Chapter 14

Establishing HRM Practices Overseas

Competitive Advantage

• Problem: Trying to “Americanize” a Newly Purchased French Firm– GE restructured its corporate identity, it defined “

medical technology” as one of its core business areas—purchased a French medical equipment manufacturing firm, Cie Generale De Radiologie (CGR)

– “Americanize” the firm by establishing management systems based on the “American values” that worked well for GE in the United States (French managers would be indoctrinated in the “American way”)

Competitive Advantage

• Solution—”Americanizing GE-CGR– Planned seminars for the host-national managers

were given to socialize French counterparts into “GE culture”

– “Go for One” T-shirts –Our goal as GE managers is to be number one in the industry

– French wore t-shirts but were highly insulted—Hitler was back forcing us to wear uniforms

– English posters from GE—bragging we are the best—our methods work

– Problem with GE-CGR’s accounting system

Competitive Advantage

• GE lost 25 million in its first year—cost cutting measures of layoffs and closing of plants– Many managers and engineers left and took

jobs elsewhere (workforce shrank from 6,500 to 5,000)

– GE lost competitive advantage to cross-cultural misunderstandings and a poor human resource management strategy

Staying Competitive

• Increasing foreign competition has force many American firms to seek overseas markets– 350 billion in overseas assets– 700 out of 1,000 largest U.S. industrial firms

expect overseas growth will exceed domestic growth within five years

– Overseas sales of U.S. companies increased at a rate of 10% per year during the last decade

Staying Competitive

• Wholly-owned subsidiaries—American companies operating in a foreign country

• Joint venture—a company operating in a foreign country that is dually owned by an American foreign firm– Local laws of some countries do not allow

subsidiaries to be wholly owned by foreign companies—local operations have at least 51% ownership

– Allow companies do draw on others expertise (marketing, selling, manufacturing)

Impact on International HRM Practices

• As businesses globalize their efforts further we need to focus on properly selecting, training, managing, compensating, and developing employees to work in cross-cultural environments (cannot superimpose American human resource practices)– Company cannot compete when it

experiences internal conflict within its management ranks—productivity will suffer

Understanding Cultural Differences

• Culture—dance, music, paintings—tangible things do represent superficial aspects of culture, called artifacts—but you also have values and assumptions– Values—rules of societal proprietary and impropriety

that are shared by people within a culture– Assumptions—a society’s beliefs that have evolved

from its attempts to adjust to the world around them– Culture—a society’s set of assumptions, values, and

rules about social interaction—provides people with a mental roadmap and traffic signals (road map—goals)

– “cultural software” is programmed in

Cross-Cultural Differences in the Workplace

• Part of one’s cultural software involves rules and expectations about how people are to act in the workplace

• Rules concern work activities:– How interviews are conducted– How managers should act with their subordinates– How negotiations should be conducted– How new info should be packaged for training

purposes– How people should be paid for their work (Discuss

Exhibit 14-1 page 440)

Cross-Cultural Differences in the Workplace

• Due to different behavioral expectations, cultures sometimes clash– Japanese abhor interpersonal confrontation and

conflict, assuming that conflict is a negative part of human life that should be avoided at all costs—conflict occurs needs to be resolved so we do not lose respect of our peers (“lose face”)

– U.S. culture dictates that conflicts should be brought out into the open and discussed public face to face

– Culture allows us to predict fairly accurately how others “should” behave in a variety of situations

Cultural Improprieties

• When cultural rules are violated, people usually feel uneasy, anxious, and threatened and the “guilty party” is often condemned or punished depending on two factors:– The extent to which the broken rule is widely

shared among a cultural group’s members– The extent to which the rule is deeply held

and viewed as being important or sacred (discuss Figure 14-1 page 441)

Use of Expatriates

• Expatriate—a professional/managerial employee moved from one country to, and for employment in, another country– Transported overnight into new and alien

social and business cultures (35% to 70% of American expatriates perform poorly in their overseas jobs

Use of Expatriates and Competitive Advantage

• Do you fill key management positions with expatriates or with managers from the host country—many fill at least some positions with expatriates due to competitive advantage for the following reasons:– Succession planning– Coordination and control– Informational needs

Use of Expatriates and Competitive Advantage

• Succession Planning– Planned development of managerial talent for the

future—understand many international aspects of business—managers must learn international aspects of their businesses through a real-world overseas experience (not through the classroom)

• Coordination & Control Systems– Open new markets, facilitate a merger or acquisitions,

set up new technologies and systems, and strategically coordinate and control foreign operations

Use of Expatriates and Competitive Advantage

• Informational Needs– Corporate headquarters need info about important

business functions overseas to assess and update global strategic plans. Expatriates can become important sources of this information (communicate back to corporate headquarters in a timely and effective manner)

– Assignments for three to five years so they can become very knowledgeable about their foreign markets

Expatriate Rights Under the Civil Rights Act

• Exclude females from high level positions?– Civil Rights Act affords EEO protection to expatriates

(Discuss Exhibit 14-2 page 443)– March 26, 1991 the Supreme Court reverse this trend

by ruling that Title VII does not afford EEO protection to U.S. citizens working overseas

– U.S. Congress placed a provision in the Civil Rights Act 1991—to be covered under this provision the U.S. citizen must be employed overseas by a firm controlled by an American employer (interrelation of operations, common management, centralized control of Labor Relations, or common ownership or financial control of the corporation and the employer

