International Human Resource Management [2 ed.] 9780071077941

Table of contents :
Title
Contents
SECTION I
1. GLOBAL PERSPECTIVE
Opening Case: Globalisation—Winner and Loosers
Nature of Globalisation
Drivers of Globalisation
Ripple Effects of Globalisation
India Beckons
Plan of this Book
Summary
Closing Case: Global Human Resource Management at Coca-Cola
Key Terms
Review Questions
Assignments
References
2. MULTICULTURALISM
Opening Case: Seventh Heaven
Nature of Culture
Effects of Culture
Multiculturalism
Cultural Predispositions
Cultural Dimensions
Managing Across Cultures
Technology
Culture annd Performance
Summary
Closing Case-1: Troubled Team
Closing Case-2: Waiting in New Delhi
Key Terms
Review Questions
Assignments
References
SECTION II
3. NATURE OF IHRM
Opening Case: HRM at Colgate-Palmolive Co.
IHRM Compared with Domestic HRM
Growing Interest in IHRM
New Dimensions
Summary
Closing Case: Human Resource Practices at Disney
Key Terms
Review Questions
Assignments
References
4. STRATEGIC IHRM
Opening Case: Building Strategic IHRM Capabilities
Understanding Strategy
Nature of Strategic HRM
Organisational Context of IHRM
Dimensions of Strategic International HRM
Summary
Key Terms
Closing Case: A Study in Corporate Foreign Expansion—Euro Disney
Review Questions
Assignments
References
5. HRM IN CROSS-BORDER MERGERS AND ACQUISITIONS
In conversation : Rethink the Value of Joint Ventures
Nature of Mergers and Acquisitions (M&As)
Motives Behind M&As
Extent of M&As
HRM Comes into the Picture
HR Interventions
HR Role—A Checklist
Summary
Closing Case: More Problems than Solutions
Key Terms
Review Questions
Assignments
References
SECTION III
6. STAFFING OF INTERNATIONAL BUSINESS
Opening Case
Human Resource Planning
Recruitment and Selection
Recent Trends in International Staffi ng
Summary
Closing Case: The Offi ce Equipment Company
Key Terms
Review Question
Assignments
References
7. TRAINING AND DEVELOPMENT
Opening Case: Konica Minolta: Using Learning to Create a Unifi ed Culture
Training Strategies
Expatriate Training
Theoretical Frameworks for CCT
HCN Training
TCN Training
Emerging Trends in Training for Competitive Advantage
Summary
Closing Case-1: Training of McDonald’s
Closing Case-2: Doing Business in India: A Cultural Perspective
Key Terms
Review Questions
Assignments
References
8. PERFORMANCE MANAGEMENT
Opening Case: Performance Management—Getting It Right from the Start
Steps in the Global PMS
Issues in Managing Performance in the Global Context
Assessing Subsidiary Performance
Summary
Closing Case: “The Culture of Appraisal”
Key Terms
Review Questions
Assignments
References
9. INTERNATIONAL COMPENSATION MANAGEMENT
Opening Case: Corporate Critique
Objectives of Compensation
Compensation Philosophy
Theories of Compensation
Compensation Strategy
Components of Compensation
Variables Infl uencing Compensation
Compensation Packages
Compensation Administration
Issues in International Compensation
Summary
Closing Case: CEOs Salary and Inequity
Key Terms
Review Questions
References
10. REPATRIATION AND INPATRIATION
Opening Case: International Assignee Career Cycle and Repatriation
Repatriation
Understanding Repatriation
Benefi ts from Returnees
Challenges of Re-Entry
Repatriation Process
Managing Repatriation
Tips for Successful Repatriation
Inpatriation
Summary
Closing Case: Going Home
Key Terms
Review Questions
Assignments
References
11. INTERNATIONAL INDUSTRIAL RELATIONS
Opening Case: Chinese Probe into Pay by Foreign Fast-Food Chains
Nature of IR
Approaches to IR
Extent of Disputes
Key Players in IR
Strategic Issues before MNCs/Employers
Strategic Issues before Employees
Strategic Issues before Governments
Summary
Closing Case 1: The Wal-Mart Story
Closing Case 2: Change and the Legacy of History—The Case of British Airways
Key Terms
Review Questions
Assignments
References
SECTION IV
12. ETHICS AND SOCIAL RESPONSIBILITY
Opening Case: Nike in Southeast Asia
Ethics
Source of Ethics
Role of Ethics in Business
Myths about Business Ethics
Perception of Corporate Ethics
Ethical Dilemmas
Ethical Initiatives in MNCs
Social Responsibility
Social Responsibility and IHR Manager
Summary
Closing Case-1: Conscience or the Competitive Edge
Closing Case-2: A True CSR
Key Terms
Review Questions
Assignments
References
13. FUTURE OF IHRM
Opening Case: Global Leadership — Numbers are not Enough
Developing and Retaining ‘A’ Players
Workforce Rationalising
Evolving Nature of International Employment
Gender Diversify
Maintaining Competitiveness
Building Service-Oriented Organisation
Technology Savvy
Organisational Redesign
Putting all Together
Closing Case
Key Terms
Review Questions
References
14. HRM PRACTICES IN DIFFERENT COUNTRIES
Opening Case: Cultural Guidelines for Doing Business in Europe
HRM in China
HRM in Japan
HRM in the USA
Closing Case: Cultural Characteristics of Africans
Key Terms
Review Questions
References
Index

Citation preview

International Human Resource Management Text and Cases

Second Edition

International Human Resource Management Text and Cases Second Edition

K. Aswathappa Former Director Canara Bank School of Management Studies, Bangalore University Bangalore Sadhna Dash Former Head HR Aris Global Pvt. Ltd., Bangalore

Tata McGraw Hill Education Private Limited NEW DELHI McGraw-Hill Offices New Delhi New York St Louis San Francisco Auckland Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal San Juan Santiago Singapore Sydney Tokyo Toronto

Published by Tata McGraw Hill Education Private Limited, 7 West Patel Nagar, New Delhi 110 008. International Human Resource Management, 2/e Copyright © 2013 by Tata McGraw Hill Education Private Limited. No part of this publication may be reproduced or distributed in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise or stored in a database or retrieval system without the prior written permission of the publishers. The program listings (if any) may be entered, stored and executed in a computer system, but they may not be reproduced for publication. This edition can be exported from India only by the publishers, Tata McGraw Hill Education Private Limited. ISBN (13): 978-0-07-107794-1 ISBN (10): 0-07-107794-4 Vice President and Managing Director: Ajay Shukla Head—Higher Education Publishing and Marketing: Vibha Mahajan Senior Publishing Manager—B&E/HSSL: Tapas K Maji Manager (Sponsoring): Surabhi Khare Asst. Sponsoring Editor: Shalini Negi Senior Production Manager: Manohar Lal Senior Production Executive: Atul Gupta Assistant General Manager—Higher Education Marketing: Vijay Sarathi Assistant Product Manager: Daisy Sachdeva Junior Product Specialist: Megha Mehra Senior Graphic Designer (Cover Design): Meenu Raghav General Manager—Production: Rajender P Ghansela Production Manager: Reji Kumar Information contained in this work has been obtained by Tata McGraw-Hill, from sources believed to be reliable. However, neither Tata McGraw-Hill nor its authors guarantee the accuracy or completeness of any information published herein, and neither Tata McGraw-Hill nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that Tata McGraw-Hill and its authors are supplying information but are not attempting to render engineering or other professional services. If such services are required, the assistance of an appropriate professional should be sought. Typeset at Script Makers, 19, A1-B, DDA Market, Paschim Vihar, New Delhi 110063 and printed at Cover Printer:

To my parents K Aswathappa

To my parents and parents-in-law Sadhna Dash

P EFACE Today, the corporate world faces unprecedented challenges. Widespread technological revolution has impacted each and every aspect of human life making us marvel at the innovation that the mind can achieve. To survive in today’s challenging environment every corporation has been forced to establish a global footprint. Organisations are consistently thinking strategically and are constantly innovating to align their products, services, processes and resources to engage with their customers as well as with workforces to achieve global advantages. These advantages could be demographic, skill-based, technology-driven or pure market/revenue oriented. In today’s dynamic environment, a company’s critical success factor hinges on well-managed supply chain flexibility which is constantly innovating to increase scale and efficiency. And, global innovation is the key to gaining ground in developing countries (rapid products development, market proliferation and cost efficiencies) as well as in maintaining ground in mature markets. In addition to economic and geographic challenges, the political shifts create challenges and opportunities as well. To compound the challenges, in the time of economic crises, leaders are looking at ways to improve their productivity and organisational environment in order to sustain the company. In the context of human resource, retention has become a major obstacle facing the emerging manager. Demographically, the existence of four generations in the workforce has caused a critical disparity in achieving cohesiveness of business. Also it has become near impossible to manage workers in the same manner spread across different countries. The past two decades have witnessed a rapid growth and widespread transformation in the emerging economies of China, India, Brazil and Mexico. As it stands, it would not be unfair to say that all corporations with a global approach to business have a presence in India, either directly or indirectly. It is predicted that India’s economy will surpass Japan’s to become the world’s third largest economy, just behind the United States and China, within the next 25 years. China and India are in a race to gain prominence as a global hub for international business. Over the past decade, there has been steady increase in number of MNCs coming to India to set up operations and leverage the competitive advantage that the country provides by virtue of its: • demographic dividends • well established judicial system • democracy • vast market • highly educated and skilled human resource • low cost production • low cost labour • low cost of living Indian business conglomerates such as Tata, Birla, Wipro, Mahindra, Mallya, Ranbaxy and Dr. Reddy’s Laboratories are expanding globally – organically and inorganically. India has established herself as capable of unique contributions to business intelligence as well as global opportunities. The human resource of this country is driving this revolution thus making the ‘Indian global village’ a reality. The future of ‘the borderless’ world is only going to expand.

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Preface

Key talent management strategies are essential for business sustainability as the talent gap intensifies: • economic uncertainties fundamentally change the way we hire and retain talent • working virtually across functions and geographies intensifies • global employee engagement is at its lowest with constant pressures arising from crisis, eroding workforce sense of job security • a greater need for the global HR communities to adapt quickly to business demands • increased use of HR metrics to set global ‘gold standards’ for HR analytics and methods Students and budding HR professionals would benefit from understanding the nuances of International Human Resources Management initiatives. They need to understand that a “global mindset” is often defined as a way of seeing the world and the globalisation of markets, organisations and individuals. Developing a global mindset requires students to tackle functional, organisational and cross-cultural boundary challenges more effectively and move forward. International Human Resources Management seeks to serve the needs of students who are pursuing courses on international business and human resource management. The book is divided in fourteen chapters which in turn are segregated in four parts. Part one includes the first two chapters and provides theoretical background to the subject of International Human Resource Management; part two with three chapters provides the conceptual framework to the topic; part three comprises six chapters that provides an in-depth understanding of the six critical human resource functions in the international context; and part four of three chapters that elaborate on the ethical and social responsibility dimension of international businesses. Two new chapters have been added to this edition of the book, viz., Future of International Human Resource Management and HRM Practices in Different Countries. International Human Resources Management is rich in pedagogical inputs. Each chapter has learning objectives, chapter summary, review questions, key terms and a set of assignments that students are encouraged to carry out. The assignments designed enable students to apply the theoretical concepts in each chapter to the current happenings in the industry, thereby enhancing awareness of the challenges that corporations face while operating in the multinational environment and the HR impact of these challenges. Instructors will be able to drive in-class discussions through the use of these assignments. The text displays real industry experiences as boxed items, making it easier to understand the theory. Each chapter starts with an opening case and ends with a closing case. The concepts and principles have been explained with contemporary business examples from multinationals across the globe. A bias towards the Indian businesses is evident. K. Aswathappa [email protected] Sadhna Dash [email protected]

ACKNOWLEDGEMENTS We would like to thank Mr. Satish Das, Vice President, Cognizant Technology Solutions for his contribution to the chapter on Mergers and Acquisitions. He has been a constant source of inspiration all along. We also thank Dr. G. Sudarsana Reddy, Associate Professor, Faculty of Commerce, Tumkur University, for his help and encouragement in revising this book. K. Aswathappa Sadhna Dash

CONTENTS Preface Acknowledgements

vii ix

SECTION I 1. GLOBAL PERSPECTIVE

1

Opening Case: Globalisation—Winner and Loosers 2 Nature of Globalisation 3 Drivers of Globalisation 3 Ripple Effects of Globalisation 10 India Beckons 17 Plan of this Book 22 Summary 23 Closing Case: Global Human Resource Management at Coca-Cola Key Terms 25 Review Questions 25 Assignments 25 References 25

2. MULTICULTURALISM Opening Case: Seventh Heaven 28 Nature of Culture 29 Effects of Culture 29 Multiculturalism 30 Cultural Predispositions 31 Cultural Dimensions 34 Managing Across Cultures 44 Technology 57 Culture annd Performance 65 Summary 67 Closing Case-1: Troubled Team 67 Closing Case-2: Waiting in New Delhi Key Terms 69 Review Questions 69 Assignments 69 References 69

23

27

68

SECTION II 3. NATURE OF IHRM Opening Case: HRM at Colgate-Palmolive Co. IHRM Compared with Domestic HRM 73

71 72

xii Contents Growing Interest in IHRM 78 New Dimensions 79 Summary 90 Closing Case: Human Resource Practices at Disney Key Terms 93 Review Questions 93 Assignments 93 References 94

90

4. STRATEGIC IHRM

95

Opening Case: Building Strategic IHRM Capabilities 96 Understanding Strategy 99 Nature of Strategic HRM 101 Organisational Context of IHRM 104 Dimensions of Strategic International HRM 110 Summary 122 Key Terms 122 Closing Case: A Study in Corporate Foreign Expansion—Euro Disney Review Questions 125 Assignments 125 References 126

122

5. HRM IN CROSS-BORDER MERGERS AND ACQUISITIONS In conversation : Rethink the Value of Joint Ventures Nature of Mergers and Acquisitions (M&As) 130 Motives Behind M&As 132 Extent of M&As 133 HRM Comes into the Picture 136 HR Interventions 141 HR Role—A Checklist 149 Summary 151 Closing Case: More Problems than Solutions 152 Key Terms 153 Review Questions 153 Assignments 154 References 154

127

128

SECTION III 6. STAFFING OF INTERNATIONAL BUSINESS Opening Case 156 Human Resource Planning 156 Recruitment and Selection 157 Recent Trends in International Staffing 181 Summary 186 Closing Case: The Office Equipment Company

187

155

Contents

xiii

Key Terms 188 Review Question 188 Assignments 189 References 189

7. TRAINING AND DEVELOPMENT Opening Case: Konica Minolta: Using Learning to Create a Unified Culture Training Strategies 193 Expatriate Training 194 Theoretical Frameworks for CCT 204 HCN Training 209 TCN Training 214 Emerging Trends in Training for Competitive Advantage 214 Summary 219 Closing Case-1: Training of McDonald’s 220 Closing Case-2: Doing Business in India: A Cultural Perspective 221 Key Terms 223 Review Questions 223 Assignments 224 References 224

190 191

8. PERFORMANCE MANAGEMENT Opening Case: Performance Management—Getting It Right from the Start Steps in the Global PMS 230 Issues in Managing Performance in the Global Context 239 Assessing Subsidiary Performance 244 Summary 247 Closing Case: “The Culture of Appraisal” 247 Key Terms 248 Review Questions 249 Assignments 249 References 249

9. INTERNATIONAL COMPENSATION MANAGEMENT Opening Case: Corporate Critique 251 Objectives of Compensation 252 Compensation Philosophy 253 Theories of Compensation 253 Compensation Strategy 254 Components of Compensation 258 Variables Influencing Compensation 265 Compensation Packages 267 Compensation Administration 270 Issues in International Compensation 273 Summary 278 Closing Case: CEOs Salary and Inequity 278

225 226

250

xiv

Contents

Key Terms 279 Review Questions References 280

279

10. REPATRIATION AND INPATRIATION Opening Case: International Assignee Career Cycle and Repatriation Repatriation 284 Understanding Repatriation 284 Benefits from Returnees 284 Challenges of Re-Entry 285 Repatriation Process 286 Managing Repatriation 288 Tips for Successful Repatriation 290 Inpatriation 292 Summary 294 Closing Case: Going Home 295 Key Terms 297 Review Questions 297 Assignments 297 References 297

281 282

11. INTERNATIONAL INDUSTRIAL RELATIONS Opening Case: Chinese Probe into Pay by Foreign Fast-Food Chains 299 Nature of IR 299 Approaches to IR 300 Extent of Disputes 302 Key Players in IR 304 Strategic Issues before MNCs/Employers 305 Strategic Issues before Employees 310 Strategic Issues before Governments 316 Summary 320 Closing Case 1: The Wal-Mart Story 320 Closing Case 2: Change and the Legacy of History—The Case of British Airways Key Terms 324 Review Questions 324 Assignments 324 References 325

298

323

SECTION IV 12. ETHICS AND SOCIAL RESPONSIBILITY Opening Case: Nike in Southeast Asia Ethics 328 Source of Ethics 328 Role of Ethics in Business 330 Myths about Business Ethics 331 Perception of Corporate Ethics 334

327

326

Contents

Ethical Dilemmas 335 Ethical Initiatives in MNCs 341 Social Responsibility 345 Social Responsibility and IHR Manager 348 Summary 351 Closing Case-1: Conscience or the Competitive Edge Closing Case-2: A True CSR 352 Key Terms 354 Review Questions 354 Assignments 354 References 354

351

13. FUTURE OF IHRM Opening Case: Global Leadership — Numbers are not Enough Developing and Retaining ‘A’ Players 358 Workforce Rationalising 359 Evolving Nature of International Employment 360 Gender Diversify 363 Maintaining Competitiveness 367 Building Service-Oriented Organisation 368 Technology Savvy 368 Organisational Redesign 369 Putting all Together 371 Closing Case 371 Key Terms 373 Review Questions 373 References 374

355 356

14. HRM PRACTICES IN DIFFERENT COUNTRIES Opening Case: Cultural Guidelines for Doing Business in Europe HRM in China 380 HRM in Japan 385 HRM in the USA 388 Closing Case: Cultural Characteristics of Africans 389 Key Terms 393 Review Questions 393 References 393

Index

xv

375 376

395

SECTION I

CHAPTER

1 Learning Objectives After reading this chapter, you should be able to ∑ Understand globalisation and its origin ∑ Identify key drivers of globalisation ∑ Understand the emergence of Rapidly growing Developing Economies (RDE’s) and their role in globalisation ∑ Describe impact of globalisation on wages, jobs, child labour and women at the workplace ∑ Understand the impact of globalisation on the Indian economy*

G OBAL PERSPECTIVE

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International Human Resource Management

OPENING CASE

Globalisation—Winners and Loosers

Societies and economies around the world are becoming more integrated. This integration has been the result of reduced costs of transport, lower trade barriers, faster communication of ideas, rising capital flows and intensifying pressure for migration. Integration—or “globalisation”—has generated anxieties about rising inequalities, shifting of power and cultural uniformity. Some, but not all of the anxieties are well-founded. Both global opportunities and global risks have outpaced global policy. Global integration is already a powerful force for poverty reduction, but it could be even more effective. Globalisation generally reduces poverty because more integrated economies tend to grow faster and this growth is usually widely diffused. As low-income countries break into global markets for manufactured products and services, poor people can move from the vulnerability of grinding rural poverty to better jobs, often in towns or cities. In addition to this structural relocation, integration raises productivity job by job. Workers with the same skills—be they farmers, factory workers or pharmacists—are less productive and earn less in developing economies than in advanced ones. Integration reduces these gaps. Rich countries maintain significant barriers against the products of poorer countries, inhibiting this poverty-reducing integration. A “development round” of trade negotiations could do much to help poorer countries better integrate with the global economy. Globalisation also produces winners and losers, both between countries and within them. Between countries, globalisation is now mostly reducing inequality. About 3 billion people live in “new globalising” developing countries. The number of the extreme poor (living on less than $1 per day) in the new globalisers declined by 120 million between 1993 and 1998. However, many poor countries—with about 2 billion people—have been left out of the process of globalisation. Many are becoming marginal to the world economy, often with declining incomes and rising poverty. Clearly, for this massive group of people, globalisation is not working. Some of these countries have been handicapped by unfavourable geography, such as being landlocked and prone to disease. Others have been handicapped by weak policies, institutions, and governance; yet others by civil war. Addressing the marginalised areas is the key concern of policy makers around the world now. Reducing poverty in these areas will require a combination of policy reforms to create a better investment climate; developmental assistance to address problems of education and health and out-migration to more favourable locations, both within and across national boundaries. Within countries, globalisation has not, on average, affected inequality, although behind the average there is much variation. The rapid growth in the new globalisers can be a political opportunity for redistribution policies that favour the poor, since higher-income groups need not lose absolutely. For example, programmes specifically designed to promote non-farm employment can help people who remain in rural areas. There are also some predictable circumstances in which opening up is likely to increase inequality unless offset by other policies, such as when educational attainment is very unequal. Promoting education, particularly for poor people, is equalising, improves health standards and enhances the productivity growth that is the main engine of poverty reduction. The fact that globalisation does not on average increase inequality within countries disguises the reality that there will be specific winners and losers in each society. Good social protection policies can be a key factor in helping people prosper in this more dynamic environment. Finally, much of the concern about globalisation involves issues of power, culture and the environment. Globalisation does involve shifts in power, but these do not always favour the already powerful. For example, China and India are rapidly becoming major economies. Here, intensifying competition has forced corporations to reduce price mark-ups over cost. Besides, many wages are rising rapidly in the new globalisers. Governments retain a wide range of choices, most notably in the area of distributional policies.

Global Perspective

3

Due to globalisation, policies to counter terrorism and civil war will need to be globally coordinated. Globalisation poses cultural challenges: there is often greater diversity as foreign cultures and peoples are introduced. Sometimes, foreign culture, or simply, the sheer pace of economic change, threatens to displace local culture and societies can legitimately seek to protect themselves. Global growth also threatens the environment. Some pollution issues require local regulation. Governments may potentially compete to weaken regulations in a so-called race to the bottom. However, evidence suggests that this is not happening: in key areas, environmental standards are actually rising. Other issues, such as global warming, require a global response. That capacity has so far been lacking. But for the first time in history, a global civil society has emerged—“globalisation from below.” This can become a powerful impetus to global collective action, both for improving the environment and for reducing poverty.1 A few years ago, going global was considered to be a big achievement; today, it is part of a company’s survival kit, ever so essential to de-risk the organisation from a single country shock. The varied threats posed by localised economic policies, terrorist activities, natural calamities and competitor driven challenges force corporations to go global. Globalisation, in turn, has revolutionised the way human resource policies have evolved and have been implemented. Policies relating to employee hiring, training, compensating or maintaining are formulated keeping global needs in mind. The international human resource manager needs to have a global perspective of business so that he or she will be effective in formulating and implementing human resource policies and practices. Besides, its impact on human resource policies and practices, globalisation has several countours as the opening case shows.

NATURE OF GLOBALISATION Globalisation refers to the process of integrating world economies. However much governments desire to retain economic identities, the powerful trend to integrate national economies is sweeping across the globe and countries are falling in line and embracing rapid globalisation. Whether it is the communist China or Cuba, the anxiety to join world economies is the most emerging concept today. Evidence of globalisation can be seen in the increased levels of trade, investment flows and mobility of people across the globe. Also called internationalisation, the momentum of globalisation has been driven by several developments as explained below.

DRIVERS OF GLOBALISATION Companies seek to take advantage, by expanding their operations into foreign markets, in a number of ways. First, rapidly developing economies have huge markets. For companies, mostly in developed countries, which have been operating below capacities, the emerging markets offer immense opportunities to increase their sales and profits. Second, many multinational companies (MNCs) are locating their subsidiaries in low wage and low cost countries to reduce their cost of production. Third, changing demographics also add to increasing globalisation. Demographic changes are more visible in India. The country has the largest number of young people in the world today. India has nearly 65 million children below 15 years of age, and as many as 400 million youngsters below the age of 23 years. These young people will join the employable worforce in the next few years, thus creating a huge surge of productivity, incomes and savings. India’s young people can be an asset to the global economy because while India’s population will be getting younger in the coming decade, the population of most developed countries will be getting older. The richer countries will face a shortage of employable people while India will have a surplus of them.

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International Human Resource Management

It is not just the number of people that India has, but also the technological and professional quotient of the people which proves a country’s worth. India has a large low-cost and skilled work force. This large labour pool is projected to limit increases in wage rates for the next 20 years. In addition, India has a high availability of engineers, producing over 400,000 every year, next only to China’s 490,000 and nearly 25 times that of Thailand’s 17,000. In addition to engineers, India produces 850,000 graduates every year and over 70,000 vocational skills certified professionals. What do all these figures translate into? ∑ Multinational corporations could increasingly use India as a destination for outsourcing their core and non-core activities. ∑ In addition, a large number of Indians are available and are prepared to take up overseas assignments. Fourth, regional trading blocks are adding to the pace of globalisation. WTO, EU, NAFTA, MERCOSUR and FTAA are a few of the major alliances among countries. Trading blocks seek to promote international business by minimising trade and investment barriers. Integration among countries results in efficient allocation of resources throughout the trading area, promoting the growth of some businesses and the decline of others, the development of new technology and products and the elimination of old. This process is creating a large scale restructuring of industries and firms in the EU, with relocation of industry and many cross border mergers and alliances.2 But there are potential problems associated with such alliances. It is said that trading blocks might compete against each other. If this happens, free trade will exist within each bloc and each bloc will protect its market from outside competition with high tariffs. The possibility of the EU and NAFTA turning into “economic fortresses” that shut out foreign producers with high tariff barriers cannot be ruled out. However, trading blocks generate more job opportunities. For example, between 90,000 to 160,000 jobs of various sorts were created in the US because of greater exports to Mexico (in the wake of the creation of NAFTA). There will also be easy movement of people among alliance partnering countries and a replication of the best HR practices. But there is also the possibility of jobs being shifted to low-wage and low-cost countries within or outside a trading block. Fifth, the declining trade and investment barriers have vastly contributed to globalisation. The early period of the twentieth century witnessed high levels of barriers on trade and investment. The aim of such restrictions was to protect domestic industries from foreign competition. Underlying the argument for protection of domestic industries is the infant industry reasoning. Tariff protection against the imported commodity is needed, so the infant industry argument goes, in order to allow the now higher-priced domestic producers enough time to learn the business and to achieve the economies of scale in production that are necessary to lower unit costs and prices. With enough time and sufficient protection, the infant will eventually grow to be directly competitive with the developed country producers, and would no longer need this protection. Ultimately, many domestic producers will be able to produce not only for the domestic market, without a tariff wall or government subsidies, but also to export their now lower-cost goods to the rest of the world.3 The infant industry argument had several takers. Each country started imposing tariffs on the goods of other countries. This led to a cumulative curtailment of demand. The Depression was characterised by a vicious circle—no jobs–no income–no demand–no supply–no income. In order to break this circle, a free-flow of goods and services and capital across the globe was thought necessary. In other words, barriers were required to be dismantled. Thus came into being the free trade regime. Table 1.1 summarises how trade barriers were lifted over a period of time. As can be seen from the Table, the average rates of tariff have fallen considerably since the 1950s and now stand at 3.9 per cent.

Global Perspective

TABLE 1.1

5

Average Tariff Rates on Manufactured Products

1913 France 21 % Germany 20 % Italy 18 % Japan 30 % Holland 5% Sweden 20 % United States 44 % (Source: Hill, International Business, 2005, p.10).

1950 18 % 26 % 25 % – 11 % 9% 14 %

1990 5.9 % 5.9 % 5.9 % 5.3 % 5.9 % 4.4 % 4.8 %

2000 3.9 % 3.9 % 3.9 % 3.9 % 3.9 % 3.9 % 3.9 %

With the free trade regime, business across the globe has grown considerably. Goods, services, capital and technology are moving across the nations significantly. The volume of world trade has grown over 20 fold between 1950 and 2002. The average yearly outflow of FDI increased from about $25 billion in 1975 to a record $1.3 trillion in 2000. Internationalisation of business is being accompanied by outsourcing and off-shoring of activities. While outsourcing has benefited India, the Chinese are the gainers from the off-shoring of business processes. Free trade also meant movement of labour across the globe, though not as freely as goods, services and capital. There is a dichotomy here. Though all nations expect goods, services and capital to move freely, they place several conditions when it comes to the movement of people across countries. Nevertheless, globalisation has benefited people in terms of increased jobs and enhanced salaries and most importantly sharing of wealth. Sixth, the most powerful instrument that triggered globalisation is technology. Revolution is probably the right word which can best describe the pace at which technology has changed in the recent past and is continuing to change. Significant developments have been witnessed in communication, transportation and information processing, including the emergence of the Internet. It is said that the cost of a three-minute telephone call from New York to London in current prices, dropped from about $250 in 1930 to a few cents today. In more recent years, the number of voice lines paths across the Atlantic has skyrocketed from 100,000 in 1986 to more than 2 million today. The number of Internet hosts has risen from 5,000 in 1986 to more than 700 million now.4 Thanks to these developments in technology, MNCs are able to locate production facilities anywhere in the world to take advantage of low-cost production. This trend helps create job opportunities in countries like Philippines, Mexico, China and India. The Boston Consultancy Group (2005) has identified five currents of globalisation. These currents are:5 ∑ ∑ ∑ ∑ ∑

the growth of rapidly growing developing economies (RDEs) the continuing cost and capital advantages of RDEs the development of talent and capabilities in RDEs the migration of customers to RDEs the emergence of RDE-based global competitors (see Fig. 1.1)

The RDEs identified are China, India, Brazil, Mexico, South East Asia, and Central and Eastern Europe. The absolute growth in economic activity in the key RDEs over the next several years is expected to come close to that of the three leading developed regions. While the US, Western Europe and Japan are expected to grow by $3 trillion in collective GDP from 2004 to 2010, the key RDEs will grow by more than $2 trillion. Specifically, China’s GDP is expected to expand by $750 billion, Central and Eastern Europe’s by $450 billion, South East Asia’s by $350 billion, and Brazil’s by $200 billion. This growth will mean substantial consumption of consumer and industrial goods.

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International Human Resource Management

FIGURE 1.1

Five Currents of Globalisation

Many MNCs are strategising to generate a large portion of their global sales from RDEs. ABB, Emerson, Schneider Electric and Siemens have seen their China sales grow substantially, to 5 per cent of their total sales. RDEs offer immense opportunities to minimise operating costs and capital investments. Companies that globalise their cost structures to include RDEs can realise savings of up to 20 to 40 per cent in the landed costs of their products, while reducing capital requirements by similar amounts. A major saving in operating costs stems from labour rates. A factory worker in the US or Europe costs $15 to $30 or more per hour, depending on where the factory is located, whether it is unionised or not, and the extent of benefits it provides. In contrast, a Chinese factory worker earns approximately $1 per hour, offering a fifteen fold cost advantage. In terms of lower capital investment, two fundamental factors reduce the need for capital in RDEs: First, less expensive plant infrastructure, machinery, and equipment; and second, the opportunity to make use of labour in place of costly technology. RDEs offer not just cost advantage—they provide skill advantage too. The number of engineers in these countries is multiplying. China, for example, has added 380,000 science and engineering graduates to its talent pool in 2004. India is rich by 360,000, and Russia by 240,000. By 2010, China, India and Russia are likely to provide more than 2 million new scientists and engineers a year, compared to about 400,000 in the US. These graduates are not just adding to the numbers. The competence, particularly those of Indians, is globally competitive. The seven IITs and six IIMs in India have clearly established themselves as centres of excellence. “The IITs became islands of excellence by not allowing the general debasement of the Indian system to lower their exacting stands,” wrote a reputed journal. “You couldn’t bribe your way to get into an IIT.... Candidates are accepted only if they pass a gruelling entrance examination. The government does not interfere with the curriculum, and the workload is demanding.... Arguably, it is harder to get into an IIT than into Harvard or the MIT.”6 Obviously, in both blue and white collar labour pools, RDE work forces have demonstrated that they are talented, trainable and eager to move up the skill ladder. Neeraj Aggarwal, Principal, BCG India, said that global IT majors are ramping up their India presence very fast. He estimated that by 2020, India would have one of the largest workforce surplus of around 47 million, while countries such as the US, China and Japan would face a labour pool deficit of 17 million, 10 million and nine million, respectively. (See also Exhibit 1.1.)

Global Perspective

Exhibit 1.1

7

India poised to rock IT space: BCG

Going by the potential price to revenue ratio of the top global IT majors like IBM and Accenture and that of Indian vendors like Infosys, TCS and Wipro, the Boston Consulting Group (BCG) is confident that an Indian player could become the most valuable IT company in the world by 2012. According to James Abraham, Director BCG India, “while revenue ratio of 1.4, 1.6 and 0.7 respectively as of April 2006, Wipro, Infosys and TCS have 9.0, 11.6 and 9.0 respectively. Looking at this trend in the long term, we might see one of the Indian companies becoming the world’s most valuable IT company by 2012.” Mr. Abraham adds that the situation might not actually pan out like this since the global majors are taking the Indian competition seriously. “IBM’s Indian operations contribute 11% of the total work force and Accenture has a high percentage too. Other companies like EDS are also looking to ramp up in India,” he says. So, potentially, IBM with 60% of its work force in India by 2012 could still be the front runner. Indian IT companies are now looking to move beyond just the labour advantage to a mixture of labour and intellectual property. He gave examples of Infosys working on process IP, Wipro in product IP, TCS and Infosys in training IP, stating that an interesting trend of merging IT services and BPO to find ways to create unique IPS had opened up. IT consulting is another way of moving up the value chain for Indian firms. On the wage inflation in India, Neeraj Aggarwal, Principal, BCG India said, “It is a short term effect. The issue of shrinking wage differential is a myopic view to take. The differential will actually be sustained in the long term.” The company has projected that by 2020, India would have the largest work force surplus of 47 million people, while the US, China and Japan would have a labour pool deficit of 17 million, 10 million and 9 million respectively. “The trick is to train this largely unskilled labour to gain an advantage,” said Mr. Abraham. Source: The Economic Times, May 26, 2006.

Triggered by the first three currents—growth of RDE markets, the continuing cost and capital advantages and the development of talent and capabilities in RDEs—more and more manufacturing companies are moving their production to RDEs. This migration has major implications for their suppliers. While the current penetration of RDE—sourced industrial goods into US and European markets is still relatively small, it is clearly gaining momentum. In some sectors, RDE imports are growing at rates as high as 30 per cent per year. The relocation of major industrial sectors has serious implications for the supplier base in the home markets. If these suppliers do not act quickly their businesses will shrink. Most companies need to evolve a two-fold strategic plan: to fill market gaps at home, and also to follow selected customers to their new locations. The emergence of RDE based global competition is the last dimension delineated by the BCG. As economies of RDEs grow at breakneck speed, large-scale global competitions emerge from these countries. India’s Bharat Forge is one example of a company which is emerging as a strong global competitor. It recently made big news by acquiring a well-established $150 million German engineered-components company. Tata’s acquisition of Corus is another example. The Haier Group of China is a similar instance. Companies everywhere are required to monitor the emergence of RDE competitors in their industries, to understand the extent and timing of a possible threat or opportunity, assess their own vulnerabilities as well as the advantages they may have over the new competitors, and have action plans ready for various contingencies.

8

International Human Resource Management

Seventh, there is money in international business, and no organisation would wish to miss the opportunity. HCL, for example, earned 63% of its total revenue from the US and 32% from Europe, a total of 95%. Similarly, 90% of the total earnings of Infosys are from foreign markets (62% from the US and 28% from Europe); Wipro earns 56% from the US and 30% from Europe, totaling 86% and TCS also has foreign revenues to the extent of 80% (51 percent from the US and 29% from Europe). It is not just Indian companies alone. Even foreign companies earn huge revenues from overseas markets as Table 1.2 shows. TABLE 1.2 MNE

Country

The World’s Top MNCs Ranked by Foreign Assests, 2004

Industry

Assets Foreign

Total

Sales Foreign

Employment Total

Foreign

Total

Vodafone Group Plc

UK

Telecommunications

247,580 258,626

53,307

62,494

45,981

57,378

Ford Motors

US

Motor vehicles

179,856 305,341

71,444

171,652

102,749

225,626

General Motors US

Motor vehicles

173,690 476,603

59,137

193,517

114,612

324,000

British Petroleum

UK

Petroleum expl./ ref./distr.

154,513 193,213

232,388 285,059

85,500

102,900

Exxon Mobil

US

Petroleum expl./ ref./distr.

134,923 195,256

202,870 291,252

52,968

105,200

Royal Dutch/ Shell

UK/NL

Petroleum expl./ ref./distr.

129,939 192,811

170,286 265,190

96,000

114,000

Toyota Motor Corp

Japan

Motor vehicles

122,967 233,721

102,995 171,467

94,666

265,753

Total

France

Petroleum/expl./ ref./distr.

98,719

114,636

123,265 152,355

62,227

111,401

France Télécom

France

Telecommunications

85,669

131,204

24,252

58,554

81,651

206,524

Volkswagen

Germany

Motor vehicles

84,042

172,949

80,037

110,463

165,152

342,502

Sanofi-Aventis

France

Pharmaceuticals

82,612

104,548

15,418

18,678

68,776

96,439

Deutsche Telekom AG

Germany

Telecommunications

79,654

146,834

47,118

71,868

73,808

244,645

RWE Group

Germany

Electricity, gas and water

78,728

127,179

23,636

52,320

42,370

97,777

Suez

France

Electricity, gas and water

74,05

85,788

38,838

50,585

100,485

160,712

E.ON

Germany

Electricity, gas and water

72,720

155,364

21,996

60,970

32,819

72,484

Hutchison Whampoa

Hong Kong

Diversified

67,632

84,162

17,039

23,037

150,687

180,000 (Contd.)

Global Perspective

TABLE 1.2 MNE

9

(Contd.) Country

Industry

Assets

Sales

Employment

Foreign

Total

Foreign

Total

Foreign

Total

Siemens AG

Germany

Electrical & elcectronic eq.

65,830

108,312

59,224

93,333

266,000

430,000

Nestlé SA

Switzerland

Food & beverages

65,693

76,965

68,586

69,778

240,406

247,000

Electricite de France

France

Electricity, gas and water

65,365

200,093

17,886

55,775

50,543

156,152

Honda Motor Co Ltd

Japan

Motor vehicles

65,036

89,483

61,621

79,951

76,763

137,827

Vivendi Universal

France

Diversified

57,589

94,439

11,613

26,607

23,377

37,906

Chevron Texaco

US

Petroleum expl./ ref./distr.

57,186

93,208

80,034

150,865

31,000

56,000

BMW AG

Germany

Motor vehicles

55,726

91,826

40,198

55,050

70,846

105,972

Daimler Chrysler

US/ Germany

Motor vehicles

54,869

248,850

68,928

176,391

101,450

384,723

Eighth, resource-seeking is another motive for firms going international. Resources can be natural or strategic assets. With reference to the former, firms seek three categories of resources. First, there are those seeking physical resources which include mineral fuels, industrial minerals, metals, and agricultural products. Indian and Chinese firms of late have invested in Africa to take advantage of the physical resources. The second group of resource-seeking MNCs comprises are those seeking plentiful supplies of cheap and well-motivated unskilled or semi-skilled labour. Mexico, Taiwan and Malaysia have attracted FDI for the same reason. Within Europe too, there has been some labour-seeking investment in Southern, Central and Eastern European countries. The third type of resource-seeking FDI is prompted by the need for acquiring technology. The fact that several Indian, Taiwanese and Korean companies have collaboration alliances with EU or US firms’ shows how strong is the pull of technology. Strategic assets include global portfolio of physical assets and human competencies which add to the competitive edge of a firm. Tata’s acquisition of Corus and Chinese Lenovo’s acquisition of IBM’s PC business are examples of asset-seeking investments. Strategic asset seekers aim to capitalise on the benefits of the common ownership of diversified activities and capabilities. Finally, globalisation is triggered by world bodies and institutions. World Trade Organisation (WTO) is the international organisation that regulates business across nations. The three main purposes of WTO are: (1) help free trade, (2) help negotiate the further opening of markets, and (3) settle trade disputes between members. Similarly, treaties and conventions signed and binding on member countries facilitate international business considerably. The Treaty of Rome, Paris Convention, Chemical Weapons Convention, the Warsaw Convention and GAATS are but a few examples of international institutions facilitating global business.

10 International Human Resource Management

RIPPLE EFFECTS OF GLOBALISATION Effects of globalisation are varied, ranging from cultural degradation (see opening case) to the fear of loss of sovereignty. We focus on the effects of internationalisation on management, jobs, wages, child labour, women and lastly, on the Indian experience (See Fig. 1.2).

Globalisation and Management A significant yet subtle shift has occurred in the area of management practice. While management is well researched and documented in the western countries as also in the EU countries, it is not the same with the APAC group of countries. The skill or the cost advantages that drive globalisation efforts also impact the way people are managed in corporates. The older ‘personnel management’ (Theory X) approach has FIGURE 1.2 Effects of Globalisation given way to the ‘Human Resources Management’ (Theory Y) approach. The autocratic style that was fed by ‘hierarchical position conscious systems’ is being swiftly replaced by flat organisation structures, driven by competency and a highly decentralised decision-making and problem-solving organisational hierarchies. The individual in a position of power, driving policies and processes have swifty evolved into teambased collaborative management methods. Another landmark change in management methods initiated by globalisation happened in the area of organisational leadership. A new generation of leadership skills, styles and methods have evolved. The straight-jacketed approach to certain defined ‘good and bad’ leadership styles has been replaced with multiple theories supporting a variety of leadership styles. Leadership today is associated with the particular phase in the life-cycle of an organisation; it is industry specific and increasingly, leaders are hired to achieve a very specific objective for an MNC. Hence, the new work methods and newer ways of managing people and processes are maturely evolving. Exhibit 1.2 speaks about how management methods are being innovated at the Indian workplace to ensure collaboration and commitment.

Exhibit 1.2

“Future of management is India,” says Fortune

Indian management and the people processes that have been put in place by top companies, particularly in the information technology industry, are the best in the world and are setting new benchmarks for the rest of the corporate world to emulate. Fortune’s Senior Editor David Kirkpatrick writes: “I have seen the future of management, and it is Indian.” “Good at motivating employees...” “Committed to building a great team...” “Employees come first and customers second...” are some of the observations made by Kirkpatrick in his column. “In an extraordinary process of upward evaluation at Indian outsourcing major HCL Technologies, every employee rates his or her boss, their boss’ boss, and any three other company managers they choose, on 18 questions using a 1–5 scale. Such 360-degree evaluations are not uncommon, but all results are posted online for every employee to see. That’s unheard of!”

Global Perspective 11

Kirkpatrick, who met HCL president Vineet Nayar in the US last week, had this to write in his column: “Every HCL employee can at any time create an electronic “ticket” to flag anything they think requires action in the company... It can be ‘I have a problem with my bonus,’ or ‘My seat is not working,’ or ‘My boss sucks.’ “The ticket is routed to a manager for resolution. Amazingly, such tickets can only be “closed” by the employees themselves. Managers are evaluated partly based on how many tickets their departments are creating—the more the better. Nonetheless, I’m sure it continues to be recommended not to be the employee who regularly posts a “my boss sucks” ticket.” “You can’t become a manager until you’ve passed a group of courses that include negotiation skills, presentation skills, account management, and what they call “expectation management”—dealing with the expectations of both customers and employees,” Kirkpatrick writes. “There is a method to what some might consider madness. [At HCL,] Nayar has concluded that what he calls the “effort-based” model of Indian IT up to now will not win long term. That’s because IBM and other global IT companies now have their own local employees and can match many long-time Indian cost advantages.” “The winners will be those that deliver the best results to customers. Employees who are secure and happy can better focus on customer success,” Kirkpatrick concludes. (Source: Fortune, April 18, 2006).

Globalisation and Jobs Has globalisation resulted in the loss of jobs or created additional jobs? The answer is both yes and no. Going by India’s experience, employment in the manufacturing (organised) sector has declined during the 1980s and 1990s, as Table 1.3 shows. The decline in employment in the organised sector may be due to reasons which predate economic liberalisation, but liberalisation (and globalisation) has created an enabling environment for cutting down regular, salaried jobs through VRS, contractual employment, subcontracting and outsourcing.7 TABLE 1.3

1978–79 1983–84 1989–90 1991–92 1996–97

Employment in Manufacturing Sector Organised Sector (in millions) 14,903 10,198 7,252 4,234 2,881

(Source: Economic and Political Weekly, January 3, 2004, p. 106)

A contrary view is held by the supporters of globalisation. Globalisation according to them adds to the employment, particularly in developing countries, as Table 1.3 shows. With increased free trade, more than five lakh jobs moved out of the US by 2005, and the figure will go up to 33 lakh by 2015. This does not necessarily imply that the US economy suffers as a result of this loss of jobs. Supporters of globalisation argue that free trade will result in countries specialising in the production of those goods and services that they can produce most efficiently, while importing goods that they cannot produce as efficiently. If, for example, US is outsourcing 14,000 legal jobs, the country is saving enormously on the cost of performing

12 International Human Resource Management those jobs within the country. The savings thus gained can be diverted for other more productive jobs. On the other hand, incomes in developing countries would increase as a result of the outsourced jobs they gain, adding to the demand for more of goods and services produced in the developed countries whereby the economy there flourishes as well. Developing countries are also gainers as Table 1.4 clearly shows the outsourcing trends. TABLE 1.4

Number of US Jobs Moving Offshore*

2005 2010 Life Sciences 3,700 14,000 Legal 14,000 35,000 Art Design 6,000 14,000 Management 37,000 118,000 Business Operations 61,000 162,000 Computer 109,000 277,000 Architecture 32,000 83,000 Sales 29,000 97,000 Office Support 295,000 791,000 TOTAL 588,000 * To low wage countries such as India, China, Mexico and the Philippines. (Source: The Economic Times, February 2, 2003)

2015 37,000 75,000 30,000 288,000 348,000 473,000 184,000 227,000 1,700,000 3,300,000

Globalisation and Wages Globalisation has no doubt, resulted in a shifting of jobs to the developing countries. But the shift is accompanied by disparities in wages. For a work that would cost $100 an hour in the US, an Indian is paid about one-fifth of that. In other words, an employee in the US gets paid $100 per hour, whereas his or her counterpart in India is paid $20 per hour for the same work. This wage differential is an outcome of: (a) The availability of skilled labour, and (b) The general economic condition prevalent in the country. The valuation of the country currency is also another key factor impacting pricing of competitive resources. There is another argument in support of low wages in poor countries. Low labour costs constitute a competitive advantage for a poor country to attract investment and provide jobs that can lead to greater development. Former low-wage countries such as Korea, Taiwan and Malaysia were successful in using this strategy to create high paying jobs.8 To demand high wages is to deny competitive advantage for a poor country. To deny competitive advantage is to deny foreign investment, whereby subjecting the country to eternal poverty.

Globalisation and Child Labour Child labour is common in all countries—rich or poor. The ILO recently estimated that some 120 million children in developing countries, between the ages of 5 and 14 are working full time, with another 130 million working half-time. 61% of the 250 million working children live in Asia, while 32% live in Africa and 7% live in Latin America. Even a rich country as the US grossly abuses child labour.9 Though subjecting a child (below 14 years of age) is illegal, 500,000 children work in Sri Lanka and millions work in Mexico. It goes to the credit of the Government of India that it has banned child labour as Exhibit 1.3 shows.

Global Perspective 13

Exhibit 1.3

A Ban that was Overdue

The Government of India has announced a ban on the employment of children as domestic workers and as workers in restaurants, dhabas, hotels, spas and resorts, effective from October 10, 2006. This is a welcome move that will benefit many of India’s child workers, of whom there are a staggering 13 million or more, forming the largest number of child labourers in the world. Many of these children experience physical, psychological and sexual abuse on a regular basis. For instance, the exploitation of children is high in roadside eateries, tea shops and dhabas where child labour is rampant. The horrific murder of 10-year-old Sonu, a child domestic worker, who was brutally beaten to death by her employers in Mumbai recently for trying on some lipstick is an appalling example of the kind of cruelty that these children often endure. It is reasonable to assume that there are myriad such incidents going unreported; cases of young children whose childhoods are stolen from them, who are abused and who die at the hands of their employers. The present law, The Child Labour (Prohibition and Regulation) Act 1986, bans employment of children only in hazardous industrial processes such as mining, chemical production, carpet weaving, bidi making, wool cleaning and in workplaces where toxic substances are used. Rules under this law were framed in 1989 and, through further notifications and schedules, rules for “working conditions” were formulated for children working in environments not prohibited by the 1986 Act, while increasing the number of hazardous industries covered by it. The Government also launched the National Child Labour Project in 1988 to rehabilitate working children by getting them into special schools for a non-formal education, and by other measures such as enforcing labour laws to make it illegal for them to be hired. The Supreme Court has also issued various directions in this regard, but the existing laws are ineffective and are not implemented in many parts of the country. Children continue to work under extremely adverse and dangerous conditions, with their plight accorded low importance by various State Governments. The latest ban will be ineffective unless the law is enforced and the violators are prosecuted. Surprise inspections of establishments where children are likely to be employed and mechanisms to prevent recurrence need to be established. Non-enforcement by states should entail deterrent action. Such strategies will work well to control the demand for child labour. But also needed is a choking off of the supply. An effective way to do this would be to ensure that the constitutional obligation of providing free and compulsory education for all children under 14 is met, so that children cannot be elsewhere than in school. The main, and invaluable consequence of securing children’s basic rights will of course be the powerful enrichment of the nation’s human capital, necessary for the country’s road to prosperity. (Source: The Hindu, August 7, 2006)

The illegality of employing children is only one crime against them. There are others too. Children cannot attend school and receive formal education. Unsanitary environments in which the children work exposes them to diseases. Children in Indian carpet making units, for example, are exposed to a high incidence of tuberculosis, worm infection and enlarged lymph glands. There are four main approaches to child labour policy.10 The first stresses the need for eliminating poverty as that is the main cause for child labour. Obviously, this approach does not address child labour directly. The second approach emphasises on strategies to get more children to school, and particularly, provide incentives to induce parents to send their children to school, such as free text books, uniform and the mid-day meal schemes implemented in Karnataka. The third approach considers child labour inevitable, at least in the short run, and stresses palliative measures such as regulating it to prevent abuse and to provide support services for working children. This approach is most commonly associated with UNICEF which has prepared a checklist of regulatory and social approaches that could meet the “best interests of the child.” Workplace schooling, stricter law enforcement against illegal child labour trafficking and providing support services

14 International Human Resource Management for parents and for children working on the streets are some of the regulations contained in the UNICEF’s agenda. The fourth approach, advocated by the ILO, favours banning child labour altogether. If this is not possible, at least child labour in its most abusive form should be banned. The most abusive practices include slavery, sale and trafficking of children, debt bondage and serfdom. This modified approach has received much attention and in 1999, the ILOs “Worst Forms of Child Labour Convention” was adopted. Child labour is practised for several reasons. In the first place, it is poverty that creates child labour. Obviously, a higher incidence of child labour occurs in poor countries. Secondly, children are the best fit in such areas of employment as inflating tubes, cleaning glasses and cups in hotels, carpet weaving, rolling beedies and incense sticks and the like. Third, it adds to the income of the family. Fourth, the employer sees the child as an instrument which can be groomed and moulded in the way that suits his business. Finally, demands from children are minimal or non-existent, unlike grown-ups who keep mounting pressure on the management for higher remuneration and improved amenities. Children are bought and sold for cash or settlement of debts. What has globalisation to do with child labour? First, globalisation results in creation of job opportunities and enhances earnings in developing countries because of inflows of foreign investment or increases in the value of a developing country’s export products. This development is likely to accelerate the reduction of child labour and enhance school enrolment and literacy.11 To the extent that poverty breeds child labour, prosperity should bring down its incidence. Second, the integration of world economies will enable rich countries influence poor countries in their policies towards child labour. As developing countries join globalisation and increasingly rely on export markets to sell their products, rich countries can use the threat of trade sanctions to coerce policies that attempt to curtail child labour. This would have positive impact on child labour. The third development has a deleterious effect on child labour. The world bodies, particularly the IMF and the World Bank, mandate structural adjustments in economies before sanctioning aid to the developing countries. One of the planks of structural adjustments is privatisation. Privatisation results in large-scale laying off of workers. Suddenly, male workers find their incomes dwindling as the alternative jobs they manage to secure may not guarantee the same salaries which they were earning when they were in government jobs. This tends to force parents to withdraw their children from school and put them on menial jobs. The story of Iqbal Masih from Pakistan who was four years old when he was sold by his father for a equivalent of $12 to a carpet weaver is typical. He was forced to work 12 hours a day, chained to his loom and was constantly physically and verbally abused by his owner. At the age of 10 years, he ran away and began to speak out against child slavery in Pakistan and attracted international attention. In 1995 he was murdered.

Globalisation and Women The most striking thing about women all over the world is the high discrimination meted against them. Some statistics are worth recollecting in support of this assertion. Out of the 1.3 billion poor people in the world, 70 per cent are women, the majority of whom are illiterate, with no access to basic amenities like safe drinking water. Two-thirds of the 130 million children worldwide who are not in school, are girls. Between 75 and 80 per cent of the world’s 27 million refugees are women and children. The majority of women earn on an average, about three-fourths of the pay of males for the same work. Worldwide, 20 to 50 per cent of women experience some degree of domestic violence during marriage. The primary victims in today’s armed conflicts are civilian women and children who are sexually abused by soldiers.12 The print media carry stories about bride burning, dowry harassment and rape of teenaged and minor girls. In different countries discriminations are manifested differently and are redressed, based on the economic conditions and cultural nuances prevalent in the country.

Global Perspective 15

What is the impact of globalisation on women? There are positive developments as well as negative impacts. First, the positive dimensions of globalisation. First, globalisation has enhanced employment opportunities for women. Companies everywhere are increasingly feminising their labour force in the name of promoting gender diversity, women empowerment and as a strategy to remain competitive. There is a shift in organisations towards using non-regular, flexible employment terms, like part-time, temporary, sub-contracted and home-based workers. Women are preferred to men in these areas. The export boom in Southeast and East Asia, particularly in the last quarter of the 20th century has thrown open thousands of job opportunities for women. Second, the migration of women in search of employment opportunities has helped ease the burden of poverty in many cases and meet the labour needs of a number of countries. Third, globalisation has contributed to the creation of new associations of women and the strengthening of their networks to offer mutual support and resources. Finally, advanced information and communications technology have improved the access of women to health, micro-credit, employment and information in general. However, there are some negative dimensions of globalisation as well, which reinforce the existing gender inequalities. First, free trade, a cause and consequence of globalisation, hurts women. Women, no doubt, find more job opportunities available to them. But a fair number of female employees work under substandard working conditions and unconventional workhours with serious implications on their social and physical health. The rape and murder of Prathiba Murthy, a BPO employee of HP, in December 2005 in Bangalore, is a reminder of how women can be targets of abuse and exploitation. Those in the lower and labour-intensive consumer electronics industries suffer from health problems ranging from extreme fatigue to general health problems due to chemical hazards and job stress. The second and the most critical of the impacts of globalisation on women is the worsening situation of violence against women. Workplace harassment is on the rise. The fact that a woman is sitting next to him makes the man think that she is available for him. Women migrant workers are increasingly becoming victims of sexual violence. Third, companies are increasingly commoditising feminity, using the print and video media in advertisements and movies. Sex tourism and sex trafficking are on the rise. Fourth, women are among the first to feel the negative impact of the presence of multinational corporations. MNCs dismantle local economies and “mine” natural resources needed by local and regional communities. The consequence is their break-up, displacement and migration, which removes emigrant women from the safety of familiar and community support structures.13

Inequalities International business has resulted in inequalities of income-inequalities within nations, between nations and globally. Inequality within country takes into account the income distribution within countries. International inequality shows differences in average incomes across countries. Global inequality takes into account both within-and between country income inequalities. Irrespective of other factors, there is growing inequality in incomes among people lending credence to the saying that rich become richer and poor the poorer.(see also Fig. 1.3). As shown in Fig 1.3, a gap is clearly present between rich and poor countries and is clearly widening. Inequalities in income lead to several problems. For example, income inequality increases black-market and property crimes, low-income house-holds lack the resources to maintain and improve their health status, and inequality tends to breed corruption. The unequal distribution of income may create inequalities for certain high-income groups to interfere with the political process and democratic governance. In particular,

16 International Human Resource Management a heavy concentration of wealth and income will provide richer individuals with sufficient resources to offer bribes to high-ranking officials and policy-makers.

FIGURE 1.3

Income of Rich and Poor Countries

Thus, globalisation has not been an unmixed blessing. There are benefits, no doubt. The cross-border exchange of goods, services, capital, technology, ideas, information, legal systems, and people are desirable and irreversible. Globalisation has definitely underwritten a rising standard of living throughout the world. Yet, the movement of people remains tightly restricted. The flow of capital is highly asymmetrical. Over the last two decades, overseas development assistance from the rich to the poor countries has totaled $ 50–80 billion per year. During the same period, every year, $500–800 billion of illegal funds have been reportedly sent from poor to rich countries. The benefits and costs of linking and delivering are unevenly distributed. Rich countries are mutually interdependent, developing countries are largely independent in economic relations with one another; and developing countries are highly dependent on industrial countries. However, India and China are trying to change this trend. There is a growing divergence in income levels between countries and people, with widening inequality among and within nations. Assets and incomes are more concentrated. Wages have fallen. Profit shares have risen. For example, the ratio of corporate profit to GNP in India rose by 330 percent during the period 2001–05, while in the same period the ratio of corporate wages to GNP fell by 2 percent. Capital mobility alongside labour immobility has reduced the bargaining power of organised labour. The deepening of poverty and inequality—prosperity for a few countries and people, marginalisation and exclusion for the many—has implications for social and political stability among and within states. The rapid growth of global markets has not seen the parallel development of social and economic institutions to ensure balanced, inclusive and sustainable growth.

Global Perspective 17

Globalisation has also let loose the forces of “uncivil society” and accelerated the transnational flow of terrorism, human and drug trafficking, organised crime, piracy and pandemic diseases.

INDIA BECKONS Globalisation strongly influenced the Indian economy, the Indian organisation, the Indian people, and has impacted each one differently. Work methods, as pointed out earlier, are evolving to more mature systems and the Indian corporate is creating a distinct identity for itself in the world. Indian MNCs are making us proud with their global presence. As a senior iFlex employee, who had recently shifted to Miami in USA, shared, that though it is common knowledge, it still gives people like him a thrill of pride to see the huge hoardings on buildings that house Indian MNCs like TCS, Wipro and Infosys in the business locality of the Silicon Valley. For a moment, one may even forget that it is actually USA and not one of the Bangalore or Pune Information Technology Park complexes.

Shift Due to Globalisation of the Indian Economy The shift due to globalisation of the Indian economy, expressed in terms of a freer flow of goods and services, capital, technology and information, owes itself to a macroeconomic crisis that erupted in 1991.14 India’s economy was largely domestic and in-ward looking, depending on itself on all fronts including technology and savings. The merchandise imports formed 0.67 per cent of the world’s total exports as in 1990, with foreign direct investment (FDI) being close to US$162 million, while the average nominal tariff on imports was 125 per cent, with a peak rate of 353 per cent. The public sector enterprises were strategic players of the Indian economy. In 1991, with the devaluation of the Indian rupee, a programme of fiscal reforms and credit squeeze was undertaken. Keeping the BOP (Balance of Payments) position intact by retaining import controls, the external trade policies were liberalised—by first introducing a price-based mechanism instead of a system of quantitative restrictions and then by identifying goods which were not subjected to import control and reducing the import tariff. Industrial licensing was withdrawn except for a few industries relating to security and strategic importance. And most importantly, the conditions for foreign direct investment were relaxed. The number of industries reserved for the public sector was reduced significantly, in addition to restructuring and privatisation of the PSUs and dismantling the publicly-administered pricing regime with the singular and primary objective of improving productivity and enhancing competitiveness of industrial establishments. The outcome was as expected—the value of external trade increased from US$17.9 billion in 1990, to nearly US$35 billion in 1996, and US$42 billion in 2000. Annual foreign direct investment (FDI) rose to US$3.2 billion in 1997, and has since then ranged between US$2.1 billion and US$2.5 billion. The size of the Indian economy has grown substantially over the past 10–12 years. Trade and FDI, which are critical measures of globalisation and are important factors in economic growth of a country have shown significant rises. Table 1.5 provides information on the distribution of FDI, indicating the kind of investments supporting developmental efforts in various states. TABLE 1.5

Distribution of FDI and Foreign Technical Collaboration (FTC) Approved between August 1991 to April 2002 (Major)

States Andhra Pradesh Bihar Gujarat Haryana

Amount approved (Rs. million) 130,377 7,395 183,523 35,193

% of total approved amount 4.69 0.27 6.60 1.27 (Contd.)

18 International Human Resource Management TABLE 1.5

(Contd.)

States

Amount approved % of total (Rs. million) approved amount Karnataka 214,470 7.71 Kerala 15,245 0.55 Madhya Pradesh 92,273 3.32 Maharashtra 485,342 17.45 Orissa 82,290 2.96 Punjab 19,684 0.71 Rajasthan 30,047 1.08 Tamil Nadu 232,095 8.34 Uttar Pradesh 47,903 1.72 West Bengal 87,304 3.14 Delhi 334,933 12.04 Other small states and territories – 1.37 Others (state not indicated) – 26.80 Total 2,781,806 100.00 Source: Secretariat for Industrial Assistance, Government of India. Newsletter Vol. XI No. 1, May 2002.

Globalisation has had a profound impact on development of Indian cities and on the generation of intellectual capital whereby multinational companies are free to locate anywhere. It is interesting to observe that the cities that were prosperous continued to retain their manufacturing base while generating additional activities and promoting technology. Ahmedabad is an example of a city that not only retained its manufacturing superiority but also upgraded its old manufacturing industries. Delhi is increasingly becoming known for building up the new generation information base and for developing white goods industries. Mumbai on the other hand, has become the hub of financial, insurance and real estate services, accounting for nearly 13.8 per cent of the total employment, emerging as a dominant financial centre not only for India but for Asia as well. And, the triangle, Mumbai–Pune–Nashik, provides a dispersed industrial region that sustains the service economy of Mumbai. Bangalore lost its stature as the ‘pensioner’s paradise’ to gain a new status as India’s Silicon Valley, proud of its extraordinarily large concentration of activities relating to software, communication and information technology industries. The latest NASSCOM-McKinsey survey predicts that IT and IT-enabled services would add 7 per cent to India’s GDP by 2010, and along with the creation of 8.8 million new jobs, the export revenue from the sector is projected to triple to $ 60 billion by 2010. Hyderabad has carved out its niche with high value added export and research base, claiming a share of the information technology industry on account of its better managed infrastructure and other developmental activities. The ability of a city to flex its existing environment has become crucial to create and maintain its position in the emerging global economy. Residential areas in the central and sub-central districts in cities such as Delhi, Bangalore, Mumbai and Hyderabad are being transformed into commercial spaces. Shopping malls are swiftly replacing the old systems of trading. Commercial and office space is being continuously added to accommodate the branch offices of multinational and domestic companies and financing institutions. The concept of satellite townships as answers for both commercial as well as residential space constraints within city limits is increasingly gaining popularity with multinationals moving to Tier 2 cities and suburbs of the existing large cities to set up captive commercial centres to cope with the slow pace of city-level administrative reforms. The respective state governments, meanwhile, have swiftly moved in the direction of liberalising and engaging the private sector in the development of the physical infrastructure and the transport management systems of the state. Another challenge confronting the Indian economy relates to the ease of doing business. The International Finance Corporation (ICF)’s “ Doing Business”, reports on the realities of starting and running businesses

Global Perspective 19

in 183 countries. Table 1.6 contains the list of top performers in facilitating international business. Table 1.7 contains the list of the fastest and slowest countries in doing business. India occupies 133rd place among the 183 countries. TABLE 1.6

The Top 10 Performers in 2008–09

Ranking 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

TABLE 1.7

Rwanda Kyrgyz Republic Macedonia, FYR Belarus UAE Moldova Colombia Tajikistan Egypt Liberia

The Fastest and the Slowest in 2008-09

Fastest

Ireland Japan Canada Singapore Belgium Finland Norway Australia Belize Iceland

Country

Slowest

0.4 0.6 0.8 0.8 0.9 0.9 0.9 1.0 1.0 1.0

Ecuador Indonesia Haiti Philippines Belarus Angola Czech Republic Maldives India Mauritania

5.3 5.5 5.7 5.7 5.8 6.2 6.5 6.7 7.0 8.0

The Indian Organisations The Indian organisations could not have hoped for more. In addition to being strategically positioned on the corporate world as a low cost destination, the Indian corporate is becoming famous for its employee base of committed, highly skilled, intelligent and by far, more knowledgeable work force. This has been largely achieved with the help of a strong foundation in the rigour of the Indian education systems that breed the best. It is an undebatable fact that graduates from the Indian Institutes of Technology and other famous engineering colleges and postgraduates from the Indian Institutes of Management and other premier management schools compete globally on all aspects of quality education and research that is encouraged on these campuses. Fifteen top American universities have joined hands with the Indian Space Research Organisation (ISRO), the Department of Science and Technology (DST), and Amrita Vishwa Vidyapeetham, to enhance higher education and research in India. The basic value systems those drive the success of Indian multinationals like Infosys Technologies, Reliance Industries, the Tata Group and Wipro, rated among the world’s most respected companies,

20 International Human Resource Management are not very different from those of the western and European MNCs. With each passing day, Indian businesses are acquiring companies abroad, becoming world-popular suppliers and are recruiting staff cutting across nationalities. Asian Paints is making news among the 10 largest decorative paint makers in the world, with manufacturing facilities across 24 countries. Tata Motors is rolling out Indicas from Birmingham through a marketing alliance with Rover. The company has acquired a Daewoo Commercial Vehicles unit, giving it access to markets in Korea and China. Ranbaxy is the ninth largest generics company in the world. An impressive 76 per cent of its revenues comes from overseas. Dr. Reddy’s Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001. Small auto components company, Bharat Forge, is now the world’s second largest forgings maker. Its work force includes Japanese, German, American and Chinese people. It has 31 clients across the world and only 31 per cent of its turnover comes from India. Essel Propack is the world’s largest manufacturer of lamitubes—tubes used to package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs 609.2 crore for the year ended December 2003. The company commands a staggering 30 per cent of the 12.8 billion-units global tubes market. About 80 per cent of revenues for Tata Consultancy Services comes from outside India. TCS employs nearly 9,000 people in the US, handling technology services for Fortune 500 companies such as General Electric. Recently, it raised Rs. 54.2 billion ($1.17 billion) in Asia’s second-biggest tech IPO this year and India’s largest IPO ever. Infosys has 25,634 employees, including 600 from 33 nationalities other than India. It has 30 marketing offices across the world and 26 global software development centres in the US, Canada, Australia, the UK and Japan. Sundram Fasteners is not merely a nuts and bolts company. It believes in thinking out of the box. It has set up a plant in China. Vedanta Resources, the holding company of the Sterlite group, raised a record $1 billion last year in its maiden public offering on the London Stock Exchange (LSE). This was the largest sum garnered by an Indian company in the overseas markets and the second largest IPO in Europe in 2003. In 2003–04, nearly Rs. 2,500 crore of the total turnover of Hindalco—Rs. 1,800 crore from copper and Rs 620 crore from aluminium—came from international business. Aurobindo Pharma is already part global with eight subsidiaries across the world, two JVs in the US and a new acquisition in China. Half of its revenues come from exports. This strength is derived from its strong presence in the emerging markets of Asia, Brazil and Latin America. In the last two years, ONGC has become a strong company with a market capitalisation of Rs 122,000 crore. The company has plans to build bigger energy assets, both in India and abroad. Thus, India’s success is not limited to the IT/ITES industry segments alone, it pans the brick and mortar segment as well as the public sector units.

The Indian People The idea of India and all things Indian has made significant inroads into the popular psyche regarding films, television, art, music, dance, handicrafts and even food. The inroads made by Indian cinema globally and the sensation created with the ‘crossover genre’ of Indian cinema has given birth to a new awakening for things Indian and the Indian culture that makes Indians so different from others. ‘Handmade’ gifts from India are considered precious. The knowledge about Indian food in the international community is an acknowledgement of not only its popularity but also of how far the ‘Indian’ has gone. Geert Hofstede’s five Cultural Dimensions, (Read Chapter 2 for more details) which serves as a universal framework to help understand and compare different nationalities, have been used to rank India on factors of Power Distance Index (PDI), Individualism (IDV), Masculinity (MAS), Uncertainty Avoidance Index (UAI), and Long-term Orientation (LTO). All are accepted as powerful indicators of what drives behaviour in society. The Indian culture is one that sees a low individualism index, clearly scoring high as a collectivistic society with its roots in the traditional values of the great Indian joint family system. This cultural differentiator

Global Perspective 21

impacts the Indian work style with a natural urge to collaborate and welcome shared responsibilities. A low uncertainty avoidance ranking indicates the Indians’ ability to tolerate ambiguity and uncertainty and this impacts the workplace with a tolerance for a variety of opinions. This is reflected in a society that is less rule-oriented, more readily accepts change and can take more and greater risks. One of the key outcomes of globalisation is the global mobility of the Indian work force. Exhibit 1.4 provides details about the achievements made by Indians overseas.

Exhibit 1.4

Indians in the US

∑ There are now 1.7 million people of Indian origin in America, according to the US Census Bureau. They are represented in many professions including academics and entrepreneurship, medicine and law, engineering and financial services. ∑ The Indian American median family income is $60,093, as against the national median family income of $38,885. The estimated annual buying power of Indian Americans in the United States is around US$20 billion. The high income clearly reflects the advanced educational levels achieved by the community. ∑ High levels of education have also enabled Indian Americans to become a productive segment of the US population, with 72.3 per cent participating in the work force. The over 35,000-strong American Association of the Physicians of Indian Origin is a case in point. ∑ Of these work force participants, 43.6 per cent are employed in managerial and professional specialities. ∑ More than 5,000 Indian Americans today serve as faculty members in institutions of higher education in the US. ∑ About 300,000 Indian Americans work in technology firms in California’s Silicon Valley. They account for more than 15 per cent of high-tech start-ups in that region. The median income of Indian Americans in that region is estimated to be US$125,000 (average $200,000) a year. ∑ Three Indian Americans—Har Gobind Khorana of Massachusetts Institute of Technology, late Subrahmanyan Chandrashekhar of University of Chicago and Amartya Sen—have been awarded the Nobel Prize, in medicine, physics and economics respectively. ∑ NASA’s premier X-ray observatory was named as the Chandra X-ray Observatory in honour of the late Subrahmanyan Chandrasekhar. Known to the world as Chandra, he was widely regarded as one of the foremost astrophysicists of the twentieth century. The observatory was launched into space in July 1999. Dr. Kalpana Chawla added a new chapter to the history of the Indian American community. In 1997, she became the first Indian or Indian American to fly in the US space shuttle. She was part of the Space Shuttle Columbia Flight STS-87. Source: India Brand Equity Foundation

Reforms have ensured ample supplies of everything, ending the perennial scarcity of the bad old days. Low import duties have ended the smuggling of gold, synthetics and consumer electronics. The black-market premium on foreign exchange has gone. Inflation and interest rates have fallen with the reduction of external barriers. These are huge gains for consumers and companies. Financial liberalisation has empowered consumers with access to housing and personal loans, credit cards and mutual funds. Better access has coincided with falling interest rates. ATMs have revolutionised access to cash, and computerisation has improved the speed of bank staff. Obviously, the delivery of financial services has greatly improved. Government delivery of basic services like education and health, however, remains poor. But private provision has sky-rocketed. A recent ICRIER working paper estimates that between 1999–00 and 2005, the

22 International Human Resource Management number of private engineering institutions rose from 669 to 1,478, teacher training institutions from 1,050 to 5,190, physiotherapy institutions from 51 to 205 and pharmacy institutions from 204 to 629. The quality of these is spotty, yet they represent improved service delivery, though at a higher cost. Four-fifths of medical services come from the private sector, possibly the highest proportion in the world. Many foreigners think, wrongly, that the IITs have spearheaded India’s software revolution. The IITs produce barely 3,000 graduates a year, most of whom go abroad or join multinationals. The 800,000 people employed in the software industry come mainly from private engineering colleges and these graduates upgrade their skills through software firms. Infosys, for instance, is spending Rs.1,200 crore to set up a Global Education Centre and Infosys Leadership Institute at Mysore, capable of training 40,000 people per year at a cost of $5,000 each. Globalisation has revolutionised the capital market, facilitating dematerialisation of shares and giving India an electronic exchange (NSE) superior to London’s. Mobile phones have taken technology to the grassroots—even street hawkers own them. E-governance initiatives like Bhoomi (Karnataka) and e-Seva (Andhra Pradesh) have improved the access of villagers to land records and market information. ITC has launched e-choupals, and others are joining the bandwagon. Computerisation has facilitated the working of microfinance organisations.15 The Indian experience of globalisation has been profoundly impacted by policies and processes of the West. The cultural advantage of the Indian masses to adapt quickly to change helped the Indian corporates seamlessly shift to efficient, quality driven and cost-effective methods and become globally competent. In the process, the confidence that exists today in MNCs setting up operations in India/off-shoring work to the Indian subcontinent has been a one-way trip and India still continues to ride this wave. This distinct advantage is being leveraged by factors like– ∑ ∑ ∑ ∑ ∑

The large English speaking population; The robust and very affordable educational system that the urban Indian has access to; The hardworking ability of the average Indian, given the largely agrarian ‘roots’; The ‘team’ culture that is embedded in the ‘joint family’ values; and The democratic political system that opened the door to foreign investment.

It is probably a privilege and a unique opportunity to be part of what is happening in the country today and on a global perspective, in the next 8–10 years. The country is obviously beckoning investors all over the world to safely invest in India.

PLAN OF THIS BOOK The 14 chapters of the book are being classified into four sections. Section 1, comprising chapters on global perspective and multiculturalism, provides the theoretical backdrop to international human resource management (IHRM). Section two has three chapters, viz. nature of IHRM, international strategic human resource management and human resource management in cross-border mergers and acquisitions. This section sets the tone for further discussion on IHRM. Six chapters starting from staffing international business and ending with international industrial relations—constitute the third section. This section constitutes the very essence of IHRM. Ethics and social responsibility of international businesses, future of IHRM, and HR practices in different countries, come in the fourth and the final section of the book (see Fig. 1.4).

Global Perspective 23

FIGURE 1.4

Scope of the Book

SUMMARY Globalisation refers to the process of integrating world economies. And it cannot be stopped from taking place, no matter what the political, economic or cultural compulsions are. Also called internationalisation, the momentum of globalisation has been driven by several developments. Companies seek to take advantage by expanding their operations into foreign markets in a number of ways; developing economies have huge markets, multinational companies can locate their subsidiaries in low-wage and low-cost countries, changing demographics tilt the scales with reference to employable masses by country and by time period, creation of the regional trading blocks and declining trade and investment barriers. All these have vastly contributed to globalisation. The Boston Consultancy Group has identified five currents of globalisation: the growth of rapidly growing developing economies (RDEs); the continuing cost and capital advantages of RDEs; the development of talent and capabilities in RDEs; the migration of customers to RDEs; and the emergence of RDE-based global competitors. The effects of globalisation are varied, ranging from cultural degradation to the fear of loss of sovereignty. The chapter discusses the effects on management practices, wages, jobs, rapidly emerging concerns with regard to child labour and the employment of women. The chapter ends with an extensive discussion on the Indian experience of globalisation, providing a multifaceted flavour of how globalisation has touched the lives of Indians. The success stories of the Indian corporations in their quest for internationalisation provides instances of Indian firms that have made it big globally.

CLOSING CASE

Global Human Resource Management at Coca-Cola

Coca-Cola Company is one of the most successful multinational enterprises. With operations in close to 200 countries and nearly 80 per cent of its operating income derived from businesses outside the United States, Coca-Cola is typically perceived as the quintessential global corporation. Coca-Cola, however, likes to think of itself as a “multi-local” company that just happens to be headquartered in Atlanta but could be headquartered anywhere and that presents the Coca-Cola brand with a “local face” in every country

24 International Human Resource Management where it does business. The philosophy is best summarised by the phrase “think globally, act locally,” which captures the essence of Coca-Cola’s cross-border management mentality. Coca-Cola grants national businesses the freedom to conduct operations in a manner appropriate to the market. At the same time, the company tries to establish a common mind-set that all its employees share. Coca-Cola manages its global operations through 25 operating divisions that are organised under six regional groups: North America, the European Union, the Pacific Region, the east Europe/Middle East Group, Africa and Latin America. The corporate human resource management (HRM) function is charged with providing the glue that binds these various divisions and groups into the Coca-Cola family. The corporate HRM function achieves this in two main ways: (1) by propagating a common human resources philosophy within the company, and (2) by developing a group of internationally minded mid-level executives for future senior management responsibility. The corporate HRM group sees its mission as one of developing and providing the underlying philosophy around which local businesses can develop their own human resource practices. For example, rather than have a standard salary policy for all its national operations, Coca-Cola has a common salary philosophy— the total compensation package should be competitive with the best companies in the local market. Twice a year, the corporate HRM group also conducts a two-week HRM orientation session for the human resource staff from each of its 25 operating divisions. These sessions give an overview of the company’s HRM philosophy and talk about how local businesses can translate that philosophy into human resource policies. Coca-Cola has found that information sharing is one of the great benefits of bringing HRM professionals together. For example, tools that have been developed in Brazil to deal with a specific HRM problem might also be useful in Australia. The sessions provide a medium through which HRM professionals can communicate and learn from each other, which facilitates the rapid transfer of innovative and valuable HRM tools from region to region. As much as possible, Coca-Cola tries to staff its operations with local personnel. To quote one senior executive: “We strive to have a limited number of international people in the field because generally, local people are better equipped to do business at their home locations.” However, expatriates are needed in the system for two main reasons. One is to fill a need for a specific set of skills that might not exist at a particular location. For example, when Coca-Cola started operations in Eastern Europe, it had to bring in an expatriate from Chicago, who was of Polish descent, to fill the position of finance manager. The second reason for using expatriates is to improve the employee’s own skill base. Coca-Cola believes that because it is a global company, senior managers should have an international exposure. The corporate HRM group has about 500 high-level managers involved in its “global service programme”. Coca-Cola characterises these managers as people who have knowledge of their particular field, plus knowledge of the company, and who can do two things in an international location—add value by the expertise they bring to each assignment and enhance their contribution to the company by having international experience. Of the 500 participants in the programme, about 200 move each year. To ease the costs of transfer for these employees, Coca-Cola gives those in its global service programme, a US-based compensation package. They are paid according to US benchmarks, as opposed to the benchmark prevailing in the country in which they are located. Thus, an Indian manager in this programme who is working in Britain, will be paid according to US salary benchmarks—and not those prevailing in either India or Britain. An ultimate goal of this programme is to build a cadre of internationally minded high-level managers from which the future senior managers of Coca-Cola will be drawn.16

Global Perspective 25

Case Questions 1. Substantiate the phrase “think globally, act locally”, from the perspective of key HRM functions that could be practised by Coca Cola. 2. What in your opinion, is the objective of the two-week HRM orientation session organised by the corporate HR?

Key Terms Child labour Globalisation Off-shoring Outsourcing

Rapidly Developing Economies (RDE) Regional Trading Blocks Wage disparities

Review Questions 1. What are the five key drivers of globalisation? 2. What are RDEs and what is the role played by RDEs in globalisation? 3. Discuss the impact of globalisation on child labour. Why is this predominant in the emerging economies? 4. How has the woman benefited from globalisation trends? 5. How has the Indian organisation been impacted by globalisation?

Assignments 1. Break into groups of not more than 5 and select a country that qualifies as an RDE as defined in the text. Carry out research and present to the class, an analysis on the following dimensions of this RDE: ∑ Demographics and general history. ∑ Reasons for making it an RDE. ∑ Identify the corporations that are responsible for the prosperity of the RDE. ∑ How has globalisation impacted the people of this country? ∑ Research Geert Hofsted’s scores for this country and discuss how it impacts its work culture. 2. This assignment can be completed individually or in groups of not more than three. ∑ Identify a multinational corporation (make sure you have reasonable amount of information available publicly about the organisation (or have access to information about it). ∑ Study the nature of its establishment and its dependence on the external environment. ∑ Conclude, based on your findings, the reasons for which the company decided to go international and how it went about choosing the various locations where it has a significant presence. ∑ Discuss, in the larger group, the impact of globalisation on the corporation.

References 1. 2. 3. 4.

“Globalisation, Growth and Poverty”, World Bank, 2002, pp 1–3. Andrew Harrison et al., International Business, Oxford, 2000, p 158. Michael P. Todaro and Stephen C. Smith, Economic Development, Pearson, 2003, p 565. Jagadish Bhagawati, In Defense of Globalisation, Oxford, 2004, p 11.

26 International Human Resource Management 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

The Boston Consultancy Group, 2005. The Wall Street Journal, April 16, 2003. Chirtopher A Bartlett and Sumantra Ghoshal, Transnational Management, IMH, 2000, p 5. Supriya Roychowdury, “Globalisation and Labour”, Economic and Political Weekly, January 3, 2004, p 106. John R. Boatright, Ethics and the Conduct of Business, Pearson, 2003, p 426. Jagadish Bhagawati, op.cit, p 68. Michael P. Todaro and Stephen C. Smith, op.cit, p 375. Jagadish Bhagawati, op.cit, p 68. United Nations Dept. of Public Information, 1997. Om Prakash Mathur, The Urban Partnerships Foundation Occasional Paper No. 4; Impact of Globalisation on Cities and City-Related Policies in India, August 2003. The Economic Times, August 2, 2006. Amfuso D.A, “HR unites the world of Coca-Cola”, Personnel Journal, Nov, 1994, pp 112–20, and Foley S., “Internationalising the Cola Wars”, Harvard Business School Case, # 9–794–146.

CHAPTER

2 MULTICULTURALISM Learning Objectives After reading this chapter, you should be able to ∑ Understand the nature of culture and how is it different from multiculturalism. ∑ Describe how do organisations manage across cultures. ∑ Understand communication challenges in a multicultural setup. ∑ Understand how countries can be compared on cultural dimensions. ∑ Describe the impact of an individual’s work values on the subsidiary/parent country’s operations

28 International Human Resource Management

OPENING CASE

Seventh Heaven

If there’s one thing William H Pickney, Managing Director and CEO, Amway India has mastered during his seven year stay in India, it’s the art of breaking the coconut in one go. He’s had enough practice at the opening of every new branch office—and during the annual Diwali puja in office—which is an Indian tradition followed religiously at Amway. From wearing a kurta pyjama to eating local food, Pickney has taken to India and things Indian. Even his office has shades of Indian influence, including a bronze Ganesh statue. “My wife and I had always talked about an adventure, and to us, India was the ultimate adventure,” says Pickney. The Pickney affair with India started in late 1997, when Amway sent them for a typical look-see, to decide whether they could contemplate living here for two-odd years. They spent a week in Delhi just ‘getting a feel for living in the capital city’. “Before I came here, I had heard a lot of stories, and none of them were good.” What didn’t help matters was the number of vaccinations he had to take before coming to India; “I had never had as many shots in my life before,” says the only expat on the rolls of the Rs. 600-crore Indian operations of Amway. Cleanliness and health were two issues the Pickneys were concerned about. But to their immense relief, it turned out to be far better, “We have not taken any malaria pills in the last five years.” People were the first thing Pickney noticed on his arrival in India. “In Sydney, you don’t find people on the roads just outside the city. Here, they are everywhere.” What’s impressed him most about Indians is the level of education, dedication and commitment, which he says is ‘the best and the highest in the world.’ Professionally, the HR aspect of working in India has been most interesting—‘a learning curve’ — for him. “Coming out of the West, one was used to giving direct feedback. But in India, you have to be very careful about that. Constructive criticism has to be applied very carefully.” Another interesting observation he made was regarding performance appraisal. “People here equate hard work with high performance. Just because you spent as many hours, it does not make you a high achiever.” Pickney himself works almost every Saturday, if he’s in town, and dislikes taking work home to his lovely house in the plush Sainik Farms locality in the outskirts of Delhi. While both husband and wife tend to stay in more, dining out with friends is one of the few entertainment options available in India. He’s got more Indian friends than expats, mostly people he met through business, like Kanwar Bhutani of Tupperware. Both, however, try to find time to play golf at the ITC Golf Course in Gurgaon. It’s a game Mrs. Pickney took up in India, since she found free time on her hands for the first time in her life. A certified chartered accountant, Mrs. Pickney used to run her own business in Australia. Some of that time has been used to learn to cook typical Indian fare: butter chicken, aloo palak, rogan josh and dal makhani. It’s no wonder then that half their meals are Indian. They’ve adjusted to the spice factor in Indian food. What was hot when they first came in is nothing compared to hot today. “When we travel abroad, we really miss the spice.” After all this time in India they still find it striking that irrespective of which part of the country they are in, ‘there’s a positive spirit about people of India.’ “People have hope, optimism and are generally happy.” The respect Indians have for their culture and beliefs is another factor that the Pickneys appreciate. “Family ties are much stronger here, as is respect for elders and their wisdom. For instance, girls in our office who talk and dress in a Western way, have no problems accepting arranged marriages,” says Pickney, whose

Multiculturalism 29

daughter is getting married in Australia in November this year. Papa Pickney is planning to throw an Indian reception after the Australian wedding, including traditional attire for the bride and the groom. Yet another occasion to break a coconut, Mr. Pickney? We wonder.1 It is not just Pickney, any expatriate working in India should learn the art of breaking coconuts and wearing kurta pyjama. Nay, an expatriate working in any country needs to imbibe local culture. He or she needs to acquire cross-cultural competence while working in host countries. This is because different cultures exist in the world and the international manager should have the knowledge and competence to live with the diverse cultures.

