MANAGING HUMAN RESOURCES GLOBALLY
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.
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
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
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
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
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,
3. Countries with low human capital attract facilities that require low skills and low-
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
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
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
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
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.
These terms are defined in “The Extended Chapter Outline” section.
European Economic Community (EEC)
Disintegration of the Soviet Union
North American Free Trade Agreement (NAFTA)
Hofstede’s Cultural Dimensions
Parent-Country National (PCN)
Host-Country National (HCN)
Third-Country National (TCN)
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
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.
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
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
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.