Pushing the right buttons global talent management at kone corporation

INTERNATIONAL HUMAN RESOURCE MANAGEMENT PETER. J. DOWLING, MARION FESTING AND ALLEN D. ENGLE, SR.

SIXTH EDITION

INTERNATIONAL HUMAN RESOURCE MANAGEMENT SIXTH EDITION

PETER J. DOWLING MARION FESTING

ALLEN D. ENGLE, SR.

International Human Resource Management, 6th Edition

Peter J. Dowling, Marion Festing and Allen D. Engle, Sr.

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BRIEF CONTENTS

Preface viii Acknowledgements x About the Authors xii Walk-Through Tour xiv

Chapter 1 Introduction 1 Chapter 2 The Cultural Context of IHRM 22 Chapter 3 The Organizational Context 46 Chapter 4 IHRM in Cross-Border Mergers & Acquisitions, International Alliances and

SMEs 82 Chapter 5 Sourcing Human Resources for Global Markets – Staffing, Recruitment and

Selection 109 Chapter 6 International Performance Management 150 Chapter 7 International Training, Development and Careers 174 Chapter 8 International Compensation 215 Chapter 9 International Industrial Relations and The Global Institutional Context 241 Chapter 10 IHRM Trends and Future Challenges 268 Case 1 Spanning the Globe 282 Case 2 Quality Compliance at the Hawthorn Arms 287 Case 3 Wolfgang’s Balancing Act: Rewarding Healthcare Executives in a Dispersed

Yet Integrated Firm 289 Case 4 Strategic Forecasts and Staffing Formulation: Executive and Managerial

Planning for Bosch-Kazakhstan 298 Case 5 Local and International? Managing Complex Employment Expectations 305 Case 6 Expatriate Compensation at Robert Bosch GmbH: Coping With Modern

Mobility Challenges 312 Case 7 Balancing Values – An Indian Perspective on Corporate Values from

Scandinavia 319 Case 8 Just Another Move to China? The Impact of International Assignments on

Expatriate Families 328

Glossary 334

Index 342

iii

CONTENTS

Preface viii Acknowledgements x About the Authors xii Walk-Through Tour xiv

Chapter 1 Introduction 1

Chapter Objectives 1

Scope of the Book 2

Defining International HRM 2

Differences between Domestic and International HRM 4

Variables that Moderate Differences between Domestic and International HRM 8

The Cultural Environment 9

Industry Type 11

Extent of Reliance of the Multinational on its Home-Country Domestic Market 12

Attitudes of Senior Management to International Operations 14

Applying a Strategic View of IHRM 15

The Changing Context of IHRM 17

Summary 17

Discussion Questions 19

Further Reading 19

Notes and References 19

Chapter 2 The Cultural Context of IHRM 22

Chapter Objectives 22

Introduction 23

The Development of Cultures 38

Summary 39

Discussion Questions 40

Further Reading 40

Notes and References 40

iv

Chapter 3 The Organizational Context 46

Chapter Objectives 46

Introduction 47

Standardization and Localization of HRM Practices 48

Factors Driving Standardization 49

Factors Driving Localization 50

The Path to Global Status 56

Control Mechanisms 69

Summary 73

Discussion Questions 75

Further Reading 75

Notes and References 75

Chapter 4 IHRM in Cross-Border Mergers & Acquisitions, International Alliances and SMEs 82

Chapter Objectives 82

Cross-Border Alliances 83

Cross-Border Mergers and Acquisitions 84

International Equity Joint Ventures 91

International SMEs 95

Summary 100

Discussion Questions 101

Further Reading 101

Notes and References 101

Chapter 5 Sourcing Human Resources for Global Markets – Staffing, Recruitment and Selection 109

Chapter Objectives 109

Introduction 110

Approaches to Staffing 110

Transferring Staff for International Business Activities 116

The Roles of an Expatriate 119

The Roles of Non-Expatriates 122

The Roles of Inpatriates 123

Recruitment and Selection of International Managers 124

Expatriate Failure and Success 126

Selection Criteria 129

Expatriate Selection Processes in Practice 134

Dual Career Couples 137

Summary 140

Discussion Questions 142

Further Reading 142

Notes and References 142

Chapter 6 International Performance Management 150

Chapter Objectives 150

CONTENTS v

Introduction 151

Multinational Performance Management 152

Control and Performance Management 154

Performance Management of International Employees 155

Performance Appraisal of International Employees 162

Summary 168

Discussion Questions 170

Further Reading 170

Notes and References 170

Chapter 7 International Training, Development and Careers 174

Chapter Objectives 174

Introduction 175

Components of Effective Pre-Departure Training Programs 177

The Effectiveness of Pre-Departure Training 185

Developing Staff Through International Assignments 186

Trends in International Training and Development 189

Re-Entry and Career Issues 189

The Repatriation Process 191

Individual Reactions to Re-Entry 194

Responses by the MNE 199

Designing a Repatriation Program 205

Summary 207

Discussion Questions 209

Further Reading 209

Notes and References 209

Chapter 8 International Compensation 215

Chapter Objectives 215

Introduction 216

Key Components of an International Compensation Program for Expatriates 217

Approaches to International Compensation of Expatriates 221

Tentative Conclusions: Patterns in Complexity, Challenges and Choices 232

Summary 235

Discussion Questions 236

Further Reading 236

Notes and References 236

Chapter 9 International Industrial Relations and the Global Institutional Context 241

