a case-by-case basis. Firms that are new to international business may feel more
comfortable having parent-country managers in control in the firm’s new foreign locales,
while MNEs that have been global for many years and have operations around the world
may find it easier to operate with fewer parent-country nationals on international assign-
ments. It is also likely that these global MNEs will be more likely to move managers and
functional specialists from country to country for developmental purposes as well as for
control and coordination reasons, rather than using traditional expatriates. Lastly, the need
for large numbers of highly qualified personnel has also made it increasingly necessary to
use larger numbers of foreign (host-country/local) nationals.88

Most MNEs favor hiring local nationals for foreign subsidiaries, home-country nation-
als at headquarters, and, where a regional organization exists, a mix of foreign and
home-country managers for regional positions. Within this general approach, however, the
nationality mix will vary with the nature of the firm’s business and its product strategy.
Where area expertise plays a major role, as in the case of consumer goods and/or a limited
product line, the use of home-country personnel for overseas assignments will be minimal.
Where product expertise is highly important and/or industrial markets are being served,
home-country personnel will be used more extensively for foreign assignments because
they generally have quick access to the home-country sources of supply and technical
information. Service industries also tend to have more home-country personnel in foreign
posts, particularly where the firm is serving home-country multinationals in foreign areas,
as has been the case in banking.89

Third-Country Nationals

TCNs tend to be used particularly in situations where there is either a shortage of
people with the skills the firm needs or where there is a relatively free movement of
people from one country to another. In recent years, with the global shortage of, for
example, IT and computer specialists and engineers, many firms have relied on the
hiring of people from third countries who have these skills to fill positions in their
foreign subsidiaries, just as they do at home. And, increasingly, TCNs are being used if
parent-company managers and technicians are not readily available or not available in
the numbers needed, for example, to make major staffing commitments to new opera-
tions in China and India.90

While much of the world’s skilled and unskilled human resources are being produced
in the developing world, most of the well-paid jobs are being generated in the cities of the
industrialized world (or their enterprises)—although this is changing as more developed
country firms subcontract to firms in developing countries, hire employees offshore to
work via telecommunications, invest directly in operations in the developing world, and
entrepreneurs and business leaders in developing countries develop their own successful

Global Talent Management272

global enterprises. This increasing equality of jobs and talent between where the potential
employees are and where the jobs are has several implications:

â– â–  It will trigger massive relocations of people, including immigrants, temporary workers,
retirees, and visitors. The greatest relocations will involve young, well-educated work-
ers flocking to jobs, wherever they are located.

â– â–  It will lead some industrialized nations to reconsider their protectionist immigration
policies as they come to rely on and compete for foreign-born talent.

■■ It may boost the fortunes of nations with “surplus” human capital. Specifically, it could
help well-educated but economically underdeveloped countries such as China, the
Philippines, India, Egypt, Cuba, Poland, Hungary, Brazil, Argentina, South Africa, and,
maybe, Mexico.

â– â–  It will compel labor-short, immigrant-poor nations like Japan to improve labor produc-
tivity dramatically to avoid slower economic growth. They will use more technology
and transfer more work to labor-surplus and cheaper labor locales.

â– â–  It will lead to a gradual standardization of labor practices among industrialized coun-
tries. Within 50 years or so, European standards of vacation time (five to six weeks) will
likely be common in the US. The 40-hour work week will have been accepted in Japan.
And world standards governing workplace safety and employee rights will emerge.91

Much attention has focused on the current or looming labor shortages in the industrialized
world, particularly in the US, Europe, and Japan, due to their aging populations.92 Yet the
overall world labor supply continues to grow (primarily in the developing world). In addi-
tion, the growth in the labor force in the developing world is magnified by the entrance of
women into the labor force, a phenomenon that has pretty well worked itself out in most
of the developed world (although not all of it, as participation rates for women are still
quite low in some developed countries, such as Germany and Japan). When these demo-
graphic differences are combined with the different rates of economic growth between
the developed and developing world, it becomes more likely that firms in the developed
world will increasingly seek workers among the developing countries and will move jobs
to those countries as well. Just as product and service markets have become or are becom-
ing global, such is also happening to labor markets. In one sense, this may alleviate the
pressures created by labor surpluses in developing countries; but in another sense it may
also exacerbate the economic differences between the countries of the developing world
and those of the developed world as MNEs hire the educated and trained citizens of
developing countries, lessening those countries’ available human resources for their own
developmental needs.

