DRS_IBEO_12th_Edition_Chapter_20_Sullivan by xiangpeng


									Chapter Twenty

Human Resource Management

        If you are planning for a year, plant grain. If you are planning for a decade, plant

        trees. If you are planning for a century, plant people.

                 —CHINESE PROVERB


•   To discuss the importance of human resource management in international business

•   To profile principal types of staffing policies used by international companies

•   To explain the qualifications of international managers

•   To examine how MNEs select, prepare, compensate, and retain managers

•   To profile MNEs‘ relations with organized labor


Go or Not: A Career in International Business

Chairman and CEO of General Electric, Jeffrey Immelt, once declared that ―a good global com-

pany does three things: It‘s a global sales company—meaning it‘s number one with customers all

over the world, whether in Chicago or Paris or Tokyo. It‘s a global products company, with tech-

nologies, factories, and products made for the world, not just for a single region. And, most im-

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portant, it‘s a global people company—a company that keeps getting better by capturing global

markets and brains.‖1

        The issue of a person‘s role in international business is an increasingly critical one. Inter-

national companies have been moving people around for centuries, seeking to capture many of

the benefits that follow from putting the right person into the right job at the right place at the

right time. Now, more than ever, companies engaged in international business must do so. The

success of globalization, by increasing trade, capital, and investment flows across nations, has

created many operating units worldwide. The growth in emerging economies such as the BRICs

has intensified these trends. Together, they seem to confirm the notion that if you are going to be

successful, you have to be global.

        In a borderless marketplace, economic patterns and business practices in one region can

determine the fate of a company on the other side of the globe. Increasingly, being a corporate

leader demands an international background. ―You have to have an intuitive sense of how the

world works and how people behave…There is no substitute for personal experience,‖ says Paul

Laudicina, vice president of A.T. Kearney. Daniel Meiland, Executive Chairman of Egon Ze-

hender International, a large international executive search firm, offers this assessment: ―[T]he

world is getting smaller, and markets are getting bigger. In my more than 25 years in the execu-

tive search profession, we‘ve always talked about the global executive, but the need to find man-

agers who can be effective in many different settings is growing ever more urgent. In addition to

looking for intelligence, specific skills, and technical insights, companies are also looking for

executives who are comfortable on the world stage.‖2

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        International companies often use expatriates (someone sent by their company from his or

her home country to live and work in another country) to run their foreign operations. Some

MNEs, such as Fed-Ex, use few expatriates while others, like Royal Dutch Shell and Ford, use

many. Unfortunately, there is little guidance for MNEs when dealing with the multitude of hu-

man resource management issues. The most fundamental of these are why, when, and where

should we use expatriates to staff foreign operations? Other issues to consider are: the practical

matter of selecting the right expatriate; making sure the employee gets the right pre-departure

preparation; designing the right compensation package to motivate performance; and deter-

mining the right way to reintegrate that employee back into the home company upon the

completion of a successful tour of duty abroad.

        The benefits of overseas success and costs of overseas failure move companies, like Ho-

neywell, to identify and develop potential candidates years before their possible assignment to a

foreign unit. Early on, Honeywell briefs potential expatriates on their cross-cultural skills and

prescribes training paths that deal with possible points of culture shock. Manfred Fiedler, vice

president of human resources, describes the process: ―We give them a horizon, a perspective and,

gradually, we tell them they are potentially on an international path . . . We want them to develop

a cross-cultural intellect, what we call ‗strategic accountability.‘‖ 3 To this end, Honeywell might

advise an employee to network with people who have already worked abroad, study another lan-

guage, or informally explore areas where he or she might struggle while living in another coun-


        Laying the foundation for a possible career in international business takes time. There are

many different things to take into consideration, from career progression to the stresses of living

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outside one‘s comfort zone. Many people who have worked overseas note that early challenges

are not always obstacles. These challenges force them to look at situations in a different way.

Working internationally compels employees to develop richer management repertoires than those

used while working in their home nation.

        Consider Joan Pattle, a Microsoft marketing manager who worked at corporate headquar-

ters for three years before accepting a post as product manager for direct marketing in Britain.

While in the U.S., Pattle had been in charge of direct marketing. Her UK job came with much

wider responsibilities: ―At home, my job was very strictly defined. I basically had to know every-

thing about managing a database. But when I got to London, I was also in charge of direct mar-

keting and press relations. I was exposed to a much broader set of experiences.‖4

        Similarly, Laura Anderson, a spokeswoman for Intel Corp, explained that her two as-

signments in Hong Kong exposed her to a side of the company‘s business and media relations

she had never experienced before. In China, a flashy fashion show helped showcase Intel tech-

nology, and the press responded with strong coverage. There, unlike in the United States, a spe-

cial show wrapped around a core-product marketing event is key to attracting media interest.

That, and several other Asian media relations encounters, opened Anderson‘s eyes during her

short-term Hong Kong assignments. ―For me,‖ she says, ―it was a tremendous growth expe-


        Along these lines, McKinsey & Company, a global management consulting firm, found

that an expatriate that has technical competence is now a given but that ―[g]lobal market pioneers

must have a particular mindset…When you look behind the success stories of leading globaliz-

ers, you find companies that have learned how to think differently from the herd. They seek out

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different information, process it in a different way, come to different conclusions, and make dif-

ferent decisions. Where others see threats and complexity, they see opportunity. Where others see

a barren landscape, they see a cornucopia of choices.‖6

        Still, an international assignment is risky for both managers and the companies. For many

foreign executives, cultural clashes, language difficulties, murky business practices, and a harsh

environment rule out anything beyond a short posting. Other problems arise when a company

asks an executive to transfer to second- or third-tier cities in emerging markets. The gap between

life at home versus ―over there‖ can create extreme professional, family, and personal problems.

In their local colleagues, richly-paid foreigners often produce jealousy. Alibaba, which has 30

expatriates in Hangzhou, has made disclosing one‘s salary grounds for termination according to

its director of Human Resources, Jin Jianhang.7 Despite their best intentions, many people

assigned to work in foreign companies are not cut out for dealing with a new and complex

foreign culture; this has the potential of leading to the expensive problem of expatriate failure.

        Eventually, most managers return home. One would think this would be a snap—pack the

bags, say goodbye to colleagues, board the plane, and return to a hero‘s welcome. In many cases,

everything but the hero‘s welcome happens. Tom Schiro of Deloitte & Touché observed that

―some companies just send somebody overseas and forget about them for two years.‖8 To combat

this potential problem, constant communication with the home unit is essential.

        Likewise, careful career-planning can make a world of difference when it‘s time to return.

For example, following a four-year assignment in Tokyo, Bryan Krueger returned to a promotion

of president of Baxter Fenwal North America. When he left to start his job in Tokyo, his compa-

ny did not guarantee him a promotion upon his return. So, while away, he kept up-to-date with

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the goings-on at headquarters. Mr. Krueger credited his smooth return to his intensive network-

ing. During his stint in Tokyo, he returned to the U.S. four to five times a year in order to see col-

leagues and friends. As he explains, ―I was definitely proactive. Anyone who‘s not is doing him-

self a disservice. I made a conscious effort to stay in touch, and it paid off.‖9

        On the flip side, companies may be unable to entice their expatriate to return home.

While overseas, an expatriate can achieve remarkable levels of compensation, responsibility, and

prestige. Coupled with a penchant for living abroad, an international career can be irresistible.

For example, after stints in Singapore and London, a Morgan Stanley expatriate in India muses,

―I still don‘t want to go back to the United States. It‘s a big world—lots of things to see.‖10 But

he goes on to say that international business travel ―is perhaps the most dangerous form of travel.

Tourists wouldn‘t consider flying into a Colombian war zone for a week, yet folks from oil,

computer, pharmaceutical, agricultural and telecom companies do it regularly.‖11 Once there, just

frequenting good hotels and restaurants with colleagues make them prime targets.

        In theory, the professional impact of an overseas assignment to one‘s career trajectory

may be positive, neutral, or negative. In the past, despite the fact that companies touted the value

of foreign assignments as valuable development experiences that prepared managers for greater

corporate responsibilities, the odds were on a neutral or negative outcome. This may be because

many companies were slow to reward a manager‘s successful international experience with ex-

panded leadership responsibilities upon their return home. Today, the globalization of business

has changed this situation. More CEOs assert that international experience is an essential feature

of a high-performance career.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        At Procter & Gamble, for example, 39 of the company‘s top 44 global officers have had

an international assignment, and 22 were born outside the United States. Giorgio Siracusa, P&G

manager of human resource‘s global business services, believes that global awareness and expe-

rience are ―ingredient[s] you must have if you aspire to be a global player in the long term.‖12

This globalization has spurred MNEs, like Samsung and Dow Chemical, to see multinational ex-

perience as being just as essential as multifunctional and multiproduct experiences in reaching

the upper-echelons of the company. Data confirm this trend; for example, 80 percent of FTSE

100 CEOs had experience with international assignments.13

        More pointedly, Daniel Meiland conjectures that ―[i]f you look ahead five to ten years,

the people with the top jobs in large corporations, even in the United States, will be those who

have lived in several cultures and who can converse in at least two languages. Most CEOs will

have had true global exposure, and their companies will be all the stronger for it.‖14


[MN 1] The challenge of putting the right person into the right job in the right place at the right

time for the right salary takes us to the front lines of international business. From opening mar-

kets to returning home, international business careers take any number of directions. At the cen-

ter is the individual facing challenges that often lead to surprising opportunities. The contest be-

tween challenges and opportunities is the spirit of a career in international business.15 This chap-

ter looks at the role of the individual in international business, paying particular attention to fa-

cets of human resource management (HRM) as they apply to managers in the MNE.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    HRM refers to the activities that a company, whether solely domestic or thoroughly global,

takes to staff its organization. Opening and operating a business demands that companies deter-

mine their human resource needs, hire people to meet those needs, motivate them to perform

well, upgrade their skills so that they can move onto more challenging tasks, and, ultimately, re-

tain them.16 This chapter, building on the themes introduced in Chapter 11 and applied since to

various value chain activities, looks at HRM from the perspective that successful companies staff

their operations with people that can leverage their core competencies while dealing with pres-

sures for local responsiveness and global integration. This premise emphasizes that the various

HRM activities, like discrete activities in the company‘s value chain, perform best when manag-

ers link them to the strategy of the firm (see Figure 20.1).

[MN 2] HRM is more difficult for the international company than its domestic counterparts.

Complications arise from political, cultural, legal, and economic differences between countries—

to say nothing of the struggle of traveling the world (see Figure 20.2). For example, leadership

styles and management practices vary from country to country.17 These differences can cause dif-

ficulties between people at different units, say, headquarters and a local subsidiary. More worri-

some, these differences can turn a great manager at home into an ineffective one in foreign mar-

kets. Similarly, labor markets vary in the mix of workers, costs, and productivity. As we saw in

Chapter 3, local labor laws often require a company to change its workplace standards and hiring

practices. Finally, dual career and family obligations make it tough to convince executives to

leave the home office to join a foreign subsidiary. Consequently, companies must develop re-

cruitment, training, compensation, transfer, and retention programs to persuade, prepare, and in-

cent executives to go abroad.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    One wonders why companies and people put up with these aggravations. The short answer is,

in the face of globalization, they must. The long answer is, in the face of globalization, in-

sightfully dealing with these challenges creates competitive advantages. Both answers highlight

the mandate for HRM: Develop the means and methods to build, develop, and retain the cadre of

managers that will lead an international company to greater performance. This chapter discusses

how international companies use HRM processes to meet this mandate. We begin by discussing

the role that HRM plays in supporting the strategy the MNE has chosen to create value.18 We

then discuss those HRM activities that move the company‘s personnel plans from ambition to

action, namely, the selection, development, compensation, and retention of international manag-

ers.19 The chapter concludes with a look at the relationship between the MNE and labor, examin-

ing the implication of the linkages among international labor relations, management action, and

the firm‘s strategy.


Anecdotes suggest and research confirms a powerful relationship between HRM processes, man-

agement productivity, and strategic performance.20 We noted in Chapter 11 that Jeffrey Immelt,

CEO and Chairman of General Electric, believes that success is ―truly about people, not about

where the buildings are. You‘ve got to develop people so they are prepared for leadership jobs

and then promote them. That‘s the most effective way to become more global.‖ Similarly, the

then-chairman of Unilever, discussing how the world is changing and what management can do

to respond, reasons, ―The single most important issue for us has been, and will continue to be,

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
organization and people.‖21

    Research confirms superior human resources sustains high productivity, competitive advan-

tage, and value creation. The Human Capital Index, synthesized from the practices of 2,000 com-

panies, found that superior human resource practices positively correlated with a firm‘s financial

returns and were a leading indicator of increased shareholder value.22 Significantly, analysis

found a notable pattern of causality: Superior HRM was a stronger determinant of a firm‘s finan-

cial performance, in contrast to the thesis that superior financial outcomes lead companies to de-

velop superior HRM practices. Or, to paraphrase Jeffrey Immelt, creating value is ―truly about

people, not about where the buildings are.‖ Others report similar effects, finding that the interac-

tion between the firm‘s strategy and its HRM processes accounts for more variation in firm per-

formance than simply looking at the primary effects of HRM.23

[MN 3] The irony of this situation is that we have heard companies trumpet ―Our people are our

most important asset.‖ Still, more than a few employees can relay tales that when push came to

shove, companies failed to honor this pledge. Research finds similar effects, confirming that

many international companies do not match rhetoric to reality. For instance, later parts of the

chapter discuss the odd fact of what happens to executives when they return home from their

overseas assignment—more than half leave their company within a year.

    Study of HRM at more than 300 multinationals reports that developing and managing human

resources is one of the weakest capabilities in most firms.24 There is even the suggestion that

while many companies believe they understand the cost of their international assignments, ―only

a few are in a position to measure the specific expense, resulting value, and, ultimately, return on

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
investment from such postings.‖25 In contrast, companies that improved the strategic perfor-

mance of their HRM practices increased their market value by as much as 30 percent.26 In sum-

mary, research reports executives acknowledge that the effectiveness of human resource practices

materially affects firm performance, but many fail to achieve their HRM goals.

