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					CHAPTER 15

Chapter Summary
The chapter opens with a discussion of the recent forces that have increased expansion of firms
into international markets. The chapter then discusses the role of HRM in different cultural
contexts and the dimensions along which cultures may differ. Categories of international
employees and levels of international involvement are defined. Finally, the chapter presents
issues regarding the management of international employees.

Learning Objectives
After studying this chapter, the student should be able to:

     1. Identify the recent changes that have caused companies to expand into International
     2. Discuss the four factors that most strongly influence HRM in international markets.
     3. List the different categories of international employees.
     4. Identify the four levels of global participation and the HRM issues faced within each level.
     5. Discuss the ways companies attempt to select, train, compensate, and reintegrate expatriate

Extended Chapter Outline
Note: Key terms appear in boldface and are listed in the “Chapter Vocabulary” section.

Opening Vignette: Doubling the Trouble in China
The issues surrounding doing business in China are illustrated by the description of what
Wrigley’s must go through in order to get its gum produced, shipped, and distributed. With a
shelf life of just eight months, it is critical that the gum be moved through the process rapidly.
However, China’s weak distribution system and the low motivation of employees in state-owned
trading companies show the challenges companies must expect in a growth market, yet different,

I.         Introduction—Organizations now function in a global economy, exporting products
           overseas, building plants in other countries, and forming alliances and joint ventures with
           nondomestic companies.

           A. International expansion can provide a competitive advantage.

               1. Entering different countries may provide large numbers of potential customers.

               2. Building production facilities in countries with low-cost labor may prove cost-
                  efficient. Maquiladora plants (foreign-owned plants located in Mexico that
                  employ Mexican laborers) provide low-skilled labor below the cost in the United

          3. Many HR issues are involved in the decision to develop facilities in nondomestic

       B. A number of key factors must be addressed in order to strategically manage HR in an
          international context.

                             A related reading from Dushkin’s
                          Annual Editions: Human Resources 99/00:

                             “International HR Policy Basics”
                              by John J. Fadel and Mark Petti

II.    Current Global Changes—Recent social and political changes have accelerated the
       movement towards international competition.

       A. European Economic Community—The EEC is a confederation of most of the
          European nations that agree to engage in free trade with one another, with commerce
          regulated by the European Commission (EC).

       B. North American Free Trade Agreement (NAFTA)—This agreement is between
          Canada, the United States, and Mexico, and, if ratified under the Clinton
          administration, it will provide an even larger free market than the EEC. Given
          Mexico’s low wage rates, this agreement has attracted many U.S. low-skill jobs.
          However, it has also increased the employment opportunities for Americans with
          higher-level skills.

       C. Growth in Asia—Asia provides a growth market for many firms. Japan, China,
          Singapore, Hong Kong, and Malaysia are significant economic forces.

       D. General Agreement on Tariffs and Trade (GATT)—GATT is an international
          framework of rules and principles for reducing trade barriers across countries around
          the world. It consists of over 100 member nations.

III.   Factors Affecting HRM in Global Markets—Nondomestic markets may differ
       significantly from the company’s home country market. These differences may have a
       particularly strong impact on the HRM function (see Text Figure 15.1 and TM 15.1).

                           A related reading from Dushkin’s
                        Annual Editions: Human Resources 99/00:

                        “Don’t Get Burned by Hot New Markets”
                                by Charlene M. Solomon

    A. Culture—The set of important assumptions (often unstated) that members of a
       community share. Culture determines the effectiveness of various HRM practices.

                    Competing by Meeting Stakeholders’ Needs:
                     Treating Employees as Customers in Asia

Due to the Asian economic meltdown, the HR departments in many companies were
forced to recognize employees as customers, which gave them a competitive advantage
through people. Finding and retaining skilled labor in Asia is very hard given a shortage of
people and the labor market has become very competitive due to multinational firms
entering the country. Many companies follow steps to ensure that they retain these skilled
employees. First, employers treat potential employees like customers, in fact selling them
on the value of working for the company. Second, firms must offer significant training
opportunities as a benefit of employment. Finally, firms must be sensitive to the culture,
and try to work within it rather than against it.