NATURE OF CULTURE Culture is understood as the customs, beliefs, norms and values that guide the behaviour of the people in a society and that are passed on from one generation to the next. This simple meaning connotes the following core elements of culture: ∑ Culture has normative value. It prescribes do’s and dont’s which are binding on the members of a society. ∑ Culture is a group phenomenon. Culture applies to the members of a society. Society’s normative values are binding on each member and not vice versa. ∑ Cultural practices are passed on from generation to generation. Women in Indian society wear kumkum on their foreheads because their parents have told them to do so. The parents did the same because their parents had done so. There are dominant cultures, sub-cultures, organisational cultures and occupational cultures (See Fig. 2.1.). Dominant culture is pervasive and extends to the whole of a country. For example, certain things are auspicious and some others are not so and this belief is shared by all Indians. Dominant Culture Subcultures exist within the dominant culture. The cultural practices of Punjabis are different from those obtaining in KarnaSub-Culture taka. Interestingly, subcultures subsume into the dominant culture to present a unified culture, typifying “unity in diversity”. Organisational Within the dominant culture is the organisational culture. EveCulture ry organisation will have its own distinct culture. The culture of the Occupational Tatas, for example, is different from that of Infosys while that of Culture Infosys is not the same as that of WIPRO. Each profession carries its own culture and it cuts across domiFIGURE 2.1 Levels of Culture nant cultures. An accountant, for example, speaks the same language whether he or she is an Indian or an American. So is the case with a medical practioner or an attorney.

EFFECTS OF CULTURE The effect of culture may be both functional, as well as dysfunctional. Talking about the latter, it may be stated that culture leads to groupthink, collective blind spots, and resistance to change and innovation.

30 International Human Resource Management Culture makes an organisation a clan. The clan forming a business, possesses a few potentially disabling weaknesses. A clan always tends to develop zenophobia, a fear of outsiders. Another problem from wellknit culture relates to the management of diversity. Strong cultures put considerable pressure on employees to conform. But modern organisations are known for diversity of workforce. Workforce diversity is being accepted and even encouraged. Obviously, there develops conflict between the need for conformity and the advantage of having employee’s diverse behaviors and strengths. Culture acts as a barrier to mergers and acquisitions. Historically, financial matters were alone considered to decide which company should acquire which firm or which unit would merge with which organisation. In recent years, cultural compatibility has become the primary concern. While a favorable financial statement or product line may be the initial attraction of an acquisition company, whether the takeover actually works out seems to have more to do with how well the culture of the two organisations match with each other. Where there is a mismatch, acquisitions are likely to fail, as happened to the takeover of Poysha Industries Ltd. by Tinplate Co. of India Ltd. The latter acquired the former in 1991, but the big-brother attitude of the acquirer was too much for the acquired and the marriage broke down in 1994. A well developed and sustained culture offers several benefits to the organisation. First, culture serves as a control mechanism that shapes performance of employees. As culture seeps through the organisation, people register do’s (e.g., perform effectively and keep a firm grip on quality) and don’ts (e.g., engage in poor team work or be disrespectful to employers). When employees do not act in accordance with the norms /culture, managers and peers try to intervene and initiate corrective actions. Second, culture promotes innovation. By developing and supporting alluring processes, culture promotes innovation and creativity. Innovation and creativity are the key to competitive advantage of an organisation. Third, culture wields considerable influence on strategy formulation and implementation. It provides inputs to the company to adopt a particular strategy. Motorola’s culture, for example, is built around high investment in R&D, quality and customer care. This culture has bolstered the strategy of the company, providing the impetuses for the development of new products. Culture energises people in the company to do their jobs in a strategy-supportive manner and help execute strategies. A culture, where frugality and thrift are values shared by organisational members, is conducive to successful execution of low-cost leadership strategy. Similarly, a culture where creativity, change acceptance, and challenging the status quo are pervasive themes, is very conducive to successful implementation of a product innovation and technological leadership strategy. Fourth, culture provides a sense of identity to members and enhances their commitment to the organisation. When employees internalise the values of the company, they find their work intrinsically rewarding. Motivation is enhanced and morale gets a boost. Finally, by ensuring organisation-person fit, culture brings about organisational commitment and job satisfaction among employees. Satisfied employees do not exit the organisation and even bring a new talent too.

MULTICULTURALISM Before describing the nature of multiculturalism, we propose to cite three incidents: ∑ “An airline service to Brazil advertised that it had comfortable “rendezvous lounges” in its business class section. Unfortunately, it failed to realise that the word rendezvous in Portuguese refers to room for illicit sexual encounters”. ∑ “An American businessman rewarded the most outstanding member of a Japanese marketing team by promoting him to head the group. Rather than being proud and grateful, however, the top performer

Multiculturalism 31

(promotee) seemed ashamed, and the others in the team were uncomfortable and demoralised. Contrary to what the American businessman had anticipated, performance in the team gradually declined. What the American businessman had not realised was that Japanese feel most comfortable while working in teams, with all sharing equally in decisions, workloads, and responsibility for outcomes”. ∑ “Jeff Huberman, an organisational consultant, had been sent to work on a project with a client company in Bogatia, Colombia. To demonstrate his good intentions, he gave each of his three Colombian colleagues an expensive box of beautifully wrapped imported chocolates. Jeff’s three Colombian colleagues, however, merely nodded in appreciation, and put their gifts aside without even opening them. In fact, Jeff was bothered that after an entire week his Colombian colleagues still had not thanked him for the chocolates”. (1(a)) The American airline service, the American businessman, Jeff Huberman and several others face embarrassing situations as stated above because of divergent cultures prevailing across the globe. What then is multiculturalism? It means that people from many cultures (and frequently many countries) interact regularly. A typical organisation (domestic or overseas) shall have different cultures, and notwithstanding such divergent practices, people work in unison to achieve effectiveness. Rip open the profiles of employees in an organisation, you find bewildering mixture of people with varied cultural backgrounds, and all working towards its success. Coca-Cola, for example, is a world within the world. WIPRO may be located in Bangalore, but its employees represent pan-world and its outlook is cosmopolitan. A multinational corporation needs to maintain a unified culture that knits all the subsidiaries together. Each subsidiary tends to become a stand alone unit if a unified culture does not exist.2 Uniliver, for example, has decentralised its operations worldwide. To knit together the decentralised organisation, Uniliver worked to build a common organisational culture among its managers. For years, the company hired people of different nationalities, but with similar values and interests. The idea was to hire people who could easily jell with Uniliver’s culture. It is said that the company has been so successful at this that Uniliver executives recognise one another at airports even when they had met only once before. Uniliver’s senior management believes that this corps of like-minded people is the reason why its employees work so well, despite their national and cultural differences. Uniliver has also worked hard to periodically bring these managers together. Yearly conferences on company strategy, and executive education sessions at Uniliver’s management training centre outside of London, help establish connections between managers. The idea is to build an informal network of equals who know one another well and usually continue to meet and exchange experiences. Uniliver also moves its young managers frequently, across borders, products and divisions. This policy establishes a base for Uniliver’s relationships early as well as increases know-how.3 It is not just corporates which promote multiculturalism. Even nations are active in promoting such a practice. Canada, for instance, has declared itself as a multicultural society and to make this point explicit, the government enacted the Multi-culturalism Act of 1988. Multiculturalism has since sunk deep into the roots of the government, which is reflected in everything from broadcasting to education policy. It has itself become a basic Canadian value.

CULTURAL PREDISPOSITIONS Most MNCs tend to have a cultural predisposition towards managing things in a particular way. This orientation helps an MNC determine the specific steps it takes.4 Four predispositions are identified: ethnocentric, polycentric, regiocentric and geocentric. (See Fig. 2.2.)

32 International Human Resource Management Polycentric

Ethnocentric

CULTURAL ORIENTATION

Regiocentric

FIGURE 2.2

Geocentric

Cultural Predispositions

Ethnocentricism In ethnocentric orientation, the home country’s culture is sought to be imposed on subsidiaries. The MNC exports its HR policies and practices from home office to foreign locations. Expatriates from the MNC’s home country manage the affairs of the subsidiaries. Local employees occupy low-level and supporting jobs. Past performance at home and technical competence govern selection criteria for overseas assignments from home office. Other HR policies and practices too flow from the home country. Performance appraisal and compensation use parent country standards. The company assesses managers’ performances using the same criteria and measures used for home country units. Because of national context variations, firms may be forced to use different approaches for the evaluation and promotion of host country managers. Such local adaptations, however, have little effect on the ethnocentric company’s procedures for promotions beyond the lowest levels of management. When the MNCs use home country executives, training for overseas assignments may not exist. Except for top level positions, most international assignments are only for a short span of time. The use of home country evaluation and promotion standards, the lack of training and the short period assignments limit and discourage cultural adjustments for expatriates.5 Ethnocentric policy is justified on the following reasons: ∑ Perceived lack of competent host country nationals. ∑ Need to maintain a unified corporate culture among all subsidiaries.6 ∑ Greater control and loyalty of home country nationals. ∑ Key decisions are centralised. An ethnocentric policy, however, has a number of disadvantages: ∑ Host country nationals are denied promotional opportunities. ∑ Expatriate managers may not be able to adapt to local conditions easily and early. ∑ Expatriate managers are often poorly trained for international assignments and tend to commit mistakes.

Multiculturalism 33

Polycentricism Polycentricism implies that the multinational corporation seeks to adapt to the local cultural needs of subsidiaries. If a management policy is oriented to suit local needs, or if a product is customised to meet customer tastes, it is polycentricism in practice. Polycentricism is more pronounced in the context of human resource practices. In polycentric staffing, operations outside the home country are managed by individuals from the host country. Firms can implement a polycentric approach for top and middle level managers, for lower-level staff or for non-managerial workers. In other HR policies relating to appraisals and promotions too, local needs outweigh other considerations. Polycentric approach does not bestow absolute freedom to subsidiary heads to run their business as stand alone units. MNCs usually conduct extensive training programmes in which host-country managers visit home offices for extended periods. They are trained in the company’s culture and are taught how to protect the nuances of corporate culture, respecting, of course, the host country’s beliefs and values. As with the ethnocentric approach, polycentric orientation carries with it certain merits and gets dented because of some drawbacks. Talking about the advantages, it may be stated that a polycentric approach seeks to eliminate the high cost of relocating expatriate managers and families. Second, this approach offers a degree of autonomy in decision making to subsidiary heads. Subsidiary heads are in a better position to adapt to local needs and tastes. Third, since host country citizens are used, training costs may not be high. Fourth, host country nationals are less expensive than deputing home country citizens as expatriates to work in subsidiaries. The major drawback of the polycentric approach is the tendency to lose control over subsidiaries. Subsidiaries tend to become stand alone companies. Another limitation is that home country managers may lose the benefit of gaining exposure to overseas markets.

Regiocentricism Regiocentric approach operates in the same way as polycentricism. But they differ in that a polycentric company adapts IHRM practices to countries and the regeocentric to regions.7 Regiocentricism has similar features, advantages and limitations as the polycentric orientation.

Geocentricism In geocentric orientation, subsidiary operations are managed by the best qualified individuals, regardless of their nationality. Subsidiaries may choose managers from the host country, from the home country or from a third country. The only criterion for selection is the merit of the applicant. The capable managers adapt easily and well to different cultures and usually are bilingual or multilingual. Table 2.1 brings out the salient features of the four predispositions more clearly. TABLE 2.1 IHRM Practice Recruitment and Selection

Ethnocentric Home country nationals for key positions selected on technical expertise or past home country performance; host country nationals for lowest levels of management only.

Features of Cultural Predispositions

IHRM Orientation Polycentric Regiocentric Home country nationals Home country nationals for top management for top management and technical-positions; and technical positions; host country nationals regional country for mid-level nationals for mid-level management positions; management and below. selection of home country nationals similar

Global Worldwide throughout the company; based on best qualified for position.

(Contd.)

34 International Human Resource Management TABLE 2.1 IHRM Practice

(Contd.) Ethnocentric

Training for Very limited or none; Cross-Cultural no language requireAdaptation ments.

Management velopment: The Effects of International Assignments Evaluation

May hurt career. Home standards based on contribution to corporate bottom line.

Compensation Additional pay and efit packages globally with assignments.

IHRM Orientation Polycentric Regiocentric to ethnocentric; selection of host country nationals based on fit with home country culture, e.g., home country language ability. Limited for home Limited to moderate country nationals. training levels for Some language home country nationals; training. home and host country nationals use language of business, often English. May hurt career of Neutral to slightly home country nationals; positive career implicahost country nationals’ tions; international advancement often assignments of longer limited to own country. duration. Host standards based Regional standards based on contribution to on contribution to unit bottom line. corporate bottom line. Additional pay and Due to longer assignbenefits for expatriate benefits for expatriate assignments; host coun- compensation for try compensation rates expatriate assignments. for host country nationals.

Global

Continuous for cultural adaptation and multilingualism.

International assign-Dements required for career advancement. Global standardsbased on contribution to corporate bottom line.

Similar pay and benments, less additional some local adjustments.

(Source: Adapted from Adler and Ghadar 1990 and Heenan and Perlmutter 1979.)

Among the advantages of geocentricism is that the company is truly cosmopolitan. Second, global managers are able to adjust to any business environment—particularly to cultural differences. The major drawback of geocentricism is the additional costs incurred on training and relocation of expat managers. Compensation of expatriates is higher than for host country employees.

CULTURAL DIMENSIONS We propose to discuss three cultural models: Globe Project Team, Hofstede’s model and Trompenaar’s 7d cultural model. An understanding of these models equips international managers with the basic tools necessary to analyse the cultures in which they do business. The three approaches also provide useful theoretical concepts to help understand the nuances of different cultures better.

Globe Project The GLOBE (Global Leadership and Organisational Behaviour Effectiveness) project team comprises 170 researchers who have collected data over seven years on cultural values and practices and leadership attributes from 17,000 managers in 62 countries, covering as many as 825 organisations spread across the

Multiculturalism 35

globe. The research team identified nine cultural dimensions that distinguish one society from another and have important managerial implications: assertiveness, future orientation, performance orientation, human orientation, gender differentiation, uncertainty avoidance, power distance, collectivism/societal, and ingroup collectivism. Assertiveness This aspect is defined as the degree to which individuals in organisations or societies are expected to be tough, confrontational and competitive versus modest and tender. Future Orientation This dimension refers to the level of importance a society attaches to future-oriented behaviours such as planning and investing in the future and delaying immediate gratification. Performance Orientation Performance orientation measures the importance of performance and excellence in society and refers to whether people are encouraged to strive for continued improvement and excellence. Human Orientation Human orientation is understood as the degree to which individuals in organisations or societies encourage and reward people for being altruistic, generous, caring and kind to others. Gender Differentiation This is understood as the extent to which an organisation or society resorts to role differentiation and gender discrimination. In-group Collectivism This refers to the degree to which individuals express pride, loyalty, and cohesiveness in their organisations or families. Collectivism/Societal This refers to the degree to which organisational and societal practices encourage and reward collective distribution of resources and collective action. Power Distance This refers to the degree to which organisational members or citizens of a society expect and agree that power should be unequally distributed. Uncertainty Avoidance This refers to the extent to which members of an organisation or society strive to avoid uncertainty by relying on social norms, rituals and bureaucratic practices to minimise the unpredictability of future happenings.8 GLOBE’s ranking is highly helpful to international managers who are seeking to be successful in cross-

36 International Human Resource Management cultural settings. Anticipating cultural similarities and differences allows multi-cultural managers to develop the behaviours and skills necessary to act and decide in a manner appropriate to the host country norms and expectations.9 More on GLOBE Project will follow in the section on leadership across cultures.

Hofstede’s Cultural Dimensions In a discussion on multicultures, reference should be made to the pioneering work done by the Dutch scientist, Geert Hofstede. He identified four cultural dimensions around which countries have been clustered, with people in each group exhibiting identical behaviours. The four dimensions are: power distance, uncertainty avoidance, individualism and masculinity. Hofstede’s study preceded the GLOBE Research Project. But we have taken the GLOBE study first because of its comprehensiveness and widespread research base. If Hofstede focussed on the employees of only IBM, the GLOBE study covered as many as 825 organisations, picked up from among financial, food processing and telecommunication industries. However, the usefulness of Hofstede’s study cannot be undermined. Power Distance Power distance is the extent to which less powerful members of institutions and organisations accept that power is distributed unequally.10 Countries in which people blindly obey the orders of superiors have high power distance. High power distance countries have norms, values and beliefs such as— ∑ ∑ ∑ ∑ ∑

inequality is fundamentally good, every one has a place; some are high, some are low, most people should be dependent on a leader, the powerful are entitled to privileges, and the powerful should not hide their power.

The dimension of power distance can be measured in a number of ways. For example, the basic motivational assumption in high power distance countries is that people dislike work and try to avoid it. Consequently, managers believe that they must adopt Theory X leadership style, that is, they must be authoritarian, must force workers to perform and must supervise their subordinates closely. Organisational structures and systems tend to match the assumption regarding leadership and motivation. In high power distance countries, decision making is centralised. Those at the top make most of the decisions. Organisations tend to have tall structures. They will have a large proportion of supervisory personnel, and the people at the lower levels often will have low job qualifications. Such structures encourage and promote inequality between people at different levels. On the other hand, organisations in low power distance countries tend to be decentralised and have flatter structures. They will have a smaller proportion of supervision personnel and the lower state of work force will consist of highly qualified people. The US, Austria, Ireland, Norway, and New Zealand represent cultures with low power distance. These societies exhibit characteristics almost the opposite of the features listed above. France, India, Singapore, Brazil, Mexico, and Indonesia are examples of societies with a high power distance.

Multiculturalism 37

Uncertainty Avoidance Uncertainty avoidance is the extent to which people feel threatened by ambiguous situations, and have created beliefs and institutions that try to avoid these. There are countries with high uncertainty avoidance and there are those characterised by low uncertainty avoidance. Denmark and Great Britain are examples of low uncertainty avoidance cultures. Germany, Japan, and Spain typify high uncertainty avoidance societies. Countries with citizens who do not like uncertainty tend to have a high need for security and a strong belief in experts and their knowledge. Countries with low uncertainty avoidance have people who are more willing to accept that risks are associated with the unknown, and that life must go on in spite of this. Specifically, high uncertainty avoidance countries are characterised by norms, values, and beliefs which accept that: ∑ ∑ ∑ ∑ ∑

Conflict should be avoided, Deviant people and ideas should not be tolerated, Laws are very important and should be followed, Experts and authorities are usually correct, and Consensus is important.

Low uncertainty avoidance societies tend to represent the antonym of the above characteristics. The effect of uncertainty avoidance has several manifestations. Countries with high uncertainty avoidance cultures have a great deal of structuring of organisational activities, more written rules, less risk-taking by managers, low labour turnover and less ambitious employees. Low uncertainty avoidance societies have organisation settings with less structuring of activities, fewer written rules, more risk-taking by managers, higher labour turnover and more ambitious employees. Such an organisation encourages employees to use their initiative and assume responsibility for their actions. Figure 2.3 is a categorisation of countries based on their power distance and uncertainty avoidance scores. While power distance is manifested in behavioral traits such as respect for elders; corruption; polarisation and violence in national politics, uncertainty avoidance is manifested by religiosity, xenophobia, identity, obligation and faster driving. SMALL POWER DISTANCE, WEAK UNCERTAINTY AVOIDANCE NORDIC COUNTRIES ANGLO COUNTRIES, USA NETHERLANDS

LARGE POWER DISTANCE, WEAK UNCERTAINTY AVOIDANCE CHINA, HONG KONG, SINGAPORE INDIA, BANGLADESH INDONESIA, MALAYSIA

SMALL POWER DISTANCE, STRONG UNCERTAINTY AVOIDANCE GERMAN SPEAKING COUNTRIES HUNGARY ISRAEL

LARGE POWER DISTANCE, STRONG UNCERTAINTY AVOIDANCE TAIWAN, THAILAND, PAKISTAN LATIN COUNTRIES, E-EUROPE JAPAN, KOREA

FIGURE 2.3

Country Classification

Individualism Individualism is the tendency of people to look after themselves and their family only. The opposite of this is collectivism which refers to the tendency of people to belong to groups and to look after each other in exchange for loyalty. Individualism is common in the US, Canada, Australia, Denmark, and Sweden. The people of India, Indonesia, Pakistan and a number of South American countries exhibit collectivism. Specifically, countries high on individualism have norms, values, and beliefs which accept that:

38 International Human Resource Management ∑ People are responsible for themselves, ∑ Individual achievement is ideal, and ∑ People need not be emotionally dependent on organisations or groups. In contrast, collectivist countries believe that: ∑ One’s identity is based on one’s group membership, ∑ Group decision making is best, and ∑ Groups protect individuals in exchange for their loyalty to the group. The effects of individualism/collectivism can be seen in organisations also. Organisations in collectivist societies tend to promote nepotism in selecting managers. In contrast, in individualistic societies, favouritism shown to friends and relatives is considered to be unfair and even illegal. Further, organisations in collectivist cultures base promotions mostly on seniority and age, whereas in individualist societies, they are based on one’s performance. Finally, in collectivist cultures, important decisions are made by older and senior managers as opposed to individualist cultures, where decision making is an individual’s responsibility. Masculinity Masculinity refers to a situation in which the dominant values in a society are success, money and other material things. Hofstede measured this dimension on a continuum ranging from masculinity to femininity. High masculine cultures have norms, values and beliefs that:11 ∑ ∑ ∑ ∑ ∑ ∑

Gender roles should be clearly distinguished, Men are assertive and dominant, Machismo or exaggerated maleness is good, People—especially men—should be decisive, Work takes priority over other duties, such as family, and Advancement, success and money are important.

In highly masculine societies, jobs are clearly defined by gender. There are men’s jobs and women’s jobs. Men usually choose jobs that are associated with long-term careers. Women usually choose jobs that are associated with short-term employment, before marriage. Table 2.2 brings out the ranking of different countries on the four dimensions. Figure 2.4 is a categorisation of countries based on their individualism and masculinity scores. While individualism is manifested in GNP per capita; faster walking, weak family ties and frequency of using the word “I”, masculinity is seen as assertiveness, performance versus solidarity, fewer women elected and homophobia. COLLECTIVIST, FEMININE THAILAND, KOREA, VIETNAM INDONESIA, MALAYSIA, SINGAPORE COSTA RICA, CHILE PORTUGAL, RUSSIA

COLLECTIVIST, MASCULINE HONG KONG, CHINA, JAPAN, PHILIPPINES INDIA, BANGLADESH MEXICO, VENEZUELA GREECE, ARAB WORLD

INDIVIDUALIST, FEMININE SPAIN FRANCE NETHERLANDS NORDIC COUNTRIES

INDIVIDUALIST, MASCULINE CZECH REPUBLIC, SLOVAKIA, HUNGARY POLAND, ITALY GERMAN SPEAKING COUNTRIES ANGLO COUNTRIES, USA

FIGURE 2.4

Country Classification

Multiculturalism 39

TABLE 2.2 Country Arab countries Argentina Australia Austria Belgium Brazil Canada Chile Colombia Costa Rica Denmark East Africa Ecuador Finland France Germany FR Great Britain Greece Guatemala Hong Kong India Indonesia Iran Ireland Israel Italy Jamaica Japan Malaysia Mexico Netherlands New Zealand Norway Pakistan Panama Peru Philippines Portugal Salvador Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey

Ranking of Countries on Hofstede’s Cultural Dimensions Power Distance 80 49 36 11 65 69 39 63 67 35 18 64 78 33 68 35 35 60 95 68 77 78 58 28 13 50 45 54 104 81 38 22 31 55 95 64 94 63 66 74 49 60 57 31 34 58 64 66

Individualism 38 46 90 55 75 38 80 23 13 15 74 27 8 63 71 67 89 35 6 25 48 14 41 70 54 76 39 46 26 30 80 79 69 14 11 16 32 27 19 20 65 18 51 71 68 17 20 37

Uncertainty Avoidance 68 86 51 70 94 76 48 86 80 86 23 52 67 59 86 65 35 112 101 29 40 48 59 35 81 75 13 92 36 82 53 49 50 70 86 87 44 104 94 8 49 85 86 29 58 69 64 85

Masculinity 53 56 61 79 54 49 52 28 64 21 16 41 63 26 43 66 66 57 37 57 56 46 43 68 47 70 68 95 50 69 14 58 8 50 44 42 64 31 40 48 63 39 42 5 70 45 34 45 (Contd.)

40 International Human Resource Management TABLE 2.2

(Contd.)

Country

Power Distance

Uruguay USA Venezuela West Africa Yugoslavia

61 40 81 77 76

Individualism 36 91 12 20 27

Uncertainty Avoidance

Masculinity

100 46 76 54 88

38 62 73 46 21

Trompenaars’ Framework Trompenaars, an European researcher, conducted an extensive research with 15,000 managers from 28 countries, representing 47 national cultures. He describes cultural differences using seven dimensions (the theory is therefore called 7d cultural dimensions model): (i) universalism versus particularism, (ii) individualism versus collectivism, (iii) specific versus diffuse, (iv) neutral versus affective, (v) achievement versus ascription, (vi) past versus present, and (vii) internal versus external control (See Fig. 2.5).The first five dimensions deal with how people relate to each other. The two final dimensions deal with how a culture manages time and how it deals with nature. Each dimension is a continuum or a range of cultural differences.12 CULTURAL DIMENSION Relationships with People: Universalism vs. Particularism Individualism vs. Collectivism Specific vs. Diffuse Neutral vs. Affective Achievement vs. Ascription

CRITICAL QUESTION Do we consider rules or relationships more important? Do we act mostly as individuals or as groups? How extensively are we involved with the lives of other people? Are we free to express our emotions or are we restrained? Do we achieve status through accomplishment or is it part of our situation in life (e.g., gender, age, social class)?

Perspective on Time: Sequential vs. Synchronic Relationship with the Environment:

Do we do tasks in sequence or several tasks at once?

Internal vs. External Control

Do we control the environment or does it control us?

Source: John B Cullen, Multinational Management, P.67. Figures 2.6 to 2.11 have also been adopted from the same book. FIGURE 2.5 The 7d Model of Culture

Universalism versus Particularism In cultures with universalistic orientation, people believe in abstract principles such as the rules of law, religion or cultural principles. The basic premise is that these principles can be applied everywhere without modification. UK, USA and Czech represent universalistic cultures. Particularism, on the other hand, is the belief that circumstances dictate how ideas and practices should be applied. South Korea, Mexico and Nigeria follow particulartistic cultures. In universalistic cultures, the focus is more on formal rules than on relationships; business contracts are adhered to very closely and people believe that a ‘deal is a deal’. In a particularistic culture, legal contracts often are modified and the way, deals are executed also changes depending on the situations. In particularistic cultures too, there exist rules, but people expect exceptions to be made for friends, family relations and others. Managerial practices under universalistic cultures include formalisation of business practices, treating all cases similarly and announcing any change publicly. Particularism entails such managerial practices as use of informal networks and introducing changes in a subtle way (See also Fig. 2.6).

Multiculturalism 41 UNIVERSALISM

PARTICULARISM

Countries following the cultural dimension

USA UK Czech Republic.

Nigeria Mexico South Korea

Orientations

Rule bound Contracts upheld

Relationship bound Contracts are subject to modification

Business deals are sacrosanct

Business deals are flexible to the situation and the person

FIGURE 2.6

Universalism versus Particularism

Individualism versus Collectivism This dimension is almost identical to Hofstede’s value dimension. In individualistic societies, the focus is on “I” or “me” and the orientation is on one’s own growth. In collectivist societies, the focus is on groups, including family, organisation and community. Responsibility, achievements and rewards are group-based. In individualistic societies, people are trained from childhood to be independent, and each person assumes individual responsibility for his/her success or failure. Figure 2.7 brings out the facets of individualism and collectivism to sharp focus. INDIVIDUALISM Countries following the cultural dimension

Czech Republlic UK

Orientations

Focus on “me” or “I” Individual decision making Individual responsibility Individual achievement

FIGURE 2.7

COLLECTIVISM Nigeria Egypt Japan Focus on “We” Group decision making Group achievement Group responsibility.

Individualism versus Collectivism

Neutral versus Affective In this dimension, Trompenaars focusses on the appropriateness of expressing emotions in different cultures. In neutral cultures, the tendency of the people is to control their emotions so that it will not interfere with their judgement. In contrast, affective cultures encourage the expression of emotions. Expressions of anger, laughter, gesturing and a range of emotional outbursts are considered normal and acceptable. But in neutral societies, emotions are considered to be messy interferences in achieving objectives. Achieving objectives is more important than the emotional nature of the interaction (See also Fig.2.8). NEUTRAL

AFFECTIVE

Countries following the Cultural Dimension

Sweden Czech Republlic UK

Norway Mexico China

Orientations

Focus is on task and not on expressing emotions Control over emotions admired Physical contacts avoided

Expressions of emotions in any situation is accepted Gesturing and touching are common

FIGURE 2.8

Neutral versus Affective

42 International Human Resource Management Sweden, Czech Republic and UK seem to practise cultural practices which are neutral. Affective culture is being practised in Norway, Mexico and China. Neutral countries keep dialogue to the point. But affective countries expect strong commitment and tolerate emotional outbursts. Specific versus Diffuse This cultural dimension focusses on how a culture emphasises on notions of privacy and access to privacy. In specific cultures, individuals have large public spaces and relatively small private spaces. While the public space is open, the private one is guarded carefully and shared with only close friends and associates. A diffuse culture does not allow any distinction between public and private spaces. In diffuse cultures, an executive’s office and home are not divided as clearly as they are in specific cultures, and work relationships often extend into personal relationships (See also Fig. 2.9). SPECIFIC

DIFFUSE

Countries following

Sweden

Norway

the cultural dimension

Czech Republlic UK Business is separated from other parts of life Precision in communication Principled moral reasoning

Mexico China Business is mixed up with personal life

Orientations

FIGURE 2.9

Vague communication Situation based morals

Specific versus Diffuse

Cultures of Sweden, Czech Republic and UK are specific whereas those of Norway, Mexico and China are diffused. Culture specific countries use objectives and standards, and give clean and precise directions. But diffused cultures seek continuous inputs and mix private and business lives. Achievement versus Ascription This dimension describes the methods used to acquire status. In an achievement culture, an individual is accorded status based on how well he/she performs his/her functions. Status depends on achievement. An ascription culture is one in which status is attributed based on who or what a person is, his age, gender or social connections. Achievement is not the criterion to accord status. Figure 2.10 gives a brief description of the features and managerial implications of achievement versus ascription dimension.

Countries Following the Cultural Dimension Orientations

ACHIEVEMENT

ASCRIPTION

Norway Ireland Austria Status depends on performance and accomplishment Titles are used when relevant Mixture of age and gender in management

Japan Hong Kong Argentina Status depends on one’s pedigree

FIGURE 2.10

Achievement vs Ascription

Titles are invariably used Background and age main qualification for management

Multiculturalism 43

Achievement and ascription cultures have their own followers. Norway, Ireland and Austria practise achievement oriented cultures. Whereas, ascription followers include Japan, Hong kong and Argentina. These countries believe in seniority and respecting the chain of command. Achievement cultures, on the other hand, emphasise merit and competence. Time Dimension Time orientation has two dimensions. The first dimension of Trompenaars is similar to Hofstede’s—there are different emphases on the past, present and future. The second refers to sequential versus synchronic cultures. This dimension is unique to Trompenaars. In sequential cultures, time is viewed as linear and divided into segments that can then be divided and scheduled. The followers of sequential cultures tend to do only one activity at a time, keep appointments strictly and show a strong preference for following plans as they are laid out and not deviating from them. US, Mexico and France tend to follow sequential cultures. In synchronic cultures such as Portugal and Egypt, time is viewed as circular and indivisible, and relationships are more important than schedules. Activities are not scheduled with definite starting or ending times, and individuals move from event to event, notwithstanding whether an event is completed or not (See Fig. 2.11). PAST

FUTURE

Countries following the cultural dimension

Hong Kong Israel

Korea Hong Kong

Orientations

Stability is respected Past guides every action, any change is looked at with suspicion Strategic planning has no relevance

Strategic planning is important Change is considered necessary and beneficial Assumption that individuals can influence future Hard work now shall lead to future success

FIGURE 2.11

Past versus Future

Internal versus External Control The final cultural dimension of Trompenaars relates to one’s locus of control—his belief about whether he or she is the master of his or her own destiny. Where individuals (read managers) believe that they have control over outcomes, they are said to be followers of internal locus of control. Instead, if they believe that they have no control over the outcomes, such people (managers) deem to follow the tenets of external locus of control. Believing in outcomes is, according to Trompenaars, dealing with the environment. Poland and Greece are the two countries whose citizens possess strong internal locus of control, whereas, Ethiopians and Chinese are said to be externals. Internals emphasise authority and tend to dominate subsordinates. But externals tend to exhibit patience and prefer win-win relationships (See Fig. 2.12). INTERNAL CONTROL

EXTERNAL CONTROL

Countries following the cultural dimension

Poland Brazil Greece

Ethiopia China Greece

Orientations

Managers tend to be proactive Dominate the nature Focus on self or own group

Emphasis on compromise Harmony and adjustment is good Adaptation to cycles Managers tend to be fatalistic

FIGURE 2.12

Internal Control versus External Control

44 International Human Resource Management

MANAGING ACROSS CULTURES Managing multiculturalism or cross-cultural management is of considerable significance as it offers the following potential benefits: increasing creativity and innovation demonstrating more sensitivity in dealing with foreign customers hiring the best talent from anywhere demonstrating a global perspective creating a ‘superorganisational culture’, using the best of all cultures greater flexibility within the organisation both to adapt to a wider range of environments and to change within these environments13 ∑ to evolve universally acceptable HR policies and practices.

∑ ∑ ∑ ∑ ∑ ∑

The international manager needs cross-cultural competence to manage multiculturalism. Cross-cultural competence includes skills, awareness and knowledge. In order to be culturally competent, an individual needs to: 1. possess a strong personal identity; 2. have knowledge of and felicity with the beliefs and values of the culture; 3. display sensitivity to the effective processes of the culture; 4. communicate clearly in the language of the given cultural group; 5. perform specially sanctioned behaviour; 6. maintain active social relations within the cultural group; 7. negotiate the institutional structures of that culture.14 MNCs across the globe are building cross-cultural capabilities in their employees as Exhibit 2.1 indicates.

Exhibit 2.1 Global IT Companies On a Cultural Make Over Multinational IT companies are in for a make over. Hiring staff is not a problem for the MNCs, but a cultural overhaul in the manner in which they do business is the new focus for them. The reasons are not far to see: deal sizes are smaller. Their competitors like TCS, Wipro and Infosys are more nimble. And despite the MNC credentials, traditionally, MNCs have had a country specific business strategy rather than a global one. The cultural make over is taking shape in terms of learning foreign languages, understanding how to deliver services from low-cost destinations and encouraging staff to think in terms of a more globally integrated organisation. Take for instance, Atos Origin India (AOI), part of the $6.6 billion European IT major Atos Origin. After office hours, about 100 odd staff at AOI head for French classes. This does not help them master the language but is good enough to help them comprehend the specification document (spells out the work that the client is sending) of the client. At IBM, employees are being encouraged to think in terms of a more globally integrated organisation and tap into a programme called ‘shades of blue’ to understand business nuances about any other country. And at Accenture and IBM, there is a shift from a country specific strategy to a more global sourcing one. For MNCs, this is a huge shift in how they work. For instance, till recently, IBM used to process purchase orders in 300 destinations. Now it does it in just three places—Bangalore, Shanghai and Budapest. Big Blue also recently shifted Asia headquarters from Tokyo to Shanghai in a bid to fathom its

Multiculturalism 45

new growth markets, China and India, more closely. Says Michael J. Cannon Brookes, vice-president, business development, China and India, IBM, “MNCs are going through cultural shift of operating in a flat world.” Interestingly, Mr. Brookes role was carved out just about a year back to look at the India and China opportunity more closely. Atos Origin sees a savings upwards of 50% for client work if done from India. To take the benefit of India sourcing, it is sending down a team from French car marker Renault to AOI to bridge cultural gaps. Says Partha Iyengar, Vice-President, Research, Gartner India, “For multinationals, hiring staff in destinations like India is least of the problems. But they are not used to doing small deals and delivering services out of low-cost destinations. This does require a cultural change in how they work.” In fact, hiring people has been the least of the worry. In just a few years, IBM India moved from a 4,000 people outfit to over 40,000 employees. Accenture moved from 1,000 to over 17,000 and Atos Origin has about 1,500 people as compared to less than 400 employees a couple of years back. The bigger problem is the cultural overhaul they have to undertake to deliver services from India. In another instance, from doing everything from pay roll to developing software to shipping servers as a country specific strategy, IBM is now going for best offshore options. For instance, for IBM Japan, the HR is done in Manila, pay roll in Shanghai, procurement in Schenzen, accounting in Kuala Lumpur, technology support in Australia, and so on. Its ‘shades of blue’ cultural orientation programme is targeted towards helping employees understand the needs of staffers across locations easily. The faster they do that the easier it will be for global giants to catch up with their smaller but more nimble competitors. Cultural make over is at its rest in Korean companies like LG, POSCO, Samsung, and CISCO. Koreans working in these companies in India not only learn Hindi, Kannada and Oriya but adopt local names too (for example, Anurag is the adopted name of Chang Chyong Jung). Posco, which has 30-35 expats working in India has made it mandatory for its expat employees to learn Oriya for a better understanding of the local environment. Oriya classes were introduced for Korean employees of POSCO India during the first half of 2006 and are held every week by an inhouse resource person. Koreans have also been introduced to local traditions, customs and celebrations and socio-economic elements in the region through guest lectures every month. Simultaneously, for the new Indian employees, the HR induction programme has a special session on Korean tradition and ethics. It’s a two-way process in the integration of cultures. Expats coming to India on their part are interested in exploring a new country and India being one of the fastest growing economies, it only adds to their enthusiasm. LG India’s experience just establishes the point. Yasho Verma, director HR & MS, LG India says, “We have had Korean interns who do their research projects with us and they have even shown cultural adaptation to the extent of adopting Indian names like Pragya or Ashim. Some of them had also volunteered for a Sanskrit learning course arranged by LG India. “LG India has 20 expats working in India.” Cisco is another example of facilitating such an adaptation process. All its expat employees come from four places primarily. Europe, Singapore, Beijing and US. In at least two of these places the first language is not English. Expats are made to go through a cultural orientation before they leave and after reaching here, they have a two-day orientation for the employee, spouse, and children. Cisco also has a language course of 160 hours. Syed Hoda, senior director, operations, globalisation centre at Cisco elaborates, “It could be a combination of 80 hours in Hindi and 80 in Kannada or 120 hours in Kannada and 40 in Hindi. It depends on the individual’s need.” Cisco is planning to relocate over 20% of its senior team in the next three years to its globalisation centre. (Source: The Economic Times, Sept 1, 2006 and April 15, 2007).

46 International Human Resource Management We propose to discuss nine dimensions as part of cross-cultural management: motivation, leadership, communication, teams, multicultural organisation, HR practices, technology, gender issues, and work values (See Fig. 2.13). Leadership

Gender Issues

Motivation

Multicultural Organisation Work Values

Multicultural Management Communication

Technology Teams

FIGURE 2.13

HR Practices

Dimensions of Multicultural Management

Motivation Across Cultures Motivation refers to the way an individual engages himself or herself in need fulfilling activities. At the heart of motivation is felt needs which drive the individual to act. The individual may have several ways to satisfy his or her needs. He or she selects the best course, and engages in a behaviour that begets rewards which help satisfy the felt needs. Thus, motivation takes place. Which needs activate the individual to act, what course of action he or she engages in and what rewards the person expects, vary from culture to culture. Developed country citizens tend to be more motivated by higher order needs like achievement, growth and realising one’s potential, than spend energy and time on fulfilling lower level needs such as food, clothing and shelter. It is the other way round in the developing countries where base level needs are the main motivators. With regard to the goal directed behaviours at work, the impact of the national culture is striking. A Japanese worker, for instance, is not expected to boast about his or her work performance. For an Indian, work is not just a means of living but it is worship. For a US citizen, work is only a means of living. National culture and social institutions also influence the levels of satisfaction workers expect to receive from an organisation and how committed workers are to their organisation and its social goals (See also Table 2.3). TABLE 2.3 Management Styles Control

Cultural Contrasts in Motivation

American Leadership; Friendliness

Japanese Persuasion; Functional group activities

Arab Coaching; Personal attention; Parenthood

Independence; Decision-making; Space, Time, Money

Group harmony

Of others/parenthood

(Contd.)

Multiculturalism 47

TABLE 2.3

(Contd.)

Emotional Appeal

American Opportunity

Japanese Group participation; Company success

Arab Religion; Nationalistic; Admiration

Recognition

Individual contribution

Group identity; Belonging to group

Individual status; Class/Society; Promotion

Material Awards

Salary; Commission; Profit sharing

Annual bonus; Social services; Fringe benefits

Gift for self/family; Family affair; Salary increase

Threats

Loss of job

Out of group

Demotion

Cultural Values

Competition; Risk-taking; Material possession; Freedom

Group harmony; Achievement; Belonging

Reputation; Family security; Religion; Social status

(Source: Farid Elashmawi et al, op.cit, p.144).

Management Styles Management styles are important and effective motivators in each culture. American styles are characterised by professionalism and friendliness. Japanese managers motivate employees through continuous counsel and persuasion. The Arab manager will be most effective in a parenting-type role that includes coaching and personal attention. Control All people are motivated by the power of being in control of their own lives or work space. Americans feel good about being independent and in control of their own destinies. Japanese motivation comes through group harmony and consensus, whereas the Arab manager strives for control of others through a parenting relationship. Emotional Appeal Americans respond to an available opportunity. Sentiments may not evoke much response. The Japanese are motivated by reputation and company success, which are allied with their cultural values of belonging and group achievement. Arab motivation comes from an appeal to the sense of self within the authority structure. Recognition Americans want to be directly recognised for their individual contributions and achievements. Japanese recognition comes through identification with the group. Recognition in Arab cultures generally results from the individual’s status in the hierarchy. When a department reaches its goal, the recognition will first go to the head of the team and then percolate down to the lowest level employees. Material Reward The American rewards that are culturally appropriate reflect the values of the macro culture. Americans measure individual success more in terms of material possessions. Monetary rewards motivate Americans. The Japanese are motivated by rewards shared among the group, such as bonuses, social services and fringe benefits available to group members. Arabs are motivated by gifts for the individual and family, which reflect admiration or appreciation for the individual’s achievement. Threats Threats motivate people negatively. Since the Americans’ identities are often directly linked to their jobs, the threat of being fired is significant to them. For the Japanese, the greatest threat is the fear of exclusion from the group. To the Arab, a demotion is a threat to one’s reputation and status.

48 International Human Resource Management Cultural Values As stated earlier, motivational tools and processes reflect the unique culture. In the American culture, competition, risk-taking, material possessions, self-reliance and freedom are all motivational values. In contrast, group harmony, belonging and achievement are important and valued tools in motivation of Japanese employees. The Arab workers value reputation, authority and social status and respond to these values in their motivation process.

Leadership across Cultures Leadership is the ability to influence others in order to work towards the achievement of shared goals. It is too well known that leadership is the critical factor determining the success or failure of an organisation. To be a successful leader, one must possess certain traits which in the context of an international business, need to be different. To be specific, the leader of an MNC needs to be endowed with the following skills and abilities.15 Cosmopolitan

Sufficiently flexible to operate comfortably in pluralistic cultural environments.

Skilled at International Communication Knows at least one foreign language and understands the complexities of interaction with people from other cultures. Culturally Sensitive Uses experience in different national, regional and organisational cultures to build relationships with culturally different people, while understanding his or her own culture and cultural biases. Capable of Rapid Acculturation settings.

Rapidly acculturates or adjusts to strange or different cultural

Knowledge about Cultural and Institutional Influences on Management Understands how national culture and a country’s social institutions affect the entire management process. A Facilitator of Subordinates’ Intercultural Performance Uses a deep understanding of cultural differences in work and living to prepare subordinates for successful overseas experiences. User of Cultural Synergy Takes advantage of cultural differences by finding a synergy that combines the strengths of each cultural group and by using performance standards understandable across cultures. This results in higher levels of organisational performance than that produced by culturally homogeneous companies. A Promoter and User of the Growing World Culture Understands, uses and takes advantage of the international advances in media, transportation and travel that support the globalisation of international business. A Commitment to Continuous Improvement in Self-awareness and Renewal Understanding and questioning oneself.

Multiculturalism 49

It is not enough if an individual possesses the needed traits. What is more important is that he or she should be able to fine-tune the skills to meet country specific needs. A multicultural leader is a person with the skills and attitudes that help him or her to relate effectively to and motivate people across race, gender, age, social attitudes and life styles. Successful leadership in MNCs requires that managers adjust their leadership styles to fit different situations—more specifically, according to the cultural contexts of different countries. The recent research on cross-national differences in leadership is the GLOBE.16 The GLOBE study contains insights regarding leadership that can help the multinational manager develop a leadership style to navigate successfully through a maze of cultural settings. Led by Robert House, researchers are looking at what makes a leader successful and to what extent, the leader’s behaviours and traits are contingent on the national context. The purpose of the GLOBE study is to understand the patterns of leadership that are universally accepted and those that are subject to the unique influences of local cultures. Findings show that certain traits—both positive and negative—are common to all cultures, and certain other behaviours are culture-specific. Positive behaviours such as trustworthy, encouraging, effective communication, bargaining capabilities and team building abilities are universally acceptable. Negative traits that have universal application are egocentricism, non-cooperation, ruthlessness and authoritarianism. Culture specific leader attributes include group orientation, self-protectiveness, participative skills, humaneness, autonomy and charisma. Table 2.4 shows the different skills and their acceptability. TABLE 2.4

Leadership Behaviours and their Acceptability from 60 Countries

Universally acceptable traits and behaviours

Culture specific traits and behaviours

Positive

Negative

Trustworthy Just Honest Plans ahead Encouraging Positive Good bargaining Dynamic Motivator Confidence builder Dependable Intelligent Decisive Win-win problem solver Skilled administrator Communicator Informed Team builder

Loner Asocial Not-cooperative Non-explicit Egocentric Ruthless Dictatorial

Group orientation Self-protectiveness Participative skills Humaneness Autonomy Charisma Humility

50 International Human Resource Management Some highlights of the GLOBE study findings are:17 ∑ A participative leader is more acceptable in Canada, Brazil and Australia. ∑ Americans like two kinds of leaders—those who provide employees with empowerment, autonomy and authority and those who are bold, fearful, confident and risk takers. ∑ Malaysians expect their leaders to be humble, modest, dignified and group oriented. ∑ Arabs treat their leaders as heroes and worship them as long as they remain in power. ∑ Iranians expect their leaders to exhibit power and strength. ∑ The French expect their leaders to appreciate the finer aspects of French culture and arts and to have a good knowledge of mathematics. ∑ The Dutch are not favourably inclined to terms like ‘leader’ and ‘manager’. The Dutch value equality. The GLOBE project is an ongoing one. It is highly useful to multinational managers in as much as the study offers insights into traits and behaviours that a leader should exhibit while managing multicultures. Table 2.5 shows the leader’s roles in his or her parent unit, in a subsidiary and how far the host country’s culture impacts his or her behaviour. As shown in Table 2.5, where the leadership role is energising and driving for results, local cultures do influence leader traits and behaviours. The impact of local cultures is not felt significantly in other roles. TABLE 2.5

Leader’s Role and Cultural Impact

Leader’s Role

Headquarters

Subsidiary

Cultural impact

Visioneering

Sets the corporate vision and mission.

Enforces the corporate vision and mission and sets unit goals.

Not influenced by host culture.

Energising

Establishing enabling environment to achieve organisational objectives.

Ability to emulate similar energy and have the host unit achieve its objectives.

Largely influenced by the host country’s culture particularly with reference to directive, participative and charismatic styles.

Efficiency

Initiating the use of necessary tools and practices that drive productivity.

Ability to emulate and, where necessary, deviate from parent company’s tools and practices.

Local culture does have impact on leadership styles.

Results

Driving for results.

Driving for results.

Highly culture sensitive.

Rules and procedures

Country and industry specific

Ensuring coordination and control as desired by the head office.

High degree of local dependence as well as integrate globally for corporate parity and sense of equity.

Building a Multicultural Organisation A multinational manager should make his or her firm a truly multicultural and cosmopolitan organisation. Towards this end, he or she needs to pursue seven characteristics that will make up a multicultural organisation (See Fig. 2.14).

Multiculturalism 51 Minimum inter-group conflict

Pluralism

Leadership Diversity

Identification Multicultural Organisation

Bias-free Organisation

Structural Integration Informal Networks

FIGURE 2.14

Dimensions of a Multicultural Organisation

Creating Pluralism Where both the majority and minority group members are able to establish behavioural norms, values and policies in an organisation, there exists pluralism. Diversity training helps establish pluralism. Achieving Leadership Diversity Leadership diversity represents the presence of a heterogeneous group of leaders in an organisation. Many global firms have heterogeneous leaders. P&G, for example, has leaders from across the globe. The MNC has 300 Indian managers in international assignments. Uniliver too has trained 110 managers at HLL and all of them are posted to different countries ranging from South America to South Africa to the Far East. More than 300 Citigroup senior managers posted globally were hand-picked from the company’s Indian operations. Ethnicity is the only way of achieving diversity. Sex is another key area for leadership diversity, with many firms today having women in top executive positions. Indira Nooyi is the CEO of Pepsi but not an exception. Diversity is not just required at senior positions. Diversity of leadership should percolate to the middle and lower level positions as well. Structural Integration Structural integration takes place when individuals are assigned to jobs based on merit and not on ethnicity or gender. Performance becomes the basis of effecting promotions and awarding rewards. Integration of Informal Networks Disadvantaged people are often excluded from informal networks, making it difficult for them to achieve career advancement. Affirmative actions, such as company sponsored mentoring programmes targeting disadvantaged sections and company sponsored social events where such less privileged people are encouraged to participate, can help achieve integration of informal networks. Xerox’s Hispanic Professional Association is an example of aiming at such an integration. Bias-free Organisation Biases and prejudices are anathema to multiculturalism. Multiculturalism demands a global mindset, an openness to accept what is best and a broad mind to encourage diversity. Firms must take steps to eliminate biases and prejudices.

52 International Human Resource Management Wipro is a typical organisation which is free from biases and prejudices. Nearly seven per cent of its employees are non-Indians. The company has sales offices in 14 countries, and has software, hardware engineering and BPO centres in nearly as many countries. In addition to its vast engineering factories in India, Wipro tops the brain power and expertise of people in Japan, China, Taiwan, Dubai, Australia, Canada, US, UK, Germany, Sweden, Rumania and Vietnam. It has mastered the art of global collaboration. Its thousands of software programmers work in teams whose individual members are scattered across continents. Organisational Identification An organisation needs to have its own identity and every member should align himself or herself with it. All the steps discussed till now shall help a company achieve such identification and alignment. Minimising Intergroup Conflict Conflict in an organisation is inevitable and often has functional consequences. Conflict encourages creativity and enhances productivity. Benefits occur when conflict is at the optimum level. When it reaches above optimum levels, steps need to be initiated to reduce the conflict. The most effective approach to minimise conflict among cultural groups is to collect and share data about sensitive issues.

Communicating across Cultures Successful international management requires effective cross-cultural communication. Additionally, in global businesses, activities such as leading, motvating, decision making, problem solving and exchanging information and ideas depend on the ability of managers and employees from one culture, to communicate successfully with colleagues, clients and suppliers from other cultures. Communication is the process of transferring meanings from a sender to the receiver. On the surface, this appears to be a fairly straight-forward process. But there are several problems in the international scenario, that can result in a failure to transfer messages correctly. Mistakes in cross-cultural communication often go unnoticed by the communicators, but these mistakes have the potential to cause damage to international relationships and negotiations. Mistakes or misinterpretations of the subtle gestures of the hands and face, the use of silence, what is said or not said, and the intricacies of dealing with age and status often provide pitfalls for international managers. Communication Dimensions Critical dimensions in intercultural communication are: language and culture, differences between high and low context cultures, the use of interpreters and non-verbal communication. If these are taken care of, inter-cultural communication will be effective. Language and Culture Language is the foundation of every culture. It is an abstract system of words, their meanings and symbols related to all aspects of culture. Language includes speech, written characters, numerals, symbols and gestures. The interrelationship between language and culture is very strong and often, the former determines the latter. Words provide the bases for understanding the world. All languages (there are approximately three thousand of them) have limited sets of words. These restricted word sets, in turn, constrain the ability of the users to understand or conceptualise the world. Since language structures the way we think about what we see and behave—it determines control patterns. The above hypothesis that language determines cultural patterns is, however, not acceptable to several experts. Many social scientists argue that language does not determine human thought and behaviour patterns. For example, humans possess the physical ability to make millions of colour distinctions, yet languages are limited in the number of colours they can express. The English language distinguishes between yellow

Multiculturalism 53

and orange, but some other languages do not.18 The word punya is popular in Indian languages but there is no equivalent of it in the English language. Obviously, it is not that languages determine culture. It is culture that comes first—requires the development of certain concepts and thus, certain words. Notwithstanding the arguments, there is a close interrelationship between language and culture. High- and Low-Context Languages The world’s languages can be classified, based on whether the message conveyed is explicit or implicit, into two groups. Languages in which people state things directly and explicitly are called low context. The words provide the meaning and there is no need to interpret the situation to understand the import of the words. Languages in which people state things indirectly and implicitly are called high context. In high-context language, communications have multiple meanings, that can be interpreted only by reading the situation in which they occur. So important is the context of high and low context that many people refer to whole cultures as being high or low context. Most northern European languages, including German, English and the Scandinavian languages, are low context. People use explicit words to communicate direct meanings. In contrast, Asian and Arabic languages are high context. In Asian languages, often what is left unsaid is just as important as what is said. Silent periods and the use of incomplete sentences require a person to interpret what the communicator does not say, by reading the situation. Arabic introduces interpretation into the language with an opposite tack. Extensive imprecise verbal and non-verbal communication produces an interaction where reading the situation is essential for comprehension. (Also see Fig. 2.15.)

(Source: Arvind V. Phatak et al, Interational Management, TMH, 2006, P.372) FIGURE 2.15

Contrasting Patterns of Communication in Low versus High Context Cultures

Communication between high context and low context people is a challenge for international managers. Translated words for a low context speaker have explicit meanings, but the same may have a multitude of meanings for a high context speaker. In international negotiations, the negotiators should realise that communication will have errors. Moreover, even good translations may require contextual interpretations for effective communication. Use of Interpreters In cross-cultural communication, use of a language foreign to both the parties, is common. The international manager is at an advantage if he or she speaks more than one language fluently. US Americans speak only English, but their European counterparts are generally bilingual or even multilingual.

54 International Human Resource Management Increasingly, companies are making use of the services of interpreters in international negotiations. The interpreter’s role is to provide a simultaneous translation of a foreign language, while a person speaks. This requires greater linguistic skills than speaking a language or translating written documents. Good interpreters are not only bilingual, but also have the technical knowledge and vocabulary to deal with technical details common in business transactions. To simplify the increasing diversity of languages in businesses, some MNCs use one language as the corporate language. Increasingly, this language is English, as it is being used in a majority of countries. Using English allows companies to have a more consistent culture while dealing with the linguistic diversity of their employees and customers. However, even companies which have a corporate language, have permanent translators on their rolls to manage such issues as interaction with the international press, translation of local product information and negotiations with other companies. (See Exhibit 2.2.)

Exhibit 2.2 Getting Local for Global Leap CROSS-CULTURAL marriages are a tough call. And Laxmi Mittal isn’t the only one who managed to crack that code. Indian corporate groups looking for a global footprint are doing everything from taking language lessons in Chinese and Korean to bonding with the local farmers in Bangladesh to maintaining cordial relations with the Masai tribesmen, in an effort to go ‘local’. Corporate honchos from TCS to BILT, Crompton Greaves to GHCL, Tata Chem to M&M call it ‘cultural sensitivity’ and increasingly, it is turning into India Inc’s most important deal drill. Take the Tata group which has a business footprint in various industries, spanning every region from Latin America to South Africa, China to Bangladesh and has recently been engaged in a number of cross border M&A deals. The key to managing these diverse cultural cues, says Alan Rosling, executive director, Tata Sons, is to go local with a vengeance. Take Tata Motors’ Daewoo venture in Korea. “The principal way is to get locals to do most of the work,” says Rosling. “So we are heavily using locals in Daewoo and the few Indians we have put there are learning to speak Korean.” This is also the mantra for Bilt, which has recently announced its deal to acquire Malaysia’s biggest paper and pulp company, Sabah Forest. Says B. Hariharan, Director finance at Bilt. “Jobs are an issue and one has to be very conscious of not displacing people from their current job in Malaysia.” Adds Nikhil Sen, who is looking after finance and strategy at GHCL, which has recently announced three M&A deals in the US and Europe, “In emerging economies like Romania where we acquired the soda ash company, one needs to stay clear of asset stripping post acquisition.” Sometimes, just language skills are a big plus. The TCS representative in Latin America for instance, speaks Spanish, Portuguese and Hungarian, and has recruited a senior management team that’s mostly local, though the backbone is Indian. Sometimes, this local sensitivity is vital just to stay in business. Take Tata Chemicals which acquired Brunner Mond last year, having Kenyan operations in Masai tribal areas. “The local management has to be on good terms with the chiefs of the tribes,” says Rosling. That cultural connect becomes even more important when the company’s foray is in a politically sensitive area. Take the Tata group’s $2.5 Bn investment in Bangladesh’s energy, steel and fertiliser sectors. Despite the detailed feasibility study, the group encountered hiccups with the choice of the steel plant site. “There was a ground swell of opinion from local farmers who demonstrated against the project to the district officer,” says Rosling. But the situation turned positive when it was explained to them that the group in question was the Tatas and any compensation due to them would be paid. Sometimes, a deal can depend upon the dinner spread and table talk. When the M&M team started negotiating with the Chinese tractor maker Jangling, a crucial aspect of their pow-wows was ‘dinner diplomacy’. M&M’s crack deal masters realised that more business happens across the dinner table

Multiculturalism 55

in China than in the board room. Says an M&M source: “Food is an integral part of their culture. Unfortunately, few things appealed to the Indian palate. But that did not deter them from responding to their Chinese partners with the same zeal with which they hosted these meals.” Result: they managed to swing the deal in just 90 days. Of course, India’s own brand equity in a specific business prompts locals to go the extra mile to connect. Take the TCS experience in China. There, the mayor of the town solved the Indian team’s biggest problem in China—finding vegetarian food. He set up a “Tam Brahm vegetarian restaurant” for the TCS crowd. Now that’s connecting. (Source: The Economic Times, June 29, 2006)

Non-verbal Communication Non-verbal communication includes facial gestures, voice intonation, physical distance, smile, batting of eyelid, kiss, handshake and even silence. Non-verbal communication supplements or enhances spoken communication. It is easy to misinterpret the meanings of non-verbal communication of another culture. Take for example, body language. In the US, when a manager keeps his or her feet on the desk, it means that the boss is relaxing and the others can also do the same. But such gestures are frowned upon in India. Take another non-verbal communication medium-touching. In greeting one another, people may shake hands, embrace or kiss. In routine interaction, people may touch or pat each other in a variety of ways. The type of touching deemed appropriate is deeply rooted in a society’s cultural values. Russian men, for example, often kiss other men outside their family as a form of greeting; Brazilian men hug in greeting. At times, medium-touching may prove embarrassing as the late S. Radhakrishnan realised. It was 1956 when S. Radhakrishnan, the then Vice-President of India, visited China. He called on Mao Zedong, the then Chairman of Communist China at his residence. Mao had his hand in a bandage because his finger had been crushed while he was getting into a car at Phnom Penh. Mao put his hand out and Radhakrishnan touched it. Then he patted Mao on the cheek. The Chinese supremo was a bit taken aback and those around him were startled. It was Radhakrishnan who saved the situation. He said, “Mr. Chairman, don’t be alarmed. I did the same thing to Stalin and the Pope.” The tension disappeared and everyone laughed.19 Tips for Effective Communication across Cultures Communication is critical in managing multi-cultures. International managers need to possess effective communication skills while negotiating with overseas suppliers/buyers, making presentations and motivating and leading subordinates who represent diversity. The following tips might help the multicultural manager improve his or her communication skills. Learn the Language of the Host Country The intercultural manager should learn to communicate with subordinates and employees in their own language. Nothing gives the manager more acceptance than talking to people in their own mother tongue. Learn to Neutralise Language Accents People pronounce English words which symbolise their own language. For a North Indian, for example, school becomes ‘ischool’ and statistics is ‘istatistics’. For an Andhra which becomes wuch, for a Tamilian, Canara Bank is ‘Kanara Bank’ and for a Bengali, it is Rabindra for Ravindra. Angularities like these need to be neutralised if one has to communicate with other international managers. Be Aware of the Fact that Cross-cultural Barriers do Exist The most significant thing the international manager should do is to avoid committing cultural mistakes. For instance, Britishers prescribe privacy and it is a mistake to ask in Britain any personal questions. Similarly, Koreans do not wish to be told ‘No.’ They want their visitors to leave with good feelings. Soliciting feedback helps minimise cross-cultural barriers to communication.

56 International Human Resource Management Use Straightforward Language and Speak Clearly Using apt words without being verbose makes communication effective. Minimising the use of idioms and analogues helps a lot. Facing the person of another culture directly also improves communication as face expression and lip movements add to comprehension.20 Be Sensitive to Non-verbal Communication Non-verbal communication means different things to different people. Thais, for example, tend to speak softly and do not use gestures. Thais usually employ eye contact, but intense eye contact, which is accepted in the Middle East and Latin America, is not appreciated by the Thais.21 Singaporeans often smile to cover anxiety or embarrassment rather than to express amusement. Their smile should not be misconstrued. The French display unusual contact behaviour among friends and relatives. A study of comparative touch behaviour at cafes in Paris and London showed that within the space of an hour, French couples touched each other over one hundred times while the British couples did not touch each other at all.22 Such high-contact behaviour of the French should not be taken as their acceptance of a business deal. Develop Cultural Sensitivity Learning the host country’s language is no doubt essential, but what is desirable is to become sensitive to local cultures. TCS, Wipro and Infosys, as was stated in Exhibit 2.1, train their employees in cultural sensitivities. Asians as stated above, tend to smile to cover up their severe stress or embarrassment. Their smile should not be taken as being rude or insensitive (also see Exhibit 2.3).

Exhibit 2.3

Miscommunication across Cultures

The strong East Asian concern for covering negative emotion can be confusing to outsiders from deal-focused cultures. When we moved from Germany to Singapore in 1988, my wife and I decided to try learning Mandarin on weekends. We hired Stefanie, a pleasant young woman who had recently immigrated form Taiwan, to tutor us. My lessons were interrupted late that year when my mother passed away and I had to fly to Wisconsin to attend the funeral. Unfortunately, I had barely returned to Singapore when my brother phoned again to break the sad news that our father had passed away. As you might imagine, this was a very difficult time for me. It happened to be a Saturday when I got back from this second funeral, and Stefanie dropped by to enquire why I had missed over a month’s worth of lessons. Suffering from grief compounded by jet lag and exhaustion, I blurted out that both of my parents had just died. A stricken look flashed across the young woman’s face for just a fraction of a second, and she gasped. Then Stefanie suddenly laughed out loud, right in my face. And proceeded to giggle for several seconds. Now, intellectually, I was quite aware that people from some Asian cultures hide their nervousness, embarrassment or severe stress with a laugh. I also knew I should have broken my sad news much more gently. After all, Stefanie was a Chinese person raised in the Confucian way: She revered her parents. For her, the sudden realisation that she could perhaps lose both of them almost at the same time, must have come as a terrible shock. Nevertheless, my immediate reaction to her laugh was visceral. I felt as though I had just been hit very hard in the stomach. Even though I understood rationally what had happened, I had difficulty relating to Stefanie as I had before the incident. A few weeks later she stopped coming and we had to find a new Mandarin tutor. (Source: Richard R. Gesteland, op.cit., pp. 37–38)

Multiculturalism 57

TECHNOLOGY Itroduction of new technology is often resisted and one of the reasons for such impervious behaviour is the prevailing culture. Culture at the organisational level needs to be changed to accommodate new technology. While organisational culture needs to change to allow for the successful implementation of new technology, rather than merely rely on a single visionary to continually adopt new technology, culture also cannot change continually or change in different directions at the same time. Organisational culture should be such that it willingly embraces new technology, accepts failure readily, and can accommodate several new technologies simultaneously (see Exhibit 2.4).

Exhibit 2.4

Cultural Nuances and Mobile Phones

Technologies tend to be global, both by nature and by name. Say “television”, “computer” or “internet” anywhere and chances are you will be understood. But not with the ubiquitous instrument called the cell phone. For North and South Americans, it is cellular. For Britons and Spaniards the same mobile phones are moviles. Germans and Finns refer to them as Handys and Kannykat, respectively, because they fit in your hand. The Chinese, too, make calls on a sho ji, or “hand machine”. In Japan the term is keitai, which roughly means “something you can carry with”. This distinction is revealing for an object that, in the space of a decade, has become as essential to human functioning as a pair of shoes. Mobile phones share a single global moniker because the origins of their names are deeply cultural. “Cellular” refers to how modern wireless networks are built, pointing to a technological worldview in America. “Mobile” emphasises that the device is untethered, which fits the roaming, once imperial British style. Handy highlights the importance of functionality, much appreciated in German. Germans are not avid users of cell phones. On average Germans-who are fond of saying that “talk is silver, silence is golden”-spend only 89 minutes each month calling others for Handy based conversation. This may be a result of national telephone companies on both sides of the Berlin Wall having exhorted subscribers for years to “keep it short” because of under-investment in the East and rapid economic growth that over taxed the network in the West. Germans are also thrifty, for longer calls they resort to much cheaper landlines. Americans are talkative. Their average monthly talk-time is a whopping 788 minutes, though some of this is a statistical illusion because subscribers also pay for incoming calls. Yet talk is cheap: there is no roaming charge within the US. Americans are often in their cars, especially in many states where driving and talking without headsets is still legal. Most talkative in the world are Puerto Ricans, who have by far the highest monthly average in the world of 1,875 minutes, probably because operators on the American island offer all-you-can-talk plans for only $40, which includes calls to the mainland. This allows Puerto Ricans to chat endlessly with their friends in New York, but may also have arbitrageurs routing cheap international phone calls through the island. It is not that only the talk-time and names of mobiles have cultural background. Just how people behave when talking on a mobile phone is a question of culture too. Parisians and Madrilenians, for example, feel free to talk in the street, even in the middle of the pavement. Londoners, by contrast, tend to gather in certain zones to talk. But subscribers in Madrid often mix them and even allow others to take part in their phone conversations. The Spanish most of the times take a call and most turn off voice mail, as they consider it rude to leave a call unanswered, even if it is inconvenient. This may be the result of a strong sense of social obligation towards friends and family.

58 International Human Resource Management Elsewhere too, culture and history may help determine whether people talk in public or take a call. The Chinese often let themselves be interrupted, fearing that otherwise they would miss a business opportunity. Uzbeks use their mobiles only rarely in public, because the police might be listening. Germans can get aggressive if people disobey the rules, even unwritten ones. In 1999 a German died in a fight triggered by his ill-mannered Handy use. In some countries it is common that people carry more than one hand set. Japanese workers often have two: a private one and a work one. Having several phones is often meant to signal importance. Latin American managers like to show how well connected they are: some even have a dedicated one for the boss. Cultural adaptation is common in Africa and Asia. In poorer countries, people handle handsets differently as they lack money to use them in the way others do. When designing a phone, cultural orientation is a must. Ugandans are beneficiaries of handsets in unique ways. There is Farmer’s Friend which provides weather forecasts, rice farmers are receiving farming tips, and human experts offer advice on “chicken’s eyes are bulging” type of complaints. There is also the Google Trader, a text based system that matches buyers and sellers of agri-products and commodities. Services to help farmers have been most widely adopted in China, where China MOBILE offers a service called Nong Xin Tong in conjunction with the agriculture ministry, as a part of its push in rural areas. Mobile phones are also being used in health care. One-way text alerts, sent to everyone in a particular area, is used to raise awareness of HIV. Camera-phones are used to send pictures to remote specialists for diagnosis. Indians are more noisy Mobile phones have unique adaptations in India. The country is a huge market for any mobile brand and the rate at which the handsets are penetrating is amazing. Every second Indian has a ‘cell’ (in India mobile is known as cell). Mobile phones have brought almost a revolution in India, just as automobiles did to the US. In 1994, India had a tele density of 0.8, among the lowest in the world, falling behind even Pakistan and Malaysia. Things changed over time. From 5 million in 2000, the subsenber base touched 742 million by the end of 2010. Mobile telephoney has helped tele density in India jump to more than 50 percent, and has spawned an information and entertainment boom that will only accelerate with 3G and 4G services. More than the professionals, academics, business-people and political leaders, it is the college going students, priests, farmers, servant maids, vegetable vendors, barbers, plumbers and rickshaw drivers who are more active users of cell phones. Fishermen in Kerala, who use mobiles, registered an increase in incomes, even while fish prices went down. It is said that an extra 10 mobile phones per 100 people in a developing country leads to an additional 0.59 percentage points of growth in GDP per person. Many have more than one phone, and more numbers an individual has, more important the person is. In fact, mobile phones carry snob value in India, rather than the functional value. Ladies carry handsets in colorful pouches and men usually have small pockets in their shirts to accommodate them. Companies provide unique features to meet needs of Indians. Many brands, for example, double as torches. Nokia has launched a set of services called “Life Tools”, which ranges from agricultural information for farmers such as prices, weather data and farming tips. There is also educational service like the language tuition. India has among the lowest prices anywhere, and a home-grown, world class operator, Bharti Airtel. Mobile industry in India inspires great hopes nay, see it as vital to the nation’s development: a way of bypassing obstructive bureaucrats and bringing services to the masses, from mobile banking to accurate crop prices. Already a third of subscribers are in rural areas. Mobiles bring the whole world to villages in Andhra Pradesh.

Multiculturalism 59

Purchase of a cell phone is marked by great fanfare in India. Auspicious day and time are chosen in advance. On the said day and time, the new cell is brought home, kept in puja room, flowers are spread, coconut is broken and camphor is burnt. Then the set is formally inaugurated. Mobile technology has made even illiterate Indians use jargons such as, sim card, currency, SMS, post-paid, pre-paid, network and the like. Thanks to cell phone, Indians, already known for talking loud, have become more talkative and more noisy. (Source: Adapted from, The Economist, Oct, 2009 and Jan 2010).

Human Resource Practices in the National Context Human resource practices such as employee hiring, training and development, compensation and performance appraisal should differ from country to country. The subsequent chapters in this book explain the general principles that govern international human resource management activities. The fact that these practices are culture specific and the reasons for the same are discussed here. Why do HR Practices Vary? Cross-national differences in HRM and the pressure to adapt to local conditions depend on several national context factors. The national context includes social institutions, business culture, factor conditions and their combined effects on the business environment.23 Social institutions are the principal instruments through which essential tasks of living are organised, directed and executed.24 Five basic institutions can be found in any society: the family, religion, economy, education and the state.25 The main function of the family is progeny—contribute members to society. Families also teach the new members what is expected of them, as well as try to motivate them to fulfil those expectations. Religion motivates members of a society to comply with their responsibilities and obligations by assigning meaning and purpose to such activities. The economy includes corporations, organised markets, international trade associations and consumer organisations. The purpose of these economic institutions is mainly to produce and distribute goods and services throughout a society. Education seeks to transmit abilities and skills that all members of a society need to become productive members of the economy as adults. Finally, the state is an institution designed to protect the society’s members from internal and external threats. The state also establishes penal and civil codes to lay down standards of acceptable and unacceptable behaviours, responsibilities and obligations, and it specifies sanctions for violation of these standards. The role of the state in shaping, directing and promoting economy cannot be undermined. What is interesting is that these social institutions are closely linked with national and business cultures. Institutions such as the family and the educational systems, pass on cultural traditions. The state reflects the norms and values of the society. Organisations must identify and implement HRM practices that meet the demands of a society’s social institutions.26 Social institutions help define the correct ways of doing business in any country. In India, for example, the state expects businesses to adopt affirmative actions. In Japan, the family system relies on women raising the children so that men can work long hours at night or be away from home for long periods. Obviously, there are unwritten biases against women holding managerial positions after they beget children. The national context also includes the factor conditions prevalent in a country. The factor conditions (five of them as stated below) determine the resource pool available for a firm. The resource pool represents all the physical and human resources obtaining in a country. The five factor conditions are: ∑ The quality, quantity and accessibility of raw material. ∑ The quantity, quality and cost of human resource available. ∑ The scientific, technical and market-related knowledge available to firms.

60 International Human Resource Management ∑ The cost and amount of capital available to firms for operations and expansion. ∑ The type, quality and costs of supporting institutions such as education, transportation and communication facilities. Now, these factor conditions are abundant in some countries and scarce in others. Again, abundant countries are not rich in all factors and scarce countries do not lack in all of them. Germany, for example, has large pools of technically trained workers who support the development of industries, but, German workers are the highest paid in the world. Japan and the US have strong R&D bases, but Korean electronics companies do not have the same level of knowledge resources. Factor conditions coupled with social institutions and business culture determine a country’s business environment. The business environment, in turn, determines the type of HR policies and practices to be followed in a host country. The HR practices that are country specific are: employee selection, training, compensation, performance appraisal and industrial relations. While selecting employees, companies need to follow local hiring practices. Ignoring locals amounts to offending the local cultural norms. But best talent may not be available locally. Thus, multinational managers are expected to assess the trade-off between following home practices and hiring people from the home country against the costs and benefits of following local traditions. Cross-national differences do exist in training and development needs. Such needs may be less intense in countries where educational facilities are available. Germany has strong technical education programmes. India too has a large number of engineering colleges producing technically qualified people in greater numbers. A life-time employment practice, mainly prevailing in Japan, too has an impact on determining the training and development needs. Training is slow and less significant in countries which practice life-time employment. Managers pick up new skills through extensive job rotations. They learn by doing. If there is one element of HRM that is common to all cultures, it is performance appraisal. Performance review is extensively used in all countries so as to identify performers for promotion, and to assess training needs. In the individualistic societies, appraisal is treated as the most objective and reliable tool to effect pay hikes or to promote achievers. In collectivist societies, on the other hand, personal background characteristics, but not achievement, are determining factors to reward employees. According to Hofstede, managers in collectivist societies often avoid direct performance-appraisal feedback. An open discussion of performance may clash with the society’s norm of harmony, which takes precedence over other values.27 Koreans prefer seniority-based promotions to appraisal-based upgradations. Cultural differences also wield their influence on industrial relations. In Japan, management-labour strike is rare because of traditional and structural factors that blur distinctions between workers and management. Union leadership is a stepping stone to management—nearly 15 per cent of union officials rise to serve as executives of the company. Obviously, union leaders have little incentive to assume strict labour positions against those responsible for their advancement. Labour laws are generally inoffensive. A number of countries require substantial employee representation on the corporates’ boards of directors. Such countries mandate a two-tired board: a large supervisory board and a management board. The former has employee representatives. In Germany, the Netherlands and Luxembourg, employees have direct representation in the supervisory boards. Employee dismissal practices too vary. In the US, the popular perception is that no one is entitled to a job. Once an individual ceases to be productive, his or her future employment is in jeopardy. Europeans, on the other hand, feel that employees acquire a proprietary interest in their jobs over time. The traditional Japanese view is that one’s job is a central part of his or her place in society and that a job largely defines the person. An individual is expected to hold a job for the same company for a lifetime. In Japan, the focus is not on the conditions of dismissal but on the propriety of dismissal itself.28

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Need for Synergy The previous section focussed mainly on the need for varying HRM practices to suit different cultures. But the trend now emerging is that MNCs are transferring HRM practices from the respective home offices to their subsidiaries. In other words, there is emerging the trend of synergy in HRM practices. Three approaches support synergy: rational, culturalist and political.29 The Rational Approach This approach posits that best employment practices, wherever they originate from, need to be transferred to subsidiaries in order to enhance efficiency. This is what Japanese MNCs did during the 1980s and 1990s. The Japanese firms transferred their employment practices as they expanded into Europe and North America. Such practices as common uniform, shared canteens and open offices now prevalent in India, have been borrowed from Japan. The Culturalist Approach This approach argues that it is the legacy of national culture that forces transfer of practices more than the demands of competition. It is too well known that MNCs take many aspects of national culture with them when they go abroad. In other words, their corporate culture is influenced by the national culture in the parent country. Obviously, along with national culture, MNCs unwittingly carry HRM practices across sites in different countries. GE’s culture of contention rather than collaboration, transmits to all its subsidiaries wherever they are located. Wipro is emerging as an Indian MNC. As stated earlier, the Bangalore based software giant has sales offices in 14 countries and scouts for talent in as many countries. The core value of Wipro is honesty, which it has imbibed from the Indian ethos. In emerging markets, where some of the biggest revenue opportunities lie, corruption is routine, and contractual obligations are rarely upheld. There is a temptation for any MNC to play by local rules. But Wipro resists such temptations. The Political Approach The political approach portrays that there are always certain actors who have their own stakes in transfer of practices to subsidiaries. A range of actors in the head office may seek to protect or advance their own positions by initiating or engaging in the transfer of practices. They project themselves as indispensable or at least, as key players in the transfers. Even the individuals holding key positions in subsidiaries seek to protect their turf by sharing practices with their counterparts in other sites.

Multicultural Teams Multicultural teams comprise members coming from more than one culture. Multicultural teams can be divided into three types: ∑ Token teams, in which only one member is from another culture. An example would be a group of Japanese retailers and a British attorney, who are looking into the benefits and shortcomings of setting up operations in Bermuda. ∑ Bicultural teams have members from two cultures. An example would be a team of four Mexicans and four Canadians who have formed a team to investigate the possibility of investing in Russia. ∑ Multicultural teams have members from three or more cultures. An example is a group of three Americans, three German, three Uruguayans, and three Chinese managers who are looking after mining operations in Chile. Managing Culturally Diverse Teams Cultural diversity can be an important source of energy in enhancing organisational effectiveness. More and more organisations are realising the virtues of cultural diversity, but surprisingly, little do they know how to manage it. There is a significant amount of learning that every organisation goes through in understanding and accommodating the cross-cultural corporate challenges. What organisations can do about it is to create awareness about the cultural differences and sensitivity to the work values prevalent in the countries that the MNCs require to interact with, either as a customer or as a host unit. Organisations that adopt a multinational strategy can become more than a sum

62 International Human Resource Management of their parts. Operations in each culture can benefit from operations in other cultures through an enhanced understanding of how the world looks and works. On the flip side, multicultural teams often generate frustrating management dilemmas. Cultural differences can create substantial obstacles to effective teamwork – but these may be subtle and difficult to recognise until significant damage has already been done. But by intervening, leaders tend to create more problems than they resolve. The challenge in managing multicultural teams effectively is to recognise underlying cultural causes of conflict, and to intervene in ways that not only get the teams back on track but empower their members to deal with future challenges effectively.30 Strategies for Managing Teams Four strategies have been suggested to tackle problems of multicultural teams. ∑ Adaptation—Acknowledging cultural gaps openly and working around them. ∑ Structural intervention—Changing the shape of the team. ∑ Managerial intervention—Setting norms early or bringing in a higher level manager. ∑ Exit —Removing a team member when other options have failed. Table 2.6 shows the four strategies together with representative problems, enabling situational conditions and complicating factors under each strategy. TABLE 2.6 Representative Problems

Strategies for Managing Multicultural Teams

Enabling Situational Conditions Team members can attribute a challenge to culture rather than personality Higher-level managers are not available or the team is embarrassed to involve them The team can be subdivided to mix cultures or expertise Tasks can be subdivided

∑ Conflict arises from decision-making differences ∑ Misunderstanding or stone-walling arises from communication differences

∑

∑ The team is affected by emotional tensions relating to fluency issues or prejudice ∑ Team members are inhibited by perceived status differences among team mates

∑

∑ Violations of hierarchy have resulted in loss of face ∑ An absence of ground rules is causing conflict

∑ The problem has produced a high level of emotion ∑ The team has reached a stalemate ∑ A higher-level manager is able and willing to intervene

∑

∑

Strategy

Complicating Factors

Adaptation

∑ Team members must be exceptionally aware ∑ Negotiating a common understanding takes time

Structural Intervention

∑ If team members aren’t carefully distributed, sub-groups can strengthen preexisting differences ∑ Subgroup solutions have to fit back together

Managerial Intervention ∑ The team becomes overly dependent on the manager ∑ Team members may be sidelined or resistant

(Contd.)

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TABLE 2.6 Representative Problems ∑ A team member cannot adjust to the challenge at hand and has become unable to contribute to the project

Strategies for Managing Multicultural Teams

Enabling Situational Conditions ∑ The team is permanent rather than temporary ∑ Emotions are beyond the point of intervention ∑ Too much face has been lost

Strategy

Exit

Complicating Factors ∑ Talent and training costs are lost

(Source: Jeanne Brett, et. al., Harvard Business Review, Nov. 2006, p. 89)

Some other ways of managing culturally diverse teams are: ∑ Task-related selection: Leaders should select team members based on their task-related abilities rather than on ethnicity. Team members should be homogenous in ability levels but heterogenous in attitudes. Such members help maximise team effectiveness. ∑ Establishing a vision: Members of diverse teams have more difficulty agreeing on their purpose and task than do members of homogenous groups. Global alliances often become troubled because partners from different cultures do not clearly understand each other’s intent—their purpose, goals, and strategy—because they are initially unable to communicate with each other. The main task of leaders is to help teams agree on the vision or super-ordinate goal that cuts across individual differences. Super-ordinate goals give a general direction and focus to the team’s activities. Such goals requiring collaboration and cooperation generally decrease prejudice and increase mutual respect.31 ∑ Equalising power: Teams generally produce more and better ideas if all members participate. Cultural dominance (disproportionate power vested in members of one culture over those from other cultures) is therefore, counterproductive because it stifles non-dominant team members’ contributions. In multicultural teams, leaders must guard against vesting disproportionate power in host-country members, members of the home country, members from the most technologically advanced or economically developed countries, or members with ideologies most consonant with their own. Team leaders should manage the distribution of power according to each member’s ability to contribute to the task, not according to some preconceived gradient of relative cultural superiority. ∑ Creating mutual respect: For most teams to work effectively, members must respect each other. Prejudice is the antonym of mutual respect. Equal status, close contact, and cooperative efforts towards a common goal decrease prejudice. Team leaders can enhance mutual respect by selecting members of equal ability, making prior accomplishments and skills known to all team members, and minimising early judgement based on ethnic stereotypes.32

Gender Issues Gender diversity, where women are serving in organisations along with men, is becoming a trend. Organisations have realised the benefits of appointing women, particularly at senior levels. Studies have concluded that firms stand to gain by having female as employees. The Catalyst Report (2007) says that companies with boards comprising more women perform better than those with the least number of female representation. The report further adds that boards with more than three women members registered 83 percent higher return to shareholders, 53 percent higher ROI and 43 percent jump in return on sales. According to a study by Standard Chartered Bank about women in corporate boards in India, the financial sector performs best in terms of gender diversity-nine of the eleven banks listed on BSE-100, have women in their boards and two of these banks (ICICI and Axis) have fair sex as CEOs. In fact, through the recent recession, RBI had two

64 International Human Resource Management women deputy governors on board. Then there is the EMA Partners International Study which reveals that only 11 percent of the companies across sectors in India have women CEOs, and 54 percent of these CEOs come from financial sector. But in the Fortune 500 list, only seven percent of the CEOs are women. Women, in general, are less risk prone and it is this trait that helped the financial sector in India sail through the turmoil of the recent financial meltdown. Yet women face hurdles on the way to organisations, not to speak of board memberships. Glass ceiling, sexual harassment, and stereotyping are the typical obstacles. Glass ceiling refers to the impediments that prevent women from entering organisations and rise to the top positions. When we want to hire or promote someone, we tend to pick up a person with whom we feel comfortable. Preference tends to be given to a person who can match with our gender, interests and capabilities. Women get eliminated since men sit in prefectorial positions to decide hiring and promoting. Sexual harassment, also called workplace harassment, is assuming serious proportions. According to the ET-Synovate Study, every fifth worker in India is sexually harassed. Workplace harassment obviously deters women from entering organisations or to aspire to occupy top positions. Stereotyping is yet another hurdle we have identified. Stereotyping operates in more than one way. Most commonly known stereotyping is the traditional role assigned to a woman. For too long, it was believed that the woman should not come out of kitchen. This belief is waning largely. The second stereotyping relates to the nature of jobs supposedly meant for female. It is believed that HR, financial sector, or public relations are the areas best fit for women. This belief continues to exist even today. Rarely do we find women on the shop floor or sitting as VPs-manufacturing. Thirdly, women are said to accord precedence to marriage, child care, and family. When a child is sick, it is the mother who always takes a break and not the father.

