Discuss two HR activities in which a multinational firm must engage, which would not be required in a domestic environment?
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Dowling, P., Festing, M., & Engle, Sr., A. (2013). International human resource management (6th ed., pp. 2-14). Andover: Cengage Learning.
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|CHAPTER 1 INTRODUCTION||
|FIGURE 1,3 A model of the variables that moderate differences between domestic and international HRM|
(or industries) within
which the multinational
is primarily involved
Complexity involved in
Extent of reliance of
activities of the
operating in different
the multinational on
countries and employing
categories of employees
Attitudes of senior management
Source: P. J, Dowling, ‘Completing the Puzzle: Issues in the Development ot the Field of International Human Resource’ Management”) (mir) Management International Review, Special Issue No. 3/99 (1999), p. 3 1 . Reproduced with kind permission from VS Verlag Fur Soziaiwissenschaften.
THE CULTURAL ENVIRONMENT
I n Chapter 2, The Cultural Context of IHRM, we cover the concept of culture i n considerable detail, so our comments i n this introductory chapter are necessarily brief. There are many defini-tions of culture, but the term is usually used to describe a shaping process over time. This proc-ess generates relative stability, reflecting a shared knowledge structure that attenuates (i.e. reduces) variability i n values, behavioral norms and patterns of b e h a v i o r . A n i m p o r t a n t char-acteristic of culture is that it is so subtle a process that one is not always conscious of its relation-ship to values, attitudes and behaviors. One usually has to be confronted w i t h a different culture in order to f u l l y appreciate this effect. Anyone traveling abroad, either as a tourist or on business, experiences situations that demonstrate cultural differences in language, f o o d , dress, hygiene and attitude to time . While the traveller can perceive these differences as novel, even enjoyable, for people required to live and w o r k i n a new country, such differences can prove dif-ficult . They may experience culture shock – a phenomenon experienced by people w h o move across cultures. The new environment requires many adjustments in a relatively short period of time, challenging people’s frames of reference to such an extent that their sense of self, especially i n terms of nationality, comes into question. People, in effect, experience a shock reaction to new cultural experiences that cause psychological disorientation because they misunderstand or do not recognize i m p o r t a n t cues. Culture shock can lead to negative feelings about the host country and its people and a longing to return home .
Because international business involves the interaction and movement of people across national boundaries, an appreciation of cultural differences and when these differences are im-p o r t a n t is essential. Research into these aspects has assisted in furthering our understanding of the cultural environment as an i m p o r t a n t variable that moderates differences between domestic and international H R M . However, while cross-cultural and comparative research attempts to explore and explain similarities and differences, there are problems associated w i t h such research. A major problem is that there is httie agreement on either an exact definition of culture or on the operationalization of this concept. For many researchers, culture has become an
10 CHAPTER 1 INTRODUCTION
omnibus variable, representing a range of social, historic, economic and political factors that are invoked post hoc to explain similarity or dissimilarity in the results of a study. As Bhagat and McQiiaid~° have noted, ‘Culture has often served simply as a synonym for nation w i t h o u t any further conceptual grounding . In effect, national differences found in the characteristics of organizations or their members have been interpreted as cultural differences’. T o reduce these difficulties, culture needs to be defined a priori rather than post hoc and it should not be assumed that national differences necessarily represent cultural differences.
Another issue i n cross-cultural research concerns the emic-etic distinction . ^’ Emic refers to culture-specific aspects of concepts or behavior, and etic refers to culture – common aspects. These terms have been b o r r o w e d f r o m linguistics: a phone?nic system documents meaningful sounds specific to a given language, and a phonetic system organizes all sounds that have mean-ing in any l a n g u a g e . B o t h the emic and etic approaches are legitimate research orientations. A major problem may arise, however, if a researcher imposes an etic approach (that is, assumes universality across cultures) w h e n there is little or no evidence for doing so. A w e l l – k n o w n example of an imposed etic approach is the ‘convergence hypothesis’ that dominated much of US and European management research in the 1950s and 1960s. This approach was based on t w o key assumptions.’^•^ The first assumption was that there were principles of sound manage-ment that held regardless of national environments. Thus, the existence of local or national practices that deviated f r o m these principles simply indicated a need to change these local prac-tices. The second assumption was that the universality of sound management practices w o u l d lead to societies becoming more and more alike in the future . Given that the USA was the lead-ing industrial economy at that time, the p o i n t of convergence was the US model .