An extension of the focus on local managers and technical specialists, as described at the
end of the previous section on HCNs, involves the increasing willingness to look for man-
agement and technical expertise from all countries for assignment to any country. These
TCNs are often the solution to overseas staffing problems.

Recruitment, Selection, and Repatriation 273

Immigration Law

An important concern to IHRM staffing concerns the nature and application of immigra-
tion law. This topic was introduced in Chapter 4, but needs consideration here because it is
central to staffing the global firm, as new immigrants are hired, visas are acquired for inter-
national assignees, and HR managers work with officials in other countries as they arrange
work visas for the managers and technicians they send abroad as expatriates. It is beyond
the scope of this book to examine the wide variety of immigration regulations found in
varying countries. Suffice it to say that every country controls immigration quite closely
and now, with increased concern over global terrorism, most countries are even more con-
cerned about the level and nature of immigration into their countries. It is necessary for
IHR managers to either manage all the forms of visas and immigration issues their firms
confront or to know where to get the necessary expertise to ensure that the firm adheres
to every nation’s laws and policies.

REPATRIATION

At the end of the assignment, the IA either repatriates to the home country, is redeployed
to another country, or becomes localized in the host country. As mentioned earlier, repa-
triation involves the move of the IA and family back “home” from the foreign assignment.
For many expatriates and their families, the move “back home” is even more difficult than
the original move abroad. Even so, it is often overlooked or minimized in the management
of the total expatriation process.93

The international experience is generally challenging, exciting, highly developmental,
and full of visibility and exposure for the assignee. The international assignee is the rep-
resentative of the parent company, of headquarters, and is therefore looked to for per-
spective, help, and favors. In addition, because the compensation practices of most MNEs
reward their international assignees quite well, the IA and family typically live quite well in
the foreign location, often better than they did “at home.” Thus expatriates usually return
from such experiences quite “charged”—and with high expectations that their employers
will use their new experiences and excitement in new and better positions and family and
friends back home will share their enthusiasm.

But if an MNE is to reap the benefits of its IAs’ learning while on foreign assignments,
it is imperative that these valuable employees stay with the organization long enough to
share their experiences. This should encourage MNEs to place a strong emphasis on the
repatriation experiences of their IAs.

The kinds of practices that MNEs have used to ensure a successful expatriation and
repatriation experience include assigning a “sponsor” back home to look after the expatri-
ate while s/he is away (including keeping the expatriate informed about significant events
and changes back home and looking after the expatriate’s career interests, including putting
the expatriate’s name into consideration for key openings when the expatriate is ready to

Global Talent Management274

return home), providing career counseling to ensure job assignments upon return that meet
the needs of the repatriate, orientation for the expatriate and his/her family for adjustment
back into the home culture, use of the skills acquired overseas in special task forces and
projects, and special support networks for the repatriate and her/his family both during the
overseas assignment and upon return home.94 These steps go a long way toward ensuring
a successful readjustment. IHRM in Action 9.2 describes how Monsanto Corporation has
redesigned its repatriation efforts in order to more effectively use its expatriates and their
international experiences, integrating them with their domestic operations.95

IHRM in Action 9.2: Repatriation at Monsanto

Monsanto Corporation undertook a detailed change of its repatriation policy, concen-
trating on the logistical planning for returning its expatriates home, the kinds of skills
and cultural development the company wanted its expatriates to learn, and the plac-
ing of its repatriates, after their return, in projects where their recent overseas expe-
rience was needed. The manager of international assignments in human resources at
the time said there was growing concern about the firm gaining from the personal
and cultural development that expatriates were assumed to experience while on their
foreign assignments.