Work Values Work values, the final dimension of multicultural management, are the aspects of a job that bring satisfaction. The framework in Table 2.7 helps understand the work related implications of Geert Hofstead’s cultural dimensions. The work values that would manifest themselves while at work are discussed along with examples. TABLE 2.7

Framework of Work Values

Independence ∑ Flexible work hours ∑ Choosing alternate career paths

Conformity ∑ Cleary defined work schedules ∑ Well identified career paths with limited flexibility

Individualism ∑ Individual accountability for work assigned ∑ More focus on self in addressing concerns, ‘I’ talk

Collectivism ∑ Building and encouraging interdependencies at work ∑ Tendency to form groups and collate through identifying some factors of commonality, like gender, religion etc.

Authority ∑ Ability to assert authority when something needs to be done ∑ Position, title and status are important and determine the degree of influence

Equality ∑ Lack of relevance for designations/ titles, hierarchy ∑ Similar benefits and privileges across the organisation

Compliance ∑ Acceptance of policies and rules as organisational limitations ∑ Non-adherence merits reprimand and corrective action

Empowerment ∑ Scope to propose changes to policies and processes ∑ Participatory approach to decision making on work-related aspects

Multiculturalism 65

The work values of a nation are as uniquely identifiable as the national cultural dimensions. Independence versus Conformity This trait arises from the cultural dimension of power dimension, where the belief is more on theory X leadership and management style than on theory Y. Organisational structures and systems reflect a highly flexible framework for work related behaviour, where the power distance scores are low and significantly rigid in the high power distance countries. Work values are evident in a more authoritative way of working, an unconscious respect for people in power and position of authority, and benefits and perks restricted to certain levels within the organisation. A low ranking in long-term orientation reflects a freedom in the American culture which is reflected in work values of greater flexibility and the freedom to react quickly to new opportunities and challenges. Individualism versus Collectivism Similarly, work values that convey ‘time is money and punctuality is highly regarded’ is derived from high culture scores on individualism, where the ‘self’ is important and everything else has a time and a place in life, which is evident in the American workplace. Authority versus Equality In Japan, the high scores for uncertainty avoidance implies a work value of security and conformity to rules and policies, speaking-up or voicing individual opinions are neither appreciated nor encouraged. Compliance versus Empowerment This correlates to cultural scores on masculinity; the male are naturally empowered, by virtue of their gender. Work values are a derivative of the country’s cultural dimensions and are key determinants of how decisions are made, providing a framework that enables the individuals to protect/defend what they believe in. Common work values propel outstanding performance and when work values clash, conflict occurs and performance is impacted adversely. Knowledge of work values prevalent in a country helps MNCs respect and build a tolerance for how work gets done in each of its subsidiaries. Vendor behaviour in a country like India, where timeline commitments are ‘made to be broken’, would be very difficult to comprehend for an American firm where vendors are genuinely committed to contractual terms which are legally enforceable. Work values can be a source of stress, especially during the early entry of an organisation into a host location, when the impact of the diversity in the values is most severely experienced by individuals of the parent as well as the host country. Awareness and acceptance of the work values in various countries where an MNC operates, especially among managers and those who interact extensively with individuals in the host location and vice versa, is critical for facilitating a more collaborative approach to problem solving and decision making in a multinational context. It also ensures that the expectations are balanced and realistic. The speed and ease of acclimatisation to work values of a host country are also dependent on the degree of cultural distance between the parent and the host cultures. Therefore, countries with somewhat similar scores on Hofstede’s cultural dimensions would be able to get into a working relationship with the least amount of effort as compared to countries which are more wide apart on the scores.

CULTURE AND PERFORMANCE Towards the end, we focus on the impact of culture on performance of organisations. At the begining of this Chapter, we mentioned about the effects of culture—both functional and dysfunctional. Here we focus on the impact of culture only on performance. Corporate culture can have a significant impact on a firm’s long-term economic performance. The following observations are appropriate.

66 International Human Resource Management • Corporate culture will probably be even more important factor in determining the success or failure of firms in the next decade. • Corporate cultures that inhibit strong long-term financial performance are not rare; they develop easily, even in firms that are full of reasonable and intelligent people. • Although tough to change, corporate cultures can be made more performance enhancing. Taylor Cox of the University of Michigan is more specific in bringing a correlation between culture and organisational performance. Table 2.8 contains the six arguments of Taylor Cox. TABLE 2.8

Six Arguments for Managing Cultural Diversity

1.

Cost Argument

As organisations become more diverse, the cost of a poor job in integrating workers will increase. Those who handle this well, will thus create cost advantages over those who don’t.

2.

Resource-Acquisition Argument

Companies develop reputations on favorability as prospective employers for women and ethnic minorities. Those with the best reputations for managing diversity will win the competition for the best personnel. As the labor pool shrinks and changes composition, this edge will become increasingly important.

3.

Marketing Argument

For multinational organisations, the insight and cultural sensitivity that members with roots in other countries bring to the marketing effort should improve these efforts in important ways. The same rationale applies to marketing to subpopulations within domestic operations.

4.

Creativity Argument

Diversity of perspectives and less emphasis on conformity to norms of the past (which characterise the modern approach to management of diversity) should improve the level of creativity.

5.

Problem-solving Argument

Heterogeneity in decision and problem solving group potentially produces better decisions through a wide range of perspectives and more thorough critical analysis of issues.

6.

System Flexibility Argument

An implication of the multicultural model for managing diversity is that the system will become less determinant, less standardised, and therefore more fluid to react to environmental changes (i.e., reactions should be faster and at less cost).

(Source: James A.F. Stoner, etal, Management, P.198).

The cost argument posits that organisations failing to manage multi-cultures tend to pay heavy cost. Employees tend to be uncomfortable on their jobs, spend time and energy discussing issues relating discrimination, and harassment. Skilled employees tend to quit their jobs. When employees leave, organisations lose money invested on such employees. The resources acquisition argument says that organisations successful in handling multicultures are in a better position to attract employees rich with multi cultural backgrounds. Organisations flush with multicultures tend to be vibrant and innovative. The marketing argument says that organisations that are successful in handling multi cultures understand markets better. Markets themselves are diverse. Diverse cultures can understand diverse markets better. The creativity and problem-solving arguments maintain that people from diverse cultures, as stated above, tend to be more creative and shall be good at problem solving. The system flexibility argument posits that the ability to manage diversity increases the adaptability and flexibility of an organisation. Such a firm tends to be proactive in responding to changes in both external as well as internal environmental forces.

Multiculturalism 67

SUMMARY Culture is understood as the customs, beliefs, norms and values that guide the behaviour of people in a society and that are passed on from one generation to the next. There are dominant cultures, sub-cultures, organisational cultures and occupational cultures. Multiculturalism means that people from many cultures (and frequently many countries) interact regularly. Global firms are repositories of multiculturalism. Managing multiculturalism, or cross-cultural management is of considerable significance and most MNCs tend to have a cultural predisposition towards managing things in a particular way. Four predispositions are identified: ethnocentric, polycentric, regiocentric and geocentric. The international manager has, before him or her, three models of multiculturalism. The three models are: GLOBE project, Hofstede’s multicultural dimensions and Trompernaars 7d model. Knowledge about these models helps the international manager immensely. In a multicultural work environment, not every employee is motivated by the same factors. Motivational processes, approaches and applications reflect the culture of the country directly or indirectly. What poses a bigger challenge is managing communication across cultures while ensuring that the global activities such as leading, motivating, decision making, problem solving and exchanging information and ideas are carried out successfully. Multicultural teams merit special attention as they result in several benefits such as better hiring efforts, increased sales and market share, increased innovation and creation and higher productivity. Some of the ways to better manage multicultural teams are task-related selection, establishing a vision, equalising power and creating mutual respect. The pioneering work done by Dutch scientist Geert Hofstede on studying and understanding country clusters is significant in gaining an appreciation of how and why countries vary in their work practices and attitudes. He identified four cultural dimensions around which countries have been clustered: power distance, uncertainty avoidance, individualism and masculinity. Individual behaviour in the global context is driven by work values instilled as accepted ways of behaviour primarily attributable to the country’s culture. They draw directly from the culture scores in the Geert Hofstede’s model. On the other hand, group/interpersonal behaviour in an international environment in an organisation is shaped by the communication of the organisational vision and mission, philosophy, the policies and the globally standardised processes that it follows. Here, the organisation has total control on the culture it wants to build. This is indicative of the predisposition of the organisation towards the subsidiary operations as well as the cultural distance between the parent and the subsidiary country’s culture. Managing multiculturalism is probably the biggest challenge faced by an organisation while going multinational. And it is clearly driven under the leadership of the top and the senior management of the organisation, with a critical role played by the human resources group.

CLOSING CASE-1

Troubled Team

When a major international software developer needed to produce a new product quickly, the project manager assembled a team of employees from India and the United States. From the start, the team members could not agree on a delivery date for the product. The Americans thought the work could be done in two to three weeks; the Indians predicted it would take two to three months. As time went on, the Indian team

68 International Human Resource Management members proved reluctant to report setbacks in the production process, which the American team members would find out only when work was due to be passed to them. Such conflicts, of course, may affect any team, but in this case, they arose from cultural differences. As tensions mounted, conflict over delivery dates and feedback became personal, disrupting team members’ communication about even mundane issues. The project manager decided he had to intervene—with the result that both the American and the Indian team members came to rely on him for direction regarding minute operational details that the team should have been able to handle itself. The manager became so bogged down by quotidian issues that the project careened hopelessly off even the most pessimistic schedule—and the team never learned to work together effectively.33

Case Questions 1. What mistakes did the project manager commit while constituting the team? 2. Which of the strategies (See Table 2.7) do you recommend to bring the team back on track?

CLOSING CASE-2

Waiting in New Delhi

Richard was a 30-year old American sent by his Chicago-based company, to set up a buying office in India. The new office’s main mission was to source large quantities of consumer goods in India: Cotton piecegoods, garments, accessories and shoes, as well as industrial products such as tent fabrics and cast iron components. India’s Ministry of Foreign Trade (MFT) had invited Richard’s company to open this buying office because they knew it would promote exports, bring in badly-needed foreign exchange and provide manufacturing know-how to Indian factories. Richard’s was, in fact, the first international sourcing office to be located anywhere in South Asia. The MFT wanted it to succeed so that other Western and Japanese companies could be persuaded to establish similar procurement offices. The expatriate manager decided to set up the office in the capital, New Delhi, because he knew he would have to meet frequently with senior government officials. Since the Indian government closely regulated all trade and industry, Richard often found it necessary to help his suppliers obtain import licences for the semimanufactures and components they required to produce the finished goods his company had ordered. Richard found these government meetings frustrating. Even though he always phoned to make firm appointments, the bureaucrats usually kept him waiting for half an hour or more. Not only that, his meetings would be continuously interrupted by phone calls and unannounced visitors, as well as by clerks bringing in stacks of letters and documents to be signed. Because of all the waiting and the constant interruptions, it regularly took him half a day or more to accomplish something that could have been done back home in 20 minutes. Three months into this assignment Richard began to think about requesting a transfer to a more congenial part of the world–“somewhere where things work.” He just could not understand why the Indian officials were being so rude. Why did they keep him waiting? Why didn’t the bureaucrats hold their incoming calls and sign those papers after the meeting so as to avoid the constant interruptions? After all, the Government of India had actually invited his company to open this buying office. So didn’t he have the right to expect reasonably courteous treatment from the officials in the various ministries and agencies he had to deal with?34

Multiculturalism 69

Case Questions 1. Why is Richard not able to jell with local conditions? 2. If you were Richard, what would you do?

Key Terms Cultural dimensions Ethnocentric Geocentric Individualism Multicultural teams Masculinity

Power distance Polycentric Regiocentric Subculture Uncertainty avoidance Work values

Review Questions 1. Discuss briefly the four cultural predispositions MNCs tend to have towards managing things in a global context. 2. What are some challenges faced in communicating across cultures? 3. Draw and describe the phases of cultural adjustment that an expatriate experiences during the first move to a host country. 4. Discuss Geert Hofstede’s cultural dimensions that enable an understanding of cultures across countries. 5. How does an organisation ensure effective group/interpersonal behaviour in an international environment? 6. Discuss Trompernaar’s framework of cultural dimensions. 7. Describe Globe Projects’ leadership dimensions.

Assignments 1. Break into groups of 3 and pick one country from Geert Hofstede’s list. Carry out research to understand and present to the class, an analysis of the culture scores and the relationship to the history, evolution, economic and political situations that this country faced/faces. 2. This assignment can be completed individually or in groups of 3–5. ∑ Identify a multinational company (make sure you have reasonable amount of information available publicly about the organisation or have access to information about the company). ∑ Identify the predisposition this organisation has adopted in its international operations (make logical assumptions within the group’s consensus). ∑ Try and speak to one/more employees of this organisation to understand and present the culture that you understand prevails within this organisation.

References 1. The Economic Times, dated July 23, 2006. 1a. Gary A. Ferraro, The Cultural Dimension of International Business, Pearson, 2007, p-20. 2. Nancy J. Adler, International Dimensions of Organisational Behaviour, South Western, 2002, p 15.

70 International Human Resource Management 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Charles,W.L.Hill, International Business, TMH, 2005, p 439. Richard M. Hodgetts et al., International Management, TMH, 2005, p 128. John B. Cullen, Multinational Management, South Western—Thomson Learning, 2002, p 450. Peter J. Dowling and Denice F. Welch, International Human Resource Management, Thomson Lear ing, 2004, p 58. John B. Cullen, op. cit., p 90. Richard M. Hodgetts et al., op.cit, p 118. Helen Deresky, International Management, PHI, 2002, p 94. John B. Cullen, op. cit, p 451. Ibid, p 90. Farid Elashimawi and Phillip R. Harris, Multicultural Management, Synergy Books International, 2003, p 62. John B. Cullen, op. cit, p 534. Ibid, pp 544–545. Arvind V. Pathak et al., International Management, TMH, 2006, p 457. Anne Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage Publications, 2004, p 35. James P. Johnson, et al. “Cross-cultural Competence in International Business: Towards a Definition and a Model,” Journal of International Business Studies, May 2006, p 529. Richard T. Schamfer and Robert P. Lamn, Sociology, McGraw-Hill, 1998, p 73. The Hindu, dated Nov. 19, 2006. Andrew J. Durbin, Leadership, Biztanssa, 2005, p 384. Richard R. Gesteland, Cross-cultural Business Behaviour, Viva Books (P) Ltd., New Delhi, 2004, p 144. Ibid, p 205. John B. Cullen, op.cit., p 464. James W. Vander Zanden, Sociology, McGraw-Hill, 1996, p 51. Kenneth J. Neubeck and Davita Silfen Glasberg, Sociology, McGraw-Hill, 1996, p 53. John B. Cullen, op.cit., p 465. Ibid, p 486. Richard Schaffer et al., International Business Law and its Environment, Thomson, 2002, p 596. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit., p 391. Jeanne Brett et.al., “Managing Multicultural Teams”, Harvard Business Review, Nov, 2006, p 86. Jeanne Brett et.al., op.cit.,pp 84–85. Naney J. Adler, op.cit., p 153. Jeanne Brett et.al, op.cit., pp 84–85. Richard R. Gestland, op.cit., pp 59–60.

SECTION II SECTION II

CHAPTER

3 Learning Objectives After reading this chapter, you should be able to ∑ Understand the nature of IHRM and compare it with DHRM ∑ Explain why the interest in IHRM is ever growing ∑ Understand Ulrich’s model for a new perspective ∑ Explain the impact of technology on IHRM ∑ Decide which and how HR activities that can be outsourced ∑ Understand what makes a HR professional

competent ∑ Identify a framework to evaluate HR effectiveness.

NATURE OF IHRM

72 International Human Resource Management

OPENING CASE

HRM at Colgate-Palmolive Co.

Colgate-Palmolive, the $6 billion a year personal products giant, earns nearly two-thirds of its revenues outside the United States. For years, Colgate succeeded, as many US multinationals have, by developing products at home and then “throwing them over the wall” to foreign subsidiaries. Each major foreign subsidiary was responsible for local manufacturing and marketing. Senior management positions in these subsidiaries were typically held by Americans, and practically all the company’s US-based managers were US citizens. In the early 1980s, Colgate realised that if wants to succeed in the rapidly changing international business environment, it would have to develop a more transnational orientation. Its competitors, such as Procter & Gamble, Unilever and Kao, were trying to become transnational companies, and Colgate needed to follow suit. Becoming a transnational company requires developing an international cadre of executive managers who are as at home working in one culture as in another and who have the ability to rise above their ethnocentric perspectives. As a first step towards building such a team, Colgate began recruiting college graduates in 1987 and putting them through an intensive international training programme. The typical recruit holds an MBA degree from a US university, speaks at least one foreign language, has lived outside the United States, and has strong computer skills alongwith some experience in business. More than one-quarter of the recuits are foreign nationals. The trainees spend 24 months in a US programme. During the three-month stint, they learn secrets of global business development, for example, Colgate toothpaste, compiling a guide for introducing a new product or revamping an existing one in various national markets. Participants also receive additional language instruction and go on international business trips. When they have completed the programme, the participants become associate product managers in the United States or abroad. Unlike most US companies, Colgate does not send foreign-born trainees to their native countries for their initial jobs. Instead, it is more likely that a French national will remain in the United States, a US national will be sent to Germany, and a British national will go to Spain. The foreigners receive the same generous expatriate compensation packages as the Americans do, even if they are assigned to their home country. This extra pay can create resentment among locally hired managers of foreign subsidiaries. Colgate is trying to resolve this problem by urging its foreign subsidiaries to send their brightest young managers to the training programme. In addition to the management training programme, Colgate has taken a number of other steps to develop its international cadre of managers. In Europe, for example, the company is developing “Euromanagers”, managers who have experience working in several European countries. This is a deviation from the established practice of having managers spend most (if not all) of their careers in their home country. Also, Colgate now tries to ensure that project teams contain managers from several countries. http://www.colgate.com Source: J. S. Lublin, “Managing Globally: Younger Managers Learn Global Skills,” The Wall Street Journal, March 31, 1992, p. B1; B. Hagerty, “Companies in Europe Seeking Executives Who Can Cross Borders in a Single Bound,” The Wall Street Journal, January 25, 1991, p. B1; and CM Solomon, “Global Operations Demand that HR Re-think Diversity,” Personnel Journal 73 (1994), pp. 40–50.

Nature of IHRM 73

In simple terms IHRM refers to the HR policies and practices applied by an international firm across all its subsidiaries located in different countries. The Colgate story told in the opening case, is a true reflection of the status of international human resource management. IHRM is the process of procuring, allocating and effectively utilising human resources in a multinational organisation. The definition given by Peter J. Dowling and Denice E. Welch is worth citing in this context. According to them, IHRM contains three dimensions1. Figure 3.1 given below highlights the nature of IHRM 1. There are three broad human resource activities, viz., procurement, allocation and utilisation. These three dovetail with all the activities of the typical domestic human resource function: human resource planning, employee hiring, performance management, training and development, compensation management and industrial relations compose the first dimension. 2. The three national or country categories involved in IHRM activities are: ∑ the host country where a subsidiary may be located, ∑ the home country where the head office is located ∑ ‘other’ countries that may be suppliers of labour, finance and other resources. 3. The three categories of employees in an international firm: ∑ host-country nationals (HCNs), ∑ parent-country nationals (PCNs) ∑ third-country nationals (TCNs). IHRM is the interplay among these three dimensions—the human resource activities, types of employees and countries of operation (See Fig. 3.1).

FIGURE 3.1

Nature of IHRM

IHRM COMPARED WITH DOMESTIC HRM The nature of IHRM is most clearly understood by comparing global HR functions with domestic HRM (DHRM) functions. First, the similarities between the two. Essentially, HR activities are the same whether they are specific to one country or extend to several countries. The HR manager needs to plan for the human resources, hire the right people in right numbers, train and develop, compensate, maintain and motivate employees, whether his or her domain is domestic or global. Another similarity relates to the environmental forces which impact the functioning of an HR department, whether it is domestic or global business. The external constraints include political, legal, economic and cultural differences. These four elements significantly influence the way HR functions are carried out both in domestic as well as in global businesses. Finally, the HR function has one overriding objective—ensuring organisational effectiveness through interventions such as team building, performance management, motivation, multiskill development, knowledge management, talent retention and the like. These interventions apply to both, domestic as well as international businesses.

74 International Human Resource Management However, the differences between IHRM and DHRM are more striking than their similarities. The main difference stems from the complexity of operating in different countries, having different nationals as employees. In particular, the complexity of IHRM can be attributed to six factors:2 ∑ ∑ ∑ ∑ ∑ ∑ ∑

more HR functions and activities; need for a broader perspective; more involvement in employees’ personal lives; changes in emphasis as the work force mix of PCNs and HCNs varies; risk exposure; and enhanced focus on competencies broader external influences. (see Fig. 3.2).

FIGURE 3.2

DHRM and IHRM Compared

More HR Activities Each function of HR carries new dimensions in IHRM. Described below are how they are functionally different. Human Resource Planning (i) Rationalizing workforce globally to leverage the advantages of costs / skills across its geographical locations and businesses (ii) Difficulty in trying strategic business planning to HR planning which could be unique to each location. (iii) Difficulty in implementing uniform HR planning initiatives across all locations. (iv) Providing developmental opportunities for international managers. Employee Hiring (i) Ascertain cultural-fit with that of the global organisation.

Nature of IHRM 75

(ii) (iii) (iv) (v) (vi)

Ethnocentric, polycentric or geocentric approaches to staffing. Selection of expatriates. Coping with expatriate failure. Managing repatriation processes. Managing female expatriates.

Training and Development (i) (ii) (iii) (iv)

Emphasis on cultural training. Language training. Training in global etiquette and the nuances of the virtual workplace culture. Access to training opportunities across all locations

Compensation (i) Devising an appropriate strategy to compensate expatriates. (ii) Minimising discrepancies in pay between parent, host and third country nationals. (iii) Managing global reward and award policies and its disbursement as per the tax laws of the land Performance Management (i) Constraints while operating in host countries need to be considered. (ii) Physical distance, time differences and cost of reporting system add to the complexity. (iii) Identification of raters to evaluate subsidiary performance. Industrial Relations (i) Who should handle industrial relations problems of a subsidiary? (ii) What should be the attitude of the parent company towards unions in a subsidiary? (iii) What ought to be the union tactics in subsidiaries? Be it employee selection, training or compensation, IHRM adds new dimensions which are not experienced or observed in the practice domestic HRM.

Broader Perspective When compared to DHRM, IHRM requires a much broader perspective for all HR activities. This divide is primarily because, an MNC continues to recruit and select a mix of different types of employees including host country nationals, third country nationals and parent country nationals. International joint ventures, for example, can include as many as nine different types of employees, each with their own distinct characteristics—foreign parent expatriates, host parent expatriates, foreign parent transferee, host country nationals, third country nationals, expatriates of foreign parents, third country expatriates of host country parents, third country expatriates of the joint venture, foreign headquarter executives and host headquarter executives. The various employee groups, each with their own cultural backgrounds add to the need for a broader perspective on the part of the IHR manager. Training and development for instance, the tasks involved here are to identify the type of overseas assignment for which training is required, determine the specific cross-cultural training needs and impart training and evaluate its effectiveness. Similarly, while dealing with pay issues, the IHR manager needs to coordinate pay systems in different countries with different currencies that may change in relative value to one another with time. While handling fringe benefits too, complications tend to arise. It is a common practice in most countries to provide health insurance

76 International Human Resource Management to employees and their families. The interpretation of family, however, varies across countries. In some countries, family is understood to include the employee’s spouse and children. In other countries, the term family encompasses a more extended group of relatives—multiple spouses, aunts, uncles, grandparents, nephews and nieces. The IHR manager finds himself or herself in a difficult situation while determining who to include/exclude as relatives in the family nest.3 Irrespective of whether a country is developed or developing makes the IHRM orientation different. The establishment of the European Union (EU), for instance, had significant implications for HRM. HRM in Europe is in a transition. It can be actively debated whether a distinct European HRM culture does exist. In anticipation of the creation of a single European market, prior to 1993, organisations were beginning to review their strategies to take advantage of the markets freed from border tariffs, which were opened up. The 1990s witnessed an unprecedented number of mergers and acquisitions in Europe as organisations sought to develop an integrated Europe. This led HR professionals across the european countries to deliberately map what practices prevailed at the national and industry level; and second, to find common ground for a European HRM policy.4 The European HRM policy did emerge with the passage of time. The distinct features of an European HRM policy are: impact of culture, sense of organisational and managerial responsibility towards employees, greater involvement of groups and wider support towards trade unions and other forms of employee representations. This pan European HRM policy contrasts with the US policy towards HRM. The hallmarks of the latter are: freedom and autonomy, low interference from state, hands-off attitude towards employees and a natural resistance towards trade unions. The IHR manager operating in developing countries encounters unique problems. In most developing countries there is a paradigm shift in management policies, orientations and practices. Many of the countries are emerging as market-driven economies, emphasising on professionalisation of managerial practices, including those relating to HR. There would be resistance from within the organisation, usually from employees of the parent company to accept new ideas and approaches and it is the responsibility of the IHR manager to ensure that they are appropriately redressed.

More Involvement in Employees’ Personal Lives Unlike the domestic HR manager, an IHR manager requires to be involved a lot more in the personal lives of the employees. It may be enough for the DHR manager to know the professional profiles of employees. But, the IHR manager should go beyond these and know about spouses, children, relatives, religion, region, culture and a host of other details about the expatriates. The HR department needs to ensure that the expatriate understands housing arrangements, health care and all aspects of the remuneration packages provided for the foreign assignment. Handling banking, investments, home visits and final repatriation of expatriates are other issues an IHR manager is expected to support. The IHR manager has additional responsibilities while dealing with expatriates from countries like, India. For example. Indians working overseas encounter peculiar, often unpleasant circumstances. Take the instance of a five year old boy (read Smaran, son of Kartik Kaushik) who returned home from school one day and made a demand: “Dad, do we have white paint at home?” A girl in his class at school, it seems, had called the boy a “brownie”, and he wanted to paint himself white.5 Take another instance of an Indian couple working in Germany (read Venkatachlam Krishnan, CEO of Basics, Ranbaxy’s German subsidiary and his wife). For them, social life hardly existed, as Germans are insular people. Even after living there for more than three years, he and his wife hardly had any local friends. Health care was a big concern. Krishnan’s wife Jaishree came back to India for the delivery of their daughter, Anitra, as neither of them was comfortable with the experience during check-ups early in her pregnancy.6

Nature of IHRM 77

Highly interesting incidents happen in the lives of foreigners working in India. One such relates to Bob Hockstra, CEO of Phillips Software Centre, Bangalore. Bob recollects how he saw a cow standing behind the customs counter at the Bangalore airport and how he almost decided to go back when he saw the traffic mayhem on the Bangalore roads. Goaded by his wife, Bob stayed back and now is as much a citizen of Bangalore as anybody else. Bob and his wife had organised an Indian naming ceremony for their grand kids. The kids were called Merel Kavitha and Tobias Bhaskaran.7 The events described above may not require the intervention of the IHR manager, as they have to be handled by the expatriates themselves. Nevertheless it is considered an IHR role to be aware of such challenges and package some of these into training programme for the expatriates.

Changes in Emphases as the Workforce Mix of PCNs and HCNs Varies The HR policies and practices depend on the constituents of the host country unit. During the early stages of a unit, there are more number of parent country nationals in the host unit and as a result, the HR activities are focussed on the PCN. This continues till the time that the host unit is dependent on the parent country nationals who constitute the majority at the subsidiry. As the unit becomes independent, the original emphasis with respect to its HR activities and policies shift in favour of the HCN. A good example would be a US based company in the health care industry. During the intial phase of settting up its operations in India, there were a number of expats who were on-board the host unit, hence there were a number of facilities and policies that were put in place to ensure that the expats were well taken care of. As the operations unit in India stabilised for three years, gradually the company began to withdraw its parent country nationals from the Indian setup. The HR team which earlier had to provide for a separate set of policies and reimbursements, such as special relocation allowance, company car and company leased accommodations, was able to withdraw the same and maintain a single uniform policy that took care of the host country nationals. A balance needs to be struck between the need to integrate HR policies with the parent company, alongside the need to have local host country HR guidelines, to keep the company competitive at the local country level, as a preferred employer. What however drives the uniformity across location is the existence of a common HR mission and philosophy that guides the way HR policies are crafted and managed.

Risk Exposure Risk exposure is high in domestic HRM. Unfair hiring practices may result in a firm being charged with violation of constitutional provisions and be liable for penalties. Failure to maintain cordial relations with unions may result in strikes and other forms of labour unrest. BPO firms are exposed to the risks of female employees, during night shifts, being sexually abused and killed. Males too are frequently robbed of cash and expensive accessories. In IHRM, there are additional risks, as for example: terrorism, kidnapping and murders. An American engineer, Paul Johnson, was beheaded in Saudi Arabia in 2004. An Indian labourer, Kutty, was kidnapped and killed in Afghanistan in 2005. So was Suryanarayan, a telecom engineer, in 2006. Terrorism poses a great risk to international operations. The cost of kidnapping may run to $2 to $3 million, and it is estimated that there are 10,000 to 15,000 kidnappings a year worldwide. Firms are, therefore, forced to spend one to two per cent of their revenues on protection against terrorism. The IHR department may also be required to devise emergency evacuation procedures for highly volatile locations. The invasion of Kuwait by Iraq and the ensuing Gulf war in 1990 are examples of such an eventuality. Then there is the risk of expatriate failure. The failure of an expatriate can have disastrous results. Substantial monetary costs are involved while sending expatriates abroad, bringing them back to the home

78 International Human Resource Management country and finding replacements (between $300,000 and $1 million per expatriate per year). One estimate is that US companies lose $2 billion a year as a result of expatriate failure. Besides, the poor performance of an expatriate may damage the firm’s image in the host country. There are also personal setbacks for employees who fail, even though they had been viewed as competent managers within the domestic organisations. These individuals may have sold their homes, left the jobs they liked, and uprooted their families to takeup a foreign assignment, only to find themselves back in the home country, branded as failures. Their early return may also affect their future career prospects in the firm.8 A domestic HR manager may be free from such risks.

External Influences Domestic HRM is subject to the influence of an environment which comprises such factors as political-legal, economic, cultural and technological, prevailing within a country. On the other hand, IHRM is exposed to several cross-country factors such as: ∑ policy actions of national governments, like expropriation and changes in exchange rates; ∑ responses of competitors in the host market; and ∑ host country stipulations on staff selection. Multinational companies enjoy high visibility in countries of their operations. Because of the high visibility, subsidiary HR managers may have to deal with ministers, political leaders and a greater variety of economic and social interest groups than domestic HR managers. A host country government can dictate hiring procedures as for example, involving local employment exchanges in selecting skilled labour. Host country labour laws ought to be complied with while fixing and disbursing salaries and host country laws govern industrial relations too. In some cultures, age is held at a premium, even at the cost of merit. Placing a junior in a supervisory position over his or her elders often leads to avoidable unpleasant consequences. Affirmative actions notwithstanding, employees resent having certain categories of employees as bosses in some societies. The focus on the nature of IHRM has steadily evolved over the past few years and today it is a key enabler of organisational and business success for MNC’s. There is a move away from the ‘óne size fits all’ mindset towards a highly customised thinking that is unique to an organisation’s needs and the way in which it conducts its business globally and in each country of its presence. While it is clearly established that within international business, HRM functions and policies are the ones that are most closely linked to the local country norms, it is largely the business impetus in the host country that drives HRM practices. For example, a decision to set up a sales unit purely to create a market for the organisation’s products or services would in all probability adopt a polycentric approach to HRM activities in that host location. On the other hand a decision to set up a operations unit (as in manufacturing or software product development or back-end operations or even a research entity) in a new country would trigger a more ethnocentric approach to the design and implementation of its HRM functions. Therefore there are multiple ways in which MNCs design and manage their IHR strategies, while retaining a global HR framework. As a result, most MNCs have a widely practised concept of Global HR team and local HR teams with clearly defined roles and responsibilities. We will spend the rest of this chapter focusing on the nature of the HR teams and the way they are restructuring themselves to better manage global as well as local HR requirements.

GROWING INTEREST IN IHRM The following reasons have contributed to the growing interest in IHRM:9 ∑ Globalisation of businesses has added to the number of multinational enterprises across the globe, resulting in greater mobilisation of human resources.

Nature of IHRM 79

∑ The effective management of human resources is increasingly being recognised as a major determinant of success or failure in international business. ∑ Underperformance or failure in overseas assignments is costly, both in human and financial terms, and the indirect costs of poor performance in international assignments, such as damage to foreign customer relations, may be particularly costly. ∑ The implementation of international strategies is often constrained by the absence of competent managerial personnel to man overseas assignments, which results in decreased interest in setting up subsidiaries. ∑ The movement away from more traditional hierarchical organisational structures, towards a networked MNC organisation has been facilitated by the development of networks of personal relationships and horizontal communication channels. It is no secret that HR plays a more significant role in network organisations. ∑ Finally, HR plays a significant role in the implementation and control of strategies in an international business. It is the implementation of strategies that is more crucial than crafting them. Implementation of strategies is not possible through structural innovations, but can be done through radical organisational cultures. Cultures are built by proactive HR policies and actions.

NEW DIMENSIONS While discussing the nature of IHRM, we will also discuss certain new dimensions that are visible in the human resource activities at the global level. We propose to cover five such dimensions: Revisiting HR champion, impact of technology, outsourcing, the HR professional and the HR strategy.

HR Champion Revisited In understanding the nature of IHRM, the very framework that governs organisations needs to be recollected. As proposed by Dave Ulrich in his book—Human Resource Champions—HR framework contain four key areas of activities (see Fig. 3.3).

Source: Dave Ulrich, Human Resource Champion, p 34 FIGURE 3.3

The Ulrich Model

80 International Human Resource Management Ulrich redefines the HR role measuring its impact on meeting business expectations in addition to delivering the traditional HR activities as seen in Table 3.1. TABLE 3.1 Metaphor Strategic Partner Administrative Expert Employee Champion Change Agent

Linking Ulrich’s roles to deliverables

Role Management of strategic resources Management of firm’s infrastructure Management of employee contribution Management of transformation and change

Activity Aligning HR with business strategy Re-engineering process Listening to employees Managing changing environment

Deliverable Executing strategy Building an efficient infrastructure Increasing employee commitment and capability Creating a renewed infrastructure

The above model of HR allows for the organisation – • To have HR add-value to strategic issues by having a strategic partner who works closely with the business teams as ‘partners’. • The HR administrative expert who helps establish the link between HR activities and financial goals of the company through efficient and high quality HR services. • The expectations from the HR function to be able to focus on the employee relationship and improving employee capability through the employee champion role. • Finally, the change agent role allows the function to meet the challenges of the changing business environment and positioning the business to navigate successfully through the change. At the core of Ulrich’s model is the new facet of the HR professions’ need to have a good understanding of business, its needs, objectives and goals. And this is in addition to the HR ‘body of knowledge’. This framework has given birth to a new breed of HR professionals in global organisations and has redefined the HR function to align better to meet organisational requirements. Figure 3.4 contains expectations from different stakeholders.

Source: Paul R. Sparrow, The New HR Model: Handbook of IHRM, John Wiley, 2009 FIGURE 3.4

Stakeholders’ Expectations from HR

Nature of IHRM 81

All these require the global HR leadership to rethink the way HR structures itself at different levels. An ideal “Global HR” organisation structure is illustracted in Fig. 3.5 for an MNC.

Corporate HR Team

Institutes the global HR agenda, lays down the policies and procedures, leads new global HR initiatives, tracks and monitors functions of the regional and country HR

Regional HR Team

Coordinates at a regional level the HR metrics, acts as a link-pin in resolving country-specific HR issues/challenges, collates and shares best practices and knowledge among regional countries, tracks and monitors functions of the country HR

Country HR Team

Responsibility for country HR activities across business units, works with global and regional HR teams to customize HR for local requirements, ensure focus on HR contributions to the business for country's success, ensure compliance to global policies and procedures

Business Unit HR Team

Implements HR as per global and country policies, networks with global or regional HR counterparts supporting similar business teams, employee engagement and well-being

FIGURE 3.5

HR Organization Structure in an MNC

The functional hierarchy allows the IHR organisation to establish responsibilities and linkages so as to meet the global as well as local country expectations from the HR function. Within a global, regional or country level, the HR team’s structure in an MNC carries an established framework as shown in Fig. 3.6.

FIGURE 3.6

The HR team

82 International Human Resource Management The model shown in Fig. 3.6 reveals a significant shift not only in the way the HR professional grooms himself or herself, but also the organisation percieves benefits from the HR function. We will elaborate on the three roles of HR function: HR as a business partner, HR shared services and HR centre of excellence.

HR Business Partner The HR business partner (HRBP) constitutes the core of every successful global HR team and, as the name suggests, closely partners with the business both at the global as well as at the local country level. Exhibit 3.1 is a case study of the work carried out at Eastman Kodak company and illustrates the HRbusiness linkage and its impact on the role of HR.

Exhibit 3.1

Strategic HR: Eastman Kodak Company

The key deliverables from the HRBP role are enlisted below: ∑ Collaborate with business on interventions to improve business results ∑ To plan and implement HR practices based on business requirements for the business/geography ∑ Develop long term capability efforts for business ∑ Design and implement interventions to directly improve productivity, quality, efficiency, customer satisfaction ∑ Integrate across regions as well as across business groups within a region This new-age HR professional partners with the business to enact the role of the ‘strategic partner’, ‘employee champion’ and change agent’. Given this trilogy of roles that the HR business partner is called upon to deliver, credibility is critical for successful HR—business partnership. And the credibility comes from the following 5 operating principles– ∑ Think like a business generalist : In-depth understanding of the organisations corporate and local policies and procedures and all HR processes are essential. However, the focus is on the HRBP. ∑ Partner like an internal consultant: To work closely with the business teams and help resolve people challenges, hiring the right talent, improve employee engagement, proposing rewards and recognition measures, guide the performance management process and support employee with career planning efforts. ∑ HR mastery: The existing HR generalist skill once set remains a part of the toolkit for the HR professional. Technical knowledge of HR functions, processes and policies are critical. ∑ Coach for performance: The HR professional’s role is more like a trusted advisor both for the manager and the employees as a coach. This role emphasises the need for coaching the manager in understanding how he or she manages each of his or her team members and their unique professional needs and strengths. The HR manager also acts as an advisor for the employee seeking HR guidance on career-related current and future plans. ∑ Leading change: The HRBP is seen as the champion for facilitating change. He/she works closely with the business leader/manager to chart out the current and future state that is desired and the approach to managing the required change. It is also important to emphasise that partnering does not mean doing what is already done in a better way. Rather it means bringing about a radical change in the traditional approach, organisation and processes of HR. Good communication and flexibility are essential. Source: Dave Ulrich, Human Resource Champion, p. 193.

The HR business partner works closely with business teams within an organisation and some times even across countries to help resolve resources related challenges. the HRBP often serves as the single point of contact for the remaining HR functions like recruitment or training, by customising the requirements to meet the specific needs of the business unit/country. Exhibit 3.2 clearly highlights the roles and responsibilities at Eastman Kodak for the HRBP and is an example of how it exists in most MNCs.

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HR Shared Services This is the ‘Administrative Expert’ role in Ulrich’s model. The HR Shared Service Centre (HRSSC) provides a focus for efficiency of routine HR queries and administrative HR service requests. In globally dispersed organisations, the entire gamut of HR administrative activities across different business units of a corporate entity are consolidated to deliver the service for a particular country. It operates akin to a helpdesk, whereby an employee can call/drop a email/look up a HR process/query and seek understanding/clarification etc. Figure 3.7 is commonly used to depict the scope and role of a HRSSC.

Employee On-boarding/ Exit

Payroll

Employee Benefits Administration

Leaves, Incentives Bonus, Awards related payouts

Human Resources Information System (HRIS) FIGURE 3.7

The HR Shared Services Framework

The HRSSC is dependent on a sound Human Resources Information System (HRIS) and is known to be able to deliver 20–40 percent cost savings to organisations. The Contact Center serves as an initial point of contact where general queries from employees and line managers are received and responded to, within a specified time. Specialised and complex queries are referred to SMEs (Subject Matter Experts) within each process team. All communication is usually carried out through e-mail and telephones. The SMEs within the specialised HR functions constitute what is called Centers of Excellence. As the name suggest, the Centers of Excellence (CoE) support policy formulation, fine-tuning processes based on analysis of information being sought from the Contact Center and exploring strategic alignment to the business objectives. For example, the Recruitment CoE would focus on early stage interviews, test centers management, process refinement for enhanced candidate experience/effective hiring, exploring new venues of sourcing, and on-boarding new recruits. Shared Service Centre (SSC) would support with queries from candidates on status of resume, basic screen for a profile, scheduling for tests and interviews and supporting a new hire-on-policy related queries. The Training CoE would focus on training methodology, identifying trainers and coaches, and analysing training needs to arrive at the training calendar. The SSC would support basic coordination for organising the training event, program registrations, trainer and participant/venue and transport logistics and other routine administrative support that can be provided over a call or through e-mails. The role of the SSC in international human resource environment provides for a single-window approach to HR query resolution within a given country. The local SSC would depend on the local HR framework as well as the global HR framework depending on the policy that is in practice. For example, the recruitment backend and COE support would be based on local HR guidelines while the performance management support would be drawn from the global guidelines. Best practice sharing among SSC’s across multiple countries is a common way to collaborate and optimize the SSC across the MNC. The benefits from a SSC model for backend HR support can be summarised thus: ∑ Lower overhead costs, attributable to locally optimised HR administrative costs. ∑ The HR services can be costed to each business unit depending on usage of each service.

84 International Human Resource Management ∑ Track and measure the HR service quality levels. ∑ Constantly improve HR service levels with reference to resolution timelines, review processes that need to be changed to bring down query levels. ∑ Optimise to enhance the use of the on-line HR portal where all of the information can be easily accessed by an employee. ∑ Leverage technology to HR advantage. ∑ Weedout the routine HR tasks from the value added HR tasks to build competency and enable significant business impact. Therefore, the HRSSC role involves: ∑ delivering HR services to the business units, line managers and employees within a country, ∑ managing service delivery to meet the local country HR business and policy requirements, for example by identifying effective placement consultants/recruiters; managing training delivery and administration, ∑ ensuring the consistent implementation of HR policies across business units in a country, ∑ managing third-party / vendor delivery partners for the organisation, ∑ monitoring and reporting on service quality and customer satisfaction, and ∑ identifying service trends to support continuous improvement with the business unit and group HR. The business case for the HRSSC is established by its ability to standardise processes across business units allowing the efficient use of resources. Standardisation also drives quality improvements. The processes will be simpler and contain fewer opportunities for mistakes. Centralising resources and processes allows for significant savings to be realised. A common obstacle to centralisation is the different pay processes across each business unit. They may be standardised in each location within the unit, but centralisation is the main goal. The data required, execute the process and produce pay slips for a centralised payroll system can be rationalised to obtain economies of scale and flexibility.

HR Centre of Excellence (COE) The establishment of the concept of HR COE’s is to serve as the policy-maker of key HR processes. The interactions include the business teams as well as the HR teams. The COE has the responsibility of formulating policies and guidelines for various HR functions and to educate the business, the HRBP’s and the HRSSC teams. The COE consists of subject matter experts (SME’s) in the respective HR areas like recruitment, compensation management and training and people development. Another important part of the COE’s role is to act as a point of escalation for the HRBP / staff in the SSC for queries that are nonstandardised, complex or do not have an obvious resolution against current policy. This role provides for continuous improvement of policies and processes to ensure its relevance and usefulness to the employees as well as for business success. The HRCOE role involves: ∑ Coach, and provide expert advice to HRBPs, line managers and employees. ∑ Establish and continuously review HR policies, processes and framework to ensure quality delivery of HR to the business. ∑ Align with corporate entity to establish global values and culture. Implementing this model might sometimes lead to resentment at a local business-unit level, in both HR and the line management communities. Previously HR and the line managers may have had discretion to make exceptions to policies / tailor policy and its implementation to the team’s / local requirements. Such practices might not have been in line with the overall corporate guidelines and objectives allowing for

Nature of IHRM 85

variances amongst teams/department in the same business unit. This undermined HR’s ability to establish best practices and management control. A centralised policy-setting and policing function like a COE takes away this local freedom. The need to institute common reward and recognition practices or standard recruitment processes would require business units to adhere to a corporate standard set by the respective HRCOE. This ensures a common corporate identity and operational efficiency. Where local flexibility is required, subject-matter experts can be organised to support specific business units and ensure their local needs are met and understood through communication with HRBPs and the local management team. In instituting a new process or changes to a existing policy/process, the COE adopts a collaborative approach. The steps in the process include: ∑ Carries out brainstorming / focus group discussions with sample employee groups collating feedback on what is working and not working and the impetus for change / new policy, as the case may be. ∑ Prepares a proposal for the changes / the new policy, soliciting feedback from corporate HR to ensure global compliance. ∑ Review proposal with the senior management of the business entity in the local country for feedback and suggestions. ∑ Final draft for approval of corporate, regional and local management. ∑ Communication and information dissemination workshops to employees and managers by HRCOE and HRBP, host on the HR portal / notice boards as appropriate. ∑ Commence implementation, periodic review and incorporate changes at start of the new business cycle. The extent to which local flexibility is balanced against the global / corporate needs for compliance to group policies is one of the key areas of challenge when implementing a COE model.

Technology and its Impact on IHRM HR is moving towards a world where it has to satisfy global needs and not just country needs, and this impetus has impacted the way HR professionals think about solving problems. Traditionally, HR had significant transactional elements in the guise of a being the ombudsman for the organisation’s policies and processes and be available to support employees and line managers with answers to their queries. It was Brewster and Colleagues (2005) who drew attention to three distinct interconnected enablers of highperformance that are creating new challenges for IHRM: 1. HR affordability: Need to deliver global business strategies in the most cost effective manner. Money needs to be invested in improving processes to ensure integrated, yet localised HR activities. 2. Central HR philosophies (the need to ensure a common philosophy and coherent practice across disparate countries and workforces) 3. e-enabled HR knowledge transfer (the use of networks and technology to assist organisational knowledge disbursement)

HR Outsourcing As HR pursues its goal of becoming an administrative expert, it frequently looks to outsourced service providers to further enhance this competency. Since the early 1970s, the HR function has increasingly looked to employee contractual staff to assist with seasonal / sporadic business driven requirements. With the rapid growth that organisations experienced, the contractual model was not proving feasible. Companies began to think of ways to get done some of its activities from suppliers who can do the work better and at less cost.

86 International Human Resource Management The routine activities of payroll services, relocation and employee incentive programmes and the delivery of training and development activities are a few examples of activities that have an established history of successful outsourcing. With the new order HR where the focus is on the role of the HR Business Partner and the COE being specialised functions, the HRSSC is the most commonly outsourced activity. Some common considerations in outsourcing HR are: • Research indicates that HR staff spend up to 85 per cent of their time on managing standard administrative processes and only 15 per cent on strategic activities. By outsourcing these non-core business activities, HR functions can focus on strategic partnering and resolve employee issues that are of true value to achieving business goals. • There is need to reduce HR cost: The recessionary challenges and its ripple effects have forced functional leaders to reduce their internal costs. The tight economic environment, vagaries of the stock markets and the decline in year-on-year annual growth have made these pressures more acute. HR is expected to contribute its share towards ensuring competitive advantage through rigorous cost reduction initiatives. • There is also a need to optimise service efficiency: The expectations of the internal customer are constantly increasing. Rather than investing in constant improvement and learning through experience, there is significant ‘best practice’ advantage that an outsource option provides. • Technological advancement: has enabled services to be provided from a low-cost location in any part of the world. And this support is as seamless as home-HR, further reducing the cost of HR services. (Also see exhibit 3.2).

Exhibit 3.2

How to Outsource?

Therefore the outsourcing options for an MNC are many: ∑ Outsource to an external service provider onshore: here the MNC contracts with a service provider within the same country to provide HR services. ∑ Outsource to an external service provider offshore: here the MNC contracts with a service provider in another country (usually with the low-cost advantage) to provide the HR services. ∑ Outsource to internal service provider offshore: here the MNC sets up its own captive unit in a low-cost country usually as a joint venture or through a strategic acquisition. It is important to remember that offshoring is typically from a developed economy to a developing country where wages are significantly lower than in the former. It is a phenomenon associated with cost, quality, productivity, flexibility, speed, and innovation in the context of heightened global business competition. Given this framework and the impact that HR has on the business in its new form, organisations can benefits only from outsourcing the HRSSC functions and activities. Source: Express Computer November, 23, 2009.

The HR Professional The success of IHR initiatives in MNCs largely depends on the competencies of the HR professional. The new HR profession requires different set of skills and competencies as compared to these in the past. Table 3.2 is the result of work done by University of Michigan’s Business School on the competencies of HR professionals, conducted over a period of sixteen years, with over twenty-eight thousand HR clients and extensive academic work around the world.

Nature of IHRM 87

TABLE 3.2

HR Effectiveness and Influence on Business Performance

Competency Category

HR effectiveness

Impact on business performance

(1-low; 5-high) Strategic contribution 3.65 43% Personal credibility 4.13 23% HR delivery 3.69 18% Business knowledge 3.44 11% HR Technology 3.02 5% Source: Dave Ulrich and Wayne Brockbank, The HR Value Proposition, 2005, HBS Press, p 223.

Table 3.2 brings out clearly the challenges in HR delivery. The high emphasis on personal credibility of the HR professional has just 23% impact on business, while strategic contribution which the HR professional can bring about at the workplace is moderately rated at 3.65 with a 43% business impact. All of the five competency categories are equally critical for the HR professional, but strategic contributions make up roughly one-half of the impact while the remaining four competencies make up the other half. We propose to elaborate on the above five challenges of HR profession.

Strategic Contribution • Partners with the business to design HR initiatives that will bring about strategic impact on realising business objectives. • Develops robust business cases for HR strategy with plans to underpin corporate planning; able to link business priorities to HR practices; HR activity schedule compliments the business cycle. • Keeps people focused through relevant HR initiatives and work programmes; suggests option to reduce the impact of risks on people issues; ability to identify ‘problem areas’ in organisational performance and suggest changes. • Reflects and shares ‘softer’ qualitative information on staff satisfaction, employee relations and the psychological contract; thinks ahead of line managers’ needs. • Works with line managers in developing their people management skills; challenges line managers in a positive manner to consider alternative courses of action and their implications. • Continually monitors and evaluates HR activities to ensure that they facilitate the achievement of organisational goals; provides professional advice that is transparent and consistent with the organisation’s values; formulates credible options for consideration by senior managers/ stakeholders; • Acts as a strong role model for the organisation’s values. • Understands and utilises budgetary information to make informed decisions on HR planning activities; able to make a feasible business case for HR work programmes; articulates the financial impact of HR decisions and associated risk analysis; demonstrates an overall knowledge and understanding of the organisation’s financial regime. Personal Credibility • Builds and sustains trust with line managers, staff and partners in the organisation – has an influential position. • Work is accurate and presented in an agreed format; outputs are delivered on time and to an agreed standard; respects confidentiality within the scope of the regulatory and legal framework; practices

88 International Human Resource Management ethics, acting as an ambassador for the civil service values of honesty, integrity and openness • Reconciles competing demands on resources and sets realistic priorities. • Shares knowledge and learning across functions and business areas to improve organisational performance; builds up relationships where customers, peers and senior colleagues value the professional HR view. • Able to offer a different view and provides alternative solutions in a positive manner; gives constructive feedback and checks for understanding; summarises views in an accurate and balanced manner. • Able to influence and to persuade others; raises difficult issues with sensitivity; adopts a personal style that encourages others to be open; practices active listening. • Actively seeks opportunities to develop professional skills and knowledge; actively seeks coaching in areas where self-development is required; evaluates own learning and seeks feedback from colleagues and own manager. HR Delivery • Knows the scope of HR practice, its impact on the organisation and staff performance, and shows specific competence of all aspects of HR. • Understands and articulates the role of HR in the organisation; evaluates HR policies and work programmes with stakeholders, critically reviews HR processes with stakeholders to ensure they are fit for purpose and do not discriminate against. • Seeks regular customer satisfaction feedback to inform continuous improvement, benchmarks performance against best practice internally and externally and makes improvements wherever required, continually reviews, evaluates and updates HR policies, work programmes, processes and systems to reflect current best practice. • Keeps uptodate with future changes in employment legislation/ regulations and keeps the organisation informed; participates in continuous professional development activities and maintains professional knowledge.9(a) • Understands and articulates the role of line managers in people management; provides coaching and professional advice and expertise to line managers on specific HR issues; actively works with influential decision-makers to get buy-in to HR responses. • Facilitates effective employer/employee relations through ongoing dialogue and debate with trade unions and staff representatives. • Tackles sensitive and difficult issues with confidence and integrity; accountable for outcomes in the face of constructive criticism; identifies and uses sources of expertise. • Shares experience, learning and best practice with team colleagues. Business Knowledge • Understands the contribution and impact of HR practice on organisational success. • Understands the organisation’s key business objectives and can describe it effectively the achievements and gaps and the reasons for them; updates on changes taking place in the business focus and initiatives; maintains knowledge of the business through building and maintaining frequent interaction with line managers. • Able to articulate the impact of external factors on the business and its people; understands the organisation’s dependencies on vendors, laws of the land, government policies and the like on. • Uses information(internal as well as external) in decision-making, supporting a proposal; able to work with business information and analyse data to reach accurate conclusions; injects accurate people

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related information into the business planning cycle, e.g. recruitment, retention, absence, skills gaps, and the like. HR Technology • Able to impact the efficiency and enable a ‘customer centric’ delivery model for HR processes and procedures. • Be able to identify the HR activities that can be computerised and automated without any impact on the morale of the employee/manager. • Be watchful of activities that are time-consuming and repetitive and explore innovative ways to suggest economical and yet impactful ways to resolve the challenges; effectively leverage technology to deliver ‘routine’ HR activities in a timely and accurate manner. • Remain informed of the various technological innovations impacting employee experience and satisfaction and be able to explain its impact for the business effectively. Is this ‘old wine in new bottle’? Probably not. On careful evaluation it may be observed that the above competencies create a whole new concept of HR deliverables that the traditional HR professional would need to un-learn (the old ways) and learn (the new order HR philosophy). MNC’s have the additional challenge of ensuring that development happens globally and is not corporate headquarter focused, nor completely localised. IBM, Microsoft, HP and GE have an established rhythm of carrying out workshops of 3-4 days duration twice a year for its HR teams. All the HR staff are hosted at a single location to reinforce the above five competencies with latest developments. A lot of best practice sharing, global HR awards and special recognitions, special HR networking events bring together HR staff of the same business units of different countries and learning opportunities are provided during such offsite programmes.10 Additionally, the HR professional carries the responsibility to invest in himself/herself and use feedback to develop areas that are important for business impact. Taking on a mentor or a coach either within the organisation or signing up for a paid external coach is gaining popularity. With the increased focus on business impact that is expected from the HR profession, there is a genuine need for the HR professional to equip himself/herself to build a successful career in HR and to excel.11 The emphasis on business knowledge and strategic contributions has also posed a new challenge for the traditional HR professional. Now more than ever before, there are numerous success stories of nonHR professional taking on HR responsibilities and excelling. While it is welcomed by MNCs, given the effectiveness of such individuals and the career opportunities it provides, there is a need to ‘protect’ the HR profession and nurture it as a distinct ‘body of knowledge’. This needs investment in research to evaluate the long-term implications of such trends. As it stands this is a widely debatable subject with corporate and academicians favoring both sides of the argument.12

HR Strategy and Scorecard The value proposition for the HR function is judged by the ability for the HR team to track, measure and effectively report the impact it has on enabling the organisation to meet its business goals. There are three sets of works done by eminent research scholars on the subject of the ‘Scorecard’ for measuring HR effectiveness. The Balanced Scorecard framework by Kaplan and Norton and The HR Scorecard put together by Becker, Huselid and Ulrich, which have been further substantiated by industry and academic research to create The Workforce Scorecard by Huselid, Becker and Beatty. The concept put forth by Huselid, Becker and Beatty in their 2005 publication of the book titled The Workforce Scorecard: Managing Human Capital to Execute Strategy emphasizes the importance of a business strategy, a workforce strategy and a HR strategy which together constitute business success, and herein workforce success is often

90 International Human Resource Management the key performance propeller for overall strategic success. At one end of the strategy chain is the business measures that the Balanced Scorecard attempts to measure and at the other end is the HR Scorecard that measures the value quotient that HR function and its professionals create. At the centre lies the Workforce Scorecard that measures the increasing shift in the responsibility of workforce management to the line managers. This is the new focus that the Workforce Scorecard brings to light. Exhibit 3.3 brings out the linkages and the interdependencies between the three scorecards and their measures.13

Exhibit 3.3

Managing Human Capital to Execute Strategy

The work of Huselid, Becker and Beatty around developing the Workforce Scorecard is built on an emerging concept being practised increasingly in MNCs. It is one of ‘differentiation’. The ability of an organisation to differentiate is typically studied as a Corporate or a Business Strategy and is popularly used by the top management to decide how it will differentiate its product or services. Akin to this strategy is the HR strategy that differentiates: (a) Differentiate by positions: recognising that certain positions in the organisation are significantly different by virtue of the quantum of impact they have on business success (these positions are commonly called ‘Á positions’). MNCs can benefit immensely from tracking customer impact and the strategic capabilities that these positions deliver. (b) Differentiate by individual performance: recognizing the need to identify the significantly different performers in the organisation and the current as well as potential impact they can bring to business success (these individuals are commonly called ‘A Players’). This differentiation will enable the MNC to step-up focus and make substantial investments in nurturing and retaining this talent. Conversely, proportionately differentiate the C players, meaning to reward and recognise, and empower the C players significantly lower than the A players. The organisation as well as the business benefits when it has ‘A’ positions filled by ‘A’ players and there are no ‘C players in A positions’. (c) Differentiate by performance: recognizing that the line managers accountability in managing the A players significantly differs and similarly managing the C players differently from the rest of the brood. The role of the line managers is increasingly critical in measuring workforce success that results in business success. Differentiating based on compensation, future jobs for high / low potential employees, differentiated training investments and development opportunities is being called out as new definition for HR as a strategic partner. Source: Mark A Huselid, Brian E. Becker and Richard W. Beatty, The Workforce Scorecard: Managing Human Capital to Execute Strategy, p.4

SUMMARY IHRM refers to the application of managerial functions to the HR activities at international level. IHRM differs from DHRM in several respects. There is considerable interest in IHRM and it is ever growing. Revisiting HR champion, impact of technology, outsourcing, and HR professional and strategy are the new dimensions identified and explained in detail.

CLOSING CASE

Human Resource Practices at Disney

The Walt Disney Company was founded in 1922 by 21 year-old Walt Disney and his older brother Roy. Walt Disney was the creative producer, Roy the ‘business brain’ behind the company (Ellwood, 1998). The

Nature of IHRM 91

partnership ended only with Walt Disney’s death in 1966. By the end of the 1990s, the Walt Disney Company had developed into a $23 billion media conglomerate, arguably the most influential force in the globalization of Western culture (Ellwood, 1998). Gomery (1994) argues that the Walt Company was not always “a paradigm of corporate success”. Initially specializing in animated films, it struggled to find a niche in the market until 1928 when it produced the first cartoon to use sound (Gomery, 1994). The company built on this success by negotiating distribution agreements with powerful corporate sponsors. It supplemented revenues by merchandising characters, initially Mickey and Minnie Mouse. Snow White and the Seven Dwarfs, released in 1937, was the first feature-length animated color film and proved hugely successful. Innovative use of sound and Technicolor continued. Walt Disney also pioneered the use of `audio-animatronics’: life-like replicas of people and animals. Early animation production was highly labor-intensive. Rigid division of tasks was further delineated on gender lines. By the time Fantasia was completed in 1941, the Walt Disney Company employed eleven hundred people. Ellwood (1998) describes Walt Disney as “a notorious workaholic, a perfectionist who ran his company like a personal fiefdom”. Both “paternalistic and domineering” he rewarded loyalty and excluded dissenters. There were no women or black people promoted to senior positions during this period. The company was the only Hollywood studio without union representation and as such was targeted by the American Federation of Labor. Walt Disney became militantly opposed to communism after animators took industrial action over conditions and lack of recognition in 1941 (Gomery, 1994). By 1971, both brothers had died. The business then seriously under-performed, especially within the film division, and came close to being broken up. In September 1984 a new management team was employed, led by Michael Eisner and Frank Wells, both former executives with other studios. By 1988 they were “the highest-paid professional managers in the history of American business”. However, Gomery (1994) suggests that despite their “supposed inventiveness” they adopted “common textbook business strategies” and maintained a ‘hard’ human resources management policy Ellwood (1998) argues that real power within consumer capitalism increasingly has come to rest with those controlling the “infotainment industry”. By 1991 the Walt Disney Company had become a corporate power. Walt Disney World in Florida contains four theme parks and associated services, and attracts 30 million visitors a year. It employs 50,000 people, the largest number of workers located at one site in the USA, the majority in low-paid service jobs. The Florida state government initially was attracted by the development potential and gave the company “all the rights and powers of an independent municipal government” (Ellwood, 1998). The company has secured major tax concessions and effectively is exempt from state legislation governing various aspects of transport and public services (Wilson, 1994). The impact on the economy and development of Orlando and surrounding areas has been profound, with increasing disparity between affluence and poverty. Employees are routinely assigned jobs according to age and appearance, a process officially known as “casting”. The most “presentable” get the most popular “front-line” jobs and shifts. “Old ladies sell the merchandise, old men work in security. Haitian women work in housekeeping, Puerto Rican young people work in food services and preparation, African-Americans work as cooks or stewards or in food preparation” (Ellwood, 1998). Animal Kingdom, opened in April 1998, employs 50 Africans on 12-month contracts “to lend authentic flavor”. The rate of staff turnover is between 200 and 300 per cent a year. The Service Trade Council Union (STCU), a consortium of six unions, is the only workers’ organisation recognized by the Walt Disney Company. It represents about 22,000 full-time and 5000 part-time workers at Disney World. In addition to concerns about wage scales and other conditions of employment, the STCU has concerns about the

92 International Human Resource Management company’s ‘benchmark’ monitoring system, based on maximizing numbers using each attraction (Ellwood, 1998). Japan Disneyland in Japan is virtually an exact copy of the original California development but with some features ostensibly adapted for the Japanese market. For example, “Main Street USA”, a highlyidealized version of small-town America, is renamed “World Bazaar”. Yoshimoto (1994) argues that the opening in 1983 had symbolic value for a generation seeking to dissociate or ‘move on’ from the Second World War. Success also is attributed to ‘the absolute separation of leisure from work’. With maintenance and other utilitarian functions effectively invisible, Disneyland offers an almost unique opportunity for Japanese visitors to forget about everyday working life. Yoshimoto (1994) suggests that with its focus on order and minute attention to detail in management, Disneyland is arguably the most Japanese institution in the United States’. Equally, those same preoccupations make the Japanese market ideal for Disney: ‘the epitome of American popular culture’. Euro Disney Euro Disney opened in April 1992 in an agricultural area just outside Paris of which it was one fifth the size (Anthony et al., 1992). The project was promoted and defended by senior company managers in America, but other analysts questioned whether the Disney ethos would be compatible with French culture. While incorporating many standard Disney theme park features, some adjustments were made in response to these criticisms. Links were made with European literature and mythology. As in Tokyo Disneyland, renaming was used as a marketing device, resulting in Euro Disney reflecting European interest in the history of western United States. Unlike Tokyo, an international cuisine was provided, served in accordance with European social and eating patterns. However, the non-availability of alcohol proved controversial. Faced with charges of cultural imperialism the corporation had to reassure the government that French was technically the first language in the complex. However, employees also were expected to be fluent in English and signs were bilingual (Anthony et al., 1992). These dilutions of the Disney image led to the counter claim that the corporation was trying to be “all things to all people” and would be less successful as a result. As in its other complexes, Euro Disney placed particular emphasis on rigorous training, orienting employees to the global corporate philosophy. As early as 1961 the company had created the Disney University for this purpose, located at individual sites and also addressing issues of specific local relevance. The Euro Disney division opened in September 1991. The aim was to recruit 10,000 people in six months with nationalities to reflect anticipated visitor profiles. However, when the development opened, 70 per cent of employees were French compared to the target of 45 per cent. A total of 270 managers had been trained in service delivery standards operating in the other three centres. An additional 200 experienced Disney managers were relocated to the French site. From the outset Euro Disney was criticized for elements of its selection process and human resources management. In particular stringent requirements regarding personal appearance were compared unfavourable with the approach of other employers. In addition, some 4000 employees were unable to find suitable, affordable accommodation in the vicinity. Retention also proved to be a problem. Within the first nine weeks, 1000 of those appointed left, about 50 per cent voluntarily. Doubts were raised about whether people familiar with European work expectations would be able to adapt to the regimented enthusiastic service-driven ethos required by Disney. Unreasonable working conditions, poor communication and lack of cultural awareness among managers were the main reasons given for the staff turnover (Anthony et al., 1992). Branded Merchandise The Walt Disney Company has promoted branded merchandise since 1930 and has contracts with about 3000 factories worldwide (MacAdam, 1998). The National Labour Committee, an American human rights advocacy group, has highlighted the position of 2000 Disney workers in Haiti, the

Nature of IHRM 93

poorest country in the Caribbean. Unemployment is about 70 per cent and subcontracting a vital source of income. The National Labour Committee attempted to persuade the Walt Disney Company to allow independent monitoring of terms and conditions in their four Haitian plants. At first Disney claimed that it had no employees in Haiti and no responsibility for subcontractors. It then sent its own representatives but refused requests for independent monitors. The company’s chief executive, Miachael Eisner, received over $185 million in pay and share options in 1996. MacAdam (1998) points out that one hour’s remuneration for Eisner was the equivalent of 156 years work for a Haitian machine operator producing Disney clothing. More recently, the Walt Disney Company has focused attention on the lucrative Chinese market. There are plans for a Chinese Disneyland. Source: Copyright © 2000 Alan Price and hrmguide.com. All rights reserved. This is an evolving case study (ie it will change)-version 3.

Case Questions 1. How does this case help us appreciate the striking nature of how HRM is different in the domestic vs. the international context? (Discuss with reference to the theoretical framework provided in the chapter) 2. What organizational strategy is Disney practising globally? Provide justification from the case/through independent research. 3. How does the nature of IHRM impact the organizational objectives of Disney operations worldwide?

Key Terms IHRM HR champion Strategic partner Change agent Admin expert

HR Shared Services HR Centre of Excellence HR outsourcing HR Scorecard

Review Questions 1. 2. 3. 4. 5. 6. 7.

What are the differences between DHRM and IHRM? What is the impact on IHRM of the ‘change in the emphasis of the work force mix’? Explain each quadrant in the Fig. 3.3. Bring out the benefits of Shared Services Centre. What is HR Centre of Excellence? How does it contribute to organisational effectiveness? What skills and competencies contribute to the competency of a HR professional? Which framework do you prefer to assess HR effectiveness? Why?

Assignments Form groups of at least five students each and identify an MNC for which you have reasonable access to information either from the Internet, articles, case studies, or personal contacts etc. (Instructor to make sure that there is no duplication of the company that is being discussed by the class. You may want to ‘register’ the teams and the corporates that they would be presenting.) Provide a time frame of one week for the groups to prepare and present the following on the organisation chosen by them: ∑ The global strategy you think / know the organisation pursues in its international operations.

94 International Human Resource Management ∑ Present on a world map, the global presence of this organisation, indicating its headquarters and the subsidiaries. ∑ Discuss the organisation’s global structure. ∑ Share with the class, the domestic HR functions and try and share the IHRM policies, if possible.

References 1. Peter J. Dowling and Denice E. Welch, International Human Resource Management, ThomsonLearning, 2004, p 4. 2. Ibid, p 7. 3. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage Publications, 2004 (2nd Edn.), p 300. 4. Ibid, p 169. 5. The Economic Times, dated Dec.17, 2004. 6. _______________, dated Nov. 26, 2004. 7. _______________, dated Oct. 8, 2004. 8. Cynthia D. Fisher et al., Human Resource Management, biztantra, 2005, p 820. 9. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit., pp 66–67. 9a. Hugh Buckrall and Ruji Qhtakt, Mastering Business in Asia—HRM, Wiley India, pp. 196-197. 10. Authors Ian Hunter, Jane Saunders, Allan Boroughs, Simon Constance , “HR Business partners: Emerging Service Delivery Models for the HR Function” p 334 11. Robert S Kaplan and David P. Norton, The strategy Focused Organization: How Balanced Scorecard Companies thrive in the New Business Environment, HBS Press. 12. Brian E Becker, Mark A. Huselid, and Dave Ulrich, The HR Scorecard: Linking People, Strategy and Performance, HBS Press. 13. Mark A Huselid, Brian E. Becker and Richard W. Beatty, The Workforce Scorecard: Managing Human Capital to Execute Strategy, HBS Press.

CHAPTER

4 STRATEGIC IHRM Learning Objectives After reading this chapter, you should be able to ∑ Understand the strategic IHRM process ∑ Define the strategic IHR policies ∑ Identify HR basics in implementing strategies ∑ Describe the value-based view of strategy and the role of IHRM ∑ Describe the different organisational structures

96 International Human Resource Management

OPENING CASE

Building Strategic IHRM Capabilities

Rayman’s Technology Inc. is the story of a 25 year old American IT Company which deployed strategic HR initiatives globally to enable it to maximise its profitability and optimise global operations. With a suite of 12 products that catered to the niche needs of the IT industry the company capitalised on its global presence to become profitable. Basically IT product company in the finance domain, it had its presence in London in UK, Melbourne in Australia and Pune in India, allowing it to cater to a truly global clientele. As is typical of any software product development, investments in product happen long before customers begin to pay and buy it. The investors were a US based venture funding corporation with significant Board level presence. Three years ago, a significant amount of venture funding had enabled the company to address technology challenges and enabled it to invest in coming out with cutting edge technology products with customer friendly features posing a stiff competition for its competitors. This investment was however going to take time to begin to pay itself off. A single installation of the product takes about one and 1/2 to two years to complete and thereafter requires some amount of maintenance support annually. Recently, the Board had become more sensitive to tracking the return on the investments made and were questioning the management spending patterns and reviewing the profitability of the company globally. The profiles of the global centers are summarised as follows: (a) The London operations had a 100 people strength development center, working on three key products focused around the automobile leasing industry in the UK. The center was an acquisition that the parent company in the US made in order to expand its market out of the US eight years ago. The London office was a self sufficient unit making enough money out of its business to run itself with almost no support financially from the parent company. Senior leadership however, could not make it profitable despite a lot of operational measures. Stringent European Union employment laws made it sensitive and virtually impossible to take any strategic HR related actions to reclaim the operational efficiency of its work force. The inability to be profitable quickly began to impact the product innovation capabilities that provide a company its competitive edge. Its market share depleted as competitors with global presence continued to invest in their UK subsidiaries and capture the market share with more evolved product features to lure the customers away from Rayman’s market leadership position. (b) The Melbourne operation was a smaller office of about 45 employees, focused on providing support and some level of customisation/enhancements to the product to meet the specific customer requirements. Of the 45, 15 were contract workers, which contributed to higher operational costs but provided the Melbourne operations management team with the flexibility to take on contract staff on ‘as needed’ project requirement basis. With the economic boom in the APAC countries, the Austrailian office was both, efficiently staffed and was a fully profitable unit contributing its share to the parent company’s profit globally. Morale ran high, with constant news of customer satisfaction and customer delight messages that proved as a source of motivation. The team in the Australian office was always looking forward to more business opportunities to increase its market share in the APAC market. (c) India operation based out of Pune was a two year old setup with about 100 employees, conceived to take on the entire software development activities on all products and leave the US and the UK office with customer-facing activities of sales, support and research/product innovation. The India business operated on a ‘cost + 10%’ model, making efficiency the key word for running the business.

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(d) The US office was the headquarter with about 300 employees catering to a base of over 150 customers. The challenge was to optimise the costs for the company to operate globally. There was a need to steadily replace the US staff with teams in India as the shareholders sought returns for the investments made in the foreign operations (namely setting up and running the India subsidiary), in the past two years. The senior management team comprising VPs and Directors of the various regions deliberated and conferenced regularly to optimise their operations globally. It was evident that the on-going ‘incremental’ changes would not help them break-even and make sure they had pruned themselves to face the challenges of: 1. 2. 3. 4.

Sustaining the steadily growing India cost center Sustaining the UK center inability to become profitable Pay necessary attention to the ‘potential’ of the rapidly growing APAC market Satisfy the investors and shareholders on the profitability of the company globally

The VP-Global HR, Neville Stout had joined the company soon after the venture funding had happened, he had in fact been interviewed and hired by the investors and had been all along aware of the expectations of the investors as well as the challenges of going global for a small company which had to justify its expenses to sustain itself despite all market challenges. After coming on-board, Neville had worked closely with the CEO and President Bill Smith to make strategic HR decisions on optimising costs globally. Some decisions were tough one earning him and Bill a lot of displeasure from the older managers who had spent close to 12-20 years with the company. About 50 staff, some contractual, some permanent had been transitioned out of their jobs in the US operations to have their jobs off-shored in India. It was not an easy decision and while cost savings were plenty, maintaining morale had been a challenge. But this is where Nevilli’s skills lay, his ability to communicate with employees was what made him a successful leader. Neville was however full of apprehensions as he boarded the flight out to UK from the US and then after a brief one week stay there he’d been traveling to India to spend a week there as well. His mandate was to submit a plan to Bill on the strategic changes that would just have to be made to turn profits around. Essentially the company needed to optimise its costs for setting up the India operations, and leverage it to achieve operations advantage globally. To begin with Neville was surprised to see the cost incurred on employing contract staff in the UK to do simple data entry activities. This was common practice in the industry to outsource it to the developing low cost countries where skills were abundant and costs low. This quickly figures in Neville’s list of proposed strategic human resource initiatives to setup, train and outsource the work of this team of UK contractors to the India operations. A couple of calls with Bill and with the India Director confirm the feasibility and easy in carrying out this task in as short as 3-6 months to have a fully functional team out of India doing the work, whereby slashing costs by a good two-thirds. Next, Neville discovered another stunning fact that the UK division was loosing its market to competitors who bought the Raymond product and then worked extensively on the customer interaface and web features to ‘beautify’ the product and present it in a more appealing and interactive manner to its customers. The competitors in fact paid the licensing fees to Raymonds for every sale while it charged its customer much more for the ‘consumer friendly and highly interactive interface’. Neville, given his vast experience with global IT companies got a few of the software developers on the UK

98 International Human Resource Management product on a call with the India HR and the Director to identify the scope to find resources that could do the kind of work that the competitors currently provided and the outcome was stunning. India operations could work with the UK business analyst team to design and develop the additional features out of India. All along what however surprised Neville was the fact that Terry Ross the Head of UK operations had never thought in this direction, while he’d been fully aware of the cost challenges the UK operation had battled with for the past few years. The ability to strategically deploy business solutions by thinking globally was a critical skill lacking in Terry Ross’s leadership competencies. Neville insisted that Terry travel with him to India and understand the challenges of moving work to India. Rohit Gupta the India Head of Operations along with the Head HR for India, Radha Ramkrishnana spent significant time building the staffing, on-boarding and training plans for the new teams. Methods of attracting talent and yet maintaining the cost advantage was going to be a shared challenge for both the UK and the India management. In the previous chapter, we examined the nature, scope and other related issues regarding IHRM. No more the IHR manager sits in his or her chamber and concentrates only on such transactional activities as employee hiring, training, compensating or administering benefits programmes. He or she should play a strategic role and as a team member to carry his or company to greater heights in terms of improved performance. HR experts, academics, consultants and advisers are repeatedly articulating the strategic role of HR managers. HR professionals should play strategic role in cases similar to that of Rayman Technologies as told above. Most MNCs have realised the expected role of HRM in globalising their operations and have taken HR managers into confidence at formulation and implementation of corporate strategies both at the parent as well as the unit/subsidiary level. A survey of European companies reported that around half of HR managers across Europe felt they were proactively engaged in the development of corporate strategy.1 Yet in the true sense HR strategic management, by and large, remains a platitude, high on rhetoric and low in reality. The scenario should change. HR specialists should become strategic partners. Globalising the core business operations/production activities alone cannot be considered sufficient to qualify for success of the MNC. Globalising the HR teams across the various locations resulting in a globalise HR practices that align with the overall global strategy are critical in order for the organisational goals to be met and sustained. One of the key ingredients for MNC success, ‘organisational capability’ as manifested through organisational culture, makes the difference between success or failure and survival or destruction of the MNC. Motorola’s is a classic case to be cited in this context.2 Being a highly successful company throughout 1980s, Motorola started losing ground under its feet in the early 1990s. Competition from European and Asian companies became too intense for Motorola to bear. It was under this situation that HR leadership of Motorola came out with a powerful strategy comprising the following action plans: ∑ Link HR practices to customer and shareholder requirements. ∑ Help drive business unit strategy while promoting coordination strong enough to have a multiplier effect on the company’s overall value. ∑ Position Motorola as a more effective competitor. ∑ Make Motorola’s cultural capabilities consistent with its desired market place brand identity. ∑ Engage the enthusiasm and support of management and employees. The experience of Motorola illustrates the logic and process for developing a powerful HR strategy based on the concepts and practices. The company built a line of sight from investors and customers to its management and employees through more powerful HR practices. Working closely with senior line management, the HR leadership identified the culture that the increasingly competitive environment required. Through this, the HR leadership provided a powerful agenda for integrating staffing, performance

Strategic IHRM 99

management, training and development, structure, and communication with common business focus and direction. This helped HR maximise its impact on performance. Managing people is a central challenge in every organisation, and when this challenge extends across geographical borders, the differentiator for success lies in the ability to link explicitly an organisation’s strategy and key process factors to its HR policies and practices. Competitive advantage through people has been researched and reported as — ∑ Worldwide study of the automobile industry showed that people-centered practices were associated with almost twice the productivity and quality as conventional mass production. ∑ Similar studies in steel, apparel, semiconductors, and oil refining industries reveal similar positive effects for people-centered practices. ∑ A study of IPOs among 136 organisations showed that people-centered practices were associated with a 42% higher survival rate.

UNDERSTANDING STRATEGY In approaching the subject of strategy it is commonly articulated as belonging to three categories: 1. Corporate level, 2. Business unit level, and 3. Functional level. Corporate level strategy This is formulated by the top management of an organisation. The major questions addressed at this stage are — what kinds of business should the organisation be engaged in? What countries provide the competitive edge for diversifying? What are the goals and expectations for each business? How should resources be allocated to each of these goals? What is the goal of each business unit? In crafting corporate level strategies, the organisation should decide where it wants be in 10 or 15 years hence, in atleast eight areas-market standing, innovation, productivity, physical and financial resources, profitability, managerial performance and development, worker performance and attitudes, and social responsibility. The decision of an MNC to diversify into a new host location with its products/services, as well as to close its operations/reduction in workforce in a particular country/location/ unit as opposed to another is clearly a part of the corporate strategy that the MNC identifies for itself. Additional observations on corporate level strategy include the following: • Corporate level strategies tend to spread over 5–10 years time span. Often, the corporation engages an independent research firm to explore strategic ideas. • Corporate strategies are well discussed and debated by the boards including major shareholders. Corporate strategy is written down and is committed to as vision statement. • Corporate strategy is usually the domain of global strategy team that works closely with the top management of the company. Business level strategy While the major question at the corporate level is, “In what businesses should the organisation be operating?”, the appropriate questions at the business unit level are, “How should we compete in the chosen business?, How should we set-up/compete in a given country/location.”2 A business unit is an organisational subsystem that has a market, a set of competitors, and a goal distinct from those of the other subsystems in the group. The concept of strategic business unit (SBU) was pioneered by GE. At GE, there are over 200 SBUs, each having its own strategies consistent with the organisation’s corporate level strategy.3 Alternatively, as the opening case illustrates, organisations could have a single strategy that drives business at all global locations.

100 International Human Resource Management In designing its business level strategy the focus in an MNC shifts to the local business unit and the challenges that are pertinent to the location. Decisions are made to enter a new market through a strategic alliance such as a joint venture rather than to enter on own and set up operations from the grass route level. Decision to adopt an ethnocentric, polycentric or geocentric approach to the way the host subsidiary would carry out its operations is another example of a business strategy. Business level strategies usually tend to: • Spread over 2–10 years time span. Active engagement with local forums and associations pertinent to the business serve as critical sources of information. Local/host country consultants are used to validate specific business and market metrices. • Discussed and debated by the local top and senior management in the organisation including key stakeholders. The findings are used to build unit’s operational plans for the current and the succeeding years. • A key activity of the unit’s strategy team that works closely with the global strategy team to ensure perfect integration. Functional level strategy Each business unit will consist of several departments, such as manufacturing, sales, finance and HRD. Functional level strategies identity the basic courses of action that each of the departments must pursue in order to help the business unit to reach its goals. These are largely host location activities and directly correlate to the execution of the business level strategy that the location has identified. In crafting functional level strategies, managers must understand that the different functions are interrelated. Each functional area, in pursuing its purpose, must mesh its activities with the activities of other departments as shown in Fig. 4.1.

FIGURE 4.1

Integration Among Functions

A change in one department will invariably affect the way the other departments operate. Hence, the strategy of one functional area cannot be viewed in isolation. Rather, the extent to which all functional strategies are integrated determines the effectiveness of the unit’s business strategy.

Strategic IHRM 101

NATURE OF STRATEGIC HRM Simply expressed, strategic management refers to the process of formulating, implementing and evaluating strategies to achieve organisational objectives. The task of strategising and implementing is shouldered by a core team. For example the core team that formulated and executed the strategic takeover of Corus by Tata Steel consisted of Ratan Tata the CEO, Muthuraman tha MD, Tata Steel, Arunkumar Gandhi Head M&A cell of the Tata Group, and Koushik Chatterjee, VP Finance, Tata Steel. Strategic human resource management refers to the process of developing practices, programmes and policies that help achieve organisational objectives. How IHRM is positioned globally depends on the global strategy pursued by an MNC. It is a conscious decision made by every enterprise about how it plans to expand its operations overseas and how it strategises to run its day-to-day operations in the host country. Organisations use four basic strategies to compete in the international environment: an international strategy, a multidomestic strategy, a global strategy and a transnational strategy (see Fig. 4.2).