T o use Kuhn’s^”* terminology, the convergence hypothesis became an established paradigm that many researchers found difficult to give up, despite a g r o w i n g body of evidence supporting a divergence hypothesis. I n an i m p o r t a n t early paper that reviewed the convergence/divergence debate, Child^’^ made the p o i n t that there is evidence for both convergence and divergence. The majority of the convergence studies, however, focus on macrolevel variables (for example, organizational structure and technology used by M N E s across cultures) and the majority of the divergence studies focus on microlevel variables (for example, the behavior of people w i t h i n firms) . H i s conclusion was that although firms in different countries are becoming more alike (an etic or convergence approach), the behavior of individuals w i t h i n these firms is maintaining its cultural specificity (an emic or divergence approach). As noted above, both emic and etic approaches are legitimate research orientations, but methodological difficulties may arise if the distinction benveen these t w o approaches is ignored or if unwarranted universalit}’ assumptions are made.’^^ The debate on assumptions of universality is not limited to the literature i n interna-tional management as this issue has also, become a topic of debate in the field of international relations and strategic studies where international management research is c i t e d . F o r a review of the convergence/divergence question, see Brewster.
Cultural awareness and the role of the international HR manager
Despite the methodological concerns about cross-cultural research, it is n o w generally recog-nized that culturally insensitive attitudes and behaviors stemming f r o m ignorance or f r o m mis-guided beliefs (‘my way is best’, or ‘ w h a t works at home w i l l w o r k here’) are not only inappropriate but can alTtoo – often contribute to international business failure. Therefore, an awareness of cultural differences is essential for the H R manager at corporate headquarters as well as in the host l o c a t i o n . A c t i v i t i e s such as h i r i n g , p r o m o t i n g , rewarding and dismissal w i l l be determined by the legal context and practices of the host country and usually are based on a value system relevant to that country’s culture. A f i r m may decide to head up a new overseas operation w i t h an expatriate general manager but appoint as the H R department manager a local, a person w h o is familiar w i t h the host country’s H R practices. This particular policy approach can assist in avoiding problems but can still lead to dilemmas for senior managers. For example, in a number of developing countries (Indonesia is one such example) local
managers they are ‘ possess adapting seen as m the best p
C o p i n vant, is a lies for v departmt ciate) the
Porter^” is invoK widely f
ictors that As Bhagat n w i t h o u t teristics of duce these Id not be
c refers to n aspects, aeaningful ave mean-itations. A s, assumes e l l – k n o w n d much of 3 based on d manage-r national local prac-ices w o u l d ,s the lead-
paradigm supporting divergence gence. The – example, j r i t y of the )ple w i t h i n more alike laintaining ic and etic arise if the ssumptions i n interna-ternational ar a review
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ally recog-: f r o m mis-e not only erefore, an quarters as smissal w i l l based o n a w overseas manager a uiar policy
managers, mple) local
|CHAPTER 1 INTRODUCTION||
managers are expected (i.e. there is a perceived obligation) to employ their extended family i f they are i n a position to do so. This may lead to a situation where people are hired w h o do not possess the required technical competence. W h i l e this could be seen as a successful example of adapting to local expectations and customs, f r o m a Western perspective this practice w o u l d be seen as nepotism, a negative practice which is not in the best interests of the enterprise because the best people have n o t been hired for the job .
