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CHAPTER 15

MANAGING HUMAN RESOURCES GLOBALLY

Chapter Summary

This chapter discusses the HR issues that organizations must address in a world of global
competition. The chapter begins by describing how the global nature of business is affecting
human resource management in modern organizations. Then, it identifies the aspects of global
differences that affect the organizations decisions about human resources. The following
sections explore HR planning, selection, training, and compensation practices in international
settings. Finally, the chapter examines guidelines for managing employees sent on international
assignments.

Learning Objectives

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

1. Summarize how the growth in international business activity affects human resource
management.

2. Identify the factors that most strongly influence HRM in international markets.

3. Discuss how differences among countries affect HR planning at organizations with

international operations.

4. Describe how companies select and train human resources in a global labor market.

5. Discuss challenges related to compensating employees from other countries.

6. Explain how employers prepare managers for international assignments and for their return
home.

Extended Chapter Outline

Note: Key terms are boldface and are listed in the Chapter Vocabulary section.

I. Introduction

1. According to a survey of almost 3,000 line executives and HR executives from 12

countries, international competition is the number one factor affecting human resource
management.
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II. HRM in a Global Environment

1. The environment in which organizations operate is rapidly becoming globalized.

2. Factors behind the trend toward expansion into global markets include:

a. Foreign countries can provide a business with new markets in which there are millions
or billions of new customers

b. Companies can set up overseas operations and operate them with lower labor costs

c. Global activities are simplified and encouraged by trade agreements among nations

i. North American Free Trade Agreement (NAFTA)

3. The World Trade Organization (WTO) resolves trade disputes among more than 100
participating nations.

4. As international trade increases, so do the demands on human resource management. For

example, organizations with customers or suppliers in other countries need employees
who understand those customers or suppliers and organizations that operate facilities in
other countries need to understand the laws and customs that apply to employees in those
countries.

5. The various demands of international activities require managers to understand HRM

principles and practices in global markets.

A. Employees in an International Workforce

1. When organizations engage in international activities, their employees are likely to be

citizens of more than one country.

a. Parent country the country in which the organizations headquarters is located

b. Host country - the country (other than the parent country) in which the
organization operates a facility

c. Third country refers to a country that is neither the parent country nor the host
country

2. In general, employees assigned to work in another country are called expatriates.

3. The extent to which organizations use host-country and third-country nationals varies,
with the practice more common in some countries.
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B. Employers in the Global Marketplace

1. Just as there are different ways for employees to participate in international business
so there are different ways for employers to participate.

2. Figure 15.1, Levels of Global Participation, depicts the major levels of global
participation.

3. Most organizations begin by serving customers and clients within a domestic

marketplace. If it is successful, the organization may expand operations to other
domestic locations. As the organization continues to grow, it often begins to meet the
demands from customers in other countries. The usual way that a company begins to
enter foreign markets is by exporting or shipping domestically produced items to other
countries to be sold there.

4. International organization an organization that has set up operations in one or

more foreign countries.

5. While international companies build one or a few facilities in another country,

multinational companies go overseas on a broader scale. In general, when
organizations become multinationals, they move production facilities from relatively
high-cost locations to lower-cost locations in an effort to minimize production and
distribution costs.

6. Global organizations flexible organizations that compete by offering top products

tailored to segments of the market while keeping costs as low as possible. These
organizations utilize cultural differences as an advantage.

7. A global organization needs a transnational HRM system. This is a type of HRM

system that makes decisions from a global perspective, includes managers from many
countries, and is based on ideas contributed by individuals representing a variety of
cultures.

III. Factors Affecting HRM in International Markets

1. Organizations that operate in more than one country must be aware of the differences in
culture, education levels, economic systems, and political-legal systems.

2. Figure 15.2, Factors Affecting Human Resource Management in International

Markets, identifies the four categories influencing HRM.

