International labor laws and regulations that impact human resources decisions

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

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

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

NUI Galway, Ireland

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

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

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International Human Resource Management Fifth edition

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

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

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

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

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

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

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

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

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

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

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

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

Global Staffing Edited by Hugh Scullion and David G. Collings

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

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

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

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

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

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

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

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

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

Global Careers Michael Dickmann and Yehuda Baruch

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

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

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

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

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

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International Human Resource Management

Policies and Practices for Multinational Enterprises

Fifth edition

Ibraiz Tarique Dennis R. Briscoe Randall S. Schuler

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

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

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

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

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

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

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

[First edition published by Prentice Hall 1995]

[Fourth edition published by Routledge 2011]

Library of Congress Cataloguing-in-Publication Data

Briscoe, Dennis R., 1945– International human resource management : policies and practices for

multinational enterprises / Ibraiz Tarique, Dennis R. Briscoe, Randall S. Schuler. — 5th edition.

pages cm Includes bibliographical references and index.

1. International business enterprises—Personnel management. I. Tarique, Ibraiz. II. Schuler, Randall S. III. Title.

HF5549.5.E45B74 2012 658.3—dc23 2015001046

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

Typeset in Berling Roman and Futura

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by Apex CoVantage, LLC

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Contents

List of Figures List of Exhibits List of Case Studies List of IHRM in Actions List of End-of-Book Integrative Cases List of Acronyms Acknowledgments Foreword

Introduction

SECTION 1: STRATEGIC CONTEXT

Introduction to Section 1

1 The Internationalization of Human Resource Management

2 Strategic International Human Resource Management

3 Design and Structure of the Multinational Enterprise

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

SECTION 2: NATIONAL AND CULTURAL CONTEXT

Introduction to Section 2

5 Country and Company Culture and International Human Resource Management

6 International Employment Law, Labor Standards, and Ethics

7 International Employee Relations

SECTION 3: GLOBAL TALENT MANAGEMENT

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Introduction to Section 3

8 International Workforce Planning and Staffing

9 International Recruitment, International Selection, and Repatriation

10 International Training and Management Development

11 International Compensation, Benefits, and Taxes

12 International Employee Performance Management

13 Well-being of the International Workforce and International HRIS

14 Comparative IHRM: Operating in Other Regions and Countries

SECTION 4: ROLE AND FUTURE OF IHRM

Introduction to Section 4

15 The IHRM Department, Professionalism, and Future Trends

Integrative Cases Index

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Figures

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

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

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Exhibits

1.1 Drivers of Internationalization of Business 1.2 The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets) 1.3 IHRM Questions for International Strategy 3.1 Best Practices for the Effective Management of Cross-border and Virtual Teams 5.1 Geert Hofstede’s Cultural Dimensions 5.2 Trompenaar’s and Hampden-Turner’s Cultural Dimensions 5.3 Global Leadership and Organizational Behavior Effectiveness (GLOBE):

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

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

Effective Implementation of Ethical Standards for Worldwide Operations 7.1 Trade Union Membership, Selected Countries 7.2 Seven Approaches to Labor/employee Relations in the Global Context 7.3 Local Union Environment Issues That MNEs Need to Consider 8.1 International Staffing Approaches 8.2 Traditional International Assignees and Local Nationals 8.3 Types of International Assignees 8.4 Questions to Better Manage a Global Workforce 9.1 Employment Options for International Transfers 9.2 The 21st-century Expatriate Manager Profile 9.3 Definition of Expatriate Failure 9.4 Reasons for Expatriate Failure 9.5 Best Practice in IA Selection 10.1 The Match of Training Techniques to Country Culture 10.2 Skills of the Transnationally Competent Manager Versus Those of the

Traditional International Manager 10.3 Five-Phase Process for Designing Effective CCT Programs 11.1 Hourly Compensation Costs for Production Workers in Manufacturing, 2011 11.2 Average Annual Hours Per Year Per Person in Employment 11.3 Paid Vacation Days and Legally Mandated Paid Holidays