Coping w i t h cultural differences, and recognizing h o w and when these differences are rele-vant, is a constant challenge for international firms . H e l p i n g to prepare assignees and their fami-lies for w o r k i n g and living i n a new cultural environment has become a key activity for H R departments in those M N E s that appreciate (or have been forced, t h r o u g h experience, to appre-ciate) the impact that the cultural environment can have on staff performance and well – being .
Porter^° suggests that the industry (or industries if the f i r m is a conglomerate) in w h i c h a M N E is involved is of considerable importance because patterns of international competition vary widely f r o m one industry to another. A t one end of the c o n t i n u u m of international competition is the multidomestic industry, one in w h i c h competition i n each country is essentially independ-ent of competition in other countries. T r a d i t i o n a l examples include retailing, distribution and insurance. A t the other end of the c o n t i n u u m is the global industry, one i n w h i c h a firm’s com-petitive position in one country is significantly influenced by its position i n other countries. Examples include commercial aircraft, semiconductors and copiers. The key distinction between a multidomestic industry and a global industry is described by Porter as follows:
The global Industry is not merely a collection of domestic industries but a series of linked domestic industries In which the rivals compete against each other on a truly worldwide basis … In a multido-mestic industry, then, International strategy collapses to a series of domestic strategies. The issues that are uniquely International revolve around how to do business abroad, how to select good coun-tries in which to compete (or assess country risk), and mechanisms to achieve the one-time transfer of know-how. These are questions that are relatively well developed in the literature. In a global indus-try, however, managing international activities like a portfolio will undermine the possibility of achieving competitive advantage. In a global industry, a firm must in some way integrate its activities on a world-wide basis to capture the linkages among countries. (Page 12)
The role of the H R M function i n multidomestic and global industries can be analyzed using Porter’s value-chain model . ^’ I n Porter’s model, H R M is seen as one of four support activities for the five p r i m a r y activities of the f i r m . Since h u m a n resources are involved in each of the pri-mary and support activities, the H R M function is seen as cutting across the entire value chain of a f i r m . If the f i r m is i n a multidomestic industry, the role of the H R department w i l l most likely be more domestic i n structure and orientation . A t times there may be considerable demand for international services f r o m the H R M function (for example, w h e n a new plant or office is estab-lished in a foreign location and the need for expatriate employees arises), but these activities w o u l d not be pivotal – indeed, many of these services may be provided via consultants and/or temporary employees. The m a i n role for the H R M function w o u l d be to support the p r i m a r y activities of the f i r m in each domestic market to achieve a competitive advantage through either cost/efficiency or product/service differentiation .
m u l t i n a t i o n a l is
|i n a global industry, however, the ‘imperative for||coordination’|
by Porter w o u l d
|require a H R M f u n c t i o n structured to deliver the international sup-|
p o r t required by the p r i m a r y activities of the M N E . The need to develop coordination raises complex problems for any m u l t i n a t i o n a l . As Laurent^^ has noted:
In order to build, maintain, and develop their corporate identity, multinational organizations need to strive for consistency in their ways of managing people on a worldwide basis. Yet, and in order to be
CHAPTER 1 INTRODUCTION
effective iocally, ttiey also need to adapt those ways to the specific cultural requirements of different societies. While the global nature of the business may call for increased consistency, the variety of cut- – tural environments may be calling for differentiation.
Laurent proposes that a truly internatjonal conception of human resource management w o u l d require the f o l l o w i n g steps:
1 An explicit recognition by the parent organization that its own peculiar ways of managing human resources reflect some assumptions and values of its home culture.
2 An explicit recognition by the parent organization that its peculiar ways are neither universally better nor worse than others but are different and likely to exhibit strengths and weaknesses, particularly abroad.
3 An explicit recognition by the parent organization that its foreign subsidiaries may have other preferred ways of managing people that are neither intrinsically better nor worse, but could possibly be more effective locally.