FIGURE 4.2

Four Basic Strategies

International Strategy Organisations that follow an international strategy attain business efficiency by transferring valuable skills and products to host country markets where indigenous competitors lack those skills and products. Most international firms have derived value by transferring a new and varied range of its product offerings developed at home, to new markets overseas. They however tend to centralise product development functions at home (e.g. R&D). They also tend to establish manufacturing and marketing functions in each major country in which they do business. They may also undertake some host country customisation of products and marketing strategy in a limited way. Ultimately, in most international organisations, the head office retains tight control over the marketing and product strategies.

Multidomestic Strategy Organisations following a multidomestic strategy orient themselves toward achieving maximum local responsiveness. Multidomestic firms extensively customise both their product ranges and their marketing strategy to match different national conditions. They also tend to establish a complete set of value creation activities—including production, marketing and R&D—in each major national market in which they do business. As a consequence, such organisations generally fail to realise value from the parent company’s learning curve and location economies. Accordingly, many multidomestic organisations have a high cost

102 International Human Resource Management structure. They also tend to do a poor job of leveraging core competencies within the organisation. General Motors is a good example of a company that has historically functioned as a multidomestic corporation, particularly with regard to its extensive European operations, which are largely self-contained entities.

Global Strategy Organisations that pursue a global strategy focus on increasing profitability by reaping the cost advantage that comes from the experience curve effects and location economies. They pursue a low-cost strategy. The production, marketing and R&D activities of organizations pursuing a global strategy are concentrated in a few favorable locations. Global organisations tend not to customise their product offering and marketing strategies to local conditions because customisation raises costs (it involves shorter production runs and the duplication of functions). Instead, global organisations prefer to market a standardised product worldwide so that they can reap the maximum benefits from the economies of scale that underlie the experience curve of the parent company. They also tend to use their cost advantage to support aggressive pricing in world markets.

Transnational Strategy Christopher Bartlett and Sumantra Ghoshal have argued that in today’s environment, competitive conditions are so intense that to survive in the global marketplace, organisations must exploit experience-based cost and location economies, they must transfer core competencies within the firm, and they must do all this while paying attention to pressures for local responsiveness.3 The experts note that in the modern multinational enterprises, core competencies do not reside just in the home country. They can develop in any of the firm’s worldwide operations. Thus, they maintain that the flow of skills and product offerings should not be all one way, from home firm to foreign subsidiary, as in the case of firms pursuing an international strategy. Rather, the flow should also be from foreign subsidiary to home country, and from foreign subsidiary to foreign subsidiary—a process they refer to as global learning. Bartlett and Ghoshal refer to the strategy pursued by firms that are trying to achieve all these objectives simultaneously, as a transnational strategy. Each strategy has its advantages and disadvantages and invites appropriate IHR interventions, as Table 4.1 shows. During the initial phase of an MNC’s entry in the multinational locations, the approach is either multi-domestic or international and they differ in the organisational predispositions (discussed earlier in Chapter 2). If the approach is ethnocentric, the organisational strategy is usually international. The IHRM focus revolves around highly centralised HR practices and processes. Customisation would be restricted to statutory/ legal/ government stipulations and a few distinct local attributes. There is a large amount of dependence on the parent unit to make decisions, approve policy changes and control production/research/marketing and finance. For example, companies like Pepsi, Coca-Cola, IBM, Kellogg, Procter & Gamble and Wal-Mart can be classified as practising the international strategy. Coke allows its national subsidiaries to bottle and sell according to their own marketing and distribution strategies so as to meet the local challenges, while the core activity of syrup/concentrate preparation and product innovation remains centralised at its global headquarters at Atlanta, USA. TABLE 4.1

Merits and Demerits of Strategies and IHR Interventions

Strategy

Advantages

Disadvantages

IHRM Strategy

International Strategy

Transfer distinctive competencies to foreign markets

Lack of local responsiveness

Approach could be ethnocentric or polycentric; usually the ethnocentric approach is preferred for greater control. Key positions are occupied by parent country nationals of the MNC.

(Contd.)

Strategic IHRM 103

TABLE 4.1

(Contd.)

Strategy

Advantages

Disadvantages

IHRM Strategy

A high degree of control and coordination ensures that all subsidiaries, irrespective of country of location, are similarly managed

Inability to realise location economies

HR policies are either centralised or completely decentralised, with macro level activities globally standardised, while allowing for localised implementation.

A high association with a common corporate vision, mission and value system. Corporate culture is standardised Multidomestic Strategy

Customised product offerings and marketing in accordance with local responsiveness

Failure to exploit experience curve effects

Inability to realise location economies

Usually adopts a completely polycentric approach

Failure to exploit experience curve effects

Key positions are occupied by local nationals

Failure to transfer dis- HR policies are usually completely tinctive competencies decentralised and independently to foreign markets managed at the unit level, benchmarked against local and industry standards Global Strategy Exploits experience curve effects Lack of local responsiveness Exploits location economies

Geocentric/regiocentric approach Key positions are occupied by PCN/ HCN/TCN HR policies are largely centralised and standardised, with incorporation of global best practices and global benchmarking

Transnational Strategy

Exploits experience curve effects Exploits location economies Customise product offerings and marketing in accordance with local responsiveness Reaps benefits of global learning

Difficult to implement due to organisational problems

Geocentric/regiocentric approach Key positions are occupied by a breed of global managers from within the organisation HR policies are largely centralised and standardised, with integration of global best practices and global benchmarking, insisting on total compliance with global set processes and guidelines.

An organisation with a multi-domestic strategy most definitely adopts a polycentric approach towards its HR functions. The policies are highly decentralised and each local unit has the freedom to set and follow its own policies suitable for hiring and retaining its talent in the home country. Key positions are staffed by the HCN and the unit operates like an independent profit centre by itself.

104 International Human Resource Management Organisational strategies like the global and the transnational strategies benefit from a geocentric/ regiocentric approach. While they merit a high amount of integration and coordination efforts, the benefits from having a centralised set of policies which incorporate the best of practices, that are uniformly followed by units across the globe, are many. Firms like GE and IBM are examples of organisations that are run with corporate HR functions that are benchmarked with global practices.

ORGANISATIONAL CONTEXT OF IHRM IHRM needs to be organised depending on the HR strategies which in turn, depends on the corporate strategy. Some preferred structures are described in the following pages with an observation that the structure of HR function per se is not described, but the place of HR in the overall structure is shown.

International Division Structure In the international division structure, an overseas unit is an adjunct to the parent company. It handles all the overseas activities, which may be organised by functions, product or area structure. All the international activities are under the authority of the international division head (of the rank of Vice-President), who coordinates with the overseas activities. As the international activities are under one head, control and communication are easy and the structure can respond to changing local needs quickly. But the drawback of this structure is that overseas activities are given a perfunctory treatment. This structure is preferred when a business is making its foray into international business for the first time. A typical international division structure takes the shape as shown in Fig. 4.3.

FIGURE 4.3

International Division Structure

Functional Structure Also called worldwide functional structure, in this type each function is responsible for activities around the world. The manufacturing department, for example, would be responsible for worldwide production activities, so also with finance, marketing, R&D and HRM. This design is used by international businesses that have narrow or similar product lines.

Strategic IHRM 105

Since each functional area deals with the global market, specialisation and concentration of functional expertise can be taken advantage of. Control of various functions can be exercised relatively easily. But the drawback with this structure is the delay in responding to local needs. Figure 4.4 typifies a functional structure.

FIGURE 4.4

Worldwide Functional Structure

Geographic Area Structure In this, worldwide activities are organised by dividing the globe into different geographic areas. The regional manager is responsible for all business activities within that geographic area (See Fig. 4.5).

FIGURE 4.5

Geographic Area Structure

A geographic division can respond to the market conditions of a particular area much more effectively than any other structure. But there tends to be a duplication of functions as there are different divisions catering to different areas. Communication among the divisions may not be quick.

Product Structure This is the most common organisational structure followed by MNCs. The product structure assigns worldwide responsibility for specific products or product groups, to separate operating divisions within a

106 International Human Resource Management firm. As Fig. 4.6 shows, the manager who is incharge of a product division has authority for this product line on a global basis.

FIGURE 4.6

Global Product Structure

The global product divisions operate as profit centres. Managers of product divisions run the operations with considerable autonomy. They have the authority to make important decisions. But, corporate headquarters usually maintain control through budgetary constraints and home office approvals for key decisions. Several benefits accrue to a worldwide product structure. If the firm produces a large number of diverse products, the structure allows each product line to focus on the specific needs of its customers. This structure also helps develop a cadre of experienced, well-trained managers who understand a particular product line. A third benefit of the product structure is that it helps the company match its marketing strategy to the specific needs of the customer. Finally, because managers possess extensive product knowledge, they are more able to incorporate new technologies into their products and respond quickly and easily to technological changes that affect their markets. There are some problems associated with product structure too. First is the necessity of duplicating facilities and staff within each division. Second, products that sell well are often given more importance than others. Finally, coordination among product groups becomes difficult.

Matrix Structure The matrix structure emerges when one design is superimposed on top of an existing, but different form. The resulting structure is fluid with new matrix dimensions being created, escalated, reduced, or eliminated as needed. For example, the global matrix structure as shown in Fig. 4.7, has been created by superimposing a global product structure (shown down the side) on an existing global functional structure (shown across the top). The matrix structure permits a firm to form specific product groups, using members from existing functional departments. These product groups can then plan, design, develop, produce and market new

Strategic IHRM 107

products with appropriate inputs from each technical area. In this way, the firm can draw on both the functional and the product expertise of its employees. After a given product development task is completed, the product group may be dissolved. Its members will then move on to new assignments.

FIGURE 4.7

Matrix Structure

Three features make the matrix structure different from other single dimensional structures. First, there are managers who report to two different matrix bosses. Second, there are matrix managers who share the subordinates; and third, there is the top manager who is expected to head the dual structure and balance and adjudicate disputes.4 What are the strengths of the matrix structure? First, communication flow is fast because of the dual interaction. Before key decisions are made, the structure brings to the table, two intersecting perspectives. Second, a global matrix structure promotes organisational flexibility. It allows firms to take advantage of functional, area and product structures, as needed, while minimising the disadvantages of each. The disadvantages are equally strong. The matrix structure is not suitable for a firm that has few products and operates in a relatively stable market. Second, the structure is clumsy and bureaucratic. It may require so many meetings that it might become difficult to get any work done. Finally, the dual hierarchy structure can lead to conflict and perpetual power struggles between the area and the product divisions. Given the new breed of firms being born due to the surge in internationalisation, today’s organisations cannot be clearly slotted into any one of the above structures. The structures discussed above are traditional ones that provide the basic framework on which the MNC builds and then innovates, so as to balance the pressures for internationalisation versus the head of the organisation to control and coordinate, with the primary objective of meeting global challenges in the most optimum manner. If there is any single function in an organisation that is impacted by changes in the organisation structure, it is the HR policies and processes. Table 4.2 explores the IHRM implications of the organisation structures that the firm decides to adopt.

108 International Human Resource Management TABLE 4.2 Structure

Comparative Picture of Organisational Structures

Advantages

International Divi- As the international activities are under sion Structure one head, control and communication are easy and the structure can respond to changing local needs quickly. This structure is preferred when a business is making its foray into international business for the first time. Functional Structure

Each function is responsible for activities around the world. This design is used by international businesses that have narrow or similar product lines.

Disadvantages

The drawback with this structure is the delay in responding to local needs.

Ethnocentric approach.

But there tends to be duplication of functions as there are different divisions catering to different areas. Communication among divisions may not be quick.

Normally a regiocentric approach, operating in independent silos

Since each functional area deals with the global market, specialisation and concentration of functional expertise can be taken advantage of. Control of various functions can be exercised relatively easily. Geographic Area Structure

A geographic division can respond to the market conditions of a particular area much more effectively than any other structure.

IHRM Strategy

The drawback of this Ethnocentric approach. structure is that overseas activities are given Key positions are occua perfunctory treatment. pied by parent country nationals of the MNC.

Key positions are occupied by PCN/HCN/ TCN

Key positions are normally occupied by HCN/TCN HR policies are largely centralised and standardised with incorporation of global best practices and global benchmarking

Product Structure

If the firm produces a large number of diverse products, the structure allows each product line to focus on the specific needs of its customers. Helps develop a cadre of experienced well-trained managers who understand a particular product line. Also helps the company match its marketing strategy to the specific needs of the customer. Finally, because managers possess extensive product knowledge, they are more able to incorporate new technologies into their products and respond quickly and easily to technological changes that affect their markets.

Necessity of duplicating Usually an ethnofacility and staff within centric approach is each division. followed

Products that sell well are often given more importance than others. Coordination among product groups becomes difficult.

Key positions are normally occupied by PCN. HR policies are usually completely decentralised and independently managed at the unit level, benchmarked against local and industry standards

(Contd.)

Strategic IHRM 109

TABLE 4.2

(Contd.)

Structure

Advantages

Disadvantages

IHRM Strategy

Matrix Structure

Communication flow is fast because of the dual interaction. Before key decisions are made, the structure brings to bear the two intersecting perspectives.

The disadvantages are equally strong.

Clearly a Geocentric approach Key positions are occupied by a breed of global mangers from within/outside the organisation

The global matrix structure promotes organisational flexibility. It allows firms to take advantage of functional, area and product structures as needed, while minimising disadvantages of each.

The matrix structure is not suitable for a firm that has few products and operates in a relatively stable market. The structure is clumsy and bureaucratic. It may require so many meetings that it might become difficult to get any work done. The dual hierarchy structure can lead to conflict and a perpetual power struggle between the area and the product divisions.

HR policies are largely centralised and standardised with incorporation of global best practices and global benchmarking, insisting on total compliance with global set processes and guidelines.

Exhibit 4.1 brings out the unique nature of organisational structures in the IT offshore product development centres (OPCs).

Exhibit 4.1

Optimal Organisation Structure in Indian IT R&D Centres

In the last few years, many global technology companies have set up their R&D centres in India. The key driver for many of these organisations for setting up their India centres, was cost-effectiveness. However, some of the Indian R&D centres have started moving up the value chain. They are now able to conceptualise new ideas, take ownership of the entire product development cycle and deliver world class products from their India Centres. The organisation structures prevalent in the Indian R&D centres can be broadly classified into three categories: ∑ Resource Augmentation Model ∑ Team Augmentation Model ∑ Product Ownership Model

Resource Augmentation Model In resource augmentation model, the individual engineers report directly to managers in the US office and have dotted line reporting to local managers in India. Almost all the daily tasks of the engineers are allocated by the US managers. The local managers of the teams only have the responsibility to assist the engineers with people and infrastructure issues. The technical guidance is provided directly by the US managers. This model is usually used in companies which have recently set up their R&D centre and want to hand-hold the India centre till they understand the products, organisational values and processes.

110 International Human Resource Management This model usually gives way to team augmentation and ownership models as Indian R&D centres mature over a period of time.

Team Augmentation Model In team augmentation model, the first level managers or technical teams in Indian R&D centres report directly to managers at global locations. They also have a dotted line reporting structure to the senior management team at the India centre. The local managers are provided the freedom to allocate work among the resources and also to take ownership of modules of the product. This model is usually used in organisations where they have strong first level management teams in India. These first level managers have good people management skills, good product domain expertise and are able to make significant technical contributions to the projects.

Product Ownership Model In product ownership model, the Indian R&D centres often have the entire ownership of the product development. In most cases, the product architects are co-located at the India centre. In some cases, part of the product management team is also based in India, along with the development team. In these cases, the India teams are provided with high level of ownership to design, develop and maintain the products. This model is usually followed by US-based venture funded start-ups that find it easier and cheaper to find the right talent in India to build products from scratch. Large organisations are also experimenting with product ownership models, with parts of their team in India. In many organisations, the R&D centre with full product ownership is separated from other product lines. In some cases, these R&D centres might be located in a different geographical area. Source: Extracts from a white paper published by Zinnov an offshore research and consulting firm and SVB India Advisors on Optimal Organisation Structure in India R&D Centres, November 2005.

An MNC’s organisational structure today is one that is constantly evolving. New ways of reporting, control and coordination are constantly replacing the existing ones. What is therefore emerging is that structures are becoming specific to industry segments and these are being innovated and becoming industry-specific benchmarks. This flexibility allows the MNC to ensure that no ‘one size fits all’ philosophy restricts its global initiatives. The challenge for IHRM in this scenario is the ability to quickly enable HR processes that would support the new structure. It would involve —5 ∑ Modifying existing policies and HR processes. ∑ Establishing new policies and HR processes. ∑ Carrying out industry specific HR surveys, and ∑ Networking within the specific industry through appropriate forums in order to conceive and propagate more effective and competitive structures.

DIMENSIONS OF STRATEGIC INTERNATIONAL HRM A look at some sobering statistics regarding globalisation reveals that approximately 60 percent of all cross-border joint ventures fail, approximately 30 percent of all expatriates return from assignments abroad prematurely, and approximately 48 percent of all repatriates leave their company within two years of returning home. Each of these data points represents a human resource challenge, and the enormous capital investment that is lost as a result. They are also reflective of the failure of the organisation to recognise the impact that IHR function have on the MNC’s ability to succeed globally.

Strategic IHRM 111

Essentially, there are two dimensions to understanding the nature of strategic IHR. IHR initiatives could be driven by the parent company/headquarters and commonly implemented globally across all business units. Such initiatives commonly include global policies related to work methods, work practices, processes and procedures that ensure that the MNC performs as a single well-oiled unit globally. Uniform HR policies like hiring, recruitment tools, PMS, HRIS, compensation policy and the like that bind the MNC globally are traditionally deployed from the headquarters. This provides for the necessary integration and centralisation and a common culture that binds the employees across geographies. Such policies are not ‘automatic’ extensions of the parent company’s policies. They are a set of desirable work practices that the MNC agrees uniformly as what works best for the company and the achievements of its business objectives. There is no doubt that this can be very different for two companies operating in the same industry. The competitive advantage that lends the MNC its branding as a preferred employer is grounded in the global leadership that its policies and process provide. Strategic HR in this case deals with initiatives revolving around: ∑ Creating the global vision and committing to a set of values for the organisation whereby ensuring that the desired MNC culture is retained irrespective of the nature of activity carried out at subsidiaries. ∑ Assisting with establishing the HR framework for a new subsidiary. ∑ Managing HR challenges during global mergers and acquisitions at any location. ∑ Strategic decision related to retrenchment/downsizing or shutting down of business in a particular location. ∑ Supporting business decisions related to increasing the size of a particular business unit and the related HR challenges. It may sometime require the ‘corporate HR’, to support the HR at the unit level. ∑ Constantly realign HR practices to meet the needs of the changing external environment, shifts in the marketplace, competition, the advent of new technologies or such changes that call for a strategic realignment within the company. The other facet of strategic IHR is that which is localised and deployed at the business unit level. These are the guidelines, procedures and norms that are put in-place under the umbrella of the global HR policies that drive the micro HR activities at the unit level. Highly localised, these set of work practices are adopted based on local industry norms such as pay ranges, hiring and retention strategies and rewards and recognition policies. Strategic HR in this case deals with initiatives revolving around: ∑ Local hiring norms and practices and prevailing method to attract and retain talent. ∑ Salary structures, job bands, hierarchies and titles and associated perks and benefits linked to a satisfied workforce. ∑ Work practices that are locally prevalent and unique to the country and the culture of the host unit. ∑ Strategic compliance with reference to statutory requirements per country’s norms. ∑ Constantly realign HR to meet the needs of the changing external environment, shifts in the marketplace, competition, advent of new technologies and similar other calls for a strategic realignment within the business unit. Strategic HR activities can be globalised or localised to dynamics match with the MNC’s strategies. Strategies of an organisation comprise: (i) defenders (low-cost producers), (ii) prospectors (product differentiators and innovators), (iii) analysers (imitators of successful prospectors and focused operations), and (iv) reactors (companies with dysfunctional strategies). As shown in Fig. 4.8 there are specific HR activities that can match each of these four strategies at the corporate level as well as at the unit level5. It is also possible that an MNC adopts different strategies at different locations based on the competition and the role of the subsidiary in the achievement of global objectives. When the strategy is to remain as a low-cost producer, the focus is on cost control. With the cost control as the primary focus, predictability and a short-term focus are valued.6 Organisations in this category seek

112 International Human Resource Management to provide goods and services at low cost, maintain quality and provide customer service. The pressure to go global and optimise cost with scaling is the key to business success. Globally, the HR activities that are relevant in this context are development and training as employees are hired at entry level, and high level vacancies are filled through promotions from within. Employees are expected to stay with the organisation for a long time. Turnover tends to be low as a consequence. Companies pursuing prospectors strategy look for innovation. They design and produce new products and redeploy resources from discontinued products to the development of new ones. The pressure for globalisation is driven by the need to create a competitive advantage by creating global centers of innovation depending on the availability of skilled and competent resources internationally. Innovation being the key approach, those organisational conditions that foster risk taking, cooperation, creativity, and a long-term perspective are valued. Globally, talented individuals are hired and training is mainly on-the-job. Employee turnover is high. Performance appraisal is result-based7. Analysers is another strategy which organisations often seek to pursue. These companies are of some hybrid type in that they are both product innovators and competitors in long-run production lines. They attempt to explore niches in the global marketplace. Extremely out-ward looking, such MNC’s are constantly looking to countries that provide the potential for global growth. The IHR policies of these organisations fall between the extremes of defenders and prospectors strategies. Organisations spend heavily on training but talents are also ‘bought’ to fill higher level positions. These companies both promote (make) as well as hire (buy) human resources. Companies following reactors strategy are in highly competitive markets and are the slaves of their environments. Decision to globalise is driven by the market conditions. While they may strike strategic alliance and grow inorganically in certain countries and business verticals they would invest in other locations organically and with long term intent. Since these companies are essentially reactive, there are few systematic strategic implications.8 External

Reactors Retrenchment Passive recruitment

Prospectors Hire talent and then spend on training High turnover Result based performance assessment Recruitment at all career stages

Retention of core talent Frequent layoffs Source of Labour

Internal

Defenders

Analysers

Employees hired at entry level A lot of emphasis on training and development ‘Making’ and not ‘buying’ to fill vacancies Low turnover

Group Contribution

Heavy investment on training but talents are also bought Low turnover Dismissal for poor performance

Assignment and Promotion Criteria

Individual Contribution

(Source: Adapted from Strategic Human Resources Management, Charles R Greer, P 141) FIGURE 4.8

Strategic HR Policies

Strategic IHRM 113

AOL for example, has designated India as its global headquarters (for all operations outside the US). As Ron Gront the President & COO explained in April ’07 during his visit to Bangalore, this decision was driven by ‘India’s incredible talent’ whereby AOL’s India operations and R&D center are playing an important role in the global economy. Quoting Ron, “so we thought why not build global strategy here…. In short, they (India operations) are helping us become thought leaders”. Such strategies directly impact the HR functions most significantly with hiring and employee retention being at the forefront of the success of the global strategy. Human resource planning, which is the domain of HRM, becomes an integral part of strategic management. Recognition of HR cost implications of strategies globally can be an input in strategy formulation. The international environmental scanning is an input for strategy formulation. It is likely that certain business units/locations may be denied or given least importance in resource allocation. As a result of the denial of resources, IHRM must prevent the demoralisation of those not receiving resources. Often areas not receiving resources are still critical, atleast in the short run, to the success and prosperity of the MNC. For example, areas which are adding to the MNC’s bottom line (the star areas) will receive more resources. These resources would come from areas in which industry opportunities/ locational advantages are expected to decline in future, but in which the company now has strengths and is making money (cash cows). The Raymond’s opening case illustrates this most significantly where the UK operations are being optimised to focus investments in the strategically more profitable operations of the Indian business unit. Resources would also come from those areas characterised by both unattractive countries/industry opportunities and low company strength (dogs). As resources are taken away from cash cows and dogs, the manner in which employees from these areas are treated is critical to successful implementation of the international strategy to remain a profitable organisation globally.9

Linking IHRM to Business Strategy There are four stages of HR linkages to the implementation of the business strategy. The first level of linkage is interpretation: HR and other functions are advised to consider the functional implications after the business strategy has been crafted. A second level is inspection: the draft business strategy is considered by functions such as HR before it is finalised. The third level is insertion: initial functional inputs are made in the business planning process, also leading to inspection. The highest linkage is full integration: now the HR manager is an integral and respected member of the senior management team and all management team members are sensitive to HR aspects of implementation.10 (Also see Exhibit 4.2.)

Exhibit 4.2

Human Resource Strategies at Hewlett Packard

Hewlett Packard’s reputation for innovation and enlightened people management is lauded not only amongst academics and management gurus, but also by other major companies. From its origin as a garage business producing technical equipment in 1937, to its present-day status as a $47 billion-ayear company, the emphasis has been on fast-paced innovation, together with a highly sophisticated performance management process and a set of cultural values enshrined in the ‘HP Way’. The major strength of HP has been the manner in which it strongly links business and human resource strategies. This gains clarity from the business planning process. Both the long-term plan and the annual plan have clear HR elements. For the long term, strong leadership and organisational development processes are combined with detailed scanning of demographic trends to ensure that capabilities will align with long-term aims. For the annual plan, the performance management system

114 International Human Resource Management uses various mechanisms to plan, monitor and assess individual performance. Because HP is operating in a high-velocity environment, performance targets at the individual level are determined largely between the manager and the employee in negotiation and these are subject to high revisability in case environmental conditions make existing targets inappropriate or unrealistic. 360o appraisals are used because of the importance of teamwork. In addition to the annual formal appraisal, HP is committed to the practice of continuous appraisal, encouraging informal feedback, combined with coaching and counselling to develop employees. But growth has brought issues of increased bureaucracy, which has sapped innovation and reduced knowledge transfer. HP responded in two ways: the first was to split the firm into two with the computing side of the business retaining the name and the Hewlett Packard brand. Second, they announced the move into ‘e-services.’ A consequence is that the traditional style of people management based on cultural control through internalisation of the HP Way is under threat. A key pillar of the HP Way, ‘management by walking about’, is seen by some as anachronistic given the global and virtual character of teams and the number of people working from home. The paradox of HR systems is that they must provide a high degree of continuity and consistency so that employee expectations of the effort-reward bargain are reasonably consistent, whilst at the same time, they must be flexible to adapt to the changing environmental conditions. HP has a long history of change management and HR excellence, but even for them, resolving their present tensions represents a considerable challenge. (Source: Gerry Johnson and Kevan Scholes, Exploring Corporate Strategy, p. 520).

Dave Ulrich has suggested a model for bringing out the linkage.11 According to Ulrich there are three approaches to align HR plans to business plans: add-on, integration and isolated. These three are arranged on a continuum as shown in Table 4.3. TABLE 4.3

Approaches to Merging Strategic and HR Planning

Afterthought/ “Add-on” The focus is on business planning, with HR practices considered as an afterthought.

Integration The focus is on a synthesis of business and HR planning.

Isolated The focus is on HR practices and how the HR function can add value to the business.

Line managers own the HR discussions, with tangential involvement of HR professionals.

Line managers and HR professionals work as partners to ensure that an integrated HR planning process occurs.

HR professionals work on the plan and present it to line managers.

The outcome is a summary of HR practices required to accomplish business plans.

The outcome is a plan that highlights HR practices that are priorities for accomplishing business results.

The outcome is an agenda for the HR function, including priority HR practices.

(Source: Dave Ulrich, Human Resource Champions, Harvard Business School Press, 1995, p. 59).

At the “add-on” end of the continuum, HR planning is little more than a postscript to the business planning process. In this approach, HR issues are raised only after extensive business planning. This type of linkage is not common in industries where the human resource are critical in providing the competitive advantage for an organisation to go global.

Strategic IHRM 115

The isolated end of the continuum signifies that the HR planning is a distinct and separate planning process. The HR department initiates, designs and implements the HR plan. In these tasks, the HR plan becomes a process for shaping HR rather than business priorities. The HR plan, thus emerging, may be an elegant document, such an isolated plan adds little value to the business as it remains separate from the business planning process. This linkage is most common in organisations where globalisation is driven by the need to identify low cost locations with reference to the large availability of natural resources or where the MNC can benefit globally from striking strategic alliances and not itself be involved in setting up and operating a business unit. In the middle of the continuum, there is the integration stage. The real alignment between HR planning and business planning occurs at the integration stage. At this stage, HR planning becomes an integral part of business planning process. HR shares the table with other heads of business units and heads of departments to actively contribute to the impact on the HR activities globally. IHR professionals work with business unit heads and departmental managers to identify the most appropriate HR practices suited to the country of location and in synergy with the MNC culture that helps accomplish the stated business strategy for the subsidiary as well as the parent company. The outcome of integrated business/HR plans is a framework for incorporating HR practices into business decisions to ensure results. GE is an example of a company which witnessed an integration of HR planning and business planning. The US based MNC embarked on a transformation phase since the early 1980s. The early part of the transformation focussed on initiatives that restructured the business mix, including both buying and selling businesses as significantly reducing the workforce. By the late 1980s, GE was strategically strong with 13 major businesses, each unit globally positioned, and number one or two in market share. Since the latter part of the 1980s, GE management began focusing on a more fundamental change-culture. Under the rubric workout, a number of initiatives involved GE employees in dismantling bureaucracies, making faster decisions, quick response to customer needs and complaints and shedding unnecessary work. Employees were involved in building up a new culture characterised by speed, simplicity, self-confidence, customer care and lean systems. The HR function played a key role in GE’s new culture creation. As businesses were divested and acquired, HR professionals on the restructuring teams helped determine the value of assets and quality of management of the businesses and develop an integral or separation process appropriate to each. As workout spread throughout the organisation, many HR professionals became facilitators for and examples of the new culture. As business processes were improved, HR professionals identified HR processes (for example, staffing, compensating, and training) that needed to be modified to implement the improved business processes.12

Proficient Strategic HR Choices Building a capable organisation is obviously always a top priority in strategy execution. Three types of organisation building actions are crucial13: • Staffing the Organisation includes putting together a strong management team, and recruiting and retaining employees with the needed expertise and experience both at the headquarters as well as the strategic business unit level. This responsibility squarely lies with the IHR teams globally and locally. • Building Core Competencies and Competitive Abilities as relevant to each global location that will enable effective strategy execution and then keep the competence/capability portfolio updated with localised HR initiatives as strategy and external conditions change. • Structuring the Organisation and Work Effort by organising business functions and processes, value chain activities and decision making driven by the global HR team in a manner conducive to successful strategy execution.

116 International Human Resource Management The role of HRM therefore in all the three actions is both critical and compelling for organisational success. An organisation has, before it, a number of practice choices (see Fig. 4.9) to produce desired results. As seen in Fig. 4.9, HR practice choices may be categorised into six types. The figure defines opposite ends of each practice continuum such as promoting entirely from within versus filling all openings from the external labor market. Clearly, an intermediate choice is also possible for a majority of the practices. Staffing Choices Internal Sources

External Sources

Narrow Career Paths

Broad Career Paths

Single career Paths

Multiple Career Ladders

Explicit criteria

Implicit Criteria

Limited Socialisation

Extensive Socialisation

Closed Procedures

Behavioral Criteria

Open Procedures Appraising Choices Results Criteria

Low Employee Participation

High Employee Participation Long-term Criteria

Short-term Criteria

Group Criteria

Individual Criteria Compensating Choices Low Base Salaries

High Base Salaries

Internal Equity

External Equity Many Perks

Few Perks Standard, Fixed Package

Flexible Package

Low Participation

High Participation Many Incentives

No Incentive

Long-term Incentives

Short-term Incentives

High Employment Security

No Employment Secutity

High Participation

Hierarchical Training and Development Short Term

Long Term

Narrow Application

Broad Application

Productivity Emphasis

Quality Emphasis

Spontaneous, Unplanned

Planned, Systematic

Individual Orientation

Group Orientation

Low Participation

High Participation

Strategic IHRM 117 Employee influence Collective Bargaining

Individual Bargaining

Formal Due Process

Informal (or no) Due Process

No Employee Input

Broad Employee Participation

No Employee Ownership

Partial or Complete Employee ownership Employee Compliance

Employee Empowerment Work Systems Job Simplification Explicit Job Analysis

Job Enrichment Implicit Job Analysis

Team Orientation

Individual Orientation

Narrowly Defined Jobs

Broadly Defined Jobs

Participative Management Specialise Jobs Close Supervision

Directive Management Rotation Among Jobs Self or Peer Supervision

(Source: Cynthia D Fisher, et al., Human Resources Management, Houghton Miffin, 1997, p.60) FIGURE 4.9

HR Practice Choices Related to Strategic Outcomes

It is important to remember that linking strategy and HRM effectively requires more than selection from a series of practice choices. The challenge is to develop a configuration of HR practice choices that help implement the organisation’s strategy and enhance its competitiveness. An MNC can have a global set of the above HR strategies and yet follow a very different one at each of its global locations, depending on the nature of the work being carried out at the location, the demand for resources and the cost of living.

Common Strategic HR Applications for Gaining Competitive Advantage A. Encouragement of Pro-active Rather than Reactive Behaviour Being pro-active means that the MNC has a vision of where it wants to go 10 years hence, and has human resources who help it reach there. Being reactive means confronting problems as they surface. By being reactive, the organisation tends to lose sight of the long-term direction. It is people who can make the organisation pro-active or allow it to simply rest on past laurels. B. Explicit Communication of Goals Generally, every organisation shall have a goal and this must be communicated to all the employees. Everyone should work towards teaching the goal. BHEL had the objectives of becoming a leader in its chosen area of heavy electricals. The goal has been spread down the line and according to the CEO, “It is clearly the zeal of people to work, systematic planning and corporate strategising every five years that have made BHEL stand taller.” The role of HR manager in formulating goals and communicating it to all is indeed crucial. C. Stimulating Critical Thinking Managers often depend on their personal views and experiences to solve problems and make decisions. The assumptions on which they make decisions can lead to

118 International Human Resource Management success if they are appropriate to the environment in which the organisation operates. However, serious problems can arise if the assumptions are no longer valid14. The strategic HRM process can help an organisation critically examine its assumptions and determine whether the decisions that follow from those assumptions need modification or need to be held back. To strategise means to think critically. Analytical thinking helps an individual question established practices, shed shibboleths, search for alternatives and arrive at right courses of action. By being part of strategic management process, HR manager can contribute to the critical thinking process of employees. D. Productivity as an HR Based Strategy The more productive an organisation, the better is its competitive advantage. Perhaps none of the resources used for productivity in organisations are as critical as human resources. Many of the HR functions contribute to productivity. Pay, appraisal systems, training, selection and job design are HR activities that directly contribute to productivity. E. Quality and Service are HR-based Strategies Besides productivity, other factors which contribute to an organisation’s competitive advantage are quality and customer service. Quality can come from people, and realising this organisations are spending vast sum of money on quality training. Since the early 1980s, organisations have recognised the value of W. Edwards Deming’s theories as a way to improve quality. Deming’s 14 principles have served as the foundation for many quality improvement of initiatives, first in Japan and later in other parts of the globe. Delivering excellent customer service is another approach to build competitive advantage. Service begins with product design and includes interaction with customers, so that customers’ needs are met. It is the employees who matter in rendering service. As Fig. 4.10 shows, three of the five dimensions of service are HR related. Physical Facilities and Equipment Confidence in Employees Care and Concern

Service Excellence

Dependable and Accurate Performance

Timely Assistance

(Source: Robert L. Mathis and John H. Jackson, Human Resource Management, Thomson, 2003, p. 33) FIGURE 4.10

Customer Service Dimensions

HR Preparedness All through the chapter we covered the role of HR professional in crafting and executing strategies. Towards the end of the chapter, it is advisable to describe the preparedness of HR professionals themselves to be strategic partners and facilitators in strategy execution.

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The IHR professionals in addition to building staffing, compensation, training and other programmes and policies that focused on employees and kept companies legally compliant have a greater call to duty. In the last decade, they have worked to become business partners and to align their work with business strategies. HR professionals have been coached to spend time with general managers and with their counterparts in sales, marketing, and manufacturing across the globe and have been groomed to ensure that HR activities help deliver business results. What does this mean for the IHR professionals? ∑ Be a techno-professional and acquire basic business knowledge about your company, its competitors, its industry, its global implications. ∑ Keep general information on the economy in the various countries that support/does not support your firm. ∑ Subscribe to international magazines online and e-groups to keep yourself updated on the happening globally. ∑ Begin to connect with those outside the organisation as well as those inside, across teams. ∑ Seek to be involved in strategic decisions, in case you are left out of it. ∑ Acquire international HR certifications so that you can access the HR opportunities globally. A well-designed strategy to go global by an MNC can fail if sufficient attention is not paid to the HR dimensions. HR problems that arise when executing strategies may be traced to one of the three causes: (1) disruption of social and political structures; (2) failure to match individuals’ aptitudes with implementation tasks; and (3) inadequate top-management support for implementation activities. All of these provide a scope for HR intervention either globally or locally. It is in the best interest of every organisation to involve HR practitioner either as internal or external expert and provide space on the strategy table for the over all longterm benefit of the organisation. (See also Exhibit 4.3)

Exhibit 4.3

Building Global Career

Five Questions for McCall and Hollenbeck Johnston: What is a global leader in business? What qualities does a global leader have that are different from someone who is a leader in his or her home country? Morgan McCall and George Hollenbeck: There is not a global leader--global leaders are those who have global jobs; a global job is a job that requires crossing borders...borders of country (a proxy for culture) and borders of business (e.g., marketing, research, product lines, SBUs). Jobs (and executives) are more or less global, depending on the how many and the complexity of the broders crossed. The difficulty in defining ‘global executiver’ is that the experience will be different for each executive, depending on what he or she brings to it... working in Seoul is a different experience, depending on whether you come from Tokyo or Beijing or Stockholm. One company’s home country national (e.g., a Swede working at Ericsson in Stockholm) may be another (e.g., a Swede working for IBM in Singapore). Domestic executives work across business borders, global executives work across business and cultural borders at the same time. Adding the cultural dimensions fundamentally changes the work ... starting up a new business in Helsinki for a Finn is a different experience than a start-up in Harare. The cultural experience often becomes the foreground, the business experience the background for the executive. Dealing with that culture requires a global mindset—and often abilities at a higher level—the jobs are more complex and require a higher level of cognitive, emotional, and social abilities. Of course the differences in skills and mindset required in an international or expatriate assignment depend on the strategy and structure of the business. One strategic approach, for example, is using

120 International Human Resource Management expartriates to develop local nationals so expariates are no longer necessary. This of course creates a problem further down the road in developing local nationals to appreciate the home office and the global business. A U.S-centric organisation that simply sells its products in world markets or outsources manufacturing to the cheapest labor source is not a truly global firm and what it calls interntional executives differs dramatically from a global company. In short, it all begins with the strategic intent. Further, the structure of the job can determine the required cross-cultural skills, many of which are not directly business related or technical. It changes the job fundamentally, for example, to have driect reports who speak another language, or among whom multiple different languages are spoken. It changes things fundamentally to have a boss from another culture, and so on. What about the background of the executive? Does success depend on having a global background? Half of our sample came from a background that inclined them to international work—parents who were in the military or diplomacy or global business, who spoke multiple languages, who set out to live an international life. But half did not—they had no clue until it happened upon them. There can be little doubt that it is an advantage to the person who aims for a global career to begin with a global background, including foreign languages. But there is also little doubt that being a global executive is a career that many people stumble into—much to their surprise! Which companies stand out as producing the best global leaders? Why? How did you apply or measure this advantage to their companies’ bottom-line results? The companies that have long histories in the global business arena are typically better at producing global leaders--Royal Dutch/Shell, Unilever, Ericsson, ABB, for example. They have global business strategies and have incorporated global executive development into their business... Royal Dutch/ Shell expects their high flyers to be global, and in fact 95 percent of their senior executives have had experience outside their home country. The companies that produce the “best” global leaders (remember there is no one kind of best that is a global leader) are the companies that are global: They operate in a global basis rather than a countryby-country basis, their operations may be headquartered in different parts of the world, their senior ranks and board are populated with many passports. It is these kinds of companies that have available the kinds of experiences that grow executives with cross-cultural ability and a global perspecitve. It is these companies that have available role models and mentors with international perspective. It is these companies that can structure jobs and assignments so that younger, talented employees can be exposed to and work with people from other cultures and work in businesses that span borders. A company’s bottom-line results are too dependent on too many factors to measure the ROE component of success in developing global leaders. Executive development is an aspect of a successful strategy...long-term success of the enterprise depends on having the executives to implement a sound strategy. How did the events of 9/11 affect your findings? What is or isn’t different about being a global leader in the post-9/11 world? What skills can someone work on personally to make them a global contender? In the short run, 9/11 has caused companies to re-evaluate their global strategies. Is it too risky now to be global? Should we draw back? Although there has been a temporary drawing back, the consensus seems to be that the forces (technology, communication, etc.) of globalisation are still there, and businesses have little choice but to continue their march toward globalisation. To shrink back now is to miss an opportunity. To the extent that the world outside their home countries is riskier than it was, so will be the lives of global leaders. No doubt it will be more difficult for a while to recruit individuals and their families for global jobs. But the demand and the oportunities will still be there. To be a global contender, there is no substitute for global experience. If you are not getting that experience, you cannot afford to wait for someone to ask you... find it yourself. And once there, you must learn from your experience. If there is a single failing that prevents people from growing as

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executives, it is the inability to learn from experience. Learning from experience in the global arena requires a mix of cognitive ability and emotional and social intelligence, often at a higher level than in domestic jobs. In addition, the aftermath of 9/11 has reminded the U.S. that in no uncertain terms culture does matter. Before the terrorist attacks there was a growing belief that the entire world was becoming “American” in its approach to business—global meant becoming Western. Jack Welch’s book was in demand worldwide, English is the common language of trade, dollar the central currency. The wakeup call is that culture really does matter. Under the superficial homogeneity, there lie fundamental differences driven by a variety of cultural forces, including religion, and we are a long way from a global world with common values and perspectives. While there may be considerable similarity among the most senior executives of the world’s largest firms, the front lines are still filled with people who reflect the differences in the cultures from which they spring. One has to look no further than the backgrounds of the next generation of Chinese leaders to see how different things can be. Did you gain new insights while writing this book? Were you surprised by anything in your research? One of the surprises has been the absolutely essential nature of global experience in developing a global mindset. One doesn’t learn to be global sitting at home, no matter how good a company’s training programs or how diverse its workforce is. There is no substitute for living and working outside one’s home country...hopefully not just once, but twice or more. Another surprise has been that companies make so many mistakes in managing their global executives. Transitions into and out of other cultures are usually difficult, sometimes disastrous, and companies often do not apply what are well-known principals to make those transitions successful. Perhaps it is not a surprise, but it was a true eye-opener to hear from so diverse a set of people about the stereotypes each country holds for people from other countries. We have almost forty pages (not in the book) of what everyone thinks of everyone else: the French of the Japanese, Brazilians of Mexicans, Germans of Americans, and so on. Maybe the surprise was the maturity with which the strengths and liabilities of various cultures were viewed, and the overriding sentiment that in spite of cultural proclivities, people are people and needed too be judged on that basis no matter where they come from. Another surprise was the extraordinary backgrounds and accomplishments of the people we met. For eample, one executive, the product of a Swiss father and Russian mother, was raised in Beirut and Abu Dhabi, educated in Switzerland (with a Ph.D. in Physics, no less), spoke six languages, had served two or more years in four countries other than his current one, and in his early forties held one of the senior-most positions in one of the world’s largest global companies. And he was not unique! The purpose of the book is to help business readers understand how global executive development takes place—for their companies and for themselves. The examples and stories of how executives have succeeded and failed capture one’s attention and allow someone to see and to feel what it means to learn from experience—or fail to. The book attempts to serve several audiences, so one supposes that the most intriguing aspects will depend on the reader’s relationship to global executive work. For those considering or embarking on a global career, the stories of theses executives, the lessons they learned, the experiences they had, and the qualities they look for in young talent will provide a realistic preview of what may lie ahead and serve to encourage gathering relevant experiences early on. For those responsible for developing international executives, whether through human resource roles or as line executives, the book provides a framework for viewing the development process systemically, driving it from the business strategy and anchoring it in online experiences. For those readers, the cataloging of the significant develpmental experiences, the lessons learned, and the dynamics that cause talented people to fail may be the most useful elements.

122 International Human Resource Management Finally, more seasoned line executives with international jobs or experience seem to find the stories of others like themselves the focus of their attention. The trials and tribulations, the jobs and the hardships, that often occur in the relative isolation of international assignments turn out to be shared experiences. (Source: Sara Jane Johnston conducted this email interview about global leaders with authors Morgan McCall and George Hollenbeck. “Developing Global Executives: The Lessons of International Experience,” HBS press 2001.)

SUMMARY HR strategic movement process involves action on seven areas: see the environment, formulate strategies, identify competitive advantages, define organisational capabilities, identify HR practices that help sustain organisational capabilities, link HR strategy with business strategy and implement the strategies. HR professionals are expected to play critical role in all these areas. HR professionals should not be mere preachers. They should set their own house in order. They should have their own vision, policies and principles, create an organisation for their own department; set goals for themselves; and set benchmarks for ethical governance.

Key Terms Analysers Business level strategy Competitive advantage Corporate level strategy Defenders Functional level strategy Functional structure Matrix structure

CLOSING CASE

Organisational capabilities Reactions Strategic management Strategic IHRM Prospectors Geographic area structure Product structure

A Study in Corporate Foreign Expansion: Euro Disney

On April 15, 1983, the Walt Disney Company opened in Tokyo, Japan, their first theme park outside the United States. This theme park, Tokyo Disneyland became an instant hit. In fact, since the Walt Disney Company executives believed they learned so much about operating a theme park in another country, and since Tokyo Disneyland was an instant success, they began immediately to search for a site for a fourth park. To find a site for their fourth theme park, the Walt Disney Company looked to Europe where Disney films historically have done better than in the United States. Because of this film success, the Western European audience already was familiar with Disney entertainment and merchandise the possibilities were narrowed down to Costa del Sol in Spain and Paris in France. France with its larger population and a spectacular transportation network became the choice site for their fourth theme park. Marne-la-Vall e is located in an ideal geographic location since it is 20 miles (32 kilometers) due east of the center of Paris and is halfway between the two international airports of Orly and Roissy-Charles-de-Gaulle. The French railway regional express network connects Marne-la-Vall e with the Paris metro system, and major highways are nearby. In fact, of more than 350 million Western Europeans, 17 million can reach the

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Euro Disneyland resort within two hours by car and 310 million can fly creating a “...denser market than the United States”. The Walt Disney Company promised new jobs and contracts for local suppliers which resulted in red carpet treatment from France. More specifically, Euro Disneyland planned on hiring 12,000 new Cast Members (employees). About 6,000 would work in Euro Disneyland’s Magic Kingdom, 5,200 in hotels on the property, and the remainder in reaction and support facilities. The area was suffering high unemployment at the time and the Walt Disney Company executives believed the economic benefits to the region would be great since they would employ so many local citizens and since tourism generates revenue without requiring such costly social services as schools and hospitals. On April, 12, 1992, despite a few protests, the Walt Disney Company’s fourth theme park, Euro Disneyland opened its doors to the public with essentially the same attractions as in the other Disney theme parks in California, Florida, and Japan. Euro Disneyland’s target of 11 million guests in the first year was met, but revenues did not roll in as had been planned. In fact, Euro Disneyland reported a $905 million loss for the fiscal year that ended in September 30, 1993, and by December 31, 1993, Euro Disneyland had amassed cumulative loss of 6.04 billion French francs or 1.03 billion US dollars. Euro Disneyland’s first chairman, Robert Fitzpatrick, an American, won kudos for setting up the park, yet he stumbled over day-to-day operations. Fitzpatrick spoke French, knew Europe well and his wife was French. But he seemed to be “...caught in the middle and quickly came to be regarded with suspicion by some on both sides”. Numerous times he attempted to warn Disney executives that France should not be approached as if it were Florida, but his warnings were ignored. He was replaced in 1993 by Frenchman Philippe Bourguignon. The all-American enterprise suddenly had raced to put on a European face. Although there was a change in the head of Euro Disneyland there are problems which it faced with the old management and still faces problems with the new management. Among these problems are included their optimistic assumptions, staffing and training, cultural issues, interest rates, marketing, communication, and convention business. The Walt Disney Company, overly ambitious in their venture, made several strategic and financial miscalculations. The Walt Disney Company wanted to build a state of the art, as near to perfect as possible, theme park. In order to meet this goal the company frequently attempted to build and rebuild, with no regard for the “bottom-line” construction cost. Michael Eisner, the Chief Executive Officer of the Walt Disney Company, ordered several last-minute construction changes, known as budget-breakers, which further increased Euro Disneyland’s debt. For example, one cold day before Euro Disneyland opened Eisner warmed himself by a Paris hotel lobby fireplace and ordered more than a dozen wood-burning fireplaces for Euro Disneyland despite the added construction cost and upkeep. Another example of an Eisner budgetbreaker was his decision to remove two steel staircases from Euro Disneyland’s Discoveryland. He wanted them removed because they blocked a view of the Star Tours ride. It was estimated the cost to remove the staircases was approximately $300,000. Euro Disneyland executives and advisors failed to see the signs of the approaching European recession. “Between the glamour and the pressure of opening and the intensity of the project itself, we (the executives) didn’t realize a major recession was coming”. Operational Errors: There were numerous errors made regarding the overall operation of Euro Disneyland. For example, from its American experience the Walt Disney Company thought Monday would be the light day for guests and Friday a heavy one, and allocated staff accordingly. In reality the reverse was the case. In fact to this day, the company still struggles to find the right level of staffing at a theme park where “...the number of visitors per day in the high season can be 10 times the number in the low season”. Furthermore, to add to the operation problem is the difference in employee acceptance of conditions of employment. In Orlando Cast Members are accustomed to and have learned to accept being sent home if they are not

124 International Human Resource Management needed. However, in Paris, French Cast Members feel extremely irritated by and have a very difficult time accepting the inflexible scheduling. Another example of operational assumptions at Euro Disneyland involved the bus drivers. The Walt Disney Company built the French bus parking spaces much too small. Bus drivers were unhappy as they had a very difficult time fitting their busses into their designated spots. In addition, the Walt Disney Company provided only 50 restroom facilities for bus drivers and on peak days there would be 2,000 drivers. A final example of the operational errors made by Euro Disneyland involved the computer stations at the hotels. Euro Disneyland executives assumed guests would stay at the park for several days. This in fact did not happen. Many guests arrived early in the morning, spent the day at the park, checked into the hotel late that night, and then checked out early the next morning before heading back to the park. Since there were so many guests checking-in and checking-out, additional computer stations had to be installed at the hotels in order to decrease the amount of time the guests spent in the queue. Labour Costs: Before the opening of Euro Disneyland executives had estimated labour cost would be 13% of their revenues (Meltdown at the cultural, 1994). This was another area where the executives were wrong in their assumptions. In 1992 the true figure was 25% and in 1993 it increased to a whopping 40%. These labour cost percentages increased Euro Disneyland’s debt. Staffing and Training: Before Euro Disneyland opened the Walt Disney Company built offices in Marnela-Vall e in order to recruit their Cast Members. In just 12 months 12,000 Cast Members had to be recruited, hired, trained, and housed. This is a challenge for any company, “...but it is more complex for Disney, whose employees (Cast Members) become more like members of a theater troupe”. Euro Disneyland recruited through job fairs, a popular European recruiting technique. In two days, 1,000 applied. However, since the Walt Disney Company’s requirements for employment are so high, for every 10 candidates interviewed only one was hired. To complicate the hiring process, there were language requirements since the official languages of Euro Disneyland are French and English. Preferences were given to trilingual applicants because it was hoped that the park would draw guests from all over Europe. Once the candidates were hired Euro Disneyland’s challenge was to train the Europeans, half of them French, to be Disney Cast Members. “Every employee goes through human resource training, then additional training in requirements of specific jobs” (Bakos, 1991, p. 102). The success to Disney parks’ repeat guest visits is the employee-customer rapport. Thus, the largest challenge Euro Disneyland encountered was implanting a “have a nice day” mentality and teaching 12,000 European employees to smile the “Disney smile” all day. Throughout training and employment All Cast Members learn they must adhere to the company’s strict 13 page manual of dress codes, known to Cast Members as the “Disney Look.” The Europeans did not understand this “Disney Look”. The “Disney Look” is a rigid code of Cast Member appearance that imposes a well-scrubbed, all-American look. It details the size of earnings to the size of finger nails to the no tolerance rule regarding facial hair and dyed hair. It is difficult for the Europeans to adhere to an “American look” since they are not American and they believe this requirement has stripped them of their “individualism”. Furthermore, the French “... were hardly specialists in service”. In December 1994 Euro Disneyland was taken to French court contesting the Walt Disney Company’s strict dress code. The European believed the dress code violated French labor law. As a result Euro Disneyland restructured their French dress code. However, the French believed that the Walt Disney Company just instituted a new policy not as a result of being taken to court but in an attempt to patch up the rocky labor relations at the theme park. Cultural Issues: Although European public acceptance of the theme park itself has not been a problem for Euro Disneyland there has been a different type of cultural clash. Most Europeans believe there is cultural imperialism. Europeans have not taken to the “...brash, frequently insensitive and often overbearing style of Mickey’s American corporate parent”. Disney executives’ contentious attitudes exacerbated the difficulties

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it encountered by alienating people with whom it needed to work. “Its answer to doubts or suggestions invariably was: Do as we say, because we know best”. Much has happened with Euro Disneyland since its opening. Although there have been successes at Euro Disneyland the high debt incurred along the way has caused the financial problems to become the number one priority. To end numerous labour disputes over long-hours and poor pay, Euro Disneyland has “...shifted away from imported American working practices and towards a more French approach” (Sasseen, 1993, p. 27). This new approach set a maximum working week and annualized hourly work schedules. In addition, it reclassified jobs using the French method which allowed French citizens the ability to recognize their standard French job classifications. As a result, Euro Disneyland won greater acceptance and willingness to be flexible from its work force. CONCLUSION The Walt Disney Company’s venture of Euro Disneyland is an excellent source of study, training, and learning for human resource professionals involved in possible foreign expansion. Although Euro Disneyland is located in Europe, the lessons learned and experiences gained can apply to any country on the globe. The astute human resource professional can learn from this process and apply these newly acquired skills in similar situations anywhere in the world. A move by any company to any foreign market should not be made without an extensive, in-depth study based on exhaustive research into every applicable aspect of the economy, laws, culture, climate, interests, customs, life-style habits, geography, work habits, just to name a few. (Source: Extracted from ” 1995 by Lyn Burgoyne. University of Illinois at Urbana-Champaign,)

Case Questions 1. Apply the six steps in the strategic HR process to understand the IHR challenges at Euro Disney. 2. Use the information in this case to discuss IHR as different from strategic IHR. 3. Discuss the ‘managerial basis’ for strategy implementation that you can gather from this case.

Review Questions 1. Provide an example of a organisation’s corporate, business and functional level strategies. 2. How does the HR strategy differ for the three organisational strategies of defender, prospector and analyser? 3. What are the roles of strategic HR in building a capable organisation? 4. Bring out the role of HR in diffurent stages of strategic management. 5. Explain the different organisational structure.

Assignments 1. Break into groups of about 5 students. Identify one organisation that is recently getting discussed in the news on account of certain strategic growth plans it is proposing. ∑ Try and identify the corporate level strategy this organisation is following. ∑ Identify the business level strategy it translates into. ∑ Discuss at length the functional (mainly IHR) level strategies that would need to be implanted to achieve the corporate and business level strategies. Present it to the larger group.

126 International Human Resource Management 2. For the organisation identified above, apply the ‘value based view of strategy’ and share the conclusions in the larger group for active debate.

References 1. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage, 2004, p. 74. 2. Dave Ulrich and Wayne Brockbank, The HR Value Proposition, Harvard Business School Press, 2005, pp 149–150. 3. Donald F. Harvey, Strategic Management and Business Policy, Merrill Publishing, 1988, p 5. 4. Charles R. Greer, Strategic Human Resource Management, Pearson, 2006, p 143. 5. Donald F. Harvey op cit., p. 526. 6. Ibid, p. 528. 7. Charles R. Greer, Strategic Human Resource Management, Pearson, 2002, p. 135 8. Ibid, p. 143. 9. Charles R. Greer, op.cit., p. 140. 10. Paul Evans, et al., Global Challenges:Framework for IHRM, McGraw hill, Irwin, p 72. 11. Dave Ulrich and Wayne Brockbank, The HR Value Proposition, Harvard Business School Press, 2005, p. 59. 12. Ibid, p. 153. 13. Gray Dessler, Human Resources Management, Prentice Hall of India, 1998, p.23. 14. Dave Ulrich and Wayne Brockbank, op.cit.

CHAPTER

5 HRM IN CROSSBORDER MERGERS AND ACQUISITIONS Learning Objectives After reading this chapter, you should be able to ∑ Understand why do mergers and acquisitions take place? ∑ Describe the types of mergers and acquisitions ∑ Bring out the role of HR in mergers and acquisitions ∑ Discuss how to manage the transition in the new organisation ∑ Understand the usefulness of HR checklist

128 International Human Resource Management

IN CONVERSATION

Rethink the Value of Joint Ventures

Why are joint ventures losing favour with transnational companies? Interviewer: Cynthia D. Churchwell: You and your colleagues found that companies are increa-singly willing to “go it alone” without local partners. Did these results surprise you? Mihir Desai: Given the popular rhetoric on the importance of alliances and joint ventures, we were surprised. The popular logic is that the importance of such collaborations has increased with the rapid pace of globalisation. This research and conversations with multinational organisations suggest that an alternative dynamic is at work. That alternative dynamic is that globalisation has increased the returns to going it alone even more than the returns to partnering with local organisations. The reasons are that the forces of globalisation—particularly reduced trade costs leading to more fragmented production processes—are making it more and more attractive for multinationals to take advantage of what different markets offer without incurring the costs of collaborating. Two examples stick out. First, if your production processes are fragmented all around the world, then a relationship with a local partner is rife with conflict as the multinational is interested in maximising worldwide profits while the local partners have a narrower view. For instance, decisions on where to source materials become more complicated if the multinational is trying to balance and manage a worldwide production process. Second, the multinational wants to leverage their worldwide network of affiliates financially by mobilising capital and tax planning globally and this can come at the expense of the local partner. Imagine the conflicting objectives in trying to put a price on a component purchased by the joint venture from a related party of the multinational? While joint ventures were always fragile entities, they appear to be both more fragile and less rewarding. Q: What did you observe on the evolution of financial and ownership arrangements of trans-national corporations in recent years? A: The quest for control of their subsidiaries reflects the increasing importance of intra-firm transactions to multinational organisations—more and more, these organisations are trading and transacting with different parts of themselves as production processes become fragmented. Previously, their global outposts were about sourcing local materials or serving local markets. Now, these outposts are tightly integrated into worldwide operations. This puts enormous pressure on the infrastructure of global multinationals to support these myriad transactions. How do you design capital budgeting processes and repatriation policies for such far-flung but tightly integrated subsidiaries? How do you ensure that financial reporting is effective while simultaneously optimising your tax position? How do you design compensation systems that provide for local accountability but don’t make cooperation between these subsidiaries impossible? These internal capital and product markets are growing in importance for these organisations creating many opportunities and many obstacles. Our research shows that some organisations are adapting quickly to this while others continue to leave many opportunities unexploited. Q: What do you think are some of the potential pitfalls of pursuing sole ownership of a foreign affiliate? A: Sole ownership is most likely to be second best in settings where either local sourcing or local selling are the defining characteristics of the affiliate’s activities. In these settings, it may be useful to have access to a local partner. Of course, one final example of where local owners are useful is in countries where local knowledge is especially useful in navigating political considerations.

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Q: What’s your advice for managers considering a joint venture? A: First and foremost, isolate the reasons you’re considering a joint venture and make sure that you can’t buy those services or that knowledge through an arms-length contract that doesn’t require sharing ownership. Most of what managers want from joint ventures is likely to be available through such arrangements. View joint ventures as a last resort given how costly giving up equity is. Second, explicitly lay out expectations for the partners in legal and informal documents prior to the creation of the entity so that it’s clear what each party is providing. Third, try out partners without setting up a joint venture by conducting business with them in some way—there’s no substitute for real contact with the whole organisation. Finally, specify simple exit provisions at the onset and then don’t be afraid to walk and go it alone. More generally, multinationals often create incentives to have joint ventures by penalising the risk-taking involved in going it alone. The overall multinational entity must reevaluate its attitude toward joint ventures and make sure that managers on the ground don’t feel pressured to have local partners. Q: What changes in the expansion tactics of multinationals do you foresee in the next three to five years? A: The increased pressure on existing joint ventures within these networks reflects a greater pressure to rationalise worldwide operations, more generally. As it becomes easier to fragment and coordinate production around the world, multinationals will be able to rationalise operations more by concentrating productive activities and disposing of secondary activities. This rationalisation, in turn, will require an internal financial infrastructure that can guide this coordination so that organisations can fully capitalise on these opportunities. This reduction of coordination and transport costs is continuing to create more and more opportunities for rationalisation and, consequently, bigger penalties for those that don’t do it effectively. Q: What opportunities do you think multinationals are most likely to overlook in global expansion? A: I’m quite interested in how multinationals view investments in emerging markets. My sense is that organisations vary greatly in their appetite for risk in these settings and that many organisations informally or formally have very high hurdle rates for such countries. There is a popular intuition that these countries are extremely risky and, consequently, capital budgeting practices reflect this notion by requiring extremely high rates of return on activities in these countries. My sense from a variety of cases I’ve written is that these practices seldom map to realistic approximations of true underlying risks and that coarse rules-ofthumb are used in pretty ad hoc ways. Given the importance of large emerging markets to the future growth of multinationals, I think understanding and then incorporating risk-return tradeoff correctly into capital budgeting practices is critical. Q: What research is next for you? A: We (C. Fritz Foley, and James R. Hines Jr. of the University of Michigan, and I) have been in the process of analysing many of the financial decisions multinationals must make around the world in order to isolate best practices, but also as a lab for many basic questions in finance. For example, multinationals must design repatriation policies for their subsidiaries around the world. Their incentives in doing so bear a striking resemblance to how organisations design dividend policies more generally with the important exception that there are not diffuse shareholders in the multinational-subsidiaries. Surprisingly, many of the same puzzling patterns we see in dividend policies more generally—smoothed payments, a willingness to incur avoidable tax costs—persist inside the organisation. In a related vein, multinationals must design a capital structure for their subsidiaries around the world and allocate internal funds among them. As a consequence, analysing their choices provides a clean test of what matters for capital structure decisions more generally. Here, we see internal capital markets providing substantial investment in settings where local organisations, their competitors, are the most constrained.

130 International Human Resource Management Finally, I’m most excited about turning toward questions of how outbound investment impacts domestic investment. There is a tremendous amount of ill-founded popular rhetoric about the interactions of domestic and foreign activities of multinational organisations and we hope to actually add some evidence to this debate. (Source: Mihir A. Desai, HBS Professor in Finance and Entrepreneurial Management, in conversation with Cynthia D. Churchwell, May 10, 2004).

International businesses either set up green field projects, enter strategic alliances or acquire existing units as part of their diversification/expansion strategies. We propose to discuss the latter approach and the role the IHR manager is expected to play in buy-outs and mergers.

NATURE OF MERGERS AND ACQUISITIONS (M&As) A merger occurs when two organisations of equal size unite to form a new unit. Obviously, the two organisations lose their identity and a new organisation comes into picture in place of the two. Mergers are generally voluntary and involve stock swaps or cash payment to the target. Amalgamation is another term used to describe a merger, but the usage is mainly confined to the accounting subject. Mergers may be horizontal, vertical or conglomerate. A horizontal merger takes place when the two organisations producing a similar product combine. For example, GAP Inc. controls three distinct companies, Banana Republic, Old Navy, and the GAP brand itself. Each company has stores that market clothes tailored to appeal to the needs of a different group. Banana Republic sells more expensive clothes, with a more “upscale” image, the GAP sells “moderately” priced clothes that appeal to middle-aged men and women, and Old Navy sells “inexpensive” clothes geared towards children and teenagers. By using these three different companies, GAP Inc. has been very successful at controlling a large segment of the retail clothing industry. In the late nineties, the finance industry experienced much horizontal integration, with numerous mergers between companies in the retail banking, investment and insurance industries. A vertical merger takes place when two organisations working at different stages in the production of the same product, combine. One of the earliest, largest and most famous examples of vertical integration was that of the Carnegie Steel company. The company controlled not only the mills where the steel was manufactured, but the mines where the iron ore was extracted, the coal mines that supplied the coal, the ships that transported the iron ore and the railroads that transported the coal to the factory, the coke ovens where the coal was coked and the like. Conglomerate mergers take place when the two organisations operate in different industries. A conglomerate is a large company that consists of divisions of often seemingly unrelated businesses. Most conglomerates have generally proven unsuccessful. One exception is General Electric, whose huge industrial equipment surplus was turned into a successful rental and leasing business. During the cash flush of the 1980s, GE also moved into financing and financial services, which today accounts for half of the company’s income. In some ways, GE is the opposite of the “typical” 1960s conglomerate: the company was not highly leveraged, and when interest rates went up, they were able to turn this to their advantages as it was often less expensive to lease from GE than buy new equipment using loans. The best known British conglomerate was Hanson plc. It followed a rather different timescale than the US examples mentioned above, as it was founded in 1964 and ceased to be a conglomerate when it split itself into five separate listed companies between 1995 and 1997. It was quite a successful example of a conglomerate. The era of Licence Raj (1947–1990) in India created some of Asia’s largest conglomerates, such as the Tata Group, Reliance Industries and the Aditya Birla Group. Conglomerates are called differently in different languages.

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Chaebols are South Korea’s business conglomerates. The English word is a translation of the Korean word, which is now Romanised as Jaebeol. The Korean word means business group, trust (as in Standard Oil Trust) or plutocrat, and is often used the way “Big Business” is used in English. Chaebol refers to the several dozen large, family-controlled Korean corporate groups, assisted by government financing, which have played a major role in the South Korean economy since the 1960s. Some have become well-known international brand names, such as Samsung, Hyundai and LG. Hyundai even played a role in the slight thawing of relations between North and South Korea since 2000. Zaibatsu (lit. property) is a Japanese term meaning “wealthy clique” or conglomerate. Zaibatsu was used in the 19th century and the first half of the 20th century to refer to large family controlled banking and industrial combines. The four major zaibats have a history that goes back to the Edo period. The four major zaibats are Mitsubishi, Mitsui, Sumitomo and Yasuda. Business conglomerates, second-tier zaibatsus, that emerged after the Russo-Japanese War until the Pacific War are Okura, Furukawa, Nakajima and Nissan. A keiretsu (lit. system or series) (“ei” pronounced as in “weigh”) is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. An acquisition takes place when a large company buys out a small unit or vice versa. Unlike the merger, no new organisation comes into being, but the small unit loses its identity and it becomes one with the large company, which continues to function in its name. Where the buyout is forced on the target, it becomes a hostile take-over. Hostile acquisitions generally involve poorly performing organisations in mature industries, and occur when the board of directors of the target is opposed to the sale of the company. In this case, the acquiring organisation has two options to proceed with the acquisition—a tender offer or a proxy fight. A tender offer represents an offer to buy the stock of the target organisation either directly from the organisation’s shareholders or through the secondary market. In a proxy fight, the acquirer solicits the shareholders of the target organisation in an attempt to obtain the right to vote their shares. The acquiring organisation hopes to secure enough proxies to gain control of the board of directors and, in turn, replace the incumbent management.1 The management in the target organisation will typically resist the takeover attempts either to get a higher price for the organisation or to protect their own self-interests. This can be done in a number of ways. Target companies can decrease the likelihood of a takeover through charter amendments. With the staggered board technique, the board of directors is classified into three groups, with only one group elected each year. Thus, the suitor cannot obtain control of the board immediately, even though it may have acquired a majority ownership of the target via a tender offer. Under a supermajority amendment, a higher percentage than 50 per cent—generally two-thirds or 80 per cent—is required to approve a merger. Other defensive tactics employed by the target organisation include poison pills and dual class recapitalisations. With poison pills, existing shareholders are issued rights which, if a bidder acquires a certain percentage of the outstanding shares, can be used to purchase additional shares at a bargain price, usually half the market price. Dual class recapitalisations distribute a new class of equity with superior voting rights. This enables the target organisation’s managers to obtain majority control even though they do not own a majority of the shares. Other preventative measures can be taken after an unsolicited offer is made to the target organisation. The target may file a suit against the bidder alleging violations of antitrust or securities laws. Alternatively, the target may engage in an asset and liability restructuring to make it an unattractive target. With asset restructuring, the target purchases assets that the bidder does not want or that will create antitrust problems, or sells off the assets that the suitor desires to obtain. Liability restructuring manoeuvres include issuing of shares to a friendly third party, to dilute the bidder’s ownership position or leveraging up the organisation through a leveraged recapitalisation, making it difficult for the suitor to finance the transaction.

132 International Human Resource Management Other postoffer tactics involve targeted share repurchases (often termed “greenmail”), in which the target repurchases the shares of an unfriendly suitor at a premium over the current market price—and golden parachutes, which are lucrative supplemental compensation packages for the target organisation’s management. These packages are activated in the case of a takeover and the subsequent resignations of the senior executives. Finally, the target may employ an exclusionary self-tender. With this tactic, the target organisation offers to buy back its own stock at a premium from everyone except the bidder. A privately owned organisation is not subject to unfriendly takeovers. A publicly traded organisation “goes private” when a group usually involving existing management, buys up all the publicly held stock. Such transactions are typically structured as leveraged buyouts (LBOs). LBOs are financed primarily with debt secured by the assets of the target organisation. When a small business owner chooses to merge with or sell out to another company, it is sometimes called “harvesting” the small business. In this situation, the transaction is intended to release the value locked up in the small business for the benefit of its owners and investors. The impetus for a small business owner to pursue a sale or merger may involve estate planning, a need to diversify his or her investments, an inability to finance growth independently, or a simple need for change. In addition, some small businesses find that the best way to grow and compete against larger organisations is to merge with or acquire other small businesses.

MOTIVES BEHIND M&As In general, mergers and acquisitions are performed in the hopes of realising economic gains. Some of the potential advantages of M&As include achieving economics of scale, pooling complimentary resources, obtaining tax benefits and eliminating inefficiencies. Obtaining proprietary rights to products or services, expanding market share, penetrating into new geographic regions and providing managers with newcomer advancement opportunities are other reasons motivating mergers and acquisitions. Some other motives are: ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑

To provide improved capacity utilisation To make better use of the existing sales force To reduce managerial staff To gain economies of scale To smooth out seasonal trends in sales To gain access to new suppliers, distributors, customers, products and creditors To gain new technology To reduce tax obligations.2

Coming down to the brasstacks, there shall be a merger or takeover when the combined value of their resources and assets is greater than their individual values. Obviously, a merger takes place when: NPV(A + B) > NPV(A) + NPV(B) where, NPV(A + B) = the net present value of Firm A and Firm B assets combine NPV(A) = the net present value of Firm A’s assets alone NPV(B) = the net present value of Firm B’s assets alone But there are potential drawbacks associated with M&As. For example, competition is minimised and oligopoly markets come into being. The combined organisation may resort to job cuts and price hikes. There may be skeletons in the cupboards of the target company, i.e. hidden liabilities. Cultural integration becomes difficult too. (See also conversation between Churchwell and Mihir Desai reported in the beginning of this chapter).

HRM in Cross-Border Mergers and Acquisitions 133

The other pitfalls of mergers are: ∑ Undue focus on financial aspects—valuing the assets, determining the price and due diligence at the cost of human factor. ∑ Line employees and managers at all levels lose personal effectiveness as a result of rumours, misinformation and worry. Teams tend to breakdown and become less effective during mergers and acquisitions. ∑ Infrequent and irrelevant communication adds to the problem. Fear and a lack of all the answers deter top management from providing the information that customers, shareholders and employees need to redirect their attention to the value-added by the deal. Rumour fills mystery and vacuums. ∑ Without clear lines of authority and a clear understanding of where they fit in, employees and managers are often caught in a web of conflicting objectives and old loyalties. This type of organisational and personal strangulation rob the new entity of the very energy it needs to overcome the losses in productivity. ∑ The post merger entity demands a leadership to articulate a vision and inspire others to join in that vision. But the stress and uncertainties associated with the merger make the leader focus inwards and play safe. At this critical time, the need for effective leadership remains, but leaders change causing uncertainties. No wonder, the failure rate of mergers and acquisitions is on the high side, ranging between 40% to 80%. Research suggests that up to 65% of failed mergers and acquisitions are due to ‘people issues’, i.e. intercultural differences causing communication breakdowns that result in poor productivity. A recent example of such an intercultural failure has been that of Daimler Chrysler. Both sides in the partnership set out to show that intercultural hurdles could be overcome in their global merger. But Daimler Chrysler underestimated the influence of culture, and due to culture clash, though more than two years have passed by, a united global organisation is yet to emerge.

EXTENT OF M&As Indian companies have been in the throes of the M&A fever. The total acquisitions amounted to nearly one lakh crore rupees in 2005 as Table 5.1 shows. The major sectors that witnessed acquisitions were chemicals, financial services, communication, IT and others. The big players in acquisitions during 2005 included DSP Merrill Lynch by Mernill Lynch (Rs. 2360 cr), of Reliance Industries of Bhumika (Rs. 6226 cr) and of Bharti by Vodafone (Rs. 3321 cr). Similarly, GAIL acquired, a stake in Punjab State Electricity Board for Rs. 2806 cr and Indian Rayon took over a stake in Idea Cellular for Rs. 2259 cr.3 Tatas takeover of Corus and Novelis by Hindalco are the recent buyouts. (See also Exhibit 5.1.)

Exhibit 5.1

The Rise and Rise of Indian MNCs

Some examples of Indian MNCs are noteworthy. In the fag end of 2003, Bharat Forge acquired Carl Dan Peddinghaus, a German forging company. The acquisition helped Bharat Forge to become the second biggest forging company in the world, after Thyssen Krupp. The former also got an easy access to the European market and eventually, to the German automakers. This was the beginning of the rising aspirations of the an erstwhile small local auto-components manufacturing company. Today, Bharat Forge has nine production facilities in six countries across Europe, North America and Asia. The company now caters to over 35 original equipment manufacturers (OEMs) around the world, with

134 International Human Resource Management a wide range of products. Moreover, the proportion of exports in the total revenues from operations for the company shot up from just over 17% in 2000–01 to 41% in 2005–06. Indian companies also showed a keen interest in setting up manufacturing facilities abroad. Moser Baer, the third largest producer of optical disc media in the world, commissioned its sixth manufacturing facility in Germany in 2004. This was the company’s first CD making unit outside India. Today, the company earns more than 80% of its revenues from exports. The story of Indian MNCs is not only limited to global acquisitions. It is also about turnaround of sick units abroad. Way back in 1998, Wockhardt, a domestic pharma giant, took over UK-based loss making Wallis Laboratories for $8 million. Wockhardt took about a year’s time to convert this company into a profit making entity. In early 2000, Tata Tea acquired Tetley Tea, a British tea company, which was also the world’s second largest producer of tea bags, for $431 million. Tetley, which was twice as big as Tata Tea, returned to profits after the latter undertook a restructuring of its high cost debt. In yet another turnaround story, Essel Propack, a global major in the production of laminated tubes, brought Arista Tubes and Telecon Packaging back to back. Essel Propack worked out a strategy to improve the capacity utilisation of both companies. Among the various Indian business groups that are targeting global acquisitions, the name of the Tata group has appeared in the news quite often. Apart from grabbing Tetley Tea, the Tata Group made several acquisitions, including Tyco Global (a USA based telecom operator), Daewoo Commercial Vehicles, Ritz Carlton hotel in Boston, Eight O’Clock Coffee and Energy Brands, which manufactures flavoured water. Recently, the group acquired the UK-based Corus Group, one of the largest steel producers in the world. Recent global acquisitions by Indian companies reflect an urge of these companies to expand their business beyond the domestic market. This is especially the case with the buyout deals struck by some of the Indian textile companies. In July 2006, Spentex Industries bought Tashkent Toytepa Tekstil, an Uzbek textile company, for $81 million. The deal will fetch an easy access to the vast cotton output of Uzbekistan. It will also facilitate an easy entry for Spentex into the eastern European market. The pace of acquisitions has increased in the home textiles segment. In July 2006, Welspun India, a major producer of terry towels in the world, took over UK-based CHT Holdings, which controls the Christy brand of towels. In another deal, GHCL acquired Rosebys, UK’s largest textile retail chain company, which has presence in bedding curtains and kids’ garments. This marked a second acquisition for GHCL in the home textiles business. The company had earlier acquired US-based Dan River. The deal size of acquisitions made by the Indian companies abroad has also increased substantially in recent times. In February 2006, Dr. Reddy’s offered $570 million in cash for a 100% stake in Betapharm Arzneimittel, the fourth largest generic pharmaceutical company in Germany. In another deal, Ranbaxy acquired 96% stake in Terapia, the largest generic drug company in Romania, for $324 million. Again, acquisitions with heavy payouts are not restricted only to the pharma sector. In March 2006, Suzlon Wind Energy paid $565 million to acquire Hansen Transmissions International of Belgium. With bulging profits and swelling reserves, Indian companies are expected to undergo further consolidation on a global scale in the near term. (Source: The Economic Times, 13th December, 2006)

HRM in Cross-Border Mergers and Acquisitions 135

TABLE 5.1

Mergers during Jan-Dec 2005

Sector Mergers Financial Services 92 Other Services 66 Chemicals 34 Textiles 24 Trading 24 Food & Beverages 21 Machinery 20 Information Tech 18 Construction 12 Misc Services 11 Metals and Metal Prod 9 Mics Mfg 8 Real Estate 7 Non-Metallic Mineral Products 6 Construction and Allied Activities 5 Others 17 Total 375 (Source: The Economic Times, dated Feb 17, 2006)

Table 5.1 shows the mergers that took place in 2005. The majority of the amalgamations were in the financial services sector (92 of the total of 375), followed by chemicals, textiles, trading and others. Of late, M&As are being witnessed more in the telecom sector. Over the past six months (Oct 2005 to March 2006), there have been at least six deals in the domestic telecom sector, the high profile deal being Vodafone’s 10 per cent acquisition of Bharti-Televentures for Rs. 6750 cr. In the days to come, hectic deals will be in the IT and ITES sectors. There are nearly 2000 organisations in these industries — big and small players. All these are offering identical products and services. Consolidation will become essential for these organisations to survive. Elsewhere, economic pressures developed within the framework of a global marketplace. They have led to unprecedented numbers of mergers and acquisitions during the past decade. There were 376 M&As in 2004 in the US alone totalling $22.64 billion. Table 5.2 shows M&As in the US. TABLE 5.2

Overseas M&As

Kmart with Sears, Roebuck (2004) HP with Compaq (2001) JP Morgan Chase, Bank One (2004) P&G acquired Gillette (2005) BOAM with Fleet Boston Financial (2003) Macromedia by Adobe System (2005) Walt Disney Buyout of Dream Works

$ 11 billion $ 25 billion $ 59 billion $ 54 billion $ 47 billion $ 3.4 billion $ 3.1 billion

India presents a picture of being the hunted converting into the hunter. In other words, outbound M&As far exceeded their inbound. Stated more clearly, Indian companies acquired more business than they being targets. Table 5.3 gives details in support of the assertion.

136 International Human Resource Management TABLE 5.3 M&As Volume

Value ($ billion)

Type

2007

2008

2009

2010

2007

2008

2009

2010

Inbound

112

86

74

86

15.5

12.55

3.88

8.88

Outbound

243

196

82

187

32.76

13.19

1.38

21.31

Domestic

321

172

174

350

2.85

5.21

6.7

19.59

623

51

31

12

50

Total M&As 676 454 330 (Source: The Economic Times, Jan 16, 2011)

The year 2010 witnessed a total of 187 outbound deals involving as much as $21.31 billion; the biggest transaction struck was that of Airtel’s $10.7 billion acquisition of Zain Africa. The deals in 2010 were near the bench mark year 2007.

HRM COMES INTO THE PICTURE As observed earlier, failures in M&As occur because of the negligence of people related issues. Stated positively, people orientation generally can make a merger or an acquisition successful. In a recent Mckinsey study of international M&As, the four major factors identified by responding organisations as contributing to acquisition success are all people related: retention of key talent (identified by 76% of responding organisations); effective communication (71%); executive retention (67%); and cultural integration (51%). HR intervention should take place in all the phases of an acquisition or merger deal. The acquisition or merger process is typically divided into three stages: the initial planning stage; the closing of the deal; and the post-merger integration stage. In reality, HR intervention takes place at the final stage; although many of the issues raised and resolved at the first and second phases are people related, HR managers are not taken into confidence. Acquisition Strategies The extent of HR involvement in the acquisition process depends on the strategy behind the acquisition. Acquisition strategies may vary from a stand–alone deal to a post-merger total integration approach (see Fig. 5.1). Preservation If the strategy behind the acquisition is “stand-alone”, the acquired company will be allowed to retain its independence and cultural autonomy. This approach is adopted when the strategy is to get hold of talented management in the acquired company or other soft skills and retain them. Often, competitive advantage of the acquired company is dented when it tries to conform with the principles and procedures of the acquiring company. A stand-alone acquisition strategy seeks to avoid such an eventuality. Whatever the motive behind the stand-alone strategy, acquisitions of this type do not last long. Conditions of the deal notwithstanding, no acquiring company will be big-hearted enough to permit the target company to retain its identity forever. Expecting the parent company and the taken-over company to remain separate is like a marriage without consummation.4

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(Source: Anne-Wil Harzing and Joris Van Ruysseveldt, op. cit., p. 94). FIGURE 5.1

Strategies for Post-Merger Outcome

Absorption The deal in this strategy is straight—the acquired company becomes one with the acquirer. There is assimilation of one culture with another. These acquisitions are common, particularly when the acquired companies are performing poorly, or when the market conditions force consolidation as is the case with IT organisations in India. Several benefits fall out from absorption deals. Employees of the acquired company are the beneficiaries in terms of better compensation, job security and chances of promotion. Employees of the target company may be unhappy with the culture of their company. They hope that the acquisition will expose them to the more enlightened culture of the parent company. Best-of-Both This strategy is followed when the deal takes place between two equal partners. Best practices from both the partners are taken and are integrated. Deals between equals may not succeed for more than one reason. The process of decision making can be very complex. Is the authority for decision making split equally between the partners? Who will take the initiative? The success of the deal also depends on the ability to retain the best people from both the companies. Possible denial of the top jobs to the best people is likely to make them exit from the respective companies. The most successful deals between equals have been the Astra Zeneca and Exxon/Mobli. These mergers have proceeded smoothly because the similarities were more pronounced than the differences. The new groups have been relatively successful at identifying the best practices from each side, as well as at having a balance of top management from the two organisations (see Exhibit 5.2).