A. Culture

1. The most important influence on international HRM is the culture a communitys

set of shared assumptions about how the world works and what deals are worth
striving for in which a facility is located.
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2. Culture is important to HRM for two reasons:

a. It often determines the other three international influences and can greatly affect a
countrys laws

b. It influences what people value and often determines the effectiveness of various
HRM practices

3. Five dimensions of culture as identified by Geert Hofstede in his classic study of

culture include:

a. Individualism/collectivism describes the strength of the relation between an

individual and other individuals in the society

b. Power distance concerns the way the culture deals with unequal distribution of
power and defines the amount of inequality that is normal

c. Uncertainty avoidance describes how cultures handle the fact that the future is
unpredictable

d. Masculinity/femininity describes the amount to which the culture values

characteristics that have traditionally been considered masculine or feminine

e. Long-term/short-term orientation describes whether the focus of cultural values

is on the future or the past and present

4. Figure 15.3, Five Dimensions of Culture, summarizes the five cultural dimensions.

5. Cultural characteristics influence the ways members of an organization behave toward

one another, as well as their attitudes toward various HRM practices.

6. Culture also strongly influences the appropriateness of HRM practices.

7. Cultural differences can affect how people communicate and coordinate their
activities.

8. Because of the challenges brought forth by cultural differences, organizations must

prepare managers to recognize and handle cultural differences.

B. Education and Skill Levels

1. Countries differ in the degree to which their labor markets include people with
education and skills of value to employers.

2. Educational opportunities vary from one country to another. In general, spending on

education is greater per pupil in high-income countries than in poorer countries.
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3. The education and skills levels of a countrys labor force affect the extent to which
companies want to operate there.

C. Political-Legal System

1. A countrys political-legal system its government, laws, and regulations can

strongly affect human resource management. The countrys laws often dictate the
requirements for certain HRM practices such as hiring, firing, training, layoffs, and
compensation. A countrys laws and regulations often reflect its cultural values.

2. Laws and regulations in other countries reflect the norms of their culture.

D. Economic System

1. A countrys economic system includes whether the economy is based on capitalism

or socialism as well as the governments involvement in the economy through taxes,
price controls, and other activities.

2. The health of an economic system affects human resource management. For

instance, in developed countries with great wealth, labor costs are relatively high.
Such differences show up in compensation systems and in recruiting and selection
decisions.

3. Another way an economic system affects HRM is through taxes on compensation.

In general, socialist systems take a higher percentage of each workers income as the
workers income increases. Capitalist systems tend to let workers keep more of their
earnings. Such differences make pay structures more complicated when they cross
national boundaries. They can also affect recruiting that involves candidates from
more than one country.

IV. Human Resource Planning in a Global Economy

1. As economic and technological change creates a global environment for organizations,

human resource planning is involved in decisions about participating as an exporter or
an international, multinational, or global company.

V. Selecting Employees in a Global Labor Market

1. In order to meet the need of understanding a regions business and social culture,
organizations often hire host-country nationals to fill most of their foreign positions.
Host-country nationals more easily understand the values and customs of the local
workforce than someone from another part of the world can. Additionally, training and
transporting families to foreign assignments tends to be more expensive than hiring
people in the foreign country.
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2. Some organizations will fill many key foreign positions with parent-country or third-
country nationals. This is in part because individuals possessing necessary technical and
human relations skills are not readily available.

3. Of the two largest categories of foreign workers employed in the United States, one group
consists of professionals with the particular qualifications needed to fill a job. The other
group comprises employees of multinational companies who are transferred to the United
States from their employers facilities in another country.

4. Whether an organization is hiring immigrants or selecting parent-country or third-country

nationals for foreign assignments, some basic principles of selection apply. Selection of
employees for foreign assignments should include criteria that have been associated with
success in working overseas, such as:

a. Competency in the employees area of expertise

b. Ability to communicate verbally and nonverbally in the foreign country

c. Flexibility, tolerance of ambiguity, and sensitivity to cultural differences

d. Motivation to succeed and enjoyment of challenges

e. Willingness to learn about the foreign countrys culture, language, and customs

f. Support from family members

5. In previous research, the factor most strongly influencing whether an employee completed
a foreign assignment was the comfort of the employees spouse and family.