    The gap between rhetoric and reality of the value of human resources has led to the necessity

of changing how companies staff operations. Now, HRM must hire, develop, reward, and retain

people whose performance improves the productivity of the firm‘s core competencies within the

context of how it has configured and coordinated its value chain. The odds that a company suc-

cessfully engages its chosen strategy is influenced by how well it staffs the right person in the

right job in the right place at the right time for the right salary.

    Our earlier look at the types of strategies that international businesses follow provides a way

to elaborate this view. Chapter 11 discussed four strategies pursued by an MNE: the international

strategy and its quest to leverage core competencies abroad; the multidomestic strategy and its

quest to maximize the local responsiveness of its foreign operations; the global strategy and its

quest to maximize global integration; and the transnational strategy and its quest to do all three

tasks simultaneously. The type of strategy that MNEs pursue has explicit HRM requirements. A

company makes its strategic ambitions mere speculations if it does not build the human resources

needed to achieve them. For example, GE uses a transnational strategy. Getting to this point has

taken the company more than two decades. Beginning in the 1980s, GE focused on globalizing

its markets to tighten its cost structure (the international strategy). In the late 1980s, the company

moved to globalizing its material sources to get higher-quality inputs for lower prices (the global

strategy). Then, in the mid-1990s, it began trying to globalize its intellect, seeking, learning, and

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
transferring ideas throughout its global operations (the transnational strategy).

    At each ―stop‖ along the way to its current transnational strategy, GE rethought its HRM phi-

losophy to make sure it had the human capital to achieve its strategy. The key to its international

strategy was staffing people who could optimize location economics and scale effects; the key to

its global strategy was staffing people with the outlook to manage global scanning and supply

chains; and the key to its transnational strategy has been staffing people around the world who

can develop, transfer, and receive ideas. At each stage in GE‘s evolution, its HRM aligned the

processes of employee selection, development, and compensation policies to support its strategy.

    A vital part of GE‘s HRM evolution has been its use and expectations of expatriates. Jeffrey

Immelt explains, ―When I first joined General Electric [in 1982], globalization meant training the

Americans to be global thinkers. So Americans got the expat assignments. We still have many

Americans living around the world, and that‘s good, but we shifted our emphasis in the late

1990s to getting overseas assignments for non-Americans. Now you see non-Americans doing

new jobs, big jobs, important jobs at every level and in every country.‖ GE‘s sophisticated use of

expatriates has created a cadre of international managers with the expertise to manage its core

competency in developing and diffusing powerful ideas around the world. GE‘s success in inter-

national business, like that of many other companies we profile throughout this chapter, high-

lights the standard for HRM in an MNE: Staffing the manager with the necessary qualifications

to the job that best supports and sustains the company‘s worldwide strategy.

The Expatriate Perspective

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
[MN 4 and 5] As with preceding chapters, we apply an executive perspective to study HRM in

the MNE. Executives in the MNE are one of three classes: locals, citizens of the countries in

which they are working, or expatriates. A ―local‖ is hired by the MNE in his or her home country

to staff the local operations. An expatriate (or expat) is temporarily sent to work in a country

other than his or her legal residence. Technically, an expatriate is either a home-country nation-

al (a citizen of the country where the company is headquartered) or a third-country national (a

citizen of neither the country where they work nor the headquarters country but a third country).

        Recently, there has been a burst in worldwide demand for expatriates.27 Figure 20.3,

based on a survey of 202 international companies, shows the regional increase/decrease in long-

term expatriates from 2005 through 2007. Growing demand follows from the emergence of de-

veloping countries as large, high-growth markets coupled with the growing difficulty in finding

skilled locals for start-up operations or in replacing expatriates in existing units. Staffing globali-

zation, so to speak, has led to redefining the mechanics of expatriate assignments.

        The central concept of an expatriate is someone who leaves their home country to work

abroad. However, precise classification of an expatriate is no longer straightforward. Historically,

an expatriate was typically posted to a particular host country for a three-to-five year assignment

with the ultimate plan of returning to the home country. Now, surveys report that most interna-

tional assignments are much shorter. A decade ago, a little more than 10 percent of international

assignments were scheduled for one year or less; today, 80 percent or more run that short.28

―Short-term assignments are popular because they are generally more cost-effective than long-

term assignments and they allow companies to transfer skill sets quickly and easily‖ said one


Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    Traditionally, expatriates were mid-level executives being developed for higher levels of

responsibility. As such, companies saw an international assignment as a mid-career steppingstone

for its future leadership. Now, some companies are changing their traditional profile of an

expatriate in terms of age, targeting younger employees who are single, more mobile, and less

resistant to change or older employees whose children have grown and whose partners may be

more willing to move. Also, the changing workplace of globalization elevates the usefulness of

third-country nationals.30 When companies establish lead operations abroad, such as headquarters

for a product division, third-country nationals often have the competencies needed for the foreign

assignments. Too, the move toward short-term assignments boosts the appeal of third-country

nationals—a banker from London, for instance, may spend Monday through Friday working in

Zurich and then return home for the weekend.

        The rise of emerging markets has added a twist to the notion of expatriates. Historically,

companies selected expatriates from the pool of executives in richer countries and sent them to

staff operations in developing countries. Now, well-educated executives from leading emerging

economies are being sent straightaway to the richer ones and are becoming ideal local candidates

for many European or American firms. Hired directly into the home-country headquarters to

learn the ropes, they then return to head-up operations in their home market, typically replacing

an expatriate.

[MN 6] Changes in the global environment continue to change our ideas of how best to staff glo-

balization. The mechanics of expatriate assignments will continue to evolve. Notwithstanding

these changes, staffing the thousands of home offices and foreign affiliates around the world

means international companies must find and move managers between national opeations. And

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on the matter of simply finding qualified managers, surveys report growing worries among senior

human resource managers about companywide talent shortages. Companies around the world are

finding it harder than ever to recruit the future leaders of their organizations.31 As such, we see

enduring permanence to the anchor of HRM in the international company: Finding people to fill

international jobs begins with how the MNE defines its staffing policies.

                                            STAFFING POLICIES

[MN 7 and 8] For MNEs, the issue of staffing policies centers on the decision of whether to run

their international operations with local workers in the host nation, expatriates sent from the

home country, or a third-country national. Research spotlights three types of frameworks as they

apply to an MNE‘s staffing policy: the ethnocentric approach, the polycentric approach, and the

geocentric approach. First, a quick note: As you review each type, keep in mind that there is no

theoretically superior approach. Each one has strengths and weaknesses that shape how it anchors

staffing policies.

The Ethnocentric Approach

An ethnocentric staffing policy reflects the belief that the principles and practices used by the

home-office country are superior to those used by companies in other nations. Hence, given its

success in the home market, there is little need to adapt principles and practices when transferred

to foreign markets.32 This staffing policy leads companies to fill expatriate slots with executives

from the home office. Several benefits support this approach (see Table 20.1).

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
[MN 9] MNEs that link firm performance to how well they transfer core competencies are keen

to adopt an ethnocentric approach. Specifically, a firm earns success in its home market doing

something exceptional. A legacy of success leads companies to see their business methods as the

best way to do things. In such situations, companies aim to sustain their success when expanding

and operating overseas by controlling the transfer and regulating the use of their core competen-

cies. Firms that are sensitive to leveraging their core competency in foreign markets believe an

ethnocentric staffing policy works well on two levels: the matters of transfer and protection.

    Regarding transfer, staffing overseas operations with people from the home country goes a

long way to ensuring that the firm‘s core competency makes it overseas as planned.33 This is vi-

tal when the core competency is difficult to articulate, specify, or standardize—such as Apple‘s

product design expertise. Posting a home-country manager to foreign operations, therefore, puts

the company‘s core competency under the direction of the home-country manager who com-

mands the hands-on knowledge that made the company successful in the first place. The HSBC

Group long epitomised this model. For generations, virtually all its top bosses were drawn from a

tight-knit cadre of elite expatriates who, in going from one foreign position to another, carried

what an executive at HSBC calls ―the DNA of the organisation.‖34 Regarding protection,

companies are keen to safeguard their core competency. With it, the firm prospers; without it, the

firm fails. This stark reality leads headquarters to entrust control of the company‘s ―crown

jewels‖ to those who they believe will unconditionally protect them—fellow colleagues at


    Finally, earlier chapters noted the challenge of operating in unusual markets. Companies

often use an ethnocentric staffing approach to reduce the degree of cognitive dissonance they face

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as they expand internationally. Relying on people familiar with proven workplace methods and

labor procedures helps companies cope with the stress of foreign situations. For example, Wipro,

an Indian technology company, employs 54,000 people in 35 countries, more than 11,000 of

them working outside India. Of these, more than 90 percent are Indian, and a large share are

middle-level managers. Wipro sends many Indians abroad given their familiarity with intense

around-the-clock schedules. ―We sprinkle Indians in new markets to help seed and set up the

culture and intensity,‖ says Sanjay Joshi, chief executive of global programmes and consulting at

Wipro Technologies. Sometimes, an ethnocentric staffing policy is practically impossible. Host

governments, keen to the importance of developing and employing local workers, prefer foreign

subsidiaries to hire locals. They often use immigration laws or workplace regulations to push the

MNE to do so.

    As the adage goes, ―vices are simply virtues taken to extreme.‖ The same is often said about

an ethnocentric staffing approach. Force-fitting foreign operations with a standardized staffing

policy risks pounding circular pegs into square slots. Eventually, a company can make its foreign

operations mirror the outward appearance of the home office. However, putting people in foreign

settings does not automatically imbue new attitudes; it can also create high costs and lost oppor-

tunities. Predictably, companies have excellent reasons when asked why they only rely on home-

country nationals to run their international operations. They believe that there is no shortage of

brainpower in a particular country, just a shortage of people with the right mix of technical skills,

experience with their particular business methods, and trustworthiness. This limitation can prove

detrimental, effectively blinding the company to different, possibly better, ways of doing things.

    Ethnocentric staffing policies can also leave local managers and workers unmotivated and

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
demoralized. An assumption of the ethnocentric view—that all the smart, capable people are

born and live within a 20-mile radius of headquarters—sends the message to subsidiary person-

nel that headquarters do not value them. Unless a foreign assignment is intended to develop an

expatriate, local employees will likely resent someone coming from a foreign country who they

see as no more qualified than they are. Unchecked, resentment can lower productivity and in-

crease turnover.

The Polycentric Approach

[MN 10] A polycentric outlook holds that staffing policies ought to adapt to differences between

operations in the home and host country. A polycentric staffing policy sees the effectiveness of

the business practices of foreign markets as equivalent to those in the home country. This moti-

vates the company to staff each operation from headquarters in the home country to each foreign

subsidiary with people from the local environment—Chinese run the China operations, Mexicans

run the Mexico operations, Austrians run the Austria operations, and so on. Therefore, a polycen-

tric staffing approach is a key feature of the multidomestic strategy. It is inappropriate for a com-

pany whose strategies require they configure value chains to exploit location economies or coor-

dinate value chains to leverage core competencies worldwide.

    Staffing foreign operations with locals has indisputable advantages (see Table 20.2). As we

saw in our case profile of Johnson and Johnson in Chapter 15, management believes staffing lo-

cal operations with local managers was terrific. Specifically, the CEO explained that ―our

decentralized approach to running the business yields better decisions—in the long run—for

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patients, health professionals and other customers, because the decision-makers are close to the

customers and are in a better position to understand their needs. Finally, our decentralized

approach to managing the business is a tremendous magnet for talent, because it gives people

room to grow and room to explore new ideas, thus developing their own skills and careers ” 35

    From a different perspective, local managers are politically astute choices. That is, the host

country that is suspicious of foreign-controlled operations will see local managers as ―better citi-

zens‖ because they presumably put local interests ahead of global objectives. This local image

may play a role in employee morale as well. Many subsidiary employees prefer to work for

someone from their own country.36 Too, there are impediments to using expatriates, such as li-

censing requirements that prevent companies from using expatriate accountants and lawyers.

    The economics of staffing international operations is a compelling motivation for a polycen-

tric staffing approach. Hiring local managers eliminates the exorbitant expense of sending people

from the home office. A general rule of thumb is that the cost of an expatriate is three-times the

expatriate‘s annual salary for every year of the assignment; it is nearly impossible to nail down

total cost due to the range of variables that go into calculation. Still, data report that an

international assignment costs companies an average of $311,000 per year.37 Adding indirect ex-

penses also boosts this sum; on average, expatriates are supported by twice as many HR

professionals (one to 37) versus staff not on international assignment (one to 70).

    Human resource managers, pressed to control the cost of expatriate assignments, often re-

spond by hiring locals. For example, HSBC Group had more than 1,000 expats five years ago out

of 312,000 worldwide employees. It now has about 380 expatriates, drawn from 33 nations. To-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
day, it prefers to fill foreign slots with local executives because of the higher costs of expatriate.