Amato says that the repatriation process now begins six to 18 months prior to
return in both the host and the home countries. This primarily involves identifying a
position for the expatriate to return to for which the operating unit is responsible. An
extensive orientation program is also run for the employees and their families.

The repatriate orientation is exceptionally thorough: he or she is debriefed with
peers and managers in the new job and is expected to provide recommendations
about global development and to provide a view other than that of domestic Mon-
santo. Peers are expected to discuss the differences and changes in the organization
that occurred while the expatriate was abroad. Managers are encouraged to free up
repatriates for committees, work groups, and demonstrations where their new global
knowledge is needed, over and above the employee’s regular job. Repatriates are
counseled to be aware of how much they and the organization have changed when
they come back.

Challenges on Re-entry

But the reality is more likely to be: “out of sight, out of mind.” Firms often fail to use the
experience or knowledge gained internationally and most likely have not thought much
about the career implications of this experience. Typically, the repatriate is reassigned to a

Recruitment, Selection, and Repatriation 275

position similar to the one he or she left two or three years before while their colleagues
most likely have been promoted. Repatriates often find it difficult to relate the value of
their global experience to managers with a domestic focus.96 Domestic managers, them-
selves usually without any international experience, cannot relate (this is also likely to be
true for the expatriate’s friends and colleagues). For the repatriate, this makes re-entry and
the job search within the company quite challenging. The global experience may be viewed
as helpful to the specific foreign situation; but the domestic manager usually views domes-
tic experience as more important. To many domestic line managers, developing interna-
tional experience and a global mindset to operate internationally is the CEO’s problem.
Globalization is often not a concern to the line manager trying to achieve a specific set of
local objectives.

Organizational Support for Repatriates

MNEs can provide several support practices to repatriates to address the above problems.
These practices can be organized according to three phases: before the foreign assign-
ment, during the foreign assignment, and after the completion of the foreign assignment.
Figure 9.2 shows the various IHRM practices that support the repatriation process.

Before the Foreign Assignment

Career-related planning for expatriates needs to begin prior to an international assign-
ment and be updated regularly during the assignment. The assignment needs to be part
of a larger plan for the firm so that the repatriate returns to a specific position that uses
the international learning and experience. One of the programs used by some firms is a

Before the foreign assignment

Career planning needs to
begin prior to an
international assignment

Updated regularly during the
assignment

Assignment needs to be part
of a larger plan for the firm

During the foreign assignment

Regular communication
between the home office and
the expatriates

Provided with opportunities
to travel back to the home
country to share experiences
and knowledge

Assigned mentors to guide
future career development

After the completion of the
foreign assignment

Reverse cultural shock is
often experienced by the IA

Relearn original culture and
lifestyle

Prepare expatriates for the
move back home

FIGURE 9.2 Organizational Support for Repatriates

Global Talent Management276

back-home mentor or sponsor, who is both a contact in the home office for the expatriate
who is at least partially responsible for looking after the interests and prospects of the expa-
triate while he or she is on assignment, but who also provides an avenue for keeping the IA
informed about what is going on back home.

During the Foreign Assignment

Support activities during this period are critical in terms of ensuring a high retention rate.97
There has to be clear, constant, and regular communication between the home office and
the expatriates. The expatriates should be provided with opportunities to travel back to
the home country to share experiences and knowledge with other members of the organ-
ization. This provides the expatriate with the opportunity to maintain high visibility with
supervisors and peers. Expatriates should also be assigned mentors to guide future career
development.98 Intraoffice communications through emails and intranet should include
the expatriate and the expatriate should be actively encouraged to communicate with col-
leagues and mentors back home.99