Chapter Objectives 241

Introduction 242

Key Issues in International Industrial Relations 243

Trade Unions and International Industrial Relations 246

The Response of Trade Unions to MNEs 248

Regional Integration: The European Union (EU) 251

Codes of Conduct – Monitoring HRM Practices Around the World 252

vi CONTENTS

Managing Human Resources in ‘Offshoring Countries’ 253

Summary 259

Discussion Questions 261

Further Reading 261

Notes and References 261

Chapter 10 IHRM Trends and Future Challenges 268

Chapter Objectives 268

Introduction 269

Summary and Concluding Remarks 277

Discussion Questions 279

Further Reading 279

Notes and References 279

Case 1 Spanning the Globe 282

Case 2 Quality Compliance at the Hawthorn Arms 287

Case 3 Wolfgang’s Balancing Act: Rewarding Healthcare Executives in a Dispersed Yet Integrated Firm 289

Case 4 Strategic Forecasts and Staffing Formulation: Executive and Managerial Planning for Bosch-Kazakhstan 298

Case 5 Local and International? Managing Complex Employment Expectations 305

Case 6 Expatriate Compensation at Robert Bosch GmbH: Coping With Modern Mobility Challenges 312

Case 7 Balancing Values – An Indian Perspective on Corporate Values from Scandinavia 319

Case 8 Just Another Move to China? The Impact of International Assignments on Expatriate Families 328

Glossary 334

Index 342

CONTENTS vii

PREFACE

According to the 2012 World Investment Report issued by the United Nations the foreign affiliates of MNEs employed an estimated 69 million workers, who generated $28 trillion in sales and $7 trillion in value-added, some 9% up from 2010. In 1990, when the first edition of this textbook was published, a total of 24 million workers were employed. This is merely one of many metrics that demonstrate the extent of the globalization of business. With this increase in scale, the role of human resource management in sus- taining this increase in international business activity is a central theme of this Sixth Edition of our text- book. In writing this new edition we have responded to feedback from users of previous editions and reorganized the format for the Sixth Edition into 10 chapters instead of 12 chapters. In carefully revising and updating the chapter Endnotes for this new edition we have been very careful to avoid the common trap of multiple editions – simply piling on more and more endnotes and leaving the reader to wade through the growing lists. By carefully culling Endnotes and the Further Reading sections at the end of each chapter our intention is to provide a reader just being introduced to the fascinating topic of HRM in a mul- tinational context with a reasonable set of critical references as a starting point for their studies. At the same time, our more advanced readers will be able to evaluate our assessment of the most recent significant cita- tions along with what we consider ‘classic’ empirical or conceptual articles and books.

The more significant changes to the Sixth Edition include the following:

l In response to feedback from teaching and professional colleagues, we have included a new chapter (Chapter 2) on The Cultural Context of IHRM. We decided to place this new chapter early in the book so that we now cover Culture in Chapter 2 and the Organizational Context in Chapter 3.

l Chapter 4 is now titled IHRM in Cross-Border Mergers & Acquisitions, International Alliances and SMEs to provide specific contextual information on these important developments in international management.

l Chapter 6 International Performance Management has been moved from later in the book to earlier to better reflect the importance of Performance Management in the IHRM process.

l Chapter 7 International Training, Development and Careers has been moved from later in the book to earlier to better fit with Chapter 6. The important issue of career planning has also been moved to this chapter to better fit with contemporary IHR practice to link career development more systematically with training and development.

l Chapter 9 International Industrial Relations and the Global Institutional Context has been extensively revised and updated and replaces two (Chapters 9 and 10) in the previous edition.

Several of the IHRM in Action cases embedded throughout the chapters have been replaced or significantly updated. These changes will help students grasp the principles and models in the chapter and better apply these ideas to a range of settings or contexts. The eight in-depth cases at the end of the text have been writ- ten by the co-authors or solicited from global experts to provide a range of in-depth applications for all of the major functional areas of IHRM. Extensive teaching notes are provided for adopters of the text. Long time users of the text will find a more systematic and extensive set of cases, but hopefully our loyal adopters will still find some of their favorite cases remain as well. Our feedback on these end-of-text cases was out- standingly positive in the fifth Edition and we feel this new edition builds on that strength.

viii

As in previous editions, the challenge of this Sixth Edition has been to organize the complexities particu- lar to HRM activities in MNEs in such a way that provides teachers (of both undergraduate and graduate students) real choice as to how they will present the material. We have tried to find a balance that is mean- ingful and appropriate to the varying cultures represented by potential adopters and readers, and across educational traditions, institutions and forms, while accurately capturing the compelling realities facing HRM professionals in MNEs. As always, we welcome your comments and suggestions for improvement in this task.

The author team remains an excellent example of collaborative work (across a significant number of time zones) in the 21st century with tri-continental representation from the Asia Pacific, Europe and North America.

PREFACE ix

ACKNOWLEDGEMENTS

First we would like to thank the scores of academics and practitioners who have come up to us at conferen- ces and workshops, as well as communications by emails sent over the last four years, sharing with us their comments and suggestions. Many of the improvements to this new edition of the book outlined above are the direct result of these conversations. The tricky task of balancing the need for continuity and meeting expectations for an enduring and highly successful title with the need to update and revise materials in what is still a very young and dynamic academic area of study is made easier by the support of our peers and colleagues around the world. We thank you for your patience, ongoing interest in and commitment to our book.