138 International Human Resource Management

Exhibit 5.2 When Chinese companies go global: An interview with Lenovo’s Mary Ma CFO Ma describes the unique challenges awaiting Chinese companies that seek growth through international acquisitions. Gordon Orr and Jane Xing Web exclusive, April 2007 In the six years since China joined the World Trade Organisation, Chinese acquisitions of businesses in other countries have increased sharply. Chinese officials estimate this “outbound foreign direct investment” at a mere $551 million in 2000 but at nearly $7 billion in 2005.1 That is only a fraction of the $60 billion2 or so of investment flowing annually into China, but it represents a growing number of Chinese companies scanning the horizon for opportunities to invest abroad. One of the most prominent examples of that trend was the 2005 acquisition of IBM’s personal-computer division by Lenovo Group, based in Hong Kong, for $1.2 billion. The success of this deal, heralded as a signal moment in China’s transition from a developing to an industrial economy, was due in no small part to Lenovo’s energetic senior vice president and CFO, Mary Ma. Before joining Lenovo, in 1990, Ma worked at the government-run Chinese Academy of Sciences, where she managed science and technology research projects jointly developed by Chinese and European organisations. She was also involved in the administration of World Bank loan projects to support research in China. Today Ma is widely recognised as one of her country’s most influential global executives. McKinsey’s Gordon Orr and Jane Xing recently visited Ma at Lenovo’s Beijing offices to discuss Chinese acquisitions abroad, the challenges of integrating companies across cultures, and the role of private-equity organisations in providing business experience. The Quarterly: Chinese companies are still relatively new to acquiring businesses abroad. Are they ready for international markets? Mary Ma: Chinese companies are better prepared to invest abroad than many people believe. People outside of China often think that China has protected its personal-computer industry for the past 10 or 20 years, which is not true. Fifty years ago, however, the government did protect companies in the information technology industry. Under the planned-economy system at that time, companies couldn’t manufacturer in China without a permit, and if they manufactured elsewhere, they had to pay a 45 percent to 50 percent tariff to import their products into China. As a result, companies that had permits were well protected from competition. When that system fell apart, Chinese companies suddenly had no protection at all, and they had to compete with international players in the China market. The silver lining, especially for Chinese IT companies and high-tech companies, is that they quickly had to learn to grow in a fully competitive environment, so they could leverage their strengths in efficient operations. That made some Chinese companies very competitive when they decided to go international. The Quarterly: Yet as we know, even two very skilled companies aren’t always a good fit when they merge. How much of a challenge is it to integrate a business outside of China? Mary Ma: It’s true, and cultural integration is still one of the biggest challenges. By this I don’t mean

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merely that an acquirer might have a different corporate culture than a company it acquires—that’s a different issue. Instead, we face the combined effect of different corporate cultures and the difference between the cultures of the East and the West. These East-West cultural differences are built into our identities from a very early age and affect the very basic ways that people interact. In the East, for example, the education system and the family and society shape the minds and behavior of young people in a way that is totally different from the West. Even today, students from age 5 go 25 sit formally in classrooms, attentively listening to teachers. They don’t ask questions, even when prompted. But classes in the West today are quite informal—students eating in class, sitting on their desks, and even debating ideas with their teachers. Those differences show up later in business meetings that include both Americans and Chinese, when our American friends are considerably more outspoken. But the Chinese will sit quietly and think, and then think some more. Only then will they prepare a presentation that spells out their thoughts. Many Chinese companies still don’t realize how much of a long-term effort is needed for cultural integration at this level. The Quarterly: How should Chinese companies prepare for that challenge? Mary Ma: The most important thing for a Chinese company is to grow big enough and strong enough in its home market—in China. Probably the biggest reason for the failure of international growth is that companies lack a certain critical mass at home. Without that, they will lack the level of strategic thinking needed to manage an international organisation, and they will lack managers with the necessary breadth and depth of experience. And this is purely about size; a smaller company’s management wouldn’t have the capability even to think about operating at a global scale, nor the capacity to absorb hundreds more people and managers. The depth of Lenovo’s management meant that we could sustain our success in China and still have managers available to go anywhere we needed them, as long as there wasn’t a language barrier. China is the place to build that experience; this is where a company will have the biggest advantage. Even if competition is severe, manages know the market very well and they have everything in their favour. The Quarterly: Should companies ever try to get an advantage in their home market by becoming global first? Mary Ma: Under certain circumstances, yes. There are some start-up companies in industries where China is not the right place to start. Take solar panels, for example; one or two Chinese companies are very big on solar panels, but there really isn’t much of a market for them in China. Such companies should probably start out overseas instead. Lenovo itself started with the international market, some 20 years ago, and then expanded into China in 1990. We wanted to manufacture PCs in China under the old permission-based system, but we couldn’t get a permit. So we started from Hong Kong. The goal was to show the government that we could be successful in international markets, so why couldn’t we also do that in China? The Quarterly: If companies have the choice of smaller acquisitions or organic growth versus big acquisitions, how should they think about making the trade-off? Mary Ma: It depends very much on the market of the industry in question and the company itself. In our first stage of international expansion at Lenovo, we were looking for some small acquisition. There were so many options that we finally just had to look back at ourselves—at what we really needed from an acquisition. We identified three reasons for going international. First, PCs are really a volume game, and we needed the advantages that come with scale. China was no longer a closed market, and we were selling four million units a year before the acquisition and competing with companies selling 24 million.

140 International Human Resource Management Second, many PCs are nearly identical, no matter who manufactures them, so we had been thinking about how to differentiate ourselves more. In part, differentiation means product innovation, making sure you have special features tailored to customer needs. So we really needed a technology team, research and development, and product specialists. But the small companies we looked at couldn’t help us on these points. Finally, we needed to leverage the skills of Lenovo’s management—which we also felt were better suited for a large acquisition than a small one. The Quarterly: Had you considered organic growth as well? Mary Ma: Yes, and that build-or-acquire question provoked an interesting debate for many months. Lenovo had been successful at organic growth since its establishment and achieved a leadership position in the PC industry in its home country. So in a purely self-developed organic company like Lenovo, people were asking why we should consider an inorganic approach. Again, it was a question of volume and differentiation and scale. We did a comparative valuation of whether we could use a similar amount of investment to achieve the same goals organically, but we decided we couldn’t. We didn’t have the experience at the international level. We also didn’t have the brand globally. Brand is also an important factor in deciding between a large versus a small acquisition, because with a lot of the smaller possible acquisitions, and with some other Chinese companies, you may buy brands that are really struggling. The Quarterly: The negotiations seem to have dragged out for some time. Why was that? Mary Ma: The terms of the auction emphasised strict nondisclosure, and that was a big factor. IBM was rightly concerned about what would happen if news of a deal were to leak out and the deal then fell through. But that wasn’t the only reason for the negotiations running so long. In large part, it was because several prospective buyers were bidding for the PC division. Also, negotiating so many items, even if only on price, can be quite difficult. Finally, the PC division was not itself a listed company. All the numbers and data and due diligence depended on the data they provided us. So we definitely had to take the time to understand that thoroughly. That meant separating everything—IT and finance and customer support and marketing—because they were all integrated closely into their parent company. We negotiated numerous agreements or contracts and subcontracts, because everything was interrelated. That takes time. The Quarterly: Right at the end, after you decided to do the deal, you chose to bring some private external investors into the process. What was the rationale for doing that, and how well do you feel it has gone? Mary Ma: One of our private-equity investors—we have two of them who are still with us—was actually among the possible buyers in negotiations with IBM at that time. In the end, they invested in our merged business instead of acquiring the PC division, which turned out to be good for both of us. Now, normally a private-equity organisation would want a controlling share; without control, it wouldn’t do a deal. But the first thing they said to me when we talked was, “For this deal, we’re not interested in a controlling share. We don’t want to take control; we just want to be an investor working together with management, with other shareholders, to make it successful.” They also agreed to work with us both at the board level and at the management level, providing any support we needed. The private-equity investors brought us more than funds. More importantly, they brought inside and experience. And during the negotiations for their investments—and in the 18 months since—we’ve found these private-equity investors play a very important role. First, they are very active at the board

HRM in Cross-Border Mergers and Acquisitions 141

level, especially on the strategy committee. Their role isn’t to lead or guide, but instead they are very active participants in our conversations about strategy and how an international business should play at this level. They’re also involved at the operational level; at the request of managers, they provide experts to work on manufacturing, the supply chain, and even on human resources. Probably few Chinese companies realize how important private-equity players can be Some would likely worry about working so closely with so many foreigners, but that’s probably a misunderstanding, because private-equity partners can provide a lot of support and guidance. The Quarterly: How did the involvement of private-equity organisations play with other investors? Mary Ma: The interest in Lenovo from two very prominent private equity investors really served as a vote of confidence in the company. Part of the challenge initially was that because Lenovo had been a Chinese- and Hong Kong-based company, our institutional investors and analysts had a hard time developing solid research reports on us with our expanded global presence. To address this, we worked to communicate with them about the global PC market picture. At the same time, we worked hard to introduce ourselves to New York analysts, many of whom hadn’t even known there was a Chinese company called Lenovo. Source: Gordon Orr is a partner in McKinsey’s Shanghai office, and Jane Xing is an associate principal in the Beijing office.

This article was first published in the Spring 2007 issue of McKinsey on Finance. Transformation In this, both the parties seek to shed their past and enter a new phase altogether. This kind of merger is most complex and most difficult to implement. But once achieved, this merger will last long. Reverse Merger A reverse merger involves the parent company adapting itself according to the requirements of the acquired company. The principles and practices of the acquired company will prevail after the deal. Reverse mergers may be found at least in some parts of a business. For example, if accounting practices of the acquired company are better than the parent organisation, such practices prevail in the post– merger stage. HR INTERVENTIONS We focus on the following cultural and people issues that will have a major impact on the success or failure of cross border M&A deals: 5 ∑ Composition of new board ∑ Who will occupy which job? ∑ Assessing culture ∑ Undertaking a human capital audit and selecting the management team ∑ Effective communication ∑ Retaining talent ∑ Creating the new culture ∑ Aligning performance evaluation and reward systems ∑ Managing the transition ∑ Integration (see Fig 5.2)

142 International Human Resource Management IHR Manager

C n e re a w t c

l as Cul se tural s sm ent

Manager

Manager

IHR

sition Tran men t age m an

M&A's

ita

t en n Tal ntio rete

IHR

Ne w ne w

le op pe jobs

g in ture ul

New board composition

C

o ca mmu tio nin

ap nc Humaaudit

IHR Manager

FIGURE 5.2

IHR Role in M&A’s

New Board Composition The post-merger business needs a board for decision making and the board shall comprise members representing both the organisations. Members of the new board should be change agents so that they can carry out the change process dictated by the merger. Often such top-level change is both symbolic and a signal of the changes to be made at lower levels. Board-level changes could also be inspirational for the rest of the organisation. This is particularly true where the merging partners had experienced performance problems, which triggered the merger.

Who Will Occupy Which Job? In any merger, there will be rival claims for senior executive positions such as CEO, VP, CFO, COO, heads of divisions and heads of departments. The choice of the right person for the right job is crucial as otherwise, the success of the merger will be jeopardised. Besides, the choice shall be a signal about the style, culture and intent of the new management. Choices based on predilections of the acquirer or on non-transparent processes will lead to perceptions of biases and lack of good faith. The disappointed managers may linger, nurturing resentment and grievance and slackening their commitment to the merged organisations or may even leave. Accent on merit is as important as the integrity of the process of managerial appointments.6

Assessing Culture The purpose of cultural assessment is to evaluate the factors that may influence the organisational compatability, to understand the future cultural dynamics as the deal takes place, and to prepare plans

HRM in Cross-Border Mergers and Acquisitions 143

of how the cultural issues should be addressed if the merger or acquisition goes through. Before a valid cultural integration strategy can be developed on the part of the acquiring company or the amalgamating organisations, a clear understanding of the prevailing cultures of both the units is necessary. But this requisite is often neglected in reality. While assessing the prevailing culture, focus is often diverted on cultural manifestations—artifacts and behaviours. These external manifestations do not reflect behind the screens dynamics that create them and sustain them. Obviously, an understanding of the external look of the organisational structures, the amount of work done by teams, subordinates addressing bosses by first names, executives getting coffee from vending machines, and partying with young subordinates policies, does not give a true understanding of the entire culture of the company. The assessment of the organisational culture needs to go beyond these peripheral issues. Answers to the following questions help assess true cultures: ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑

What are the core beliefs of organisations about what it takes to win? What drives their business strategy? Is the company short-term or long-term in its outlook and execution of initatives? How much risk is the company used to be accepting? Is the company result-oriented or process oriented? How is power distributed within the company? How are decisions made: through consultation, consensus or authority? How is information viewed and managed? What is the typology of valued employees?7

Human Capital Audit and Management Team The human capital audit needs to be focussed on two dimensions. One dimension is preventive, focussed on liabilities such as obligations, employee litigations and outstanding grievances. It also includes comparing the compensation policies, benefits and labour contracts of both the organisations. The second dimension refers to the talent audit which, in the long-run, would be critical for the success of a merger or acquisition deal. The following questions and their answers should form part of the HR audit. ∑ What unique skills do the employees have? ∑ How does the talent of the target company’s employees compare to the quality of the poacher? ∑ What is the background of the management team? ∑ What will happen if some of the executives leave? ∑ What is the compensation philosophy? ∑ How much pay is at risk at various levels of the organisations? ∑ What are the reporting relationships? ∑ How are decisions made?8 Talent audit is often ignored in M&A deals. More focus is on the financial performance data but not on skills embedded in people who are critical to the success of the deal. In the absence of a talent inventory, organisations acquire targets with weaker than expected skills or talent that is likely to fly away.

Effective Communication Any amount of writing on the role of communication does not amount to an overkill. Specifically, in cross border M or A, communication plays a critical role in several ways. First, it seeks to alleviate tensions among employees, particularly of the acquired company. ‘Merger syndromes’ do occur among employees. Fears such as layoffs—relocations, big fish—small fish attitudes, superiority—inferiority feelings and victory–vanquished perceptions do cause stress to the employees. Communication should help acquire coping

144 International Human Resource Management skills to deal with the stress arising out of the extraordinary organisational changes. Second, communication feeds the top management about the integration that should take place between the two partnering organisations. Finally, seniors management must communicate a vision throughout the company, one that is positive and guides the employees from both the previous organisations towards a new and better future.

Retaining Talent Retention of talent assumes relevance, particularly for the target company, as the competent employees tend to leave before or after the deal. It is also crucial if the deal is struck with a view to acquire a unique knowledge of the acquired employees—as is the case with many such deals in the high technology sector where companies use acquisitions to plug holes in their R&D portfolio or to quickly build new capabilities. The uncertainty during a merger or a takeover often makes senior managers leave. Others tend to leave because they regard the future envisaged by the merger or acquisition, in terms of culture, business model and compensation system, with suspicion. A merger is also the time when competitors attempt to capitalise on the uncertainty and lure away the “stars”. When Deutsche Bank acquired Bankers Trust, the entire telecom advisory group was poached by Credit Suisse First Boston (CSFB). Similarly, during the aftermath of the merger between Smith Kline Beecham and Glaxo Welcome, many leading scientists left the merged GSK to join rival organisations. As a first step towards talent retention, HR needs to identify those employees who are gifted with unique skills and capabilities. This is no easy task as the local managers of the acquired company try to protect the talents of their subordinates, or managers may not know who the performers are. Difficulties notwithstanding, talent needs to be identified by using multiple sources of assessment—feedback from direct superiors, peers and subordinates, past performance reviews, personal interviews and formal skills assessment. Second, talent having been identified, certain interventions like open and effective communication, financial incentives, one-to-one relationship with the executives of the acquirer, empowered positions and the like may be tried to avoid the flight of people. HR executives are stretching too far to retain talent. New interventions like “collapsible ESOPs”, “market premium bonus”, “staying on-bonus” and “forgivibility of loans” are very common across organisations. As the realisation dawns that people will be the key differentiators in the future, new ways for talent attraction and retention are being developed and practised with each passing day. 9 The above interventions should not stop during the euphoric days immediately after the deal. Junior employees may find the initial days of integration more exiting, but may depart later because they are not integrated into the leadership development of the new parent company.

Creating the New Culture Culture creation is significant in two ways: first, culture affects the performance of a business. Employees who share a culture are more likely to be united in their thoughts and actions, and such unity impacts performance. It helps a business to focus its resources, penetrate its markets, meet customer requirements, and to accomplish strategic goals. In general, the more thoroughly a culture is shared, the more likely that the business will be successful. Such a shared culture is all the more important for an organisation that has undergone massive change. The second assumption for culture creation is that the old ways are not new ways. Old habits and practices which were in place before the deal, may not be acceptable to the business after the merger or acquisition has taken place. Cultures that matched old business needs must give way to cultures that reflect the changing needs.10 In some acquisitions, buying organisations impose their cultures on the acquired companies, as happened when GE took over Amoco. GE perceived its success as originating from its culture and the practices built on

HRM in Cross-Border Mergers and Acquisitions 145

it. No wonder GE declares: “If you cannot adapt to our culture, don’t put up yourself for sale.” Alternatively, acquiring a ‘culture’ may be one of the critical strategies behind an acquisition. The management of the acquiring company realises that its culture needs a change, but cannot do so organically. Here the acquisition motive is not to expand business, but to bring about a new culture in the mother company. Culture creation needs to take place in stages, sequenced logically thus: (i) Articulate the way culture change is central to business success, (ii) Commit top management for culture change, (iii) Identify alternative approaches to create culture, and (iv) Zero in on one appropriate strategy and implement it. Culture, as stated above, binds organisational members together. The united culture can become the fingerprint of an organisation. These fingerprints become the means by which customers, suppliers, employees and investors identify an organisation, and assure it with a market with wide acceptance. Founder and top executive Pat Kelly of the US based PSS World Medical, attributes his company’s success primarily to its corporate culture, which is based on the idea of personal responsibility and binding an environment characterised by honesty, trust, and mutual respect. Top management’s commitment to create the culture is all the more significant. Leading executives such as Jack Welch at GE and Arthur Martinez at Sears stress the criticality of culture for the success of their businesses and for their personal success as CEOs. Life Insurance Corporation of India is a classic example of organisational transformation that has taken place due to a strong culture. Identification of approaches for culture creation is equally critical. Three approaches to culture change may be stated in this context: top-down, bottom-up and side-to-side process (see Fig. 5.3).11

Top-down (Directive)

Bottom-up (Empowerment)

Side-to-Side Process (Reengineering)

(Source: Dave Ulrich, Human Resource Champions, p. 179) FIGURE 5.3

Types of Culture Change

In the top-down directive approach, the top management sponsors culture change initiatives and these are then implemented by HR processes such as hiring, training, compensating and corporate wide communication. Several of the successful cases of culture change owe their success to the directive approach. Xerox, Boeing and Motorola are but only a few examples. In the empowerment approach, employees point out the gaps prevailing in the company’s culture and also suggest ways of filling the voids. The bottom-up approach is more than a mere suggestion system in which employees offer random suggestions for improvement; it is focussed on translating a specific mindset into specific employee behaviour. It is more than a series of isolated discussion groups, each offering different opinions about how to improve work. The approach comprises activities that empower employees to act according to the new culture. Jack Welch at GE typically adopted the bottom-up approach to usher in a new culture. He empowered thousands of employees to identify items needing change and changed them immediately. The side-to-side approach to culture change involves examining and re-engineering business processes for doing work. Process re-engineering examines how work is done, then systematically improves the processes for doing work by streamlining operations, leveraging automation, reducing redundancies and improving the line of sight between work flow and customers. Pepsi is one organisation which implemented the side-to-side approach with highly positive results. The soft drink maker identified 16 core processes within the organisation (for instance, ordering, distributing and the like) and then worked aggressively to

146 International Human Resource Management streamline these processes. Process approaches to culture change assume that as processes are examined and reengineered, the new processes will bring with them a new culture. New culture created through reengineering processes stays forever. Each of the three approaches to new culture creation have their own strengths, along with some weaknesses. Organisations need to try all the three approaches but in reality, they tumble on one to the exclusion or the other two. A holistic approach—using all the three—shall fetch better results. When the three approaches are used together, a sustained culture change will emerge. Table 5.4 offers some useful HR interventions to make mergers and acquisitions develop new culture. TABLE 5.4

HR Interventions to Develop New Culture

Issues Acculturation

Individualism vs Collectivism

Power Distance

Masculinity vs Femininity Time Perception

Truth vs Virtue

Language

Internal Communication

Decision Making

Enterprise Loyalty and Layoff System

Reward and Salary Systems

Labour Unions

HR Interventions Blend the cultures Achieve harmonisation of the cultures by keeping benefits of each Learn more about the cultures of the partnering companies Promote the individuals according to their performance Keep the benefits of the old systems Promote group and corporate performance Create family feeling Keep the double hierarchy within acquiring organisation Promote individual initiatives Promote contacts between the top management and their subordinates Offer more manager positions to females Give the same salary to male and female for the same job Develop a short-term orientation with a partner, if it hails from a society having long term orientation Create clear schedule and guidelines about the objectives Train and teach managers and engineers from both companies Send more to y and more y to x Create a mutual understanding More English courses for the employees Good frequency of these courses Motivate especially the top managers to attend these courses Develop the frequency of discussions between partners Include the acquired in the decision-making process Clarify the objectives and inform about the investments Make the organisation flatter to speed up the decision-making process Develop an understanding of the changes Reduce the pace of the layoffs within acquired work force Use other methods such as anticipated retirement instead of layoff Create a strong family atmosphere with more social activities Keep the double hierarchy Promote and reward more employees according to their performance Reward group and corporate performance too Set salaries at least as high as the competitors Develop the communication with acquired labour unions Create a feeling of trust between the acquired and the unions.

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Aligning Performance Appraisal and Reward Systems Aligning performance measurement and reward systems is a challenging task particularly when the two organisations have different systems and the staff of one of the parties is adversely affected by the change. Where US organisations are involved, disparities in remuneration system are bound to exist in crossborder acquisitions, as they rely on stock options and performance linked incentive schemes. When Daimler-Benz merged with Chrysler in 1998, there were glaring differences in the compensation arrangements between the American managers and their German counterparts. Challenges notwithstanding, a parity between compensation systems needs to be brought about as that would help create a unified culture.

Managing the Transition Transition occurs immediately after the deal and before a new team of managers is in place. Integration managers are expected to manage the transition. They are supported by transition teams. Certain tasks are cut out for the integration managers. First, the integration manager is expected to guide the integration process, making sure that critical decisions are made and activities are put in place according to an agreed schedule. He or she should also champion norms and behaviours consistent with new standards, communicate key messages across the new organisation and identify new value adding opportunities. Second, the integration manager needs to educate the bought-out company about how the new manager operates and what it can offer in terms of capabilities. He or she can help forge social connections among the people of both the partners, enable acquired company’s employees to understand the language of the parent and its ways of doing things. The integration manager can also help the parent understand the acquired business and what it can contribute. Third, the integration manager needs to act as an arbiter between the two companies and thwart the tendency of the parent to act big and enact the “big-fish-eat-small fish” syndrome. Often, alliances fail because the acquirer has a tendency to act as a winner and treat the acquired as vanquished. Fourth, the integration manager and the transition team need to serve as a role model for how the new organisation should act. They should disseminate the shared vision and make sure that practices are appropriately aligned with the vision. In reality, too many task forces and teams slow things down, creating coordination problems, conflict and criticism. Care should be exercised to avoid such possibilities.

Managing Waves M&As set-off waves of change in the acquired and the acquiring companies. Unless the waves are managed, business suffers as a result of employee uncertainty and because senior executives concentrate their time on the mergers which might prove detrimental to the existing business. Typically, anxiety is highest at the time of the merger announcement and when the job losses are notified (see Fig 5.4). It is advisable to allow employees to ‘grieve’ the losses brought about by the merger (as well as celebrate the new opportunities). When anxiety is very high, rumour mill will have a field day. People wonder how they will be affected, if at all and what their own prospects will look like in the new organisation. They are on the alert to signs, such as which company gets the lion’s share of the best appointments, which indicate their likely fortune. Employees are hungry for information and this is typically where formal communications are at a standstill.12 It is pointed out that over 40 percent of the changes take place in the first two months.

148 International Human Resource Management Anxiety level Announcement Job losses New structure

Relocation Appointments

Working in new teams Pay and conditions

‘Run-up’

‘Transition’

‘Integration’

‘Closure’

Time

(Source: Linda Holbeche, op.cit, p. 405) FIGURE 5.4

Typical Emotional Waves Following a Merger

In the immediate transition, major events include the appointment of a new board of directors and key appointments/redundancies. As the structure emerges, different groups are affected at different times. Often senior managers have been through their own anxiety and emerged as winners at the end. Their focus may be on the next key business issues and it may be difficult for them to appreciate the anxieties of people working in a front-line role who are being affected by restructuring in some cases up to two years after the merger. Other key points at which employee anxiety is high are decisions about which head office will be used, especially where relocation is involved, and when terms and conditions are integrated. Head-office staffs are often the first to be affected by an early decision to close down an office. Field staff may wait for some time before the merging companies rationalise their outlets. Communication alone is not enough-mergers need managing, especially the personnel issues. The way difficult personnel issues such as redundancies are handled will have a long-term effect on the morale of survivors and be a telling indication of the values of the new organisation. New appointments must be seen to be fair and employees traded with dignity. Personnel processes should be documented and decisions should be open to scrutiny. The longer-term integration phase is often the period during which sites are closed or merged and staff are informed about relocations. New terms and conditions may be announced. Often a more fundamental revision of practices and structures takes place.13

Need for Integration The final discussion on HR interventions in M & A’s is to bring in integration. Integration is the critical requirement for the success of a merger or acquisition. Alternatively called fusion, integration involves capturing the hidden synergies by swapping and leveraging capabilities between the partners. This is achieved by dissolving both the partners and creating a new company, as with Novartis, which was found through the merger of Ciba-Geigy and Sandoz in 1996, to create a global life sciences giant.

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HR executives of iGATE were involved at every stage of its acquisition of Patni Computers in 2010. The HR managers of the acquirer and the acquired ensured that there was perfect integration of 25000 employees (19000 of Patni and 6000 iGATE). Though it was not easy informing the staff of Patni that their company had been bought out, HR officials ensured that all the employees were informed about the deal well ahead-even before the external stakeholders. Within minutes of the announcement, employees received mails from the CEO; power-point presentations were made explaining the benefits of the acquisition, and timelines for various activities were also made known. Discussion forums, Town Hall meetings and teleconferences were also set up. Wipro has acquired 21 companies till date starting with Spectra Mind in 2002 and Nerve Wire in 2003 and in all the buyouts, HR department played critical role to ensure integration. In 2005, the IT major formed a global workforce team to guarantee smooth transition during acquisitions. During later acquisitions, Wipro ensured that the HR team of the target company stayed at least 3 to 6 months to ensure perfect integration. The employees of any acquired company are made to sit through assessment tests to ensure they understood the parent company and its culture better. Integration is critical to make the acquisition successful. A September 2010 study by Mercer, entitled ‘Asia on the Byside’, of 155 senior executives from Asia-based MNCs involved in cross-border acquisitions, showed that 35 percent of respondents identified human capital integration as the most important issue during any acquisition. Only 23 percent felt financial reporting integration was significant.

HR ROLE – A CHECKLIST HR function has a key role to play in a merger. Involvement should begin in the run-up phase. Early identification of sensitive issues can reduce their impact over time. Pay and conditions can become a huge issue and in many cases are dealt with early in the transition period. Without a strategic perspective, the HR team is likely to be overtaken by a host of operational and mechanical issues which must be dealt with. Having said that, time must be set aside to work with directors and individuals on the critical HR issues. Help from consultants may well enable HR teams to focus their energies strategically during a critical period. Some of the critical contributions which HR can make are as follows:14 (A) Being involved in planning, transition and integration teams • Enable both the teams to handle the merger issue as a project, keeping the core business intact. HR professionals need to lend needed expertise for the purpose. • Establish rapport with the planning team of the other company in the pre-merger phase, if possible. • Foster clear communication between the negotiating and transition teams. • Ensure that a framework is in place for managing different phases of the merger. • Ensure that people from both the companies get to know each other well. • Make sure that the vision of the emerging organisation is committed to all. • Take a ‘best of both’ rather than ‘equal shares’ or ‘acquirer dominates’ approach to decide who has which roles, and which working practices are adopted. • Decide fair principles on the handling of redundancies. (B) Identifying the HR issues and carrying out an effective HR due diligence can be achieved in the following ways. • Comparing service conditions, compensation structures, severance terms and other related matters in terms of immediate and future commitments. • Collecting details about the management teams – how critical they are, and what happens to them post merger.

150 International Human Resource Management

(C)

(D)

(E)

(F)

• How about the available skills of the present HR professionals? Will they be adequate to coordinate proposed changes to the business? • Understanding the present and the proposed future organisation structures. • What HR plan will be required to implement new business strategies? • Spotting core individuals and securing commitments from them to stay with the new company. • Identifying dead wood and planning for their early retirements. • Isolating jobs that might need redesign, new descriptions and new specifications. • Comparing present styles of working and identifying major differences that need to be tackled. • Taking a look at the existing office space, locations and the need for closures/relocations. • How about industrial relations in the new company? Are the employees unionised? If yes, what is its bargaining strength? Is the union anti-management? Is the management anti-labour? • Prevailing cultures in both the organisations. Merging organisations may be completed in days/ months. But merging cultures is time consuming and often a frustrating experience. • Agreeing on a clear communication plan for the first 100 days, what clear central message will be sent to all employees? Effective HR integration covering the following key areas: • Service terms and conditions • Compensation structures • Benefits • Retirement benefits • Promotions, transfers, leaves • Career and other development issues • Organisational culture and management styles • Communication and climate • Industrial relations Ensuring that management teams possess the skills needed to manage the merger well: • Inter-personal skills that help understand the anxieties, reactions and concerns of employees and support them through the change process. • Strategic management skills that help add edge and value to the new business. • Cultural skills that help understand dynamics of organisational culture, deal with culture clashes, build new culture and sustain it. • Change management skills-being able to bring people together through change. • Integration skills-being able to make decisions about structure, roles and dealing with critical situations. Helping line managers to communicate effectively during the transition phase: Managers also have a key role in sustaining communications about the merger process to all employees even when there is ‘no news’. Given the symbolic importance of senior management behaviour, managers may need practical help in understanding how to communicate to employees from both companies in the early days. Managers may need to be made aware of the symbolic power of language to help or hinder the merger process. They may need to recognise that a merger is likely to be an emotional issue for employees and that employees need to be communicated with and convinced of the benefits at an emotional and not simply at rational level. Managing individuals with dignity: Chief executives, often action-oriented, are keen to get through the difficult business of reorganisation and job loss as quickly as possible. Speed is helpful as long as it does not compromise dealing with staff fairly and treating them with dignity. The handling of key changes for individuals such

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as—job changes, appointments and relocations as well as exits, sets the tone for how staff view the new organisation. Handling redundancies inappropriately usually results in a morale backlash among ‘survivors’. (G) Developing and implementing actions to retain key employees: Good people have to stay if the two organisations are to learn from each other’s strengths. Line managers need to identify and keep close to key staff at all levels and actively involve them in the merger process. If such people are neglected in the early months, they often quit. Some organisations develop retention strategies which involve some sort of inducements such as ‘golden handcuffs’ to encourage people to stay. There appears to be some evidence that, even without financial incentives and firm guarantees, letting people know that they are valued and quickly finding ways of using their talent in the new organisation can be sufficient encouragement for some. (H) Keeping the top in touch with the bottom: HR is uniquely placed to build in upward feedback to keep the boardroom in touch with what is really going on in an organisation. Understanding and managing people’s perceptions and expectations are vital to promoting a healthy emergent organisation. The culture of the new organisation begins from day one, not when vision and values statements start to appear. This is where the special skills of trainers can come into their own. Typically, trainers have good communication skills and are in touch with the ‘mood’ of employees who are attending courses. Trainers who are able to understand the business dynamics and the sensitivities involved in creating a new culture can provide a useful steer to line managers who are charged with communications in the early days post-merger. (I) Helping to clarify roles: Once the shape of the new organisation becomes clear, people may need help in clarifying their roles, knowing where they fit in the organisation’s purpose and how to be successful in the new set-up. This may require them to learn new skills or adjust their working practices. Briefings for line managers and some training for individuals may be necessary. Typically, in the early days of merger a number of temporary policies and short-term priorities are identified. Line managers often need a basic set of ‘tool kit’ training sessions which are short and focused. These can help build up managers’ confidences where responsibility, reporting lines and roles still remain ill-defined.

SUMMARY International businesses either set up green field projects, enter strategic alliances or acquire existing units as part of their diversification/expansion strategies. A common growth path adopted by MNCs is inorganic growth—through mergers and acquisitions. A merger occurs when two organisations of equal size unite to form a new unit wherein the two organisations lose their identity and a new organisation comes into picture in place of the two. Amalgamation is another term used to describe a merger, but the usage is mainly confined to the accounting subject. Conglomerate mergers take place when the two organisations operate in different industries. Where the buyout is forced on the target, it becomes a hostile take-over. Hostile acquisitions generally involve poorly performing businesses. When a small business owner chooses to merge with or sell out to another company, it is sometimes called “harvesting” the small business. In this situation, the transaction is intended to release the value locked up in the small business for the benefit of its owners and investors. In general, mergers and acquisitions are performed in the hopes of realising economic gains. For any merger or take-over to be justified, the two organisations involved must be worth more together than they were individually.

152 International Human Resource Management Failures in M&As occur because of the negligence of people related issues. Stated positively, people orientation generally makes a merger or acquisition successful. HR intervention should take place in all the phases of an acquisition or merger deal. The following cultural and people issues have a major impact on the success or failure of cross border M&A deals: Assessing culture; undertaking a human capital audit and selecting the management team; effective communication; retaining talent; creating the new culture; managing the transition and bringing in integration between the partners. HR checklist is highly useful in managing merger or acquisition.

CLOSING CASE

More Problems Than Solutions

It was March 27, 1999. For the first time in the history of business, a Japanese and a French company had come together and set up a joint project. Renault is a French Company and Nissan has its origin in Japan. Both are known for distinct corporate cultures and brand identity. Both companies share a single joint strategy of profitable growth and a community of interests. Renault holds a 44.3 per cent stake in Nissan, while Nissan owns 15 per cent of Renault shares. Each company has a direct interest in the results of its partner. The partnering between Renault and Nissan has everything going in its favour. As stated above, the partners have a synergy for having a culture, identity and common interests. There are also strong geographical and operating strengths and complimentarities. A charter signed by both the companies sets out the principles of shared ambition, mutual trust, respect for each partner’s identity and balance between the two partners, completed by operating and confidentiality rules. But the new outfit brought more problems than solutions. Before the partnership, Nissan was a typical Japanese company with a collectivist approach. Within Nissan, only group performances were supposed to create values, individual performances were discouraged. The board of Nissan comprised more than 30 members, and thus, it was very slow to make efficient decisions in a fast changing environment. Besides, the communication between the top management and their subordinates was quite difficult, direct contacts were not common. There were lots of intermediaries between the subordinates and the top management, which was also a means to avoid individual initiative. Nissan, as most of the Japanese companies, was part of a large Keiretsu, which implies several subcontractors, subsidiaries and suppliers. This system allowed the company to share the risks with others; in fact, this phenomenon was related to the high level of uncertainty avoidance of the company. A strong family atmosphere was present within the company to encourage group performance. Moreover, this feeling was increased by the existence of the life-time employment security within Nissan. Thus, enterprise loyalty was also considered to be high. Employees were supposed to stay all their lives within the same company. As in the Japanese society, Nissan was a male organisation, which means that manager positions were offered to males. However, due to the partnership, lots of upheavals have been made within the Nissan organisation. The arrival of C.Ghosn (CEO of Renault) and his team at the board of Nissan has lead to several important changes in the whole company. One of the first actions of Renault was to reduce the horizontal contacts that Nissan had within its Keiretsu. Nissan had to get rid of many of its sub-contractors and suppliers; this will allow Nissan to realise lots of savings. Nissan’s board has also been reduced to ten members in order to make it faster and more efficient to make decisions. According to Renault, the board should be limited to a small number of members. Since the partnership, Renault is striving to shift Nissan’s approach to a more

HRM in Cross-Border Mergers and Acquisitions 153

individualistic one. Renault has changed the senirority-based promotion system for a performance-based system. By this means, Renault hopes to encourage individual initiatives that were not common with the old system. In addition to encouraging individual initiatives, Renault is making Nissan’s organisation flatter to ease the contacts between the top management and their subordinates. Another important change is the introduction of female managers in Nissan’s management. Indeed, Renault has sent some of its female managers to occupy managerial positions within Nissan. This action has the objective of changing the mind-set of the Japanese managers about females. Several conflicts exist between the two partners. Firstly, it is clear that for the Japanese employees, the existence of a family atmosphere within their organisation is of high importance. For them, the company is another family. Yet, for the moment, since the beginning of the partnership and the entrance of Renault’s managers onto Nissan’s board, the Japanese employees have been having the feeling of having lost their family atmosphere. They do not feel as comfortable within Nissan as they used to do. Hence, Renault has not succeeded in keeping this atmosphere. Second, there exists a problem of communication between Renault’s top management and Nissan’s. The frustration among Nissan employees has increased steadily since the deal. They do not know what Renault really stands for and what its objectives are in its partnership with Nissan. Moreover, some managers feel frustrated and opposed to the entry of Renault representatives on Nissan’s board. These managers are old timers, and for them, individual initiatives are not appreciated. For them employees should only be promoted according to their seniority. But this problem of communication is also caused by the language difference. Even if the official language of the partnership is English and this can lead to misunderstandings between French and Japanese employees who are working together and co-operating. Third, Renault should give more attention to Nissan capabilities and include them more into the decisionmaking process. Japanese employees are not familiar enough with the French company and its methods; training and seminars should be implemented to make it clearer. Fourth, the main task for Renault is to create a united culture. This needs to have a common language, which is English. It is important that all the managers and most of the employees know English, to avoid discrimination by the language and frustration among the non-English speaking employees.

Case Questions 1. What problems did the partnership bring to the partnering companies? 2. What strategies do you suggest to Renault make the deal successful. 3. Recollect the conversation cited in the beginning of this chapter. Do you think Mihir Desai would support the partnership between Renault and Nissan? Why or why not?

Key Terms Amalgamation Chaebol Conglomerate Human Capital Audit

Integration Keiretsu Merger Zaibatsu

HR checklist

Review Questions 1. 2. 3. 4. 5.

Differentiate between a merger, a conglomerate and an acquisition. What is a hostile acquisition and what could be its HR challenges? What is ‘harvesting’? How do the two participating organisations benefit from it? Discuss the common HR interventions that determine the success/failure of an M&A deal. What is the role of HR in managing the new culture during cross-cultural mergers?

154 International Human Resource Management

Assignments 1. Break into groups of five to seven students. Identify one recent multinational merger/acquisition/harvesting that is well documented. Deliberate and discuss. ∑ What are the business objectives that made it happen? How did the organisation benefit from the activity? ∑ What are the IHR challenges it faced? ∑ What are some possible HR strategies that are critical to its success Present it to the larger group. 2. Break into groups of five and identify a recent merger or acquisition that failed and de-merged. Deliberate and discuss ∑ What are the business objectives that made it happen? How did the organisation benefit from the activity? ∑ What are the IHR challenges it faced? ∑ What are some possible HR strategies that are critical to its success? Discuss in the larger group.

References 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Arthus A. Thomson Jr et al., Crafting and Executing Strategy, TMH, 2005, p 147. Fred R. David, Strategic Management, Pearson, 2003, p 181. The Economic Times, Feb.17, 2006. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage, 2004, p 94–97. Ibid, pp 98–107. Sudi Sudarsanam, Creating Value from Mergers and Acquisitions, Pearson, 2003, p 537. Anne-Wil Harzing and Joris Van Ruysseveldt, op. cit. pp 99–100. Ibid, p. 101. Ibid, pp. 96. Ibid, p. 99. Dave Ulrich, Human Resource Champions, Harvard Business School Press, 1997, p. 179. Linda Holbecha, Aligning Human Resources and Business Strategy, Elsevier, 2004, p 404. Ibid, p 405. Ibid, pp 414–419.

SECTION III

CHAPTER

6 STAFFING OF INTERNATIONAL BUSINESS Learning Objectives After reading this chapter, you should be able to ∑ Understand international human resources planning ∑ Describe the issues faced in employee selection and staffing in MNCs ∑ Understand expatriate failure and managing expatriation ∑ Identify emerging trends in international staffing*

156 International Human Resource Management

OPENING CASE Huge markets for products and services are not the only things that enticing companies to enter the global arena is something we studied in Chapter 1. The foreign labour market is a source of immense interest. In the year 2000 growth rates, the labour force in developing nations alone will expand by about 700 million people by the year 2010, while the US labour force will grow by only 75 million. Uncontested research statistics indicate that opportunities for productivity growth are much greater in developing countries. Between 1996 and 2000, for example, US productivity increased by about three per cent and Mexico’s by more than six per cent. The reasons for these differences in productivity potential are many, but simple demographics tell much of the story. The workforce is generally older in developed countries and younger in developing countries. Furthermore, education levels are rising more rapidly in developing countries. For example, in 1970, less than 25 per cent of all college students were from developing countries. Today, about 50 per cent of all college students are from developing countries. 50 per cent of Indians are less than 25 years of age. For employers seeking flexible and adaptable workers, the young and newly educated workforce in developing countries are particularly attractive. Thus, it is not surprising that many organisations headquartered in developed countries now have a large proportion of their workforce located elsewhere. For example: ∑ ∑ ∑ ∑

The Ford Motor Company has half its employees outside the United States. Philips Electronics, N. V., has three-fourths of its employees working outside The Netherlands. More than half of Matsushita Electric’s employees are outside Japan. Just over half of L. M. Ericsson’s staff works outside Sweden.

The same is happening in other developed countries such as Germany, and at an increasing rate. This is due in large part to the huge wage cost disparities that exist between Germany and the world. The figures support the estimate made by BMW that labour costs are between 30 and 40 per cent less in Spartanburg, S.C. than in Munich, Germany. Clearly, for many organisations, developing a global perspective as far as staffing is concerned is no longer just an option, it’s a mandatory requirement for sustained growth and existence. HR managers help their organisation’s transition into the arena of more intense worldwide as well as domestic resourcing. Recruitment and selection for an MNC is one of the most challenging HR activities today. The very success of business in a host location is dependent on the efforts that have gone into hiring the right person for the right job, at the right time. This chapter focusses on selection of candidates for overseas assignment, their failure and how to minimise failures. Hiring of local citizens for different positions in the head office and citizens of the host country to staff a subsidiary is done in the same way as recruiting and selecting for domestic business. Hence, these dimensions are dealt with briefly in this chapter.

HUMAN RESOURCE PLANNING The first step in staffing involves Human Resource Planning (HRP), which is understood as the process of forecasting an international organisation’s future demand for and supply of, the right type of people in the right numbers. The HRP process is closely linked to the business plan of the MNC. Corporate planning includes managerial activities that set the company’s objectives for the future and determine the appropriate means for achieving these objectives. HRP facilitates the realisation of the organisation’s objectives by providing the right type and the right number of personnel. The core purpose of global organisations to operate efficiently is easily met by having an effective human resource plan. The ability to offset high cost resources in a particular country with lower cost resources in another country

Staffing of International Business 157

without compromising on skill and competency, is a key advantage of a global organisation. Therefore, the activity of human resource planning takes on significant importance and assumes greater relevance in international businesses where efficient utilisation of human resources is necessary to realise strategic global objectives. But the implementation of HRP procedures may be difficult in some host countries than in others. In cultures where people are viewed as being basically subjugated to nature, there is very little need for HRP. The implementation of extensive HRP systems in such cultures would be met with bewilderment at best and significant resistance at worst. Likewise, societies that are oriented towards the present would not view long-term planning as valuable. In societies oriented towards the past, planning would tend to focus on purely historical data and the use of these data in predicting future HR needs. Such an approach might be appropriate for organisations that operate in relatively stable environments, but might not work well for companies operating in highly dynamic external factors, where the past has little to do with the future.1 Six other key issues in international HRP are as follows: 1. Identifying top management potential early. 2. Identifying critical success factors for future international managers. 3. Providing developmental opportunities. 4. Tracking and maintaining commitment to individuals in their international career paths. 5. Tying strategic business planning to HRP and vice-versa. 6. Dealing with multiple business units while attempting to achieve globally and regionally focussed (e.g. European or Asian) strategies.2

RECRUITMENT AND SELECTION With HRP taken care of, the next challenge for the international HR manager is to proceed with the job of hiring the right number of resources with required competencies. He or she must not only select resources with the right skills, but also employees who can fit-in with the organisation’s culture. General Electric, for example, is not just hiring people who have skills required to perform particular jobs, it aims to hire employees globally whose styles, beliefs and value systems are consistent with those of the organisation.

Issues in Employee Selection The following four issues are relevant in the context of staffing global businesses. (See Fig. 6.1.) ∑ Linking staffing plans with the evolution of the MNC ∑ Staffing orientation ∑ Managing expatriates ∑ Female expatriates Staffing orientation

Linkage between Staffing and growth of an MNC Staffing MNCs

Female expatriates

FIGURE 6.1

Managing Managing expatriates Expatriates

Issues in International Recruitment and Selection

158 International Human Resource Management Linking Staffing Plans with the Evolution of an MNC Staffing strategies differ based on the life cycle of the MNC. Table 6.1 identifies the staffing challenges and role of the parent unit, as the host unit evolves into a mature organisation. TABLE 6.1

Linkage of Staffing Plans to Phases in the Evolution of a Multinational Enterprise

Stage in Unit life cycle Setting up the host unit

Staffing impetus Focussed staffing challenges; pace is slow and micromanaged as the senior management team is put together

Hiring headcounts Normally 5–20

Staffing approach Usually an ethnocentric or a geocentric approach as the ‘management team’ is put together Hiring headcount Polycentric approach normally 20–200 is preferred as the unit sets up its own operational teams

Role of parent MNC Closely and carefully monitored by the parent MNC; literally handpicked

Establishing the technology team to begin core operational activities

Unit staffing challenges are stepped-up; hiring focusses on obtaining individuals with high emphasis on competency; common vendor linkages with placement consultants and RPO’s (Recruitment Process Outsourcing)

Full-blown operations of the host unit with significant role in establishing global objectives and targets

Increased staffing challenges as hiring targets are stepped up, focus shifts to numbers, competencies receive reduced focuss as in-house skills development initiatives are established; newer linkages with third party like colleges, vocational institutes and training institutions

Hiring headcount varies between 200–1000 depending on nature of business

Distinctly polycentric approach as achievement of unit objectives becomes significantly self-contained

Role of parent unit is minimal. Focus on global framework for hiring, leaving the rest to the unit management.

Strong operational leadership at the unit level while globally consolidating with parent

Move to volume hiring as unit’s global contributions are clear; focus on referral hiring; establishing long term liaisons with educational and training institutions

Hiring headcounts are steeper between 500–10000 depending on nature of business

Distinctly polycentric approach; could get to geocentric approach as labour costs provide the competitive advantage for the achievement of global objectives

Role of parent unit is at a strategic level, taking decisions to optimise global operating costs

Role of the parent unit is somewhat reduced as the responsibility of the newly structured unit takes shape

Staffing Orientation Staffing orientations include ethnocentric, polycentric, regiocentric and geocentric approaches. Each orientation has its own strengths and weaknesses as explained in Chapter 2. Of the four approaches, geocentric orientation represents the hallmark of an MNC. But pursuing a geocentric policy may be difficult (as explained in Chapter 2) but commitment from top management is what will drive the organisation to become truly global.

Staffing of International Business 159

An international business generally hires employees from the host-country where the subsidiary is located (HCNs), parent-country nationals where head office is situated (PCNs) and third-country nationals (TCNs) where the business has neither operating facilities nor headquarters being established.

HCNs When an MNC adopts a polycentric approach for staffing, host country nationals are hired to staff subsidiary activities. Qualifications for managers from the host country follow mostly local practices. But to communicate with the MNC headquarters, host country managers often need the ability to speak and write in the home country’s national language.3 It is not that organisations hiring host country nationals totally ignore home country citizens. Such multinationals usually place home country managers in top management or technical positions. The key objective for these managers is to control overseas operations or to transfer technology to host country operations. For example, MNCs operating in East Asia and Australia, generally appoint host country managers, as staffing with expatriates is too expensive. Staffing organisations with host country nationals has advantages in as much as these managers are familiar with the local cultural needs, involve a lower cost in hiring and maintaining, and there is continuity in management as locals stay longer in their positions. There are some disadvantages associated with the hiring of host country citizens. There arises, for example, difficulty in exercising an effective control over subsidiary operations. In addition, hiring HCNs may encourage a federation of nationals rather than global units. PCNs An MNC following an ethnocentric orientation prefers to bring managers from home country to head operations in the subsidiary. Key managerial and technical positions are held by PCNs. Local employees fill only lower-level and supporting jobs. Sony Corporation’s operations in the US typically follows this approach. Sony Corporation of America, a wholly owned subsidiary of Sony Corporation, handles local HR issues, but top executives at the organisation’s operations across the US are Japanese managers. Hiring PCNs has both advantages as well as disadvantages. Among the advantages are: Familiarity with home country’s goals and objectives and easy organisational control and coordination. Disadvantages include difficulty in responding to local cultural needs and denial of promotional opportunities to locals. TCNs Bosch is a German automaker which hires TCNs. Its 1,80,000 employees are divided almost equally between Germany, and rest of the world. Its board of directors has representatives from various countries, including a US citizen who is a CEO of one of Bosch’s largest divisions. Employees of different countries are often involved in hiring decisions. On the plant floor at Bosch, it is not always easy to tell to which country an employee belongs.4 Organisations, as is with Bosch, that follow a geocentric staffing policy, hire people mainly from third country nations where neither subsidiaries nor headquarters are located. Recruitment and selection take place worldwide, whereby the most competent employees can be identified. The fit of the manager to the requirements of the job outweights any consideration of the individual’s country of origin or country of job assignment. Obviously, capable managers adapt easily to different cultures and are usually bilingual or multilingual. In addition, international assignment becomes a pre-requisite for a successful managerial career in organisations with geocentric orientation. The HR function becomes highly complicated in a company which adopts a geocentric orientation to staffing. Every aspect of the HRM process—planning, hiring, apprarisal, training and compensation—needs to be undertaken from an international perspective. Each foreign subsidiary needs its own self-contained HR unit to handle all ongoing employee issues. As with PCNs and HCNs, hiring TCNs has both merits as well as demerits. Advantages of TCNs include: better talent pool, development of international expertise, and help in building pan-global culture. More expenses and difficulty of importing managerial and technical employees are the main drawbacks of depending on TCNs. Table 6.2 brings out the merits and demerits of HCNs, PCNs and TCNs more clearly.

160 International Human Resource Management TABLE 6.2

The Advantages and Disadvantages of using PCNs, HCNs and TCNs Advantages

PCNs

Disadvantages

Familiarity with home office goals, objectives, policies and practices

Difficulty in adapting to the foreign language and the socio-economic, political, cultural and legal environment

Easy organisational control and coordination

Excessive cost of selecting, training, and maintaining expatriate managers and their families abroad

Promising managers are given international exposure. PCNs are the best people for international assignments because of special skills and experiences

Promotional opportunities for HCNs are limited

PCNs may impose an inappropriate HQ style Compensation for PCNs and HCNs may differ Family adjustment problems, especially concerning unemployed spouses

HCNs

Familiarity with the socio-economic, political and legal environment, and with business practices in the host country

Difficulty in exercising effective control over the subsidiary’s operations

Lower cost incurred in hiring them as compared to PCNs and TCNs

Communication difficulties in dealing with home-office personnel

Promotional opportunities for locals and consequently, their motivation and commitment

Lack of opportunities for the home country’s nationals to gain international and cross- cultural experience

Responds effectively to the host country’s demands for localisation of the subsidiary’s operations

HCNs have limited career opportunity outside the subsidiary

Languages and other barriers are eliminated

Hiring HCNs may encourage a federation of nationals rather than global units

Continuity of management improves since HCNs stay longer in positions Salary and benefit requirements may be lower than of PCNs TCNs

TCNs may be better informed than PCNs about the countries of assignment

Host country government may resent hiring TCNs (Contd.)

Staffing of International Business 161

TABLE 6.2

(Contd.) Advantages

Disadvantages

TCNs are truly international managers

TCNs may not want to return to their own countries after assignment Host country’s sensitivity with respect to nationals of specific countries is missing HCNs are impeded in their efforts to upgrade their own ranks and assume responsible positions in the multinational subsidiaries

HCNs or PCNs? Keeping aside TCNs, what is the choice between HCNs and PCNs for heading subsidiaries in foreign locations? Table 6.3 summarises the factors influencing the choice. The factors fall into four categories: Parent country characteristics, industry characteristics, subsidiary characteristics and host country variables.5 TABLE 6.3 (A) Parent country characteristics

(B) Industry characteristics (C) Subsidiary characteristics

(D) Host country variables

Factors Favouring PCNs or HCNs Uncertainty avoidance, cultural distance between parent unit and subsidiary, size of operations, research intensity Financial institutions, need for control, need to customise Age, acquired or green field project, performance, ownership pattern Education level, political risk, cost of living

With regard to the parent country/company characteristics, MNCs from countries with a national culture that seems high on uncertainty avoidance (read Chapter 2) have a higher tendency to employ PCNs as heads of subsidiaries. Parent companies prefer to wield total control over subsidiaries and this predilection is better served by appointing own people as heads of subsidiaries. Direct control of subsidiary operations will also be more important if the level of cultural distance between home and host country is high. PCNs might fear that HCNs are not committed to the company. Size is positively related to the preference of PCNs. Larger MNCs have more PCNs as heads of subsidiaries since they have more managerial resources and are more likely to have a formal management development programme globally. Similarly, MNCs that are more research intensive tend to deploy talent from the head office to subsidiaries so that locals may be trained. With regard to industry characteristics, the tendency is to have more PCNs as heads of subsidiaries in banking, security brokering and publishing and printing industries. Low percentage of PCNs are found in advertising, computing, electronics and food processing industries. The need to exercise greater control and the need to understand local needs force the dominance of PCNs in banking and their low presence in advertising industries respectively. Subsidiary characteristics too influence the selection of PCNs or HCNs. The age of the subsidiary may not influence the choice between PCNs or HCNs to head subsidiaries. But a newly set up subsidiary may attract a PCN to establish policies and procedures. Where a subsidiary is acquired, the choice is to retain the HCNs. If the subsidiary occupies a strategic role, the tendency is to depute PCNs to ensure united control.

162 International Human Resource Management Fully owned subsidiaries are more important to headquarters than those that are minority-owned- ones. Finally, control of subsidiary will be more important when a subsidiary is underperforming, and a direct headquarters intervention through a PCN is necessary. Host country variables comprise education level, political risk and cost of living. Where the education level in a host country is lower, qualified managers may not be available. PCNs need to be expatriated to fill the gap. Further, a high level of political risk in the host country is likely to make direct control through PCNs more important. It also makes the speed and clarity of communication allowed by the use of PCNs of vital importance. Where cost of living in the host country is lower, it is advantageous to employ HCNs for top positions in subsidiaries. Low cost of living has been a prime factor in making India an attractive destination for foreign direct investment. The recent hike in salaries of chief executives however, adds to the challenge. This might affect the low-cost advantage status the country has enjoyed so far. If the cost of living in the host country is higher, it may not be advisable to depute PCNs as they demand extra compensation to accept the assignments. Local managers have adjusted better to the high cost of living and would not demand additional compensation. Managing Expatriates An organisation having PCNs and TCNs shall have potential expatriates. An expatriate (expat in acronym) is an individual who works anywhere but not in his or her own country of origin. With increasing globalisation, companies need to depute more and more employees to work overseas and have expats on their payroll (see Table 6.4). TABLE 6.4

Swadeshi, No, Videshi, Yes: Expats in Indian Companies

Expat Carl-Peter Forster (German) Ralf Spetch (German) Team of Germans Two US Nationals Marten Pieters (Dutchman) Carol Borghesi (Canada) David Nishball (US) Joachim Horn (US) Anterco Malkki Russel Berman Anderon Derby Gwyn Sundhagul (and 14 others), Thailand Woffgang Prock-Schauer Schauer (Austrian) Nikos Kardassis (American) Gustav Baldauf (Austrian) 100 Expats Martha Bejar

Company and Designation CEO with Tata Motors Engineers at Bajaj Auto Executives at Mahindra & Mahindra Vodafone Essar Ltd Director-Customer Services, Bharti Airtel Heading Enterprise Service Division at Bharti Airtel Executive Director Network Services, Bharti Airtel CEO at Welspun Stahl Rohren Ltd. CEO at Aditya Birla Retail Overseeing supermarkets Business at Aditya Birla Retail Reliance Retail Ltd. CEO at Jet Airways (2003-09) CEO at Jet Airways COO at National Aviation Co. Middle and Senior Level Managers at Infosys Head Global Sales and Operations at WIPRO

Total expatriates in India as on Dec 31, 2008 – 20,394 Total expatriates in China in 2003 – 150,000 (Source: Mint, May 17, 2010)

India is attracting more and more expats as MNCs having subsidiaries here view the country as strategically critical. Market leaders such as Nokia, LG, Suzuki, IBM, Huawie and Samsung have seen the number of

Staffing of International Business 163

expats in their Indian subsidiaries swell. Nokia has nearly 100 Finns at key positions in India, Samsung has 25 Koreans, LG has 30 Koreans , Maruti has 15 Japanese and Huawie has 125 Chinese (numbers are approximate) working at their operations in India. When to expatriate is a tough task for an IHR manager because, many overseas assignees fail and come back to the home country before completing their respective assignments. Whom to identify to work in a foreign land, is the issue which needs to be answered satisfactorily. A few guidelines would help identify potential expats. First is the willingness and enthusiasm of a person to work on overseas assignments. It makes no sense in pushing an unwilling individual to accept an overseas assignment. By nature, some individuals are averse to travelling. They express reluctance to travel even within a given country. Travelling long distances on foreign assignments and staying in a foreign country are almost anathema to them. Second, identify potential expats by looking at their background—are they multiculturists themselves— people who claim themselves as citizens, not of one country, but of the world. The person could perferably be multiculturist, multilinguist and multifunctionalist (See Exhibit 6.1).

Exhibit 6.1

John Deere’s Competitive Advantage

The John Deere Co., the second oldest company in the United States, sees its foreign-born employees as an integral part of its worldwide organisation. They’re implanted, almost as a kind of yeast, into the workforce. They broaden the company’s perspective, enabling it to see beyond the dominant cultures wherever they have operations. The company is organisationly convinced that this helps it to maintain a competitive advantage as the diversity of its customer base continues to grow worldwide. Adel Zakaria, an Egyptian-born, naturalised American, is a bonafide example of this new breed of manager for global organisations like John Deere. He’s extremely well qualified technically—an industrial engineer with postgraduate work and several degrees. But best of all, he fits the multicultural and multilingual and multifunctional criteria. He’s a manager who can do more than one job, in more than one language, in more than one country. Zakaria is very aware of the process that has put him where he is today—at the head of the largest plant in the world, the Waterloo Works, owned by the diversified manufacturer of farm equipment and appliances founded in 1837. Zakaria was born into a minority status in his own country. A Coptic Christian, in the overwhelmingly Muslim country of Egypt, he has been dealing with issues of prejudice and persecution since grade school and has evolved an effective world view. “I came to this country [the US] in 1968 when I was 19 years old. I had a mechanical engineering degree from Ain Shams (Eye of the Sun) University in Cairo, and a desire to pursue my graduate studies.” Zakaria is an early example of the gold collar worker of today, highly skilled and highly sought after employees with advanced degrees from other countries, who have done research in technical fields. Zakaria says, “Those of us from smaller countries are usually more international in outlook. We have to be to survive. Some people I meet may unconsciously label me as a foreigner. But I refuse to be alienated. I’m a fully naturalised American with great respect for the rights and privileges I enjoy here. People make assumptions when they hear my accent and ask me, ‘Where are you from?’ And when I say, ‘Waterloo, Iowa,’ they say, ‘Before that?’ Then I say, ‘Quad Cities’ and they start showing signs of frustration. ‘No, I mean before that!’ and I answer, ‘Buffalo, NY,’ before I finally tell them I was born in Egypt.... We [foreign-born employees] must not allow others to alienate us.” He implies that if native-born Americans paid closer attention to the overall process of acculturation (which we can learn from the foreigners who live and study in the United States—we don’t necessarily

164 International Human Resource Management have to travel abroad to acquire this sensitivity), we could learn more about the specifics of what works and what doesn’t, with which groups, and why. And then, when we needed to do the adapting— for example, to the different preferences of customers in other countries—we’d already have some practice. Zakaria went to work for John Deere at a time when they were going through major expansion into global markets, and he had opportunities to work with some of the organisation’s early global visionaries. The corporate engineering staff of which he was a part, travelled to projects throughout the world, modernising and expanding facilities in many manufacturing locations. And now Zakaria is one of the organisation’s executives who carries that vision forward. Whether speaking to business school students in Iowa universities or visiting John Deere plants in Europe and Asia or dealing with the Taiwanese, Indian, Mexican, and other foreign-born employees right here in the United States, Zakaria works with the many levels of diversity in a completely natural way. He’s internationalised it to the point that it is second nature to him. It is managers and employees like Adel Zakaria that will continue to give John Deere its competitive advantage in its global marketplace. Third, do the individuals, who are being identified as expats, possess appropriate skills for the positions overseas? True, organisations offer pre-departure training for expats. But such a training may not outweigh the advantage of possessing the skills. Fourth, the family background of the individual also needs to be considered while shortlisting potential expats. Most male assignees are generally married and tend to be accompanied by their families, while most women expats are likely to be single and unaccompanied. Whatever the position, there is no meaning in forcing an employee to accept a foreign assignment when his or her spouse is unwilling to accompany because of his or her own career prospects being adversely affected, or when such postings disrupt children’s education. Assuming the spouse is willing to cooperate and children’s education is not an issue, expatriating such employees is an expensive proposition. Fifth, local laws of host countries often come in the way of expat postings. Some countries have strict restrictions on foreigners taking employment. Temporary work visas may be difficult or impossible for employees to obtain and this exacerbates the problem. Finally, there is the element of ‘cost’ that drives the decision to staff with HCN’s rather than PCNs. If expatriation is inevitable, the need to calculate cost-effectiveness differentials, negotiating competitive compensation packages, relocation costs, providing support with relocation with reference to packing and shipping of belongings, and locating suitable residence are required to be done. Organisations like HP have outsourced the re-location to third party vendors who provide complete support to employees relocating on international assignments, beginning with packing and freighting to opening bank accounts in the new country, identifying a suitable residence, admission information to schools and educational institutions, city maps-they take care of most of the perceived downsides of relocating. It is also common place to provide appropriate training to the employee and, if possible, to the family, on cultural orientation and country specific information and the like. The general impression gained by a reader is that expatriates are assigned from home country to host countries. Not necessarily always. Expatriates may be sent from a subsidiary in a host country to head office in the home country. This process is called inpatriation. In 2004, for example, HUL sent 10 managers to Unilever, with the number rising to 18 in 2005, 31 in 2006, 28 in 2007 and 40 in 2008. A crippling recession in the US and Europe is forcing Unilever to replicate strategies and insights gained by its subsidiaries in developing countries. While shortlisting a candidate, it is critical to go beyond a simple cost-benefit analysis and understand how a particular candidate would fit the role. Table 6.5 outlines the criteria which would strengthen a staffing decision.

Staffing of International Business 165

TABLE 6.5 Asia-Pacific Most important criterion Second most important criterion Least important criterion Second least important criterion

Regional Selection Criteria

Skills or competencies

Europe and the Middle East Skills or competencies

The Americas

Japan

Skills or competencies

Job performance

Job performance

Job performance

Job performance

Job level

Marital status

Marital status

Marital status

Projected assignment cost for the individual

Language ability

Projected assignment cost for the individual

Language ability

Marital status

Source: ORC Worldwide’s Survey of International Assignment Policies and Practices.

If the individual is not a good match in terms of temperament and skills, but the company is desperate to fill the position and decides to send the individual on the assignment, it is only a matter of time before trouble begins. Selection Criteria for International Staffing

Final selection of candidates out of the short-listed names needs to be made with care. Several studies have been conducted to identify the requisites a foreign assignee should possess, if he or she were to be successful as an expat. One such study was made by Tung in 1981. After an extensive review of literature on the selection of expats, the researcher identified eighteen variables and grouped them into four categories: technical competence, relational skills, ability to cope with variables and family situation. Technical Competence Technical skills are of paramount importance to perform sucessfully in his or her job. This is particularly true in an expat who is located away from the headquarters and any advice or help in case of doubt is not easily available. Relational Skills This refers to the ability of the individual to deal effectively with his/her superiors, peers, subordinates and clients. This requisite becomes all the most critical in an expat who needs to function in an alien environment. Relational skills include multicultural sensitivity, interpersonal skills and language and communication skills. Ability to Cope with Environmental Variables In the domestic situation, environment comprises political-legal, cultural, technological and economic factors. Knowledge about these factors is essential for a manager to be successful. In an international context, the cultural environment of the host country is more significant. The expat should be knowledgeable about the host country nationals, their tastes, attitudes, beliefs, practices, customs and manners. Knowledge about international laws adds to the competitive strength of the expat. International managers of today need to see the world not just as a collection of national markets, but also as a source of scarce information, knowledge and expertise—the key resources required in the development and diffusion of innovation worldwide.

166 International Human Resource Management The global manager should be open-minded. This trait helps him or her come out of a parochial mindset and ask such questions as, “What is that we could learn from the leading-edge environmental trends in Germany? Or the most sophisticated consumers in Japan? Or from our toughest competitor who happens to be coming at us out of India?” Just as important as openmindedness is the ability of the global manager to legitimise diversity. Diversity does not mean managing gender differences. It is about the total perspective. It is about legitimising diverse views in an organisation, including those based on cultural differences. Family Situation This refers to the ability of the expat’s family to adjust to living in the foreign environment.

This factor determines the performance or lack of it of the assignee. Another insightful study was made by Mark Mendenhall and Gary Oddou in 1985. The two researchers identified four major dimensions that could influence an expat’s selection and adjustment. These dimensions are: ∑ Self orientation includes activities that contribute to the expat’s self-confidence, self-esteem and mental hygiene. ∑ Others orientation consists of activities and attributes that enhance the expat’s ability to interact effectively with host citizens and develop lasting friendships and close relationships with them and acculturate more easily in overseas assignments. ∑ Perceptual dimension is concerned with the ability of expats to understand why foreign nationals behave the way they do and the ability to make correct attributions about the causes for host-nationals’ behaviour.

FIGURE 6.2

Criteria for Expat Selection

Staffing of International Business 167

∑ Cultural toughness dimension refers to the situation rather than to people. Cultural toughness can modify the importance of the first three dimensions. In culturally tough countries (countries that are culturally very different from the home country), the first three dimensions became even more important than in culturally similar countries. For example, American expatriates assigned to a small village in Kerala shall have a tougher time in adjusting than if they had been assigned to Sydney in Australia, where the locals’ culture is identical and they too speak English. Lessons drawn from these and other studies boil down to specific criteria as Fig. 6.2 contains, to select expats. The criteria listed in Fig. 6.2 are self-explanatory. A more recent and integrated model is proposed by Ronen’s Model6 which is based on Tung’s findings. It incorporates five kinds of predictors for a successful international assignment, as shown in Table 6.6 and elaborated further. TABLE 6.6 Job Factors Technical skills

Categories of Attributes of Expatriate Success

Relational Dimensions Tolerance for ambiguity

Motivational State Belief in the mission

Family Situation Willingness of spouse to live abroad

Language Skills Host country language

Non-verbal communication

Familiarity with host country and headquarters operations

Behavioural flexibility

Congruence with career path

Adaptive and supportive spouse

Managerial skills

Non-judgementalism

Interest in overseas experience

Stable marriage

Administrative competence

Cultural empathy and low ethnocentrism Interpersonal skills

Interest in specific host country culture Willingness to acquire new patterns of behaviour and attitudes

Source: Chew, J. (2004). Managing MNC Expatriates through Crises: A Challenge for Internationl Human Resource Management. Research and Practice in Human Resource Management, 12(2), p. 6. Retrieved October 10, 2005, from http://rphrm.curtin.edu.au/2004/issue2/expats.html. Job Factors

Job factors are similar to the technical competence required in Tung’s findings. It includes relevant skills that need to be assessed, which include technical skills—specific to the expat role, familiarity with working in a HQ host unit set-up, basic managerial skills to lead the team in a cohesive and collaborative manner, and general administrative capability to organise and drive unit level functions and activities. Relational Dimensions

This dimension deals with aspects of personal characteristics in Tung’s framework, focussing on the assessment of the culture-fit of the individual to the particular assignment and country of relocation. Tolerance for ambiguity as the ability to endure uncertainty when in a new country, keep calm in stressful situations, behavioural flexibility or the ability to change personal behaviours to adapt to different situations, non-judgementalism or an unbiased attitude in dealing with different cultures and situations, willingness

168 International Human Resource Management to assimilate appropriate opinions and ideas from local employees, cultural empathy or the capacity to be interested in people from other cultures, and to imagine how others think, feel and act, which alleviate the expatriate’s culture shock experienced in the host country and his or her interpersonal skills are critical in interacting with host nationals and establish relationships with them. These traits are similar to the ‘others oriented-dimension’ of Mendenhall and Oddou’s model. Motivational State

The motivational state is a measure of the individual’s psychological preparedness and interest in the assignment. The belief that drives the individual as he or she comes across challenges in carrying out the strategic as well as day-to-day activities of the unit, connect/disconnect that the individual experiences in relation to what is expected of him or her in the role vs. what he or she personally wishes to achieve, general interest in working in other countries and gathering experience, particular interest in the specific country of assignment and a natural appreciation for diversity in values, behaviour, and belief systems that drive attitudes in different cultures are important considerations. Family Situation

Family situation is also inherited from Tung’s theory. Family requirements are highly interrelated to the expatriates’ adjustment in the new environment. The spouse’s willingness to relocate, openness, supportiveness and ability to adapt to a culture different from own, and the stability of the marriage are some indicators that help measure family preparedness. Language Skills

Differences in language are considered as a main obstacle for the communication of people from different countries or areas, and also a reason for culture shock. In addition to host country language, non-verbal communication is also very important. The social anthropologist Edward T. Hall claims that 60% of all our communication is non-verbal. However, gestures and expressions are different or even mean totally opposite things in different countries or areas. In many countries, nodding the head up and down means “yes”, whereas, this gesture means “no” in Bulgaria, Greece, Yugoslavia, Turkey, Iran and Bangladesh. Therefore, people having a good mastery of body language can avoid many misleading situations in the new culture. We discussed above three frameworks based on research to enable a fair and objective assessment of a candidate’s suitability for an international assignment. Organisations in reality use a combination of these factors to assess individuals for such opportunities. And the organisation culture determines what factors are more critical than others. Once chosen, the candidate (and often the entire family) needs to be provided with support and information required to enable a smooth transition into the role. This support is critical to the success of the expat and in turn, the success of the host unit as well. And the amount of assistance provided depends on the location of the assignment and duration of stay. The MNC needs to— ∑ Provide culture and language orientation to make the unfamiliar become a little less strange. ∑ Authorise pre-assignment visits for the expatriate and spouse so that they can find appropriate accommodation, explore the host city and surrounding environs and investigate schools and shopping. ∑ Encourage the family to involve the children in the discussion on educational options.

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∑ Provide local contact information so that the family will be welcomed on arrival. A combination of company expatriates and new local colleagues can be very beneficial, along with the advice of a destination service provider. According to the 2003 Global Survey of Expatriate Housing Policies, conducted jointly by ORC Worldwide, the MIGroup and WorldWide ERC, 83.8% of the participants provide destination services to their employees who are locating to another country. ∑ Assign home-country mentors who are familiar with the challenges of expatriation, to help guide the employee during the assignment. Have the two meet before the relocation happens. ∑ Provide EAP (Employee Assistance Programme) at the host location, should there be a crisis, so that the employee has a contact person that he or she can approach. ∑ Provide an explicit job description so that the employee knows precisely what is expected, thus minimising insecurity about vaguely described position responsibilities. Reporting relationships and peer positions within the unit are also important details that can be provided to the employee in advance. ∑ Inform the family, prior to their acceptance of the move, of expected hardship conditions so that they can prepare themselves beforehand. (See Exhibit 6.2 for the hardships factors.)

Exhibit 6.2

Common Hardship Factors

∑ Housing—availability and quality of expatriate housing, limitations due to crime or security considerations, reliability of utilities; ∑ Climate and physical conditions—conditions of excessive temperature or weather, risk of major climatic problems or natural disasters; ∑ Pollution—severity of atmospheric, water, radiation and noise pollution; ∑ Diseases and sanitation—health risks, public sanitation, need for food or water treatment; ∑ Medical facilities—availability and quality of health care facilities and medical staff; ∑ Educational facilities—availability of quality schools for expatriate children; ∑ Infrastructure—quality and reliability of telecommunication, mail, utilities, road conditions; ∑ Physical remoteness—geographic isolation, travel systems; ∑ Political violence and repression—risk of violence, terrorist activities, government repression; ∑ Political and social environment—freedom of expression, human rights, intolerance, corruption and poverty levels; ∑ Crime—risk to person and property, police force; ∑ Communication—use of major world languages, media availability and censorship; ∑ Cultural and recreational facilities—availability and range of sports facilities, theatre and so on; ∑ Availability of goods and services—availability and quality of food supplies, clothing and grocery; There is an increasing trend of the process of expatriation being outsourced to specialist consultant groups who help in this process. Causes for Expatriate Failure

One of the problems confronting IHR professional is to manage the expat failure. Expat failure means that the assignee returns to the home country or resigns from the job before the international assignment is completed. Globally, the expat failure rate varies between 25% and 40%, and varies from country to country. Many of the US based MNCs, for instance, have 10% to 40% failure rates, with less than five percent failure rate in Japanese and European organisations.

170 International Human Resource Management Reasons for expat failures are many but the major causes seem to be personal inability of the assignee himself or herself to adjust and other family problems. Table 6.7 contains the reasons for expat failures in the US and Japanese based MNCs. Inadequate induction programmes, differences in operating and decision making styles, companies urge to cut costs, long hours, lower productivity and quality orientation, lack of respect for privacy and personal space, unfocused agendas of meetings, politicised work environment, high cost of living, poor infrastructural – particularly power and roads, are the other factors causing expat failures. TABLE 6.7

Reasons for Expatriate Failure (in descending order of criticality)

US Organisations ∑ ∑ ∑ ∑ ∑

Inability of spouse to adjust Manager’s inability to adjust Other family reasons Manager’s personal or emotional maturity Inability to cope with larger international responsibilities

Japanese Organisations ∑ Inability to cope with larger international responsibilities ∑ Difficulties with new environment ∑ Personal or emotional problems ∑ Lack of technical competence ∑ Inability of spouse to adjust India is unique in another sense. From things as small as pronunciation of local names to the heat and dust, the sight of cows and elephants ambling lazily on crowded city streets to more frustrating issues such as religious faiths and superstitions, poor infrastructure and bureaucratic red tape, India is a big challenge for expatriates. Universally, the critical cause for expat failures is the “soft issue”—impact of culture. Culture has its impact on several behavioural nuisances of the expatriate, both off-the-job and on-the-job. While issues of punctuality, greetings, dress, gift giving, negotiating and conducting meetings belong to the first, the second includes socialising, celebrating festivals and events, and the like. Failure to understand and adjust to these by the assignee and by his or her spouse is one of the most impacting factors contributing to a premature return of the assignee. An expat’s adjustment to the local culture typically comprises three stages (See Fig. 6.3). The U-shaped curve starts with a high, suggesting that the expat enjoys a great deal of excitement, as he or she discovers in the new culture. This stage is called the tourist stage. Business travellers, as compared with expatriates, often have the luxury of remaining at this stage. This initial phase is followed by a period of disillusionment (second stage) in which the expat faces depression as the difficulties with the new culture become clear. These difficulties include inability to converse in the local language, problems in obtaining certain products and food supplies of personal preference, homesickness and the like. At this stage, the curve hits a low and is characterised by what is called culture shock. The expat feels strangely discerned, uncertain, out of place and even fearful when culture shock hits him or her. Established norms of behaviour are disrupted and the more routines are disrupted, the more severe is the culture shock. In addition, the more critical to routine that is disrupted, greater the mental energy that is required to adjust, and greater the frustration, anxiety and anger. Culture shock is a critical stage, and

Staffing of International Business 171

how the individual copes with the psychological adjustment in this phase has significant impact on his or her success or failure.

1

3

2

FIGURE 6.3

Culture Shock Cycle

If culture shock is handled successfully, the expat enters the third stage, which may be called the adapting or adjustment phase. He or she begins to feel more certain, positive, confident, works more effectively and has learned to cope with the diversity challenges. While culture shock continues to be the main reason for expat failure, ultimately, all roads lead to the ‘selection rigour.’ The IHR manager’s role in picking up the right candidate for international assignment is equally critical in deciding success or failure. Expat failure results in high cost. It is estimated that the cost of sending a failed manager and his or her family back home is around US$250,000. In addition, the indirect costs of such failures are substantial. The tangible costs of expat failure can be easily measured in money value as it includes relocation to host country, high salaries, training for the assignment, support provided to spouse and family members and restaffing the positions. The intangible costs can be understood as loss of business and industry/government contacts and liaisons, company’s reputation being at stake, impact on the host unit’s operations and morale of employees; in addition, the expat’s own sense of failure, status with peers and impact on the emotional behaviour of the family of the expat. An early return is not necessarily an accurate measure of expatriate failure, because ineffective assignees might remain overseas and cause even more harm to their organisations. There are also expatriates who satisfactorily complete their overseas assignment but, dissatisfied with their new position, or with their projected career path, leave the company within two years. This attrition rate has been estimated as high as 22 per cent during the first year after repatriation and a further 22 per cent in the second year, depriving the organisation of the assets of a trained and experienced employee and creating the additional cost to the organisation of recruiting and training replacements.6(a)

Managing Expatriate Failure Proper selection ensures expatriate success. In the past, organisations were less systematic in either selection or in providing CCT. But MNCs are aware of the need for careful selection and proper training. Hiring and training of expats are now better managed.

172 International Human Resource Management Below are a few practical guidelines that would help minimise expat failures: ∑ Design a job that maximises role clarity, minimises role conflict and compensates for role novelty with proper selection of a candidate with high level of international experience. ∑ Use discerning measures for selection of international employees and their companions. ∑ Educate native and foreign employees in intercultural communication competence. ∑ Provide opportunity for language lessons. ∑ Provide a technical assistant to help with the details of starting life in a different culture. ∑ Provide all information and equipment pertinent to the role/work of the employee. ∑ Create open, frequent communication with the home organisation to dispel feelings of abandonment and to ensure a favourable position upon returning. ∑ Create opportunities for positive social interactions in order to communicate and become better acquainted with host country members and with other people in the same situation. ∑ Mostly, listen to them. ∑ Provide proper organisational support systems, both through logistical support and support from supervisors and co-workers in the host country. ∑ Include spouse in any training and support programmes (see also Exhibit 6.3).

Exhibit 6.3 20-point checklist to prepare employers better for the expatriate hiring process 1. Prepare a hiring plan that is well-structured, candid and in-depth, identifying the factors of attraction as well as the potential negatives of getting an expatriate on board. 2. The person who you hire will deal with a lot more of the unknown than you will. Give the expatriate time to develop an understanding of the situation and to ask all the questions, many of which have not yet been framed in the person’s mind. 3. Too many times, a good hiring process is put at risk by top management taking the eyes off the goal post before the match ends. After the hiring, energies are at a low and the process is left to others to execute, but top management staying involved will deliver better results. 4. You are evaluating the person, but your prospective employee is also evaluating you. Being accurate and transparent about your teams will help the person better evaluate his/her ability to work with you. 5. Perceptions are the reality at all times. Managing the organisations perception vis-a-vis the value proposition of the expatriate and the arising compensation differential is critical and will impact stability faster than you think. 6. Flexibility is more important than money. Thinking salary premium is good, but that is not all. Articulate the value expectation and then compensate for that value to derive the maximum dividend. 7. You know the role intimately, the person has only read a page. Take time to talk about the role in the way you see it. The benefits can be amazing. 8. Think again if you believe the family is the person’s issue. Sure it is an issue the person must address, but do you want to leave it unattended? Keep it top of the mind and be innovative. It could be an asset or a problem that is best recognised early.

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9. The obvious is not so obvious. Most Indian companies do their homework on areas like compensation structuring, risk mitigation and relocation and take their eyes off the main problem. Identify the problem and solve it; it might make a candidate accept many other terms that you set. 10. Avoid the value destroyers. Use contracts to say what you mean and don’t say what you don’t. “This is how contracts are in India” is not an excuse that cuts much ice. 11. Look for genuinely global experience. Remember, all talent that is sitting in Western Europe and North America is not global unless it comes from a global company. 12. Evaluate emerging market experience. An expatriate who has worked in countries similar to India (in terms of infrastructure, say Brazil or Indonesia) will be a better fit for working in India. 13. Too many “firsts” can be minus. A person with many firsts to deal with - first-time CEO, first-time joint venture, first-time outside the UK – can be a recipe for failure. 14. Look for India connect beyond the obvious – through holiday travel, business dealings, past experience, family connections and many more. 15. Should have relevant leadership experience. Mistakes include hiring mature people from mature companies; they have not invented things from scratch. They look for procedures, but there are none. 16. The expatriate has an advantage if he/she comes from an industry where their nation has made a mark. 17. Look for adaptability and learning abilities. Sensitivity is the key; lessons learned and personal qualities are often more important than job knowledge. 18. Make sure that the person you hire is a positive solution finder and not just a problem finder. If you don’t, you might be saddled with a person who complains too much about the work and the workplace. 19. A global mindset is more important than global experience. If the person has worked in a global company, he or she has been exposed to a different culture and could be rotated through various cultures and responsibilities. 20. Add then much more. Look for qualities such as these: married to an Indian, sense of humour, robust, sensitive, high degree of social sensitivity, moral courage to take a stand, no arrogance, resilient. (Source: Amrop India)

It is advisable for MNCs to phase out expatriates and to minimise dependence on them. At initial stages, home-country citizens may be sent to set up facilities and to work with local governments. At later stages, the MNC would do well to depend on host country nationals (See Fig. 6.4).

Dependence

HCNs

PCNs

Time

FIGURE 6.4

Shift in Staffing Over Time

174 International Human Resource Management At least three reasons justify this trend. ∑ Hiring local citizens is less costly ∑ Comply with host country government requirements ∑ Host country citizens appreciate local culture better. But the decision to do away expats may not be wise. Expatriates do offer several benefits to the organisations as Table 6.8 shows. The table contains obstacles also. TABLE 6.8

Frequently Mentioned Obstacles and Benefits of a Global Staffing System

Obstacles to a Global Staffing System

∑ Legal requirements across countries/regions ∑ ∑ ∑ ∑ ∑

Benefits of Global Staffing System

∑ Global database of qualified talent

Educational systems across countries/regions Economic conditions across countires/regions

∑ Quick identification of candidates to meet needs

Ability to acquire and use technology Labor market variations

∑ Provision of a consistent message about the

Value differences across cultures

∑ Quality of all hires is ensured

of a specific location. company to candidates worldwide.

∑ Availability of off-the shelf translated tools ∑ Level of HR experience varies across regions

∑ Better understanding of country/regional needs

Role of HR in hiring varies across regions

∑ Global succession planning is enabled ∑ Global HR personnel have access to the latest

∑ ∑ ∑ ∑

Familiarity with a tool or practice varies Misperceptions that something is a cultural difference Limited local resources for implementation

∑ Beliefs about whether a global system is U.S centric or imposed

by all HR staff

versions of products/tools

∑ Shared vision of HR globally ∑ Comparisons of staffing results across locations ∑ Global databse as an internal benchmark of achievement in different parts of the world

(Source: Darin Wiechmann, et.al, “Designing and Implementing Global Staffing Systems–Part 1”. Human Resource Management, Spring 2003, p. 82)

Female Expats Expatriates need not be males always, though the trend points out to male domination. In the GMAC-GRS 2002 survey, it was found out that 18 per cent of the overseas assignees were females, and it was 14 per cent in the ORC 2002 survey.7 The number of females, however is increasing. Going away from expatriation, feminising workforce is on the rise. Women employees in the organised sector in India numbered 5.31 million in 2007 up from 4.92 m in 2000. Emerging world is becoming the world of businesswomen. Seven of the 14 women identified on Forbes magazine’s list of self-made billionaires are Chinese. In China, 32% of senior managers are female, compared with 32% in America and 19% in the U.K. In India, 11% of chief executives of large companies are female, compared with 3% of Fortune 500 bosses in America. In Brazil, 11% of chief executives and 30% of senior executives are women. Young, middle class women are overtaking their male peers where it comes to education. In the UAE, 65% of university graduates are female. In Brazil and China the figures are 60% and 47% respectively. In Russia, 57% of the colleage-age women are enrolled in tertiary education and men constitute only 43%. Business schools are feminising fast. Some 33% of students at the China Europe International Business School (CEIBS) in Shanghai and 26% at the Indian School of Business are female. But traditionally, expatriation has been a male bastion. Several reasons account for minimal presence of females in foreign assignments—motivation, stereotyping, capabilities, family constraints, organisational processes and host country attitudes. (See Fig. 6.5).