Also, like Johnson & Johnson, they reason that local managers should perform better, sooner,

given their finer understanding of local customers, markets, and institutions. Other companies

echo this view. For instance, when operating outside the U.S., Microsoft tries to hire foreign na-

tionals. COO Robert Herbold explains, ―You want people who know the local situation, its value

system, the way work gets done, the way people use technology in that particular country, and

who the key competitors are. If you send someone in fresh from a different region or country,

they don‘t know those things.‖38 More philosophically, Bill Gates, CEO and chairman of Micro-

soft, reasons a polycentric policy is a moral obligation of international business, declaring that

when staffing an international office, ―It sends the wrong message to have a foreigner come over

to run things.‖39

[MN 11] Operationally, a polycentric staffing policy leads companies to transfer authority to lo-

cals to run the subsidiary. Difficulties can arise on issues of accountability and allegiance. Ac-

countability issues emerge when subsidiaries evolve into quasi-autonomous operations that de-

pend less and less on the home office for resources. Furthermore, host-country nationals in

charge of a subsidiary tend to see their primary allegiance to their local colleagues and country,

rather than the distant home office. In theory, local managers balance the competing demands of

making sense of events from a local and home office view. In practice, however, they may be-

lieve national concerns take precedence.40

    Compounding this situation is a subtle drawback of a polycentric staffing policy, namely the

potential disengagement of local staff from the parent company. By definition and design, a poly-

centric staffing policy creates few opportunities to work outside one‘s own country. This out-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
come constrains the international mobility of host-country nationals. As a result, there may be

little incentive for local managers to understand the commercial and cultural practices in other

markets. Left standing, these differences can isolate national subsidiaries. Consequently, head-

quarters policy to staff local operations with locals may mutate their goal of a global company

into a loose federation of largely independent country operations with only nominal links to each


The Geocentric Approach

Moving from a multidomestic company to a global or transnational company lessens the need to

have home-country or host-country managers supervise local activities. So, unlike the ethnocen-

tric and polycentric variations, a geocentric staffing policy is not tied to a particular home or host

nation. Instead, it scans the world looking for the best people for key jobs throughout the organi-

zation, regardless of their nationality. Jeffrey Immelt of GE, explaining the company staffing pol-

icy says, ―It‘s more important to find the best people, wherever they may be, and develop them so

that they can lead big businesses, wherever those may be.‖ A geocentric policy enables the MNE

to build the requisite cadre of international executives who can move between countries and cul-

tures without forfeiting their effectiveness.41

[MN 12] A geocentric staffing policy is instrumental to companies pursing a global and, espe-

cially, a transnational strategy. Both types of strategies rely on learning opportunities around the

world to generate ideas that enhance their core competencies. As the CEO of Schering-Plough

explains, ―Good ideas can come from anywherethe more places you are, the more ideas you

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
will get. And the more ideas you get, the more places you can sell them and the more competitive

you will be. Managing in many places requires a willingness to accept good ideas no matter

where they come from—which means having a global attitude.‖42 Others, seeing the power of

ideas to refine and create new core competencies, adopt a geocentric orientation. For instance,

Fujio Mitarai, president of Canon, Inc., observes, ―Until recently, everything we did overseas was

an extension of what we were doing in Japan. From now on, we want to give birth to new value

abroad. We want to make the best of the different kinds of expertise available in different coun-


[MN 13] A geocentric staffing policy is hard to develop and costly to maintain. Difficulty fol-

lows from the need to keep a sense of who you are and still be able to understand the views of a

diverse range of people. For instance, the aggressively multinational composition of senior man-

agement that results from geocentric staffing policies arguably reduces cultural myopia and en-

hances local responsiveness. The gap between theory and reality, however, can be big. For exam-

ple, the investment bank J. P. Morgan Chase employs more than 50 nationalities in its London


    Making sense of all outlooks that potentially bear on a decision can prove overwhelming. If

done poorly, geocentrism can erode the sense of common purpose. Like the Tower of Babel, the

clarity of the task can get lost in a hodgepodge of differences. Similarly, the logistics of geocen-

trism are costly. Exposing people to different ideas in diverse places is expensive. Training and

relocation costs quickly escalate when frequently transferring high-priced managers from country

to country. Too, unexpected problems emerge when the higher pay and prestige enjoyed by man-

agers placed in the company‘s global executive vanguard trigger resentment.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management

Table 20.3 summarizes the merits and shortcomings of the three staffing approaches. Broadly

speaking, an ethnocentric approach is congruent with an international strategy, a polycentric ap-

proach is congruent with a multidomestic strategy, and a geocentric approach is congruent with

global and transnational strategies. In actuality, companies may use elements of each staffing pol-

icy, given particular opportunities and constraints, changes in configuration or coordination of

their value chains, or the preferences of leadership.44 Nonetheless, companies tend to champion

the staffing policy that is most congruent with their current standard of value creation, as exem-

plified by GE‘s aim to staff people who will ―globalize the intellect of the company‖ and its cor-

responding engagement of a geocentric staffing policy.

        Few MNEs question the need for expatriates. Translating this belief into a cadre of high-

performance expatriates requires MNEs to find those people who are prepared for an internation-

al assignment, devise ways to motivate them to perform well, and capitalize on their new skills

and improved outlook when they are ready for their next job. Therefore, we turn to the matters of

expatriate selection, development, compensation, and repatriation.

                                      EXPATRIATE SELECTION

[MN 14] Some people enjoy the thrill of living and working abroad. Others, however, prefer not

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
to work in a foreign country, particularly if they perceive an assignment as long-term. Screening

executives to find those with the greatest inclination and highest potential for a foreign

assignment is the process of expatriate selection. This process always difficult, in increasingly so

given growing concerns about companywide talent shortages and the difficulty of recruiting the

future leaders of their organizations.45 Consequently, few MNEs have the luxury of a large cadre

of mobile and experienced expatriates to call upon as needed.

        Two factors complicate this situation. First, Moreover, there is no specific set of technical

indicators that consistently distinguish a good versus poor expatriate. Too, it is a persistent

challenge to judge a potential expatriate‘s adaptability to foreign places, people, and processes.

However, the dire importance of expatriate to run international operations along with the severe

cost of expatriate failure strongly encourages thorough selection processes. Therefore, selecting

the right expatriates pushes MNEs to assess their talent pool with a range of indicators. Despite

efforts to rely on psychoanalytic testing or in-depth interviews, scientifical indiactors are ready

but rough estimators.. In recourse, companies look for people with skills and outlooks in the mat-

ters of technical competence, adaptiveness, and leadership ability.

Technical Competence

[MN 15] Corporate managers, expatriates, and local staff routinely agree that technical compe-

tence, usually indicated by past job performance, is the biggest determinant of success in foreign

assignments.46 In the least, an expatriate must command the functional skills to do the job and, if

necessary, understand how to transfer or tailor them to foreign situations.47 Managers commonly

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
have had several years‘ worth of work experience before a company sends them abroad. This

tendency also reflects the fact that expatriate selections are usually made by line managers based

on the candidate‘s operational track record. Moreover, many companies translate a record of out-

standing technical competence into self-confidence needed to do well abroad.

        This tendency is changing somewhat—recall that some companies are seeking younger or

older employees to staff international slots. For the former, companies are willing to trade off

performance records for long-term potential. For example, PricewaterhouseCoopers, a global ac-

counting and auditing firm with about 145,000 employees, has started a Life Experience Abroad

Programme (LEAP) to accelerate international assignments. LEAP begins by identifying promis-

ing workers (those who show an interest in living abroad and who have a flair for foreign lan-

guages) who have been at the firm for three or four years. The program calls for posting them

abroad for several years with the goal of returning for senior leadership roles. PWC‘s plans to

have 5,000 LEAP staff working in 30 countries, effectively doubling the company‘s expatriate



[MN 16] Performance data show that effective expatriates possess adaptive characteristics.

Hence, MNEs routinely evaluate a possible expatriate in terms of the following adaptive charac-


    •   Those related to self-maintenance, such as personal resourcefulness, precisely because

        things do not always go as planned. Companies struggle to identify this characteristic.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        Like many MNEs, the selection process at HSBC uses tests, interviews, and exercises.

        Still, its CEO explains, ―We don‘t look so much at what or where people have studied but

        rather at their drive, initiative, cultural sensitivity, and readiness to see the world as their

        oyster. Whether they‘ve studied classics, economics, history, or languages is irrelevant.

        What matters are the skills and qualities necessary to be good, well-rounded executives in

        a highly international institution operating in a diverse set of communities.‖48

    •   Those related to the development of satisfactory relationships with host nationals, such as

        flexibility and tolerance. Whether called cultural empathy, others-orientation, or simply

        leadership, this orientation enhances an expatriate‘s ability to interact with new people.

        Research reports that two factors play vital roles in this process: the ability of an expa-

        triate to develop sincere, honest friendships with foreign nationals and the expatriate‘s

        willingness to use the host-country language.

    •   Those related to skills and sensitivities that help one to interpret the immediate environ-

        ment in ways that reject stereotypes, preconceptions, and unrealistic expectations.49 Bet-

        ter interpreting how colleagues, customers, and competitors in the local market interpret

        events goes far in working well in a different country.

Leadership Ability

[MN 17] Increasingly, companies see personal leadership as a key to an expatriate‘s success.50

Expatriates often find themselves as a senior manager at foreign subsidiaries that are usually

much smaller than the parent but which require top-level leadership duties. Communication

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
skills, motivation, self-reliance, courage, risk-taking, and diplomacy become essential qualities

for success. Successful expatriates often command, in descending order of importance, optimism

(believes future challenges can be overcome), drive (has passion to succeed), adaptability (han-

dles ambiguity well), foresight (imagines the future), experience (has seen and done a great deal),

resilience (recovers quickly from failure), sensitivity (adjusts management style to cultural differ-

ences), and organization (plans ahead, follows through).51 We saw with Joan Pattle of Microsoft

in our opening case that working abroad requires that you wear many hats. Success depends on

understanding cultural differences in problem solving, motivation, use of power, consensus

building, as well as being able to make sense of trade rules and regulations, business practices,

and joint ventures.

                                        EXPATRIATE FAILURE

[MN 18] Despite the best-laid plans of mice and men, things often go astray. MNEs experience

this situation when they select their best and brightest managers, send them to a foreign market,

pay them well, and watch them fail. Expatriate failure (narrowly defined as the manager‘s prema-

ture return home due to poor job performance; broadly defined as the failure of the MNEs‘ selec-

tion policies to find individuals who will succeed abroad) is an enduring concern. In the 1980s,

research reported that between 16 and 40 percent of all American employees sent abroad to more

developed countries returned from their assignments early, and almost 70 percent of employees

sent to emerging markets returned home early. Recent surveys indicate that today less than 10

percent of expatriates fail to complete their assignments abroad.52

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
[MN 19] The fall in the rate of expatriate failure testifies to the improving sophistication of se-

lection processes. Still, few see the fall as cause to stop and celebrate. The financial and personal

costs of expatriate failure, no matter how infrequent, are destructive. The average cost per failure

can be as high as three-times the expatriate‘s annual domestic salary plus the cost of relocation.53

The direct costs of each failure can easily reach $1 million when one adds the time and money

spent in selection, visits to the location before the executive moves, and the expatriate‘s lost

productivity as things fall apart. Finally, an incalculable cost is the personal implications of pro-

fessional failure to the formerly high-performing executive‘s self-confidence and leadership po-


    Firms try to improve the apparent causes of expatriate failure and develop preemptive train-

ing and preparation programs. Assessments of expatriate failure have focused on the expatriate‘s

technical expertise, ability to cope with greater responsibilities overseas, challenges of the new

environment, personal or emotional problems, and ability of the expatriate‘s spouse to adjust to

the foreign environment. The growing sophistication of HRM has reduced the rates of expatriate

failure due to insufficient technical expertise. Rare is the foreign assignment that fails because

HRM did not identify the person as technically incompetent prior to his or her departure.

[MN 20] Other causes of expatriate failure have proven more intractable. Traditionally, attention

has focused on the expatriate‘s adjustment to the new environment as the best predictor of fail-

ure.54 The inability of an expatriate to adjust to the foreign assignment has consistently been

linked to his or her inadequate cultural sensitivities and skills. Recently, companies have turned

their attention toward the adjustment difficulties for the spouse and family.55 Research shows that

a foreign assignment is usually more stressful for the family than for the expatriate. Consequent-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
ly, the leading cause of expatriate failure is the inability of a spouse and children to adapt to the

host nation: ―If the family starts to unravel, the employee will at some time start to unravel,

too.‖56 Abrupt separation from friends, family, and career isolate the spouse and children. In re-

course, they often look to the working spouse or parent for more companionship and support.

Almost always, the working spouse has less time because of the new job. This often fans family

stress, which then affects the expatriate‘s work performance. Employers experiment with ways to

bypass this risk. More people are being sent on short-term, ―commuter‖ assignments where they

need not uproot their families. Too, moves to send younger or older expats speaks to this threat:

the younger are more likely single, and the older have grown children and partners less resistant

to change.57


Companies recognize the need to prepare expatriates for their overseas assignment. Although

easily said, many companies struggle to deal with these issues systematically. The HRM depart-

ments of most companies typically have lots of employee data. However, most profile em-

ployees‘ technical capabilities and accomplishments. Far less data profile their adaptive capabili-

ties, willingness to accept foreign assignments, geographic preferences, or foreign-language qua-


[MN 21] This data gap largely reflects the MNE‘s historic preoccupation of linking expatriate

selection to technical competence. This leads MNEs to direct training efforts toward improving

their employees‘ technical skills and generally leaving it up to the individual to develop his or her

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
adaptive competencies. Achieving the latter are those managers who have an interest in interna-

tional careers to travel abroad, study world events, and seek people of different ethnicities, cul-

tures, and nationalities.59 When eventually posted as expatriates, these executives perform well,

thereby encouraging more companies, as we saw with our opening look at Honeywell, to prepare

expatriates for overseas assignments with cross-cultural training.

    Many MNEs prepare potential expatriates by developing their general understanding of a

country, cultural sensitivity, and practical skills prior to their departure. We now look at each of

these areas.

General Country Understanding

        The most common pre-departure training is an informational briefing about the way

things work in the host country. Topics typically include politics, economics, features of the

workplace, and lifestyle options.60 Some companies follow this training with a refresher course

about six months after expatriates arrive in a foreign country.

Cultural Sensitivity

Cultural training aims to sensitize the expatriates to see the opportunity of working with host-

country nationals, encouraging them to keep an open mind to different ideas, attitudes, and be-

liefs. Exposure to other nations and cultures, the reasoning goes, is the best preparation for deal-

ing with culture shock (the soon-after-arrival disapproval of the host culture that, if not dealt

with, deteriorates into homesickness, irritability, arrogance, and disdain). Developing the cultural

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
sensitivity to rise above culture shock doesn‘t always come naturally, so preparing expatriates

requires helping them to see their biases. Therefore, some companies encourage expatriates to

undergo cultural training to foster an appreciation for the host country‘s culture. A survey of 200

multinational firms found that 60 percent provide cross-cultural training for international

assignments. Once in the host country, employees and their families are typically on their own.61

Practical Skills

Practical training aims to gradually familiarize the expatriate and family with the routines of life

in the host country. The sooner the family develops a useful pattern of schooling, socializing, and

shopping, the greater the odds that they will survive culture shock. Expatriates can do a number

of things to help themselves adjust to foreign locations, such as socializing with local religious

groups and expatriate associations. Too, before they depart, managers can seek information from

people who have positive memories of their expatriate experiences and can offer practical wis-

dom on a successful transition.