As with previous editions, we have received a great deal of assistance from numerous colleagues in vari- ous educational institutions and organizations across the globe. Particular thanks go to the following col- leagues for their assistance with this edition of the book:

Ruth Alas; Estonian Business School

John Boudreau; University of Southern California

Helen De Cieri; Monash University

Barry Gerhart; University of Wisconsin-Madison

Wolfgang Mayrhofer; Vienna University of Economics and Business

Mark Mendenhall; University of Tennessee-Chattanooga

Molly Pepper; Gonzaga University

József Poór; Szent István University Gödöllö, Hungary

Susanne Royer; University of Flensburg

Hugh Scullion; National University of Ireland, Galway

Günter Stahl; Vienna University of Economics and Business

Shuming Zhao; Nanjing University

Cherrie Zhu; Monash University

Particular thanks go to Maike Andresen, Manfred Froehlecke, Martine Cardel Gertsen, Yvonne McNulty, Ihar Sahakiants and Mette Zølner for their case contributions.

x

We also gratefully acknowledge the support of the following institutions:

LA TROBE UNIVERSITY

Peter Dowling thanks Leigh Drake, Executive Dean of the Faculty of Business, Economics and Law at La Trobe University, Tim Majoribanks, Head of the Department of Management and his colleagues in the HRM and International Business group for providing a supportive environment for writing and research.

ESCP EUROPE, BERLIN CAMPUS

Marion Festing thanks the Dean of ESCP-Europe, Professor Pascal Morand and her colleagues for provid- ing a supportive environment for writing and research. Special thanks go to the team of the Chair of Human Resource Management and Intercultural Leadership for outstanding support.

EASTERN KENTUCKY UNIVERSITY

Allen Engle thanks the EKU Foundation Board as well as Robert Rogow, Dean of the College of Business and Technology for their ongoing financial support of research and travel. He would also like to acknowl- edge the longstanding technical and creative help of Ron Yoder and Florencia Tosiani.

The assistance from staff at Cengage Learning UK has been greatly appreciated. In particular, we thank our Publishing Editor, Andrew Ashwin, for his ongoing assistance and advice with this edition and Charlotte Green for her work on the production of the book.

The Publisher would like to thank the following academics who supplied feedback on the original pro- posal and during the writing process:

Elaine Farndale; Tilburg University

Rosmini Omar; University Teknologi Malaysia

Nancy Long; San Jose State University

Peter Mclean; University of Wollongong NSW

Jay Leighton; Curtin University of Technology

Anne-Marie Francesco; Hong Kong Baptist University

Alan Burton-Jones; Bond University

Finally, our personal thanks to the following individuals for their understanding, support and encourage- ment throughout the process of completing this Sixth Edition:

Fiona Dowling

Christian Daubenspeck, Janik and Annika

Fred and Mary Engle, and Elizabeth Hoffman Engle

Peter J. Dowling, Melbourne

Marion Festing, Berlin

Allen D. Engle, Sr, Richmond, Kentucky

ACKNOWLEDGEMENTS xi

ABOUT THE AUTHORS

PETER J. DOWLING (PhD, The Flinders University of South Australia) is Professor of International Management & Strategy at La Trobe University, Mel- bourne, Australia. Previous academic appointments include The University of Melbourne, Monash University, the Uni- versity of Tasmania and Victoria University of Wellington. He has also held visiting appointments in the United States at Cor- nell University and Michigan State Univer- sity and in Germany at the University of Paderborn and the University of Bayreuth. He has co-authored a number of books

including Strategic Management: Competitiveness and Globalization (Pacific Rim 3rd Ed.) and Human Resource Management in Australia (2nd Ed) and written or co-authored over 70 journal articles and book chapters. He serves on the editorial boards of International Journal of Human Resource Management, Journal of World Business, Management International Review, Journal of International Management, Thunderbird International Business Review, Asia Pacific Journal of Human Resources and ZfP-German Journal of Research in Human Resource Management Research.

Peter is currently President of the Australia & New Zealand International Business Academy, a Life Fel- low of the Australian Human Resources Institute and a Fellow of the Australian & New Zealand Academy of Management. Former roles include past President of the Australian & New Zealand Academy of Man- agement, past President of the International Federation of Scholarly Associations of Management and Founding Editor of Asia Pacific Journal of Human Resources.

MARION FESTING (PhD, University of Paderborn) is Professor of Human Resource Management and Intercultural Leadership at ESCP Europe and Rector of the Berlin Campus of this business school. Pre- vious appointments include the University of Paderborn, Germany. Marion has gained educational, research and work experience in France, Australia, Tunisia, Taiwan and the USA. She has co-authored and edited a number of books including a monograph on Strategic International Human Resource Management (Strategisches Internationales Personalmanagement – Second Edition) and a co-authored text on Interna- tional Human Resource Management (Internationales Personalmanagement – Third Edition). Marion has also written or co-authored over 90 book chapters and journal articles and published in international jour- nals such as Academy of Management Perspectives, Human Resource Management Review, Thunderbird International Business Review, Economic and Industrial Demography, European Management Journal, European Journal of International Management, Journal for East European Management Studies and International Journal of Globalization and Small Business.

xii

Marion is the Co-Editor of ZfP-German Journal of Research in Human Resource Management and serves on the editorial boards of International Journal of Human Resource Management, Career Development International, International Journal of Globalization and Small Business and Zeitschrift für Management. She was co-organizer of the sixth conference on International Human Resource Management in Paderborn in 1998, and co-chair of the various IHRM tracks at the International Federation of Scholarly Associations of Management (IFSAM) conferences including in Limerick in 2012. Her current research interests focus on transnational HRM strategies, global performance management, global careers and global compensation.