4 A willingness from headquarters to not only acknowledge cultural differences, but also to take active steps in order to make them discussable and therefore usable.
5 The building of a genuine belief by all parties involved that more creative and effective ways of managing people could be developed as a result ot cross-cultural learning.
In offering diis proposal, Laurent acknowledges that these are difficult steps that few firms have taken:
They have more to do with states of mind and mindsets than with behavior. As such, these processes can only be facilitated and this may represent a primary mission for executives in charge of interna-tional human resource management, (p. 100)
I m p l i c i t in Laurent’s analysis is the idea that by taking the steps he describes, a M N E attempting to implement a global strategy via coordination of activities w o u l d be better able to w o r k through the difficulties and complex trade-offs inherent in such a strategy. Increasingly, multina-tionals are taking a more strategic approach to the role of H R M and are using staff transfers and training programs to assist i n coordination of activities. W e discuss these issues i n more detail i n subsequent chapters of the book .
EXTENT OF RELIANCE OF THE MULTINATIONAL ON ITS HOME-OOUNTRY DOMESTIC MARKET
A pervasive but often ignored factor that influences the behavior of M N E s and resultant H R practices is the extent of reliance of the m u l t i n a t i o n a l on its home – country domestic market . When for example, we look through lists of very large firms (such as those that appear in Fortune and other business magazines), it is frequently assumed that a global market perspective w o u l d be dominant in the firm’s culture and t h i n k i n g . However, size is not the only key variable when l o o k i n g at a multinational – the extent of reliance of the multinational on its home – country domestic market is also very i m p o r t a n t . I n fact, for many firms, a small home market is one of the key drivers for seeking new international markets. The United Nations Conference on Trade and Development ( U N C L A D ) m its annual survey of foreign direct invest-ment calculates w h a t it refers to as an index of transnationality, which is an average of ratios of foreign assets to total assets; foreign sales to total sales; and foreign employment to total employment . The ‘top ten’ M N E s ranked by transnationality are shown in Table 1 . 1 . Based on
14 CHAPTER 1 INTRODUCTION
this index of transnationality, the most foreign-oriented multinational is Xstrata (United King – dom), w i t h an average of 93.2 per cent of the three ratios (foreign assets to total assets, foreign sales to total sales and foreign employment to total employment) located outside of the U K . A l l of the top ten firms based on transnationality are European .
The only US firms i n the first 30 multinationals ranked by the transnational index are Liberty Global (Telecommunications) ranked 13, Schlumberger (Consumer services) ranked 25 and Coca-Cola (Food & beverages) ranked 29 . The reason for this lower r a n k i n g of US firms i n terms of the transnational index is as obvious as it is i m p o r t a n t – the size of the domestic market for US firms . A very large domestic market (for US firms this is i n effect the N o r t h American Free Trade Agreement [ N A F T A ] market) influences all aspects of h o w a mukinacional organizes its activities. For example, it w i l l be more likely to use an international division as the way it organizes its international activities (see Chapter 3) and even if it uses a global product struc-ture, the importance of the domestic market may be pervasive.
A large domestic market w i l l also influence the attitudes of senior managers towards their international activities and w i l l generate a large number of managers w i t h an experience base of predominantly or even exclusively domestic market experience. Thus, multinationals f r o m small advanced economies like Switzerland (population 7.7 m i l l i o n ) , Ireland (6 m i l l i o n ) , Australia (22 million) and The Netherlands (17 million) and medium-size advanced economies like Canada (33 m i l l i o n ) , the United K i n g d o m (61 million) and France (65 million) are in a quite different position compared to multinationals based in the USA w h i c h is the largest advanced economy
i n the w o r l d w i t h a p o p u l a t i o n of 306 m i l l i o n . A similar p o i n t has been made by V a n Den Buike and his colleagues i n their study of the role of small nations i n the global economy.”” As already noted, US multinationals also enjoy the advantage of a dominant position i n the very large N A F T A market (the USA, Canada and M e x i c o ) .