Staffing of International Business 175

Lack of Motivation Family Constraints

Stereotyping

Few Females Expatriats Host Country Attitudes

Capabilities

Organisational Process

FIGURE 6.5

Causes for Low Representation of Females

It is popularly believed that women are less ambitious and this impedes their motivation to work in foreign locations. A few studies have been cited to disprove this perception. For example, Adler’s (1984) study has proved that many MBA graduates in the USA were willing to accept overseas postings. Lowe’s (1999) study, again based in the US, says that the host country determines the willingness or otherwise of women to act as expatriates. Women in the US and Canada might have motivation to expatriate themselves but back at home, women in India seem to be still in the old mould of staying back and taking care of families. Women, particularly in banks, refuse promotions, lest they would be relocated, within the country, of course. They are willing to work as long as such an occupation does not take them away to alien countries causing separation from spouses and children for long periods. A CII survey of women in corporate India indicates that almost 90 per cent of women exit the workplace after they have children.8 (See also Exhibit 6.4).

Exhibit 6.4

Less Ambitious

Cut to the offices of Vedika Bhandarkar, Managing Director of JP Morgan India, currently viewed as one of corporate India’s most successful women. Her career path now leads to JP Morgan’s Asia Pacific headquarters in Hong Kong and then on to global headquarters in New York. She says: “Even today, I’d give up my career happily if my children needed more time from me.” It could be seen as a casual bravado from one who’s already made it to the top, but the fact is, quite a few of Bhandarkar’s friends from her B-school days have already done what she says she might do. Bhandarkar is a 1989 graduate of IIM-Ahmedabad, a batch that graduated 22 women, one-thirds of whom have given up their careers to become home-makers. Take husband-wife duo Sanjeev and Surbhi Bhikchandani. Both graduated from IIM-A with Bhandarkar and both landed well-paying jobs in Delhi. But along the way, while Sanjeev quit his job to become an entrepreneur, Surbhi quit hers to be with their children. “I’m always being asked why I’m wasting my MBA degree,” says Surbhi, “When I meet my friends, they say, what happened to that ambitious girl we knew? I guess my priorities changed after I had children.” Having landed a job as a management trainee with Nestle in Delhi, she climbed the ladder to become a brand manager for Maggi Noodles. During that time, she also had her first child. For more than a year after the birth of her daughter, she tried to balance a full-time job that demanded long hours and

176 International Human Resource Management frequent travel with motherhood. But in 1995, she quit her job, and became a full-time parent. Now that her two children are older, she works four hours a day, five days a week, at her husband’s venture. Forty-two-year-old Purnima Joshi is another example. She recently quit her job with Tulika, a small Delhi-based print communication organisation. A mother of one, Joshi gave up work that she thoroughly enjoyed, in spite of her employer offering her part time work, and having no problems with her bringing her daughter to office, saying: “I want to give more attention to my baby.” Meenal Prasad at Wipro Technologies is a case in point. An IIM alumnus and mid-level employee in the marketing department, Prasad had been trying to balance the demands of bringing up an infant with those of her job since she came back from her maternity leave. But she found the emotional price of leaving her daughter in the care of a third person too steep, and decided to be a full-time mother. Luckily for her, Wipro thought better than letting her go, and offered Prasad a way out:part-time work, or working from home. She refused both, insisting she wanted to give undivided attention to her baby. So Wipro found another solution: it’s given her six months off as leave without pay. For the time being, her job is protected and waiting for her. (Source: The Economic Times, dated September 10, 2004.)

With regard to stereotyping, it is commonly accepted that women are fit to be home makers and not to work in business houses. Worst, in Russia the term “business woman” is understood as synonymous with prostitute. In the UAE, women cannot travel without a male chaperone. They do not consider themselves as primary earners. Where both partners are in jobs, it is the woman who is often the one staying at home or even leave the job when a child is sick, when a child needs to be coached during examinations or when sundry repair works need to be carried out at home. Capabilities include skills and resilience to cope with stress. With regard to the former, it has been proved that women are no inferior to men in decision making and problem solving abilities. In addition, females score over men in possessing relational skills. To this extent, women may be competent to demonstrate that they are accepted by colleagues. But the problem lies in a woman’s ability to cope with the stress. Several reasons subject women to greater stress. A number of causes of stress can arise from “within the woman” herself. Some common stress factors faced by female executives and the resulting symptoms of strain are shown in Fig. 6.6.9 Role expectations A major source of stress for career women stems from the concept of a professional woman held by themselves and others. While a man can suffer from a lack of role clarity and role conflict, he does so because of his individual situation, not because he is a man. The same cannot be said of a woman attempting to fill a role previously held by men. Self-doubt and concern about meeting other people’s expectations must continually hover over the thoughts and actions of women at work. ‘Patron’ male boss When a woman is subordinated to a male boss, he tends to be extra chivalrous towards his subordinate. He tends to encourage her to perform better, protect her, but may use her competence for his own advancement. Such a boss turns a patron no doubt, but brings along built-in pressures. First, she is always under pressure to live up to her patron’s expectations. Second, colleagues are jealous of her proximity to the boss and wait for the day when the patron himself is relocated and the woman is abandoned. Third, she can identify with him and suffer the professional “trials and tribulations” that he experiences. All these factors intertwine to create layers of expectations, which can place significant stress on the career woman.

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(Source: Adapted from Work Psychology by John Arnold et al, p. 70) FIGURE 6.6

Stress and Women at Work

Sexual harassment Whatever the position a woman occupies, she is sometimes perceived as an object for satisfaction of sexual desires. It is no wonder that males make sexual advances towards a woman in office. When an aggrieved woman lodges a complaint with the workplace harassment committee, it is not a pleasent experience. Threatened male colleagues Where a woman is highly competent, male colleagues feel threatened and they create workplace stress for her. Men may deliberately avoid providing full information to female colleagues to enable them to make decisions or they may maintain a distant and formal relationship towards females. Men entertain a grouse that women are unduly favoured in the name of affirmative actions. Threatened male colleagues could pose a professional challenge for women. Blocked promotion Organisations expect women to put in late hours or work away from homes if they are to be moved up the career ladder. But demands at home often prevent a woman from doing either, which results in the denial of promotion. The above are the stressors for a female worker in her own country and in her own work environment. Any foreign assignment will certainty add to her woes.

Organisational processes in the context of female assignment fall into three orientations: diversity orientation of the organisation, supervisor-subordinate relationship and home country selection processes for international assignments.10 Approach to diversity What approach the management displays towards diversity—particularly in having more females in senior positions in organisational hierarchy—is a dimension that has considerable significance. Four approaches have been identified: ∑ Identifying with men’s approaches to managing internationally; ∑ Denying differences between men and women; ∑ Identifying with women’s approaches to managing internationally; ∑ Creating a synergy by leveraging women’s and men’s approaches to managing internationally.

178 International Human Resource Management The first and the third approaches acknowledge differences but in a negative way, in that the third approach is better than the first. The second orientation denies differences between men and women. Both are seen as equally competent in managing international assignments. The fourth approach is ideal when an organisation with a cosmopolitan outlook tends to pursue. The organisation is believed to create synergy by integrating and leveraging women’s and men’s unique styles as complimentary approaches. This approach is most conducive to sustained, long-term global effectiveness. Superviser-subordinate relationship A leader tends to develop a closer relationship with only a few subordinates, typically called dyad, who generally comprise males, though the presence of females is not ruled out. The relationship of the leader with the rest of the subordinates is mainly formal. Any favour, including foreign assignment, is meted out to the members of the dyad. Women, either for reasons cited till now or because not many of them are members of the dyad, are not chosen for foreign assignments. Home country selection systems. Organisational selection systems in the home country are often against female participation as expats. More often, individuals are picked up for international assignments on the basis of their acceptability rather than on their suitability. Organisational selection systems fall into a typology as shown in Fig. 6.7.11 Formal Open

∑ ∑ ∑ ∑

Clearly defined criteria Clearly defined measures Training for selectors Open advertising of vacancy (internal/external) ∑ Panel discussions

Closed

∑ ∑ ∑ ∑ ∑

Clearly defined criteria Clearly defined measures Training for selectors Panel discussions Nominations only (networking/reputation)

Informal ∑ ∑ ∑ ∑ ∑ ∑

Less defined criteria Less defined measures Limited training for selectors No panel discussions Open advertising of vacancy Recommendations

∑ Selectors’ individual preferences determine criteria and measures ∑ No panel discussions ∑ Nominations only (networking/reputation)

(Source: Annel-Wil Harzing and Joris Van Ruysseveldt, op.cit., p.375). FIGURE 6.7

Typology of International Manager Selection

Open/Formal In this system, there is greater clarity and consistency in thinking about international managers and greater link with formal criteria. Closed/Formal This looks almost similar to the previous system. However, the fact that the candidates are nominated by the selectors, transparency and objectivity in selection are lost. Open/Informal In this, there is no clarity and consistency and also, there is no linkage with the formal criteria. Selection decisions tend to be highly subjective. Closed/Informal In this system, there is subjectivity on the part of the selectors and the candidates lack access. This is the worst situation in terms of equality of opportunities. Thus, except in the open/formal system, where women have opportunities of being selected for foreign assignments, the other three block out such avenues for females.

Host Country Attitudes Certain countries such as Pakistan, Japan, China and Middle Eastern nations might not be favourable to women as senior executives. This is owed to the fact that not many female

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executives are found in organisations of these countries. Female expats are obviously not encouraged in these countries.12 Finally, family constraints come in the way of women becoming executives. As Exhibit 6.4 reads, many sucessul women opt out of jobs to attend to children at home. Family takes precedence over career for a woman. Advantages of Female Expats Reasons for the low presence of women expats notwithstanding, it is advantageous for organisations to employ them in large numbers. A few advantages are: Relational Skills Women tend to have better relational skills. They can strike a rapport easily and early with foreigners. In fact, foreign clients seek to meet them and remember their names easily. Novelty Because of the rarity of female expats, foreign clients believe that those who are expatriated are the best. This helps vastly in striking business deals. Shortage Multinationals are facing an acute shortage of competent managers. They can look at the available pool of competent females to beat the shortages. Role Models The increasing numbers of women managers, particularly in N. America and to a lesser degree in Europe, provide role models for other women in management. Consequently, during business travel in the west, managers from cultures with the traditional role expectations for women often encounter women in executive positions. This greater familiarity with women managers by international managers from traditional cultures may encourage MNCs to expatriate more females, irrespective of the local female role expectations. Pepsi Co. has one of the highest women representatives (12) in its senior leadership positions. Its rival Coca-Cola has 18 top positions but only one among them is a female. Having more women in top positions makes lot of business sense. A 2007 Catalyst Report shows that companies with more female board members outperform those with the least number of them. Boards with more than three women have an 83 percent higher return to shareholder, 53 percent higher return on equity, 42 percent higher return on sales and 66 percent higher ROI than the boards without female presence. Lack of motivation In order to reap the advantage, organisations should have more number of female expats. Specifically, organisations need to:13 1. Become more strategic in their planning for international assignments in order to prevent ad-hoc and informal placements which may replicate an existing expatriate profile and prevent the adoption of alternative approaches. 2. Adopt a sophisticated approach to the determination of criteria for effective international managers. Competencies should be developed and debated in as wide and diverse a forum as possible. 3. Monitor their selection processes for international management assignments to ensure access is not unfairly restricted to specific sections of employees. This includes auditing career development systems leading up to international assignments for potential unintended bias. 4. Run selection skills training for all employees involved in the selection for international assignments. This training should include raising awareness of the advantages of using diverse groups of employees on international assignments and challenging existing stereotypes relating to women and other nontraditional groups.

180 International Human Resource Management 5. Avoid assumptions as to the likely motivation of women to accept overseas assignments and the likely success rate of women expatriates. 6. Provide flexible benefits packages which will cater for single employee and dual-career couples, as well as the traditional ‘married male with family’ expatriate. 7. Define the international assignment in such a way that the chances of success are high: that is, establishing full-status, permanent assignments. 8. Provide full support for alternative arrangements for the domestic aspect of international assignments which might influence women’s perceptions of accessibility. 9. Work with relocation companies to ensure that a female expatriate’s new residence will facilitate the possibility for social interaction. For women themselves, there are a number of important action points, as follows: 1. Adopt an ‘educative’ approach to organisational resistance to sending women abroad; do not assume it is the result of direct prejudice. 2. Ensure excellence in the professional field to aid selection. Also, try to be in the right place at the right time. 3. Address private life issues directly. 4. Use networks wherever possible. 5. Ask for international assignments! Things are changing for better. Women are seen everywhere in organisations, as much in the developing countries, as in the developed countries. Empowerment of women across the world is one of the most remarkable revolutions of the past 50 years. A generation ago working women performed menial jobs. But today women make up the majority of professional workers in many countries (51 percent in the US, for example). Mediterranean countries are also witnessing the same trend. In the European Union, women have filled six million of the eight million new jobs created since 2000. In America three out of four people retrenched from jobs since the recession began are men; the female unemployment rate is 8.6 percent, as against 11.2 percent for men. What has triggered this trend? There are quite a few reasons for the heightened visibility of women in organisations. First, politics has played its role in bringing this change. Some feminists have highlighted domestic slavery, exploitation and discrimination. Activated by these, governments have passed equal rights acts. Female politicians such as Margaret Thatcher, Indira Gandhi and Mrs. Clinton have taught bravery to the young women and woke them up to fight the exploitation. Indira Nooyi and Dong Mingzhu, the author of one of the best selling business books in China, are real role models. Second, the nature of labour required now is different from what it was decades back. In the past was required was the bran power of the labour where men eminently suited. Organisations now require brain power. Obviously, both the sexes are evenly matched. Men have lost their inherent advantage. Third, relentless rise of the service sector (where women are as competent as men) and the equally relentless decline of manufacturing sector is another reason for increasing feminisation of workforce. Fourth, as in other areas, technology has played its role in making women highly visible in organisations. Improved technology reduced the amount of time needed for the traditional female work of cleaning and cooking. More dramatic innovation is the contraceptive pill. The spread of the pill has not only allowed women to get married later. Not to be overlooked is the revolution in telecommunication that enables people operate from homes. More than 90 percent of companies in Germany and Sweden allow flexible working. Almost half of SunMicro Systems’, employees work at home or from nearby satellite. Homes have become surrogate offices. It has also increased their incentives to invest time and effort in honing skills. Fifth, the expansion of higher education has boosted job prospects for women, improving their value on the job market and shifting their role models from house-maker mothers to successful professional women.

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Best educated women get jobs any time. 80 percent of women in America, with college education, for example, are in jobs, compared with 67 percent of those with high school certificates. Finally, certain social factors are responsible for women to take up jobs. For growing number of single mothers, jobs have become a necessity. A growing proportion of married women have also found out that the only way they can preserve their households’ living standards is to join their husbands in the labour market. But women joining workforce in large numbers has its flipside. One obvious problem relates to the nonfulfilment of women’s rising expectations. They have been encouraged to climb on the occupational ladder but the middle ranks are occupied by men and higher levels are out of reach for women. Women make up less than 13 percent of board members in America. The upper ranks of banks and consultancies are dominated by men. In America and Britain the typical full-time female workers earn only about 80 percent as much as the typical male. Another disturbing development relates to the tendency of many women to prefer late marriages or remain childless. 40 percent of women in Switzerland, for example, remain childless. Others delay child-bearing for so long that they are forced into the arms of the booming fertility industry. The female drop-out rate from the most competitive professions represents a loss to collective investment in talent. Even well-off parents are concerned that they spend too little time with their children, thanks to crowded schedules. For poorer parents, balancing work and parenthood is a tough challenge.

RECENT TRENDS IN INTERNATIONAL STAFFING Over the past few years, some distinct trends observed in international staffing can be studied as: managing workforce diversity, offshoring, increasing use of background checks, identifying recruiting sources, and challenges of dual career couples (See Fig. 6.8).

FIGURE 6.8

Trends in International Staffing

Managing Diversity A typical MNC today has a workforce representing different regions, ages, religions, genders and cultures. Effective management of such diversity benefits the company in terms of innovation, motivation and proproductivity. Towards this end, MNCs generally have a ‘Diversity Policy’ which acts as a global guideline. The policy focuses on the following:14

182 International Human Resource Management ∑ Need for diversity—why should a company seek diversity? What will be the benefits to the company and its customers? ∑ Vision of diversity—what should diversity look like? What is the ideal form of diversity for this company? ∑ Commitment to diversity—who all need to be supportive and involved in making the initiative real? ∑ Systems and structures for diversity—How to institutionalise diversity throughout the management practices (e.g. staffing, training, communication, performance appraisal)? ∑ Sustain it—how to devise action plans for creating and sustaining diversity? Diversity is a HR lead initiative. Organizations commit to the need to evolve hiring practices that are sensitive to ensure opportunities for all sections, while competency is not compromised. Beyond this, actions need to be designed that will help build a true cosmopolitan organisation in which equity shall be the decisive criterion in assessing performance, promotion or compensation policies. Metrics are evolved to measure diversity ratios and are tracked through the year. Ensuring that the desired diversity ratio is met is an important measure for the recruitment team. Specific ‘recruitment activities’ focused on targeted hiring in these categories are planned and executed annually. Participation in industry forums and consortiums that sponsor workshops and conferences on such diversity issues is important for an organisation. Exhibit 6.5 showcases how women power can be leveraged from success stories in the insurance industry in rural India.. It is important to remember that diversity costs money. Three types of additional costs are involved: cash cost, opportunity cost and a hightened exposure to business risks. Despite these additional costs, diversity programmes amount to investments in human capital.

Exhibit 6.5

Women emerging as star insurance agents

When Gurmeet Kaur, 28, married nine years ago, her bachelor of arts degree couldn’t help her get a job with flexible work hours that would help her supplement family income and afford her the time to manage the household as well. Two years ago, Kaur became an agent for Max New York Life Insurance Co. Ltd in Dhandra, a prosperous village outside the town of Ludhiana, in Punjab. She got what she desired: the ability to work at her own pace when she wanted, a chance to mingle with the community and earn attractive compensation. Kaur says she makes Rs.25,000 on an average in commissions every month selling insurance. That’s a considerable sum for a village homemaker seeking extra family income. “Since there are not too many jobs in my village, insurance has given me a big break,” she says. Women like Kaur are emerging as choice hires for private life insurers that are starting to expand in the rural hinterland after concentrating on the cities for much of the duration of their existence. India in 2000 dismantled the 44-year monopoly of Life-Insurance Corp. of India (LIC), allowing private insurance companies, including joint ventures with foreign partners holding a maximum of 26% stake. Twenty-two life insurance firms are now competing in the market of 1.1 billion people, where insurance penetration was just 4.1% as of 2006-07, according to the Investment Commission of India website. The opening up of the sector has helped break the gender barrier in a profession that was dominated by men. Insurance firms say rural women are hard-working, good at sales talk and persuasive skills, and make for ideal insurance agents. And they are, according to T.T. Ramachandran, Chief Executive of Aviva Life Insurance Co. India Ltd, far more productive than men.

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“There is a business case to expand in the rural front, so micro insurance and rural are areas we are looking at,” Ramachandran says. “We are not here just to satisfy regulatory obligations, but we believe that there is a stand-alone business model for enhancing penetration in the rural market.” An estimated 2.5 million people serve as insurance agents across the country, according to the latest figures published by the Insurance Regulatory and Development Authority, or IRDA, on its website. Women make up around 25% of the total sales force in a life insurance market that was worth an annual Rs.2.2 trillion, or 4.4% of gross domestic product, at the end of March. At state-owned LIC, women account for 26% of sales force. “Women agents’ numbers are growing as they have started looking at it as an earning opportunity,” said a senior official at LIC, who did not want to be identified because he is not authorised to speak with the media. At Max New York Life Insurance and Aviva Life Insurance, women make up 33% and 25% of the sales force, respectively. “If we get a chance, we plan to raise the male-female ration to 50:50,” says Ramachandran of Aviva. International consultancy firm Celent says in a report that India’s rural market holds a “tremendous” growth opportunity for life insurance companies. Insurers have already expanded into smaller towns and cities. “Now most of the insurance companies have captured tier I and tire II cities. For incremental business, they are looking at rural areas where insurance is under-penetrated,” says Vishal Goel, an insurance analyst at Edelweiss Securities Ltd. Women are emerging as their star salespeople. Max New York Life’s Executive Vice-President and head, emerging markets, R.P. Singh, finds women in rural India hard-working, forthcoming, meticulous and productive. Still, there are parts of rural India where selling insurance is considered a “social stigma” for women, he says. That may be changing. “Initially, when I joined, I was very reluctant in doing the business but now things have changed,” says Charu Gupta, 37, an insurance agent in Bhathinda. Gupta says she has gained a lot of confidence over the last five years she has sold insurance. The mother of a one-year old daughter, finds the time to manage both her work and household. Money is important but for many women, the career opportunity opened up by insurance goes beyond the income it brings, even in the cities. Shashi Jain, 64, a New Delhi based insurance adviser, says it gives her a sense of independence and “immense happiness when I see myself working with young people at my age.”

Outsourcing Outsourcing, also known as offshoring, is the act of moving some of the organisation’s internal activities and decision responsibilities to external service providers. Outsourcing is common in non-core standardised services. Large and highly productive organisations are the most likely ones to be active in offshoring. Outsourcing host countries are likely to be relatively low-cost, with a strong infrastructural base. The reasons why an organisation outsources its activities can vary. Outsourcing allows an organisation focus on activities that represent its core competencies. Thus, a company can create a competitive advantage while reducing cost. On the other hand, outsourcing results in loss of jobs in the company resorting to outsourcing (of course, while creating additional jobs in the organisations from where supplies are outsourced), leaking out of sensitive information and the questionable quality and ethical practices of the service providers.

184 International Human Resource Management E-commerce companies are highly active in outsourcing. These organisations outsource their functions to e-fulfilment specialists called e-commerce enablers. The enablers provide services and software that translate web sites, calculate shipping, value-added tax, duties and other charges unique to each country. Outsourcing is highly visible in the IT sector. Such activities as creation, storing and dissemination of information are increasingly being outsourced and the business of IT outsourcing runs into several billion of dollars every year. Similar trend is seen in computers manufacturing industry, components makers (e.g. Intel in microprocessors and Segate in hard disk drives) supply to big and small manufacturers worldwide. Computer companies buy components from these manufacturers, assemble them in their own factories and sell computer systems to buyers. The trend is “Stealth manufacturing”, wherein the actual assembly of the computers itself is outsourced, as well as the job of shipping them to distributors and other dealers. The role of recruiting in such companies might extend to the ‘outsourced company’ to ensure quality and vision. The other areas where outsourcing is active are medical, law and of late, HR functions themselves. HR activities that are being outsourced include pay roll, benefits administration and contract staffing. As stated above, many HR activities lend themselves as fit candidates for outsourcing. Outsourcing in HR has been caused by several strategic and operational motives. From a strategic perspective, HR departments are divesting themselves from mundane activities to focus more on their strategic role. Outsourcing has also been used to help reduce bureaucracy and to encourage a more responsive culture by introducing external market forces into the organisation through the bidding process. Outsourcing has its negative impact on the HR function. The relevance of the HR department is at stake. If outsourcing is carried to its logical end, a company can do without an HR department itself. The biggest challenge for an HR team today is to prove that their function is as important, if not more important than any other function in the organisation.

Background Checks In international staffing (as also in domestic staffing) background checks of new hires are very common. The objective of background or reference checking is to verify information that the new hire has furnished in his or her application. It has been estimated that between 10 and 30 per cent of applicants falsify their resumes in some way, so such a checking is a reasonable precaution. Such checks are also used to discover new information on the history or past performance of the candidate, such as reasons for leaving a previous job. Background checks help MNCs avoid hiring people who would otherwise misuse information accessible to them while at work. These investigations may be performed by the company itself or by a specialist organisation retained for the purpose. Whoever does it, background check should include the following: ∑ ∑ ∑ ∑ ∑ ∑ ∑

Educational qualification Employment (previous) Address Professional qualification Credit and bankruptcy Database Probable criminal record.

Most background checks are designed to ensure depth and scope of the check and that can be customised to meet the needs of the persons hired. For any check to be carried out, the new hire is required to sign a consent form authorising such a check, placing the responsibility on the employee to ensure that the information provided is valid and verifiable. With more and more professional entering the global talent pool and the classical background checks taking time for successful completion, organisations are relying on a variety of methods to obtain information on suitable candidates. The many social networking sites are becoming popular as quick reference sources to pick up information about the prospective hire. Since information is in a public space the probability

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that it is misplaced or of erroneous representation is low. Additionally, these sites reveal information about the professional contacts that the individual has which is indicative of his /her ‘circle of influence/impact’. Recruiters can draw useful conclusions from such information and even contact those on the contact list to solicit feedback.

Sources of Recruiting With the constantly increasing demand for resources, more effective means to attract and hire competent staff has changed the way recuirtment is managed in MNC’s. Websites top the list of recruitment sources with 92 per cent of the companies using it. Relying on the company’s websites is common with 85 per cent of the respondents. The other recruitment sources are: referrals (81 per cent), ads in local media (48 per cent), campus recruitment (45 per cent) and blogs (3 per cent) (See Table 6.9 for sources of recruitment). TABLE 6.9

Most Common Recruitment Source

Recruitment Tool Percent of Companies Job Posting Websites 92 Your Company’s Website 85 Employee Referral Programme 81 Recruiters (External) 59 Recruiters (Internal) 50 Ads in Local Media 48 Your Company’s Intranet 47 College/University Recruiting 45 Temporary-to-Permanent Hiring 42 Ads in Professional Association Media 28 E-Mail Lists/Discussion Groups 21 Ads in National Media 15 Blogs 3

There are several job posting websites offering excellent service. The most commonly used websites are: Monster, Naukri, Career Builder, Yahoo Hot Jobs, Computer Jobs.com, Science Jobs.com and the like. Employee referrals are the next most critical staffing source in most MNC’s. Organisations have robust and well documented as well as transparent policies that guide the process. It has evolved into a technology enabled process whereby an employee can log into a job-posting portal, view all the job openings in the company at all locations and can post a resume of a relative, friend or an acquaintance against an opening. Depending on company policy, the employee could be asked to fill out a brief on how he/she is associated with the candidate and his/her own rating of the referral’s competencies. Research has substantiated this method to be one of the most successful with reference to quality of hire and employee retention. The employee who made the referral benefits by receiving a ‘referral bonus’ which could be a fixed amount or an amount linked to the position / level of the hire.

Dual Career Couples Dual career couples refer to a situation where both husband and wife are in jobs. It becomes difficult for the HR manager to convince the employee to accept foreign assignment if the spouse is not willing to accompany him or her because of the effect of such an assignment on his or her career prospects. Spousal or dual career issues are often cited as the reason for rejecting international assignments, particularly in the US and European organisations, but it is less visible in Asian countries.

186 International Human Resource Management The number of dual career couples is increasing and the trend is worldwide. DuPont, for example, has 3,500 dual career couples in the workforce of 100,000. How to manage dual career couples? In other words, how to make the employee (whose spouse is also in a job) accept a foreign assignment? Several ways have been tried, most of them with positive results. Following are the major ones: ∑ Turn down the foreign assignment. But this may have a negative career consequence for the employees. ∑ Find a job for the trailing spouse (trailing spouse is the one who accompanies the assignee) in the foreign country. Ideally, both partners travel and there will not be any separation between the two. ∑ Commuter assignments. Here the spouse remains in the home country and the couple workout ways to maintain relationships with the help of the organisation. The help from the employer shall be in the form of subsidised telephone bills and air tickets. Alternatively, couples may move to jobs in adjoining countries or within the same geographical region. Such arrangement will facilitate frequent travel with less expense. ∑ Sabatical. The trailing spouse may take a subatical—a career break that allows him to accompany his wife while she works abroad even though he is unable to continue his own career, which the e-business revolution has made highly possible. ∑ Intra-company employment. This means sending the couple to the same foreign facility, perhaps the same department. This arrangement, though it looks attractive, is neither acceptable to the company nor to the couple. A large Australian multinational sent a couple into its Vietnamese subsidiary, knowing that this would create a delicate situation—the wife reported directly to her husband. The selection decision was not made lightly. The HRM staff provided counselling before the assignment, and the situation was monitored carefully by headquarters ∑ On assignment career support. Career support is extended to a spouse, who was in a job till the assignment, but is unable to find one now. The support consists of a lumpsum payment for education expenses, professional association fees, seminar attendance and language training to upgrade workrelated skills. Such programmes are sponsored in order to help the spouse acquire better skills. Motorola extends a career support scheme in the name of its well known Dual Career Policy. Motorola India, for example, provides educational assistance to employees’ (on an international assignment) spouses for getting a suitable job abroad. If the candidate fits in with organisation needs, he or she will be hired. Infosys provides up to one year’s leave without pay for an employee to join his/her partner abroad. However, the employee needs to have completed at least one year of service to be eligible to avail this benefit.

SUMMARY Staffing of the international organisation is probably the most dynamic activity globally. Human Resource Planning (HRP), which is understood as the process of forecasting an international organisation’s future demand for and supply of, the right type of people in the right number, is closely linked to the business plan of the MNC. The staffing strategies differ based on the phase in the life cycle of the MNC. The three common issues most relevant in the context of staffing global businesses are, staffing orientation, managing expatriates and female expatriates. The recent trends in staffing are five: diversity, searching for recruiting sources, background checks, dual career couples, and outsourcing.

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CLOSING CASE

The Office Equipment Company

The office equipment company (OEC) must identify a manager to help set up and run a new manufacturing facility located in the Palestinian-controlled Gaza Strip. The position will have a minimum duration of three years. OEC manufactures office equipment such as photocopying machines, recording machines, mail scales and paper shredders in eight different countries. OEC’s products are distributed and sold worldwide. Currently, OEC has no manufacturing facility in the Middle East, but has been selling and servicing products in Israel since the early 1970s. OEC sells its products in Israel through independent importers, but is now convinced that it needs to have a local manufacturing facility in order to take full advantage of the new, more peaceful situation in the region. Despite occasional turmoils that interrupt new moves towards peace, OEC’s sales in Israel have been improving, with increase in profitability. OEC has recently been contacted by distributors in Jordan and Egypt about possible sales of OEC products. Incentives for foreign direct investment in the Gaza Strip could help OEC develop extensive operations in the region at a considerably reduced cost. OEC hopes to begin constructing a factory in the Gaza Strip within the next six months. This factory would import products and assemble them. The construction of the assembly plant would be supervised by a US technical team and a US expatriate would be assigned to direct the production. This expatriate manager would report directly to the headquarters of OEC at US. The option of filling the position of managing director with someone from outside the organisation is alien to OEC’s policy. Otherwise, the options are fairly open. OEC uses a combination of home-country, hostcountry and third-country nationals in top positions in foreign countries. It is not uncommon for managers to rotate among foreign and domestic locations (in the US). In fact, it is increasingly evident that international experience is an important factor in deciding the persons who will be appointed to top corporate positions. The sales and service operations in Israel have been controlled through OEC’s European regional office located in Podemone, Italy. A committee at the European regional office has quickly narrowed its choice to the following five candidates. Tom Zimmerman: Zimmerman joined the organisation 30 years ago and is well-versed in all the technical aspects required for the job. Zimmerman is a specialist in start-up projects and has supervised the construction of new manufacturing facilities in four countries. He has never been assigned to work abroad permanently. His assignments have usually been in developed countries and for periods of less than six months. He is considered to be extremely competent in the duties he has performed during the years, and will retire in about four-and-a-half years. Neither he nor his wife speaks any language other than English—their children have grown and are living in the US. Zimmerman is currently in-charge of an operation about the size that the one in Gaza Strip will be after the factory begins operating. However, as that operation is being merged with another, this present position will become redundant. Brett Harrison: At age forty, Brett has spent 15 years with OEC. He is considered highly competent and capable of moving into upper-level management within the next few years. He has never been based abroad but has frequently travelled to Latin America. Both he and his wife speak Spanish adequately. Their two children, aged fourteen and fifteen, are just beginning to study Spanish. His wife is a professional as well, holding a responsible marketing position with a pharmaceutical company. Carolyn Moyer: Carolyn joined OEC after getting her BS in engineering from Purdue University and an MBA from the prestigious Bond University in Australia. At the age of 37, she has already moved between staff and line positions of growing responsibility. For two years, she was the second-in-command of a manufacturing plant in Texas, about the size of the new operation in Gaza Strip. Her performance in that post was considered excellent. Currently, she works as a member of a staff production planning team. When

188 International Human Resource Management she joined OEC, she had indicated her eventual interest in international responsibilities because of a belief that it would help her advancement in career. She speaks French well and is not married. Francis Abhrams: Francis is currently one of the assistant managing directors in a large Mexican operation, which produces for and sells to the Mexican market. He is a Jewish New Yorker who has worked for OEC in Mexico for five years. He holds an MBA from New York University and is considered to be one of the likely candidates to head a Guatemalan operation when the present managing director retires in four years. He is 35, married with four children (ages two to seven). He speaks Hebrew adequately. His wife does not work outside the home and speaks only English. Leon Smith: At 30, he is assistant to the managing director at the Athens manufacturing facility, a position he assumed when he joined OEC after completing his under-graduate studies in the US seven years ago. He is considered competent, especially in production operations, but lacks in managerial experience. He was successful in increasing OECs production output in Athens during his tenure in Athens. Leon travelled extensively in the Middle East. He went to the college with a number of students from Saudi Arabia, Jordan and Egypt. These individuals came from prominent political and business families in their countries and Leon has visited them during his travels. He thus has the advantage of being reasonably well-connected, with influential families in the region. He is not married.

Questions 1. Whom should the committee choose for the assignment and why? 2. What problems might each individual encounter in the position? 3. How might OEC go about minimising the problems that the chosen person would have in managing the Gaza Strip operations?15

Key Terms Credit & bankruptcy check Dual career couple Expat Expatriate failure rate Human resource planning Multiculturist Multifunctionalist Multilinguish

Offshoring Outsourcing Pre-employment checks Professional reference Relational dimensions Sabatical Workforce diversity

Review Questions 1. What are the challenges of international human resource planning? 2. Briefly discuss the advantages of staffing key positions in the host unit with an HCN as opposed to a PCN. 3. Compare and contrast between the Mendenhall and Oddou’s model and the Ronen’s Model used to make selection decisions in the international scenario. 4. How is offshoring different from outsourcing? 5. Why are diversity policies gaining importance in the international scenario? 6. Why do expats fail? How to manage such failures? 7. How are potential expats short listed and selected? 8. Account for the low visibility of female expats.

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Assignments 1. Break into pairs and identify from newspapers, journals and magazine, articles in the past one month that talk about staffing issues faced by an organisation. Discuss the article, and obtain as much information as you can from the web/desk research about the organisation/industry. ∑ What is the nature of this organisation’s business? How does this impact the staffing issues discussed in the article? ∑ Make a proposal on how this organisation can combat the situation it faces. Present it to the larger group. 2. Break into groups of five and identify an offshoring/outsourcing organisation. Make sure you have access to reasonable information to the purpose and the methods of this organisation. Deliberate and discuss ∑ What are the business objectives that drove towards offshoring for this organisation. ∑ How successful has it been? ∑ What staffing challenges are currently being faced by this organisation in hiring? Discuss in the larger group.

References 1. 2. 3. 4. 5. 6. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Cynthia D. Fisher et al, Human Resource Management, biztantra, 2005, p 812. Wayne F. Cascio, Managing Human Resources, McGraw–Hill, 1998, p 656. John B. Cullen, Multinational Management, South-Western-Thomson Learning, 2002, p 451. Luis R. Gomez-Mejia et al, Managing Human Resources, Pearsen, 2005, p 583. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage, 2004, pp 256–258. Ronen, S. (1986). Comparative and Multinational Management (4th ed.). New York: John Wiley & Sons, Inc. (a) James P. Johnson et al., “Cross-Cultural Competence in the International Business: Towards a Definition and a Model,” Journal of International Business Studies, May 2006, p 526. Peter J. Dowling and Denice E. Welch, International Human Resource Management, Thomson, 23004, p 108. “Ambition”, in CD—The Economic Times, dated Sept.10, 2004. Joyn Arnold et al, Work Psychology-Understanding Human Behaviour in the Work Place, MacMillan, 1996, pp 70–72. Anne-Wil Harzing and Joris Van Ruysseveldt, op. cit, pp 374– 375. Ibid, pp 374–375. John B. Cullen, op. cit, p 448. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit, pp 376–377. Dave Ulrich, Human Resource Champions, Harvard Business School Press, 1997, pp 163–164. John D. Daniel and Lee H. Radebaugh, International Business-Environment and Operations, 1995, Addison Wesley, p. 649.

CHAPTER

7 TRAINING AND DEVELOPMENT Learning Objectives After reading this chapter, you should be able to ∑ Identify training determinants in the international context ∑ List the elements of expatriate training ∑ Describe how is HCN training different ∑ Identify the TCN training challenges ∑ Describe the emerging trends in training to gain competitive advantage

Training and Development 191

OPENING CASE

Konica Minolta: Using Learning to Create a Unified Culture

Like many organisations going through a merger, three years ago Konica Minolta Business Solutions USA Inc. found itself in that not terrible, but not desirable void between two company cultures. The global leader in imaging technology found that learning was the perfect bridge to bring the two together. By creating key development initiatives for its sales and dealer employee populations, the company was able to unify its culture and establish a learning foundation that will elicit bottom-line results. “Konica Minolta is very, very interested in growth and personal and professional development of employees,” said Marilyn Mitchell, director of professional development and enterprise learning, Konica Minolta. “Our standards are that if you’re not learning, you’re not growing. We have about 20-odd thousand individuals taking courses, learning. Those are divided into internal as well as external through our dealer community, and their employees are part of the whole learning organisation.” Konica Minolta is an international operation, and the learning organisation shares many of its resources with Canada, Latin America, Japan and Europe. The United States houses the company’s dealer operations, and much of the company’s learning in this area is centered on building and maintaining customer relationships. Konica Minolta has launched a number of initiatives within the past 2 months including the Solutions Learning Gateway, which Mitchell said will help reach their multi-generational employee audience and simultaneously bring the employees into close contact with customers and their particular needs. “We’re no longer selling copiers. We are in solutions, software and we need to really bump up the type of learning that we provide so that these individuals can become engaged in what it is that we’re doing and not lose interest. We’ve created a Solutions Learning Gateway where people can come into a virtual classroom online, have an instructor that has been videotaped. It’s not an instructor, but the actor totally understands where we’re coming from and what we’re trying to get across. In a veryfun way, this instructor teaches the students all about the solutions and leads them to great areas within the classroom where they can learn in a real-life environment.” This simulation-based approach to learning will begin with the legal market, with other vertical markets such as finance and health care offollow quarterly, and show learners how Konica Minolta solutions can work in this environment. “We have so many solutions out there instead of just providing information like an information dump on people. We are trying to make everything real life, showing them, “Hey, ifyou’re in this kind of a situation, and you’re talking to this type of an individual, these are the questions that you should ask, these are opportunities that you should look for, and these are the solutions that are going to help you sell in this environment,” Mitchell explained. “It’s Flash video. It’s online. They go to one place within our learning management system. Everything that we do is organised through our learning management system, whether it’s an instructor-led course, an online module or this type of interactive situation.” The impetus for the Solutions Learning Gateway was to enable Konica Minolta to reach its large employee population, promote engagement as well as boost sales, but the rest of the organisation is encouraged to visit as well. Another newly launched initiative called Log in and Learn also was developed to tap into the non-selling individuals in the organisation because Mitchell said it is important to inspire employees to want to learn about the company’s products and services. “If everyone in the organisation is learning and growing, it will help the company grow. It’s best if we have individuals answering the phones trying to help customers who have a better understanding of what the products are all about.

192 International Human Resource Management Konica Minolta also recently launched its Learn Tracks initiative. The organized learning plans were created to build and measure multiple knowledge levels within the company. Beginning with the lower level products, employees work up to the most highly featured units. At each bizhub or Learn Track—there are four different ones for specific job roles such as customer sales representative and application specialist—there are rewards. “Once they get through their first learning track, they will be rewarded with this really cool optical mouse with a floating emblem. It’s one of these things that’s going to be a really coveted item in the organisation, and the only way you can get one is if you achieve the first Learn Track,” Mitchell said. “We’ve incorporated those beginner, intermediated, advanced levels into Learn Tracks. After bizhub Essentials and bizhub Fundamentals, we have bizhub Color, which focuses on products we use in a color environment, and then bizhub PRO, our really high-powered, high-end units in the production print environment. If you’re a sales person in the field, there will be the same Learn Tracks but more geared toward sales.” Konica Minolta’s revamped leadership training also has helped the organisation focus on its customers. Currently, there are three tiers of leadership training for management: one for the most senior leaders, one for middle management and one for self leadership for employees who manage dealer customers. “We’re teaching about ownership. How important it is for people to own the end results and own what they are responsible for,” Mitchell said, “You can’t grow as an organisation, and you can’t have a growing culture if people are not willing to take ownership. We focus on direction. If you don’t identify your goals, write them down, focus on those on a regular basis and understand as an organisation where we’re going and how you fit into that, then you don’t have a growing culture. Another aspect is with regard to helping other people around you succeed and helping other people do their job. You understand that you need to take ownership for what you’re responsible for. That’s one level, but you really need to assist other individuals around you in helping them to achieve their goals. That’s when things really start to take off.” Stephen Jones, executive vice president, dealer operations, Konica Minolta, agrees and has initiated an exclusive relationship with training vendor 2 logical Inc. to aid the company’s efforts to build a unified culture. “We merged Konica Minolta about three years ago. We spent our first year like any merger trying to figure out what we’re going to do. Year two we spent a lot of time trying to make the financial and business results. In my mind, I took my eye off of what we really need to address, that we need to make some real cultural changes. We had a lot of legacy issues, some good and some bad. We needed to develop a new culture and a new way of looking at our customers and partners, etc. “I needed to get everyone on the same page,” Jones said. “I have responsibility for a pretty large organisation. It’s close to a billion dollar business in U.S. operations. There are a lot of people involved in administration, sales and service. We decided to use the framework of 2 logical, what they call a written plan. I wanted a simple way for everybody to speak the same language and hopefully have everybody going in the same direction.” Jones said that written plan looks at three frameworks. One, everyone in the company sets their company goals on a written plan. Two, Konica Minolta will identify critical success factors, and three, define the high payoff activities needed on a daily basis to achieve company goals. “I had every single person in my organisation go to their (2logical) training. It worked out to almost a four-day class to review their goals, critical success factors and high-payoff activities. At the end of the day, every student was to design their written plan that we use now and cascade up through the organisation. I’m looking for consistency, and slowly but surely I think we’re redefining our culture here at Konica Minolta. We invested a lot of time and money in this. This was not a whim thing. Now, I’ve got everybody trained. I’ve got everybody going in the right direction, and we will be reinforcing this concept quarterly.”

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Jones said he will continue the process as he hires new people and give them the same training so that over time, everyone will get the message. “This is who we are, this is where we’re going to go, and this is what we will be. I made a decision about a year ago that we had to make some changes, and I’m using training as a way to change the culture of the company to more customer-oriented. The platforms that I’m setting, there are three areas that I’m focusing in on, three essential components for our success in our fiscal year from April ‘06 to March ‘07: open communication, ownership and overall desire to succeed. Under each one of these are the platforms of what they need to do to ensure they’re doing their very best to support our strategy and our goals for the corporation going forward over the next four or five years.” The learning programmes Konica Minolta has initiated in the past have yet to yield significant metrics, but the company will measure customer and employee satisfaction. “I’ll also be measuring our business and how we’re doing year over year.” Jones said. “I believe that if we do all the right things and everybody is truly working together in a teamwork mode, you’re going to see better financial results. We had a very good year last year. I’m expecting an even bigger one now with the investments that we’ve made in training over the last 2 months. I absolutely believe we made the right investments. There are huge opportunities in our business right now, and I’m using training as a strategic plank to help the corporation moveforward. “I see a commonality of language now,” Jones said, “I talk about high-payoff activities and critical success factors. Then I walk in on a meeting one of my regional managers was having, and I see them using the format for our culture. I’ve absolutely seen a change in behavior from a teamwork standpoint. There was a lot offinger pointing going on a year ago. ‘It’s your fault. It’s not my responsibility.’ Now I see more of everybody trying to help one another, and slowly but surely I’m seeing a much stronger, positive attitude toward helping our customers.” Source: http://www.clomedia.com/September 2006-Kellye Whitney

Employee development is an important aspect of MNC’s globally. This chapter discusses the various dimensions of international training and development and the emerging practices in this area.

TRAINING STRATEGIES Training strategies bridge the gap between the capabilities of the individual hired and the role/responsibilities of the job that he/she is performing. This is the traditional definition of training and development. Today’s corporation pride themselves in the investment in the human capital development which benefits the organisation as much as it does the corporate professional aspiring to build a career in an area of personal preference. In other words it is seen as a lifetime investment in the individual with the objective of soliciting loyalty. There are four strategies that provide governance for training and development initiatives in MNC’s. Firstly, MNCs may make use of expatriates for short-term or long-term international job assignments. Accordingly, the kind of training and development initiatives differ. The focus while training an employee for a short-term assignment would remain narrowly focused on what the objective of the assignment is, while cultural gaps and work-life differences would be of minimal importance. However, for a long-term assignment there would be a significant amount of time and effort expended in coaching the employee on the cultural differences, workplace behaviour and national etiquette, eating habits and coping strategies to help sustain success during the assignment. Secondly, the staffing orientation that is adopted in the subsidiary influences the training impetus. An ethnocentric staffing strategy brings all the focus in training to cross-cultural and cultural acclimatisation

194 International Human Resource Management initiatives. And depending on the roles and responsibilities, the training framework is determined. However, a polycentric approach to staffing shifts the training focus to technology training and an extensive orientation/ induction revolving around the parent company’s culture, policies and workplace values. Cross cultural training extends itself to, knowledge about the parent country’s work culture and a focus on acceptable and not acceptable work practices, with a lot of it being learnt-on-the-job. And if the staffing approach is geocentric/regiocentric, the developmental efforts revolve around knowing the parent company and the particular technology of the organisation. Thirdly, the control and coordination linkages that the parent unit wishes to establish with the subsidiary drives the training budget and the strategy. This refers to the centralised vs. decentralised approach that the MNC adopts. When the linkages of control between the parent and the host unit are closely established (highly centralised), the investment in training for compliance and parity of practices and work culture between the parent and the host unit is the highest and training assumes greater importance. The framework is global and every aspect of the employee’s journey through the organisation, induction and onwards is similarly executed irrespective of location. It is driven by global budgets and is a measure of organisational growth. It is seen as a critical tool in the achievement of the global strategy for the organisation. Conversely, when the control linkages are weak and the sub unit adopts a multi-domestic existence (highly decentralised), training assumes a local flavour and is driven by the philosophy of the respective local unit’s management, focusing around the technical skills enhancement and managerial issues that are specific to the industry and the country of existence. Fourthly, the ‘role and responsibilities of the position’ determine the extent and content of training. Roles that are higher up in the organisational hierarchy bring training focus to individual contributions and to equipping employees with the skills related to leadership styles and management challenges that are specific to the organisation/industry and the country of practice. Jobs that are critical for organisational success in a host/subsidiary unit, for example, research/sales, the individuals in these roles are selected as specialists, hence the training would focus on global organisational objectives, on-going technology training and cross cultural training.

EXPATRIATE TRAINING In selecting an expat for a global assignment, the focus is on ascertaining the cultural awareness and the fit for the host country’s culture. In preparing an expat for a global assignment, there is no gainsaying the fact that his/her success depends on how fast he or she can acculturate in a host country. Acculturation demands that the expatriate is aware of the cultural nuances of the host country and how it is different from his/her own. (See opening case.) MNCs offer cross-cultural training (CCT) to make their expatriates aware of the appropriate norms and behaviours of the host country. CCT may be understood as any planned intervention designed to increase the knowledge and skills of expatriates to live and work effectively and achieve general life satisfaction in an unfamiliar host culture.1 For more than two decades, CCT has been advocated as a means of facilitating effective cross-cultural interactions and cross-cultural adjustments. Any CCT should aim at imparting cross-cultural skills and knowledge to the expatriates and to facilitate his or her adjustment to the host country’s culture. The effectiveness of a CCT is reflected by the cognitive, affective and behavioural changes that occur during and after the training.5 (These changes are elaborated latter in this Chapter.) A successful CCT inures several benefits to the business. It also has a few drawbacks. Table 7.1 brings this out more comprehensively.3

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TABLE 7.1 Merits ∑ Increases chances of success in global assignment ∑ Provides a comprehensive global perspective for managers ∑ Instils a sense of confidence into people ∑ Foreign employees can be managed better ∑ Reduces culture shock due to frequent travels abroad

Benefits and Drawbacks of CCT Demerits ∑ Develops a false sense of confidence among employees ∑ May not remove cultural biases and prejudices ∑ May not be taken seriously by the recipients ∑ May not make a visible difference in business volumes ∑ Can never fully prepare an assignee to face real problems

In order to make a CCT highly successful, the international HR manager would do well to proceed on a well-defined sequence of stages, as shown in Fig. 7.1 and explained in the following pages of this chapter. Significant theoretical works by researchers like Rosalie Tung, Mark Mendenhall, Gary Oddou and St. J Black provide the backbone for the prevalent T&D practices followed in MNC’s. The stages in the training process are similar to any training initiative:4 1. 2. 3. 4. 5. 6.

Identify training objectives Identify the types of global assignment for which CCT is required. Determine the specific cross-cultural training needs. Establish the goals and measures for determining training effectiveness. Develop and deliver the CCT programme. Evaluate whether the CCT was effective.

Training Objectives A few commonly understood objectives of training in the multinational corporation are: 1. Bridging the cultural gaps between the host and the parent organisation. 2. Recognising that orientation/induction challenges are different for the parent and the host unit. 3. Ensuring that organisational success is critical in achievement of the global objectives. 4. Establishing and retaining advantages over international competitors. 5. Building a single organisational culture across its subsidiaries.

Type of Global Assignments and Impact on CCT The type of overseas assignment shall have its effect on such HR activities as selection, CCT and repatriation. Global assignments are of the following types:5 ∑ Chief executive officer ∑ Structure reproducer ∑ Trouble shooter ∑ Operative A CEO is the subsidiary manager and he or she overseas and directs the entire subsidiary operations. The structure reproducer shoulders the responsibility of building or reproducing in a foreign subsidiary, a structure similar to that which he or she knows from another part of the company. He or she can replicate a marketing framework, an accounting and financial system or the setting up of production facilities. The CCT framework would include cultural training related to the host country, overview of the country’s laws, political framework and business conduct for meetings with the governments, law enforcement and legal

196 International Human Resource Management authorities and other corporates. Acceptable leadership styles and managerial norms for workplace behavior would also be required. Phase 1

Phase 2

Phase 3

Training Objectives

Identify the type of Global Assignment

Determining Training Needs

Ø CEO Ø Structure Reproducer Ø Trouble-Shooter Ø Operative

Ø Organisational Analysis Ø Individual Analysis Ø Assignment Analysis

Phase 4

Phase 5

Establish Goals and Measures

Develop and Deliver the CCT Programme

Ø Short Term Ø Long Term

Ø Course Content Ø Identify Methods of Training Ø Sequencing Sessions

Phase 6 Evaluating the Programme Ø Short Term Goals Ø Long Term Goals

Source: Adapted from International Human Resource Management by Anne-Wil Harzing and Joris Van Ruysseveldt, op cit, p 286. FIGURE 7.1

Phases in CCT Programme

A trouble shooter is an individual who is sent to a foreign subsidiary to analyse and solve a specific operational problem. In addition to being an expert the individual possesses managerial capabilities of problem identification and resolution. The CCT training in this case would focus on providing basic cultural information and workplace norms. The duration of stay normally being short in such cases most of the information would be imparted through e-learning courses. The objective here is to generate awareness. Class room training would not be relevant here as it would require resources in terms of time, effort and cost. Yet another assignment on which an employee may be expatriated is the task of an operative. Operative’s job is usually that of a subject matter expert and is at the host location to perform as well as transfer the knowledge on the functional tasks. This nature of assignment is generally at supervisory level. The CCT would be a well structured classroom as well as being supplemented with e-learning sessions to reinforce the training objective of complete cultural training of the host country and its impact on the professional as well as personal life of the expatriate. Trouble shooter’s task is not just solve an operational problem. It could be a major assignment as Exhibit 7.1 shows.

Exhibit 7.1

Trouble Shooter’s clean-up actions

∑ Niall Booker came to India as the CEO of HSBC India in 2005 to change the patronising culture of the bank and put it on the right track. By the time he handled over the reigns to Nasira Lal Kidwai

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in 2006, HSBC moved from being a laggard to becoming one of the highest growth operations of HSBC worldwide. What did Booker do? Overhauled the entire compensation system. All perks were done away with, including housing. Compensation was linked to performance. VRS was introduced at the junior cadres and senior managers were eased out if they failed to comply with the new culture. ∑ In 1996, Jurgen Schubert came to India to salvage Siemens which for the first time in its four decades of history in India slipped into the red. The clean-up actions included, among others, retiring 4500 people over three years. As on today the company is on the growth path. ∑ American Express (India) is another organisation which had the benefit of having a trouble¬shooter. The bank was reportedly hit by frauds in the personal loan and credit card division in 2005. Robert Hennin was brought in to conduct a clean-up operation, which he did with success. Hennin lead a massive restructuring programme which resulted in several resignations at the top. ∑ Capt. Gopinath brought in Warwick Brady as COO of Air Deccan. Brady is known for his expertise in running a low cost airline. And Brady has given a whole new meaning to the concept of cleanup in his two years here. Under his dispensation, the air hostesses on every Deccan flight are responsible for cleaning up the plane-including the toilets. ‘Our cabin crew were like princess, chauffeured to work everyday. We’ve changed that into a down-to-earth, hard working culture,’ he says. It can’t be easy implementing rules and procedures that go against the grain of an ancient culture. Brady faced big resistance from the cabin crew when he re-defind their work code, just as he faced resistance from the pilots and engineers when he introduced the concept of automatic boarding-that passengers on the next flight would board as soon as those on the previous flight disembarked. “They said they should be the ones to decide when they’re ready to board”, says Brady. “I had to make these guys accountable for operational performance.” Today, Brady has a team of experts to formulate operational Fand team of Indians to implement them. “I now what needs to be done, but dealing with employees, the government, the airport authorities is hard work” he says. “Initially, people were sceptical about my plans. But I worked harder than anyone else and they soon realised I wasn’t going to go away. Now they know I’m on their side”. The past two years has seen Deccan improve it’s on-time performance massively, from 50% within 15 minutes to 80% within 15 minutes. Brady’s not engaged in a route analysis exercise, which will hopefully boost the airline’s profitability. In what is perceived to be a fast growing, talent starved industry, don’t be surprised if Brady introduced downsizing. “Deccan used to solve problems by hiring more people. That doesn’t work,” he says. Born in South Africa, and having lived in UK and Australia, Brady describes his management style as “very Irish-hard, blunt and detailed. (Source: The Economic Times, dated April 6, 2007)

A CCT programme therefore needs to be fine-tuned and delivered, depending on the needs of the global assignment. (See exhibit 7.2). This could differ based on the nature of the business and the cultural diversity between the parent and the host country.

Needs Analysis of the CCT Needs analysis is a significant step in any training programme. Needs assessment diagnoses present problems and identities future challenges to be met through training and development.

198 International Human Resource Management Needs assessment occurs at three levels: individual, organisational and the assignment. An individual needs training when his or performance falls short of standards and if performance deficiency occurs for want of skills. In the context of CCT, needs assessment examines the extent of the individual’s prior overseas experience, his or her experience with an earlier CCT, and the expatriate’s existing levels of cross-cultural knowledge and skills. In addition, the expatriate’s assessment helps identify his or her abilities to adjust to the host country’s living conditions and the intercultural communication styles. Finally, this analysis examines the needs of the expatriate’s entire family. Organisational analysis considers the role of CCT within the context of the organisation’s (headquarters and/or subsidiary) culture, politics, structure and strategy. Such an analysis can assist both the headquarters and the subsidiary in supporting the global strategy. In addition, organisational analysis considers the availability of trainers and the equipment required to design and implement the CCT programme. For example, where assignees are sent as strategists or executives, organisations allocate higher budgets and hire cross-cultural professional trainers to conduct CCT. Finally, organisational analysis assists in determining the estimated costs on CCT and its expected benefits. Organisations will carry out the CCT when benefits outweigh costs, being fully conscious of the fact that not all benefits are measurable clearly and immediately visible. The final phase of CCT needs assessment relates to identifying the tasks on which the expatriates are deputed. Called the assignment analysis, this assessment seeks to identify the tasks in the subsidiary and the type of cross-cultural skills and knowledge required to perform these tasks effectively.6

CCT Goals and Measures The fourth phase in CCT programmes is to establish its goals and identify measures to assess the effectiveness of the cross-cultural training. The goals of CCT can be short-term or long-term oriented. Short-term goals specify what the expatriate should be able to accomplish on completion of the CCT. Long-term goals, on the other hand, reflect the expected outcome of the expatriate assignment, such as cross-cultural adjustment and success on the assignment.7 Goals of CCT, short-term as well as long-term, should be detailed and be in measurable terms. Short-term goals can be assessed by using pen-and paper tests or on-line quick quizzes that will ask the participant to answer questions on the content covered during the training. Additionally a test could be instituted prior to the employee undergoing the training and the scores compared with those after the training to measure the amount of learning that has taken place. The long-term training objectives can be assessed by allowing some time to lapse for the trainee at the host location and then take feedback from his or her manager (maybe also peers, if possible) on the ability of the expatriate to acculturate at the host location. Detailed and measurable training goals help develop appropriate outcomes for evaluation of the training.

Develop and Deliver the CCT Programme Developing and delivering CCT programmes involves two basic activities: deciding on the content of training and sequencing of training sessions. Course Content The instructional content of a CCT should help the expatriate acquire capabilities for cross-cultural adjustment. This being the overall consideration in designing the course content, the specifics of a CCT consist of language training, cultural training and practical assistance. Language Training Language training is an obvious component of a CCT programme. Multilingual skills help an expatriate communicate effectively with the host country citizens. In addition, it helps the

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assignee learn about the host country-value systems and the customs of its people. English is the primary language of international businesses, and most expatriates from all the countries can converse in that dialect. Those who can speak only in English are at a distinct disadvantage while doing business in non-English speaking countries like France, Germany, Japan or China. Failure to recognise the importance of foreign language skills may reflect a degree of ethnocentrism on the part of MNCs. It also reflects a certain degree of unconscious arrogance on the part of expatriates from the English-speaking countries.8 More and more MNCs are including language as one of the inputs in their CCT programmes. As per one study, 59 per cent of the responding organisations provided language training prior to departure and 74 per cent provided language training while the persons were on the assignment.9 Language training should cover not only the host country dialect, but the corporate language as well. Every MNC will have evolved its own language to facilitate reporting and other control mechanisms. Given its place in international business, often, English becomes the common language within these multinationals and expatriates can act as language nodes, performing the function of communication conduits between the subsidiary and the headquarters, owing to their ability to speak the corporate language as well as the local language. Knowledge of the corporate language can add to the position of the expatriate in a subsidiary. An expatriate fluent in the languages of the home and host countries and of the corporate language enjoys an extra edge over those who are not so skilled. He or she can perform a gate-keeping role between the headquarters and the subsidiary in accessing and dispensing information. Cultural Training Cross-cultural training is the main input in expatriate training. Cultural training should have an integrated approach, consisting of both general cultural orientation and specific host country cultural dimension. General cultural orientation helps the trainee understand factors that may influence his or her receptiveness to effective cross-cultural interactions, such as resistance to change, clear understanding of the purpose, values and benefits of the global assignment, and the ability to manage stress.11 In addition, general cultural orientation helps understand nuances of cultural differences and their likely impact on expatriates. Specific cultural orientation facilitates an understanding of the host country’s culture. Understanding the host country’s culture will help the expatriate empathise with the host country citizens. Given the problems related to adaptation of spouse in the host country, it is important that the spouse of the expatriate and perhaps the entire family, should be included in the training programme (see also Exhibit 7.2). The intensity of cultural training depends on two factors: the degree of interaction required between the expatriate and the host country citizens and the similarity between the assignee’s native culture and the new culture. These two factors give rise to two dimensions:12 ∑ If the expected interaction between the assignee and the host country citizens is low, and the degree of similarity between the assignee’s home culture and of the host country’s culture is high, then training could focus more on task and job-related issues rather than culture-related issues. The level of rigour necessary for effective training could be relatively low. ∑ If expected interactions are high and dissimilarities between cultures are also high, then training could focus more on cross-cultural sensitivity, in addition to the new task. The level of rigour for such training could be moderate to high. The theoretical frameworks supporting this approach are discussed in detail towards the end of the chapter.

200 International Human Resource Management

Exhibit 7.2

Intercultural Coaching for Global Managers

A key element in global managers’ success is their ability to understand other cultures and communicate effectively with their overseas constituents. Liliana Garcia Loeffler believes that the most effective way of achieving cross-cultural competence lies beyond traditional intercultural training. Today, multinational companies offer intercultural training for their executives. Typically, these global managers spend 1-2 days covering a myriad of culture-related topics. The focus is on the distinctions between their cultural values and behaviours, and those of their counterparts across the Pacific, the Atlantic, in the Americas, or even in other regions of their own country. Although these programmes raise cross-cultural awareness, we need to ask if training alone is sufficient to meet the requirements of increasingly complex global interactions. Research on the effectiveness of training reveals that 4-6 weeks after training, nearly 80 per cent of what was covered in the session is forgotten, unless there is a mechanism to support and facilitate the habituation of the proposed learning. Creating ‘new wiring’ This is similar to the process of learning a new dance or sport or learning to play a musical instrument. Mastering any of these new skills requires a process of first learning the mechanics of the tool being used, aligning our bodies and brains accordingly, and practising until the desired new skill becomes second nature. Brain theorists refer to this as creating new wiring. For global managers to be most effective in intercultural communications, they need to internalise cross-cultural communication skills. This new wiring of cross-cultural communication skills allows the executives to focus their energy on the business at hand, and liberate their mind from the confusion caused by miscommunication due to intercultural differences. Perhaps a more effective approach is a phase process that focusses on empowering the executive to gain cross-cultural competence through one-on-one coaching sessions. The executives expand their range of thinking and communicating in order to become aligned with the culture(s) which are important to them. Milton J. Bennett developed a framework for understanding the process of increasing cross-cultural competence. In his Model for Intercultural Sensitivity, Bennett’s underlying assumption is that as “one’s experience of cultural differences becomes more sophisticated, as one’s competence in intercultural relations increases.” At higher levels of cultural competence, the individual has an expanded worldview, is able to look at the world through different eyes, and he/she is able to intentionally change behaviour to communicate more effectively in another culture.” Developing cultural self-awareness in two phases To achieve higher levels of cultural sensitivity, it is critical that the executives have cultural selfawareness. Unless there is awareness of this cross-cultural exchange by at least one of the parties, the communication is highly susceptible to misunderstanding and the associated tangling of emotions. Higher levels of cultural sensitivity can be achieved through a two-phase process, with the aid of a coach. Phase I supports the executive’s process of self-awareness as well as his/her understanding of cross-cultural dimensions and the forces that shape cultures, such as: history, environment, political and technological factors. This is a 2-day session that the coach customises for the executive, based on an in-person or phone conversation to assess the executive’s situation and needs. Phase II of the engagement coaching begins. In weekly sessions of over 4 months or longer, the focus is on facilitating the executive’s learning process of building or expanding global communication

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skills. The coach and the executive explore his/her major intercultural barriers or issues; and the cultural filters, behaviours, thinking and communication styles inherent in the executive’s culture, and those of the culture(s) important to the executive’s business objectives. With the coach’s support, the executive begias to develop the necessary mental muscle by practising other manners of presenting information, and thinking: The executive begins to internalise these new skills by applying them as needed on-the-job. Over time, the executive learns to communicate so well in the ‘silent’ language, that cultural differences become nearly imperceptible to his audience. The executive may begin to walk in the other person’s cultural shoes. Even better, both parties may partake in the dance of communication beautifully! Changing ‘cultural shoes’: With this specialised coaching and with practice, the global executive can become so culturally competent, that, for example: • When in Rio, an executive with a linear (or monochronic) working style can feel at ease working in a multi-tasking (or polychronic) working environment, or vice versa. • When in Tokyo, the global manager who usually speaks and presents specific information first (in an inductive style), is able to switch to speaking or presenting the big picture first (in a deductive manner), according to the cultural orientation of his audience. • While in New York City, the global team member from hierarchical Bogota, who is conditioned to defer to his supervisor during team presentations, develops confidence and feels comfortable participating and voicing his opinion in global team meetings. • An executive from a relatively individualistic cultural orientation knows the expectations of working in a group-oriented culture, and is able to quickly switch to a different working style. • And a leader who has been conditioned to think in terms of “one size fits all” (or universalistic) mentality is able to see the perspective of a particularistic culture and successfully lead a global team. Transformational coaching of any nature happens incrementally over time, simply because real learning or new wiring needs to be internalised via practising or habituation so that it can be retrieved from our brain ‘just-in-time”. What to look for in an intercultural coach Excellent intercultural coaches have attained education and proficiency in the coaching and intercultural fields; they have lived and worked in multicultural business environments, and learn continuously. As in other forms of coaching, effective intercultural coaching requires certain qualities and fundamental skills of the coach: self-awareness in the personal and cultural dimensions; empathy, lightness, excellent listening and observation skills; the facility to ask powerful questions and an overall competence in the art of coaching. It is an art because there is no one formula for effective coaching; instead, the coach brings his or her unique personality and experience (or signature presence) to the coaching engagement. An excellent coach also has the facility to co-create a safe and enriching relationship built on a foundation of mutual trust and respect, so that the executive feels empowered and accountable to reach his/her most important and desired goals. How intercultural coaching benefits the global manager and company Minimally, the investment in this two-phase approach will empower the executive to have more confidence in leading and working with people from other cultures. Breakdowns in the flow of team projects caused by miscommunication across cultures will be minimised. Best practices from other cultures will be embraced more quickly; effectiveness of multicultural teams will be enhanced; and the synergy of different approaches will allow the executive to take the organisation to a new level. Source: Abridged version of the article, Intercultural coaching for global managers: Beyond cultural awareness to integration, originally published in Intercultural Management Quarterly, (www.imquarterly.org).

202 International Human Resource Management Practical Assistance Yet another component of the CCT programme is practical training. This seeks to help the expatriate and his family ‘feel at home’ in the host country. Sooner the assignee settles down, better are the prospects of him and his family adapting successfully. One important need is that of a support network of friends. Where an expatriate community exists, organisations often try to integrate the new expatriate family quickly into that group. The expatriate community can be a useful source of support and information, and can help the family to adapt to an alien culture. Identifying the Methods of Training CCT programmes are generally conducted through four categories of methods: didactic culture general training, didactic specific culture training, experiential cultural general training and experiential cultural specific training (see Fig. 7.2). Didactic Training This is imparted through lectures, seminars, study material, discussions, videotapes and culture-general assimilators. Alternatively called educative training, didactic general training seeks to incur a cognitive understanding of a culture so that its norms and behaviours can be easily appreciated by the assignees. Didactic specific culture training, in contrast, instructs about the cultural nuances of the expatriate’s host country. Methods used in this category include area studies, videotapes, orientation briefings, preliminary visits, case studies and the like. Didactic General

Didactic Specific

Lectures, seminars, study material, discussions and assimilators

Area studies, videotapes, briefings, visits, case studies Methods of CCT Programme

Experiential General

Experiential Specific

Immersion programmes, or intensive workshops

Role playing, look-see trips, in-country cultural training and language training

FIGURE 7.2

Methods of CCT

Experiential Training What is learnt through experience constitutes experiential training. Individuals learn best from their experiences in the host country or from interacting with individuals from other cultures. Experiential general culture training methods help assignees experience the impact of cultural differences on their behaviours. Methods in this category include immersion programmes or intensive workshops. Methods in experiential specific training include role playing, look-see trips, cultural coaching and language training. These methods seek to help expatriates experience and learn from interactions with individuals from the host culture. Sequencing of Sessions Instructional contents having been identified and methods of training being decided upon, the next logical step is to sequence the training sessions. Sequencing refers to the timing of the training sessions. Training

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sessions can take place before departure, after departure and on arrival in the new culture, or a sequential combination of the two. Pre-Departure CCT This is the most widely used method of imparting training and is the most effective way of preparing the expatriate to take up an overseas assignment. Having already learnt about the cultural nuances of the host country, the expatriate finds it relatively easy to adjust himself or herself to the new environment. But predeparture CCT is at best learning something without actually experiencing it. Experience itself is one of the best teachers. Both classroom as well as e-learning based methodologies can be deployed. Post-Arrival or In-Country Training facilitates learning by experiencing the host country culture, beliefs and values. Given the fact that there are practical differences between the pre-departure CCT and post-arrival CCT, the best practice appears to be a sequencing of information per se. For example, basic information (Ex. currency, exchange rate, hotels, transportation systems and hospitals) should be offered before departure, while deeper cultural learning about a new country and its culture and the awareness of the skills and behaviours needed to be successful in another culture should be effectively administered after arrival in the host country.13 In other words, organisations generally use sequential or continuous CCT programmes.

Evaluating the Effectiveness of CCT CCT programmes having been designed and delivered, the final phase relates to the assessment of its effectiveness. Evaluation of the effectiveness of a CCT refers to collection of information necessary to make decisions relating to its continuation in the current form or a modification of the programme. The CCT programme is said to be effective when the expatriate has acquired the necessary capabilities to live comfortably in the new environment. Evaluation necessitates identification of training goals and methods so as to judge whether or not the goals have been met. As stated earlier, the goals of a CCT can be either short-term or long-term oriented. Short-term goals of a CCT programme seek to bring about cognitive, affective and behavioural changes in an expatriate. Cognitive goals focus on helping the expatriates understand the role of cultural values on behaviour in the host country. Specific examples of cognitive goals include knowledge about managing stress and awareness of the norms required to effectively interact with host country nationals. Affective goals seek to help the expatriate manage his or her attitude towards the new culture and effectively handle negative emotions. Affective goals include changing the expatriate’s perception about the host culture and enhancing his or her self-confidence to communicate with people from other cultures. Behavioural goals help the expatriate form adaptive behaviours by emphasising the cross-cultural skills the assignees require in order to successfully interact with individuals from other cultures. Examples of behavioural goals include developing intercultural skills, negotiating skills and relationship building skills.14 Now that the short-term goals of the CCT have been defined, the next step is to identify methods to evaluate the effectiveness of the CCT against each of the goals. Cognitive outcomes can be effectively tested using paper and pencil tests or online tests. Affective outcomes can be tested through personal interviews or group discussions. Behavioural outcomes can be assessed by observing performance in a cultural simulator or in a role play. There is yet another dimension to the assessment of short-term goals of the CCT programme—the type of expatriate assignment. An assignee sent on an trouble shooter assignment, for example, need not significantly interact with locals of the destination country. In such an assignment, the focus on cognitive outcomes, such as acquiring practical information (e.g. information on hotels, hospitals, transportation), is all that is required. In contrast, the short-term goals for people sent on executive assignments, which require

204 International Human Resource Management considerable interactions with host nationals, must focus more on affective and behavioural outcomes, such as acquiring intercultural skills.15 Long-term goals of the CCT programme include the expected outcome of the expatriate assignment, such as cross-cultural adjustment and success on the assignment. Outcomes of long-term goals can be measured through paper and pencil, questionnaires, phone interviews, in person interviews or electronic surveys. (Also see Exhibit 7.3.)

Exhibit 7.3

The 4 Levels of Evaluation

The most widely used model for evaluating training programmes is one proposed in 1959 by Donald L. Kirkpatrick, who is now professor emeritus of the University of Wisconsin and a consultant in Elm Grove, WI. He recently wrote his first book on the topic Evaluating Training Programs: The Four Levels (Berrett-Koehler, 1994). The model is so closely linked to him that it’s usually just called the Kirkpatrick model. It is elegantly simple. Kirkpatrick maintains that there are four ways to measure the quality or effectiveness of a training course. LEVEL 1. At the most primitive level of evaluation, we find the battered and bloodied “smile sheets.” Kirkpatrick, however, does not deride them as do many trainers who feel that smile sheets are not an indicator of whether the training worked. But Level 1 evaluation, which seeks trainee reactions to a course, is not useless. Trainees who are put off by some aspect of the course design are unlikely to ingest the learning points you’ve so carefully put in their trough. LEVEL 2. Once you’ve determined whether they liked the course, it’s useful to test what the trainees learned. Sometimes, this will take the form of a pencil-and-paper exercise. But the goal is to find out if they learned what you were trying to teach. LEVEL 3. Here’s where measurement gets tough to do. It’s one thing to document that learners mastered the course content, but if they don’t apply any of it when they return to the job, the course has wasted everyone’s time. Level 3 evaluations try to measure behaviour change on the job. LEVEL 4. Most trainers profess that they want to tie training to the company’s bottom line, and that’s exactly what Level 4 evaluation attempts to measure. If a course did achieve its objectives by changing trainees’ behaviour on the job, did that change improve the company’s business results?

THEORETICAL FRAMEWORKS FOR CCT Towards the end of the chapter, we propose to discuss three frameworks or models of training that integrate the research that supports industry practices: Tung, Mendenhall and Oddou, and Black and Mendenhall.

Tung’s Framework Rosalie Tung’s (1981) proposed framework16 helps decide the nature and level of rigour of training. This framework is based on two variables1. The degree of interaction between the parent and the host unit, and 2. The culture novelty, implying how different (novel) is the culture of the expatriate from that of the host unit.

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As per this framework, the two variables that define the nature, duration and intensity of training that needs to be provided to the expat. Figure 7.3 identifies the training focus and the rigour of the training programme. If the expected interaction between the expat and members of the host culture is low and the degree of dissimilarity between the individual’s native culture and the host culture is low, then the content of the training should focus on the task- and job-related issues, rather than on culture-related issues. The level of rigour necessary for effective training should be relatively low, and vice versa.

FIGURE 7.3

Tung’s Model

Tung made one of the first efforts to create a framework that would enable organisations to plan the type of training to be provided to expats. For example, if an expatriate (parent company being in USA) is being chosen for an assignment as a Research Director, heading the R&D activities of a pharmaceutical company in a country like China, the degree of interaction in this role would be medium and limited to team members internally; while the cultural novelty would be very high, given that China and USA are culturally very divergent. Under the circumstances, the training rigour would be high, indicating longer sessions and intensive classroom/field trip method. The training focus too would be high on culture related issues such as awareness of one’s own cultural assumptions, cultural sensitivity to the host country work norms and values, ability to recognise and accept the differences and be able to work along with these differences without offending team members and creating conflict. Tung also came up with five categories of training which can be imparted to expatriates. They are: ∑ Area studies, which include information about environment and culture. ∑ Language training. ∑ Use of culture assimilator assessments, where expatriates get questionnaires that require their responses to many cross-cultural scenarios. Expatriates have to answer as if the situation is existing right now. A compilation of this analysis would be shared as feedback about what would be the implications when expatriates would exhibit such responses abroad. ∑ Sensitivity training shows the expatriates’ own values, assumptions, behavioural tendencies, interpersonal strengths and weaknesses, prejudices and biases. Awareness alone can serve as an effective learning tool. ∑ Field trips mean that the expatriates are sent to the country of assignment, where they may experience the stress of living and working with people from different cultures.

206 International Human Resource Management What is missing from Tung’s framework is the connection between the categories of training discussed above, the meaning of rigorous training and a description about which approaches would be more rigorous than others. The conclusion can, however, be easily drawn. For example, if the rigour of training is low, simpler coaching methods, such as use of cultural assimilators and area studies are more cost effective; if rigour of training is high, intensive methods like preliminary visits, sensitivity and language training would be the focus.

Mendenhall and Oddou’s Framework The Mendenhall and Oddou’s framework builds on the model provided by Tung. The elements of “degree of interaction” and “culture novelty” are retained, while adding a more complex relationship—‘training methods’. This framework, therefore, includes three key elements: ∑ training methods; ∑ low, medium and high levels of training rigour; and ∑ duration of the trainings; which are relative to the degree of interaction and culture novelty. (See Fig. 7.4) As Fig. 7.4 shows, when the duration of stay in the host country is long (1-3 years), the degree of interaction and integration with the foreign culture is deemed to be high. This merits a high level of training rigour. The training employs methods like assessment centres, field experiences, simulations, sensitivity training and extensive language training. Information giving training methods like area and cultural briefings and affective training like role-playing, are also included to provide the comprehensiveness, the nature of the overseas assignment warrants. Hence, the length of training has to be long (1-2 months). On the other hand, when the assignment is a common one, the two cultures are similar and the job does not merit much of interaction, the preferred method for sharing information is through simple and brief session of 4 to 8 hours where details about the subsidiary’s culture are shared and printed material will be left with the individual to be used as and when needed (See Table 7.2). TABLE 7.2 A

Level of Rigour High

Duration 60–180 hours

Approach lecture, factual briefing, books, role plays, cases, field experiences, culture assimilator, simulations

Training Content Equal emphasis on job demands and culture (include: economic, political, historical, and religious topics)

B

Moderate

20–60 hours

lecture, film, books, culture assimilator, cases

Equal emphasis on job and culture

C

Moderate

20–60 hours

lecture, film, books, cases, role plays, simulations

Strong emphasis on job demands, less on culture

D

Low to moderate

20–40 hours

lecture, factual briefing, cases

Strong emphaiss on job demands, little on culture

(Contd)

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TABLE 7.2

Contd

Level of Rigour

Duration

Approach

Training Content

E

Moderate

40–80 hours

lecture, film, books, culture assimilator, cases, role plays, simulation

Little emphasis on job demands, most on culture (economic, political, historical, and religious topics)

F

Low to moderate

20–60 hours

lecture, films, books, cases

Little emphasis on job demands, more enphasis on culture

G

Low to moderate

30–60 hours

lecture, films, books, cases, role plays

Little emphasis on job demands, more emphasis on culture

H

Low

4–8 hours

lecture, films, books

Little emphasis on either job or culture

Source: Mendenhall, M. Punnett, B.J. Ricks, D. Global Management, Cambridge (Massachusetts): Blackwell, 1995, pp. 452–453.

FIGURE 7.4

Training Scenario

Furthermore, Mendenhall and Oddou identified new training methods and added them to Tung’s list of training for expatriates. These are: ∑ Lectures are given to introduce new topics, information, models and concepts. ∑ Films are used to analyse scenarios, motivate, inform and demonstrate. ∑ Books are used to prepare face to face training and are used during lessons and afterwards, to review the lessons. ∑ Role plays: expatriates act as themselves or others in new situations, which may occur abroad.

208 International Human Resource Management ∑ A case study includes enough details to analyse a problem and to solve it. ∑ Simulations: putting managers for a specified period in the same place, where they meet but do not understand the local people; they might get an idea of what life abroad can be. However, despite these improvements, Mendenhall and Oddou’s framework lacks some elements. For example– ∑ The model does not explain how the level of rigour of a specific cross-cultural training method or group of methods is determined. ∑ The content of the training methods categorised seems to be limited to cultural training and overlooks job-related training.

Black and Mendenhall’s Model The more recent Black and Mendenhall’s model combines the methods of expatriate training programs, and the evaluation of their success. Black and Mendenhall’s model is built on three steps that an expat experiences as he/she is coping within the new environment: ∑ In the first phase, he or she becomes aware of important cultural behaviors; ∑ During the second phase, he or she begins to think about what he or she has learned, seen or heard; and ∑ In the third phase, the expat practices the important behaviour. According to Black and Mendenhall, training for the expatriate therefore, needs to help him or her cope with these three steps of the learning process. Expatriate training for developing cross-cultural competencies therefore, need to be spread over the three levels of experience the expat undergoes as he or she acclimitises with the cultural differences. As shown in Table 7.3 the duration of the training increases with the level the expat crosses. Black and Mendenhall refer to training rigour as the degree of ‘trainer—expatriate’ involvement in the training process. Low-rigour training focuses more on a passive participation of the expatriates, while more rigorous training implies that expatriates use their passively learned skills. Table 7.3 shows the training rigour that is associated with the training method required for imparting the skills. TABLE 7.3 Low Training Rigor (Duration=4–20 hours) ∑ ∑ ∑ ∑

Lecture Films Area studies Books

Cross-Cultural Training Rigour

Moderate Training Rigour (Duration=20–60 hours) Methods in previous box, plus: ∑ Role plays ∑ Cases ∑ Assimilator ∑ Survival-level

High Training Rigour (Duration=60–180 hours) Methods in pervious box, plus: ∑ Sensitivity training ∑ Simulations ∑ Field trips ∑ In-depth

Source: Black, St. J., Gregnsen, H.B. and Mendenhall, M.E. Global Assignment, San Francisco: Jossey-Bass, 1992, p. 97

Finally, Black and Mendenhall integrate the variables of culture novelty, interaction with local people, and job novelty with training rigour. They state that the different degrees of culture novelty, interaction with host nationals and job novelty need different levels of rigorous cross-cultural training. Figure 7.5 shows how to decide on the rigour of training.

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HCN TRAINING So far the focus has been on CCT of expats. Grooming an HCN to take up the responsibilities of heading the host unit, is equally important from the training perspective. HCN training proceeds on the same lines as CCT for an expat as shown in Fig. 7.5. Objectives

Types of Assignment

Needs Analysis

Goals and Measures

Develop and Deliver

Methods of Training

Assessment of Effectiveness

FIGURE 7.5

Steps in HCN Training

Objectives In selecting a host country national for the host unit assignment, the focus is on ascertaining the technical and managerial fit for the role. In preparing a host country national for the assignment, the training priority is the knowledge and the awareness of the parent company, beginning with the history and genesis of the organisation and connecting with its mission/vision, goals and the specific objectives of the subsidiary. The nature of the planned intervention for an HCN can be summarised thus: ∑ gaining information about the parent organisation and its global existence and objectives; ∑ the acquisition of technological know-how specific to the organisation; ∑ the role of the ‘new’ subsidiary in the MNC’s roadmap—both from the technological as well as the corporate cultural perspective; ∑ and general awareness about the parent country norms, culture, and work methods.

Types of HCN Assignment Most HCN assignments are long-term assignments, with clearly identified objectives to be achieved. When an organisation adopts a polycentric approach, the key functional roles are normally filled by the HCNs since they are familiar with the practices and work ethos of the local country. The position of the head of the unit could be filled by a PCN or an HCN, depending on the philosphy of the parent company. Common roles and responsibilities are— ∑ Managing Director/Centre Head/Country Head

210 International Human Resource Management ∑ Chief Operating Officer, Chief Technology Officer, Chief Information Officer, Chief Finance Officer, HR Director/HR Manager ∑ Unit staff

Training Needs Analysis The individual needs analysis remains the same as discussed earlier for an expatriate. The training needs analysis at an assignment/organisational level includes the following considerations: ∑ Orientation to parent company processes and reporting mechanisms; mostly on-the-job, with constant mentoring by assigned parent mentor. Companies are increasingly using innovative methods like travelling to the HQ for induction and orientation for a duration of 1–3 weeks, in order to enable a more intensive and in-depth induction into a global company culture. ∑ Communication difficulties in dealing with parent company personnel—familiarity and awareness of parent company work practices, work culture, values and respecting and working within the global plan of the corporate. ∑ HCNs have limited career opportunity outside the subsidiary, therefore provision for career planning developmental initiatives that help them see the future prospects for personal and professional growth. ∑ Hiring HCNs may encourage a federation of nationals rather than global units–hence, training for global corporate vision and mission across locations; training for uniformity in global work practices (within local framework), especially for middle management.

Training Goals and Measures The common goal of HCN training is the ability to have the subsidiary similarly managed as the parent unit. The short-term goal would be awareness, while the long term goal would be to have a unit that is able to carry out the objectives for which it was created. Apart from the obvious goals and measures, what is important is the need to educate (may be even provide for formal classroom training) employees/team members of the parent company who interact with and whose jobs overlap with roles at the corporate unit. There is a need to provide cross or reverse culture training to the parent company nationals, on the subtle cultural differences that drive work culture at the subsidiary. Awareness of the industry level challenges and the uniqueness are important for the parent country national so as to be able to appreciate the ‘circumstances’ that drive hiring, compensating, rewarding and firing team members in the unit.