Training Gaps and Trends

[MN 22] Despite the usefulness of preparation programs, reports suggest that most managers re-

ceive little to no training prior to their departure. Indeed, many expatriates prepare for their as-

signment on the flight to their new home country, scanning various reports and resources. Usual-

ly, companies blame the urgency of the situation for this deficiency, noting that there is not

enough time for an executive to take a familiarization trip to the host country, let alone a crash

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
course on its history, culture, politics, economy, religion, and business environment. Typically,

the home office sees the performance of the foreign operations deteriorating or the fading of key

opportunity and believes it must dispatch help immediately.

   More commonly, MNEs often fail to train their potential expatriates for international respon-

sibilities due to uncertainty about the best way to do so. Companies opt to either transfer specific

and specialized knowledge about the foreign environments or develop interpersonal awareness

and adaptability in the context of intensive cultural sensitivity training. The former approach

tends to reduce some of the fear of dealing with the unknown. In contrast, the latter approach

tends to make people more receptive to and tolerant of foreign environments. However, the

awareness of a difference does not necessarily imply a willingness to adapt to it, particularly if it

is a cultural variation. Although either approach generally helps a person adjust better than those

who get no training, there appears to be no significant difference in the relative effectiveness of

the approaches.62

    Finally, increasingly sophisticated strategies spur MNEs to engage more of their employees in

general international development. The need to generate, transfer, and adopt ideas from wherever

they originate to wherever they add value, particularly compelling for the MNEs pursuing a glob-

al or transnational strategy, means preparing all employees to do so. MNEs with an international

or multidomestic strategy face pressures, given growing globalization, to help more employees

understand worldwide operations and opportunities. In response, MNEs use development pro-

grams to help employees overcome their hesitancy.

    MNEs of all sorts see the value of including international business components once reserved

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
for expatriates in development programs for all employees—irrespective of whether the person

plans to work abroad. Examples include: Mattel‘s and Infosys‘s regional training centers, where

managers from several countries convene to examine specific topics; Proctor & Gamble‘s train-

ing on globalization issues; and programs at Honda of America to teach foreign languages and

cultural sensitivity.

                                   EXPATRIATE COMPENSATION

[MN 23] If a United States MNE transfers its finance manager, who is making $150,000 per year

in Seattle, to China, where the going rate is $100,000 per year, what should the manager‘s salary

be? Or if a Chinese finance manager is transferred to the United States, what pay should the

company offer? Should it compensate in dollars or yuans? Which set of fringe benefits should

apply? These are a few of the many questions a company faces when it posts people to its foreign

operations. Managing an international workforce means HRM must deal with differing pay le-

vels, benefits, and prerequisites. On the one hand, HRM must prevent the already high costs of

an expatriate assignment from spiraling out of control—companies in the U.S. spend nearly $1.3

million per expatriate during the course of a typical three-year foreign assignment.63 On the oth-

er, HRM must pay people enough to motivate them to work hard and get the family to move.

    All things being equal, therefore, compensation can determine the likelihood and success of

expatriate assignments. Pay them too little, and the person declines to go or, if does go,

eventually regrets doing so. Pay them too much, then costs escalate, returns fall short, and pay

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
inequities fan dissension. Futher compliating the pay-performance link is the weak to no

correlation between higher pay for expatriates and improved performance. Rather, data shows

that the higher the pay, the longer assignments tend to last; some employees, quite content to

prolong a munificent financial existence abroad, see little incentive to return.64 The task, then, is

clear: devise a compensation package that gets a person to go, lets him maintain his standard of

living, reflects the responsibility of the foreign assignment, and ensures that after-tax income will

not fall as a result of the foreign assignment.

Types of Compensation Plans

[MN 24] Many MNEs, especially in the United States, apply the balance sheet compensation

plan to manage their expatriate accounts.65 The approach develops a salary structure that equaliz-

es purchasing power across countries so expatriates have the same living standard in their foreign

posting that they had at home—no matter which country their assignment takes them.66 The prin-

ciple of equalization presumes that expatriates should neither profit nor lose because their com-

panies assigned them work abroad. In addition, the balance sheet approach outlines how the

company provides financial incentives that offset qualitative differences between assignment lo-


    There are three common methods of implementing a balance sheet compensation plan:

    •   The home-based method bases the expatriate‘s compensation on the salary of a compara-

        ble job in his or her home city. This method, by preserving equity with home-country col-

        leagues, treats the expatriate‘s compensation as if the person had never left home. This

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        method simplifies the expatriate‘s eventual return. The home-based method is the most

        prevalent expatriate compensation plan with 66 percent of companies using it for long-

        term and 75 percent for short-term assignments.

    •   The headquarters-based method sets the expatriate‘s salary in terms of the salary of a

        comparable job in the city where the MNE has its headquarters. For example, if a Boston-

        headquartered MNE posted expatriates to its offices in London, Santiago, and Jakarta, it

        would give each expatriate a salary structured in terms of Boston pay rates. This plan re-

        cognizes the disruption of a foreign assignment and makes sure an expatriate can live as

        she or he had in their home country.

    •   The host-based method, sometimes called destination pricing and localization, bases an

        expatriate‘s compensation on the prevailing pay scales in the locale of the foreign as-

        signment. Basically, an expatriate starts with a salary equivalent to that of a local national

        with similar responsibilities and then adds whatever foreign-service premiums, extra al-

        lowances, home-country benefits, and taxation compensation were negotiated. This me-

        thod is not as personally lucrative as the home- or headquarters-based methods. Essential-

        ly, it pays an expatriate less in order to reduce tension between the expatriate and his or

        her colleagues in the host country due to extreme variation in pay for similar jobs.

HRM executives compare the features of their compensation plans with those offered by other

companies. They rely on data from firms that specialize in international compensation as well as

estimates of cost-of-living differences.67

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
Key Aspects of Expatriate Compensation

Table 20.4 illustrates a typical expatriate compensation package. Expatriates negotiate their com-

pensation package in terms of a base salary, a foreign-service premium, allowances of various

types, fringe benefits, tax differentials, and benefits.

Base Salary: An expatriate‘s base salary normally falls in the same range as the base salary for

the comparable job in the home country. It is paid in either the home-country currency or in the

local currency.

Foreign Service Premium: A foreign service premium, often called a mobility premium, is a

cash incentive to compensate individuals for the inconveniences of moving to a new country, liv-

ing away from family and friends, dealing with the day-to-day challenges of a new culture, new

language, new workplace practices, and the reality that they will ultimately have to disrupt their

life upon return. Long-terms assignments typically qualify for mobility premium; few short-term

assignments do.

Allowances: Sending an executive on an international assignment creates expensive logistics and

considerable stress. Companies adjust the total compensation package with a variety of allow-

ances that help reduce the difficulties the executive and his family face. Figure 20.4 identifies the

major types of allowances along with their relative popularity.

    Expatriates receive a cost-of-living allowance (sometimes called a goods-and-services diffe-

rential) to nullify the risk that they will suffer a decline in their standard of living due to the ex-

orbitant expense of a particular city (London or Tokyo) or nation (Switzerland).68 Some compa-

nies reduce the cost-of-living differential over time, reasoning that as expatriates adapt to their

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
environment, they should adopt local purchasing practices—for example, buying vegetables from

a neighborhood market instead of using imported packaged goods.69

    A housing allowance ensures the expatriate will duplicate his or her customary quality of

housing—a key concern when asked to move from mid-priced Seattle to high-priced Shanghai.

Housing costs also vary substantially because of crowded conditions that raise land prices as well

as shortages of homes that are acceptable to expatriates.70 Westerners pay steep premiums in

some parts of Asia to rent accommodations with Western-styled bathrooms and kitchens.71

    A spouse allowance partly funds an expatriate‘s spouse‘s effort to find work and take cross-

cultural training programs. In some cases, this allowance will offset the loss in income due to the

spouse‘s forsaking his or her job.72 About a quarter of MNEs provide spouses of expatriates with

job-search assistance, often through networks with other companies.73 For example, Kodak tries

to find employment for spouses; when it cannot, it pays for a partial loss in income. A spouse

allowance also deals with the hardship created by potential changes in total family income and

status. In the home country, all members of the family may be able to work, whereas when they

go abroad, only the expatriate may have the legal right to do so; host governments seldom grant

people other than the transferred employee permission to work. Therefore, the spouse or compa-

nion of an expatriate may have to either give up employment or be separated from the partner.

About half of large U.S. companies include spouse support in their international assignments


[MN 25] A hardship allowance (sometimes called ―combat pay‖) goes to expatriates assigned to

difficult environments or dangerous locations—especially for long-term assignments. Living

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
conditions in certain settings pose severe hardships, such as harsh climatic or health conditions,

or expose the expatriate to security threats.74 For instance, expatriate personnel of many MNEs,

given their high profiles, have been targeted for kidnapping and assault. Companies have had to

not only rethink their hardship allowances but also purchase ransom insurance, provide training

programs on safety for expatriates and families, pay for home alarm systems and security guards,

and assess their legal liability regarding employee safety.75 Where conditions are less severe, ex-

patriates may encounter living conditions that are substandard to those at home, thus qualifying

for a hardship allowance. Lastly, expatriates also receive miscellaneous allowances, such as a

travel allowance that lets an expatriate and his or her family travel home periodically or an edu-

cation allowance to finance the expatriate‘s children‘s access to a private education in the event

that host-country public schools are unsuitable.

    Overall, companies are offering fewer allowances. First, more individuals see international

assignments as a chance to develop business skills and leadership qualities. These folks are then

more willing to go for less. In addition, foreign assignments have ―gone from being special and

unique, with piles of money thrown at them, to being an everyday part of the company.‖76

Techniques include reducing benefits and allowances (many companies with operations in

Europe now treat the continent as if it were one country) and cutting ―hardship‖ allowances for

posts that were once difficult but no longer are, such as Prague or Shanghai (See Table 20.5)

Pressure to reduce pay and perks will continue, both for cost control as well as a growing supply

of skilled employees from developing countries who are eager to work worldwide.

[MN 26] Fringe Benefits: Firms typically provide expatriates the same level of medical and re-

tirement benefits abroad that they received at home rather than those customarily granted in the

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
host country. However, most companies expand these benefits to deal with local contingencies,

such as bearing the cost of transferring ill expatriates or family members to suitable medical fa-


Tax Differentials: The objective of compensation adjustments is to ensure that expatriates‘ af-

ter-tax income and, presumably, their motivation, will not suffer because of the costs created by

foreign assignment. Because taxes are usually assessed on the adjustments that companies make

to the expatriate‘s base salary, companies must adjust even further upward if the foreign tax rate

is higher than that in the home country. Tax equalization has become a costly component of ex-

patriate compensation. If there is no reciprocal tax treaty between the expatriate‘s home country

and host country, then he or she may be legally obligated to pay income tax to both governments.

In such situations, the MNE ordinarily pays the expatriate‘s tax bill in the host country.

Complications Posed by Nationality Differences

Besides over 1,700 expatriates stationed in more than 50 countries, Unilever has more than

20,000 managers spread over 90 countries.77 Should Unilever pay executives in different coun-

tries according to the prevailing standards in each country, or should it equalize pay for each po-

sition on a global basis? Figuring out how to pay managers in different countries is complicated

by legal, cultural, and regulatory factors. As companies employ expatriates from home and third

countries, compensation issues grow more complicated.

[MN 27] These problems are pressing for companies with a geocentric staffing policy. Both the

global and transnational strategies depend on developing a cadre of international managers that

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
likely includes different nationalities. The issue then emerges whether all managers who perform

the same job but in different locations should be paid the same salary. For a Finnish transnation-

al, like Nokia, this would require compensating its foreign nationals, no matter where they

worked, in terms of Finnish salary levels. If Nokia opts not to develop an equitable standard, it

will likely result in the ―underpaid‖ members of the international cadre resenting their higher

paid counterparts.

    Firms applying ethnocentric or polycentric staffing policies, while largely immune to these

problems, also must systematize their compensation programs. If not, then they may pay some-

one more than necessary to persuade them to go abroad, given the unequal conditions among

countries. More worrisome, disparities in pay packages for people doing the same jobs can distort

the motivation of home or host country managers and impede a sense of unanimity among differ-

ent parts of the global operations. Finally, even though the company with an ethnocentric or po-

lycentric staffing policy may have few expatriates today, likely growth in its international activi-

ties will make it increasingly cumbersome to administer foreign compensation packages on a

case-by-case basis.

[MN 28] Presently, there is weak consensus on how to deal with these issues. A decade ago, sala-

ries for similar jobs varied substantially among countries, as did the relationships of salaries

within the corporate hierarchy. Today, more MNEs apply a global framework to their pay and

benefit programs while adapting them to regional standards in order to offer consistency in their

reward practices worldwide but differentiations for performance-based pay by country and region

based on regulatory and cultural differences. Figure 20.5 highlights some of these changes, show-

ing the make-up of pay packages for CEOs by company nationality.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    CEOs in the United States enjoy the largest and most comprehensive pay packages, both in

terms of base compensation and total remuneration. CEOs in France, Germany, Italy, Switzer-

land and the United Kingdom also command higher levels of total compensation than their peers

elsewhere. This model is inspiring emulation; Asian and Latin American companies are institut-

ing similar pay practices, particularly the use of performance-based pay that ties compensation to

business results.

    Differences do persist. Long-term incentives, such as options on restricted stock, are popular

in the United States but not in Germany. However, German managers often receive compensa-

tion that U.S. managers do not, such as housing allowances and partial payment of salary outside

Germany, neither of which is taxable. Similarly, countries with aggressive personal income tax

rates spur employees‘ to ask for pay plans that reduce taxable base salaries in favor of tax-exempt

fringe benefits. Ultimately, as companies from more countries become more multinational, they

compete globally for executive talent. Likewise, local firms must tailor compensation to retain

executives. Therefore, convergence in compensation practices is the order of the day.