It is w o r t h keeping i n m i n d that the frequent criticism of US companies, US senior managers and US business schools as i n w a r d – l o o k i n g and ethnocentric may perhaps be true to some extent, but it is equally true that a focus on domestic US sales and revenue is also an entirely rational response to the overwhelming importance of the N o r t h American market for many of these businesses. The demands of a large domestic market present a challenge to the globalization efforts of many US firms . As CavusgiF” has noted w h e n commenting on internationalizing business education, the task of internationalizing business education in the USA is a large one. So too is the task facing many US firms in terms of developing global managers – an issue w h i c h we shall return to i n Chapter 7.
ATTITUDES OF SENIOR MANAGEMENT TO
The p o i n t made by Laurent earlier i n this chapter that some of the changes required to t r u l y internationalize the H R function ‘have more to do w i t h states of m i n d and mindsets than w i t h behaviors’ illustrates the importance of a final variable that may moderate differences between international and domestic H R M : the attitudes of senior management to international opera-tions. It is likely that if senior management does not have a strong international orientation, the importance of international operations may be underemphasized (or possibly even ignored) i n terms of corporate goals and objectives. I n such situations, managers may tend to focus on domestic issues and minimize differences between international and domestic environments.
N o t surprisingly, senior managers w i t h little international experience (and successful careers built on domestic experience) may assume that there is a great deal of transferability between domestic and international H R M practices. This failure to recognize differences i n managing h u m a n resources in foreign environments – regardless of whether it is because of ethnocentrism, inadequate i n f o r m a t i o n , or a lack of international perspective – frequently results i n major diffi – culties i n international operations. The challenge for the corporate H R manager w h o wishes to contribute to the internationalization of their f i r m is to w o r k w i t h top management i n fostering
the desi globally orientec
O u r dis is requii pie of a method’ Figure 1 the i n f l i that inci
In sti nomic, t the mac include popular attentioi acronyn gether. factors £ perform Cranet i research factors f tions of mation, by the cl
Source: D directions (Cheltenhi
CHAPTER 2 THE CULTURAL CONTEXT OF IHRM
Consideration of the foreign environment is seen in the literature as a key problem of interna-tional management . ‘ Dulfer and Jostingmeier p o i n t out the special situation of professional employees and managers w o r k i n g abroad, because these individuals are exposed to influences that greatly differ f r o m their country – of – origin environment . ” A n environmental analysis is par-ticularly useful for identifying h u m a n resources issues associated w i t h international operations. In Europe, the discipline that p r i m a r i l y deals w i t h the comparison of various cultures is called intercultural comparative research and in the English-speaking w o r l d it is referred to as cross-cultural management. A central role in this discussion is occupied by cross-cultural management studies by Hofstede’ and the C l o b a l Leadership and Organizational behavior (CLOBE) study.’* A n overview of other studies w i l l also be provided .
Introduction to oross-oultural management research
The first contributions to cross-cultural management research were made i n the early 1960s. Engagement in this subject area was prompted by the increasing international complexity of the global economy and the resulting problems experienced by managers when dealing w i t h employ-ees and w i t h customers and suppliers in various host countries. The resulting unforeseen conflicts and l o w performance of many foreign business enterprises began to create doubts about the assumption that management research and knowledge f r o m the English-speaking w o r l d was readily transferrable to other countries and cultures.” This problem was initially the focus of research i n US universities^ and is n o w studied at business schools and universities around the w o r l d , w h i c h has led to the well-established broad research field of International Business.