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11.4 Types of Equity Compensation 11.5 The 10 Most Expensive Countries/cities in the World 11.6 Balance Sheet Example 11.7 Cost Estimate for Three-year Assignment 11.8 Average Tax Wedge 12.1 Shifts in Western PM 12.2 Globalization of Key Elements in the Design, Implementation, and Evaluation

of the PM System of an MNE 12.3 Criteria for Appraisal of International Assignees 12.4 Raters of International Assignee Performance 12.5 Use of Different Types of Rater in PAs of Expatriates 13.1 Issues to Consider When Designing Expatriate Crisis Management Programs 14.1 World’s 30 Largest Cities (2015 and 2025) 14.2 Population and Labor Force Characteristics (Europe) 14.3 Population and Labor Force Characteristics (North America) 14.4 Population and Labor Force Characteristics (Asia) 14.5 Population and Labor Force Characteristics (Latin America and Caribbean) 14.6 Population and Labor Force Characteristics (Africa) 15.1 International Relocation Services 15.2 The Datafication of HR

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Case Studies

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

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

Barden (US) and FAG (Germany) 6.1 Non-Compete Agreements and Intellectual Property: Value Partners SA (Italy)

and Bain & Company (USA) Conflict in Brazil 7.1 Global Industrial Relations at Ford Motor Company (USA/Global) 8.1 Firms Woo Executives from “Third” Countries (Global) 9.1 A World Marketplace for Jobs in Project-Based Work Environment (Global) 10.1 Management Training in Africa (Malawi) 11.1 Compensation Problems with a Global Workforce (Global, Thailand,

Philippines, Japan, Bolivia) 12.1 Cross-Cultural Performance Evaluation in Thailand: The Case of Richard

Evans, Expatriate Managing Director (Switzerland/Thailand/UK) 13.1 Global Health and Safety Concerns (Global, Romania, UK, Ghana) 14.1 The Impact of HR on Innovation: A Six-Country Comparison (Global) 15.1 Becoming an HR Transnational at Germany’s OBI (Germany)

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IHRM in Actions

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

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

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

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End-of-Book Integrative Cases

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

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Acronyms

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

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

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PCN Parent-Country National PCT Patent Cooperation Treaty PM Performance Management PRC People’s Republic of China R&D Research and Development SAR Stock Appreciation Rights SEC Securities and Exchange Commission SHRM Society for Human Resource Management SIHRM Strategic International Human Resource Management SME Small- and Medium-sized Enterprises SOX Sarbanes-Oxley TCN Third-Country National T&D Training & Development TI Transparency International TNC Transnational Corporation TUAC Trade Union Advisory Committee UN United Nations UNCTAD United Nations Conference on Trade and Development UK United Kingdom US United States

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Acknowledgments

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

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

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

Dr. Briscoe thanks his graduate students at the University of San Diego and at the many other schools in the some 19 countries where he has taught IHRM, and particularly his most recent graduate assistant, Chanyu Miao, for her help in research into IHRM and country HR practices.

Dr. Ibraiz Tarique is indebted to his father, Dr. Asif Tarique, who passed away in January 2015, for teaching him the value of cultural diversity. Dr. Asif Tarique (an

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

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

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

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

Thank you all!

Ibraiz Tarique Dennis Briscoe Randall Schuler

January 2016

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Foreword

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

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

The fifth edition of International Human Resource Management, written by Ibraiz Tarique, Dennis Briscoe and Randall Schuler, serves as the foundation book for all the other books that focus on specific areas of global HRM policies and practices, and for the books that address special topics such as alliances, strategies, and structures and legal systems. As such, its 15 chapters provide the broadest possible base for an overview of all the major areas in the field of international human resource management. As with all the books in the Global HRM series, the chapters are based upon the most recent and classic research, as well as numerous examples of what multinational enterprises are doing today. This latest edition of this foundation book contains numerous updates and revisions that make the book even more relevant and useful to the reader, whether university student or practitioner. More material has been put into tables and exhibits to help summarize a lot of information, thus making it more quickly accessible and more interesting

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for the reader. This Routledge series, Global HRM, is intended to serve the growing market of

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

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

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

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

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

Paul Sparrow, Manchester University Management School July 2015

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Introduction

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

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

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Sections and chapters

This book is divided into four sections (see Figure I.1 to understand how the topics relate to each other) and 15 chapters. The first two sections set the scene for International Human Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and explain why IHRM is so important to the success of international business, describing the context of global business as it relates to IHRM. Section 1 “Strategic Context,” describes the key strategic components of the context within which IHRM operates. Each of these components represents a critical part of the global environment that determines the nature of IHRM. Section 2, “National and Cultural Context,” describes three important aspects of the country and/or national environments that determine the cultural and legal contexts within which IHRM operates. Then Section 3, “Global Talent Management,” describes the IHRM policies and practices that are shaped by the context described in the first two sections. These seven chapters provide a comprehensive and thorough overview of the policies and practices of IHRM. These policies and practices are described both from a centralized, headquarters- focused perspective, as well as from the local perspective of subsidiaries, joint ventures, partnerships, and contractors. Finally Section 4, “Role and Future of IHRM,” describes the nature of today’s IHRM department, the professionalization of IHRM, and takes a look at future trends in the field. Now we describe the chapters briefly.