After the Completion of the Foreign Assignment

The readjustment is not only challenging for the international assignee but for the fam-
ily members as well. Repatriates and their families often have trouble adjusting to the
lifestyle back home. Reverse cultural shock (readjustment to the home culture) is often
experienced by the IA (and accompanying family). Most people are changed by the foreign
experience and not only must relearn their original culture and lifestyle, but probably view
it quite differently than when they left. Indeed, time does not stand still while the expa-
triate is abroad. While changes at home may be all but invisible to those who experience
them gradually (those at home), to the returnees, they can be overwhelming.100 Just as
MNEs need to provide their expatriates with cross-cultural training for the move abroad,
so should they prepare their expatriates for the move back home and prepare themselves
to use these individuals’ overseas experiences in their home assignments. This preparation
can make the difference between an overall favorable attitude by the repatriates about the
whole experience and a failed expatriate experience. Ultimately, an unfavorable attitude
will likely lead to the individual returnee’s turnover. A dissatisfied repatriated employee is
more likely to resign and seek a position with another employer that will utilize that indi-
vidual’s foreign experiences and skills.

Knowledge Transfer upon Repatriation101

The foreign assignment provides repatriates with the opportunity to gain international
knowledge (e.g., knowledge about complexities of global operations, characteristics of
national markets, business climate, cultural patterns). They have firsthand experience of
how their organization is viewed in another country. As such, repatriates play an important

Recruitment, Selection, and Repatriation 277

role in accelerating the transfer of knowledge from host countries to headquarters, and vice
versa. MNEs need to design the most appropriate mechanisms (e.g., mentoring programs,
training sessions) for capturing, retaining, and integrating the knowledge and expertise
gained by their repatriates.

CONCLUSION

This chapter focused on the IHRM responsibility for staffing. It explained issues related to
recruiting, selecting, and repatriating in MNEs, but primarily it focused on expatriation and
repatriation, the movement of employees from country to country, and the employment
of host-country and third-country nationals. Because the use of parent-country nationals
is so important to IHRM in MNEs, much of this chapter discussed the selection and man-
agement of PCNs, including their failures and adaptation to foreign assignments, and their
repatriation at the end of their assignments. The chapter also examined the difficulties
experienced in the selection and management of IAs and suggested some of the approaches
successful MNEs use to ensure positive experiences with those expatriates and repatriates.

DISCUSSION QUESTIONS

1 If you are given the opportunity in your next job to go on an extended foreign assign-
ment, what types of support programs would you expect or ask for?

2 If you ever have the responsibility to select an associate for a foreign assignment, how
would you go about doing that and what characteristics would you look for to ensure
success?

3 What do you think is the most significant challenge for IHRM in managing interna-
tional assignees? Why?

Global Talent Management278

CASE STUDY 9.1: A World Marketplace for Jobs in
Project-Based Work Environment (Global)

It used to be necessary to bring workers to where the work was. But with the advent of the
World Wide Web, the Internet, and mobile phones and the global communication they make
possible, it is now possible to send work to wherever workers are by putting together multina-
tional project teams, by using the Internet to recruit employees on a global scale, or by using
open-source software to accommodate global collaboration. These new styles of work and
employment are arising particularly in response to the capabilities of the computer and to the
chronic needs for IT skills in growing numbers of industries.

For example, one firm from Bern, Switzerland, recruited from the web a group of doctorates
in discrete mathematics and graph theory from as far away as Belarus, India, Israel, and Ire-
land, for a semiconductor design project. Team members never left their home countries and the
team leader never left his home office. And the task group beat its deadline.

In industry after industry, as customers expect quicker service and competition forces shrink-
ing product life cycles, employers are being driven to apply a “Hollywood model” to their tasks.
They assemble the best talent available at the moment from anywhere in the world (which is the
way teams are put together to film a movie). When the project is complete, the team breaks up
and the members move on to new projects. The end result is a new and highly efficient global
labor market unlike any seen before.

Even for small businesses: their new talent pool is the world. A new generation of online services
is providing small businesses with opportunities to find specialized expertise and affordable labor.
Main Street businesses can shop a virtual international bazaar of freelancers to recruit computer
programmers in Russia, graphic designers in Italy, or data analysts in India. A small business of one
can look to the world like a very large company and have access to all kinds of services. Technical
advances have made remote work and virtual teams more feasible. And, increasingly, freelancers
are taki