Develop and Deliver the Training The responsibility of the HCN training programme would lie squarely on the shoulders of the top- management and the HR team of the parent company. The content as well as delivery would initially be driven by the PCN and over a period of time, transitioned to the local unit, while retaining ‘control’ over what is shared in the training. Common training modules for an HCN would be the corporate induction programme and the technology training. Corporate Induction The new hire orientation programmes in an MNC play a very critical role in establishing the right perspective about on-boarding of employees. Common components of a ‘global’ induction programme include:

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Corporate history and heritage, founders, promoters and investors, Industry overview, company’s market share and positioning, competitors and growth globally, Company’s specific business-product/service background, at the various locations, Company’s customers over the years, landmark achievements, partners and vendors, Introducing the corporate and local leadership teams—who’s who, Future plans for growth, market share and new products/services, globally and locally, Role of the subsidiary in the achievement of the global goals, Communicating the corporate vision/mission statement, philosophy and the sharing of values and guiding principles that drive work within the organisation, ∑ The HR policies of the subsidiary unit, and ∑ Certain basic work practices specific to the unit. There are organisations who fly their employees to the headquarters from all locations and have them spend 1-2 weeks at the HQ, understanding the organisation from a global perspective. Technical Technical training pertains to the sharing of detailed information on the core business of the company, its nature of work and the knowledge required to make the subsidiary operationally independent. These are normally class room instructional sessions, with a reasonable amount of self study literature which includes quizzes/tests as assessment of knowledge acquired. Web-based training sessions across global locations are commonly conducted over the Internet by the parent company, often providing for video-based sessions too. ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑

Identifying the Methods of Training The methods of training adopted for HCNs are mainly on-the-job. Common methods include classroom sessions, on-site visits, mentoring, e-learning modules and web-based coaching. It is also becoming common for organisations to encourage a lot of initiative in management education. Exhibit 7.4 talks about the new drive for self-development that determines the career growth of global teams, offering an opportunity to move to any position in any corner of the world.

Exhibit 7.4

The Smarter Way Toward Self-Development

Tim Smith, a first-level manager at Boeing, knows a thing or two about leading during times of constant change. What with the downsizing that has intensified in the two years since September 11, he’s gone from supervising engineers to supervising hourly employees, and he is currently on a special assignment that involves consolidating operations and relocating them into smaller plants both inside and outside the company. And he’s had five different managers in the past fourteen months. To help turn the challenges he’s facing into occasions for learning and to further his own development as a leader, Smith is participating in Boeing’s Waypoint Project. Established in 2000, this ten-year initiative brings together 120 volunteers from all levels of management in a joint exploration that seeks to turn their trial-by-fire experiences into an intentional process for improving leadership capabilities while accomplishing business objectives. At a time when training dollars are increasingly scarce, Boeing is taking a fresh look at leadership development. There is much to learn from what the leaders of the Waypoint Project and other leadership-development experts have found.

212 International Human Resource Management Staff from the Boeing Leadership Centre (BLC) interview the volunteers throughout the year. Their findings are made available to all Boeing managers through an interactive Website, which also allows them to take assessment tests, devise personal development plans, and identify training and stretch assignments. Participating in Waypoint is not only giving Smith access to a valuable body of knowledge, it is also helping him to identify key development goals. To stay sharp in his current operational responsibilities, he’s taking classes on accelerated improvement that will enable him to maintain his certification as an instructor in lean management principles. And to position himself for higher-level management jobs, he’s taking a 200-hour course on program management at George Washington University and a two-week course to learn more about strategic leadership. What puts the Waypoint Project at the cutting edge of leadership training in large organistions? With development programs coming under increased pressure to help an organisation achieve or maintain competitive excellence, many organisation-directed “push” programmes have been found wanting. In such programmes, the company selects a relatively small number of managers who have been deemed to possess the greatest leadership potential, gives them access to special educational and networking opportunities, rotates them through a series of high-level assignments, and carefully monitors their progress. But these push programmes can turn into little more than credentialing exercises when the participants aren’t fully committed to the learning. Consequently, best-practice companies are combining traditional push programmes with self-directed “pull” approaches, in which the individual has a high degree of choice and flexibility and thus is more responsible for his own development. The Waypoint Project is Boeing’s innovative attempt to create tools to support such self-directed learning. And by making the insights it generates available to all managers, the company hopes to institutionalise the lessons learned from crucible leadership experiences. A closer examination of Boeing’s initiatives, combined with insights from experts about the state of leadership development programmes in big companies, yields valuable recommendations both for managers who are looking to develop their direct reports’ leadership potential and for those who are trying to plot their own career trajectories. 1. Focus on the job, not the classroom “With all leadership development, the real driver is the work itself,” says James M. Hunt, associate professor of organisational behaviour at Babson College (Wellesley, Massachusetts). “The learning takes place through challenging assignments.” Interviews with Waypoint participants certainly bear this out: they reveal that 80 per cent of a leader’s development occurs through on-the-job activities and experiences, not in the classroom. In particular, says Paul Yost, manager of leadership research at the BLC, the research highlighted sixteen critical events in a leader’s development, among them being turning a unit or group around, starting a business from scratch, making the transition from a line position to a staff position (or vice-versa), dealing with a problem employee, and handling your own mistakes or failures. The project’s intranet includes a database of insight and advice from managers who’ve been through these experiences. 2. Look for the overlap between individual interest and the company’s strategic needs “Your leadership development efforts must be driven by the business strategy,” says Mary MannionPlunkett, senior manager for research, evaluation and communications at the BLC. “If the business

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units see the development activities as being separate from the work of accomplishing unit objectives, they’re not going to follow through with them.” But one of the fundamental insights of adult education, experts say, is that you won’t get anywhere if you try to teach people things they’re not interested in. The way to resolve this tension between the goals of the individual and those of the organisation is to look for the areas of overlap. The BLC’s Waypoint site enables managers to develop personalised development plans that do just this. After reading about the competencies needed for handling a particular position or crucible experience, the manager can choose the ones she’s most interested in working on and then find recommendations on how to acquire them. Even so, the manager’s motivation “can be very pragmatic,” says Babson’s Hunt, who is co-author with James R. Weintraub of The Coaching Manager: Developing Top Talent in Business (Sage, 2002). “Some of the things people need to learn in order to be leaders or to rise to a higher-paying position— for example, how to handle conflict—may not be things that they love to do.” 3. Remember that companies are dynamic—and so are the leadership skills they require “It doesn’t make much sense to try to define all the competencies of the ideal leader and then map out a rigid development process for acquiring them,” says the BLC’s Yost. “Markets and technologies change too fast for that to work.” Instead, start by identifying the leadership skills that are likely to become more significant in your company in the years ahead. Entrepreneurial thinking skills, for example, are always important, but they’re becoming even more so at Boeing in recent years as aircraft sales have declined and the company has sought to identify more services that it can provide to both the commercial and military markets. Take a broad-minded view of your company’s strategic objectives and what skills are needed to accomplish them. For example, think about the circumstances under which it makes sense to let direct reports pursue interests that are not mainstream now but may well be so later on. 4. Know when to reach out For all the advantages of pull programmes, there are still times when push programmes are invaluable. “When a manager is moving from one level to another or across functions, or just after a merger, when an organisation is trying to blend two cultures—we find that during such times of transition, it’s very important for us to be reaching out to people via push programmes,” says Mannion-Plunkett. In addition, the Waypoint Project’s research has identified six indicators that a manager needs a training “push” to keep his career on course. They include not seeking out job assignments that push him to the edge of his comfort zone, avoiding high-stakes assignments, not building networks and relationships internally and externally, and focussing on near-term performance goals to the exclusion of learning goals. Boeing’s training programmes for executives include discussions of how to avoid such potential career derailments—and how to help direct reports avoid them, too. 5. Now more than ever, you need to take responsibility for your own development Push programmes for high-potential managers still constitute the core of most organisations’ leadership development efforts, but a study of Fortune 200 companies by management professors Jon Briscoe of Northern Illinois University (DeKalb, Illinois) and Brooke Derr of Brigham Young University (Provo, Utah) reveals that today there’s a much greater degree of individual awareness and involvement in the development process. “At the lower echelons, for managers up to about age thirty-eight, there’s lots more experimentation and self-directed learning opportunities than before,” says Derr, co-editor with Sylvie Roussillon and Frank Bournois of Cross-Cultural Approaches to Leadership Development

214 International Human Resource Management (Quorum Books, 2002). But push programmes for high potentials, which tend to kick in at around age forty, also have more of a pull element than they used to, he adds: “There’s a lot of explicit contracting with the high potentials to make sure that the top leadership track is still something they want.” Fewer people are included in push programmes these days, says Derr. To get noticed, aspiring managers have to take advantage of the development opportunities that the company provides. The good news is that the metrics for assessing leadership potential are much more transparent now. Says Derr, “Companies are much more likely to spell out what you need to do in order to make it into the future leaders group.” Sources: Loren Gary, Harvard Business Review, Dec. 1, 2003).

Evaluating the Effectiveness The ultimate measure for the effectiveness of HCN training is the ability of the individual to build successful subsidiary operations, establish competent teams and achieve the unit’s objectives while adhering to global processes and policies. Training is sucessful if these purposes are served well.

TCN TRAINING Besides training of HCN and PCN, TCNs also need to be trained. In selecting a TCN for a subsidiary unit assignment, adequate attention is paid to ascertaining the technical, cultural and managerial fit of the person for the role. In preparing a third country national for the assignment, the approach is similar to that of the HCN, where the priority is knowledge and the awareness of the parent company, beginning with the history and genesis of the organisation, connecting with its mission/vision, goals and the specific objectives of the subsidiary. Very little emphasis is laid on the parent/subsidiary country culture since it is assumed that the employee selected already possesses these competencies. The cultural training modules could however be made available to the TCN incase there is a specific requirement expressed by the individual. Hence both at an individual as well as at an assignment/organisational level, the training needs and the interventions remain the same as for an HCN. In fact, the TCN has a shorter learning curve and given the very reason why the subsidiary is staffed by a TCN, the training investment is minimal.

EMERGING TRENDS IN TRAINING FOR COMPETITIVE ADVANTAGE Today’s MNC’s are learning new ways to engage and woo the employee. With good talent being in short supply, training and development initiatives are being re-packaged to motivate employees for enhanced performance. We propose to discuss four significant trends: online training, career development, corporate spon-sorship and global team reviews. Before doing so, let is first read through Exhibit 7.5 which depicts Canon’s story relating to its focus on employee developement.

Exhibit 7.5

The Canon Story

As a Japanese-born multinational, Canon has the aspiration of developing a global oasis of talent to push through with the continued globalisation of the company. The company has 98,000 employees all

Training and Development 215

over the world, with approximately 75 percent of its revenue generated outside Japan. The organisation has become just too large and too global for Japanese expatriates to manage. Canon found that it needed to develop a pool of global employees who could understand and act consistently in accordance to its missions and values. The figure given below demonstrates the Canon concept of mobilising a global talent pool to facilitate its globalisation strategy. Kyosei

Excellent Global Corporation

? Living and working together for the common

? Reconfiguration of all business process ? Work on appealing products that create value ? Globalization in many forms and from a long-

good. ? Imbalance should be addressed ? Transcend differences ? Social responsibility

term point of view

CANON ‘Global Staff’

Spirit of meeting new technological challenges

Product development organisation focused on new achievements

Flexible and rationalized production structure

Integrated regional operations

Corporate Mission and Values Source: “Mastering Business In India: HRM” by Hugh Bucknall & Reiji Ohtaki, Chap 9: HRM Questions for the CEO Pg 200-201.

Online Training Online training is a generic term used to describe the various methods of receiving/publishing training materials on the web. Online training is used as a catch-all phrase to describe a wide array of training models. For the MNC, this method of training allows it to standardise training objectives and outcomes globally. Irrespective of location the some training content is delivered effortlessly and uniformly to reach the global target audience. It is a very popular method used to import knowledge globally for the international organisation. E-learning/Computer Based Training (CBT) The development of efficient training methods and state-of-the-art training techniques based on the use of the technology and computers (CDs, DVDs, online programmes) are gaining significant application at the workplace. The key factor being that it can seamlessly connect people around the world. This new self-study, low-cost training method can be easily transferred from one subsidiary to another, and serves as a cornerstone for the training process in MNCs. E-learning/ computer-based training (CBT), also called computer-assisted instruction (CAI), is a type of education in which the employee learns by executing special training programmes on a computer. Traditionally, CBT was especially effective for training people to use computer applications because the CBT programme can be integrated with the applications so that employees can practice using the application as they learn. CBT largely restricted itself to technical education and knowledge. Historically, CBT’s growth has been

216 International Human Resource Management hampered by the enormous resources required: human resources to create a CBT programme and hardware resources needed to run it. It refers to a system of education/training instruction performed almost entirely by the computer. However, with technology advancing in leaps and bounds, the increasing use of the personal computer /increasing computing power, and the growing network of geographically spread MNC’s, are swiftly making e-learning a more viable option for corporations and individuals alike. In addition to the knowledge based training needs, skills and application based training are delivered as e-learning packages. Coupled with emerging methods to ensure that the learning is made practically applicably e-learning is widely used in MNC’s for the following purposes: ∑ Technical/knowledge based training: Product training, Services training, customer service, Sales training etc ∑ Procedure/ process related training: Standard Operating Practices, HR policies and processes, booking orders on the company software system, ∑ Awareness training: changes in the incentive system, company performance reports, customer related information, competitor strategies, Code of conduct training, Intellectual property guidelines and To Do’s ∑ Parts of the Induction training that pertains to knowing/awareness of company history, structure, philosophy and the like. Often called tutorial, it is focused on self study material which includes theoretical concepts and knowledge based information presented in well-organised capsules with examples and illustrations. There could be projects or live application assignments provided to enhance/ internalize the learning. Additional resources such as ready reference FAQ (frequently asked questions) and websites/e-book links for more information. This is concluded with a set of questions that will test the knowledge of the trainee to assess the amount of learning that has happened. Often trainees might need to score a minimum score to certify that they have successfully completed the course. Such systems typically incorporate functions such as: ∑ Assessing the employee’s capabilities with a pre-test ∑ Presenting educational/training materials in a navigable form ∑ Providing repetitive drills to improve the employee’s knowledge ∑ Providing game-based drills to increase learning enjoyment ∑ Assessing trainee’s progress with a post-test ∑ Routing employees through a series of courseware/training-ware instructional programes ∑ Recording employee scores and progress for later inspection by a instructor/trainer. The first general-purpose system for computer-assisted instruction was the PLATO System developed at the University of Illinois at Urbana-Champaign. Web Based Training An extension of the e-learning concept is the web-based training (WBT). In WBT the training program is hosted on the internet/intranet at a scheduled time. All those who have enrolled for the training would need to log in and join the webcast. The training is delivered in a virtual classroom wherein each participant can log in from their independent computers/or a local conference room seated in countries across the world where the webcast is projected via the LCD on a larger screen. This method allows for on-line interactions such as bulletin boards, chat rooms, instant messaging, video conferencing and discussion threads. Videobooks A videobook is a form of online training that delivers web-based training via downloadable training videos. Most videobooks are single website entities that focus on teaching the user (typically

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a subscriber) a particular topic. Videobooks are, as the name implies, similar in content and outline to a ‘regular’ book. The videos are typically recorded by a trained instructor and offered to the viewer on a subscription-based model. The user visits the videobook (the website containing the training videos), purchases a subscription, and can then download any or all of the training videos. Videobooks are different from many computer- based training (CBT) models in that videobook videos are typically in a shareable/ portable (non-proprietary) format. They also differ in the content delivery. Typically, the Videobooks are: ∑ They are downloadable videos ∑ Videos are usually 5-25 minutes in length and focus on teaching a specific task (task-based videos) ∑ User can watch the videos in any order they wish; the videos are presented in a recommended order but, due to the downloadble model, users can download and watch videos in any sequence ∑ No Internet connection is required to watch the video (Internet connection is required to download the video however) ∑ Videos are portable and non-proprietary—users can watch the video on any computer and most portable devices ∑ Their cost is low, often between ` 500 to ` 2000/- for a subscription. The word webcast is derived from “web” and “broadcast”. Its use has been varied over the past decade by different types of organisations and as the nature of the medium came into public use. The generally accepted use of the term webcast is the “transmission of linear audio or video content over the Internet”. A webcast uses streaming media technology to take a single content source and distribute it to many simultaneous listeners/viewers. Web-based training (WBT) is a type of training that is similar to computer-based training (CBT); however, it is delivered over the Internet using a web browser. Web-based training frequently includes interactive methods, such as bulletin boards, chat rooms, instant messaging, video conferencing and discussion threads. WBT is usually a self-paced learning medium, however, some systems allow for online testing and evaluation at specific times.

Corporate Sponsorship of Skills Certification Programmes It is becoming a common practice in organisations to sponsor the certification of specific technical and managerial skills in order to ensure competitive advantage through having a competent work force equipped with globally certified skill-sets. Organisations have policies that qualify an employee (usually based on tenure in the company) to enroll and complete critical technology / skills based programs carried out by external agencies. These are then reimbursed by the organization once the employee has successfully completed it. In addition to the advantage of having ‘certified’ employees working in the organisation, this initiative is quickly gaining the flavour of an important retention method. It is seen as a developmental contribution made by an organisation in its employees. It is not uncommon for MNCs to spend anywhere between ` 30,000/- to ` 5,00,000/- per employee on sponsoring technology based certifications. It could even be far more if the program is of international stature.

Career Development Organisations have always invested in employees’ careers but it had rarely demanded the attention it currently has received at the workplace. Organisations are going overboard with designing and implementing sophisticated employee career development initiatives and programmes. From sabbatical policies allowing for long durations of time away from work to offering dedicated mentoring and coaching policies to guide employees onwards in their careers, companies are going all out to take care of their employees. Employees now look for what the organisation has to offer in the form of ‘career development’ at the time of evaluating

218 International Human Resource Management job offers. It is not uncommon for an employee in an interview to enquire how long he or she needs to remain in the current job before he or she can explore other job opening globally. And, such questions are increasingly been answered proactively by the recruiters akin to ‘hanging a carrot before the candidate’, edging him/her towards accepting the job offer. We will briefly discuss the competency based career development scheme prevalent in the industry. Competency Based Career Development is common in most MNC’s where the entire HR framework is based on the competency framework philosophy. The competency framework approach to hire and manage a global talent pool enables companies to identify strategic competencies for each and every role that will directly contribute to organisational success. Competencies are skills, knowledge, attitudes, values and behaviours that are required for an employee to consistently perform better and better. The basic premise is that technical skills and job knowledge alone do not contribute to superior performance. The critical success factors for an individual constitute a set of behavioural patterns that deliver superior performance consistently. Fig. 7.6 illustrates how Mercer Consulting has gone about building a typical competency framework. Business strategy

High performer analysis

Competence model

Performance appraisal

Competency assement

Feedback to employee

Promoting self-development

Human resource planning

Recruiting

FIGURE 7.6

Training

Staffing

Career path

Succession planning

Competency Framework

As seen in Fig 7.6, the HR activities of hiring, training, performance assessment, career path and succession planning can all be driven using the competency framework. In hiring for example, the competencies required for a job can be used to assess a candidate’s employability; performance assessment system can be built to assess each employee with reference to the competency required for a given role; gaps in competencies indicate the areas of training needed; and employees exhibiting the potential for meeting the competency levels for senior positions can be identified. For career planning, the competency framework is usually a public document that any employee can access and look up for competencies required for the roles he or she

Training and Development 219

aspires for. An employee in the marketing team of a retail company can have a personal career aspiration to move to sales function. He or she can look up for competencies in sales job. He or she can then discuss with the boss or the mentor to plan for the move. He or she can even attend training sessions to acquire the necessary competencies and achieve career goals. Many MNC’s provide for career related discussion and planning as part of the performance management system. Time is set aside, at least once a year, to review career plans that were set during the previous discussion to chart challenges that are standing in the way of the goals, ways and means to overcome them. Often the role of the manager or the mentor (if the employee has one) could be that of ‘holding up the mirror’ and helping the employee realise that his or her aspirations need to be revisited as he or she does not possess the necessary competencies to move into that role/function. Whatever the case may be the process is supportive of employee aspirations as well as organisational requirements.

Quarterly/Half Yearly/Annual Global Team Reviews In order to network and establish common practices as well as to know and learn about the diversity of practices in the various locations of an MNC, it is common for organisations to convene quarterly/half yearly/annual conferences, product based training and planning sessions to enable adequate networking among team members of the same team spread across global locations. As organisations grow and breed centers of excellence at subsidiary levels, there is an increasing need to integrate with global goals as well as learn from other similar countries on what works well and what does not. Budgets are meticulously planned for teams to travel to the headquarters/any other preferred location that is convenient for all from the different countries to travel. The event can last anywhere between 4 to 7 days in duration. The common objectives here are: ∑ To learn about the new products and services launched/being launched ∑ Sales/customer support/service/productivity/quality related training ∑ To be familiar with different/more effective work methods and processes ∑ To network across similar teams from different companies ∑ Give away global awards and rewards for employees in various categories of recognise- product/ process innovation, quality and customer orientation. ∑ Could include specific session for equipping the people-manager in managing the unit as a part of the corporate entity. ∑ It would also include fun and games and pleasure outings All of this is achieved through having well-planned and adequately budgeted training and development strategies.

SUMMARY Training strategies bridge the gap between the individual hired and the role/responsibilities of the job that he/she is being hired for. The training approach depends on firstly, MNCs making use of expatriates on short-term or long-term international job assignments; secondly, the staffing orientation that is adopted in the subsidiary unit which influences the training impetus; thirdly, the control and the coordination linkages that the parent unit wishes to establish with the subsidiary unit which drives the training budget and the strategy; and fourthly, the ‘role and responsibilities of the position’ which determine the extent and content of training.

220 International Human Resource Management In preparing an expatriate for a global assignment, there is no gainsaying the fact that his/her success depends on how fast he or she can acculturate in a host country. So the focus is around equipping the employee with cross cultural orientation. In order to facilitate the decision on how to impart this cross-cultural training, three famous models have been developed. They are Tung’s Framework, Mendenhall and Oddou’s Framework as well as Black and Mendenhall’s Model. The next challenge lies in ensuring that the CCT programme has been designed and delivered according to the desired outcome. Evaluation of the effectiveness of a CCT refers to collection of information necessary to make decisions relating to continuation in the current form or modification of the programme. In preparing a host country national for the assignment, the training priority is on knowledge and awareness about the parent company, beginning with the history and genesis of the organisation, connecting with its mission/vision, goals and the specific objectives of the subsidiary. In preparing a third country national for the assignment, training is very similar to that of an HCN, where the training priority is on knowledge and awareness about the parent company. Very little emphasis is laid on the parent country culture and people since it is assumed that the employee selected already possesses these competencies. In discussing emerging trends in training and development, some popular strategies are computer based training(CBT); corporate sponsorship of skills certification programmes and quarterly/half yearly global team conferences. As organisations grow, the focus moves to equipping the local manager in managing the unit as a part of the corporate entity. All of this is achieved through well planned and adequately budgeted training and development strategies.

CLOSING CASE-1

Training at McDonald’s

One of the best-known companies worldwide is McDonald’s Corporation. The fast-food chain, with its symbol of the golden arches, has spread from the United States into /9 countries. With over /8,000 restaurants worldwide, McDonald’s serves 33 million people each day. International sales are an important part of McDonalds ‘s business, and over 50% of the company’s operating incomes result form sales outside United States. To generate these sales, McDonald’s employs over one million people, and by 2000, McDonald’s had grown to over two million employees. Operating in so many different countries means that McDonald’s has had to adapt its products, services and HR practices to legal, political, economic and cultural factors in each of those countries. A few examples illustrate how adaptations have been made. In some countries such as India, beef is not acceptable as a food to a major part of the population, so McDonald’s uses lamb or mutton. To appeal to Japanese customers, McDonald’s has developed teriyaki burgers. Separate dining rooms for men and women have been constructed in McDonald’s restaurants in some Middle Eastern Countries. HR practices also have had to be adapted. Before beginning operations in a different country, HR professionals at McDonald’s research the country and determine how HR activities must be adjusted. One method of obtaining information is to contact HR professionals from other US organisations operating in the country and ask them questions about laws, political factors and cultural issues. In addition, the organisation conducts an analysis using a detailed outline to ensure that all relevant information has been gathered. Data gathered might include what employment restrictions exist on ages of employees (if parttime work is allowed), and other operational requirements. For instance, in some of the former communist countries in Eastern Europe, employers provide locker rooms and showers for their employees. The facilities are necessary because shower facilities, and even consistent water supplies are unavailable in many homes, particularly in more rural areas around major cities. Also, public transportation must be evaluated to ensure that employees have adequate means to travel to work.

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Once a decision has been made to begin operations in a new country, the employment process must begin. Often, McDonald’s is seen as a desirable employer, particularly when its first restaurant is being opened in a country. For instance, in Russia, 27,000 people initially applied to work at the first Moscow McDonald’s, which currently has over /500 employees. Because customer service is so important to McDonald’s, recruiting and selection activities focus on obtaining employees with customer service skills. For worker positions such as counter representative and cashier, the focus is to identify individuals who will befriendly and customerservice-oriented employees. A ‘trial’ process whereby some applicants work for a few days on a conditional basis may be used to ensure that these individuals will represent McDonald’s appropriately and will work well with other employees. For store managers, the company uses a selection profile emphasising leadership skills, high work expectations and management abilities appropriate to a fast -pacedrestaurant environment. Once applicant screening and interviews have been completed, individuals are asked to workfor two weeks in a restaurant. During that time, both the applicant and the company representative evaluate one another to see if the ‘fit’ is appropriate. After the first group ofstore managers and assistant managers are selected, future managers and assistant managers are chosen using internal promotions based on job performance. Once the restaurants are staffed, training becomes crucial to acquaint new employees with their jobs and the McDonald’s philosophy of customer service and quality. McDonald’s has taken its Hamburger University curriculum from the United States and translated it into 22 different languages to use in training centres throughout the world. Once training has been done for trainers and managers, they then conduct training for all employees selected to work at McDonald’s locations in foreign countries. Source: Robert L Mathais and John H Jackson, South Western, 2000, pp /35-/36.

Case Questions 1. Identify cultural factors that might be important in a training programme for food handlers at McDonald’s in Saudi Arabia. 2. Rather than focussing on the differences, what similarities do you expect to exist among McDonald’s customers and employees in both the United States and abroad?

CLOSING CASE-2

Doing Business in India: A Cultural Perspective

Joel stood by the windows of the Hilton and watched the lights twinkling in the harbour—tiny, glittering explosions of life. It was a quarter past nine in Mumbai. Some Mumbaites were unwinding by the beach dining at fresco, many were hurrying back home from work and the homeless were looking for a place to lay their heads for the night. The street below was bustling with activity and the loud, blaring sounds of rush hour traffic. He had landed in the subcontinent a few days ago and was now looking forward to a joint-venture with a mid-sized Indian organisation. Negotiations and meetings had happened over the past few days, but nothing concrete seemed to have been decided upon, yet. His future in this new, chaotic and strange land seemed bleak and unpromising. He couldn’t seem to get a grip of events and was almost on the verge of calling it quits. The Indian economy had been booming for the past few years. The country held great promise for the future. Liberalised foreign policies had unleashed the entrepreneurial spirit of its people, and many multinational organisations had set up offices here. Joel and his associates had been very excited at the prospect of entering a joint venture with the Indian organisation and were optimistic about the outcome. Negotiations had started off quite well initially, but

222 International Human Resource Management slowly, problems and misunderstandings arose as a detriment to finalising the deal. Joel had attended several meetings in the past one week and had expected a completed deal that morning, but it seemed like the Indians didn’t feel rushed to come up with a workable deal and project plan. They had spent hours debating the objectives and long-term effects of the merger, but the discussions had rambled on and on without any concrete points being reached. Even after a certain decision was reached, the process was further prolonged by the necessity of going back to their senior colleagues for approval. Joel, in his frustration, tried to speed up matters, as a lot more issues had to be addressed, but the Indians felt that he was only interested in finalising and implementing the deal. He didn’t seem to be concerned about debating the finer concepts behind the deal. They also began to question his intelligence, abilities and sincerity. His informal way of addressing them also made them feel uncomfortable and not respected. All in all, they didn’t really trust him and the deal that he was proposing. Trust had become a central issue between Joel and his Indian counterparts. Joel began to doubt the Indians’ capability of actually following through on the project and getting it done on time, therefore, making them a viable business partner became a huge question mark. On the other hand, the Indians were uncertain as to whether or not they could trust Joel. He also came across as tactless and rude. This lack of trust was mainly due to a cultural difference. If Joel knew that the Indians viewed time differently from the Americans, he would have been a lot more relaxed in his interactions. The Indians in turn, instead of viewing him as a pushy American only concerned about signing on the deal, could have been a lot more understanding about the American practical way of thinking and their approach to problem solving and project implementation. If either party were aware of how culture was a major factor in shaping business deals, they would have been able to adjust a little more and make each other more comfortable. This would have led to a sense of trust between them and business would have proceeded and the deal would have been negotiated to the satisfaction and benefit of all involved. Our cultures define our fundamental beliefs about how the world works and form ways in which we interact and communicate with others and develop and maintain relationships. Doing business in a particular nation requires a focus on a multi-dimensional understanding of its culture and business practices. Understanding these differences and adapting to them is the key. India is a complex country, and those arriving here to do business will discover that the path to success is often, not very smooth. The following tips will give them an idea of the workings and business norms in practice here. In the United States ofAmerica, efficiency, adhering to deadlines and a host of other similar matters are considered normal and to be expected. But, one needs to understand that one is dealing with people from a different cultural background, who think and interact differently. As a result, what is considered to be reasonable and feasible in the USA may not work here. Aggressiveness can be interpreted as a sign of disrespect. This may lead to a complete lack of communication and motivation on the part of the Indians. One needs to take the time to get to know them as individuals in order to develop professional trust. Indians are very good hosts and will, therefore, invite you to their homes and indulge in personal talk often. All this is very much a part of business. One is expected to accept the invitation gracefully. Taking a box of sweets, chocolates or a simple bouquet of flowers would definitely be a welcome gesture. Indians respect people who value their family. They will allow family to take priority over work, whenever necessary. Criticism about an individual’s ideas or work needs to be done constructively, without damaging that person’s self-esteem. As Indians are used to a system of hierarchy in the work-place, senior colleagues are obeyed and respected. Supervisors are expected to monitor an individual’s work and shoulder the responsibility of meeting deadlines. Therefore, it is important to double-check and keep track of time. Educated Indians have learnt to adapt to Western methods of monitoring one’s own work and completing it on schedule.

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An Indian who hesitates to say No’ may actually be trying to convey that he is willing to try, but it may be unrealistic in nature and therefore, it may not get done. It is important to create a safe and comfortable work environment where it is okay to say no and also okay to make mistakes without the fear of repercussions. In a group discussion, only the seniormost person might speak, but that does not mean that the others agree with him. They may maintain silence, without contradicting him (or you) out of respectfor seniority. Westernised Indians on the other hand, can be quite assertive and direct and should be treated in the same manner. Politeness and honesty go a long way in establishing the fact that your intentions are genuine. Women are treated with respect in the workplace. They feel quite safe and secure in most organisations. Foreign women working here will find it easy to adapt to an Indian work environment. They need to plan their wardrobe keeping in mind the conservative dress codes here. Humour in the workplace is something that some Indians are not used to. Most traditional Indians are teetotallers/vegetarians, so their eating habits need to be respected. Westernised Indians are more outgoing and do socialise and drink (excessively at times). The tips mentioned above may not apply to all situations, as India is a land of contrasts and each person you meet will be unique blend of Indian/Western values. People from different socio-economic strata, educational backgrounds, class and religion may behave very differently. For any expatriate, the pace, pressure and protocol of living and working in a new country can be overwhelming, but there are many positive aspects to living in India—the valued friendships that one makes with the Indians, the beautiful and exotic places to visit, the multi-varied cuisine to experiment with, and the many, many interesting things to buy. An expatriate who is prepared to accept the differences and make the necessary adaptations will definitely be greeted with the sweet taste of success in all business endeavours. Source: Copyright 2004 Stylusinc.com

Case Questions 1. List out the inputs that could be included in the CCT for the joe and similar other expats. 2. What lessons can this case offer to IHR managers?

Key Terms CCT Culture novelty Didactic Experiential training Field experiences Online training

Job novelty Online training Pre-Departure Role-playing Sensitivity training Simulations

Review Questions 1. Discuss the success factors for an effective CCT module. 2. How are methods of imparting training different for a PCN, HCN and TCN? 3. Discuss the Mendenhall and Oddou’s framework in understanding the training challenges for expatriate training. 4. Why is there a need to customise training depending on the position being occupied, especially in the international context? 5. Debate the advantages and disadvantages of using e-learning in training for international requirements.

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Assignments 1. Break into groups of three. Carry out research to identify innovative practices in training being followed by organisations. • How does the industry trend affect the training/development initiative the organisation has adopted/plans to adopt? • How would the organisation assess the effectiveness of this initiative? Present it to the larger group. 2. Break into groups of 3 and identify a research paper that is based on a live study carried out by individuals in the area of training and development activities in MNCs. Deliberate and discuss. • What is the hypothesis? • What theory has been used? • What were the findings? Note: Teams may want to, register ‘with a moderator’ to ensure that there are no ‘duplications’ on the research article identified. Discuss in the larger group.

References 1. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage Publications, 2004, p 284. 2. Ibid, p 285. 3. Business Today, Jan.7-21, 1996. 4. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit, p 285. 5. Peter J. Dowling and Denice E. Welch, International Human Resource Management, ThomsonLearning, 2004, p 237. 6. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit, p 288. 7. Ibid, p 289. 8. Peter J. Dowling and Denice E. Welch, op.cit, p 125. 9. ORC Worldwide Survey (2002) as cited by Peter J. Dowling and Denice E. Welch, op.cit. 10. Peter J. Dowling and Denice E. Welch, op.cit, p 126. 11. Ann-Wil Harzing and Joris Van Ruysseveldt, op.cit, p 290. 12. Tung, Selection and Training of Personnel for Overseas Assignments, Columbia Journal of World Business, Vol.16 (1981), p 68. 13. Ann-Wil Harzing and Joris Van Ruyssveldt, op.cit, p 293. 14. Ibid, p 289. 15. Ibid, p 295. 16. Gao Qi and Grit Lange, A Research on The Expatriate Selection and Training; Kristionstad University, p 28-32.

CHAPTER

8 PERFORMANCE MANAGEMENT Learning Objectives After reading this chapter, you should be able to ∑ Understand performance appraisal as different from performance management. ∑ Define the key activities associated with performance management. ∑ Identify issues in managing performance in global organisations.

226 International Human Resource Management

OPENING CASE

Performance Management: Getting It Right From the Start

It is common knowledge that establishing a company’s performance management system (PMS) is a significant task. But how can you ensure that you get it right from the start? HR practioners have struggled with this issue for decades. Academic and professional journals are full of ideas and approaches to meet this challenge. Yet the task of designing and implementing a global PMS is amongst the most perplexing and challenging tasks for a global HR team. The global HR team at Samtronics Limited within its first year of going global quickly realized that assessing work now required more knowledge and skills than ever before, its dependence on human capital as an intangible asset at each of its eighteen locations globally. They looked to the PMS to help them in optimising the way this asset is managed, after all, “...a great deal of theory concerned with human motivation and human development argues that an effective PMS should be a key building block of every organisation’s human capital management system. To tie performance to rewards (the key to motivating performance), organisations need to have accurate measures of individual performance. To develop, individuals need feedback about their strengths and weaknesses. Organisations, meanwhile, need performance information to direct their training and development resources to those individuals who can gain the most by them. Finally, organisations need performance information to correct performance problems and assess the effectiveness of their improvement efforts.” Samtronics management had unanimously agreed that pay for performance can play a strategic role in attracting and retaining key employees, and this philosophy needed to be deployed globally and across teams. The first step for the HR team was to have a thorough understanding of the business in order to align performance and the pay programmes accordingly. This required a different effort for different locations as the nature of work in each location was different, while some were cost centers focused entirely on the design and development of the suite of telecom products, others were purely sales offices focused on selling the product and services and still others were sales and support offices, focused on sales and providing support. Operating in the highly competitive telecommunication industry, Samtronics is an Indian company that had overnight expanded its presence globally under the leadership of a professionally managed group of entrepreneurs. The 18 offices included 10 sales offices, five sales and support offices and three design and development centers totaling to a staff strength of 320 employees globally. Though still small in size and about one year and half old, they foresaw the need to get the performance management process right from the start. Some key business considerations for the HR team in designing a global PMS was: ∑ employees to perform well across the board, and be remunerated in proportion to the results, ∑ focus on grooming key talent globally—those critical few employees who, by virtue of their skills, will and do play an important role in creating shareholder value for Samtronics globally, ∑ measure and reward pivotal relationships with customers (internal and external), local market innovation and creativity, ∑ work towards fulfilling the global vision for the organisation, ∑ respect, support and value peers, lead and motivate others, and ∑ feel empowered to remove obstacles, identify resources, tools and processes that can make the difference with reference to market competition. And while ensuring the above objectives, the PMS had to also ensure that–

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∑ it is sensitive to the local cultural differences with reference to quantum of pay for performance, periodicity of review and feedback mechanism, ∑ provide for measuring the interdependent roles across locations, i.e. carry out appraisals across global locations, ∑ groom leaders in India, who can manage global teams and guide entire projects, ∑ provide for dual reporting assessment, and ∑ be able to globally deploy the common philosophy of the PMS.

Making the Business Case The HR team at Samtronics realised that there are no one-size-fits-all solutions for any organisation. Trying to ‘borrow’ an appraisal system from an MNC was quickly discarded after 2-3 attempts towards matching the systems from two other Indian MNC’s. Each organisation is unique and must find its own niche in the marketplace and this needed to be reflected in the establishing an effective PMS and getting it right from the start. Given the perceived impact of having an effective system in place, a dedicated task-team of five members from various functions and different global locations was constituted to work on a base design and submit to the senior leadership in a time frame of two weeks. The task team carried out the activities in the following order: ∑ Foremost they wrote out the company’s vision and mission statements and used them to identify six focus areas that the system must include, namely; product and service excellence, customer delight, sustain innovation, respect and value team members, personal leadership and to be profit-driven. ∑ Focus on the right company performance measures. They then agreed as a team on those “vital few” measures (the core 8-10) that will give Samtronics a clear line of sight and the confidence to determine how well it is doing in relation to the achievement identified above. For example they proposed to use 360 degree assessment to measure customer delight (both internal and external), product and service excellence, and to measure the globally dependent roles, including dual reporting roles. ∑ Next the task-team focused on the corporate culture and values. The team divided the global locations amongst themselves and studied the cultural diversity that the country provided that was unique from the parent country/other locations. They quickly realised that the cultural differences did not directly impact the assessment parameters they had included into the system. But the differences would occur in the process. They then mapped the core values and beliefs important to Samtronics and integrated it into the PMS. ∑ Link all the jobs in the company irrespective of location to the performance measures identified above. Each and every job at every location was listed out by the team by-function and generic measures like quality, productivity and work related innovation were identified to objectively ensure that the company’s profitability was in some way linked to each and every job. The team conversed with role incumbents and the supervisors to establish the linkage between each role and Samtronics’s business goals. A detailed document of the linkages was compiled as a reference document and proposed for incorporation into respective job descriptions, and provided to each role incumbent. ∑ Link compensation to the PMS. The next big challenge for the task team was to link the PMS to reward system globally. The nature of work being conducted at the 18 locations being different the bases and the method for payout of any kind needed to be linked to the overall achievement of Samtronics’s business goals. The team proposed the following:

228 International Human Resource Management ∑ Merit increases: directly related to the performance rating ∑ Annual incentives: linked to company’s profit and profitability. ∑ Long-term incentives. ∑ Discretionary incentives. ∑ Hold managers accountable for the communication process. The task-team also proposed that the line management would function as a coach and mentor for the new performance management team rather than making the HR team alone as the sole ‘process owner’. ∑ Set clear expectations for employee development. The appraisal format provides for identifying employee talent through recommending ongoing skills mastery, special projects and assignments, team leadership opportunities, and formal education and training. ∑ Track effectiveness of PMS. To determine the effectiveness of the PMS, the team proposed an evaluation of the system by employees across the company. Samtronics is not the only company grappling with task of designing and implementing PMS. Every organisation is concerned about it. More so, MNCs. International managers are concerned with monitoring and enhancing organisational performance. The well-known expression “What gets measured gets done!” summarises one of the most common motives for measuring performance in an organisation. This chapter explores fundamental issues in performance management, methodological issues as well as issues related to implementation. Managing performance in an MNC refers to a process that enables an international business to evaluate and continuously improve the individual, subsidiary and corporate performance. We focus on performance management of employees—particularly that of the expatriates. Towards the end of the chapter, we will bring in the issues relating to subsidiary review. Before we proceed further, it is desirable that we place two terms in their true perspective: performance appraisal and performance management. Performance appraisal is the process of assessing an individual’s performance in a systematic way, the performance being measured against such factors as job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, dependability, cooperation, judgement, versatility, health and the like.1 In addition to appraising actual performance, efforts are made to assess one’s potential for performance. The normal outcome of performance appraisal is a performance rating/score. It is normally a one-time activity and is carried out annually, half yearly or quarterly. The performance appraisal outcome is linked to a number of factors such as bonus payouts, salary review, training, promotions and transfers. Performance management stretches beyond appraisal. Foremost, it is an ongoing process. It includes such HR activities as assessing performance, actual and potential, offering feedback to the assessees and enabling them to improve their performance through training and development and other initiatives. The emphasis in performance management is enhanced employee performance. Table 8.1 brings out the distinction between appraisal and management to sharp focus. TABLE 8.1

Appraisal and Management Performance

Appraisal Primary focus Activities involved

Leadership Frequency Degree of formality

Assessing performance and potential for performance. Designing appraisal programme Build database employee-wise. Directional; evaluative. Usually yearly once. High

Management Improving employee performance and development. Set of HR activities designed and executed to assess performance and improve it also. Facilitative; coaching. Often, can be ongoing. Low

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In the international context, sound Performance Management System (PMS) has been proved to be associated with organisational success. PMS is viewed as one of the most strategic HR practices that MNCs attempt to coordinate globally. It is seen as a unifying process that brings the various business locations of an MNC under one umbrella which helps in assessing success. Hiring, training and compensation would have a lot more customisation compared to the PMS. In international business, it is the corporate office which lays down the PMS. The same is transmitted to subsidiaries which are expected to implement and internalise the systems and procedures. The transfer of PMS from the parent to the subsidiaries comprises two elements: (i) the implementation of a corporate system in subsidiaries depends on the host country’s cultural norms; (ii) internalisation of the PMS by subsidiary managers and employees depends on the extent to which the transfer of the parent company system is carried out as a ritual as opposed to truly internalising it. Four subsidiary adoption patterns are likely to arise as shown in Fig. 8.1.

Implementation of policies and practices

High

Ritualistic

True Believer

Low

Non-Conformist

Dissident

Low

High

Internalisation of underlying Principles

FIGURE 8.1

Subsidiary Adoption Patterns

The true believer is a subsidiary that implements the parent country’s system and believes in its philosophy. Managers and employees relate with PMS and its philosophy in its near totality. While there could be elements of local customisation, by and large the head office philosophy and systems remain intact. The ritualistic subsidiary judiciously implements policy and procedures laid down by the parent office but internalisation tends to be low. All the steps in the process are carried out and reported to corporate office systematically. But the internalisation of the PMS would however be driven by the cultural ethos of the subsidiary. For example, if giving feedback is non-acceptable in a host country’s value systems, managers as well as employees would have to discuss the appraisal but close it without offering constructive feedback on performance enhancement. The non-conformist subsidiary would neither implement, nor internalise the PMS and would rather isolate itself from the parent company. Obviously, there emerges a wide gap between the head office and the subsidiary. For example, the appraisal in a subsidiary may be behaviourally anchored which is an acceptable norm in the host country. But the same may not find place in the parent’s scheme of things. The dissident subsidiary internalises head office philosophy but refuses to implement the head office driven PMS. The subsidiary prevails on the corporate office to customise the procedures to meet local needs. What is needed is not to take any particular position by either party as far as internalisation and implementation of PMS are concerned. In fact, both head office and subsidiary HR executives need to discuss and agree on the need for internalisation of what is right for the business and what is in sync with the culture of the host country. The following points may be useful: • Understand the concept of performance management as a whole. • Understand the parent company’s philosophy and purpose of the PMS. • Appreciate why and how the PMS would be impacted by the host country culture. • Agree on what to retain at the subsidiary level to ensure business as well as process continuity.

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STEPS IN THE GLOBAL PMS In the international context expatriate performance management comprises seven activities as shown in Fig 8.2.

FIGURE 8.2

Activities in Expatriate Performance Management

ORGANISATIONAL STRATEGY AND PERFORMANCE MANAGEMENT Performance management becomes an integral part of corporate strategy as it serves many organisational goals. Besides contributing to enhanced performance, performance management helps identify employees with high potentials, facilitates reward performance equitably and delieanates an employee’s needs for development. These are all the activities that support the organisation’s strategic orientation. From the strategic management perspective, as discussed in Chapter 4, organisations can be grouped into any of the four categories: defenders, prospectors, analysers and reactors. The philosophy of an organisation’s PMS is shaped by the strategic orientation of the business unit. Typically, defenders (low-cost producer) have cost control as the primary focus, predictability and a short-term focus are valued. Firms in this category seek to provide goods and services at a low cost, maintain quality and provide customer service. HR activities that are relevant in this context are development and training, as employees are hired at entry level, and high level vacancies are filled through promotions from within. Employees are expected to stay with the organisation for a long time. The PMS in such organisations is based on outcome/result as well as on behavioural traits. Companies pursuing a prospector’s strategy look for innovation. They design and produce new products and redeploy resources from discontinued products to the development of new ones. Innovation being the key approach, those organisational conditions that foster risk taking, cooperation, creativity and a long-term perspective are valued. Talented individuals are hired and training is mainly on-the-job. Employee turnover is high. Performance appraisal is result-based, because of the emphasis on skills identification and acquisition of human resources from external sources, as opposed to skill building within the organisation. Companies with an analyser strategy operate in two types of product-market domains. One domain is stable while the other is changing. These firms are of some hybrid type in that they are both product innovators and competitors in long-run production lines. They attempt to exploit niche in the market. The personnel policies of these firms fall between the extreme of defenders and prospector’s strategies. Firms spend heavily on training but talent is also ‘bought’ to fill higher level positions. These companies both promote (make) and hire (buy) human resources. PMS focuses on result as well as on behavioural traits.2

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Companies following a reactor’s strategy are in highly competitive markets and are the slaves of their environments. Since these companies are essentially reactive, there are few systematic strategic implications. PMS focus could be result or behavioural trait based, depending on the philosophy of the management.

SETTING INDIVIDUAL PERFORMANCE GOALS In international business it is critical to closely link unit goals to individual/team goals, especially at the top and senior management levels. Goals are the future outcomes that individuals and organisations desire and strive to achieve.3 Popularly, goals seek to serve several purposes: ∑ guide and direct behaviour in the direction of the goal ∑ offer benchmarks for employees to strive towards excellence ∑ reflect what the employees and managers consider as important As in the domestic context, goals in the High international business, in order to serve the above purposes, must be Specific, Measurable, Achievable, Realistic and Timely (SMART). Difficult Specific and challenging goals serve to focus Goals Task the individual’s attention on precisely what is Performance to be accomplished, and to arouse him or her to peak performance. In a wide range of occuEasy Goals Low pations, people who set specific, challenging goals consistently outperform people who have Low High Goal Intensity easy or unspecified goals, as Fig. 8.3 shows. Measurable, quantitative goals are useful as FIGURE 8.3 Goals and Performance a basis for feedback about goal achievement. This element would require careful attention when setting goals for a subsidiary. Depending on the stage in the life cycle of the subsidiary, the measurable components of the goals would vary. During the early stages of an MNC establishing its unit (and up to 1–2 years of successful operations) in the host country, the goals would be less measurable and as the unit matures in its operations, the goals evolve into measurable and tangible forms. During the early stages, the focus is on building a competent team of people, with roles and responsibilities aligned to establishing their respective functions. Focus is on making sure that the right person is in the right job and teams are clear of the unit’s goals in addition to being aware of the global goals. Focus is on establishing policies and processes that align with the global unit, enabling the desired organisational culture to be created. As the unit matures, the focus shifts to sales, profits, headcount and achievement of the global goals of the subsidiary. Focus is on enhancing the role of the unit in the global map of the MNC and identifying the competitive advantage the unit could achieve for the MNC as a whole and drive performance in that direction. Time-bound goals enhance measurability. The time limit may be embedded in the goal itself or it may be explicitly stated. In case of setting goals for the subsidiary, the goals would have to be more accommodative of external factors that influence the achievement of the goals. Many firms work on standardised cycles, such as bi-annual or annual timeframes for assessing, where explicit time limits are assumed. Hence, if there is any uncertainty about the time period of the goal realisation, the time limits would need to be explicitly stated and reviewed frequently. Therefore, goals need to be carefully identified, depending on the following factors: ∑ Resources need to be provided for the individuals/teams who need to be supported in the achievement of the goals. Finance is fundamental to a lot of initiatives and the ability to make decisions at the unit

232 International Human Resource Management level needs to be clearly identified. The power of authority and control on local spending would need to be ensured for smooth operational decisions. ∑ Participation of the individual teams in goal setting for the unit goals needs to be insisted upon. The rationale for such involvement is the employee’s acceptance and commitment to the established goals, leading to favourable outcomes in terms of enhanced performance and positive attitudes. ∑ There is also the need for prioritising goals. Prioritising allows for effective decision making about resource allocation. As time, energy and other resources become available, an individual/team can move down the list of goals in descending order. The key concern is to achieve top-priority goals, especially during the critical setting-up phase of the subsidiary’s operations or during strategic expansion phases.

IDENTIFYING VARIABLES AFFECTING PERFORMANCE The performance of an expatriate depends on several variables which are distinct from the performance of an employee working in his or her home country. Performance of the non-expatriate is generally influenced by job extrinsic factors (e.g. working conditions and company policy) and job intrinsic factors (e.g. challenging job, career prospects). An expatriate’s performance depends on several other influencing factors as Fig. 8.4 shows. But the impact of job extrinsic and job intrinsic factors on performance cannot be undermined. Compensation Package Compensation is one of the key factors closely associated with expat performance. Perceived as a balancing factor for the ‘emotional relocation’ that the assignment demands, compensation and perquisites are critical to the effort expended on the assignment. An expat who is well compensated is definitely happier and more productive as compared to an assignee who feels he or she did not negotiate his or her compensation appropriately. We will discuss expatriate compensation in detail in the next chapter. It is, however, desirable that we recognise the impact of compensation on expatriate performance. Pay, according to Herzberg’s two-factor theory of motivation, is a hygiene factor, which when adequately provided for removes dissatisfaction but fails to activate motivation and performance. But with many individuals, pay acts as remover of dissatisfaction as well as a booster for enhanced performance. Money continues to remain as one of the most significant motivators for expats. Environmen t Host

ges

FIGURE 8.4

sation Pac en

ka

Co m p

uarters Supp adq ort He s k a s T

Performance of an Expatriate

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Task

As explained earlier, an expatriate is sent on an overseas assignment either as chief executive, system replicator, trouble shooter or as a simple operator. Whatever the nature of assignment, task has considerable impact on an individual’s performance. Several reasons demonstrate the correlation between the two. First, nature of the job tends to influence performance. Going by this, a chief executive’s assignment should influence performance more than the job of an operative. But this assertion is not always true. Performance depends more on the attitude of the expatriate than on the task itself. Many individuals are known to work hard and exhibit improved performance, whatever may be the nature of task. Second, a tougher task tends to evoke better performance than a job which is relatively easy to handle. People tend to show their best when the job is tough and challenging. Finally, how work is viewed by the expatriate also matters. For some expatriates work is worship and for others, it is only a means of living. Individuals who are passionate tend to exhibit improved performance than others for whom work is only a source of living. Headquarters Support Home office support is crucial in expatriate performance. An assignee has accepted an overseas assignment, no doubt with the objective of making extra money or improving his career prospects; but there are other motives—loyalty to the organisation and commitment to make the firm successful. It is these altruistic motives which make assignees agree to work even in hostile environments. It is necessary that the home office extends support and offers moral courage, particularly in times when the expatriate is passing through a culture shock. The following are some specific support facilities required from the headquarters:4 ∑ Organisational support in managing the practical problems of setting up home in a new culture is essential for enabling an expatriate to settle down. ∑ The provision of timely psychological counselling for expatriates encountering problems of adjustment can contribute to their mental health and performance. ∑ The families of employees should also be assisted in their efforts to find their feet on the ground in a new culture.

Though it adds to the cost, headquarters can arrange a short visit for the expatriate back to his or her home country so that he or she can meet up close kith and kin, refresh, get over depression, and fly again to the host country. More than arranging all required facilities and even organising a short visit to the home country, a reassurance that the head office completely supports the expatriate, can prove to be a source of confidence for the assignee to adjust and live in the host country.

Host Environment

Environment wields considerable influence on performance, particularly of the expatriate. If the host environment is hostile, expatriates are under constant pressure and often, there is a threat to their life itself. We have lost two brilliant men while on duty in Afghanistan. Expecting enhanced performance from expatriates operating in such an environment is unrealistic. The form of ownership of the subsidiary is important too. For instance, it may be relatively easier to perform in a wholly owned subsidiary than in a joint venture with a state-owned enterprise in China. Conflicting goals between the parent companies are a common problem within international joint ventures and can make the expatriate’s job more difficult. Similarly, the stage of the international business will influence the success of the expatriate. An assignee overseeing the establishment of a new facility in a foreign country, especially in a developing market, will face different challenges and constraints than one who is posted into a mature operation.5

234 International Human Resource Management Cultural Adjustment The ability to live comfortably in an alien culture—is essential for the success of an expatriate. Multicultural adjustability refers to being sensitive to the host culture, the expatriate’s multicultural sensitivity, language ability, diplomacy, adaptability, positive attitude, emotional stability and maturity. It is not enough if the expatriate alone acquires cross-cultural adjustability. The trailing spouse too needs to acquire the ability to live in the host culture. Failure of the trailing spouse to adjust is often a major reason behind expatriate failure (see also Exhibit 8.1).

Exhibit 8.1

Success Stories of Cross-Cultural Adjustability

• If there’s one thing William H. Pinckney, managing director and CEO, Amway India, has mastered during his seven-year stay in India, it’s the art of breaking a coconut in one go. He’s had enough practice breaking a coconut at the opening of every new branch office—and during the annual Diwali puja in office—which is an Indian tradition followed religiously at Amway. From wearing kurta pyjamas to eating local food, Pinckney has taken to India, and things Indian. Even his office has shades of Indian influence, including a bronze Ganesh statue. “My wife and I had always talked about an adventure, and to us, India was the ultimate adventure,” says Pinckney. The Pinckneys’ affair with India started in late 1997, when Amway sent them for a typical corporate look-see, to decide whether they could contemplate living here for two-odd years. They spent a week in Delhi just ‘getting a feel for living in the Capital city.’ “Before I came here, I had heard a lot of stories, and none of them were good.” What didn’t help matters was the number of vaccinations he had to take before coming to India: “I had never had as many shots ever in my life before,” says the only expat on the rolls of the Rs. 600-crore Indian operations of Amway. Cleanliness and health were two issues the Pinckneys were concerned about. But to their immense relief, things in India turned out to be far better. “We have not taken any malaria pills in the last five years.” People were the first thing Pinckney noticed on his arrival in India. “In Sydney, you don’t find people on the roads just outside the city. Here, they are everywhere.” What’s impressed him most about Indians is the level of education, dedication and commitment, which he says is ‘the best and highest in the world’. • It must have taken a lot of courage for Pelle to come back to India, given the memories of his maiden trip to India in 1991. Having holidayed in South Asia for 15 days, Pelle had landed in Delhi for a two-day visit to meet up with an old friend then residing here. Coming from Singapore to Delhi can justifiably be shocking, especially for a first time visitor. “I thought those two days were enough to last me for the next 20 years. It taught me never to say never,” laughs Pelle. But this time, he made it a point to prepare himself before landing here, by reading up about the country and its people, and speaking to other expats. Six years on, he’s had no reason to regret the move. Still, the first six months in India proved to be difficult. Lack of friends, and living in a hotel didn’t make it any easier for Pelle to adjust to life in a foreign country. But what bothered the outdoor loving Italian most was the lack of walking space in Delhi. “In Italy, we do a lot of walking and eating out in the open. But in Delhi, the weather’s hardly conducive to eating out.” Besides,

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Delhi’s pollution levels during the late 90s were enough to give him breathing problems. All in all, it wasn’t a very easy start. Work proved to be an additional challenge for the youngest of five brothers. “I didn’t know to what extent I could say things. I had to be extremely careful while talking because there were huge egos involved.” “There’s a different kind of sensitivity in people here, especially the workers. The attitudes are different among managers and workers. The managers here are top quality people who could work anywhere in the world, without having any kind of problems. But I can’t say the same for the workers or people who work in public service or government.” Pelle’s advice to newcomers in India: “During the first year, you have to get to know people to know how they think. It’s up to you to adjust, not them, because you are the expat.” Technological advancements have flattened the world. People across the globe almost speak similar languages, eat similar food, wear similar dress, and listen to similar music. Walking down the streets of San Francisco, you find lots of Indian kids playing cricket, Indian grocery stores and restaurants. Adjustment to new culture is no longer an alien experience known to a few.

APPRAISING THE PERFORMANCE The international HR manager should decide on three key areas while assessing an expatriate’s performance. The key issues are: (i) specifying performance criteria, (ii) identifying the appraisers, and (iii) deciding on the frequency of appraisal. Performance Criteria The criteria for assessing performance should be clear, relevant, practical and reliable if assessments were to be meaningful. Basically, there are three categories of performance indicators: trait based, behaviour based and results based. In the international context, it is a good blend of each that makes an effective performance management system. Given the tangible and intangible goals that a host unit needs to fulfil, it is critical to ensure that while objectives and targets are SMART goals, equal emphasis and weightage is provided in the appraisal system to take care of the intangible results that need to be achieved. Objectives like setting up a cohesive team, ensuring the creation of the desired global work culture and leadership values at the subsidiary level are examples of intangible goals. Trait Based Organisations tend to rate traits in conducting appraisals. Traits are abstract properties of individuals that cannot be generally observed directly, but can be inferred from behaviours. Traits generally identified for assessment are openness to other cultures, ability to live in other cultures, loyalty to the company, articulation and level of initiative. Focus here is on what a person is and not on what he or she does. Behaviour Based In some cases, organisations base their appraisals on behaviours, i.e. on what the person actually does. Behavioural measures are appropriate when the process used to accomplish the job is very important, and thus, behaviour measures are used to emphasise how a job is done. For instance, an expatriate’s performance will be judged on behaviours exhibited while communicating with host country citizens, socialising or partying with host nationals and coping with culture shock. Behavioural traits based appraisals go a long way towards building the desired corporate culture and organisational values. Most MNC’s design appraisal systems that extensively take care of measuring and appraising on behavioural competencies exhibited by the expat/employees in the subsidiary.

236 International Human Resource Management Result Based The most common measure of an expatriate’s performance is outcomes, such as how many cars he or she has sold or how much profit the assignee brought into the organisation during the assignment, his or her adherence to target dates for commissioning plants/offices and establishing strategic alliances. Means are unimportant, ends are. Results based appraisals have their merits. Others A new approach that has been increasingly used to identify performance criteria is the balanced score card. Propounded by Kaplan and Norton, the scorecard approach originally was meant to be a framework of organisational performance measures. It has now been extended to HRM and the performance management of individuals. This approach identifies four critical perspectives on organisational performance that might act as the basis for effective performance criteria: the financial perspective, the internal business perspective, the innovation and learning perspective and the customer perspective. The financial dimension reflects a concern that the organisation’s activities contribute to improving short-term and long-term financial performance. Customer service perspective measures such things as how customers view the organisation, as well as customer retention and satisfaction. Business process indicators focus on production and operating statistics such as order fulfillment or cost per order. The final component relates to the human resource—its potential to learn and grow. This perspective seeks to focus on how well resources and human capital are being managed for the company’s benefits.6 The balanced score card provides a balanced picture of current performance as well as the triggers for future performance. The score card helps managers align their business units, as well as their financial, physical and human resources, to the firm’s overall strategy. Who are the Appraisers? Appraisers are immediate managers/leaders at the host and parent locations, team members and clients. Self-appraisal is a common practice. In most MNCs, appraisal systems have a combination of these appraisers, which provides for a fair and balanced approach to appraisals. Appraisals are commonly carried out by the immediate manager/leader, who evaluates the team member’s performance on tasks as assigned. In fact, the reporting manager/leader is the most appropriate person at least for three reasons: No one is more familiar with the team member’s performance than the manager/leader. Second, the manager/leader’s authority tends to get undermined if someone else were to assess the performance. Third, the manager/leader is also responsible to ensure that his or her team members is appropriately coached. PMS provides inputs in outlining the training and development needs for the individual. The assessment of a subsidiary manager’s performance poses a problem. He or she works in a distant location, yet is evaluated by superiors at the headquarters. The manager/leader is denied the possibility of interacting with the expatriate face to face, to have a first hand feel of the performance. Consequently, a subsidiary manager tends to be assessed according to subsidiary performance, with a reliance on hard criteria similar to those applied to heads of domestic units or divisions. The performance of expatriates working as team members in subsidiaries is assessed by the respective heads of local units. Though subsidiary managers are the right choice to assess the expatriates’ performance, there is the possibility of cultural biases distorting the assessment. Imagine a situation where the subsidiary head is a French and the expatriate is an Indian. Or the head of a subsidiary is a Japanese and the team member is a Chinese. The performance evaluation tends to be biased either for or against the assignee, because of the cultural predilections of the manager/leader.

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Some common practices adopted by the industry are: ∑ A significant differentiator in identifying appraisers in the international context is the matrix reporting. It is a dual reporting to the functional as well as the unit operational head, whereby appraisal is carried out (usually independently) by the two reporting managers and then weighted out, depending on what percentage each manager deserves. It is usually a 50% weightage for scores by each of the reporting managers. ∑ Use of multiple appraisers (popularly called the 360-degree appraisal technique) are increasingly being used to assess the performance of employees in domestic businesses. Given the cross-cultural dynamics, the 360-degree technique can be more effective in assessing an expatriate’s performance. The immediate superiors (in either the host country or home country) take the expatriate as the selfappraiser, and the HR manager (either home- or host-country based) can be associated with rating the performance of the expatriate. (See exhibit 8.2).

Exhibit 8.2

Feedback on 360 - Degree Feedback

360-degree feedback is a performance appraisal approach that uses inputs from an employee’s supervisors, colleagues, subordinates—and, sometimes, even suppliers and customers. Most 360-degree feedback programs focus on the manager level and above. The use of 360-degree feedback has grown dramatically in recent years. According to HR consulting firm William M. Mercer, 40 percent of companies used 360-degree feedback in 1995; by 2000, this figure jumped to 65 percent. The premise behind 360-degree feedback is logical: The people who work most closely with an employee see that person’s behavior in settings and circumstances that a supervisor may not. And, in theory, the more complete the insight into an employee’s performance, the more likely he will understand what needs to be improved and how. The theory is very promising. The reality, on the other hand, is another matter. Watson Waytt’s 2001 HCI report revealed that companies using 360-degree feedback have lower market value. According to the study, companies that use peer review have a market value that is 4.9 percent lower than similarly situated companies that don’t use peer review. Likewise, companies that allow employees to evaluate their manager are valued 5.7 percent lower than similar firms that don’t. Taken together, these practices are associated with a 10.6 percent decline in shareholder value. Voices of Doubt The HCI study is not the only indicator that 360-degree feedback programme may be falling to match their promise. Researchers and formerly strong advocates of 360-degree feedback have begun to raise questions. Jai Ghorpade, a professor of management at San Diego State University, wrote in the Academy of Management Executive that, “while it delivers valuable feedback, the 360-degree concept has serious problems relating to privacy, validity and effectiveness.” Ghorpade also reported that out of more than 600 feedback studies, one-third found improvements in performance, one-third reported decreases in performance and the rest reported no impact at all. John Sullivan, professor of human resource management at San Francisco State University, says “there is no data showing that [360-degree feedback] actually improves productivity, increases retention, decreases grievances or is superior to forced ranking and standard performance appraisal systems. It sounds good, but there is no proof it works.”

238 International Human Resource Management Roots of the Problem Why is 360-degree feedback failing to live up to its potential? For starters, giving effective appraisals is a difficult task. Unless everyone participating in a 360-degree program is trained in the art of giving and receiving feedback, the process can lead to uncertainty and conflict among team members. Another issue is that there may be a gap between an organisation’s business objectives and what 360degree feedback programme assess competencies that are not directly related to business results or are so broad that they aren’t relevant to the average employee. The time and cost associated with 360-degree feedback also are stumbling blocks. By trying to capture every nuance of a worker’s performance, many 360-degree feedback programme have become so complex that they require a much greater investment in time and money than they can return. Another common problem: Reviewers and those being reviewed fail to follow up after feedback. When there are no consequences for poor performance—which often is the case with 360-degree reviews—performance won’t change. ∑ The appraisal/review cycle is made shorter in order to encourage more frequent interactions and review discussions. Cross border travel is encouraged to enable more face to face interactions. Frequency of Assessment How often the employees should be assessed is a relevant question. The general trend is to evaluate once in three months, six months, or once in a year. According to a survey conducted in 1997 by Arthur Anderson, 70 per cent of the organisations conduct performance appraisals once in a year. Many of these organisations are multinationals. New hires are assessed more often than the experienced ones. Frequent assessment is better than phased evaluation. Feedback in the latter is delayed and the advantage of timely remedial measures by the employer is lost. Frequent evaluation gives constant feedback to the managers, thus enabling them to improve performance, if there is any deficiency.

PROVIDING FEEDBACK Feedback refers to the information provided about work behaviour and outcomes. Feedback controls the work behaviour of employees by directing actions through the provision of necessary feedback for corrective action. In addition, feedback promises rewards for future behaviour and thereby provides motivation. Therefore, such feedback through the performance appraisal activity is central to performance management. The task of assessing performance and offering feedback in MNCs is compounded by time and distance. The physical distance involved between the headquarters and the subsidiary is vast and time zones between the two differ considerably. Interaction between head office staff and subsidiary managers is less frequent and a reporting system adds to the cost. One can always argue that advancements in telecommunication facilities, such as fax, e-mail, Internet connections and video conferencing help overcome the constraints posed by time and distance. These developments are no doubt useful in collecting and transmitting information, but cannot substitute face to face contact between subsidiary managers and corporate staff. And face to face interaction is essential to make a meaningful assessment of the performance and passing on the feedback. It is for this reason that international managers travel long distances and spend considerable time interacting with subsidiary managers in host countries.7

Performance Management 239

OPPORTUNITIES FOR IMPROVEMENT Performance feedback has a developmental aspect inasmuch as it highlights the need for training and development. Conducting appraisals, offering feedback and initiating training and developmental measures are all part of performance management. These activities seek to provide opportunities to expatriates to improve, socialise and adjust to local environment ably. This is particularly relevant in international businesses where policies and practices change and re-socialisation is required.8

LINKING REWARDS AND RESULTS The final activity in expatriate performance management relates to establishing linkages between performance and compensation. Rewards, monetary and non-monetary, should follow performance. Only then there is positive reinforcement to repeat performance. Performance may not take place if there is negative reinforcement or no link between results and rewards.

ISSUES IN MANAGING PERFORMANCE IN THE GLOBAL CONTEXT In the global context, performance management issues include cultural consequences on performance management, rewarding performance, managing underperformers and managing virtual teams. Additionally, assessing subsidiary performance is also a critical dimension, impacting performance management at HQ or host country. (see Fig. 8.5). Performance Management

Culture and Performance Management

Rewarding Performance

FIGURE 8.5

Underperformers

Virtual Teams

Subsidiary Performance

Issues in Performance Management

Cultural Implications on PMS Culture has significant impact on designing and implementing PMS in different cultures. Hofstede’s two cultural dimensions—power distance and individualism vs collectivism—(read Chapter 2) are considered here for the purpose of bringing out the interface between culture and the PMS. Collectivist vs. individualistic cultures differ in the way goals are designed and assigned. In a collectivist society, it is a common work practice to assign group goals and involve groups in deciding goals. Such work cultures enable a larger involvement of employees in organisational objectives, encouraging a lot more

240 International Human Resource Management commitment towards the achievement of the goals as a group. The work style is collaborative and supportive towards ensuring that the desired goals are achieved. TABLE 8.2

Individualistic and Collectivist Societies and Performance Dimensions

In an individualistic society, it is common to assign goals to individuals, assess individual performance and reward individual achievement of goals. In such work cultures, individuals work in silos to facilitate the achievement of organisational goals; the key motivator is self actualisation. Those who fail to perform automatically get ejected from the system: The focus is on individual competency. (See Table 8.2) A step further in understanding collectivism and individualism is to add power distance to it. Horizontal collectivism in a national context refers to a tendency of employees to group together within levels; e.g., those with similar designations, roles and responsibilities. Individuals are part of a larger group. The tasks are usually clearly rationalised and assigned. Power distance in such societies is low. Horizontal individualism at the workplace indicates employees working and thinking individually while carrying out tasks and responsibilities. Tasks are normally assigned to individuals and each is clearly responsible for the achievement/non-achievement of the tasks. Vertical collectivism refers to employees forming groups at a departmental level, with little or no attention to level/hierarchy between team members. Tasks are largely owned as a team and the team works together to help each other and achieve the deliverables. Power distance in such societies is high. Vertical individualism implies that employees are independent and held responsible for their deliverables. Hierarchical levels are clearly defined and respected. (See Fig. 8.6) There are three ways in which cultural differences impact performance management: 1. Goal commitment and participation in organisations 2. Feedback—performance relationship 3. Feedback seeking behaviour

Performance Management 241 Collectivism Individual as part of group Individualism The ‘‘autonomous’’ individual

FIGURE 8.6

Horizontal Collectivism Japan

Vertical Collectivism China

Horizontal Individualism Scandinavia

Vertical Individualism France

Horizontal ‘‘Equality’’ ‘‘Small power distance’’

Vertical ‘‘Inequality’’ ‘‘High power distance’’

Focus on Individualism—Collectivism /Horizontal–Vertical

Goal commitment and participation in organisations can be differentiated based on different cultures. Collectivist societies would prefer team goals, team performance reviews and team rewards. Goal setting and employee/team participation in the goal setting exercise is most popular in countries ranking high on horizontal collectivism and vertical collectivism. Goals are best assigned in countries with high horizontal individualism. Cultures with high vertical individualism would distinctly prefer individual goals and targets, with clearly defined inter-dependence on the achievement of the goals and objectives. Europeans and Americans rank high on individualism, implying less intrinsic motivation when choices were made for them by other authority figures or peers. Hence, the implication for PMS would be higher involvement in the goal setting and individual objectives / KRAs (key result areas) setting exercise at the beginning of the appraisal period, and the system must provide for self-assessment of the achievements. Asian-Americans, who are highly collectivistic, are most intrinsically motivated when choices were made for them by trusted authority figures or peers. This would imply a higher level of ‘assigning’ goals and KRAs to individuals and an absence of self-rating provision in the appraisal system would not adversely impact the success of the PMS in these countries. The Feedback–performance correlation indicates that individualistic cultures respond more favourably to one-on-one feedback, which is specific and provided in private. In collectivistic cultures, both group based and individual feedback is important and impact performance significantly. Feedback Seeking Behaviour Feedback seeking behaviour is more common in individualistic cultures where the focus is on self and improvement to benefit the self. For example, Americans who rank high on individualism, are more likely to desire success feedback implying a ‘ego-protection motive’. This indicates that negative feedback is restricted and applied rarely in these cultures. In Japanese culture, where collectivism scores high, it is inappropriate to seek for success feedback, and preference is to provide feedback on failures, implying an ‘impression management motive’. This means that positive feedback credit goes to the group while individual drawbacks are what need to be communicated on a one-on-one basis. While the challenge for a PMS design is to be standardised across units in different cultures, it would require– ∑ a stronger focus on group level in collectivist cultures, and ∑ that the role of the supervisor in the PM process should be adapted to cultural specifics guidelines

242 International Human Resource Management

Rewarding Performance Globally The critical success factors that link performance appraisal to the compensation system are fairness and consistency, organisational results, linkages and merit awards. Fairness and Consistency There needs to be clarity from the very beginning, about reward elements. The criteria for rewarding must be established and well communicated to ensure consistency globally. This is a challenge given the different industry practices and market conditions in different countries where the organisation exists. Often, MNCs engage global consultants to help establish these reward systems, who would validate the fairness of the distribution of awards within local competitive norms. The objective is to ensure that strong performance management and accountability systems are in place so that employees perceive that performance is rewarded fairly and consistently, irrespective of where they are located. Inclusion of Organisational Results The performance-reward scheme must emphasise on organisational results, not just individual performance. It is common practice in MNCs to link the rewards to the revenue/profits/growth generated. While it is relatively easy to assess the contribution of senior managers to the achievement of organisational objectives, linkages to large number of bottom line employees is limited. Organisations manage this by assigning lower bonus components for lower level employees and increase it significantly as the roles move to senior and top management levels, with percentage of bonus linked to company results up to 30–40% of the total salary. The key challenge is to strike a balance between linkages to company results at a unit/subsidiary level vs. linkages to global targets for the MNC. This is a top management decision and the two models are equally popular. It is common for profit-centre units/subsidiaries to focus on local goals and targets and for cost-centre units to focus on the global achievement of goals and targets. Table 8.3 is an example of performance measures that link performance of local unit goals as well as global organisational goals to individual performance. TABLE 8.3

Models in Linking Pay for Performance to Goals

Levels/Grades

Fixed salary component

Pay for performance

Unit goals goals

Global organisational

E0 E1 E2 E3 E4

100% 95% 90% 80% 70%

– 5% 10% 20% 30%

– Yes Yes Maybe Maybe

– Maybe Maybe Yes Yes

Linkage between performance appraisal and salary increase In order to encourage a global culture focussed on meritocracy, it is common in organisations to link promotions and salary hikes to the PMS. This de-links salary increases, taking the form of ‘entitlement’. It ensures that the system is meaningful to employees and is commensurate with their efforts and contributions. It is common in MNCs to use clearly established and openly communicated matrices that link a performance rating to a hike in percentage. (See Table 8.4.)

Performance Management 243

TABLE 8.4

Linking Performance to Salary Hikes

Performance Rating (1–5 scale) < 2.5 2.5–3 3–3.5 3.5–4 4–4.5 > 4.5

% Hike in salary based on performance 2.5% 10% 12.5% 15% 17.5 20%

Merit Awards It is common practice in MNCs to provide for annual performance awards. These could be separate for the unit/subsidiary level or could be globally assessed and awarded in global forums to encourage a global culture. Such awards ensure that they pay specific attention to competencies and achievements that are in alignment with the global values of the organisation. Some key challenges here are: how much compensation is to be paid? How would it differ for different units and the frequency of awards? Awards are, most often, left to the governance of the local unit for independent implementation.

Managing Underperformance PMS must also be used to detect deficiencies or inadequacies and ascertain staff development needs, both individual and collective. The performance management process for an underperformer normally includes three clearly defined stages, as follows: ∑ Stage 1: setting expectations and monitoring performance—clear communication of the non- performance parameters are shared with the employee, quoting incidents and evidence of underperformance. ∑ Stage 2: discussing and documenting problem performance—areas of under-performance and are acceptable to the employee as action items. Ensure that the ways to improve are identified and discussed, indicating support to be provided and guidance/supervision expected. ∑ Stage 3: establishing and implementing consequences to poor performance—this last stage occurs when problem performance continues even after one or more performance discussions have been conducted. The performance may then be rated as “unsatisfactory”, in which case the employee is placed on probation for a period of 1–2 months, after being provided with a written notification of specific areas in which he or she is required to improve. If the probation is not satisfactorily completed, the employee is either terminated or asked to resign. Normally, he or she is entitled notice pay and outplacement counselling could also be provided. Organisations have clearly identified policies that provide for identifying and managing underperformers.

Virtual Assignments: Managing Performance in Teams without Borders Virtual assignments are increasingly becoming a collaborating tool assisting MNCs in achieving global advantages. Collaborative work is critical in achieving a distinct competitive advantage. It is a known fact that even in the best of circumstances, nurturing a spirit of teamwork among co-workers is a difficult feat. Conflict, poor communication, different attitudes and perspectives are just a few of the myriad issues that can

244 International Human Resource Management cause a rift among team members. These difficulties increase in the world of the virtual workforce, where team members often do not even share the same content, let alone the same viewpoint. Advances in telecommunication and information technologies have enabled MNCs to assign worldwide teams to even the most complex projects. Such work teams can deliver tremendous benefits, allowing businesses to leverage global expertise, tap into lower cost labour pools, localise products and work around the clock. In many cases, however, the opportunities have not been matched by an understanding of ‘how to carry out interdependent work’ under such conditions. It is proved that people frequently do not understand the context and situation within which their remote team members work. Differences in the quality, accessibility and features of equipment, dissimilar measurement processes and standards, and differences in the distances people must travel to accomplish tasks, are a few of the factors that impact performance at the local level. There may be competing responsibilities, different pressures from local supervisors and co-workers and, when working across cultures, different holidays and customs. Lack of understanding of local situations and contexts is a barrier to effective teamwork. People often do not understand why their remote colleagues are reacting as they are because they do not understand their colleagues’ problems. Managing conflict is one of the greatest challenges of leading a successful virtual team. Without the physical signs that serve as hints to internal tension between team members, supervisors can be caught unawares by a sudden slowing down of work, poor quality of tasks completed and absenteeism, that impacts deliverables from the virtual teams. Supervisors of distributed teams need to make open-minded inquiries when early signals of tension appear across locations, assuming things are fine or assuming things will blow over might not be a good idea in the long run. Tensions escalate quickly in distributed situations because of the lack of opportunities for correction. Some conflict is a natural part of distributed work because of misunderstandings, differences across locations and other factors. So managers and leaders would need to resolve conflicts quickly and constructively. Lack of adequate communication is one of the most critical elements that hampers team-building efforts. People can be hesitant to call or e-mail someone whom they have not met previously, particularly if it is someone of a different culture. They are not sure how the person will react to their approach or when it is a good time to call. People sometimes procrastinate and try to get the information they need in some other way. This generally has a negative impact. Work slows down or information is less than complete. In order to manage performance effectively in virtual teams—managers/supervisors need to build a team identity and process, balance technical and social systems within the team and facilitate the development of long-distance relationships and trust among team members. Some other steps the manager/supervisor need to undertake are: Identify the roles and concerns the virtual team leader faces Understand what virtual team members want from their team leader How to effectively unify the virtual team’s culture and relationship Identify methods to build trust and overcome team-busting behaviours in virtual teams Understand virtual communication channels and cross-cultural interactions Setting performance goals—defining, organising, communicating and reinforcing Gaining insights into motivating and recognising virtual team performance.9

ASSESSING SUBSIDIARY PERFORMANCE The discussion on performance management till now, centered around the expatriates. There is another but related dimension to performance management—assessing the performance of the subsidiary itself. Assessing the effectiveness of a subsidiary is probably more important than assessing the performance of individual expatriates.

Performance Management 245

Difficulties in Assessment Assessment of the performance of a subsidiary is compounded by several constraints which include the following: Balancing HQ and Host Unit Performance There is a need to balance the good of the whole organisation vs. one subsidiary’s profitability/loss. The role that a host unit plays in the global strategy of the organisation cannot be viewed in isolation. If a subsidiary is not performing as planned, it does not automatically imply that its operations should be shut down. Market presence, competitor strategies and inability to effectively quantify the ROI of a host unit soon after its setup are some considerations that need to be factored while assessing a subsidiary’s performance. Often, due to the decline in sales of the headquarters, there is a conscious reduction in the investment at the subsidiary level which could significantly impact the subunit’s performance evaluation. Attention to External Forces There is a need to be sensitive to the kinds of measures used to assess unit performance. The use of objective and quantifiable measures alone may not be fair. Adequate considerations to circumstantial factors that change suddenly, such as new tax laws, higher salaries, service terms and conditions, government regulations, import/export tariffs, political instability and utility strikes are some examples that make objective appraisal problematic and complicated. Vagaries of the International Environment In addition to country-specific aspects, there are business/market trends/turbulences that impact subsidiary performance. For example, the moving out of call centre jobs form high labour cost countries like the USA and UK, impacts the performance of units operating in that country. It is a global trend to optimise costs and cannot be pinned down as a performance concern of the unit. Assessment of a subsidiary’s performance therefore, needs to be weighed and assessed in tune with the long-term goals, enabling it to effectively respond to potential market contingencies as they unfold. An inflexible approach could result in the subsidiary pursuing strategies which are no longer fit for the new environment. Volatility and fluctuations in the market due to warlike situations/terrorism, could make goals and deadlines set by the distant HQ’s strategic team unrealistic and impractical. Therefore, it would be critical to involve the subsidiary’s managers in strategic planning and to be flexible in modifying plans to provide for exigencies. Significance of Time and Distance Lack of face to face interactions and high degree of physical distance compounds the challenges of assessing performance across geographies. Added to it is the dimension of time zone differences that are commonly faced. Teleconferences, videoconferences and web-ex sessions are some sophisticated communication systems that can link more than two locations simultaneously. While cost is a consideration, the lack of face to face communication influences the strength of the relationships that are established. Additionally, these contact sessions are limited in time and duration and the depth of communication and, therefore, impact performance. Variable Level of Maturity Growth in a foreign country is generally slower and more difficult to achieve than in the home country. There is more time needed to show any results and the effort required is often a lot more and cannot be compared against any other benchmark, internally or externally. Sensitivity towards variations in customs and work practices in the parent vs the host country needs to be recognised and appreciated. The focus on performance management of a subsidiary should be on how far strategic, corporate and functional goals have been met during the early years of the establishment of the subsidiary. Table 8.5 outlines the goals.

246 International Human Resource Management TABLE 8.5 > 1 year ∑ Set up subsidiary as part of MNC’s global plan ∑ Establish strategic alliances and ensure local governance to operationalise the subsidiary up operations ∑ Identifying challenges associated with hiring, retaining, selling (product/service) and competing ∑ Establish organisational structure of the host unit, identify linkages to teams at the global HQ, reporting hierarchies, and responsibilities.

Strategic Goals

Corporate Goals

∑ Complete headhunting

∑

Functional Goals

∑

∑

∑

and staffing, including core top management team Determine employee headcount, ramp-up plans, and timley revenue generation model. Establish target dates for departmental milestones Hiring and training the functional teams as per agreed commissioning dates of productivity Establish functional global/local operating policies and processes

Goals at Different Periods

2–3 years ∑ Carve a niche in the MNC’s global scheme with clearly defined revenue, profits, and cost targets ∑ Decide on retaining the host unit/winding

3–5 years > 5 years ∑ Unit identified ∑ Strengthen existing with unique core core competencies competencies ∑ Identify new core ∑ Prominent local competencies industry/market ∑ Foster increased presence, growth through commence market strategic alliances share reporting

∑ Work with budgets on managing operating costs, employee headcounts ∑ Rationalise the unit activities to align with market standards – deciding on positioning, with reference to paying, pricing,

∑ Growth strategies include organic as well as inorganic growth

planning to

∑ Adapt profit ∑ centre approach to managing the host unit operations ∑ Strong senior management team at the helm, in total sync with corporate strategic

Commence multilocation operations within host country to meet industry challenges in doing profitable business

goals

maintain above market/market average/below market benchmarks

∑ Greater local focus, ∑ Unique unit∑ Well established and breaking down dependent goals, stable policie, procecorporate goals to largely inwardsses and work methods. functional goals looking ∑ Strong linkages is with ∑ Employee headcount ∑ Normal unit-level customers and vendors targets are higher operational to ensure long-term to build larger teams challenges of achievement of goals. with long-term retaining staff and objectives competitive market positioning

Performance Management 247

PMS is strategically and increasingly being used to attract, manage and retain an effective and efficient workforce. It is not just about money any more, and that MNC’s view performance appraisal in terms of broader strategic rewards, which keep highly-skilled employees engaged and focussed on meeting strategic objectives and delivering results. Such rewards not only include pay and benefits, but also career development and learning opportunities, as well as issues related to the work environment, including organisational climate and work/life balance. The PMS is viewed as a strategic HR activity closely linked to ensuring that the organisation is tuned to achieving the business objective. PMS indeed becomes effective when the following considerations are embedded into the porcess: 1. Clear individual performance criteria and standards that are related to the job/role and that are communicated clearly at the start of the apraisal period. 2. Adequate training and communication for all parties. 3. Continuous measurement and feedback. 4. Developmental activities occuring throught the appraisal period in order to remedy poor performance and to build on good performance. 5. Performance appraisal based on job-related result and behaviors, rather than personal characteristics. 6. Attribution of good or poor performance to correct causes, with clear and direct two-way communication regarding good and poor aspects of performance. 7. Formulation of plans to correct poor perfomance and to build ongood performance in the future.10

SUMMARY Performance management comprises such HR activities as assessing performance, providing feedback and using appraisal data for several purposes. What is needed is that performance management should be institutionalised—become a system. PMS then involves seven sequential steps. PMS should be aligned with corporate strategy. Five challenges are unique as they relate to PMS: linking culture with PMS, rewarding performance, managing under performance, rewarding virtual teams and assessing subsidiary performance.