6. Research has found successful completion of overseas assignments to be most likely

among employees who are extroverted, agreeable, and conscientious. Qualities like
flexibility, motivation, agreeableness, and conscientiousness are important because of the
challenges involved in entering another culture.

7. Figure 15.4, Emotions Associated with a Foreign Assignment, identifies the cycle of
emotions experienced by individuals involved in overseas assignments.

8. Culture shock the disillusionment and unfreezing of ideas that occur during the process
of adjusting to a new culture.

9. Virtual expatriates employees who manage an operation abroad without permanently

locating in that country.
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VI. Training and Developing a Global Workforce

1. In an organization whose employees come from more than one country, some special
challenges arise with regard to training and development such as:

a. Training and development programs should be effective for participating employees

regardless of their country of origin

b. Employers need to provide the employees with training in how to handle challenges
associated with working in a foreign country

A. Training Programs for an International Workforce

1. To develop effective training programs for an international workforce, the developers

must ask certain questions:

a. What are the objectives of the training and its content?

b. What training techniques, strategies, and media will be used?

c. What other interventions and conditions must be in place for the training to meet
its objectives?

d. Who should be involved in reviewing and approving the training program?

2. The training program should consider international differences such as economic,

educational, and cultural differences. Table 15.1 provides examples of how cultural
characteristics can affect training design.

B. Cross-Cultural Preparation

1. Another aspect of training that applies to a global workforce is preparing employees

to work across national and cultural boundaries.

2. Cross-cultural preparation training to prepare employees and their families for

an assignment in a foreign country. This training is necessary in all three phases of
an international assignment including preparation for departure, the assignment
itself, and preparation for the return home.

C. Global Employee Development

1. At global organizations, international assignments are part of many career paths.

2. The organization benefits most when it applies the principles of employee

development in deciding which employees should be offered jobs in other countries.
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VII. Performance Management Across National Boundaries

1. Organizations have to consider legal requirements, local business practices, and national
cultures when they establish performance management methods in other countries.

2. The extent to which managers measure performance may vary from one country to
another.

VIII. Compensating an International Workforce

1. Compensation includes decisions about pay structure, incentive pay, and employee
benefits. All of these decisions become more complex when an organization has an
international workforce.

A. Pay Structure

1. Figure 15.5, Earnings in Selected Occupations in Seven Cities, identifies how pay
structures can differ substantially across countries in terms of both pay level and the
relative worth of jobs.

2. The differences in pay level and relative worth of jobs create a dilemma for global
companies. Should pay levels and differences reflect what workers are used to in
their own countries or should they reflect the earnings of colleagues in the country of
the facility or earnings at the company headquarters? Typically, companies have
resolved this dilemma by linking pay and benefits more closely to those of the
employees country.

B. Incentive Pay

1. Organizations must make decisions with regard to incentive pay such as bonuses and
stock options.

2. The United States and Europe differ in the way they award stock options. European
companies usually link the options to specific performance goals. As competition in
European labor markets increases, experts predict that companies not offering
options will have a harder time recruiting the best employees.

C. Employee Benefits

1. Decisions about benefits must take into account the laws of each country involved as
well as employees expectations and values in those countries.

2. Figure 15.6, Normal Annual Hours Worked in Manufacturing Relative to

United States, compares the number of hours the average manufacturing employee
works in various countries.
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IX. International Labor Relations

1. Companies that operate across national boundaries often need to work with unions in
more than one country.

2. While the organizations establish policies and goals for labor relations, overseeing labor
agreements and monitoring labor performance, the day-to-day decisions about labor
relations are usually handled by each foreign subsidiary. The reason for this is that labor
relations on an international scale involves differences in laws, attitudes, and economic
systems as well as differences in negotiation styles.

3. International labor relations must take into account that negotiations between labor and
management take place in different social context not just different economic and legal
contexts.

X. Managing Expatriates

1. At some point, most international and global organizations assign managers to foreign
posts. Out of every hundred U.S. expatriates, between 16 and 40 return before their
assignments are complete. This is a rate almost 2 to 3 times that of foreign nationals.