         1. Hofstede’s Cultural Dimensions—In research studies, five dimensions of culture
            were identified (see Table 15.1 in the text for scores of various countries and
            Figure 15.2, which maps Hofstede’s scores with economic success).

             a. Individualism/collectivism is the strength of the relation between an
                individual and other individuals in the society, that is, the degree to which
                people act as individuals rather than as members of a group.

                 Example: In the United States, people are expected to look after their own
                 and their families’ interests (individualist culture). In collectivist cultures like
                 Japan, people are expected to put the good of the larger community first.

             b. Power distance describes the degree of power inequality among people that is
                considered to be normal.

                 Example: Cultures with small power difference, such as Denmark or
                 Sweden, attempt to limit inequalities in power.

   c. Uncertainty avoidance describes how cultures seek to deal with the fact that
      the future is not perfectly predictable the degree to which people in a culture
      prefer structured over unstructured situations.

       Example: Some cultures such as Greece socialize their people to seek
       security through technology, law, and religion.

   d. Masculinity-femininity describes the tendency of a culture to value
      characteristics that are traditionally defined as masculine or feminine.

       Example: Feminine cultures such as Sweden or Norway promote values that
       have traditionally been regarded as feminine, such as valuing relationships,
       helping, nurturing, and caring for the environment.

   e. Long-term/short-term orientation is the tendency of a culture to focus on
      long-term benefit or short-term outcomes.

       Example: Many Far Eastern countries with very long histories have a long-
       term orientation. The United States has a short-term orientation, in which
       planning looks at the near future—in business, for instance, on a quarterly or
       yearly basis.

2. Implications of Culture for HRM—Cultural characteristics influence the ways
   managers behave in relation to subordinates as well as the perceptions of the
   appropriateness of various HRM practices.

   a. Cultures differ strongly on such things as how subordinates expect leaders to
      lead, how decisions are handled, and what motivates people.

   b. Cultures strongly influence the appropriateness of HRM practices.

   c. Cultures may influence compensation systems.

   d. Cultural differences can affect the communication and coordination
      processes in organizations.

              Competing through High-Performance Work Systems:
                             Managing in Russia

Being able to manage and do business in Russia brings many problems. First, many
workers matured in their work habits under a communist system that was devoid of any
recognition of the customer, and in which decisions are made by the general director.
These employees have no experience in customer service or decision making. Second, the
cultural norms simply result in different day-to-day behaviors. For instance, when
answering the phone Russian individuals do not identify themselves nor are they helpful or
attentive on the phone. Therefore, when Russian individuals try to enter U.S. firms they
need to go through extensive training.

    B. Education/Human Capital—A company’s potential for finding and maintaining a
       qualified work force is a critical element of any decision to expand internationally.

        1. Countries differ in their levels of human capital. East Germany has a surplus of
           human capital in technical knowledge and skill, while the United States suffers
           from a shortage of high-skilled individuals.

        2. A country’s human capital is determined by a number of variables, primarily,
           educational opportunity.

        3. Countries with low human capital attract facilities that require low skills and low-
           wage levels.

             Example: U.S. companies have located low-skill, low-wage jobs in Mexican

        4. Countries with high human capital are attractive sites for direct foreign invest-
           ment that creates high-skill jobs.

             Example: Ireland’s economy does not provide enough jobs for its highly
             educated labor force. U.S. companies are locating there to take advantage of high
             skills. The Met Life Insurance Company set up a facility for Irish workers to
             analyze medical insurance claims.

    C. Political/Legal System—This system often dictates the requirements of certain HRM
       practices, such as training, compensation, hiring, firing, and layoffs. The legal system
       is an outgrowth of the culture, reflecting societal norms.