                                   EXPATRIATE REPATRIATION

HRM aims to build a staffing process that creates a cycle of events, beginning with the selection

of the right expatriate, the delivery of the appropriate type of pre-departure preparation, the de-

sign of a motivating compensation package, and the means to ease the ultimate reintegration of

the expatriate into the home company upon completion of a successful tour of duty. Success at

each stage supports a self-sustaining system whereby returning expatriates share their knowledge

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
with colleagues and persuade other high-performing executives to also work abroad. Evidence

suggests the system works—for some. Nearly one in four expatriates who return home gets pro-

moted in their first year of repatriation. However, many do not land promotions and some of

these former high-flyers quit the company with a year of their return. Therefore, expatriates often

face a different scenario that threatens the HRM system.78

[MN 29] As a rule, MNEs worry about preparing and paying workers for the foreign assignment

than supporting them when they return. And, while statistics show that 85 percent of

organisations regard reintegration as important, only 20 percent acknowledge they manage it

effectively.79 Consequentially, returning home can deteriorate into a disappointing part of the ex-

patriate assignment. A survey of repatriated executives who had successfully completed their

overseas assignment found more than a third held temporary assignments three months after re-

turning home, nearly 80 percent felt that their new job was a demotion from their foreign as-

signment, and more than 60 percent felt that they did not have opportunities to transfer their in-

ternational expertise to their new job. 80 Worse still, 15 percent of international assignees resign

within 12 months of completing their posting. In general, expatriates face repatriation strains in

three areas: change in personal finances; readjustment to the home-country corporate structure;

and readjustment to life at home.

[MN 30] Changes in personal finances can be dramatic upon a manager‘s return home. Most ex-

patriates enjoy rich benefits during their foreign assignment; many live in exclusive neighbor-

hoods, send their children to prestigious schools, employ domestic help, socialize with elites, and

still save. Returning home to a reasonable compensation plan with far fewer perks and privileges

is often demoralizing.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    Readjustment to home-country corporate structure poses problems on several levels. Return-

ing expatriates may find that their previous peers have been promoted above them, they have less

autonomy as they return to being a ―little fish in a big pond,‖ and they struggle to rejoin the in-

ner-office network. As a result, they return to a company that doesn‘t quite know what to do with

them and often sees them with knowledge and skills that aren‘t quite on the cutting edge. In these

situations, resentment builds within repatriated executives as they typically feel they‘ve grown

professionally during their overseas post, worked hard, and sacrificed much for the company, and

expect praise and promotion.

[MN 31] More often than not, the opposite happens. One study found that some 60 to 70 percent

of repatriated expatriates did not know what their position would be when they returned home,

and about 60 percent said their companies were vague about the repatriation process, their pend-

ing jobs, and future career progression within the company. Compounding these tendencies is the

sad fact that, for many expatriates, being out-of-sight overseas turns out to be truly out-of-mind

back home, amplifying the fear that ―companies station people abroad and then forget about

them. If anything, advancement is even more difficult for the expat when he returns to headquar-

ters, having missed out on opportunities to network with top management.‖81

    MNEs reply that the issue of repatriation puts them between a rock and a hard place: an of-

fice does not sit vacant while the manager goes abroad for a few years; cost-cutting, mergers and

acquisitions often mean that they cannot be kept; and permitting the repatriated employee to

bump his or her ―replacement‖ upon return is unfair. Still, data indicate that expatriates are likely

to stay if the company gives them chances to apply their expertise.82 Increasingly, companies

push expatriates to take more responsibility for their return. More than a third require that em-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
ployees take home-leave and visit the home office before they finish their international assign-


    Readjusting to life at home can be stressful.83 Troubles emerge as returning expatriates and

their families‘ experience ―reverse culture shock.‖ Upon return, managers and their families often

find that they need to relearn some of what they once took for granted. Meantime, children may

struggle to fit into the local school system while spouses may feel isolated or out of touch with

the career or friends they once again left behind.

Managing Repatriation

Companies are not blind to the problems of repatriation. Moreover, ignoring them is not an op-

tion—the greater the difficulties that confront returning expatriates, the more difficult it becomes

to convince others to take foreign assignments. In recourse, MNEs experiment with a range of

remedies. HRM executives advocate providing expatriates with advance notice of when they

will return, more information about their possible new jobs, placement in jobs that leverage their

foreign experiences, housing assistance, reorientation programs, periodic visits to headquarters

while working abroad, and enlisting a formal headquarters mentor to watch over their interests

while they are abroad.84

    Some companies, like Dow Chemical, make written guarantees that repatriated employees

will return to jobs at least as good as those they left behind. Other companies integrate foreign

assignments into career planning and develop mentoring programs to look after the expatriates‘

domestic interests. Abbott Laboratories tries to keep its repatriate turnover rate less than 10 per-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
cent by focusing on career development. It also cautions workers before they leave the United

States to expect the adjustment of returning home to be just as tough as going abroad and encou-

rages them to stay in touch. Some MNEs make the manager who originally sponsored an expa-

triate also responsible for finding his or her protégé a job upon return. For example, Avaya

protects its investment with at-home mentors who keep in touch with expatriates abroad and help

them make a transition to a new position when they return in the simple belief that Avaya ―has

invested in this person. To leave him overseas or to lose him to another company is a waste of


    Some companies try to resolve the less obvious hardships of repatriation. Monsanto deals

with reverse culture shock by formally addressing the social expectations of returning expatriates

and giving them an opportunity to showcase their new knowledge in a debriefing session. Simi-

larly, Viacom has set up a ―comprehensive expatriate administrative tracking program‖ that in-

cludes specific health and retirement benefits tailored to the needs of those who have undertaken

more than one consecutive overseas posting.86

    Despite these efforts, statistics show that many expatriates are unhappy upon their return.

Pressed to pinpoint where repatriation begins to break down, the principal culprit is the challenge

of finding the right job for someone to return to. One report concludes, ―People who have spent

two years working in different ways across varied markets and cultures are not always happy to

return to the same desk and the same prospects. In this vacuum of direction, many have a career

‗wobble‘ then leave via a recruitment market in which their experience is seen as increasingly

valuable.‖ Personal career management, therefore, is as vital to being selected for a foreign as-

signment as triumphantly returning home. As we saw with Bryan Krueger in our opening case,

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
expatriates cannot rely on their company to safeguard their career interests. A passive approach is

hazardous given that expatriates often hear too late about possible promotion opportunities back

home.87 Instead, while abroad, they must navigate the repatriation process with a keen sense of

its positive and negative aspects.

                              INTERNATIONAL LABOR RELATIONS

    In each country in which an MNE operates, managers deal with groups of workers whose ap-

proach to the workplace reflects the local sociopolitical environment. This environment affects

whether they join labor unions, how they collectively bargain, and what they want from compa-

nies. Expectedly, striking differences prevail across countries in how labor and management view

each other.

[MN 32] When there is little mobility between the two groups (generally, children of laborers

become laborers, and children of managers become managers), explicit class difference exists

between the managers who run the MNE and the workers they hire and fire. Labor may perceive

itself in a class struggle that echoes the divisions of Marx‘s conception of the proletariat versus

the bourgeoisie. Labor-MNE relations in these countries, such as Brazil, the United Kingdom,

and France, tend to be a zero-sum game—labor wins only when the MNE loses and vice versa.

    In contrast, labor groups in many countries take a less confrontational approach. They are

more inclined to follow the advice of their labor leaders and try to negotiate win-win solutions.88

Often, unions in these countries rely on national legislation rather than workplace activism to

check the power of the MNE. Moreover, labor‘s agenda may be based in a broader sensitivity of

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
general work conditions in the country—that is, a rising tide lifts all boats—rather than specific

conditions at a specific MNE.

[MN 33] Usually, the HRM function of an MNE deals with these situations, taking charge of the

company‘s relations with labor both within a particular country as well as within the global con-

text. Operationally, HRM monitors and manages a range of workplace issues that fall under the

broad umbrella of international labor relations. HRM aims to integrate its efforts with the

straightforward standard of how, why, and where might organized labor constrain how the MNE

configures or coordinates its value chain. HRM then supports the company‘s leadership in devel-

oping options to pre-empt, neutralize, or deal with these situations so that they do not interfere

with its basis for creating value.

    The intensity of these concerns varies with the type of strategy an MNE pursues. Companies

pursuing an international or global strategy, given their heightened sensitivities to exploiting lo-

cation economies, consolidating operations, and protecting the transfer and use of core compe-

tencies, are sensitive to labor‘s actions. The multidomestic and transnational companies, given

their greater degrees of local responsiveness, command more flexibility to adapt operations to

labor‘s concerns without unduly sacrificing their value creation capabilities. Still, no matter what

type of strategy the firm pursues, the enduring power of organized labor on both a country-to-

country basis, as well as internationally, spurs MNEs to develop beneficial relations.

    Against this backdrop, we now consider three aspects of international labor relations. First,

we discuss how labor commonly represents the motives and means of MNEs, then turn to the

methods and successes of labor‘s responses to MNEs, and close with a look at trends that mod-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
erate the relationship between MNEs and labor.

Labor’s Concerns about MNEs

[MN 34] Complaints about the effects of globalization usually are lodged by employees whose

companies have shifted work to other countries, leaving behind fewer jobs and lower wages.

An ongoing debate is whether the MNE, through the power of its globally dispersed value chain,

systematically weakens the rights and roles of labor. Critics argue that MNEs do so precisely be-

cause the multinationality of their product and resource flows let them manipulate markets and

governments for gains that labor must ultimately bear.

   When the Disney Company was planning an amusement park for Europe, it began by pitting

several countries against each other in the effort to get the best possible investment incentives. It

eventually narrowed it down to alternative sites in France and Spain; ultimately, the company

chose a site just outside of Paris, France. Labor‘s reaction was immediate. A representative of the

Confédération Générale du Travail (General Confederation of Labour—CGT) of France con-

tended that the Disney Company had used the threat of locating in Spain to drive a tough bargain

with government officials. Specifically, he asserted that ―Disney put Barcelona and the French

site in competition and, as a result of this bidding war, the French government won the contract

at the expense of many laws and many hard-won social rights.‖89

   Once MNEs get their local operations up and running, labor contends that they can hold out

longer than workers in negotiating a solution to a strike. Labor contends that MNEs can easily

move value activities from one country to another in the effort to exploit less restrictive labor

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
conditions. Complicating these situations is the complexity of the globally dispersed value chains

of MNEs. Labor often lacks the information to determine the veracity of MNEs‘ claims about

products and profits as well as estimate their capacity to meet workers‘ demands. We now review

these rationales.

Product and Resource Flows

Presumably, in the event of a strike in Country X, an MNE can divert output from its facilities in

other countries and sell it to the consumers in Country X, thereby greatly reducing the need to

settle the strike. Moreover, because each country may comprise only a small percentage of an

MNE‘s total worldwide sales, profits, and cash flows, a strike in one country may minimally af-

fect its global performance. Given these circumstances, an MNE faces little pressure to resolve

labor tensions. Therefore, an MNE‘s ability to threaten dire consequences in the event of a strike,

and then hold out longer, gives it an advantage in collective bargaining with labor.

    In their defense, managers point out that an MNE can supply customers in the strike-afflicted

country only if it has excess capacity and produces an identical product in more than one country.

Even if it meets these preconditions, an MNE would still confront the transport and tariff costs

that led it to establish multiple production facilities in the first place. If the MNE partially owns

the struck operation, partners or even minority stockholders may balk at financing a lengthy work


    Further, if the idle facilities produce components needed for integrated production in other

countries, then a strike may have far-reaching effects. For example, a strike at one GM facility in

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
the United States prevented GM‘s Mexican plants from getting parts needed for assembly opera-

tions. Moreover, Mexican laws against layoffs meant GM had to maintain its Mexican workers

on the payroll, thus adding pressure on GM to settle the strike.90 In summary, there appear to be

limited advantages of international diversification to enable an MNE to escape conflict with la-


Value Activity Switching

MNEs often threaten to move value activities to other countries to extract wage reductions or

work concessions from their employees. This tactic presses unions to accept lower compensation,

fewer benefits, and poorer workplace conditions in favor of job security. For example, Daimler-

Benz‘s German workers agreed to accept lower wages after the company procured agreements

from French, Czech, and British labor to work for less.

        This trend has gained greater visibility in the context of the offshoring of jobs. MNEs

counter that this rationale only partially represents the situation. Unquestionably, production ac-

tivities would seem plausible when a company has facilities in more than one country; at other

times they would seem more plausible when different companies own facilities in different coun-

tries. For example, suppose a Canadian company competes with Brazilian imports. If Canadian

workers demand and get substantial wage increases that result in higher product prices, the Bra-

zilian competitor will likely seize the opportunity to build Canadian market share at the expense

of the Canadian company and its workers. However, suppose the Brazilian company also owns

the facility in Canada. The Brazilian management would have to weigh the cost-saving advantag-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
es of moving its production from Canada to Brazil against the losses it would incur in Canada by

discarding its facilities there.

Scale and Complexity of MNEs

Observers claim it is difficult for labor unions to deal with MNEs because of the global scale of

their value chains and the complexities in interpreting how they coordinate value activities. Both

issues are complicated by the difficulty labor has in identifying the location of decision making

and in interpreting financial data for the typical MNE. These ambiguities mean that labor is often

at the mercy of decision makers and resources that are far removed from their country. They ar-

gue that MNEs who command such positions are more likely to impose arbitrarily stringent anti-

labor policies in the event of workplace activism.

    Workers, especially with the assistance of unions, examine MNEs‘ financial data to deter-

mine MNEs‘ ability to meet their demands. Interpreting these data is a complex task because of

disparities among managerial, tax, and disclosure requirements in home and host countries. La-

bor has been apprehensive that MNEs might manipulate transfer prices to give the appearance

that a given subsidiary cannot meet labor demands.