A. Selecting Expatriate Managers

1. The challenge of managing expatriate managers begins with determining which

individuals in the organization are most capable of handling an assignment in
another country.

2. Depending on the nature of the assignment and the culture where it is located, the
selected expatriate needs to possess specific skills, learning styles, and approaches to
problem solving.

3. A successful expatriate manager must be sensitive to the host countrys cultural

norms, flexible enough to adapt to those norms, and strong enough to survive the
culture shock of living in another culture.

4. If the manager has a family, the family members must be able to adapt to a new
culture. Adaptation requires three kinds of skills:

a. Ability to maintain a positive self-image and feeling of well-being

b. Ability to foster relationships with host-country nationals

c. Ability to perceive and evaluate the host countrys environment accurately

5. Table 15.2 identifies topics that should be addressed in assessing a candidates ability
to adapt to a new environment.
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6. Selection decisions are not just concerned with finding employees who can do the
job; the organization also needs to select people who want an expatriate assignment.

7. Organizations must address the concerns of employees that have arisen as a result of
increased terrorist activities. Evacuation plans should be prepared and
communicated to the employees, strong channels of communication must be
provided for their use, and adequate training should be given to the expatriates prior
to their departure.

B. Preparing Expatriates

1. Once the organization has selected a manager for an overseas assignment, it is

necessary to prepare that person through training and development. This process
should include the employees spouse and family members.

2. Preparation for expatriate assignments often focuses on cross-cultural training. This

is training in what to expect from the host countrys culture.

3. Figure 15.7, Impressions of Americans: Comments by Visitors to the United

States, identifies some of the perceptions of foreign visitors to the U.S.

4. Employees preparing for foreign assignments need information about housing,

schools, recreation, shopping, and health care facilities in the country where they will
be living. Ability to adequately communicate in the new country is also of
importance.

5. Preparation of the expatriate should include career development activities. The

expatriates should discuss with their managers how the foreign assignments fit into
their career path and what types of positions they can expect upon their return.

6. When the employee leaves for the assignment, the preparation process should
continue. They need the opportunity to discuss their experiences with other
expatriates in order to learn from their successes and failures. The organization
should provide a host-country mentor to help the employees understand their
experiences.

C. Compensating Expatriates

1. One of the greatest challenges of managing expatriates is determining the

compensation package. Most organizations use a balance sheet approach. This
approach adjusts the managers compensation so that it gives the manager the same
standard of living as in the home country plus extra pay for the inconvenience of
locating overseas.

2. Figure 15.8, The Balance Sheet for Determining Expatriate Compensation,

explores the balance sheet process.
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3. Compensation packages for expatriates are complex due to determining adequate

base salary because of the difference in currencies, the tax equalization allowance
because of the variance in tax rates, and determining what benefits can be utilized
and are of value in foreign countries.

6. A variety of allowances, such as cost-of-living, educational, and relocation

allowances, are often offered in order for the assignment to be more attractive to the
employee.

7. Figure 15.9, International Assignment Allowance Form, is an example of a

summary sheet for an expatriate managers compensation package.

D. Helping Expatriates Return Home

1. The process of preparing expatriates to return home from a foreign assignment is

called repatriation.

2. Culture shock takes place in reverse during repatriation. Companies are increasingly
making efforts to help expatriates through this transition. Two activities help the
process along, communication and validation. Communication refers to the
expatriate receiving information and recognizing changes while abroad. Validation
means giving the expatriate recognition for the overseas service.