CLOSING CASE

“The Culture of Appraisal”

∑ Measuring individual performance and tying consequences to the appraisal will be more acceptable in cultures that are individualisitic than in cultures that are collectivist. Employees from countries such as the United States, United Kingdom, Canada, Denmark, the Netherlands and Australia tend to be more individualistic in their orientation than employees from Egypt, Mexico, India, Japan, France and Venezuela, who are more likely to prefer performance to be meausred at an aggregated level, since they believe results require collective effort. This is not to suggest that individualistic cultures are blind to the importance of group results, nor that collectivist cultures ignore individal performance and its relationship to group results. Reconciling different perspectives will require the recongnition that both individual and collective results are critical to success. ∑ Holding the individual totally accountable for meeting performance standards will be more acceptable in cultures that believe in internal control than in cultures that believe in external control. ∑ Employees from countries such as the United States, United Kingdom, France and the Netherlands more readily accept personal responsibility for results than would employees from countries such as Venezuela, China, Russia, Kuwait, Egypt, Saudi Arabia and India, who are more likely to believe

248 International Human Resource Management outcomes are due to forces at least partially outside of their control. Reconcilling differing perspectives rquires recognition that both internal and external factors impacted results and that both must be considered in apraisal. ∑ Evaluating individuals based on what they accomplish, rather than who they are, will be more acceptable in culturs that are achievement-oriented than in cultures that are ascription-oriented. Employees from countries such as the United States, Australia, Canada, United Kingdom and the Netherlands are more likely to accept evaluation based on what people have accomplished than are empoyees from countries such as Egypt, Japan, China, Russia, Mexico and France, who are more likely to believe the status/qualifications of the individual should be a consideration in evaluating performance. Reconcling differing perspectives requires recognition that performance must be defined in terms that reflect all types of contribution. A well-connected person who is the key to disseminating needed knowledge through his or her network may be recognized for that contribution, while the person who succeeded individually as a result of applying that knowledge should be credited for his or her contribution. An apraisal process that allows for excellence in different types of contributions can help resolve this dilemma. ∑ Employees from universalistic cultures will believe that the same policies, methods, processes and standards should apply to appraising all employees, as opposed to those from particularistic cultures. Employees from countries such as Canada, United States, Sweden, United Kingdom, Australia, the Netherlands and Germany are more likely to believe in one set of rules that apply to everyone under all circumstances than employees from Venezuela, Russia, China India, Japan and France, who accept that the identity of the person and the circumstances should be considered. Reconciling different views requires that those who adapt policies factor processes to make the best of unanticipated circumstances should be credited for their initiative and good judgment even in a control-based culture, while those who ignore policies and factor friends to the detriment of the organisation should be admonished, even in a particularistic culture. ∑ Employees from countries with low power distance cultures will expect to participate in setting performance standards and debating ratings with the supervisor more than those from high power distance cultures. Employees from the Netherlands, United Kingdom, Australia, Canada and the United States tend to be more active in the process and challenge the supervisor when there is disagreement on perfomrance level, while this would be less likely among employees from countries such as Mexico, Venezuela, France and China. (Source: Robert J. Greene SPHR, GPHR, GRP, 2005)

Case Questions 1. List the 5 key learnings that seem to have been identified as apprasial considerations in a cross-cultural organisation. 2. Differentiate between achievment-oriented culture and ascription-oriented culture. Provide examples. 3. With the information give in the case in what 3 dimensions would be you propose for Indian company with operations in 4 US locations in designing a successful performance apprasial system.

Key Terms Analyser Balanced score card

Prospectors Reactors

Performance Management 249

Defenders Performance appraisal Performance management

SMART System replicator Trouble shooter

Review Questions How is performance management different from performance appraisal? Discuss how organisational goals can be converted to individual/team goals. Describe the different kinds of appraisers in an MNC. Why is feedback a critical part of a successful performance management system? Discuss its cultural dimensions. 5. Why are linkages created to other HR subsystems from the PMS? Discuss the challenges MNC’s encounter in establishing these linkages.

1. 2. 3. 4.

Assignments Break into groups of five. Discuss and identify one MNC where you have a contact in the HR department. While it might be difficult for them to share the exact performance appraisal system they use, seek an interview with the HR person to understand the following– ∑ Is the PMS the same for all country locations? ∑ Where is the differences (if any) between what is followed at the HQ and what is followed at the unit level? Why is it so? ∑ What are the challenges they face in implementing the system? ∑ How is the PMS linked to rewards, awards, salary hikes and training needs? Present it to the larger group applying theory from this chapter. Discuss how it could be made more effective.

References 1. Robert J Greene, “Effective Performance Appraisal: A Global Prospective”, April 2005, SHRM Article. 2. K. Aswathappa, Human Resource and Personnel Management, TMH, 2005, p 226. 3. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit, p 318. 4. Locke and Latham, A Theory of Goal Setting and Task Performance, Prentice Hall, 1990, p 7. 5. Nina Jacob, Intercultural Management, Kogan Page, 2003, pp 217–218. 6. Peter J. Dowling and Denice E. Welch, International Human Resource Management, Thomson-Learning, 2004, p 241. 7. P. Caligiuri in “Personnel Psychology” 2000, Pp.67–88, as cited in Peter J. Dowling and Denice E.Welch, op.cit, p 99 8. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit, p 320. 9. Ibid, p 321. 10. Robert J. Greene, SPHR, GPHR, GRP, 2005.

CHAPTER

9 INTERNATIONAL COMPENSATION MANAGEMENT Learning Objectives After reading this chapter, you should be able to ∑ Understand compensation objectives, philosophies and strategies ∑ Describe theories of compensation ∑ Identify components of compensation ∑ Explain the nuances of compensation administration ∑ Understand challenges in managing compensation internationally

International Compensation Management 251

OPENING CASE

Corporate Critique

Verizon Communications Chief Executive Officer Ivan Seidenberg stood at the podium yesterday, composed, almost stoic, as he faced a red-shirted, mostly hostile union crowd shouting “boo,” hurling cat calls and calling him names for about an hour and a half. If most annual shareholder meetings in good times are back-slapping love-fests and, in not-so-good times, staid, orderly and perfunctory affairs, Verizon’s annual gathering at the Westin Convention Center Hotel yesterday broke the mold. Such is the life these days for the top brass at some of the country’s largest name-brand firms, who like Mr. Seidenberg, are being held up as the poster children for corporate greed and excessive executive pay. The $21.3 million that regulatory filings show Mr. Seidenberg earned in 2006 has made him a whipping boy for corporate greed among union organisers and corporate pay watchdogs. Citing a study by research firm the Corporate Library, Verizon’s union officials said that Mr. Seidenberg earned $75.1 million over the past five years while shareholder returns over the same period were a negative 26.8 percent. (See Table 9.1) TABLE 9.1 Executive

Compensation, 2005*

Verizon’s Exces’ 2005 Pay

Increase from 2004

Total VZ contributions to supplemental

Additional income from serving on other corporate boards

retirement (as of 12/31/05) Ivan Seidenberg President & CEO

$19,425,000

49%

$15,245,357

Lawrence Babbio Vice Chairman & President

$11,674,100

46%

$12,681,257

$11,209,600

44%

$5,247,692

William Barr Exec. Vice President & General Counsel

$6,851,400

52%

$7,120,029

Doreen Toben Exec. Vice President & CFO

$6,736,800

48%

$3,452,769

Dennis Strigl Exec. VP and President & CEO of Verizon Wireless

$251,300 (2004 figure; 2005 not yet available)

$107,000 (2004 figure; 2005 net yet available)

$64,000 (2004 figure; 2005 not yet available)

* Compensation includes salary, bonus, and other compensation. (Source: Friday, May 04, 2007, By Corilyn Shropshire, Pittsburgh Post-Gazette ); (Company’s proxy statement).

Mr. Seidenberg isn’t alone in the spotlight. Executive compensation has been scrutinized and garnered headlines for decades, with the more recent practices of outsourcing, questionable accounting practices and layoffs adding to the frustrations of workers across the country.

252 International Human Resource Management Unions and executive pay critics liken corporate chiefs to 21st century Marie Antoinettes—pampered with private jets, country club memberships and generous pay packages that don’t often match shareholders’ returns and have little relationship to the lives of the average worker. New federal rules detailing more about pay and perks have only added to the ammunition for critics. “We built this company, we should share in the profits of this company,” local Communications Worker of America 13500 President Sandy Kmetyk said as the crowd cheered and rose to its feet. All but one of the seven shareholder proposals—most of them backed by Verizon’s unions, which represent some 80,000 workers—were defeated, with Mr. Seidenberg reporting that a nonbinding vote to give shareholders a say on executive compensation packages was “too close to call.” The results of the proposal, offered by an association of Verizon retirees, will be available in a few weeks, the company said. Other proposals, including eliminating executive stock options, requiring shareholder approval of future severance agreements and disclosing the pay of independent consultants, went down to defeat. While many companies use annual meetings to showcase the firm’s successes and to give shareholders a glimpse of its plans, Verizon didn’t make its own presentation. After the discussion of shareholder proposals, Mr. Seidenberg simply held a 20-minute question-and-answer session, during which he defended his pay and noted Verizon’s most recent quarterly profits beat Wall Street’s expectations, despite falling more than 8 percent. He also agreed that Verizon’s long-term strategy to invest hundreds of millions to compete with cable companies by upgrading its network so it can deliver paid-TV, broadband Internet, wireless and landline phone services “may have hurt some short-term shareholders.” But long-term investors, he said, “have done pretty well.” One of the key components of IHRM is the compensation administration in MNCs. Today, compensation and employee benefits contribute to 40–50% of the total costs. Compensation is strategically reported and monitored at the board-levels and with the investors to assess the health of the organisation as the opening case shows. This chapter focusses on the objectives, components, approaches and other related issues w.r.t. international compensation.

OBJECTIVES OF COMPENSATION What is measured and how it is rewarded are two very critical drivers of organisational performance. In the previous chapter, we understood the importance of ‘measuring’ performance of individuals and that it is aligned to organisational objectives. The design and implementation of justified compensation systems is important for reinforcing and sustaining this performance in accordance with global organisational objectives. Traditionally, compensation is understood as the provision of monetary and non-monetary rewards, including base salary, benefits, perquisites and long and short-term incentives, valued by employees in varying proportions based on personal preferences. Increasingly however, compensation in MNC’s is disbursed in accordance with skills and their relative contributions to organisational performance. International compensation management in particular seeks to achieve the following objectives: • Attract and retain talent globally that contributes to the achievement of organisational objectives — the competitive advantage for an MNC is obtained from its access to the best global talent. • Establish a compensation system that is built on a common philosophy and that facilitates movement of talent from head office to subsidiary and back and among subsidiaries. • Provide linkages to local compensation norms and laws while remaining aligned to the global pay philosophy.

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• Be cost-effective. The pay structure should ensure match between revenue and expenses. • Design pay systems that are aligned with desired outcomes and specific measurable results. • Provide a consistent and reasonable relationship between the pay levels of employees at the headquarters, domestic affiliates and foreign subsidiaries. • Be consistent with the overall strategy, structure and business needs. The MNC needs to align all subsidiaries to a single compensation strategy linked through clearly established and transparent criteria for identifying and assessing employee competencies and performance globally.1 Given the critical role played by compensation on driving employee performance and satisfaction, international businesses have a clearly established compensation philosophy and strategy that is instituted at the corporate/headquarters level and that serves as the guideline for managing compensation strategies at the host/subsidiary level. The compensation philosophy guides the organisation in realising the above objectives in an equitable and cost effective manner.

COMPENSATION PHILOSOPHY Compensation philosophy is the set of values and beliefs that an organisation carries with regard to monetary and non-monetary benefits payable to employees. This often is combined with a set of guiding principles that further assist in compensation administration. Many MNCs report that they have no formal compensation philosophy. However, collective decisions that an MNC has made over a period of time constitutes a set of beliefs and values—a compensation philosophy—regardless of whether or not the MNC has actually committed those ideas to a formal document. Differences in compensation philosophies are widespread. Some organisations believe in an extensive use of incentives, while others apply them to a very narrow group of employees who are believed to contribute directly to the bottom line. This represents a significant difference between the MNCs. Another variation is the behaviour of MNCs who seek to apply compensation levels “at the market average”. These MNCs differ philosophically from those MNCs that seek to pay at the top of the market, thus enabling them to attract significantly more competent employees. Some MNCs are proportionally more generous to certain levels of super performers, while others believe in principle of achieving equity across all employees. The openness with which compensation decisions are made, and the degree of stakeholder involvement in those decisions, is yet another example of difference that may exist between organisations. Any compensation philosophy should cover the following aspects:2 What are the goals of the organisation’s compensation system? What percentage of compensation should be linked to individual/unit performance and what should be the base salary? What is the role of performance appraisal in disbursing compensation? and How to target the positioning of compensation of employees relative to market? A philosophy incorporating the above creates measurable standards for employers to follow and these benchmarks can also be used to evaluate employee performance and allocate rewards.

THEORIES OF COMPENSATION Four theories are discussed in the context of international compensation: contingency, resource-based, agency and equity.

Contingency Theory Contingency theory, the most popularly followed in international business, the contingency theory posits that expatriate compensation should be based on particular contingencies or situations prevailing in a host

254 International Human Resource Management country. Stated differently, there cannot be a standardised compensation package applicable to all expatriates across the globe. The compensation philosophy in such organisations is normally de-centralised and allows units to localise the compensation structure.

Resource-based Theory This theory suggests that an MNC should pay well to attract and train competent people who contribute to its competitive advantage. Human resource constitutes the greatest asset of the MNC and the firm should do anything to acquire, retain and use it for organisational effectiveness. It is a challenge in such organisations to ensure a fixed structure and stay within clearly defined salary bands. Such organisations remain marketsensitive and are constantly reviewing compensation to retain their position in the hiring and retaining talent.

The Agency Theory This theory focusses on the divergent interests and goals of an organisation’s stakeholders and the way that employee compensation can be used to align these interests and goals. According to the theory, there exists a principal-agency relationship between the MNC’s headquarters and its subsidiaries, the former being the principal and the latter acting as agents. The principal obviously delegates responsibilities to the agents. Given that the headquarters does not have all the unique knowledge of the subsidiaries, not all the decisions in the MNC can be made by the headquarters. It must depend on the subsidiaries and an ‘agency problem’ arises if the goals of the headquarters and subsidiary managers are not aligned. International compensation strategy, therefore, must include those elements that motivate appropriate behaviours to implement the MNC strategy.3

Equity Theory Equity theory suggests that there should be a fair balance between an expatriate’s contribution to an MNC and what he or she receives as compensation. Inequity between the two results in reduced performance and even withdrawal. Establishing the equity principle in a domestic business may be relatively easy but in an international business, the task is daunting. Relativities are much more difficult to establish within the complex organisation of an MNC, due to its geographic and cultural spread, and its work force mix of home, host and third country nationals. Of late, the equity principle is sought to be compromised with a new approach to compensation—person based rather than job centric. Not only compensation but all systems of HRM are sought to be made individual specific and not job grade based. This transition has immense implications for international HR practices.

COMPENSATION STRATEGY It is important to approach compensation strategically, by developing a philosophy toward compensation, along with a set of objectives. Such a strategy helps guide compensation decisions. An approach model is shown in Fig. 9.1.

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(Source: http://www.chrs.net/images/chrs–papers/; Aligning Compensation Strategy by Michaiel H. Schuster,) FIGURE 9.1

Compensation Strategy

Three categories of variables are significant in this context; (1) business and operating inputs; (2) industry and labour market practices and trends; and (3) employee inputs and preferences. Strategic business and operating inputs are provided from the subsidiary’s business plan and objectives and the operating targets. Assessment of the type of workforce, skills required, employee numbers, nature of work, sales and production targets serve as critical inputs to the kind of compensation system designed. Industry and labour market practices and trends help assess the demand–supply relationship prevalent in the industry. The matching of subsidiary objectives with the availability of competent resources and competitor pay practices need careful attention in order to hire and retain the requisite talent pool. Acceptable pay patterns prevalent in the particular industry, e.g. variable pay vs. fixed pay components, use of individual/team/company performance based incentive schemes, benefits portfolio and tax relief considerations in the pay structure, are some other factors that need attention in driving the compensation philosophy and strategy. Employee inputs and preferences refer to the degree to which compensation is a fixed competency based structure and whether or not there exists a scope for individual skills based negotiation. Factors like current salary, institution from where he/she graduated, scrolls acquired by the individual are some of the factors that influence salary negotiations. MNCs could prefer to hire candidates from a particular institution or from a similar industry and pay premium salaries. Once the philosophy, objectives and strategy are developed, the elements of compensation, namely base pay, variable pay, fringe benefits and administration can be determined. Base pay structures are the wages and salaries. Employees typically receive 90-100% of the cash compensation and two-thirds of their total compensation from their base pay. Base pay structures are usually anchored in the local laws and norms of employee remuneration. They closely align to the lifestyle and tax relief norms of the country. These are therefore left to the discretion and management of the local HR teams. The proportion of the base pay in the overall compensation structure is however a global decision and all countries comply with the proportion of base pay as part of total compensation.

256 International Human Resource Management Variable pay plans are systems used for sharing the economic benefits of improved productivity, cost reductions, quality and overall business performance and are in the form of regular cash bonuses. Developing a variable pay plan requires an examination of the existing management and compensation practices. These are usually aligned to the global standards and are clearly articulated in the compensation philosophy of an MNC. They are shared with the employees at the point of hiring and continue to be reviewed for alignment with the company’s objectives. Most variable pay plans are embedded into the existing systems. An important aspect of international compensation is the philosophy governing payment of allowance for inter-subsidiary / unit transfers. The extensive use of ‘remuneration’ to reward/incentivise employees on assignments in host or parent countries for both short-term and long-term is common with MNC’s. In most cases, fringe benefit structures are set at a corporate/headquarter level and are highly influenced by legal requirements. From the point of view of compensation strategy, fringes represent a substantial cost of total compensation and therefore, must be considered as a strategic cost. For example, organisations provide for stock options to employees who are above a particular level in the organisation or who have completed certain years of experience with the company. Fringes can influence attraction and retention of talent. A perquisite is another component of compensation structure that organisations are increasingly allowing. Commonly, the perks are limited to the senior and top-level management in most MNC’s and are subjective to individual cases. However, the decision to permit perquisites as a part of executive compensation is a corporate decision and the extent of negotiation that can be provided for, is philosophy driven. Compensation administration includes a collection of activities required to sustain the effectiveness of a compensation strategy. Thus, issues ranging from labour market surveying, to performance management, skill certification and peer review come under this umbrella. Involving stakeholders in compensation administration can reinforce the values and beliefs underlying the compensation philosophy and strategy. Exhibit 9.1 is an exhaustive checklist used by organisations either implicitly or explicitly, in implementing the compensation strategy.

Exhibit 9.1

A Checklist of Key Compensation Questions

∑ Base Pay Delivery ∑ Method of delivery — job-based vs. individual-based ∑ Number of levels ∑ Structure of levels ∑ Pricing strategies ∑ Adjustment method ∑ Weighing of individual performance ∑ Organisation performance or variable pay ∑ Role in Total Compensation Strategy ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑

Structure Measures Targets Tolerance for pay at risk Risk–reward ratios Use of other monetary rewards Use of non-monetary rewards Individual performance recognition

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∑ Fringe Benefits ∑ Usually determined at corporate level; limited scope at other levels ∑ Tie to business and human resource objectives ∑ Coverage ∑ Cost ∑ Communications (purpose–coverage–value) ∑ Compensation Administration ∑ Stakeholder role in compensation administration ∑ Performance management and evaluation ∑ Overtime policy (exempt and non-exempt) ∑ Shift differentials ∑ Attendance policies ∑ Role of seniority ∑ Employee Inputs and Preferences ∑ Perceptions of external pay equity ∑ Perceptions of internal pay equity ∑ Pay delivery beliefs — Form (cash, gainsharing, benefits) — Method (individual, small group, large group) ∑ Risk tolerance ∑ Trust in management ∑ Business and Operating Inputs ∑ Operations and manufacturing strategy ∑ Sales development strategy ∑ Percentage of compensation costs to total product/service costs ∑ Percentage of compensation costs to controllable product/service cost ∑ Existing markets/products ∑ Potential markets/products ∑ Anticipated volume ∑ Reinforce/enhance work design ∑ Maintain cultural change processes ∑ Other operating issues ∑ Industry and Labour Market Practices and Trends ∑ Availability and quality of workforce ∑ Industry practices ∑ Retention of workforce ∑ Retention of key contributors ∑ Wage/salary levels and movement ∑ Wage/salary delivery charges ∑ Compensation Philosophy and Objectives ∑ How much emphasis should be placed on rewards to drive organisation ∑ What issues are to be driven by compensation as opposed to management practices ∑ Market definition (exempt and non-exempt) ∑ Method of delivery ∑ Targeted position in labour market ∑ Targeted position in product market

258 International Human Resource Management ∑ ∑ ∑ ∑

Relationship within the company Relationship to selection and retention Portion of pay guaranteed and at risk Percentage of workforce eligible for bonus

(Source: http//www.chrs.net/images/chr-papers/; Aligning compensation strategy by Michael H Schuster.)

COMPONENTS OF COMPENSATION Components of international compensation comprise, as stated above, base salary, incentives, benefits, allowances, foreign service inducement/hardship premium, long term benefits and taxes (See Fig. 9.2).

Incentives

International Compensation

A

llo wa nc e s

FIGURE 9.2

y

B enefits

Sa l ar

xes Ta

rm g-te L on efits B en

Components of International Compensation

Base Salary Base salary is common in any compensation strategy—domestic or foreign. In fact, base salary is so critical that it is the base on which other components are built. The base salary is the foundation block for international compensation, whether the employee is a PCN or TCN.4

Incentives Increasingly, MNCs these days are designing special incentive programmes for keeping expatriates motivated. In the process, a growing number of firms have dropped the ongoing premium for overseas assignments and replaced it with a one-time, lump-sum premium. For example, in the early 1990, over 60s per cent of MNCs gave ongoing premiums to their overseas assignees. Today, the percentage is under 50 and the declining trend continues.5 Even in domestic businesses, MNCs are preferring one-time premiums to periodic salaries. Yahoo.com, for example, has dropped CEO salary to $1 per annum but he is entitled to benefit from a discretionary bonus in the form of a fully vested stock options of up to one million shares per annum. Google Inc. has also done similarly recently. Referral and retention bonuses are other incentives that are highly popular.

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Referral bonus is a popular way of bringing in new talent by employees introducing friends, relatives and acquaintances to the company. Eligibility to receive a hiring bonus varies across job levels, but is relatively unaffected by company size or industry sector. Executives and technical employees are the most likely to be offered hiring bonuses, whereas sales representatives and hourly/non-exempt employees are the least likely. Use of retention bonuses/rises for employees is common in IT/BPO and in the services sector. Surveys indicate that about a third of technology and life sciences companies use a formal or discretionary retention bonus plan to retain key employees (see Table 9.2). This practice is more common in larger companies but does not vary by industry sector. TABLE 9.2

Offer Retention Bonuses

Retention Bonus Programmes Per cent of Companies By Company Size (# of Employees)

All Companies

Yes, currently have a programme Yes, but only discretionary No, and no plans to implement one No, but plan to implement one

Up to 50

26%

24%

Over 50 to 500 23%

Over 500 to 5,000 28%

Over 5,000 50%

9%

0%

7%

21%

6%

57%

67%

62%

44%

44%

8%

9%

8%

7%

0%

The primary goal of retention bonuses programs is dictated by the company’s specific situation (see Fig. 9.3).

FIGURE 9.3

Primary Goal of Retention Bonuses

In calculating retention bonus, companies typically pay in flat dollar amounts (Fig. 9.4). Few companies choose to pay retention bonuses based on a formula of time worked, which though prevalent is not very popular. LG is one company which believes in monetary rewards—particularly bonus. The electronics major pays bonus that varies between 200% to 700% of base salaries to its 4500 employees throughout the year. The company pays five types of bonus as shown in Table 9.3.

260 International Human Resource Management TABLE 9.3

LG’s Bonus Payment

Bonus Performance bonus

Frequency and Month Twice a year Jan and July

Eligibility All employees (individual performance based)

Diwali bonus

One time in October

All employees

Birthday incentive (Company)

One time in May

All employees (Company performance based)

Special performance bonus

One time in November

All employees (Company performance based)

Retension bonus

After two years of service

High performers

Allowances Allowances are an inevitable feature of international compensation. One common allowance relates to the cost of living—an adjustment for differences in the cost of living between the home country and foreign assignment. This allowance is designed to provide the expatriate with the same standard of living that he or she enjoyed in the home country. Percent of Base Pay 30%

Others 8% Formula Based on Time Worked 2%

FIGURE 9.4

Flat Dollar Amount 60%

Calculation of Retention Bonuses

Spouse assistance, housing allowance, home leave allowance, relocation allowance and educational allowance are the popular allowances provided for in the expatriate compensation. Spouse assistance is provided to help guard against or offset the income lost by an expatriate’s trailing spouse. Some organisations support search for jobs for spouses, often in the same organisation as the assignees are employed. Housing allowances are paid either on an assessed or on actual basis. Alternatively, housing allowances could be disbursed as company provided housing, a fixed housing allowance or assigning a part of the income, out of which actual housing costs are paid. Housing issues are often addressed on a case-by-case basic, but as an organisation globalises, formal policies need to be put in place.6 Home leave allowance is offered to facilitate an expatriate to visit his or her home country at least once in an year. Such visits help the expatriate overcome adjustment problems when he or she is repatriated. MNCs may like ensure that the home leave allowance is utilised only to visit one’s own country and not to undertake any other foreign travel.

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Education allowance is given to an expatriate’s children. The items covered under this category include tuition, language class tuition, enrolment fees, books and supplies, transportation, room and board and uniforms. PCNs and TCNs usually receive the same amounts under educational expenses.7 Education allowance is often extended to the assignee’s trailing spouse. If attempts to secure a job for the spouse fail, he or she may be sponsored for higher studies or for re-skilling. Finally, relocation allowances are offered to cover such expenses as moving, shipping and storage charges, temporary living expenses, subsidies regarding appliance or car purchase and down salary payments or lease-related charges. These allowances are often contingent upon tax-equalisation policies and practices in both the home and the host countries.8

Foreign Service/Hardship Premium This is often perceived as an inducement in the form of a salary premium to accept an overseas assignment. Generally, salary premiums vary from 5–40 per cent of the base salary. Actual salaries depend upon the assignment, actual hardship, tax consequences and length of assignment. In addition, if the work-week in the host country is longer than in the home country, the assignee will be paid for the extra hours worked. Certain countries are highly hostile to foreigners staying and working. Indians engaged in road construction work in Afghanistan, for example, face constant threat to their lives. In fact, two such emigrants got killed in recent times. Expatriates in such environments are paid 2 to 3 times more than their domestic salaries.

Benefits Alternatively known as indirect compensation, hidden salary, fringes or service programmes benefits constitute a substantial portion of international compensation. Benefits include a suite of programmes such as — ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑ ∑

Entertainment Festival celebrations Gifts Use of club facilities Provision of hospitality including food and beverage Conference attendance Employee welfare Use of health club and similar other facilities Conveyance, tour and travel Hotel board and lodging Vehicles Telephone and other telecommunication facilities Sponsorship of children.

Benefits have a place of prominence in any compensation strategy. Employees might not always prefer benefits to direct monetary compensation. Certain benefits (for example, health and life insurance) can generally be purchased by the employees at group rates, which are typically lower than those that the employees could have negotiated individually. Employers could prefer benefits to direct salary. Increase in benefits distort salary structures less and are often more easy to explain and convince shareholders. Besides, fringes often involve complex financial arrangements and underwritings so that their true cost may not be discernible to employees.

262 International Human Resource Management Yet employees tends to join and stay with an organisation which guarantees an attractive benefits programme. Vacations along with holidays and rest breaks help employees mitigate fatigue and enhance productivity during the hours employees actually work. Similarly, retirement, health-care and disability benefits may allow workers to be more productive by freeing them of concerns about medical and retirement costs.9 The above arguments for a benefits programme are relevant in an international compensation strategy too. An individual is an employee first and he or she may later become an expatriate. Whatever monetary and non-monetary benefits that motivate an employee in the parent country do motivate when he or she becomes an assignee. Several key issues are associated with a benefits programme in international compensation:10 ∑ Whether MNCs should maintain expatriates in the home-country benefits programmes, particularly if these programmes are not tax-deductible; ∑ Whether MNCs have the option of enrolling expatriates in the host-country benefits programmes and/or making up for any difference in coverage; ∑ Whether host-country legislations regarding termination of employment affects the employee’s benefits entitlement; ∑ Whether the home or the host-country is responsible for the expatriate’s social security benefits; ∑ Whether the benefits should be subject to the requirement of the home or the host country; ∑ Which country should pay for the benefits; ∑ Whether other benefits should be used to offset any shortfall in the coverage; and ∑ Whether home-country benefits programmes should be available to local citizens. Yet another key consideration in administering a benefits programme relates to the needs of the host country culture. Culture influences benefits programmes considerably. Societies scoring high on the masculinity indicator, for example, are known to have lower usage of flexible benefits, workplace based child care programmes, career break schemes and maternity leave. Feminine societies lay greater emphasis upon quality of life considerations than do masculine societies.11

Taxes Yet another component of the expatriate’s compensation relates to taxes. Taxes need to be handled with caution as they evoke an emotional response from expatriates. No one enjoys paying taxes, and this issue can be time consuming for both the organisation and the expatriate.12 MNCs generally select one of the following approaches to tackle international taxation: ∑ Tax equalisation: Organisations withhold an amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country. ∑ Tax protection: The employee pays up to the amount of taxes he or she would pay on remuneration in the home country. In such a situation, the employee is entitled to any windfall received if the total taxes are less in the foreign country than in the home country. Two other approaches suggested are: ad hoc and laissez-faire. In the ad hoc approach, each expatriate is handled differently, depending upon the terms of the employment contract between the company and the assignee. The laissez-faire approach suggests that the expatriates be left on their own to solve taxation problems. Ad hoc and laissez-faire approaches seem to have only academic interest. In practice, MNCs follow the tax equalisation policy. Thus, for a PCN, tax payments are equal to the liability of a home-country tax payer with the some income and family status. Any additional premiums or allowances are typically paid by the organisation, tax-free to the employee.13 (see Exhibit 9.2)

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Exhibit 9.2 U.S. Congress Imposes Higher Taxes on American Expatriates Working Abroad On May 17, 2006, the U.S. Congressional Joint Committee on Taxation approved a provision that would raise the taxes of Americans living abroad. The new policy could force expatriates with high salaries to pay thousands of dollars more in taxes each year. The new taxes are retroactive as of this year. Expatriates living in countries with high housing costs and low taxes, such as Hong Kong and Singapore, will be the most affected. Experts predict that expatriates who make about $140,000 in base pay will see an increase in taxes from about $10,000 to $20,000 per year. Large companies will most likely cover the higher tax burden for their employees. However, it is likely that some companies will begin to rethink hiring American expatriates, and instead, hire expatriates from other countries that do not have such high taxes. Some American expatriates have already expressed concern that their employers will not indemnify them against the higher taxes. Because of this sudden change, many American expatriates living in Asia will need to rethink their plans to live and work in the region. David Sutherland, from the American Chamber of Commerce in Hong Kong, commented, “Lots of people are mighty unhappy out here and this will be huge for some people and will cause many Americans to return.” Source: Pacific Bridge, Inc. — Asian HR eNewsletter, Volume 6, Number 5 (June 12, 2006)

Use of Long-Term Benefits The most common long-term benefits offered to employees of MNCs are employee stock option schemes. Traditionally, stock option plans were used as means to reward top management or key people of the organisation. However, it is increasingly gaining popularity amongst wholly owned technology companies, in order to retain and reward employees across the organisations. This is stemming from the argurment that all employees can create an impact on the organisation’s performance and will directly contribute to the organisation’s profitability. Hence, the primary objective for providing stock options is to reward and improve employee performance and/or attract/retain critical talent in the organisation. In the event that an MNC sets up its operations in a host location, it normally faces challenge from competitors in hiring/retaining the desired talent and in selling its products/services in a new market, where its brand is yet emerging. It is a common practice to offer long-term benefits to enable the new host unit to integrate faster with the global entity. Some of the commonly used stock option schemes are: Employee Stock Option Plan (ESOP) This is a plan established by a company, whereby a certain number of shares are reserved for purchase and issuance to key employees. Such shares usually vest over a certain period to serve as an incentive for employees to build long-term value for the company. Restricted Stock Unit (RSU) This is a plan established by a company, wherein units of stocks are provided with restrictions on when they can be exercised. It is usually issued as partial compensation for employees. The restriction generally lifts in 3 to 5 years when the stock vests.

264 International Human Resource Management RSUs are likely to be most preferred choice for the reason that once the International Financial Reporting Standards (IFRS) are put in place, stock options need to be disclosed as an expense in the company’s wage bill. This requirement tends to make RSUs more acceptable. Employee Stock Purchase Plan (ESPP) This is a plan wherein, the company sells shares to its employees usually, at a discount. Importantly, the company deducts the purchase price of these shares every month from the employee’s salary. Although stock options remain the most popular equity compensation vehicle, restricted stock are becoming commonplace. IT companies are increasingly using RSUs as incentives since they afford a lot more flexibility. While stock options are generally awarded to almost all employees, RSUs will be granted to select employees only. (Also see Exhibit 9.3).

Exhibit 9.3

IT Cos Now Use RSUs as Incentives

The expensing of stock options and the rise of restricted stock units as a retention tool is leading to a change in compensation models for IT companies. While stock options were basically used as a retention tool and to control attrition, restricted stock units (RSUs) have a little more flexibility and can be used as reward and retention tools. While stock options are generally awarded to almost all the employees, RSUs will be granted to select employees only. The selection of the employees will be made on the basis of their performance and only the top rung performers are likely to be given RSUs. Hari T, senior Vice President (Human Resource), Satyam Computers, says, “We have in-principle decided to move away from issuing stock options and will start awarding RSUs by the end of this year. There are certain differences between RSUs and stock options, initially we are looking at a staggered award of these units.” Unlike stock options which were given to all employees, Satyam will give RSUs only to a select group of employees, Hari says. HCL Technologies is planning to continue with its stock option plans for the time being, but will also start issuing RSUs. D.K. Srivastava, head of HR at HCL Technologies says, “We will continue with both the plans as it is not possible to award RSUs to all employees.” HCL Technologies has already started expensing its stock options, but does not see it as a major problem as it’s a non-cash charge. Said S.L. Narayananan, corporate vice president (finance). “The analysts are already discounting this charge as it does not involve any outflow of cash. Some companies have started flow of cash. Some companies have started preparing pro-forma accounts to depict the profits without this charge.” Companies like Hexaware are exploring the possibility of using RSUs. Atual Nishar, Chairman of Hexaware Technologies says, “We are exploring this possibility of incentivising the sales forces and other key personnel with RSUs, but have not worked out a final model on it yet.” Under an RSU, equity becomes the currency for performance incentives as a rising stock market means employees will benefit more. Under the new scheme, the company fixes a particular sales or performance target for the employee. If the employee meets the target then say, X number of stocks are awarded to the employee. If the employee exceeds the target by say 1.5 times, then 1.5 ¥ number of stocks are awarded to the employee. (Source: The Economic Times, 26th May 2006)

266 International Human Resource Management Organisational culture has a strong impact on international compensation. Whether compensation is based on seniority or the performance of the expatriate, benefits are generally determined by organisational culture. This will be discussed later, in the chapter. Workforce demographics such as age, education level, qualifications and competence, along with workforce tastes and preferences have their impact on international compensation. Labour relations comprising the extent of unionisation of the organisation and the nature of employment relationship deserve due consideration while designing and administering international compensation. Finally, the strategic role of the subsidiary determines the compensation system. If the goods/services provided by the subsidiary contribute significantly to the achievement of the global objective of the MNC, the strategic role of the unit allows it to position itself competitively with reference to the design and deployment of its compensation strategy. Certain forces, external to the organisation, also influence international compensation. Parent nationality as reflected in its culturally reflected attitudes and values towards compensation policy and practices, is one such external force having impact on expatriate compensation. If the parent country has high power distance orientation as its culture, compensation will be based on hierarchical positions in the organisations. Thus, there will be large compensation differentials between executives and team members. Similarly, if the parent country’s culture is characterised by low uncertainty avoidance, compensation would be based on performance and not on seniority. Labour market characteristics include supply and demand, education and skill levels of individuals and experience of players in the labour market. Irrespective of industry, labour market features are the key determinants in deciding compensation strategies both globally and at a unit level. Where demand exceeds supply, as it is happening to IT and ITES workforce, compensation tends to be high. Similarly, skilled and highly educated people with experience command a premium. Dominant societal values, norms, attitudes and beliefs impact international compensation strategy. Seniority versus performance, family connections versus professional competance and gender versus objectivity are the determining considerations having cultural connotation.15 The following bring out the impact of culture on compensation:(15(a)) ∑ In high-power distance cultures, MNEs should pursue hierarchical compensation for local managers, pay and benefits should be tied to the local manager’s position, and a large pay differential between echelons is desirable. ∑ In cultures with high individualism, performance-based pay and extrinsic rewards are important. In cultures with low individualism, group-based pay and compensation packages that reflect seniority and family needs are more acceptable. ∑ In cultures with high masculinity, MNEs should pursue a compensation strategy for local managers that recognises and reward competitiveness, aggressiveness, and dominance. In cultures with low masculinity, compensation should focus on social benefits, quality of work life, and equity. ∑ In cultures with high uncertainty avoidance, structured and consistent pay plans are preferred. Salary and benefits decision should be centralised, with no variable pay plans or discretionary salary allocation. Where uncertainty avoidance is low, pay should be closely linked to performance. In addition, the local manager’s salary should be competitive to retain top talent. ∑ In high uncertainity-avoidance cultures it is better to have centralised pension systems with multiple controls and safeguards. ∑ Low uncertainty-avoidance cultures would be more open to defined contribution pensions with flexible plan implementation. ∑ Separate pension plans for different classes of employees would be acceptable in high-power distance cultures. ∑ In masculine cultures with moderate to high uncertainty avoidance, policies designed to protect job security would be welcome.

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∑ Employees from feminine cultures with moderate to high uncertainty avoidance would prefer policies designed to protect income security. ∑ Employees from feminine cultures prefer family-friendly management practices as well as other policies designed to maximise quality of work life. ∑ Employees in low individualistic and low-power distance cultures will prefer flexible benefit programmes. ∑ Health programmes in low-power distance cultures would be uniform for all, while employee choice of health insurance providers is important in individualistic cultures. Governments of the local countries lay down certain norms regarding minimum wages (Minimum Wages Act in India for example), bonus (Payment of Bonus Act, in India for example), and gender based payments (Equal Remuneration Act, in India for example). It is true that MNCs pay above what local laws prescribe, but under no circumstances can compensation fall below the statutory levels. Industry type is crucial in determining international compensation. Companies in IT, software, pharmaceuticals and service sector pay much higher than other industries. Even the components of compensation depend on the type of industry. Stock options are more common in the new economy firms than their counterparts in the old economy. Pay packages of MNCs cannot lag behind what their rivals are paying to their employees. In fact, an international business needs to excel its competitors if it desires to be a market leader. As seen from Fig. 9.5, internal and external forces of an MNC will influence its staffing orientations. As explained earlier, staffing philosophy can be ethnocentric, polycentric, geocentric or a mixture of the three. International compensation strategy is flavoured by the staffing orientation. When an MNC ‘expatriates’ its managers from its headquarters to head subsidiaries, compensation tends to be equal to the home country packages in addition to some allowances to motivate them to accept such assignments. In contrast, MNCs with a predominantly geocentric approach might more readily adopt a global compensation strategy; and a polycentric approach of staffing would naturally imply that the local/subsidiary country’s compensation practices would prevail. Will not global compensation strategy conflict with the host country culture? Such an apprehension looks unfounded as experiences have proved that international compensation can be culture-free while being culture bound. Three sets are available to balance these two extremes: the ‘core’, the ‘crafted’ and the ‘choice’. The ‘core’ set comprises that compensation which signals the organisation’s geocentric orientation. Local conditions can be accommodated with variations in specific practices, but they must be consistent with core policies. The ‘crafted’ set allows each subsidiary or business unit a latitude to choose from total compensation options, which might be important to gain and sustain competitive advantage to operate in its market. The ‘choice’ set (often called the ‘menu’ set) of total compensation, offers flexibility for employees to choose from various options. This option contains both elements; customising compensation to respect local culture and internationalising to accommodate geocentric orientation.

COMPENSATION PACKAGES Working within the components described above, MNCs seek to design compensation packages to fit the specific situations. For example, senior-level managers in Japan are paid four times more than their junior staff members. This is in sharp contrast to the US, where the gap is much higher. Many senior level managers in Europe are paid much less than their US counterparts. The approaches to compensation that are popular among MNCs are going rate approach and balance sheet approach.

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Going Rate Approach In this, expatriates are paid according to the host country salary structures. Where salary structures in host countries are lower, additional salary payments are made to the expatriates. Going rate approach is credited with certain advantages. It is easy to understand and simple to administer. One problem in implementing the going rate approach is to collect information about local salary structures. This difficulty can be overcome by conducting salary surveys. Secondly, parity with host country nationals can be maintained. Finally, MNCs can maintain equity among different nationalities. However, there are problems associated with the going rate approach. First, there are variations between expatriates of the same nationality in different locations. For example, Indians expatriated to the US may be compensated better than those assigned to a developing country. Obviously, expatriates glamour for assignments in developed countries. In addition, there is the reentry problem. On return to home country, the expatriate finds that his or her compensation is lower than that of the host country.

Balance Sheet Approach Majority of the MNCs follow the balance sheet approach to determine expatriate compensation. This method provides a compensation package that attempts to equate or balance the expatriate’s purchasing power in the host country with the purchasing power in his or her home country. To balance the compensation received in the host country with that in the home country, MNCs usually provide additional compensation in the form of tax adjustments, housing costs and the costs of basic goods and services. Goods and services include items such as food, recreation, personal care, clothing, education, home furnishing, transportation and medical care. Figure 9.6 brings out the essential features of the balance sheet approach.

Home-and HostCountry Income Taxes

Income Taxes Premiums and Incentives

Housing Income Taxes

Income Taxes

Housing

Housing

Housing Goods and Services

Goods and Services Reserve

Reserve

Home-Country Salary

Home-Country Costs

Goods and Services

Goods and Services

Reserve

Reserve

Host-Country Costs Paid by Organisation and from Salary

Home-Country Equivalent Purchasing Power

(Source: Wayre f. Caseio, Managing Human Resources, P. 665) FIGURE 9.6

A Balance Sheet Approach to Expatriate Compensation

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As with the going-rate approach, the balance-sheet approach has some merits and is defective too. On the positive side, it may be stated that the balance sheet approach is easy to communicate to expatriates. Second, the approach maintains equity between foreign assignments and between expatriates of the same nationality. Finally, the approach facilitates repatriation because of the parity being maintained between the purchasing power in the home country with that of the host country.

Other Approaches There are other approaches to international compensation too, but they are not in popular usage. One such approach is the international citizen’s approach. In this approach to expatriate compensation, an international basket of goods is used for all expatriates, regardless of country of origin. The basket of goods includes food, clothing, housing and so forth. However, expatriates are not provided salary adjustments that would allow them to purchase exactly the same items in the host country as in the home country. Rather, they receive adjustments that would allow them to purchase a comparable local product of the same nature; for example, rather than a Mercedes (which they had in the home country), they would buy a local luxury car.16 Alternatively called the global salary systems, the international citizens approach is appropriate when an MNC has a team of dedicated international managers—Europeans, Americans or Asians—who are ready to move to any part of the globe easily and effectively. Global salary systems seek to provide worldwide equity in rewards and allow managers to move between countries with minimal effects on lifestyle (See Exhibit 9.4 for a typical case of application).

Exhibit 9.4

Seagram Spirits and Wine Group’s Global Salary System

The Seagram Spirits and Wine Group, incorporated in Canada, with HR in London, and its CEO in New York, is certainly international. Seagram generates 65 per cent of revenue from outside of North America and employs ten thousand people in 60 different countries. They need experienced and dedicated multinational managers—Europeans, Asians and Americans—who can move easily and effectively between countries as corporate needs change. To facilitate their multinational strategies, they recently developed an international compensation plan called the “international cadre policy” to function as a “global glue”. This compensation policy applies to over 1,000 global managers in the international cadre. Members of the international cadre are not typical expatriates who wish to return to the United States or their parent country after their assignments. These managers expect international positions for their whole career. The international cadre compensation package begins with a worldwide job-evaluation system so that similar jobs get similar salary. To equalise the compensation system in different locations, Seagram provides a salary system that puts managers in the top quartile of local compensation. However, managers must meet profit performance goals to keep this level of compensation. All bonuses are computed as a percentage of base salary. (Source: John B. Cullen, op.cit., p. 444)

There is also the lumpsum method of expatriate compensation. This involves giving the expatriate a predetermined salary and letting the individual decide about how to spend it. Finally, there is the regional system, under which the MNC sets a compensation system for all expatriates who are assigned to a particular region. Thus, everyone going to Europe falls under one particular system and those going to South Africa come under a different system.

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COMPENSATION ADMINISTRATION Compensation administration involves establishing salary bands, developing rates of pay for jobs, linkages to performance appraisal, starting salary for new employees and salary increases/reviews (See Fig. 9.7).

FIGURE 9.7

Issues in Compensation Administration

Salary bands Salary band is a combination of salary grades and ranges into a few wide levels or bands, each of which contains a relatively wide range of jobs and salary levels. An organisation may create broadbands for all its jobs, or for specific groups such as managers or professionals. The rate range of the broadband is relatively large, as it ranges from the minimum pay of the lowest grade the company merged into the broadband up to the maximum pay of the highest merged grade. For the jobs that fall in this broadband, there is therefore a much wider range of pay rates. Employees can be easily moved from job to job within the broadband, without worrying about the employees moving outside the relatively narrow rate range associated with a single pay grade. Broad banding naturally needs to be flexible. Most MNC’s practise a global salary bond with reference to creating bonds and then provide for local currency denominators that allow for cross-country comparisions.

Developing Rates of Pay for Jobs The basis for most pay programmes is a pay structure—a hierarchy of jobs with pay ranges and/or rates assigned. Pay structures are designed so that the greater the worth of a job, the higher the pay grade and range. Developing a pay structure in a global scenario is a process with a series of steps: job analysis by location, job documentation, development of a global job worth, hierarchy and establishment of salary ranges and/or rates that are specific to each location. Global Job Analysis This involves collecting and evaluating relevant information about jobs from all the MNC’s units globally. Any data collected should clarify the nature of the work being performed (principal or essential tasks, duties and responsibilities), the level of the work being performed, the extent and types of knowledge, skill, mental and physical effort required and responsibility required for the work being performed. There are five primary sources of data for collection of job information: questionnaires, interviews, logs or diaries, direct observation and work plans. Organisation must choose an appropriate method that will provide comprehensive data with administrative efficiency and cost-effectiveness.

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Job Documentation There needs to be a formalised way to document job content. In most organisations, a job description is used to accomplish this. Job documentation is used to evaluate job content, provide objective criteria for making salary comparisons, ensure that jobs are classified according to content as opposed to individual personalities, effectively communicate the job duties to both supervisors and employees, and help the organisation defend itself against charges of discrimination. Who should write job descriptions? That will depend on the resources available to the organisation, but they should always be reviewed by line management. This task is normally localised to the respective units, with clear guidelines being outlined through the job analysis exercise. Development of a Job Worth Hierarchy A global job worth hierarchy is the result of job evaluation, the overall process of comparing jobs based on quantifiable and non-quantifiable factors. All jobs are mapped based either on competancy or on worth and a ranking of the jobs that has arrived at. Jobs with similar competancies/worth are clubbed to form job clusters. Establishment of Salary Ranges and/or Rates In order to actually establish a salary structure, an organisation needs to set rates of salary for the jobs in the job hierarchy. Before doing this, an organisation needs to ask, and answer, the following questions at a global level: ∑ What is the organisation willing to pay for: job content, seniority, performance, skills, cost of labour, or some combination of all of these? ∑ How does the organisation pay its employees: based on a single rate structure (all employees in the same job receive the same salary), based on seniority, based on merit, based on productivity (piece work), based on new skills (skill-based salary), or based on some combination of these factors? Are short term-or long-term incentives provided? ∑ What steps does the company need to take to ensure that salary is administered in a manner free of bias and discrimination? ∑ If an organisation decides to use salary ranges (or grades), it will have to determine how many ranges to have. This will depend on the number of different levels of relative job values that are recognised by the organisation and the difference in salary between the highest and lowest paid jobs in the salary structure. The focal point of a salary range is the mid-point, as this is generally the “going” rate for jobs assigned to that range. From the mid-point, an organisation can determine the minimum and maximum ranges. The minimum range is usually the lowest salary rate for any job in that range and is usually the salary rate given to people hired in that range who meet minimal qualifications only. Occasionally, a company will pay a “training” rate that is below that minimum. The maximum range is the highest rate an employer is willing to pay for jobs in that salary range. Other important range issues include the range width and the degree of overlap between ranges. The end result of all of the above is a salary structure that should accomplish the organisation’s objectives with regard to a salary programme, and should reflect the organisation’s philosophy on how it wishes to relate its salary program to the market. In addition, this salary structure should demonstrate the internal job value of positions, and how the organisation wishes to mix base salary, benefits and incentives and provide global clarity on how jobs are valued.

Salary Increases/Reviews Creating a salary structure is not the only step in the creation of a global compensation plan. An MNC must also decide how to administer this compensation plan. This means deciding how and when to give employees increases, including how to move existing employees from the minimum to the maximum of their assigned

272 International Human Resource Management salary grades, how to determine the salary increase for an employee being promoted from one job to another and what influence, if any, market information will have on the determination of salary increases for employees. In addition, an organisation must develop policies and procedures that will implement the results of these decisions in a consistent manner, which are linked to the cultural inclinations at a subsidiory level. In establishing guidelines for employee salary increases, there are several types of base salary increases: general (across-the-board) increases, cost-of-living/labour increases, promotion increases, step increases (based on longevity) and merit increases, which are linked to the cultural inclinations at a subsidiary level. General increases are diminishing in popularity because they are not consistent with the idea of salary for performance. With a general increase, employees in a certain group based on established requirements, are eligible for a certain monetary or per cent increase to their base salary. It is not globally popular. A cost-of-living increase is a type of general increase given to all eligible employees. This type of increase may happen as a result of union contract negotiation. Some companies choose to track benchmark positions over a period of time and modify other positions on the basis of changes in the ranges of benchmark positions. This would be localised decision at a unit/subsidiary level. Promotion increases are given when an employee is moved from one job to another with a higher salary grade and range. The size of the increase will be influenced by the difference between the old and new salary ranges, and the salary of the newly promoted person’s peers, superiors and subordinates, if any. This is usually implemented globally. Step increases can be based solely on longevity or some combination of longevity and performance. Step increases alone are inconsistent with salary for performance. This is usually a regional decision. Merit increases are also known as pay for performance. To be successful, an organisation must be able to measure differences in job performance and these differences must be significant enough to merit the time and effort required to measure them and pay salary accordingly. Merit increases also affect other components of the compensation plan in that the salary range must be wide enough to allow for significant differences based on performance. Supervisors and managers require training in performance planning and appraisal, and control mechanisms must be in place to successfully administer a merit increase programme. It is a common practice in organisations to determine a fixed frequency or an event that would serve as a benchmark in undertaking salary reviews. Some common benchmarks used are on a fixed month every year, e.g. April, October or December.

Linkages to Performance Appraisal If an organisation chooses to pay for performance, the compensation plan must include a well-designed and properly administered performance appraisal system in order to link rewards with results. Following are some questions that will help determine whether the MNC’s current performance appraisal system meets the criteria. ∑ Is performance appraised the direct measurement of an employee’s output or results? Does the performance appraisal system consider only job-related behaviour rather than personality traits? ∑ Are supervisors and managers trained in the performance appraisal process? ∑ Are the criteria used to measure performance as objective and quantitative as possible? Or are the criteria open to subjective interpretation? ∑ Have objective job standards been developed? Have the employees had input into the development of these standards? Are they communicated to the employees at the beginning of the appraisal period? Are job standards reviewed regularly to ensure relevance and importance to the departments and the organisation?

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∑ Is the employee actively involved in the performance appraisal process? Or is performance appraisal something that is “done” to the employee? The performance apprasial as well as the pay-for-performance practices of an MNC are globally deployed to ensure internal equity. This part of compensation is normally not negotiable.

Starting Salary for New Employees In order to avoid paying new employees the same as more experienced employees, most employers choose to start new employees closer to the minimum of the salary range. Such salary decisions are normally localised to a subsidiary’s compensation plan and is driven by external market conditions. It is also necessary to ensure that internal equity is maintained. In general, an employee with minimum qualifications should be paid the minimum of the range. This general rule is not true when a new hire has skills which are in great demand or has skills or other expertise substantially above the minimum.

Maintaining Equity One of the compensation theories described earlier in this chapter was the equity model. The equity model suggests, among other things, that the pay between the CEO and the subordinates should be comparable. In reality, this principle appears to have been thrown to winds. Average annual pay of the top-level manager varies between ` 15–20 crores whereas a junior level employee’s entry level compensation is between ` 2 to 2.5 lakhs, a huge gap indeed. But the gap in salary between Indian CEOs and those in the West is bridging fast. An Indian CEO, as stated above, draws an annual compensation of ` 15–20 crore a year. A CEO in the US gets $6–8 million, and that of a Fortune 500 company may draw between $8m–10m. When purchasing power is adjusted, there is parity between the salaries of Indian CEOs and those of the US CEOs. Salaries of Indian CEOs are fairly comparable with those at the top executives of MNCs because the former are managing not just Indian operations but global businesses as well. For instance, the CEO of HUL is managing both Indian and South Asia operations.

ISSUES IN INTERNATIONAL COMPENSATION One of the biggest challenges in the administration of international compensation is to establish parity between the compensation philosophies among the various units of a multinational company. It is important, especially in a global corporation, to identify guidelines on compensation structure and its implementation, while allowing for local industry and market factors to drive the positioning of the remuneration bands, ranges and plans. This becomes a critical balancing factor as organisations are faced with contradicting goals of optimising cost advantages in going global and ensuring global equity on ‘how’ compensation is paid. The issues in international compensation include the impact of human resources demand–supply equation on compensation, use of global compensation and benefits consultants, use of global salary surveys, and outsourcing.

Impact of Human Resources Demand—Supply Equation In going global, one of the MNC’s key considerations is the overall cost and skills advantage that the new location provides. These decisions are made based on the availability of competent and skilled resources at a lower cost of operations. However, as more and more MNCs move in this direction, the ‘destination’

274 International Human Resource Management market tends to get saturated with organisations that are looking for the same kind of resources. As a result, the demand for resources go up and, compensation and other benefits, perks become differentiator in attracting and retaining talent. The compensation standards begin to constantly move upwards as newer companies set up their operations in the ‘emerging market’ and begin to pay higher salaries and perks and better facilities in order to attract the talent. Remuneration and state of the art infrastructural facilities quickly become the single important tool in retaining talent, as organisations vie among themselves to offer higher salaries and use a variety of innovative compensation-related retention methods to achieve the unit’s objectives. High salaries become too expensive for some organisations resulting often, in their closure, as Exhibit 9.5 shows.

Exhibit 9.5

Now, Pervasive Logs Out of Bangalore

Another infotech organisation has decided to call it quits. Bangalore’s rising costs have pushed Texasbased Pervasive Software to shut down its 18-month-old development centre in the city. This move by the data infrastructure software company, which had over 50 people here, comes within weeks of Apple Computer’s decision to exit Bangalore. Apple’s move too was said to have been guided by cost considerations. Besides, Powergen had last week pulled out of India blaming poor quality of services for its UK customers. “We are consolidating technical operations for our integration product line in Austin and closing our Bangalore-based subsidiary this month, while still maintaining an India presence through our long-time development partner, Aztec Software,” said Pervasive president and CEO John Farr. Pervasive—which provides data infrastructure software—had commenced operations in Bangalore when it acquired another Austin-based company, Datajunction, which specialised in data integration products. “The potential cost savings of an off-shore development operation can be mathematically compelling. However, we have found that the complexity of managing such an operation and the increasing costs of labour, employee turnover, training, and facilities in a hot market such as Bangalore, make it challenging to ultimately realise those savings,” Farr added. The company has placed a local manager, Jaisimha Muthegere, as the director of its India software operations. Muthegere had earlier announced that Pervasive would establish a world-class R&D centre in India by recruiting top-level engineers. He had also said that the centre would focus on product development, including core R&D work, and not just maintenance, to address customer and market needs. Even in September 2005, the company had reiterated its commitment to India and had announced big expansion plans. When contacted, Aztecsoft (previously Aztec Software) said this strategic move to shift its captive development centre has no bearing on its long-standing relationship with Pervasive. “Aztecsoft has a six-year-long relationship with Pervasive Software. Over the years, we have developed several of their products and we continue to do so,” an Aztecsoft spokesperson said. (Source: 23 June, 2006, Times News Network)

Use of Global Compensation and Benefits Consultants In designing compensation plans, MNC’s are increasingly using global compensation consultants, like Watson Wyatt, Mercer HR and Hewitt Associates, who not only provide MNC’s with salary data in different countries that the MNC does business in but also provide specialised consulting services in designing global

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salary structures and policies and developing competitive salary packages for expatriates and employees in a subsidiary. Such practices assist in establishing both internal and external parity across locations. It also enables the parent organisation to be able to budget and plan compensation costs more effectively. Almost all MNCs invest significantly in designing and reviewing pay systems on an on-going basis in order to remain competitive. As mentioned earlier, it is a core activity of compensation specialists within the HR teams to dedicate most of their time and effort in ensuring global as well as local equity in the pay practices. In most MNCs it is annual or a once-every-two-years activity. Time and money are committed to it in advance. The senior management of an MNC both at the global as well as their local senior management team review market information generated from surveys to make decision regarding the running of business/hiving off parts of the business or even shutting down certain businesses. Revenue generation through global optimisation is a critical objective of an MNC and this cannot be ignored no matter what other political or social pressures an organisation might face. The decision of Apple to withdraw its customer support business from India is rooted in the high cost of labour in India. The decision of the GM to shut its plants in a few countries while focussing on growth in others stems from the cost of operations that did not make business sense to pursue.

Benchmarking Compensation Benchmarking compensation with reference to the labour market is the most important part of an MNCs compensation philosophy. Organisations make a conscious and well-thought-out decision on where they would like to ‘peg’ themselves vs. the market salaries. This is done by job and by level. An MNC decides to pay its employees at a certain percentile as compared to what other similar companies pay. For example, an MNC might adopt a strategy of paying salaries at the 75th percentile. What does this mean? This means that the MNC would use the data obtained from the compensation survey to identify what is being paid by competing companies at the 75th percentile for a given job. This amount will then become the mid-point of the salary range for that particular job. The minimum and the maximum salaries are then arrived at. This mechanism acts as a means to ensuring ‘global equity’. Once a percentile is decided, it is uniformly followed across all locations. In deciding where to peg the benchmark, MNC’s review the following factors: • Company branding • Ability to hire and retain talent • Supply/demand of the requisite talent • Ability of the organisation to pay

Use of Surveys Compensation surveys provide the data required to attract, retain and motivate key talent. Global assignments need to be equally rewarding from the professional as well as financial dimension. Global surveys provide comprehensive data on base salaries, incentives, allowances, cash compensation, equity-based compensation, salary and benefits practices. Such surveys include a wide-range of jobs, covering every area, function and level of technology. These salary reports also include a complete job description derived from the globally accepted ‘Dictionary of Occupational Titles’ job analysis database. These surveys also provide general cost-of-living comparisons to help organisations select locations for new facilities. Executive compensation data is another area of survey, reporting competitive salaries and bonuses for top management positions as found in industries. Advanced and highly customised data in assisting MNCs in deciding which country to set up their operations is normally requisitioned from such global service providers. Cost-of-living comparisons between cities can be obtained for deciding employee relocation planning. Tax equalisation data options are also made available for international relocations. Cities may be compared individually or grouped depending on the MNCs preferred locations based on commuting distance of the local labour pool.

276 International Human Resource Management The Internet is increasingly being used to enroll and access this information in two ways: ∑ In the form of annual membership, information can be accessed by the MNCs with the use of a login password. Users can access this database by submitting enquiries that include a selected industry, a geographical location or a selected job or position. ∑ In the form of an on-time enrolment for a salary survey: information is specifically obtained, benchmarking the MNC alongside its identified competitors. Clearly defined parameters for comparison are agreed and provided.

Outsourcing Compensation It is a common practice among MNCs to outsource their compensation administration actvities. The primary objective to outsource compensation is to manage all administrative and transactional payroll and benefits functions more efficiently. Once the compensation philosophy, strategy and components are identified, actual administration of related activities can easily be outsourced. In addition to providing benefits of efficiency and cost cutting, outsourcing enables the use of leading-edge systems and technology to expand e-enabled services. (see Fig. 9.8). Efficiency of processing administrative activities

Significant cost saving

Outsourcing Drivers

Enable e-services with minimum overheads

FIGURE 9.8

Establish a global tracking of compensation information

Key Drivers for Outsourcing Compensation

Efficiency of processing administrative activities implies that payroll and related activities are processed periodically. The system also includes new employees entering the compensation system and separated employees exiting the payroll. Enable e-services with minimum overheads refer to the technological investments as well as the technical expertise required in the design and management of such a system that allows employees anywhere in the world to access and view payroll, benefits and other information related to compensation. While such systems could be developed and managed in-house, the expertise and the technology integration that is required makes it a daunting task. Hence, it makes business sense to outsource. Significant cost saving can be achieved through outsourcing. The more the number of employees and higher the global spread, the greater is the cost advantage which justifies the outsourcing decision. Establish a global tracking of compensation information indicates a centralised repository of information, irrespective of the compensation structure, philosophy and the ranges. A global organisation would need to be able to view compensation information as a strategic tool in enabling business decisions. (See also Exhibit 9.6).

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Exhibit 9.6

AT&T Signs Outsourcing Agreement with Aon Corporation

Aon Human Capital Services, an Aon subsidiary, will provide AT&T with end-to-end human resources administrative, transaction and payroll services AT&T (NYSE: T) and Aon Corporation (NYSE: AOC) today announced that AT&T has entered a seven-year outsourcing agreement with Aon Consulting, combining the talents of AT&T’s human resources and payroll organisations with Aon’s core competencies in employee benefits, compensation, employment and other services. Under terms of the agreement, Aon Consulting, through a subsidiary, Aon Human Capital Services (AHCS), will provide AT&T with end-to-end human resources administrative, transaction and payroll services, including the oversight of existing benefit plan service providers. Aon also will invest in and build upon both the state-of-the-art, high-tech creative solutions that AT&T has developed for transaction-based employee services, and those leading-edge services that Aon Consulting currently provides to clients. AT&T will provide the same critical employee services it does today, but with a single provider, to more efficiently manage all administrative and transactional human resources and payroll functions that are covered by the agreement. AT&T also will leverage Aon Consulting’s leading—edge systems and technology to expand e-enabled services and functionality for AT&T employees. At the same time, the company will achieve significant cost savings over the life of the agreement. “This is a positive development for both companies, and we are pleased to have selected Aon Consulting as our partner in this important undertaking,” said Mirian Graddick-Weir, AT&T executive vice-president of human resources. “Aon is a global leader, has an excellent reputation in the consulting and administrative fields, and can offer our employees additional career opportunities.” “The agreement with Aon enables us to continue delivering world-class employee services at AT&T, while we provide new career opportunities for our employees at a company where their skills are part of the core business,” said Nick Cyprus, AT&T vice-president and corporate controller. “In addition, AT&T will benefit from cost reductions that will result from the economies of scale made possible as Aon Consulting offers similar services to other major corporations.” Commenting on AT&T’s decision, Michael J. Gulotta, chairman, North America compensation and benefits consulting for Aon Consulting, said, “AT&T has always been a reference point for the best HR practices throughout the industry. The decision to concentrate HR executive resources on strategic issues, while outsourcing functional HR practices, is a consistent example of AT&T’s leadership role in coupling HR strategies with business objectives.” And, Gulotta continued, “By utilising the strengths of our outsourcing team, combined with the depth and breadth of Aon’s human resources and employee benefits consulting expertise, Aon is well positioned to assist AT&T in this area.” Nearly 400 AT&T management and non-represented occupational employees, whose work is within the scope of the agreement, will receive job offers from Aon Human Capital Services. These employees provide administrative and transaction-based human resources and payroll services to AT&T’s nearly 70,000 U.S.-based employees who work in the company’s core units. The agreement does not apply to human resources and payroll services provided to AT&T Broadband employees. “As Aon Consulting continues to expand its Human Resources Outsourcing practice, we see enhanced career opportunities for those employees at AT&T who are joining the Aon family,” said Bernard F. Reynolds, president, Aon Consulting’s Human Resources Outsourcing Group. “Our commitment to our people and their development is vital to the growth and success of our HR outsourcing operation.”

278 International Human Resource Management In addition, 184 occupational employees represented by the Communications Workers of America — and the 14 managers who supervise them—will remain employees of AT&T and will support work that is moved to AHCS. AT&T will continue to honour the terms and conditions of its Collective Bargaining Agreements. Meanwhile, over 200 human resources and payroll professionals will continue to work at AT&T. They will perform the same strategic mission — critical work they do today to help plan the direction and ensure the competitiveness of AT&T’s employee programs. “Groups that remain at AT&T and the groups that move to Aon will work closely together,” Graddick-Weir said. “While the employees who stay at AT&T set the policy and strategy for human resources and payroll practices, the employees of AHCS will use their expertise to support, implement and administer those policies.” The outsourcing agreement is effective June 1, 2002, and the affected AT&T employees are expected to move to AHCS on August 1, 2002. Aon Consulting, currently one of the five largest employee benefits and human resources consulting organisations in the US, sees human resources outsourcing as a rapidly growing business. According to industry experts, companies are estimated to outsource $58.5 billion worth of human resources processes by 2005. (Source: http://www.att.com/news/2002/05/29-10517, NEW YORK Wednesday, May 29, 2002).

SUMMARY International compensation has objectives like attracting and retaining talent and facilitate movement of expatriates across subsidiaries. MNCs need to have compensation philosophies spelling out principles for routine administration. But many MNCs do not have compensation philosophies. International compensation is supported by theories—the most relevant one being the contingency model. MNCs carry checklists that help implement compensation strategies. Base salaries, incentives, allowances, foreign service premiums, benefits and taxes are the components of international compensation. Fig. 9.5 brings out the variables that determine expat compensation. Going rate policy and balance sheet approach are the two main packages of expat compensation. Typical compensation administration involves such activities as establishing salary bands, salary reviews and the like. Use of surveys, outsourcing routine activities and the like constitute relevant issues in international compensation.

CLOSING CASE

CEOs Salary and Inequity

An issue there for two decades or more. Five years before Mr. Ahluwalia stumbled upon the debate in the United States, Merrill Lynch, Lucent Technologies, Citigroup, and AT & T axed over 91,000 workers between them. The same year, their four CEOs took home more than $130 million in pay. (Plus more millions in stock options and other sops). Lucent Technologies in fact (as the New York Daily News pointed out) reported a $17 billion loss and sacked 56,000 workers. Then it gave its CEO a $22 million payoff. Management guru Tom Peters long ago suggested that CEOs be called CDOs: that is, chief destruction officers. Because “you essentially get paid for blowing up your own business before the competition does.” In India, the ILO reports that labour productivity shot up 84 per cet between 1990 and 2002. But real wages in manufacturing fell 22 percent in the same period. It sees this as “as indication of deterioration in

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the incomes and livelihoods of workers. Despite the increasing efficiency of their labour.” This was also a period when CEO salaries had begun clocking all-time records. Even now, top-end compensations in India are growing much faster than in the U.S. As one writer puts it: “expressed as a percentage of profits, Indian company heads are far above their global counterparts... For every Rs. 1 crore earned as profit, the Indian CEOs take home Rs. 16,800.” Global CEOs take home Rs. 9,900. Government cannot legislate CEO salaries but they do legislate low-end wages. About one thing Tony Blair can look back on without shame is his government’s minimum wage law. The Guardian points out that as a result of it, “Britain’s lowest-paid workers enjoyed a higher improvement in their standard of living since 2003 than those in any othe European country.” Over five years ago, Paul Krugman, in a devastating piece on inequality in the U.S., found it obscene when a CEO there earned a thousand times what an ordinary worker did. What about us? Presently, the average package of the top five Indian CEOs is arond Rs. 13.5 crore. The lowest paid workers in their own companies would earn 15,000-20,000 times less. If we compare these top incomes to those of agricultural worker, the gap would be 32,000:1 or worse. Dr. Krugman argued that it was not simply economic well-being that such levels of inequality threatened. It was democracy itself. In Dr. Krugman’s own nation, long ago, Justice Louis Brandeis said the same thing: “We can have concentrated wealth in the hands of a few or we can have democracy, but we cannot have both.” (P. Sainath, “CEOs and The Wealth of Notions”, The Hindu, June 12, 2007)

Case Questions 1. Explain why Tom Peters suggests calling CEOs as CDO’s. 2. What role can the government play in regulating salary payouts? 3. In the case let, how is salary inequality compared with ‘democracy’.

Key Terms Balance sheet approach Compensation philosophy Compensation strategy Expatriate compensation Going rate approach Hardship premium

Outsourcing Salary bands Salary surveys Stock options Tax equalisation Tax protection

Review Questions 1. 2. 3. 4. 5. 6. 7. 8.

What do you understand by international compensation? What are its objectives? Explain the theories of expat compensation. Bring out the compensation strategy. What are the components of expat compensation? Explain each. How are international compensation plans packaged? What are influencing factors of overseas compensation? Bring out the relevant issues of compensation in MNCs. How is compensation administered?

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References 1. Anne-Wil Harzing and Joris Van Ruysseveldt, International Human Resource Management, Sage Publications, 2004, p 308. 2. Dave Ulrich and Wayne Brockbank, The HR Value Proposition, Harvard Business School Press, 2005, p 116. 3. Anne-Wil Harzing and Joris Van Ruysseveldt, op.cit., p 309 4. William P. Anthony et al., Strategic Human Resource Management, The Dryden Press, 1993, p 410. 5. Anne-Wil Harzing, op.cit., p 312. 6. Peter J. Dowling and Denice E.Welch, International Human Resource Management, Thompson-Learning, 2004, p 141. 7. 8. 9. 10. 11.

Richard M., Hodgetts and Fred Luthans, International Management, TMH, 2004, p 449. Ibid, p 142. Ibid, p 143. Ibid. Aswathappa, K., Human Resource and Personnel Management, TMH, 2005, p 320.

12. Richard M.Hodgetts and Fred Luthans, op.cit., p 444. 13. Paul S. Hempel, “Designing Multinational Benefits Programmes: The Role of National Culture”, Journal of International Business Studies, Spring 1998, p 280. 14. Peter J. Dowling and Denice E.Welch, op.cit, p 149. 15. Ibid. 15(a) P.S. Hempel, “Designing Multinational Benefits Programmes: The Role of National Culture”, Journal of World Business, 1998, p. 294. 16. Cynthia D. Fisher et al., Human Resource Management, Wiley-biztantra, 2004, p 842.

CHAPTER

10 REPATRIATION AND INPATRIATION Learning Objectives After reading this chapter, you should be able to ∑ Understand the nature of repatriation ∑ Delineate steps in repatriation and the challenges ∑ Understanding inpatriation and its challenges

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OPENING CASE

International Assignee Career Cycle and Repatriation

Tata Consultancy Services Limited, Bangalore, India, offers an excellent example of a global company whose mobility programmes are designed around the organisation’s strategic objectives and have contributed to the overall growth of the company. One sign that an organisation is truly global is that it builds global mobility into its career-path planning. Another sign is that a high percentage of the associates in the company have global assignments. Still another is that the company has a high percentage of its business outside of its headquarters location. All of the above are true for Tata Consultancy Services Ltd. (TCS). TCS has experienced phenomenal growth in the number of people it employs. In one year, TCS grew from 30,000 to 45,000 employees. Because TCS’s primary service is providing expertise and knowledge to customers, the growth and development of its human resources, along with retention of employees in the highly competitive information technology market, are strategic imperatives. Hence, global mobility is a key part of career-path planning for executives working for the organisation. Fifty-seven per cent of TCS associates have more than three years of experience with the company. After three years, TCS can assume that the associate has a good understanding of the business and the company, and is ready for deployment. This means that, at any given time, approximately, 22,000 people are either ready for mobility, in the process of moving, or on assignment. About 1,500 associates are non-Indian nationals, operating in China, Hungary, Ireland, Uruguay, Brazil, Canada, and Australia—locations where technological skills are high, university systems are very good, the telecommunication infrastructure is well-developed, and governments are friendly toward human and currency mobility. Based on these criteria, TCS has identified Poland, the Czech Republic and Russia as emerging locations. Mobility of non-Indians presents a greater challenge for the company than Asians, who are “very mobile”. Americans move a lot, but predominantly within the United States. Mobility among Western Europeans is very low for reasons related to pensions and culture issues. Western European management schools are recruiting Asian students, which creates an excellent talent pool for organisations seeking to recruit leaders for their operations in the Asia-Pacific region. Nearly 22 per cent of TCS associates are women. Mobility of women is very different from that of men. Women are not quite as mobile as men are (although this is changing). Cultural attitudes toward the role of women in child-rearing and family life play a role as women move through different life stages. TCS is finding that more and more women are being sent on short-term assignments to balance career and family needs. Career progression planning TCS’s human resource philosophy is that development of the employees will result in the growth and success of the organisation. Therefore, career progression planning begins with goals that are important to the organisation’s associates: experience with emerging technology; continual opportunity for upward mobility; and a multi-geographic experience. Therefore, TCS creates career plans for each individual that consider all these three factors in the space of 15 years. Growing local talent: TCS gives local hires international experience. An individual’s personal development is driven through experience in different geographies, experience working with different customers and experience working with different technologies. Individual development of knowledge and capability translates into his/her own professional development, because as capability builds, people are ready for the next higher role. And as TCS is expanding geographically, it needs more and more leaders who can manage the next higher role. The company has a system today where it allows people to apply and self-select them-

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selves as candidates for the vacancy. The sum of the development of all the individuals equals the growth of the company, which depends on the cumulative knowledge of the people. The process of matching the person to the vacancy begins with the human resource and manpower allocation task committee. The primary job of this group is to maintain an inventory of competencies that exist within the organisation and those that are being developed. There is also a demand matrix, which identifies the competencies that are needed. Drawing on the pool of self-selected candidates, TCS evaluates candidates based on their competencies, availability and cultural orientation. TCS sends the executives chosen for assignment through a preparation process that offers cultural and language preparation, orientation to the job and skills that will be needed for success in the role. TCS also supports a spouse association for the spouses of assignees. This association has a website about the company and offers resources specific to the different locations to which TCS deploys people. It also makes available job opportunities for the spouses, such as teaching languages to TCS associates. Once on assignment, TCS ensures that the associate maintains close ties with the headquarters and with the home location. This is accomplished by hosting cultural events, annual home leave trips and through the existence of a global HR organisation that is closely aligned with the business in each location. These HR officers are charged with creating the same experience of the company abroad as that which the employee would have experienced in India. TCS also has a formalised performance management system that ensures that the employee is not forgotten by those in the position to offer the employee the next role in their career-path process. Exploration phase TCS’s repatriation process begins with a foundation laid prior to the assignment through its investment in the process of experience that the associate gains prior to international deployment. The period during which the employee is being trained and developed in the home location is the ‘“exploration phase”. During this time, the employee acquires skills and experience working for TCS, and by the time he or she is deployed internationally, he or she has gained a clear understanding of the company, the opportunities for growth within the company, its different product lines and the process by which he or she will be reassigned when the time comes. Specialisation phase The next phase is the “specialisation” phase. The employee finds his or her niche in the company and builds skills and experience. Final phase In the final phase, the employee is completely aligned with the goals of the company in terms of his or her skills and experience and understanding of the chosen career path. In looking at repatriation, TCS takes into account the phases the associate is in to help determine the best next assignment both from the perspective of the employee and the company. Additionally, TCS looks at the employee’s family circumstances and his or her geographical experience and technical skill sets. The ultimate goal for both TCS and the employee is continual career growth through each assignment. Multiple organisational lines are paramount to success The rapid growth of the company has made this a challenging process to design and implement. TCS’s success can be attributed to the fact that there are multiple organisational lines within the company, so that not only can individuals look upward within their own group for the next career move, but across the company as well.

284 International Human Resource Management TCS has no formula for repatriation but the following steps which have universal application, are being followed: Reintegration facilitation involving HR and line management; Relocation and cultural assistance; Collection of expatriate feedback; Maintenance of skills; Mentoring; and Review meeting(s). TCS is a typical company seeking to manage repatriation effectively.

REPATRIATION Repatriation unmistakably, remains one of the most challenging aspects for IHR professionals. Repatriation, also known as ‘home coming’ or ‘re-entry’, is increasingly inviting serious attention from international businesses. Management of repatriates, or ‘returnees’ is a subject which has been more spoken about than acted upon by MNCs, the world over. Earlier, the returnees would manage themselves, without the assistance from HR executives. Sceinario is now changing but how to manage repatriates is still an evolving body of knowledge as the opening case shows. Managing home coming is significant for at least two reasons. The returnee finds adjustment to the home country environment somewhat difficult—he or she experiences re-entry shock or reverse culture shock. Second, several returnees leave the company after they are repatriated. In a study of Finnish expatriates, it is found that 59 per cent of the respondents considered quitting their jobs after returning home.1 Managing homecoming is necessary to help returnees cope with re-entry shock and prevent them from quitting the firm. This chapter is devoted to a detailed discussion on such issues as benefits from the returnees, challenges of repatriation, tips to manage repatriation, and other related issues. Towards the end, the discussion includes inpatriation. All credit to the IHR manager if assignees return home with spouses, all hale and hearty after completing their tasks successfully, ready to take on new and equally challenging opportunities back on home turf.

UNDERSTANDING REPATRIATION Repatriation generally refers to the termination of the overseas assignment and coming back to the home country—to the country where the headquarters is located or to the home subsidiary from where he or she was expatriated. Why are assignment agreements terminated? There could be several reasons for repatriation. The most common reason for an expat returning is that the period of posting got over. Before an assignee is sent, he or she is told that the assignment would be for a specific period and that period has expired now. A second common reason is that expatriates want their children to study in a home-country school, and the longer they are away, less likely that this will happen. A third reason for repatriation could be the need for the expat to move on to another global assignment of a similar kind, where he/she would have the opportunity to use the skills and expertise acquired. The fourth reason can be that the assignees are not happy in their overseas assignments. Unhappiness can stem from one’s inability to adjust to host country environment, spouse’s or children’s unwillingness to stay, and lack of moral support from headquarters at the time of a crisis. Finally, expatriates return because of failure to do a good job. Such failure often spells trouble for the assignees and may result in demotion and termination.2

BENEFITS FROM RETURNEES Returnees offer several advantages to the company. Coke, Cisco, Ford, Whirlpool, Britannia, McKensey and GM are increasingly hiring foreign returned Indian executives. The reasons given are twofold: such returnees

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have imbibed global culture and also have understood local culture.3 Second, having extensive understanding of how the company is perceived in other countries and being part of the global social network that can advance the company’s business around the world, repatriates are an important element in expanding the international operations of the company.4 Third, repatriates understand both the operations of the corporate headquarters and of overseas operations. They can also transfer important technology or information from foreign subsidiaries back to the home country, or provide critical coordination and control functions from the home office to local operations.5 Repatriates have added value to their personal and professional life. During their stay overseas, the returnees have gained exposure and expertise. Their outlook is global, their vision is borderless, their skills are sharpened—in all they come back fully groomed to take on any challenges of domestic as well as global business. Their status in society is enhanced, others view the repatriates with awe and respect. Such glibs as “foreign returned,” and “widely travelled” figure in their resumes and welcoming speeches during conferences and seminars.

CHALLENGES OF RE-ENTRY Repatriation poses certain problems more intense than those encountered at expatriation. In fact, assignees view expatriation as a sort of reward for improved performance, but repatriation is perceived as the end of a ‘honeymoon’ in his or her career. Challenges of re-entry relate to the individual assignee as well as to the MNC.

Individual Perspectives Challenges from the assignee’s perspective include those relating to personal and professional. From a personal perspective, the assignee experiences a ‘reverse culture shock.’ The returnee expects that the home country would remain the same as when he or she had left. But after repatriation, the assignee finds that things are not the same. Political, economic, social and cultural factors have changed. Moreover, the returnees themselves are not the same old individuals. The ‘stay abroad’ has brought changes in their perception, attitudes, habits and practices. These changes create high expectations about the home country, but the hopes do not match with reality. They exhibit fussiness about everything and this separates expatriates from home country citizens. It is not the assignee alone who faces this adjustment problem. Even the spouse experiences the same problem. Children too find re-entry difficult. Coming back to school, attempting to regain acceptance into peer groups and being out-of-touch with the current lingo, sport and fashion do cause problems.6 Lowered social status, depleted spendable income, housing problems, problem of children’s school, difficulty of club membership and the like add to the returnee’s problems. Professional disappointments add to the returnee’s woes. The returnee feels that his or her skills acquired while on foreign service are no more in use. Often the repatriate experiences a feeling that the job at home is lacking in autonomy, authority and significance, compared to his or her global assignment. He or she feels that the organisation is unfairly ignoring the global competence acquired by him or her. Worse, organisations may not guarantee jobs to the returnees. Often, due to poor career planning, repatriates are placed in a ‘holding pattern’—being assigned jobs that are available, without regard to the individual’s abilities, capabilities and needs. Many returnees complain that, upon return, they are offered a limited number of career choices and are rarely considered for promotions—which makes them feel that they have been removed from the main stream of corporate advancement.7 A study8 has revealed that longer the expatriate stays abroad, more difficult it becomes to adjust to the home country environment. At least three reasons account for this phenomenon: 1. The “out of sight, out of mind” syndrome occurs. 2. Organisational change made during the time the individual was abroad may make his or her position in the home office redundant or peripheral.

286 International Human Resource Management 3. Technological advances in the headquarters may render the individual’s existing skills and knowledge obsolete.

Organisation’s Perspective From an organisation’s perspective, managing re-entry largely involves issues with the retention of reentries. As told in the beginning of this chapter, majority of the returnees consider quitting the firm. This decision is usually triggered by lack of adequate attention and planning around the repatriation process. Considering the investment made on training, posting and maintaining the assignee while on assignment, his or her quitting will adversely affect the MNC’s bottom line. Often, the loss of one multinational becomes a gain for another multinational. When an experienced assignee quits and joins a rival organisation, the latter tends to gain competitive advantage. In addition, high withdrawals by returnees may affect the company’s ability to hire bright individuals in future. A well designed and documented international assignments policy provides the key to ensuring that the expatriation as well as the repatriation processes are clearly understood and expectations from the expat on both fronts are well understood. In practice, not all MNCs have repatriation policies. According to the Global Relocation Trends Survey, only 75 per cent of the respondent companies had repatriation policies. In yet another study (Steward Black and Mark E. Mendenhall), 60% to 70% of returnees did not know what their positions would be before they came home. 60% said that their firms were vague about reparation, about their new roles and their career progressions. Some important considerations in designing an international assignments policy are: ∑ Total number of employees on international assignments and the duration ® Short term assignments (