    MNEs reply that these concerns overemphasize their ability to increase compensation and

deemphasize the more important issue of going-wage rates in both the industry and geographic

area. Although MNEs may report complex data, at least one set of financial statements must sa-

tisfy local authorities. By definition, this set should be no more difficult to interpret than that re-

ported by a purely domestic company. In terms of transfer pricing, the MNE that set artificial le-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
vels to aid in a particular collective bargaining situation creates distortions and possible problems

elsewhere. Specifically, if an MNE understates profits in one country, it would have to overstate

them elsewhere, which would then put it at a disadvantage in collective bargaining in that coun-


                               LABOR’S ACTIONS TOWARD MNES

[MN 35] Workers have responded to the power of the MNEs through several actions. First and

foremost, workers have organized unions to fight, via collective bargaining with management,

for higher pay, better benefits, greater job security, and improved working conditions. Unions‘

bargaining power is derived largely from their ability to threaten to disrupt production, either by a

strike or some other form of work protest—a slowdown in the pace of work or the refusal to

work overtime. This threat is credible, however, only insofar as management has no alternative

but to employ workers who are not members of the union.

       Unions can engage in several tactics to counter MNEs‘ bargaining power. Internationally, un-

ions aim to cooperate in a range of ways, sharing information, assisting bargaining units in other

countries, and dealing simultaneously with MNEs.91 The most common international cooperation

among unions is exchanging information on an MNE‘s local policies and activities. This sort of

collaboration helps determine the validity of the company‘s local claims as well as help it to ref-

erence precedents from other countries on bargaining issues.

       International confederations of unions, trade secretariats made up of related unions in a single

industry or a complex of related industries, and company councils that include representatives

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
from an MNE‘s plants around the world can exchange information. More specifically, a Euro-

pean work council (EWC) represents a company‘s employees throughout the European Union.

Through a EWC, a company informs and consults with workers on such issues as its current na-

tional, regional, and global performance as well as its strategies so that the employees can under-

stand likely staffing, business, and market changes.

    Labor groups in one country may support their counterparts in other countries in the view that

coordinating union action across countries can effectively disrupt the coordination of a MNE‘s

value chain. Popular measures include refusing to work overtime to supply a market normally

served by striking workers‘ production, sending financial aid to workers in other countries, and

disrupting work in their own countries. For example, French workers pledged to disrupt work at

Pechiney in support of striking workers in the company‘s U.S. facilities. Finally, labor can appeal

to any number of transnational institutions to assist their efforts to check the power of MNEs.

The International Labor Organization (ILO), for example, was founded in 1919 on the premise

that the failure of any country to adopt humane labor conditions impedes other countries‘ efforts

to improve their own conditions. Several associations of unions from different countries support

similar ideals. These associations include various international trade secretariats representing

workers in specific industries—for example, the International Confederation of Free Trade Un-

ions (ICFTU); the World Federation of Trade Unions (WFTU); and the World Confederation of

Labour (WCL).

    These organizations‘ activities, along with the general enhancement of worldwide communi-

cations, publicize the different labor conditions among countries. Among the newsworthy reports

have been legal proscriptions against collective bargaining in Malaysia, wages below minimum

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
standards in Indonesia, and the use of forced labor and child labor in some emerging markets.

Upon publicizing such conditions, these organizations then champion economic and political

sanctions to provoke change.92 Similarly, various codes of conduct on industrial relations, such

as those issued by the OECD, ILO, and EU, influence the labor practices of MNEs. Although the

codes are voluntary, an MNE‘s compliance, or lack thereof, has symbolic significance to con-

sumers and governments.

Labor’s Success and Struggle

[MN 36]National unions regularly endorse calls for international cooperation with fellow organi-

zations. Offsetting calls for unanimity is a stark reality of globalization, namely, that national un-

ions are locked in a zero-sum game of competing with each other to attract investment and jobs

from MNEs. Consequently, when push comes to shove, there has been little enthusiasm among

workers to support their counterparts in another country. For example, Canada and the United

States have long shared a common union membership in the belief that united they stood, divided

they fell. Still, there are ongoing moves among Canadian workers to form unions independent of

those in the United States. One Canadian organizer summarized this attitude explaining, ―An

American union is not going to fight to protect Canadian jobs at the expense of American jobs.‖

The logic is that international unions will adopt policies favoring the bulk of their membership,

which in any joint Canadian-U.S. relationship is bound to be American.

    Even when labor in one country helps labor in another, it likely aims to achieve its own spe-

cific goals. For example, a union representing United States tomato pickers helped its Mexican

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
counterpart negotiate a stronger collective agreement that limited the local workplace power of

both domestic and foreign companies. This change then dissuaded the Campbell Soup Company

from moving operations to Mexico. As a result of such competition between national unions, co-

operation is difficult to establish.

    Further impeding international unanimity among unions is the fact that unions developed in-

dependently in each country. As a result, the demography, structure, ideals, and goals of unions

vary significantly from country to country. For example, the percentage of workers in unions is

much higher in some countries than in others; it is much higher in Germany than in neighboring

France, for example. Furthermore, many organized workers in France, Portugal, and Great Brit-

ain belong to communist unions whose view of the intrinsic class conflict of collective bargain-

ing with MNEs clashes with the more moderate views of unions elsewhere in Germany, the

Netherlands, Scandinavia, and Switzerland. Cross-national differences in unions‘ agendas extend

to a host of comparatively more mundane matters like wage rates and workers‘ preferences. For

example, Spanish workers are more willing to work on weekends than are German workers.

    Unions in different countries prefer different methods of collective bargaining. As such,

MNEs in a given country may deal with one or several unions that, depending on the situation,

represent workers in many industries, in many companies within the same industry, or in only

one company. If it represents only one company, the union may represent all plants or just one

plant. In Sweden, bargaining tends to be highly centralized; employers from numerous compa-

nies in different industries deal together with a federation of trade unions. In Germany, employers

from associations of companies in the same industries bargain jointly with union federations.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    Approaches to reconcile labor tension differ from country to country. The use of mediation

by an impartial party is mandatory in Israel but voluntary in the United States and the United

Kingdom. Among countries that have mediation practices, diverse attitudes prevail. For example,

there is much less enthusiasm for it in India than in the United States. Not all differences are set-

tled through changes either in legislation or through collective bargaining. Other means are the

labor court and the government-chosen arbitrator. For example, wages in many Austrian indus-

tries are arbitrated semiannually. These sorts of ideological and operational gaps have made sus-

tained cross-national cooperation difficult for unions.

    Lastly, organized labor has met with limited success in getting national and international bo-

dies to regulate MNEs. National agencies have helped workers gain better access to the intrica-

cies of the MNEs‘ decision-making process. Most notably, legislation in some countries, particu-

larly in northern Europe, gives labor the legal right to participate in the management of compa-

nies. This idea—known as codetermination—emphasizes cooperative decision-making within

firms that benefits both the workers and the company.93

    Despite some voluntary moves toward codetermination, most examples have been mandated

by the government. Labor has persuaded government officials, particularly in Western Europe, to

require companies to comply with worker-friendly plant closure pre-notification requirements. In

addition, international agencies like the ILO, EU, and OECD have adopted codes of conduct for

multinational firms in their relations with labor. These guidelines, from the view of labor, fail to

regulate MNEs. For instance, there are early examples of workers deterring investment outflows,

acquisitions, and plant closures. Still, the fact that these conduct codes lack any enforcement ca-

pability means they have had an inconsistent effect on companies‘ international business deci-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
sions and activities.

Trends in the Relationship between MNEs and Labor

The relationship between labor and MNEs is an intrinsic facet of international business. Two

trends, one from the perspective of labor, the other from MNEs, will define the next stage of

their relationship.

    Union membership as a portion of the total workforce has been falling in most countries for

the past few decades (See Table 20.6). Several trends drive this decline.

    •   Increase in white-collar workers as a percentage of total workers. White-collar workers

        see themselves more as managers than as laborers, and thus are less inclined to join a un-


    •   Increase in service employment in relation to manufacturing employment. There is more

        variation in service assignments than in manufacturing, so workers believe their situations

        differ from that of their coworkers.

    •   Rising portion of women in the workforce. Traditionally, women have been less apt to

        join unions.

    •   Rising portion of part-time and temporary workers. Workers do not see themselves in the

        job long enough for a union to help them much.

    •   Trend toward smaller average plant size. More direct interactions between workers and

        managers align their interests, thereby harmonizing outlooks.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
    •   Decline in the belief in collectivism among younger workers. Few of today‘s younger

        workers have suffered economic deprivation; hence, they question the value of collective


    The overall decline in union membership is a long-running trend, though there are excep-

tions. Unions in Sweden, for instance, have maintained their strength because they have forged

cooperative relationships with companies, like Electrolux and Volvo, to improve corporate com-

petitiveness and to share the rewards from the success. Still, the harsh reality is that the power of

unions is a function of the size of their membership rolls. Continuing decline in membership

counts foreshadows unions with weaker negotiation positions and less incentive for cooperation

with counterparts in other countries.

[MN 37] On the flip side, MNEs are developing HRM policies and practices that fortify their

power. Historically, irrespective of the strategy that companies pursued, most MNEs decentra-

lized labor relations responsibilities to the HRM manager in foreign subsidiaries. Practicality,

rather than insight, motivated this policy. Country-to-country variability in labor laws, union

structure, workplace attitudes, and collective bargaining processes created a complex situation

that continually changed. Most MNEs reasoned that headquarters was poorly positioned and pre-

pared to manage worldwide labor relations effectively. In recourse, they delegated the task to lo-

cal managers.

    This outlook is giving way to a trend toward greater coordination and control of global labor

policies by the senior leadership of MNEs. Coordinating globally dispersed value chains spurs

headquarters to preempt disruptions by sporadic workplace activism. Moreover, companies

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
whose value creation is sensitive to labor costs no longer can delegate labor relations to a range

of local managers. Integrating global operations spurs MNEs to also integrate labor relation.

Growing attention to and integration of their labor relations creates powerful advantages for

MNEs. They increasingly sharpen their understanding of how to use the threat of production

switching or resource redirection to strengthen their collective bargaining positions.


       Research and anecdotes show that the MNE whose HRM policies support its chosen

        strategy creates superior value. Still, many MNEs struggle to develop effective HRM pol-


       The top-level managers of foreign subsidiaries normally perform much broader duties

        than do domestic managers with similar cost or profit responsibilities. They must resolve

        communications problems, usually with less staff support, between corporate headquar-

        ters and subsidiaries.

       Three perspectives describe how companies set about staffing their international opera-

        tions, namely the ethnocentric, polycentric, and geocentric approaches. Companies may

        use elements of each staffing policy but one type normally predominates.

       An ethnocentric staffing approach fills management positions with home-country nation-

        als. A polycentric staffing policy uses host-country nationals to manage local subsidiaries.

        A geocentric staffing policy seeks the best people for key jobs throughout the organiza-

        tion, regardless of their nationality.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
       While executive transferred from headquarters to local operations are more likely to best

        understand the company‘s core competencies, an ethnocentric staffing can result in a nar-

        row perspective in foreign markets.

       MNEs employ more locals than expatriate managers because the former better understand

        local operations and demand less compensation.

       Hiring locals rather than expatriates demonstrates that opportunities are available for lo-

        cal citizens, shows consideration for local interests, avoids the red tape of cross-national

        transfers, and is usually materially cheaper.

       The selection of an individual for an expatriate position is largely influenced by the can-

        didate‘s technical competence, adaptiveness, and leadership ability.

       MNEs transfer people abroad to infuse technical competence and home-country business

        practices, to control foreign operations, and to develop managers‘ business skills.

       Training and predeparture preparations often includes general country orientation, cultur-

        al sensitivity, and practical training.

       MNEs that transfer personnel abroad should consider their technical competencies, how

        well the people will be accepted, how well they will adapt to local conditions, and how to

        treat them when they return home from their foreign assignment.

       Training and pre-departure preparations usually reduce the odds of expatriate failure. In-

        creasingly, preparation activities include the expatriate‘s spouse or partner. Training often

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        includes general country orientation, cultural sensitivity, and practical training.

       Two major international training functions are building a global awareness among man-

        agers in general and equipping managers to handle the specific challenges of a foreign as-


       Expatriate failure, narrowly defined, is the manager‘s premature return home due to poor

        job performance. Broadly defined, it is the failure of the MNE‘s selection policies to find

        individuals who will succeed abroad.

       When transferred abroad, an expatriate‘s compensation usually is increased because of

        hardship and differences in cost of living. Transfers to remote areas typically carry higher


       The compensation of an expatriate must neither overly reward nor unduly punish a person

        for accepting a foreign assignment. Generally, most MNEs use the balance sheet ap-

        proach to manage this dilemma.

       Repatriation, the act of returning home from a foreign assignment, has many difficulties.

        The principal cause of repatriation frustrations is finding the right job for the expatriate to

        return to.

       A country‘s sociopolitical environment will largely determine the type of relationship be-

        tween labor and management and affect the number, representation, and organization of

        unions. Generally, the overall attitude in a country affects how labor and management

        view each other and how labor will try to negotiate better working conditions.

       International organizations pressure companies to follow internationally accepted labor

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        practices wherever they operate, regardless of whether the practices conflict with the

        norms and laws of the host countries.

       International cooperation among labor groups in a concerted effort to confront MNEs is

        minimal. Labor groups‘ initiatives include information exchanges, simultaneous negotia-

        tions or strikes, and refusals to work overtime to supply the market in a struck country.

       Organized labor has, to slight success, formed international labor agreements and strate-

        gies to offset MNEs bargaining power.

       Labor contends that it is disadvantaged in dealing with MNEs because it is hard to get full

        data on MNEs‘ global operations; MNEs can manipulate investment incentives; MNEs

        can easily move value activities to other countries; and MNEs often make key decisions

        in another country.



In January 2007, Mark Hopkins of Tel-Comm-Tek (TCT), a company based in the U.S., an-

nounced his resignation and intention to return to the United States. At the time, he was the man-

aging director of the Indian subsidiary of TCT. During his tenure, Hopkins witnessed a dramatic

increase in growth, which he had a hand in; his importance to the company is evident. After his

announcement, TCT immediately began a search for his replacement.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        TCT manufactures a variety of small office equipment in nine different countries. It dis-

tributes and sells products such as copying machines, dictation units, laser printers, and paper

shredders worldwide, most recently reporting sales in more than 70 countries. TCT has sold and

serviced products in India since the early 1980s even though it lacks its own manufacturing facil-

ity. Originally, it hired independent importers to sell its products. It soon realized that generating

higher sales required setting up its own operations. In 1992, it opened a sales office in New Del-

hi. Map 20.1 profiles India.