Chapter Vocabulary

Parent Country
Host Country
Third Country
Expatriates
International Organization
Multinational Company
Global Organization
Transnational HRM System
Culture Shock
Cross-Cultural Preparation
Repatriation

Review and Discussion Questions

1. Identify the parent country, host country (ies), and third country (ies) in the following
example: A global soft-drink company called Cold Cola has headquarters in Atlanta,
Georgia. It operates production facilities in Athens, Greece and in Jakarta, Indonesia.
The company has assigned a manager from Boston to head the Athens facility and a
manager from Hong Kong to manage the Jakarta facility.
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A parent country is the country in which an organizations headquarters is located. A host

country is a country other than the parent country in which an organization operates a
facility. A third country is a country that is neither the parent country nor the host country
of an employer. In the example provided the parent country is the United States as Cold
Cola has its headquarters there. The host countries are Greece and Indonesia as the
organization operates facilities in both of those countries. Hong Kong is a third country
as one of the managers came from there. The manager would be a third country national.

2. What are some HR challenges that arise when a U.S. company expands from domestic
markets by exporting? When it changes from simply exporting to operating as an
international company? When an international company becomes a global company?

HR challenges facing companies that expand into foreign markets by exporting include
the need to be prepared to draw from a larger labor market that will include individuals
with diverse backgrounds and education levels. As the organizations continue to expand
into the international marketplace, HR challenges become more intense. These
challenges include deciding on choices for location and determining availability of
suitable human resources. If the companies become global, there is an increased need for
HRM practices that encourage flexibility and are based on an in-depth knowledge of
differences among countries. Global organizations must be able to recruit, develop,
retain, and use managers who can get results across national boundaries.

3. In recent years, many U.S. companies have invested in Russia and sent U.S. managers
there in an attempt to transplant U.S.-style management. According to Hofstede (see
Figure 15.3), U.S. culture has low power distance, uncertainty avoidance, and long-term
orientation and high individuality and masculinity. Russias culture has high power
distance and uncertainty avoidance, low masculinity and long-term orientation, and
moderate individuality. In light of what you know about cultural differences, how well
do you think U.S. managers can succeed in each of the following U.S.-style HRM
practices? Explain your reasons.

a. Selection decisions based on extensive assessment of individual abilities

b. Appraisals based on individual performance

c. Systems for gathering suggestions from workers

d. Self-managing work teams

The responses provided by the individual students will vary, but all the responses should
demonstrate comprehension of the chapter information.

4. Besides cultural differences, what other factors affect human resource management in an
organization with international operations?
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Some other factors affecting HRM in an international organization include: the

acquisition of suitable human resources, selection of managers who can function in a
variety of settings, and providing adequate compensation packages that take into account
the different pay rates, tax systems, and costs of living.

5. Suppose you work in the HR department of a company that is expanding into a country
where the law and culture make it difficult to lay off employees. How should your
knowledge of that difficulty affect human resource planning for the overseas operations?

While responses will vary, suggested answers may include: (1) development of extensive
preparation for prevention of possible lay offs, (2) planning alternatives to lay offs, and
(3) providing employees with job/position options.

6. Why do multinational organizations hire host-country nationals to fill most of their

foreign positions, rather than sending expatriates for most jobs?

Possible responses could include the fact that host-country nationals will already be
familiar with the countrys laws, culture, and values as well as possessing proficiency in
the language.

7. Suppose an organization decides to improve collaboration and knowledge sharing by

developing an intranet to link its global workforce. It needs to train employees in several
different countries to use this system. List the possible cultural issues you can think of
that the training program should take into account.

While the responses provided will vary, all answers given should stimulate a lively class
discussion of the topic. Suggestions for possible cultural issues that should be taken into
account may include: educational level, religious beliefs, and availability of all workers
to receive the training.

8. For an organization with operations in three different countries, what are some
advantages and disadvantages of setting compensation according to the labor markets in
the countries where the employees live and work? What are some advantages and
disadvantages of setting compensation according to the labor market in the companys
headquarters? Would the best arrangement be different for the companys top executives
and its production workers? Explain.

Pay structures can differ substantially among countries in terms of pay level and the
relative worth of jobs. Organizations must carefully decide whether to set pay levels and
differences in terms of what workers are used to in their own countries or in terms of
what employees colleagues earn at headquarters. Advantages of setting compensation
according to the labor markets in the countries where the employees live and work may
include maintaining human resource availability for vacant positions, while
disadvantages may include decreasing the candidate pool. Advantages of setting
compensation according to the labor market in the companys headquarters may include
availability of the best potential candidates, while disadvantages may include excessive
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costs being incurred. Most likely, the best arrangement would be different for the
companys top executives and its production workers. This is due in part to the fact that
these positions/jobs are distinctly different from the other one.