        1.   The United States has led the world in eliminating discrimination in the
             workplace. Additionally, federal regulations control the process of labor
             management negotiations.

        2.   Germany has provided employees with a legal right to “codetermination” in the
             workplace. At the plant level, work councils influence HRM policies on issues
             such as working hours, pay methods, and hiring.

          3.   The EEC’s Community Charter of December 9, 1989, provides for the
               fundamental social rights of workers: freedom of movement, freedom to choose
               one’s occupation and be fairly compensated, and so forth.

      D. Economic System—A country’s culture is integrally tied to its economic system,
         which provides many of the incentives for developing its human capital.

          1. Under socialist economies, there is little economic incentive to develop human
             capital, but ample opportunity because education is free.

          2. In capitalist systems, the opposite situation exists, with higher tuitions at state
             universities but with economic incentives through individual salary differences
             (see Table 15.2 in the text and TM 15.2).

          3. Table 15.3 in the text illustrates the impact of taxes on compensation.

IV.   Managing Employees in a Global Context

      A. Types of International Employees

          1. A parent country is the country in which the company’s corporate headquarters
             is located.

          2. A host country is the country in which the parent country organization seeks to
             locate (or has already located) a facility.

          3. A third country is a country other than the host country or parent country.

          4. An expatriate is an employee sent by a company in one country to manage
             operations in a different country.

          5. Parent-country nationals (PCNs) are employees who were born and live in a
             parent country.

          6. Host-country nationals (HCNs) are those employees who were born and raised
             in the host country, as opposed to the parent country.

          7. Third-country nationals (TCNs) are employees born in a country other than the
             parent country or host country but who work in the host country.

      B. Levels of Global Participation (see text Figure 15.3 and TM 15.3).

          1.   Most companies begin by operating within a domestic marketplace. These
               companies face an environment with very similar cultural, human capital,
               political/legal systems, and economic systems, although some variation might be
               observed across states and geographic areas.

                           A related reading from Dushkin’s
                        Annual Editions: Human Resources 99/00:

              “Why HR Managers Need to Think Globally” by Carla Joinson

         2.   International participation occurs as companies seek new markets for their
              products through exporting and ultimately by building production facilities in
              other countries.

   Competing through Globalization: Columbia, SA sure isn’t Columbia, SC

Many executives have a vague perception of the differences that arise in different business
environments, which can be very huge in reality. In Columbia, South America it is very
hard to do business because there are guerilla groups known as the National Liberation
Army that compete for power in the local area. They will even go as far as gunning down
top executives of companies. To minimize this risk some executives will change the time
and site of meetings, make protection payments to the guerillas to avoid problems yet deny
it, and avoid visiting the local army bases. In addition, competition for customers is fierce,
and sales techniques differ slightly from those in the U.S.

         3.   Whereas international companies build one or a few facilities in another country,
              they become multinational when they build facilities in a number of different
              countries, attempting to capitalize on lower production and distribution costs in
              different locations. HRM problems are complex, given the many different
              cultures and sets of legal and economic systems.

         4.   Global organizations compete on state-of-the-art, top-quality products and
              services with the lowest possible costs. Global companies increasingly
              emphasize flexibility and mass customization of products to meet the needs of
              particular clients. HRM systems must encourage flexible production and must be
              responsive to the many systems that they operate.

         5.   Transnational scope refers to the fact that HR decisions must be made from a
              global rather than a national or regional perspective. Transnational
              representation reflects the multinational composition of a company’s managers.
              Transnational process refers to the extent to which the company’s planning and
              decision-making processes include representatives and ideas from a variety of
              cultures. These three characteristics are necessary for cultural synergy.

       C. Managing Expatriates in Global Markets—As companies internationalize, the use of
          expatriates becomes more frequent. Issues of selection, training, compensating, and
          reintegrating expatriates are discussed in this section.