Expatriate Rights Under the Civil Rights Act

• American expatriates may sue their American employers for age discrimination, sex discrimination, and race discrimination

Selecting Expatriates

• Hiring many companies place too much emphasis on technical skills and not enough on personality– Selected based on track record with the company– Personality traits are more important in adapting to

the new culture (adjust to living, working, and business conditions in host countries)

– Successful personality traits: ability to handle stress, reinforcement substitution, ability to develop relationships, and perceptual skills (need a high stress tolerance—Stress reduction training programs)

Selecting Expatriates

• Reinforcement Substitution– the ability to find substitutes for pleasurable pursuits that are unavailable in a new culture– Sports—friends mail videotapes of NFL

games– Adjust to culture by studying rules of rugby,

attending matches with coworkers, learning to appreciate the finesse and strategy of the sport, and thus become a fan

Selecting Expatriates

• Ability to develop relationships– Need to develop relationships with host nationals as

opposed to interacting exclusively with host nationals (gain mentors and guides—people who assist them in living happily and working productively in the host culture)

– Two skills very important to adjustment process:• Willing to communicate in host language (fluency is not as

important)• Conversational currency—a relationship skill in which an

expatriate inserts social and cultural tidbits and trivia into conversations with hot national employees

Selecting Expatriates

• Perceptual Skills– Flexibility of one’s belief systems

• Ability to avoid being judgmental about the belief and value systems of the host culture– Ability to make flexible attributions about why host

nationals behave the way they do– High tolerance for uncertainty

Research shows that expatriates with these skills adjust better to their overseas experience than those without them

Training Expatriates

• Effective training programs can help people adjust to living and working conditions in new cross-cultural situations

• Taught how to:– Understand and work effectively with people

from different cultural, religious, and ethnic backgrounds

– Manage multicultural teams– Understand global markets, global customers,

global suppliers, and global competitors

Training Expatriates

• Most companies fail to train expatriates• Only 35% of U.S. firms offer any pre-departure

cross-cultural or language training for their expatriate managers

• When training is offered it is very rigorous—degree of mental involvement and effort that must be expended by the trainer and the trainee in order for the trainee to learn the required concepts (need in depth skill development training)

Appraising Expatriates’ Job Performance

• Invalid Performance criteria– Performance criteria common to the U.S. are often

superimposed onto an expatriate manager even though those criteria might not make sense in the foreign culture

– Less control over profit levels (profits are heavily influenced by such extraneous factors as exchange rate fluctuations, price controls, depreciation allowances, general overhead charges, and availability of local debt financing (Discuss 14-2 page 447)

– Build criteria to each subsidiary’s unique situation

Appraising Expatriates’ Job Performance

• Rater Competence– Home office superiors conduct the reviews but they

have never worked or lived overseas—lack an understanding of the social and business contexts in which the work is performed

• Rater Bias– If a hot-national manager completed the review we

may still have issues because individuals from different cultures consistently misinterpret each other’s behavior—bias the review

– Use multiple raters and that some raters have lived and worked in the country in which the expatriate is working

Compensating Expatriates

• Receive handsome compensation packages– Base salary– Variety of financial incentives to accept overseas

assignments (Discuss Exhibit 14-3 page 448)– Allowances they live better overseas than in the U.S.– Used to lifestyle difficult to go back to their old ways– Hinder consistency of company’s pay system, causing

morale problems

Repatriation

• Repatriation are expatriate managers returning home– 60-70% not told of what job assignments will

be when they return home– Return to jobs with less autonomy and

authority than job held overseas– Difficulty to adjusting to native culture when

returning home– Used to a higher quality of life

HRM Interventions

• Need programs to deal with the deployment of expatriates– Mentoring—assign mentors to expatriates

taking overseas assignments• Keep track of expatriate’s performance• Keep expatriates updated regularly about what is

going on in the parent company• Assist the repatriate in finding a job in the parent

company that would make good use of their international expertise

HRM Interventions

• Formalized Career Planning– Integrate overseas assignments into their succession

planning systems—if they need international experience in order to be in top executives roles they must be properly selected and trained using the methods discussed in chapter 7

• Communication Systems– Good flow of info back and forth between expatriate

managers and the parent company to ensure expatriate managers are not forgotten

Adjusting HRM Practices to the Norms and Culture of the Host Country

• Ignorance of local custom invites disaster; knowledge of the laws, practices, and employer obligations in each country should form the basis for all international human resource practices

• We must adopt to the host culture’s norms and values that guide human resources practices in the country

Developing Training Programs

• U.S. companies operate subsidiaries overseas they must train their host-national workers (do not apply U.S. training programs)—GE issue

• Before one sets up a training program they must..– Understand how culture views the educational

process (Asian cultures, education is considered to be a very authoritarian phenomenon—teach is seen as expert and someone students should respect. Teacher tells and the students listen—Students do not ask questions—and teacher do not solicit students’ opinions—U.S. less formal and students participate

Developing Compensation Systems

• People all over the world desire fair compensation for their work– Cultural values and norms determine what people consider

appropriate remuneration for their labor (Discuss figure 14-2 PAGE 452)

– Key to designing a compensation system is to understand what motivates employees in each culture and to design the system around those motivators

– Money, praise, or external symbols (a corner office, a personal parking space) although attractive to American workers may not hold true in another culture

– A recipe for failure is simply superimposing American compensation and reward systems onto a foreign subsidiary—it could damage the productivity of the workers in that subsidiary