9. What abilities make a candidate more likely to succeed in an assignment as an expatriate?

Which of these abilities do you have? How might a person acquire these abilities?

Successful expatriates should possess abilities such as competency in the area of

expertise, communication capability in the foreign language, flexibility, tolerance of
ambiguity, sensitivity to cultural differences, willingness to learn about the foreign
countrys culture and customs, and motivation to succeed. Support from family members
is of paramount importance to expatriate success.

10. In the past, a large share of expatriate managers from the United States have returned
home before successfully completing their foreign assignments. Suggest some possible
reasons for the high failure rate. What can HR departments do to increase the success of
expatriates?

Some possible reasons for high expatriate failure rates include: insufficient preparation
before departure, lack of family support, and feeling isolated. HR departments could
prevent potential failure by: providing a mentor for the relocating employee, keeping the
expatriate well-informed of home-country changes, and providing training to family
members to help with the adjustment.

Business Week Case: The High Cost of Frances Aversion to Layoffs

Case Summary:

This case study discusses the costs that can be associated with a clash between economic
downturns and layoff avoidance.

Questions:

1. According to this case, how does Frances political-legal system affect HRM decisions?
(Consider, for example, human resource planning and decisions about operating and
retaining employees.)

Frances political-legal system dictates lengthy negotiations with unions over planned job
reductions and expensive severance packages for laid-off workers. This results in delays
for organizations needing to immediately cut back expenditures. It can also result in more
stringent and selective hiring practices being enforced.

2. What cultural values might be at the root of Frances laws limiting job cuts? What
reasons do French managers give for wanting to loosen the legal requirements? Which
point of view is more like your own?
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Frances methodology bespeaks of being civilized and demonstrates that they highly
value their workers. French managers claim they would like to see changes in order for
the French companies to remain competitive in the marketplace.

3. In the United States, employers have much wider latitude in making layoff decisions than
in France. Still, some U.S. companies have no-layoff policies, which help them attract
and keep talented workers. Suppose two U.S. companies are operating French
subsidiaries and one of those companies has a no-layoff policy. Would the company with
a no-layoff policy have an advantage in France? Explain.

There is a strong possibility that the organization with a no-layoff policy would have some
advantage over the other. This is in line with the current French methodology on
employment.

End of Chapter Case:

Case Summary: Human Resource Management in a World with Terrorism

This case scenario examines how organizations address the issues surrounding world events.

Questions:

1. Give an example of how the experience of the September 11 attacks and the U.S. war on
terrorism might affect each of the HRM functions of recruiting, training, and
compensating employees for a global company.

The student responses will vary. Suggested answers may include (respectively to the
above listed items) more intense screening of candidates, training that is inclusive of
cultural diversity, and increased compensation costs to entice individuals to seek foreign
assignments.

2. Do the issues in Question 1 differ depending on the countries where employees are
located? (For example, would the issues and HRM practices have the same effect on
employees in Germany, Columbia, and Saudi Arabia?) Explain.

The issues in Question 1 may differ depending on the countries where the employees are
located. For instance areas with more unrest, such as those in the Middle East, may
require very different HRM practices to be applied than countries with U.S. affinity.
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3. The case points out that although people in different parts of the world condemn
terrorism, they do not necessarily view events in the same context. For a global or
international organization, what challenges to HRM do these different viewpoints
present? In a U.S.-based organization with subsidiaries in Muslim-dominated countries,
how might HR staff address these challenges?

It is imperative for these organizations to have a complete understanding of the values,

customs, and beliefs of the foreign country. HRM is challenged by meeting what is
acceptable in that foreign country. Learning about the foreign country and its practices is
of vital importance to the success of the HRM practices implemented.