ALLEN D. ENGLE, SR. (DBA, University of Kentucky) is a Professor of Management in the College of Business and Technology at Eastern Kentucky University. He is a national and regional profes- sional member of World at Work (formerly the American Compensation Association) and of the Society for Human Resource Management and a long time member of the US Academy of Management. While at Eastern, he has taught courses in management (undergraduate and graduate), a number of areas within human resource administration, organizational behavior, organizational theory and international manage- ment (undergraduate and graduate). Allen holds a three-year appointment as Visiting Professor at ESCP- Europe in Berlin. He has been Visiting Lecturer at the FHS ! Hochschule Für Technik, Wirtschaft und Soziale Arbeit, St Gallen in Switzerland and Visiting Professor of International Management at the Univer- sity of Pécs in Hungary.

His research interests are in the topic areas of compensation theory and practices, global performance management, leadership and organizational change, job analysis, managerial competencies and organiza- tional design, particularly as they impact on multinational firms. He has published in regional, national and international academic journals, presenting academic papers on many of the topic areas presented above at conferences in the USA, Australia, Canada, Estonia, France, Germany, Hungary, Ireland, Italy, Slovenia, Spain and the United Kingdom. Allen has consulted for regional firms and presented professional seminars in the areas of performance appraisal systems, executive team building, strategically responsive compensation systems, intercultural management issues and organizational change.

ABOUT THE AUTHORS xiii

WALK THROUGH TOUR

Mode of operation abroad When addressing the mode of operation, it is helpful to examine this from the level of the local affiliate. Thus, we turn to firm-endogenous factors to determine the balance between global standardization and localization. Later in the chapter we will discuss the various modes of for- eign operations and their associated HRM practices. A study by Buckley et al.36 provides two examples of how the mode of operation either inhibits or facilitates work standardization. In late 1978, the Chinese government announced an open-door policy and commenced economic reforms aimed at moving the country from a centrally planned to a market economy. Western firms that entered China early were more or less forced to enter into joint ventures with state- owned enterprises (SOEs), whereas those entering later have been able to establish wholly owned subsidiaries (WOSs).

One case in the Buckley et al. study is Shanghai Bell – a joint venture formed in 1983 between a Belgian telecommunications firm (now Alcatel Bell), the Belgian government and the Chinese Postal and Telecommunications Industries Corporation (PTIC). There was a gradual transfer of relevant technology by the Belgian firm, with a long-term reliance on Belgian expatriates. The Belgian firm had limited control over the Chinese employees in the joint venture and was con- strained by its partner’s expectations and differing goals.

The second case researched was much different. The US telecommunications firm, Motorola, established a wholly owned operation in Tianjin, China, in 1992. Changing conditions in China meant that Motorola could effectively build a ‘transplant factory’: importing production equip- ment, organizational processes and practices from either the parent or other subsidiaries in its global network. This enabled Motorola to integrate the Chinese operation into the broader cor- porate network and to localize management. These have been supported by HRM initiatives such as a special management training program (China Accelerated Management Program – CAMP)37, English language training and transfer of Chinese employees into the US operations.

TABLE 3.1 Examples of the impact of the cultural and institutional context on HRM practices

HRM practices Impact of the institutional context

Recruitment and selection Education system The reputation of educational institutions such as public and private uni- versities varies in different countries. This is reflected in the recruiting processes (i.e., HR marketing) and selection criteria of the firms in those countries.

Training and development Education system Education systems differ between different countries (existence of a dual vocational training system, quality and reputation of higher education institutions). This has an effect on the training needs perceived and ful- filled by MNEs.

Compensation Legislation and industrial relations Legislation such as the regulation of minimum wages or respective union agreements with respect to compensation have an impact on the firm’s compensation choices with Respect to pay mix and pay level.

Task distribution Legislation and norms Legislations and respective norms Support gender-based division of labor to a differing extent in different countries. While in some countries the percentage of female managers is relatively high, in other countries it is not common that women work at all.

54 CHAPTER 3 THE ORGANIZATIONAL CONTEXT

Tables help to order significant data and trends.

CHAPTER 1 INTRODUCTION

Chapter Objectives

In this introductory chapter, we establish the scope of the book. We:

l Define key terms in international human resource management (IHRM) and consider several definitions of IHRM.

l Introduce the historically significant issue of expatriate assignment management and review the evolution of these assignments to reflect the increasing diversity with regard to what constitutes international work and the type and length of international assignments.

l Outline the differences between domestic and international human resource management, and detail a model that summarizes the variables that moderate these differences.

l Present the complexity of IHRM, the increasing potential for challenges to existing IHRM practices and current models, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detailed diffusion of these practices across organizational units and firms.

1

Chapter Objectives appear at the start of every chapter and help you monitor your understanding and progress through the chapter.

THE CULTURAL ENVIRONMENT

In Chapter 2, The Cultural Context of IHRM, we cover the concept of culture in considerable detail, so our comments in this introductory chapter are necessarily brief. There are many defini- tions of culture, but the term is usually used to describe a shaping process over time. This proc- ess generates relative stability, reflecting a shared knowledge structure that attenuates (i.e. reduces) variability in values, behavioral norms and patterns of behaviour.18 An important characteristic of culture is that it is so subtle a process that one is not always conscious of its relationship to values, attitudes and behaviours. One usually has to be confronted with a differ- ent culture in order to fully appreciate this effect. Anyone traveling abroad, either as a tourist or on business, experiences situations that demonstrate cultural differences in language, food, dress, hygiene and attitude to time. While the traveller can perceive these differences as novel, even enjoyable, for people required to live and work in a new country, such differences can prove difficult. They may experience culture shock – a phenomenon experienced by people who move across cultures. The new environment requires many adjustments in a relatively short period of time, challenging people’s frames of reference to such an extent that their sense of self, especially in terms of nationality, comes into question. People, in effect, experience a shock reaction to new cultural experiences that cause psychological disorientation because they mis- understand or do not recognize important cues. Culture shock can lead to negative feelings about the host country and its people and a longing to return home.19