        Today, TCT is poised to expand its Indian operations, mainly based on reports of signifi-

cantly higher sales and profitability from its sales operation. Another factor in this bid to expand

is the strategic importance of the Indian subsidiary, which is now at the forefront of TCT‘s cor-

porate family. Sales are dramatically increasing as the Indian economy, driven by a boom in the

information technology sector, posts growth in the double digits. Some see India developing into

the world‘s next big industrial power, a projection that is leading many global companies to in-

crease their operations in the country. For example, IBM, a long-time customer of TCT, in-

creased its Indian staff from literally a handful to 53,000 employees between the mid-1990s and

2007 through a series of acquisitions and investments. Moreover, internal company analysis indi-

cates that the economic growth rate for the overall economy, along with the sectors that TCT

specifically serves, could boost total sales of the Indian subsidiary past those in the company‘s

home market.

        A final factor shaping expansion is the scheduled improvement in India‘s transportation

infrastructure. Improvement in highways, railways, and seaports promises to improve the effi-

ciency of product movement both in and out of the country. Completed successfully, manage-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
ment at TCT envisions making the local subsidiary a vital link in TCT‘s increasingly sophisti-

cated supply chain. Presently, TCT‘s supply chain integrates input suppliers, production, and

wholesalers in the United States and Europe. Long-term plans indicate the need to incorporate

supply points throughout Asia.

        India‘s independence in 1947 institutionalized a strong democratic tradition of accounta-

bility, transparency, and individual freedom. Progress on the economic front was even more dy-

namic. From 1947 through 1990, India‘s decision to have a centrally-planned economy led to the

infamous ―License Raj,‖ a situation marked by elaborate licenses, regulations and bureaucracy

that were required to set up business. Beginning in 1991, India began a transition toward a free-

market economy with the intended demise of the License Raj. This transition, an ongoing

process, has helped stabilize the economic environment and boost India‘s attractiveness as a

manufacturing site. This transition, however, is not complete; India‘s business environment poses

many challenges.

        The Indian legal environment, while endorsing the principles of the rule of law, continues

to struggle with pervasive corruption. The primary driver of corruption, in many observers‘ eyes,

is the country‘s vast bureaucracy, a legacy of the previous centrally-planned economy. Partial

success in dismantling the License Raj has resulted in a civil administration that influences many

aspects of economic life. Western companies in the high-tech area often run into problems with

intellectual property violation. Patent infringement and business process piracy are not uncom-


Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
        The legal system creates other complications. For example, India‘s labor laws, little

changed since they were enacted after independence in 1947, make it difficult to lay off em-

ployees even if a company‘s fortunes hit hard times or the economy slows. Consequently, com-

panies are reluctant to hire workers at the risk of being unable to fire them if need be. Necessary

terminations are extremely difficult to execute and often involve extensive negotiations and set-

tlements. ―[C]ompanies think twice, 10 times, before they hire new people,‖ said Sunil Kant

Munjal, the chairman of the Hero Group, one of the world‘s largest manufacturers of inexpensive


        In addition, some legislation bars companies with more than 100 employees from com-

peting in many industries. These laws are aimed at protecting small enterprises operating in many

villages scattered throughout India, often at the expense of larger-scale operations. Another chal-

lenge is high tariffs. These were put in place long ago to promote domestic production and still

apply to many classes of imports, including some that are inputs into products manufactured by

TCT. Finally, some of India‘s labor laws discourage flexibility; for example, companies are pro-

hibited from allowing manufacturing workers to clock more than 54 hours of overtime in any

three-month period, even if the workers are willing to do so.

        In early 2008, TCT will begin building its first factory in Bangalore, the center of India‘s

Silicon Valley (see Map 21.1). The plant will build a full range of laser printers, from entry-level

to high-end. The first production run is set for June, 2008. Logistically, TCT plans to initially

supply the factory with components from their manufacturing facilities in Europe and the United

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
States. Eventually, management plans to find local suppliers or backward integrate into the local

production of those components.

         The scale of the production operation requires 150 to 200 production workers. TCT antic-

ipates no problems in hiring a highly-skilled labor force given other companies‘ success stories.

For example, in 2005, the South Korean conglomerate LG looked to staff 458 assembly-line jobs

at its new Indian factory. It required each applicant to have at least 15 years of education—a con-

dition that translates into having both high school and technical college certification. Seeking a

young work force, the company also decided that no more than one percent of the workers could

have any prior work experience. Despite these restrictions, 55,000 people qualified for inter-


         TCT enlisted a U.S. engineering firm to supervise construction of its plant in Bangalore.

Upon completion, TCT will ―turn over the key‖ to the on-site factory director, a U.S. expatriate

sent specifically to run the completed plant. This director reports directly to TCT‘s U.S. head-

quarters on production and quality control matters. He or she will report to TCT India‘s manag-

ing director in New Delhi, the position now vacant, on all other matters, such as accounting,

supply-chain logistics, finance, and labor relations. The managing director of TCT India, in turn,

will report to the Asian Regional Office at TCT‘s U.S. headquarters.

         As in the past, TCT prefers to fill executive vacancies by promotion from within the

company. TCT uses a mix of home-, host-, and third-country nationals to staff management posi-

tions in foreign countries. In addition, TCT often rotates its managers among its foreign and U.S.

locations. Headquarters sees international experience as an important factor in determining

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
whom to promote. Following procedure, the Asian Regional Office has charged a selection

committee to nominate the new managing director for TCT India. The committee has identified

six candidates:

Tom Wallace: A 30-year TCT veteran, Wallace is knowledgeable and experienced in the tech-

nical and sales aspects of the job. He has supported some supply-chain initiatives in the U.S.

market. Although he has never worked abroad, he has toured the company‘s foreign operations

and always expressed interest in an expatriate position. His superiors typically rate his perfor-

mance as proficient. He will retire in about four-and-a-half-years. He and his wife speak only

English. Their children are grown and live with their own children in the U.S. Presently, Wallace

supervises a U.S.-based operation that is about the size of that in India‘s new factory. However,

the merger of Wallace‘s unit with another TCT division will eliminate his current position within

six months.

Brett Harrison: Harrison, 40, has spent 15 years with TCT running both line activities, as well

as supervising staff. His superiors consider him highly competent and poised to move into upper-

level management within the next few years. For the past three years, he has worked in the Asian

Regional Office and has regularly toured TCT‘s Southeast Asian operations. Both he and his

wife have traveled to India several times in the last 20 years and are well acquainted with its geo-

graphy, politics, customs, and outlooks. The Harrisons personally know many U.S. expatriates in

the Bangalore region. Their children, ages 14 and 16, have also vacationed in India with their

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
parents. Mrs. Harrison is a mid-level executive with a multinational pharmaceuticals company

that presently does not have an Indian operation.

Atasi Das: Born in the United States, Das joined TCT 12 years ago after earning her M.B.A.

from a university in New England. At 37, she has successfully moved between staff and line po-

sitions with broader responsibilities in strategic planning. For two years, she was the second-in-

command of a product group that was about half the size of the expanding Indian operations. Her

performance regularly earns ratings of excellent. Currently, she works on a planning-staff team

based at TCT headquarters. When she originally joined TCT, she noted that her ultimate goal

was to be assigned international responsibilities, and she pointed to her undergraduate major in

international affairs as evidence of her long-term plan. She recently reiterated her interest in in-

ternational responsibilities, seeing it as an essential career step. She speaks Hindi and is unmar-

ried. Her parents, who now live in the United States, are first-generation immigrants from India.

Several family members and relatives live in Kashmir and Punjab, northern states of India.

Ravi Desai: Desai, 33, is currently an assistant managing director in the larger Asian operation.

He helps oversee production and sales for the Southeast Asian markets in Singapore, Malaysia,

and China. A citizen of India, he has spent his 10 years with TCT working in operational slots

throughout Southeast Asia. He holds an M.B.A. from the prestigious Indian Institute of Man-

agement. Some in TCT see him as a likely candidate to direct the Indian operation eventually. He

is married with four children (ages two to seven) and speaks English and Hindi well. His wife,

also a native of India, neither works outside the home nor speaks English.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
Jalan Bukit Seng: Seng, 38, is the managing director of TCT‘s assembly operation in Malaysia.

A citizen of Singapore, Seng has worked in either Singapore or Malaysia his entire life. Howev-

er, he did earn university and M.B.A. degrees from leading universities in the United States. He

is fluent in Singapore‘s four official languages—Malay, English, Mandarin, and Tamil—and sees

himself learning other languages as needed. His performance reviews, both with respect to the

Malaysia plant and other TCT plant operations around the world, have consistently been positive,

with an occasional ranking of excellent. While Seng is unmarried, he is close to his extended

family, which lives in Singapore and Malaysia.

Saumitra Chakraborty: At 31, Chakraborty is the assistant to the departing managing director

in India. He has held that position since joining TCT upon graduating from a small, private uni-

versity in Europe four years earlier. Unmarried, he consistently earns a job performance rating of

competent in operational matters and distinctive in customer relationship management. While he

excels in employee relations, he lacks direct line experience. Still, he has successfully increased

TCT India‘s sales, somewhat owing to his personal connections with prominent Indian families

and government officials, along with his skillfulness in the ways of the Indian business environ-

ment. Besides speaking India‘s main languages of English and Hindi fluently, Chakraborty

speaks Kannada (the local language of Bangalore).


Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
      1. Which candidate should the committee nominate for the assignment? Why?

      2. What challenges might each candidate encounter in the position?

      3. How might TCT go about minimizing these challenges facing each candidate?

      4. Should all candidates receive the same compensation package? If not, what factors should

         influence each package?

      5. What recommendations can you offer to help a company facing this sort of decision that

         will enable it to balance professional and personal characteristics?

      6. Returning to material covered in Chapter 15, specifically that dealing with the idea of a

         matrix organization, do you see any benefit to appointing two of the above individuals to

         the post? Operationally, one individual would be in charge of internal affairs, while the

         other would manage external affairs. What might be likely benefits and problems with

         this arrangement?

 ―In Search Of Global Leaders: View of Jeffery Immelt, Chairman and CEO, General Electric,‖
Harvard Business Review (1 August, 2003).
  ―In Search Of Global Leaders: View of Daniel Meiland, Executive Chairman, Egon Zehender
International,‖ Harvard Business Review (1 August, 2003).
    Barbara Ettorre, ―A Brave New World,‖ Management Review 82, no. 4 (April, 1993): 10-16.
 Melinda Ligos, ―The Foreign Assignment: An Incubator, or Exile?‖ New York Times (October
22, 2000).

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
 Mark Larson, ―More Employees Go Abroad as International Operations Grow,‖ Workforce
Management (June 1, 2006).
  Jane Fraser and Jeremy Oppenheim, ―What‘s New about Globalization?‖ The McKinsey Quar-
terly (1997, 2): 168—179.
 ―Go east, my son,‖ The Economist (August 10, 2006); ―China‘s recruitment market is
booming,‖ The Economist (September 21, 2006).
    Ibid. Ligos.
  Sandra Jones, ―Going stateside: Once the overseas hitch is over, homeward-bound expats hit
turbulence,‖ Crain’s Chicago Business (July 24, 2000).
     Newman, Barry, ―Expat Archipelago,‖ Wall Street Journal (December 12, 1995): A1.
  Robert Pelton, ―The World‘s Most Dangerous Places,‖ Harper Resource (2003); Joe Sharkey,
―Global Economy Is Leading to More Dangerous Places,‖ New York Times (April 19, 2005).
 Mark Schoeff Jr., ―P&G Places a Premium on International Experience,‖ Workforce Manage-
ment (April 10, 2006): 28.
   Source: Route to the Top, 2006 by Dr. Elizabeth Marx for Heidrick and Struggles from
     ―In Search Of Global Leaders,‖ Harvard Business Review (August 1, 2003).
  Paula Caligiuri and Victoria Di Santo, ―Global Competence: What Is It, and Can It Be Devel-
oped Through Global Assignments?‖ Human Resource Planning 24 (September 2001): 27–36;
Mark Morgan, ―Career-Building Strategies: It‘s Time to Do a Job Assessment. Are Your Skills
Helping You Up the Corporate Ladder?‖ Strategic Finance 83 (June 2002): 38–44.
  Hoon Park, ―Global Human Resource Management: A Synthetic Approach.‖ The Journal of
International Business and Economics (2002).
  William Judge, ―Is a Leader‘s Character Culture-Bound or Culture-Free? An Empirical Com-
parison of the Character Traits of American and Taiwanese CEOs,‖ Journal of Leadership Stu-
dies 8 (Fall, 2001): 63–79.
  Keith Brouthers, ―Institutional, Cultural and Transaction Cost Influences on Entry Mode
Choice and Performance,‖ Journal of International Business Studies 33 (Summer 2002): 203–
   Ben Kedia, Richard Nordtvedt, and Liliana M. Perez, ―International Business Strategies, Deci-
sion-Making Theories, and Leadership Styles: An Integrated Framework,‖ Competitiveness Re-
view 12 (Winter–Spring 2002): 38–53.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
  Sully Taylor, Schon Beechler, and Nancy Napier, ―Toward an Integrative Model of Strategic
International Resource Management,‖ Academy of Management Review 21 (1996): 959–85, dis-
cusses these in the context of multidomestic and a combination of global and transnational strat-
     ―Globesmanship,‖ Across the Board 27 (January–February 1990): 26, quoting Michael Angus.
 ―Human Capital Index: Human Capital as a Lead Indicator of Shareholder Value,‖ at Watson
Wyatt Worldwide (see www.watsonwyatt.com). (Retrieved March 30, 2005).
  See, for example, N. Khatri, ―Managing Human Resource for Competitive Advantage: A
Study of Companies in Singapore,‖ International Journal of Human Resource Management 11,
no. 2 (April 1, 2000): 336.
 R. Coleman, ―HR Management Lags Behind at World Class Firms,‖ CMA Management (July–
August, 2002).