The goals of cross-cultural management studies include:
The c o m m o n feature of cross-cultural management research is the basic assumption that there are differences between management practices in various countries and that the respective envi-ronment is of particular significance in explaining these differences. This perspective rejects the approach of researchers w h o assume universal transferability of management knowledge – i.e. a universalistic, culture-free approach to management.^
Cross-cultural studies have often been the focus of substantial debate and criticism . The rather atheoretica! foundations of some cross-cultural research and methodological weaknesses in many empirical studies are problematic . These problems have frequently caused contradictory research results and led to vigorous debate i n this field . Criticisms have been voiced on the nature and use of the construct of ‘culture’, a collective term or residual variable that is undefined or inad-equately defined and/or operationalized at the start of a research study, as an independent vari-able for explaining the variation in management practices between different countries. Despite numerous critical arguments, the knowledge gained f r o m intercultural comparative research is a first step towards understanding the complexity of international management and H R M . The next section covers the possibilities of conceptualizing the concept of culture and its content.
Definition of culture T ” O c •’
Numerous definitions and concepts of culture are discussed in relevant literature. The term originated f r o m the Latin w o r d colere, which was used in the context of tilling the soil and
|CHAPTER 2 THE CULTURAL CONTEXT OF IHRM|
|simply signified plant cultivation . The connotation of cultivation is still obvious in the colloquial|
|use of the w o r d today, w h i c h is often applied in the context of a cultivated life style.^ T o date,|
|there is no||predominant consensus on the exact meaning of c u l t u r e . ‘ ” As early as||
|K l u c k h o h n||and Kroeber had already p u t together 164 definitions of culture f r o m||
|speaking cultures and condensed them into a comprehensive, well-established and accepted defi-|
|n i t i o n of culture:||
. . . .
‘Culture consists in patterned ways of thinking, feeling, and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups … Including their embodi-ments in artefacts; the essential core of culture consists of Traditional […] Ideas and especially their attached values …
This model was labeled by the w e l l – k n o w n Dutch researcher Geert Hofstede as ‘mental pro-g r a m m i n g ‘ or Software of the Mind, the title of his 1991 b o o k . ‘ ”
‘Using the analogy of the way In which computers are programmed, this book will call such patterns of thinking, feeling, and acting mental programs, or, as the subtitle goes: “software of the mind”. This does not mean, of course, that people are programmed the way computers are. A person’s behavior is only partially determined by her or his mental programs: (s)he has a basic ability to deviate from them, and to react in ways which are new, creative, destructive, or unexpected. The “software of the mind”… only indicates what reactions are likely and understandable, given one’s past.
Hansen criticizes many contributions on culture w i t h respect to the lack of a theory and thus ex-planatory power . ”* H e describes cultures as the customs of a c o m m u n i t y that are practiced by a majority . ‘^ Standardization – in the sense of consistent collective behavior – can come up in spe-cific situations. A m o n g the many contributions on the definition of culture, four basic elements of culture can he derived f r o m Hansen. H e distinguishes between:
• Standardization of behavior. ‘ ‘ .
These dimensions appear in similar f o f m in K l u c k h o h n . ” * W h i l e Hofstede and psychologists such as T r i a n d i s ” analytically gather typical characteristics of cultures and transform them into respective instruments for handling these phenomena,’^ Hansen has argued for inductive, dense description of cultures’** as the only way that the complexity of cultures can he captured reason-ably and as background for appropriate actions. This brief discussion indicates that the basic understanding of culture affects the handling of the culture phenomenon and its subsequent operationalization . ^” The next section presents a w e l l – k n o w n and recognized concept of culture .
Schein’s concept of culture
Schein’s”‘ concept of culture was developed in the course of organizational and not national culture research. However, it can he applied to the analysis of national cultures, given aware-ness that these t w o constructs are not exact equivalents. The i m p o r t a n t c o n t r i b u t i o n of this concept is that Schein considers various levels of culture: artefacts or creations, values and underlying assumptions. Artefacts are described as visible organization structures and proc-esses. They can he analyzed using conventional methods of empirical social research, hut their meaning is often hard to decipher. The middle level comprises values of a company or society. They are f o u n d i n the intermediate level of consciousness; in other w o r d s , they are partly
consci which and fe of Crosf