Because international business involves the interaction and movement of people across national boundaries, an appreciation of cultural differences and when these differences are im- portant is essential. Research into these aspects has assisted in furthering our understanding of the cultural environment as an important variable that moderates differences between domestic and international HRM. However, while cross-cultural and comparative research attempts to explore and explain similarities and differences, there are problems associated with such research. A major problem is that there is little agreement on either an exact definition of culture or on the operationalization of this concept. For many researchers, culture has become an

FIGURE 1.3 A model of the variables that moderate differences between domestic and international HRM

Complexity involved in operating in different

countries and employing different national

categories of employees

Attitudes of senior management

Extent of reliance of the multinational on

its home-country domestic market

The industry (or industries) within

which the multinational is primarily involved

The cultural environment

Domestic and international

activities of the HRM function

Source: P. J. Dowling, ‘Completing the Puzzle: Issues in the Development of the Field of International Human Resource Management’, (mir)Management International Review, Special Issue No. 3/99 (1999), p. 31. Reproduced with kind permission from VS Verlag Für Sozialwissenschaften.

CHAPTER 1 INTRODUCTION 9

Figures give a visual representation of key concepts or data.

In principle, performance appraisal systems are designed carefully and often presumed to be static. Valid reasons exist for maintaining standard, traditionally used appraisals (e.g., when the system has been tested, has identified baselines, and reduces future development costs). These reasons are valid as long as the context of the performance does not change. In the expatriate setting, however, the performance context does change, and sometimes it changes dramatically. Given a global context, previous testing and established baselines grounded in domestic situations can become meaningless.

IHRM in Action Case 6.1 A rainy expatriate performance appraisal

Richard Hoffman, a Québécois Chemical Engineer working for a Canadian-based energy firm, was given a three-year ex-

patriate assignment in Venezuela as a technical liaison and environmental protection project manager. His local project

supervisor was Jean, a French engineer who had lived in French Guiana and then Venezuela for over 20 years. Richard

thought that as a Francophone from Quebec, he and Jean would be able to build a quick working relationship. Rich sent

Jean an early email (in French, and not the usual corporate English) containing what he thought of as the five most signifi-

cant goals associated with his assignment – similar to the management by objectives section of the more or less standard

performance appraisal forms he had filled out for years during earlier assignments in Edmonton, Toronto and at corporate

headquarters in Montreal. After several months with no response from Jean, Richard caught Jean in the hallway between

meetings and asked him about the email and his progress to date. ‘Don’t worry about that’, Jean responded blandly, ‘Just

keep working to the deadlines and I will check with your co-workers and the other project managers on your work. Where

did you go to engineering school by the way?’

Richard waited another six months and was becoming increasingly anxious as the firm’s annual review week

approached. He finally caught up with Jean on a rainy Friday in the lobby of the office building as they both waited for their

drivers to arrive. When asked about the upcoming performance review, Jean snorted and said. ‘C’est tout fini, it’s all been

taken care of. Make an appointment with my assistant Louisa next week and we can go over the report we have sent to

Montreal’. As Jean stepped gingerly into the rainy Caracas parking lot, Richard thought back to the last few weeks with his

team, the sometimes loud disagreements with his fellow project managers, and wondered if it was too late in the day to

call his old supervisor in Toronto.

Source: Based on the synthesis of a series of expatriate experiences

170 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT

IHRM in Action cases provide real-life examples of the concepts and issues covered in the chapter.

xiv

managing international operations.50 These elements are well-established as important factors for HRM in MNEs, as is the factor Organizational culture which is defined by Kidger as the ‘sense of common identify and purpose across the whole organization’,51 (page 81) and is the final organizational factor included in the framework. For MNEs seeking a high level of global integration, this factor may facilitate the development of a global mindset and enhance firm performance.52 Overall, the model offered by De Cieri and Dowling aims to assist in the cross- fertilization of ideas to further develop theory and empirical research in strategic HRM in multinational firms.

THE CHANGING CONTEXT OF IHRM

As Figures 1.3 and 1.4 show, international firms compete in an increasingly complex environ- ment where the level of challenge of doing business can be highly variable. Internationalizing firms rely on having the right people to manage and operate their businesses and good IHRM practices that are appropriate to the context in which they occur. This combination of appropri- ate people and HR practices has been a constant critical success factor in international business ventures. For example, the following quotation is taken from a detailed case study of a large US multinational, where the authors, Desatnick and Bennett53 concluded:

The primary causes of failure in multinational ventures stem from a lack of understanding of the essen- tial differences in managing human resources, at all levels, in foreign environments. Certain manage- ment philosophies and techniques have proved successful in the domestic environment: their application in a foreign environment too often leads to frustration, failure and underachievement. These ‘human’ considerations are as important as the financial and marketing criteria upon which so many decisions to undertake multinational ventures depend.

This study was reported in 1978 but many international managers today would concur with the sentiments expressed in this quote. In this book we attempt to demonstrate some ways in which an appreciation of the international dimensions of HRM can assist in this process.

SUMMARY

The purpose of this chapter has been to provide an overview of the emerging field of interna- tional HRM. We did this by:

l Defining key terms in IHRM and considering several definitions of IHRM.

l Introducing the historically significant issue of expatriate assignment management and reviewing the evolution of these assignments to reflect the increasing diversity with regard to what constitutes international work and the type and length of international assignments.

l Outlining the differences between domestic and international human resource management by looking at six factors which differentiate international and domestic HR (more HR activities; the need for a broader perspective; more involvement in employees’ personal lives; changes in emphasis as the workforce mix of expatriates and locals varies; risk exposure; and more external influences) and detailing a model which summarizes the variables that moderate these differences.

l Presenting the complexity of IHRM, the increasing potential for challenges to existing IHRM practices and current models, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detailed diffusion of these practices across organizational units and firms.