             1. Selection of Expatriate Managers—Need to have technical expertise, ability to
                adjust to, and be sensitive to, a new culture (see Table 15.4 in the text for
                selection criteria). Although there has traditionally been a bias against putting
                women in expatriate assignments, recent evidence indicates that they are
                successful in such positions.

             2. Training and Development of Expatriates—Expatriates must understand their
                own culture and how it is perceived by others (see text Table 15.5 for
                “Americans as others see them”). Particular aspects of culture in the new work
                environment must be learned. Expatriates must learn to communicate accurately
                in the new culture/language (see Table 15.6 in the text for tips on communicating
                across language barriers).

             3. Compensation of Expatriates—Careful balancing must occur to assure that
                expatriates are rewarded in an equitable manner. Allowances for housing, taxes,
                moving costs, and children’s schooling are part of the package (see the example
                in text Figure 15.5). Total pay packages have four components:

                a. Base Salary—Annual salary, unadjusted.

                b. Tax Equalization allowances—Payments for higher tax rates of other

                c. Benefits—Continuation of, or substitute for, home benefits package.

                d. Allowances—Cost-of-living, housing, education, and relocation payments to
                   make the assignment more attractive.

             4. Reacculturation of Expatriates—Reentry to the home organization may result in
                culture shock. Transition process necessitates communication of corporate
                changes while the expatriate is overseas and validation of the importance of the
                expatriate’s international work.

Chapter Vocabulary
These terms are defined in “The Extended Chapter Outline” section.

   European Economic Community (EEC)
   German Unification
   Disintegration of the Soviet Union
   North American Free Trade Agreement (NAFTA)
   Hofstede’s Cultural Dimensions

  Power Distance
  Uncertainty Avoidance
  Masculinity-Femininity Dimension
  Long-Term/Short-Term Orientation
  Parent Country
  Host Country
  Third Country
  Parent-Country National (PCN)
  Host-Country National (HCN)
  Third-Country National (TCN)
  Transnational Scope
  Transnational Representation
  Transnational Process

Discussion Questions
 1. What current trends and/or events (besides those mentioned at the outset of the chapter) are
    responsible for the increased internationalization of the marketplace?
     As communication and transportation have become widely available and less expensive,
     the ability to take advantage of a larger, world-wide market has increased. Companies that
     gain economies of scale have expanded when their domestic markets have become
     saturated or when technology improvements in the domestic market reduce demand for
     current products. In this case, new markets that have not had access to the product in
     question may provide a continuing market.
     In addition to these basic issues, students may mention various events, such as the opening
     of China to trade, trade agreements with Japan, and the availability or scarcity of natural
     resources in specific countries (the Persian Gulf and oil, for example).
 2. According to Hofstede (Table 15.1 in the text), the United States is low on power distance,
    high on individuality, high on masculinity, low on uncertainty avoidance, and low on long-
    term orientation. Russia, on the other hand, is high on power distance, moderate on
    individuality, low on masculinity, high on uncertainty avoidance, and low on long-term
    orientation. Many American managers are transplanting their own HRM practices into
    Russia while companies seek to develop operations there. How acceptable/effective do you
    think the following practices will be and why? (a) extensive assessments of individual

    abilities for selection, (b) individually based appraisal systems, (c) suggestion systems, (d)
    self-managing work teams.
    Students may comment on any of the related cultural dimensions relative to these HRM
    practices. Examples are given below:
    (a) Selection Assessments: Many Russians may find the emphasis on individual skills and
        selection a change from government-provided jobs, but may not reject the practice.
        Historically, there has only been a moderate emphasis on individuality, but with the
        high level of power distance, a practice such as this may be found acceptable.
        Uncertainty avoidance, however, may create some problems as individuals must take a
        risk in applying for a job that they may not be offered.
    (b) Individually Based Appraisal Systems: Again, once the newness of this practice wears
        off, it may gain acceptance. With a moderate level of emphasis on individuality,
        individual performance appraisal will most likely work, if and only if performance
        criteria are carefully spelled out in advance.
    (c) and (d) Suggestion systems and self-managed work teams may have more difficulty in
        achieving effectiveness. The high-power distance more than likely implies the
        acceptance of a hierarchical system in which limited participation (if any) is expected.
        Additionally, the high uncertainty avoidance will limit the amount of unstructured
        decision making that employees may find acceptable.
3. The chapter notes that political/legal and economic systems can reflect a country’s culture.
   The former Eastern Bloc countries seem to be changing their political/legal and economic
   systems. Is this change brought on by their cultures, or will culture have an impact on the
   ability to change these systems? Why?
    Students may express many different opinions on this question. However, it seems fairly
    clear that economic underdevelopment and a scarcity of products and employment
    opportunities are fueling the demand/need for change. Additionally, some of these
    countries were forcibly changed to communist/socialist regimes and are now able to make
    their own choices regarding economic and political systems. Certainly, the attributes of
    their cultures will have a strong impact on peoples’ readiness for change and on their desire
    for changes, particularly regarding basic issues such as the adoption of a capitalistic
4. Think of the different levels of global participation. What companies that you are familiar
   with exhibit the different levels of participation?
    Again, students should have a large number of possible examples here. Nike makes athletic
    shoes in China and distributes on a worldwide basis. Disney theme parks are now located
    in Japan and France as well as in the United States. Numerous small countries export
    through intermediaries who make the needed arrangements for them in new markets. IBM,
    Xerox, Ford Motor Company, and GM are all multinational firms.
5. Think of a time when you had to function in another culture (e.g., on vacation, at your job,
   etc.). What were the major obstacles you faced, and how did you deal with them? Was this
   a stressful experience? Why? How can companies help expatriate employees deal with the

        Various answers students might suggest include problems of not being understood in a
        foreign language, inability to get needed information, and a feeling of being isolated by
        other cultural aspects such as dress or attitudes. Dealing with these issues takes some
        creativity. People may buy clothes to “look like a native and fit in,” and finding someone
        who speaks English to help with directions or other needs may help. Purchasing a foreign
        language phrase book may be all one needs in order to enable needed communication.
        In general, these difficulties are stressful, depending on the individual’s attitudes. If a
        person is adventurous, solving these problems can be fun. However, for many people, these
        kinds of issues may be seen as obstacles to achieving what they want or need and are
        therefore quite stressful.
        Companies can help expatriates deal with this type of stress by providing intensive
        language and culture training prior to making the assignment. Also, having a contact
        person in the new culture who has already made a successful adjustment will be most
    6. What types of skills do you need to be able to manage in today’s global marketplace?
       Where do you expect to get those skills? What classes/experiences will you need?
        Any new experiences that build on our abilities to adjust and be flexible help in preparation
        for such management positions. Learning about various cultural differences and learning to
        see them as different, not bad or good, improve on our flexibility as well. Foreign language
        training can be obtained in high school and college, as well as in intensive private
        programs. An understanding of current events and historical events in various parts of the
        world helps us to see the reasons behind many of the cultural differences we may see. This
        promotes our ability to understand others and therefore work with them in more effective

Web Exercise
The students are asked to visit the web site of the Society for Human Resource Management
Global Forum, read about the Euro and its implications, and answer questions.


End-of-Chapter Case
Top of the World, Ma
AT&T is having a hard time convincing Wall Street that he can turn this company into a growth
giant, mainly because all of the company’s revenues are coming from the highly competitive and
increasingly less profitable long distance business. In order to get out of this slow growth
classification, AT&T acquired IBM’s Global Network, which is estimated to give a great boost
for AT&T. This acquisition will also give AT&T an international data network and a number of
employees skilled in managing a vast array of network technologies. By acquiring this new
company, AT&T has become a global player since it has redefined itself from being a domestic
long-distance company into a global communication provider. This one acquisition has lead
AT&T to strike up several more deals with telecommunications carriers and companies like
Teleport Communications Group Inc. and British Telecom PC. Even though all of this brings on
great costs the big picture the CEO of AT&T is looking at entails the growth opportunities.

  1. AT&T’s movement into the global leagues came mainly from its acquisition of Global
     Network from IBM. Previously, the firm had been largely domestic. What issues do you
     see AT&T will have in trying to manage a global workforce?
      The issues AT&T will have to deal with when trying to manage a global workforce is
      employee’s concerns and attitudes. Usually operating globally means that employees will
      have to work or possibly relocate overseas, which will be a big adjustment for them and
      not many employees may be willing for that type of change. Also, to operate globally
      managers will have to provide extensive training programs that will prepare the employees
      and managers to be able to successfully operate in the global environment. This may
      include training on the different languages, cultures, and customs of the particular
      countries in order for the employees to be able to work with the demands of consumers.
      When a company becomes global they go through huge transitions and managers need to
      be focused and able to pull the employees and the company through these transitions.
  2. What are the issues that HR needs to be concerned with in managing this acquisition?
      HR needs to be concerned with the employees’ attitudes and concerns as well. Also, they
      need to make sure that they offer and provide the most effective training programs in order
      for the employees to learn about the new countries and ways of operating in other markets.
      Just trying to get everyone to transit easily and making everything comfortable within the
      company. In addition, HR may have to hire some quality personnel with backgrounds in
      international business.

Additional Activities
Teaching Suggestions
The following activities are suggested for use in the classroom in order to get students involved in
the discussion of and application of material in this chapter. If several of your students are
international or have international experience, then they may be able to share some perspectives
on different cultures and adaptation. If your students tend to be fairly homogeneous in
background, using a videotape like the one suggested or inviting a speaker with international
experience would be very useful.

1. A McKinsey & Co. study reported in The Wall Street Journal (“Study Sees U.S. Business
   Stumbling on the Road toward Globalization,” March 22, 1993, Section B. p. 7) identifies
   a number of traits of the most internationally successful companies, after ranking the 43
   surveyed concerns by their relative international growth in sales and profit within a specific
   industry. Among other things, they reported that more successful corporations:
       Tend to centralize their international decision making in every area except new-product
       Have a worldwide management development program and more nondomestic
        individuals in senior management posts.
       Require international experience for advancement into top management.
       Link international managers with global electronic networks, such as
        videoconferencing and electronic mail.
       Integrate their international acquisitions in a superior way.
       Let subsidiaries’ product managers report to a country general manager.
    After students have had a chance to reflect upon these findings, ask them to discuss each of
    them, commenting upon why they believe these elements would lead to greater success for
    the companies.
2. Competing through Quality: Australia Stakes Its Claim to the Best Workers in the World—
   The information in this box gives students an excellent opportunity to think about and
   discuss the importance of being open to other cultures. If you have international students in
   class, ask them to describe management practices that they see as relatively unique to their
   culture. Also ask them to list any U.S. management practices that they have learned about
   that might be usefully applied in their home culture—or those that would be difficult to
   implement because of cultural differences.
    If you don’t have access to students from different cultures, use an example like
    codetermination and ask them how it would fit in the U.S. employment culture and what it
    would take to implement it. What culture elements would act as barriers to
3. A useful outside speaker for this chapter would be a manager who has spent time on an
   international assignment. Alternatively, a manager who is an expatriate working in the
   United States would make a very effective speaker. These individuals could discuss culture
   shock, the difficulty of adjusting to managing in a new culture, and what they learned from
   the experience—how it affected their management style.
4. The “Going International” series of videos could be used effectively with this chapter.
   These are available from:
    Copeland Griggs Production, 3454 Sacramento Street, San Francisco, California 94118
    (415-921-4410). Discussion guides are available with the various volumes.


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