   ―International Assignments Increasing, Mercer Survey Finds,‖ (16 May 2006;

     ―Human Capital: A Key to Higher Market Value,‖ Business Finance (December 1999): 15.
     ―Travelling more lightly,‖ The Economist (June 22, 2006).

  Klaff, Leslie, ―Thinning the Ranks of the Career Expats,‖ Workforce Management (October
2004): 84-87.
   Yvonne Sonsino, reported in ―Travelling more lightly.‖ See also, Mercer‘s 2005/2006 Interna-
tional Assignments Survey (http://www.mercerhr.com/summary.jhtml?idContent=1222700).
  Calvin Reynolds, ―Strategic Employment of Third Country Nationals: Keys to Sustaining the
Transformation of HR Functions,‖ Human Resource Planning 20 (March 1997): 33–50.
     Adrian Wooldridge, ―The Battle for the Best,‖ The Economist: The World in 2007.
 Chi-fai Chan and Neil Holbert, ―Marketing Home and Away: Perceptions of Managers in
Headquarters and Subsidiaries,‖ Journal of World Business 36 (Summer 2001): 205.
  Tsun-yan Hsieh, Johanne Lavoie, and Robert Samek, “Are You Taking Your Expatriate Talent
Seriously?‖ The McKinsey Quarterly (Summer, 1999): 71.

     ―Travelling more lightly,‖ The Economist (June 22, 2006).
     J&J 2006 Annual Report..
     Vijay Pothukuchi, Fariborz Damanpour, Jaepil Choi, Chao C. Chen, and Seung Ho Park, ―Na-

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
tional and Organizational Culture Differences and International Joint Venture Performance,‖
Journal of International Business Studies 33 (Summer 2002): 243–66.

   ―Measuring the Value of International Assignments,‖ PricewaterhouseCoopers LLP and Cran-
field School of Management. November 9, 2006. See
  Jeremy Kahn, ―The World‘s Most Admired Companies,‖ Fortune 140, no. 7 (October 11,
1999): 267.
     Kahn, op.cit.
  David Ahlstrom, Garry Bruton, and Eunice S. Chan, ―HRM of Foreign Firms in China: The
Challenge of Managing Host Country Personnel,‖ Business Horizons 44 (May 2001): 59.
  ―High-Tech Nomads: These Engineers Work as Temps on Wireless Projects All Over the
World,‖ Time 158 (November 26, 2001): B20; Ben L. Kedia and Ananda Mukherji, ―Global
Managers: Developing a Mindset for Global Competitiveness,‖ Journal of World Business 34
(Fall 1999): 30.
 ―In Search of Global Leaders: View of Fred Hassan, Chairman and CEO, Schering-Plough,‖
Harvard Business Review (1 August, 2003).
  Astrid Wendlandt, ―The Name Game Is a Puzzle for Expats at Work,‖ The Financial Times
(August 15, 2000): 3.
  The type of ownership of foreign operations influences the orientation of an MNE‘s staffing
policy. For example, expatriates transferred abroad to a foreign joint venture may be in an ambi-
guous situation, unsure of whom they represent and uncertain of whether they should report to
both partners or just the partner that transferred them. Typically, MNEs with local partners insist
on using their executives for positions in which they fear local personnel will make decisions in
their own, rather than in the joint venture‘s best interest.

     Adrian Wooldridge, ―The Battle for the Best,‖ The Economist: The World in 2007.
  Susan Schneider and Rosalie Tung, ―Introduction to the International Human Resource Man-
agement Special Issue,‖ Journal of World Business 36 (Winter 2001): 341–46.
     Caligiuri and Di Santo, op. cit.; Hsieh, Lavoie, and Samek, op.cit.
  ―In Search of Global Leaders: View of Stephen Green, Group CEO, HSBC,‖ Harvard Busi-
ness Review (1 August, 2003).
  Sunkyu Jun, James Gentry, and Yong Hyun, ―Cultural Adaptation of Business Expatriates in
the Host Marketplace,‖ Journal of International Business Studies 32 (Summer 2001): 369; J.
Stewart Black and Mark Mendenhall, ―Cross-Cultural Training Effectiveness: A Review and a
Theoretical Framework for Future Research,‖ Academy of Management Review 15 (January
1990): 117.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
  ―The New International Executive Business Leadership for the 21st Century,‖ Harvard Busi-
ness School and Amrop International, 1995. Reported in Andrew Crisp, ―International Careers
Made Easy,‖ The European, no. 254 (March 24, 1995): 27.
     Hsieh, Lavoie, and Samek, op.cit.
  John D. Daniels and Gary Insch, ―Why Are Early Departure Rates from Foreign Assignments
Lower Than Historically Reported?‖ Multinational Business Review VI, no. 1 (Spring 1998): 13–
   Data provided by National Foreign Trade Council. Maria L. Kraimer, Sandy Wayne, and Rena-
ta Jaworski, ―Sources of Support and Expatriate Performance: The Mediating Role of Expatriate
Adjustment,‖ Personnel Psychology 54 (Spring 2001): 71.
  Margaret Shaffer, David Harrison, K. Matthew Gilley, and Dora Luk, ―Struggling for Balance
Amid Turbulence on International Assignments: Work-Family Conflict, Support and Commit-
ment,‖ Journal of Management 27 (Jan.–Feb. 2001): 99; Chris Moss, ―Expats: Thinking of Liv-
ing and Working Abroad?‖ The Guardian (October 19, 2000): 4.
   ―Expat Spouses: It Takes Two,‖ Financial Times (March 1, 2002); Ibid. ―Travelling more
   Diane E. Lewis, ―Families Make, Break Overseas Moves,‖ Boston Globe (October 4, 1998):
   Leslie Klaff, ―Thinning the Ranks of the Career Expats,‖ Workforce Management (October
2004): 84-87.
  D. Ones and C. Viswesvaran, ―Relative Importance of Personality Dimensions for Expatriate
Selection: A Policy Capturing Study,‖ Human Performance 12 (1999): 275–94.
   Chris Brewster, ―Making Their Own Way: International Experience Through Self-Initiated
Foreign Assignments,‖ Journal of World Business 35 (Winter 2000): 417; Vesa Suutari, Kerr In-
kson, Judith Pringle, Michael B. Arthur, and Sean Barry, ―Expatriate Assignment Versus Over-
seas Experience: Contrasting Models of International Human Resource Development,‖ Journal
of World Business 32 (1997): 351–68.
     Valerie Frazee, ―Send Your Expats Prepared for Success,‖ Workforce 78 (March 1999): S6.
 Mark Larson, ―More Employees Go Abroad as International Operations Grow,‖ Workforce
Management (June 2006).

  P. Christopher Earley, ―Intercultural Training for Managers: A Comparison of Documentary
and Interpersonal Methods,‖ Academy of Management Journal 30, no. 4 (December 1987): 685–
98; Sharon Leiba-O‘Sullivan, ―The Distinction Between Stable and Dynamic Cross-Cultural
Competencies: Implications for Expatriate Trainability,‖ Journal of International Business Stu-
dies 30 (Winter 1999): 709.
     Estimate reported in the second annual study of expatriate issues, conducted from January

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
through March 2002, sponsored by CIGNA International Expatriate Benefits, the National For-
eign Trade Council, an association of multinational companies that supports open international
trade and investment; and WorldatWork, http://www.prnewswire.com/micro/CI9. (Retrieved
September 2, 2005).

     Measuring the Value of International Assignments, op.cit.
     Carolyn Gould, ―What‘s the Latest in Global Compensation?‖ Global Workforce (July 1997).
  Geoffrey W. Latta, ―Expatriate Policy and Practice: A Ten-Year Comparison of Trends,‖
Compensation and Benefits Review 31, no. 4 (July–August 1999): 35–39, quoting studies by Or-
ganization Resources Counselors.
  For example, Towers Perrin or CIGNA specialize in international compensation. In addition,
companies rely on estimates of cost-of-living differences—even if the estimates are imperfect.
MNEs commonly use such sources as the U.S. State Department‘s cost-of-living index published
yearly in Labor Developments Abroad, the U.N. Monthly Bulletin of Statistics, and surveys by
the Financial Times, P-E International, Business International, and the International Monetary
Fund‘s Staff Papers.
   This practice appears to be fading, however, especially for assignments in so-called world
capitals like New York, London, and Tokyo, in which companies assume there is little depriva-
tion and many interested executives. Further, the hardships from foreign assignments are declin-
ing as advances in transportation and communications enable expatriates to keep in closer con-
tact with people in their home countries; the openness of economies allows them to buy familiar
goods and services; and the general level of housing, schooling, and medical services increasing-
ly meets their needs.
  For example, a U.S. family based in China commonly spends more money on buying the same
goods than they would back home because they often prefer to buy many Western items that
must be imported and thus have been charged high tariffs. Often, expatriates obtain food and
housing at higher than the local rate because they do not know the language well, where to buy,
or how to bargain.
     ―Home Away from Home: Expatriate Housing in Asia,‖ The Korea Herald (May 2, 2002).
  ―Tokyo Tops in H.K. Survey on Living Cost for Expatriates,‖ Japan Economic Newswire
(January 24, 2002).
  Alison Maitland, ―A Hard Balancing Act: Management of Dual Careers,‖ Financial Times
(May 10, 1999): 11.
     Valerie Frazee, ―Expert Help for Dual-Career Spouses,‖ Workforce 78 (March, 1999): S18.
  Judy Clark, ―Added Global Risks Impact Security Planning for Oil, Gas Expat Workers,‖ The
Oil and Gas Journal 100 (April 2002): 32–37.
  Roberto Ceniceros, ―Precautions, Training Can Lessen Risk of Kidnapping,‖ Business Insur-
ance 35 (May 14, 2001): 26.

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
     Ibid. International Assignments Increasing, Mercer Survey Finds.
     Gould, op. cit.
  ―New Survey Suggests Ways to Maximize Expatriate Performance and Loyalty,‖ Internet Wire
(March 27, 2001). Estimates reported at 2001 National Foreign Trade Council‘s International HR
Management Symposium. See also, Leslie Gross Klaff, ―The Right Way to Bring Expats Home,‖
Workforce 81 (July 2002): 40–44; Jeff Barbian, ―Return to Sender: Companies That Fail to Ef-
fectively Manage Employees Returning from a Foreign Assignment May Find Their Investments
Permanently Hitting the Road,‖ Training 39 (January 2002): 40–43.
     ―Understanding and Avoiding Barriers to International Mobility,‖ PricewaterhouseCoopers
LLP and Cranfield School of Management. October 2005. See http://www.pwc.com.
  J. S. Black and H. B. Gregersen, ―The Right Way to Manage Expats,‖ Harvard Business Re-
view (March–April, 1999): 52–62.
  ―In Search of Global Leaders: View of Daniel Meiland, Executive Chairman, Egon Zehender
International,‖ Harvard Business Review (1 August 2003).

     ―Minimizing Expatriate Turnover,‖ GMAC Relocation Services (Retrieved May 15, 2007).
  Mila Lazarova and Paula Caligiuri, ―Retaining Repatriates: The Role of Organizational Sup-
port Practices,‖ Journal of World Business 36 (Winter 2001): 389–402.
  Linda K. Stroh, Hal B. Gregersen, and J. Stewart Black, ―Closing the Gap: Expectations Ver-
sus Reality Among Repatriates,‖ Journal of World Business 33 (1998): 111–124; Klaff, op. cit.

     Ibid. Klaff.
  C. Reidy, ―Corporate Synergy Leads Way in Constructing Effective Retirement and Health
Benefits,‖ IBIS Review (January 1996): 16–17.
  Iris I. Varner and Teresa M. Palmer, ―Successful Expatriation and Organizational Strategies,‖
Review of Business 23 (Spring 2002): 8–12; Jan Selmer, ―Practice Makes Perfect? International
Experience and Expatriate Adjustment,‖ Management International Review 42 (January 2002):
  Bruce E. Kaufman, ―Reflections on Six Decades in Industrial Relations: An Interview with
John Dunlop,‖ Industrial and Labor Relations Review 55 (January 2002): 324–49.
  Jean-Louis Chaumet, CGT Labor Representative, ―Euro-Disney News Profile,” ABC News
(March 29, 1992).
  Neil Templin, ―GM Strike Hits Mexican Output as Talks on Settlement Resume,‖ Wall Street
Journal (March 20, 1996): A3.
     Robert A. Senser, ―Workers of the World: It‘s Time to Unite,‖ Commonweal 127 (Sept. 22,

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management
2000): 13; Julie Kosterlitz, ―Unions of the World Unite: European and American Unions Work-
ing Together,‖ National Journal 30 (May 16, 1998): 1134.
  Ans Kolk and Rob van Tulder, ―Child Labor and Multinational Conduct: A Comparison of
International Business and Stakeholder Codes,‖ Journal of Business Ethics 36 (March 15, 2002):
  John Addison, ―Nonunion Representation in Germany,‖ Journal of Labor Research 20, no. 1
(Winter 1999): 73–91.
  Nancy Mills, ―New Strategies for Union Survival and Revival,‖ Journal of Labor Research 22
(Summer 2001): 599.
   Based on information reported in ―India,‖ CIA World Handbook, 2007;
http://www.cia.gov/cia/publications/factbook/geos/in.html; ―India: A Country Study,‖ Library of
Congress, http://memory.loc.gov/frd/cs/intoc.html; India, Country Profile, BBCi,,
http://news.bbc.co.uk/1/hi/world/south_asia/country_profiles/1154019.stm; and various publica-
tions of the United Nations, http://www.un.org/; Keith Bradsher, ―A Younger India Is Flexing Its
Industrial Brawn,‖ New York Times (September 1, 2006); ―Hungry tiger, dancing elephant,‖ The
Economist (April 4, 2007); ―Virtual champions, Survey: Business In India,‖ The Economist (June
1 2006).

Daniels/Radebaugh/Sullivan (12th Edition)   Chapter Twenty Human Resource Management

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