CHAPTER 1 INTRODUCTION 17

Summary boxes at the end of each chapter provide a thorough re-cap of key issues and help you assess your understanding of key content.

DISCUSSION QUESTIONS

1 In the section on the volatility of the global environment, several world events were listed that have had profound implications for the global and local strategies of MNEs. Select a recent world event, identify the specific HR implications that may arise from this, and devise policies as to how these may be handled.

2 Discuss the major factors associated with appraisal of expatriate managerial performance.

3 One of the dangers of performance appraisal is that, because the focus is so much on a particular

individual, the teamwork aspect gets lost. In an international location, it is perhaps desirable to focus more on how the PCN has settled in and is operating as part of a team rather than as an individual.

4 Why is it important to include hard, soft and contextual goals when assessing managerial performance?

5 In what ways would the role of a manager working in a non-standard international assignment arrangement differ from that of a typical expatriate manager?

FURTHER READING Fey, C., Morgulis, Y., Park. S., Hyeon, J. and Bjorkman, I. (2009)

‘Opening the black box of the relationship between HRM practices and firm performance: A comparison of MNE subsidiaries in the USA, Finland and Russia. Journal of International Business Studies 40: 690–712.

Cascio, W. (2006) ‘Global Performance Management Systems’, in G. Stahl and I. Björkman (eds), Handbook of Research in International Human Resource Management, Cheltenham: Edward Elgar, pp. 176–96.

Engle, A., Dowling, P. and Festing, M. (2008) ‘State of Origin: Research in Global Performance Management, a Proposed Research Domain and Emerging Implications’, European Journal of International Management, 2 (2):153–69.

Milliman, J., Nason, S., Zhu, C. and De Cieri, H. (2002) An Exploratory Assessment of the Purposes of Performance Appraisals in North and Central America and the Pacific Rim’, Asia Pacific Journal of Human Resources, 40(1): 105–22.

Shay, J. P. and Baack, S. A. (2004) ‘Expatriate Assignment, Adjustment and Effectiveness: An Empirical Examination of the Big Picture’, Journal of International Business Studies, 35: 216–32.

Shih, H., Chiang, Y. and Kim, I. (2005) ‘Expatriate Performance Management from MNEs of Different National Origins’, International Journal of Manpower, 26(2): 157–76.

NOTES AND REFERENCES

1. Excellent overviews of research in this area are provided by P. Caligiuri, ‘Performance Measurement in a Cross–cultural Context’, in W. Bennett, C. Launce and J. Woehr (eds), Performance Management: Current Perspectives and Future Challenges (Mahwah, NJ: Lawrence Erlbaum Associates, 2006), pp. 227–44; and W. Cascio, ‘Global Performance Management Systems’, in G. Stahl and I. Björkman (eds),

Handbook of Research in International Human Resource Management (Cheltenham: Edward Elgar, 2006), pp. 176–96.

2. Cascio, ‘Global Performance Management Systems’, p. 193.

3. C.A. Bartlett and S. Ghoshal, ‘Managing Across Borders: New Strategic Requirements’, Sloan Management Review (Summer, 1987), pp. 7–17.

CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 175

Discussion Questions are provided at the end of each chapter and are designed to give a platform for classroom discussion.

CASE 2

QUALITY COMPLIANCE AT THE HAWTHORN ARMS

By Allen D. Engle, Sr.

Sitting in his room at the Hawthorn Arms Hotel in Shannon, Ireland, waiting for a morning flight to Lon- don and then on to Marseilles, Alistair Mackay reflects on how uninspiring hotel rooms are. He had just com- pleted a series of meetings with Irish officials in Limer- ick, concluding with a debriefing session over a Guinness with his Irish colleagues to plan their next move. Negotiations over a potential contract were pro- ceeding well but there would be labour implications that would require a formal response. Consequently, Alistair had missed the last evening flight out to Lon- don. ‘Another night away from the family. Thank good- ness I am not missing our wedding anniversary tomorrow. I must remember to find something really special in the duty-free shop’.

Six months ago, Alistair was appointed Director of Personnel Development, European Division, for Tria- non, an Anglo-French avionics firm. Trianon had begun as a subcontractor for the Concorde, and grad- ually had gained a reputation in the 1970s and 1980s as a high quality, if sometimes undependable subcon- tractor for major French and British aerospace defence contractors. Attempts to expand into civilian markets by gaining contracts for the original European Airbus were unsuccessful, though today nearly 30 per cent of Trianon’s sales are through civilian contracts. Now, under new executive management, Trianon is focused on major navigational display contracts for the next generation of Airbus production. Prior to joining Tria- non, Alistair had worked in the legal department of a Scottish bank. European Union employment require- ments had become his speciality, and provided a springboard into his current position.

His cell phone rings, and he receives an unex- pected call from his colleague Henri Genadry, General Director of Joint Ventures, Mergers and Acquisitions, Display Division. Henri informs him that the expected outright purchase of a scanner-cathode ray tube pro- duction facility in Veceses, outside of Budapest, Hun- gary was not going ahead. Instead, the decision had been made at corporate headquarters in Marseilles for

a ten-year joint venture with a Hungarian government backed firm.