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

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

Chapter 3 discusses the growing complexities in designing the structure of multinational firms and the important role that IHRM plays in those design

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decisions. The conduct of international business is increasingly complex, involving the need to—at the same time—focus on central control and influence and local adaptation to customers and culture. Too often these efforts fail, at least partially because of inadequate attention to issues within the responsibility of IHRM. This chapter describes the contributions that IHRM can and should make to the success of these organizational choices.

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

Figure I.1 Chapter Map International Human Resource Management, 5th ed. Tarique, Briscoe, Schuler.

combinations. All four types of these combinations are increasingly used and

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IHRM can and should play a major role in helping ensure the success of their design and implementation.

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

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

■ international employment law and the institutions that develop and apply it;

■ major legal systems and their key differences; ■ goals of the various international trade agreements ■ major issues international employment issues impacting HR; ■ immigration/visas, personal, data protection, anti-discrimination,

harassment, ethical standards, CSR, and corporate governance.

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

Chapter 7 examines the broad nature of international labor standards, global employment law and regulations, and international ethics and social responsibility. First, this chapter looks at the institutional context of international business. International organizations have promulgated labor standards for MNEs. Next, this chapter looks at the global legal environment in which the MNE operates. It focuses on compliance with national and supranational laws. Further, a number of comparative regulatory issues are discussed that affect the MNE such as immigration controls, data protection, anti-discrimination and harassment,

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termination and reduction in force, and intellectual property. Finally, this chapter looks at international ethics, its relation to culture, and how ethical dilemmas must be solved

Chapter 8 provides an introduction to the overall concern with planning, forecasting, and staffing the global enterprise. Chapter 8 begins by providing a description of the constantly changing labor markets around the world and discusses how MNEs plan for creating their workforces from those labor markets. The nature of those markets in various countries, in terms of their demographic characteristics, the skills and abilities of their individuals, and their accessibility and cost varies dramatically from country to country and region to region and can be a major determinant in the success of international decisions such as where to locate operations. Chapter 8 also provides an overview of the many options that MNEs have available to them for that staffing.

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

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

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

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

Chapter 13 describes topics of importance to the IHR manager: employee health and safety in the context of the foreign subsidiary and joint venture, and health, safety, and security for global business travelers and employees on international assignments and their families. Often, because health and safety practices differ so much from country to country, responsibility for them is left in the hands of subsidiary (local) HR managers. Nevertheless, MNEs must understand and cope with local and international health and safety regulations, the widely variable practices faced in different countries, and strategic business decisions that may influence workforces and employee relations in multiple locations. This chapter also discusses the important topic of HRIS.

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

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

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Terminology

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

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

In contrast, transnational firms are global in scope but decentralized and localized in products, marketing strategies, and operations. That is, they take advantage of their global presence to gain access to resources (ideas, technology, capital, people, products, and services) and develop economies of scale, while at the same time maintaining a local presence that is seen as comparable to that of domestic competitors. The other terms, such as “multinational” or “international,” generally refer to MNEs that have not yet developed their levels of international

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operations to this extent. Because more and more enterprises are moving in the direction of being more global, in thought at least, if not in action, the word “global” is used in the title of the series of which this book is a part. But the word “international” is used in the title and chapter headings of this text to reinforce the reality that IHRM policies and practices are often and mostly not standardized and centralized, as might be implied with the use of the term “global.”

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

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Pedagogy

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

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

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

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

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

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

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

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

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

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http://www.routledge.com/textbooks/globalhrm
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Section 1 Strategic Context

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

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

Alliances

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

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Chapter 1 The Internationalization of Human Resource Management

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

HSBC Corporation1

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

Peter Brabeck-Letmathe Chairman, Nestle2

Learning Objectives

This chapter enables the reader to:

■ Describe the many drivers of the internationalization of business. ■ Describe the growth and spread of internationalization. ■ Describe the different settings of international human resource

management. ■ Explain the development of international human resource

management.

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

This first chapter introduces the concept of internationalization and how it has

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

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

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

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

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http://www.bea.gov/scb
What this implies is that every business and every person confronts constant global pressure for competitive excellence. Business, as well as other activities such as politics, travel, environmental concerns, and sports, has become a truly international activity, with every aspect of every organization affected, including HRM. Thus the purpose of this introductory chapter is to provide a framework for understanding how this pervasive internationalization is affecting HRM—and to introduce how IHRM today is carrying out its new obligations and how it is changing to meet the demands of this interconnected world.

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The Drivers of Internationalization of Business

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

Exhibit 1.1: Drivers of Internationalization of Business

Driver Impact on internationalization

Decreased trade barriers through trade agreements and treaties

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

Search for new markets and reduced costs

New markets and lower-cost operations found in other countries

Rapid and extensive global communication

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

Rapid development and transfer of new technology, including improved transportation

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

Increased travel and migration, exposure to new countries and cultures

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

Knowledge sharing across borders

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

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

Homogenization of culture and consumer demands

Increasingly, consumer demands are the same everywhere

Global Internet and social media, television,

All media are now shared everywhere and

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music, movies, sports, publications, news

expectations

Competitiveness of emerging market MNEs and SMEs

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

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

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The Growth and Spread of Internationalization

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

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

Both terms—internationalization and globalization—refer to the ever-increasing interaction, interconnectedness, and integration of individuals, companies, cultures, and countries. The expanding connections between people, companies, countries, and cultures are real, powerful, all-encompassing, and increasing in importance. Because of this, international business continues to grow in terms of the numbers and types of enterprises conducting business across borders, the amount of foreign direct investment (FDI), and the value of trade between countries.

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

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

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entrepreneurial business—referred to as a micro-MNE—in Turkey, with Internet customers around the world.

IHRM in Action 1.1: Creating a Global Accounting Firm

A 200-employee accounting firm may not top your list of global businesses with IHRM issues, but it should. Aldrich Kilbride & Tatone (AKT), an Oregon, US, accounting firm, has operated since 1973 in the small town of Salem. Wanting to grow the business, it made a number of strategic decisions to add services and locations. It opened two offices in Mumbai and Coimbatore (India) and merged with Grice Lund & Tarkington, an accounting firm based in San Diego, California. Rather than outsourcing, a route commonly used by accounting firms, AKT decided to establish its Indian offices through direct investment and hire its own year-round staff. Yet, because of the cyclical nature of the tax business, it had to overcome major hurdles to increase efficiency and create sustainable careers for its employees, regardless of location. The biggest hurdles, initially, included computer security, file sharing, and time zones. But it soon realized that culture differences and maintaining a similar organizational culture in each of its locations was an additional challenge. While AKT encourages each office to form teams of experts who can focus on specific customer needs, it also early on faced the challenge of deploying its Indian tax professionals when the frantic US tax season was done. AKT decided to partner with one of England’s top firms. Now, from May through December (the heavy time pressure for the US tax season ends in April), AKT’s India staff work to prepare the tax returns of their English partner’s clients. The global expansion of this small US accounting firm (now one of the top 100 accounting firms in the US with partnerships and offices all over the US and world) proved to be successful for employees and customers alike, because of the attention paid to people issues.

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

Not only is the world economy much larger in absolute terms, but an ever- increasing number of countries are participating in a significant way. For many, the world is becoming flat (in the sense that no country has a commercial advantage in any particular industry), and we are entering an era of globality, with everyone competing with everyone from everywhere for everything.9 For example, one

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measure of this is the ever-growing number of countries whose publicly held enterprises are represented among the world’s largest MNEs (and, of course, there are also many thousands more SMEs and family-owned enterprises—from large and small and both developed and emerging economies—that don’t show in the surveys or rankings but that also play a significant role in the conduct of international commerce). The next couple of paragraphs summarize a number of these rankings and illustrate how quickly globalization is expanding.

For example, the Fortune Global 500 (which is a ranking of the largest publicly traded and reported firms in the world, based on their revenues) now (2013) includes companies from 38 countries—obviously including firms from a number of emerging markets.10 A dozen years ago there were only 25 countries represented. Today (2013), Forbes’ Global 2000 list (a ranking of the largest public companies based on a composite of sales, profits, assets, and market value) includes firms from 63 countries.11 All regions of the world are represented, indicating how global business has become: Asia-Pacific (715 companies), Europe/Middle East/Africa (606), United States (543), and the Americas (143). In 1999, the Wall Street Journal began a list of the largest firms as determined by their market capitalization. The largest 25 firms (based on this metric) were from five countries [US (19), Japan (3), Germany (1), UK (1), and Finland (1)].12 But by 2013, there were seven (quite different) countries represented [US (14), China (4), UK (2), Switzerland (2), Australia (1), Brazil (1), and the Netherlands (1)].13 In addition, the London Financial Times developed a list of the top Global 500 firms (based on market capitalization in all the major stock markets from around the world). In 2013, the FT list included firms from 35 countries.14

When business publications first started developing these lists, their primary focus was on ranking the largest global firms. But with the increasing integration of the global economy, these publications have become additionally interested in analyses of more specific characteristics. For example, Fortune magazine developed a list of the top global companies for leaders.15 This analysis of approximately 10,000 companies worldwide was narrowed to 45 companies from 16 countries, with the top 20 companies found in eight different countries. Fortune magazine also developed a list of the most powerful women in the global economy, which profiled women from 21 different countries.16Bloomberg Businessweek has developed, among its many lists, the Global InfoTech 100, the world’s most important information technology firms, based on a composite ranking of shareholder return, return on equity, total revenues, and revenue growth.17 This list includes firms from 24 countries, large and small, developed and emerging. Bloomberg Businessweek has also developed a list of the 100 Best Global Brands, which includes firms from 13 countries, which is also based on a composite score— of marketing and financial data and expert evaluations.18 In addition, Bloomberg

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Businessweek has developed a list of the 50 most innovative companies,19 based on a global survey of executives plus stock returns and three-year revenue and margin growth. In the 2010 results, “fifteen of the top 50 are Asian—and for the first time since the rankings began in 2005, the majority in the top 25 are based outside the U.S.” A final example demonstrating the internationalization of business includes a ranking of the 100 best-performing CEOs in the world by the Harvard Business Review.20 In this ranking, 67 firms were from developed countries, six were from the Asian tigers, 22 were from the BRIC countries, and five were from new emerging market countries.

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

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

Exhibit 1.2: The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets)

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

These many surveys and rankings illustrate that the global economy increasingly involves all kinds of products and services from all kinds of organizations located in virtually every country in the world. This is radically different from the situation of even a few years ago, when only a few countries and a relatively few companies participated widely in the global economy. In addition, this internationalization is proceeding at an unanticipated and unprecedented rate. The opening of markets and the appearance of competitive foreign firms and their products in virtually

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every marketplace puts intense pressure on every enterprise to develop the capacity to operate at lower costs and with greater speed, quality, customer service, and innovation, both at home and abroad. As a consequence, HR is called upon to recruit, select, develop, and retain workforce talent that can achieve this global competitiveness in a world that is increasingly complex and challenging. IBM’s chairman, Samuel Palmisano, indicates that IBM’s survey of global CEOs shows that coping with this new world is seen as the most significant challenge they face (see IHRM in Action 1.2).21 And one of the most difficult components of that challenge is finding the employees and management that are needed, which is directly the responsibility of IHRM.

IHRM in Action 1.2: CEOs’ Perspectives on Globalization

Introductory letter from Samuel J. Palmisano, Chairman, President, and CEO of IBM

In a very short time, we’ve become aware of global climate change; of the geopolitical issues surrounding energy and water supplies; of the vulnerabilities of supply chains for food, medicine and even talent; and of sobering threats to global security.

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

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

It is this unprecedented level of interconnection and interdependency that underpins the most important findings contained in this report. Inside this revealing view into the agendas of global business and public sector leaders, three widely shared perspectives stand in relief:

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

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

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

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

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

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Different Settings of International Human Resource Management

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

Figure 1.1 Who Needs International Human Resource Management?

Headquarters of Multinationals

This setting involves working as an HRM professional in the central or regional headquarters of the traditional MNE. This setting receives most of the attention in research and literature about the internationalization of business and is, by far, the most common situation for HR managers who confront international responsibilities. The focus is from the center (headquarters) out to the subsidiaries and sub-contractors, developing and overseeing HRM practices in all foreign operations and administering the movement of employees between headquarters and foreign locations. Increasingly, the movement of employees is also between foreign subsidiaries and headquarters and between foreign locales—all often referred to generically as international assignees. It can also mean that HRM professionals are likely to find themselves working on international assignments. The case in at least some MNEs involves IHRM becoming a major strategic partner in the organization’s global planning and in talent management of the global workforce, relegating many of the international assignee responsibilities to centralized shared service centers, or outsourcing them to specialized service providers. Typically, headquarters either applies its parent company HRM policies

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and practices directly to its foreign subsidiaries, or it tries to merge its HRM policies and practices with those that are common in the host countries of their subsidiaries. However, it is common that a local HR manager will handle HR in the subsidiary, even if he or she is primarily responsible for implementing centralized (from headquarters) HRM policies and practices.

Home-country Subsidiaries of Foreign-owned Firms

The second common setting for IHR involves the HR manager working in his or her home country but being employed by a local subsidiary or acquisition of a foreign MNE. Now the HR manager is likely be on the receiving end of policy and practice coming from the foreign headquarters, reversing the role as experienced by the HR manager in the first situation. This HR manager will typically have to integrate a local national culture plus the foreign organizational culture into his or her local operations. This role has received little attention (except when a major legal or culture clash occurs), but is by no means uncommon in many countries. Examples of such situations would involve local HR managers working in the local subsidiaries or acquisitions of MNEs in places like Central Europe (auto companies, pharmaceutical companies, tobacco companies, telecommunications firms), India (software developers, call centers), China (manufacturing facilities, services), Africa (energy and extraction firms), and Latin America (commodity and natural resource firms, retail companies, banks), or even, maybe especially, HR managers working in the local subsidiaries of the large multinationals in Asia, Latin America, the US, and Europe, such as for Siemens, Walmart, Novartis, Johnson & Johnson, or IBM.

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

Domestic Firms

Although they may be overlooked, another important setting for IHRM is the purely domestic (local) firm, such as a hospital, farm, dry cleaners or laundry, ski or beachside resort, road or building construction contractor, or restaurant (or the purely domestic operation of an MNE, such as a local fast food or real estate franchise or a local petrol station). In many countries (particularly true in most

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locales in Europe and North America), these types of firms also confront many of the complexities of international business, particularly as they relate to IHRM. These complexities include:

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

■ having to deal with competition from foreign firms for customers and suppliers;

■ or for capital which may well come from foreign-owned firms, or competition from these firms for resources, including employees.

The hiring—or recruiting—of immigrants (or even the first generation since immigration) in local, domestic firms can lead to many of the same internationalization concerns as those faced by traditional MNEs, such as how to merge the cultures, languages, and general work expectations of employees from multiple countries, and how to respond to employees who bring to their new work situations sometimes very different languages and very different attitudes toward supervision and have very different expectations related to the practice of management and IHRM (such as performance management and compensation). Thus, even in the domestic firm, HR managers must develop much of the knowledge and experience necessary to succeed in an international environment.

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

Even though these domestic companies tend to be relatively small, increasingly they are what are referred to as “domestic multinationals.” These are successful, initially small, domestic companies—frequently in emerging markets—that are going abroad and becoming MNEs themselves. Examples of such firms include Pliva (generic pharmaceuticals, Croatia), Mittal (steel, India), Tata Consulting Services, Infosys, and Wipro (IT services, India), Lukoil (oil, Russia), Gazprom (oil and gas, Russia), Haier (home appliances, China), Mahindra & Mahindra (tractors and cars, India), Sadia (food and beverages, Brazil), Harry Ramsden’s Fish and Chips (UK), Embraer (aerospace, Brazil), Koc (diversified industries, Turkey),

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Cemex (building materials, Mexico), and Comex (paint manufacturer and retailer, Mexico) to name just a few. These companies have become global players in their respective industries and are demonstrating the potential of reaching the top ranks of global competitors.22

Government Agencies and Non-governmental Organizations

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

In addition, there are an increasing number of agencies that are global by purpose and function—such as the United Nations and all of its agencies,23 the World Bank, the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the Association of Southeast Asian Nations (ASEAN), and the EU with its large concentration of employees in Brussels, Strasbourg, and Luxembourg. Many IHRM responsibilities for these organizations are similar to those faced by their commercial counterparts. Indeed, many of them have experience with international operations over a longer period of time than is true for most firms and have accumulated much significant expertise on how to best handle international HRM challenges. Challenges associated with recruiting, compensating, and managing employees in multiple countries are not much different for the International Red Cross or the World Health Organization than they are for IBM. HR managers in these types of organizations must also be internationally savvy in order to effectively carry out their responsibilities, and they often have much experience from which they can teach their private sector counterparts.