Henri goes on to explain that the Hungarian control and equity interests in this project are expected to make ministry officials in Budapest happy. Henri was hopeful the decision will make executives and adminis- trators at Malev, the state supported airline, friendly to Trianon in the long term. ‘We will now need a ‘‘Quality Compliance Manager’’ for a three year assignment in Hungary. It is an important position as we will need to keep tight control on this joint venture operation. There will be some travel to France and Germany – at least in the first year – until we see how things are working out with these new partners’.

Alistair asks, ‘When do you expect this ‘‘Quality Compliance’’ manager to be available?’ There is a pause on the other end of the line after which Henri blandly responds, ‘Five or six weeks if we are to meet corporate timetables. We expect the person to be in on the ground so to speak. We will need a realistic assessment of current processes for a start. The per- son will need to be familiar with the joint venture’s objectives and targets. We have some details through the due diligence process but skills audits were some- what rushed’. Alistair then asks that details, including a job description, be emailed to his intranet address.

‘Well’ Henry admits, ‘this is out first joint venture the firm has been involved in outside of the UK, Ger- many or France. The job description will be very pre- cise on the technical-‘‘quality’’ side, but vague on the administrative – ‘‘compliance’’ side. You may need to fill in the missing pieces as you see fit’.

After a few more minutes of general chatting, Henri finishes the phone call. Alistair plugs his laptop into the telephone port on his room’s desk, and after a few false starts, logs on to the secure corporate web site and accesses three personnel files from a folder he had prepared some weeks ago in expectation that he would be asked for a decision. Of course, he had expected the position to be that of Project Engineer in an operation that the firm would have 100 per cent

Longer Cases provide a detailed example of real-life Human Resource situations. Some cases are accompanied by figures, tables and notes.

DISCUSSION QUESTIONS

1 What is your view of international initiatives to criminalize foreign bribery?

2 Identify a number of HRM problems that typically arise with expatriate assignments. In what ways might the core ethical values and guidelines identified in this chapter apply to them?

3 Beyond checklists and systemic analysis, what actions can MNEs take to reduce risks related to terrorism? What roles can HRM take in these processes?

4 What IHRM activities would be pertinent to the sending, by Médecins Sans Frontieres, of a medical team into a country such as Bangladesh?

FURTHER READING Burke, R. and Coopers, C. (eds.) (2008) International Terrorism

and Threats to Security: Managerial and Organizational Challenges. Cheltenham, U.K.: Edward Elgar Publishing.

Cross Cultural Management: An International Journal Special Issue (2011) Theme: ‘Expatriation – Old Issues, New Insights’. Volume 18, (2). Guest Editors: Jan Selmer and Vesa Suutari.

Fortanier, F., Kolk, A. and Pinkse, J. (2011) Harmonization in CSR Reporting: MNEs and Global CSR Standards. Management International Review, 51 (5): 665–696.

Lundby, K. and Jolton, J. (2010) (Eds), Going Global: Practical Applications and Recommendations for HR and OD

Professionals in the Global Workspace (San Francisco, USA: Jossey-Bass, 2010).

Morris, S.S., Wright, P.M., Trevor, J., Stiles, P., Stahl, G.K., Snell, S., Paauwe, J., and Farndale, E. (2009) Global Challenges to Replicating HR: The Role of People, Processes, and Systems. Human Resource Management, 48(6), 973–995.

Wernick, D. and Von Glinow, M. (forthcoming). Reflections on the Evolving Terrorist Threat to Luxury Hotels: A Case Study on Marriott International. Thunderbird International Business Review.

NOTES AND REFERENCES

1. See T. Jackson, International HRM: A Cross-cultural Approach, Chapter 5, ‘The Motivating Organization: The Japanese Model’ (London: Sage Publications, 2002), pp. 107–26; E. Ikegami, The Taming of the Samurai: Honorific Individualism and the Making of Modern Japan (Cambridge, MA: Harvard University Press, 1995); and J. Abegglen and G. Stalk, Kaisha: The Japanese Corporation (New York: Basic Books, 1985).

2. See http://www.oecd.org/department/ 0,3355,en_2649_34855_1_1_1_1_1,00.html for a comprehensive list of resources offered by the OECD on bribery in international business.

3. L. Carson, ‘Bribery Extortion, and the Foreign Corrupt Practices Act’, Philosophy and Public Affairs (1984)

pp. 66–90. See also http://www.justice.gov/criminal/fraud/ fcpa/ for up-to-date information on the FCPA. For a recent review of ethics programs as a training topic and the potential responsibilities of IHRM staff in creating and maintaining such programs, see A. Vadera and R. Aguilera, ‘The Role of IHRM in the Formulation and Implementation of Ethics Programs in Multinational Enterprises’ in P. Sparrow (ed.) Handbook of International Human Resource Management (Chichester, U.K.: John Wiley and Sons, 2009) pp. 413–438.

4. W. Bottiglieri, M. Marder and E. Paderon, ‘The Foreign Corrupt Practices Act: Disclosure Requirements and Management Integrity’, SAM Advanced Journal,Winter (1991), pp. 21–7.

290 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES

Further Reading and Notes and References allow you to explore the subject further and act as a starting point for projects and assignments.

xv

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xvi

CHAPTER 1 INTRODUCTION

Chapter Objectives

In this introductory chapter, we establish the scope of the book. We:

l Define key terms in international human resource management (IHRM) and consider several definitions of IHRM.

l Introduce the historically significant issue of expatriate assignment management and review the evolution of these assignments to reflect the increasing diversity with regard to what constitutes international work and the type and length of international assignments.

l Outline the differences between domestic and international human resource management (HRM), and detail a model that summarizes the variables that moderate these differences.

l Present the complexity of IHRM, the increasing potential for challenges to existing IHRM practices and current models, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detailed diffusion of these practices across organizational units and firms.

1

SCOPE OF THE BOOK

The field of international HRM has been characterized by three broad approaches.1 The first2

emphasizes cross-cultural management: examining human behavior within organizations from an international perspective. A second approach developed from the comparative industrial relations and HRM literature3 and seeks to describe, compare and analyze HRM systems in var- ious countries. A third approach seeks to focus on aspects of HRM in multinational firms.4

These approaches are depicted in Figure 1.1. In this book, we take the third approach. Our objective is to explore the implications that the process of internationalization has for the activ- ities and policies of HRM. In particular, we are interested in how HRM is practiced in multina- tional enterprises (MNEs).

As Figure 1.1 demonstrates, there is an inevitable overlap between the three approaches when one is attempting to provide an accurate view of the global realities of operating in the international business environment. Obviously, cross-cultural management issues are impor- tant when dealing with the cultural aspects of foreign operations. Some of these aspects will be taken up in Chapter 2 where we deal with the cultural context of HRM in the host country context – indicated by (a) in Figure 1.1. Chapter 9 deals with international industrial relations and the global institutional context and draws on literature from the comparative IR field – (b) in the above figure. While the focus of much of this book is on the established MNE – a firm which owns or controls business activities in more than one foreign country – we recog- nize that small, internationalizing firms which are yet to reach multinational firm status, and family-owned firms, also face international HRM issues and many of these issues are addressed in Chapter 4.

DEFINING INTERNATIONAL HRM

Before we can offer a definition of international HRM, we should first define the general field of HRM. Typically, HRM refers to those activities undertaken by an organization to effectively utilize its human resources. These activities would include at least the following:

1 Human resource planning.

2 Staffing (recruitment, selection, placement).

3 Performance management.

4 Training and development.

5 Compensation (remuneration) and benefits.

6 Industrial relations.

FIGURE 1.1 Inter-relationships between approaches to the field

IHRM in the multinational

context

Cross-cultural management

Comparative HR and IR systems

a b

2 CHAPTER 1 INTRODUCTION

The question is of course which activities change when HRM goes international? A model devel- oped by Morgan5 is helpful in terms of answering this question. He presents IHRM on three dimensions:

1 The broad human resource activities of procurement, allocation and utilization. (These three broad activities can be easily expanded into the six HR activities listed above.)

2 The national or country categories involved in international HRM activities:

l the host-country where a subsidiary may be located;

l the parent-country where the firm is headquartered; and

l ‘other’ countries that may be the source of labor, finance and other inputs.

3 The three categories of employees of an international firm:

l host-country nationals (HCNs);

l parent-country nationals (PCNs); and

l third-country nationals (TCNs).

Thus, for example, the US multinational IBM employs British citizens in its British operations (HCNs), often sends US citizens (PCNs) to Asia-Pacific countries on assignment, and may send some of its Singaporean employees on an assignment to its Chinese operations (as TCNs). The nationality of the employee is a major factor in determining the person’s ‘category’, which in turn is frequently a major driver of the employee’s compensation and employment contract.

Morgan defines international HRM as the interplay among the three dimensions of human resource activities, type of employees and countries of operation. We can see that in broad terms IHRM involves the same activities as domestic HRM (e.g. procurement refers to HR planning and staffing). However, domestic HRM is involved with employees within only one national boundary. Increasingly, domestic HRM is taking on some of the flavor of IHRM as it deals more and more with a multicultural workforce. Thus, some of the current focus of domestic HRM on issues of managing workforce diversity may prove to be beneficial to the practice of IHRM. However, it must be remembered that the way in which diversity is managed within a single national, legal and cultural context may not necessarily transfer to a multinational con- text without some modification.

What is an expatriate? One obvious difference between domestic and international HRM is that staff are moved across national boundaries into various roles within the international firm’s foreign operations – these employees have traditionally been called ‘expatriates’. An expatriate is an employee who is working and temporarily residing in a foreign country. Many firms prefer to call such employees ‘international assignees’. While it is clear in the literature that PCNs are always expatriates, it is often overlooked that TCNs are also expatriates, as are HCNs who are transferred into parent country operations outside their own home country.6 Figure 1.2 illustrates how all three catego- ries may become expatriates.

The term inpatriate has come into vogue to signify the transfer of subsidiary staff into the parent country (headquarters) operations.7 For many managers this term has added a level of confusion surrounding the definition of an expatriate. The (US) Society for Human Resource Management defines an inpatriate as a ‘foreign manager in the US’. Thus, an inpatriate is also defined as an expatriate. A further indication of the confusion created by the use of the term ‘inpatriate’ is that some writers in international management define all HCN employees as inpa- triates. HCNs only become ‘inpatriates’ when they are transferred into the parent-country oper- ations as expatriates, as illustrated in Figure 1.2.

CHAPTER 1 INTRODUCTION 3

Given the substantial amount of jargon in IHRM, it is questionable as to whether the term ‘inpatriate’ adds enough value to justify its use. However, some firms now use the term ‘inpatri- ate’ for all staff transferred into a country. For clarity, we will use the term expatriate through- out this text to refer to employees who are transferred out of their home base/parent country into some other area of the firm’s international operations. In doing so, we recognize that there is increasing diversity with regard to what constitutes international work, the type and length of international assignments and the increasingly strategic role of the HR function in many organi- zations, which in turn influences the nature of some expatriate roles.

Stahl, Björkman and Morris have recognized this expansion in the scope of the field of IHRM in their Handbook of Research in International Human Resource Management where they define the field of IHRM as follows: