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Question 1: How would individualism vs collectivism influence behavior in the workplace in a different culture? Give an example.

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International HRM
Things Weren’t What They Seemed

When your organization decided to go “global” two years ago, the executives didn’t know what they were

getting into. While the international market was attractive for your company’s product, the overall plan

wasn’t executed well. The organization was having great success selling its baby bath product in the

domestic market, and once that market was saturated, the organization decided to sell the product in

South America. Millions of dollars’ worth of research went into product marketing, and great success was

had selling the product internationally. It was only when the organization decided to develop a sales

presence in Peru and purchase a company there that the problems started. While market research had

been done on the product itself, the executives of the company did little research to find out the cultural,

economic, and legal aspects of doing business in that country. It was assumed that the Peru office would

run just like the US office in terms of benefits, compensation, and hiring practices. This is where the

strategy went wrong.

Many cultural aspects presented themselves. When executives visited the Peru office, the meeting was

scheduled for 9 a.m., and executives were annoyed that the meeting didn’t actually start until 9:45 a.m.

When the annoyed executives started in on business immediately, the Peruvian executives disapproved,

but the US executives thought they disapproved of the ideas and weren’t aware that the disapproval came

from the fact that Peruvians place a high emphasis on relationships, and it was rude to get down to

business right away. When the executives walked around the office and spoke with various employees,

this blunder cost respect from the Peruvian executives. Because Peru has a hierarchical structure, it was

considered inappropriate for the executives to engage employees in this way; they should have been

speaking with management instead.

Besides the cultural misunderstandings, executives had grossly underestimated the cost of compensation

in Peru. Peru requires that all employees receive a bonus on the Peruvian Independence Day and another

on Christmas. The bonus is similar to the monthly salary. After a year of service, Peruvians are allowed to

go on paid vacation for thirty calendar days. Higher benefit costs were also an issue as well, since Peru

requires workers to contribute 22 percent of their income to pension plans, and the company is required

to pay 9 percent of salaries toward social (universal) health insurance. Life insurance is also required to be

paid by the employer after four years of service, and severance payments are compulsory if the

organization has a work stoppage or slowdown.

As you wade through the variety of rules and regulations, you think that this could have been avoided if

research had been performed before the buyout happened. If this had occurred, your company would have

known the actual costs to operate overseas and could have planned better.

Source: Based on information from CIA World Factbook and PKF Business Advisors.

Offshoring, Outsourcing
LEARNING OBJECTIVES

1. Be able to explain the terminology related to international HRM.

2. Define global HRM strategies.

3. Explain the impact of culture on HRM practices.

As you already know, this chapter is all about strategic human resource management (HRM) in a global

environment. If this is an area of HRM that interests you, consider taking the WorldatWork Global

Remuneration Professional certification (GRP). The GRP consists of eight examinations ranging from

global rewards strategy to job analysis in a global setting. [1]

Before we begin to discuss HRM in a global environment, it is important to define a few terms, some of

which you may already know. First, offshoring is when a business relocates or moves some or part of its

operations to another country. Outsourcinginvolves contracting with another company (onshore or

offshore) to perform some business-related task. For example, a company may decide to outsource its

accounting operations to a company that specializes in accounting, rather than have an in-house

department perform this function. Thus a company can outsource the accounting department, and if the

function operates in another country, this would also be offshoring. The focus of this chapter will be on

the HRM function when work is offshored.

The Global Enviornment

Although the terms international, global multinational, and transnational tend to be used

interchangeably, there are distinct differences. First, a domestic market is one in which a product or

service is sold only within the borders of that country. Aninternational market is one in which a company

may find that it has saturated the domestic market for the product, so it seeks out international markets in

which to sell its product. Since international markets use their existing resources to expand, they do not

respond to local markets as well as a global organization. A global organization is one in which a product

is being sold globally, and the organization looks at the world as its market. The local responsiveness is

high with a global organization. Amultinational is a company that produces and sells products in other

markets, unlike an international market in which products are produced domestically and then sold

overseas. A transnational company is a complex organization with a corporate office, but the difference is

that much of the decision making, research and development, and marketing are left up to the individual

foreign market. The advantage to a transnational is the ability to respond locally to market demands and

needs. The challenge in this type of organization is the ability to integrate the international offices. Coca-

Cola, for example, engaged first in the domestic market, sold products in an international market, and

then became multinational. The organization then realized they could obtain certain production and

market efficiencies in transitioning to a transnational company, taking advantage of the local market

knowledge.

Table 14.1 Differences between International, Global, Multinational, and Transnational Companies

Global Transnational

Centrally controlled operations

Foreign offices have control over production,

markets

No need for home office integration, since home office makes

all decisions Integration with home office

Views the world as its market

High local responsiveness Low market responsiveness, since it is centrally controlled

International Multinational

Centrally controlled Foreign offices are viewed as subsidiaries

No need for home office integration, as home office makes all

decisions Home office still has much control

Uses existing production to sell products overseas

High local responsiveness Low market responsiveness

Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of

trade agreements, growth of new markets such as China, education, economics, and legal implications all

impact international business.

Trade agreements have made trade easier for companies. A trade agreement is an agreement between two

or more countries to reduce barriers to trade. For example, the European Union consists of twenty-seven

countries (currently, with five additional countries as applicants) with the goal of eliminating trade

barriers. The North American Trade Agreement (NAFTA) lifts barriers to trade between Canada, the

United States, and Mexico. The result of these trade agreements and many others is that doing business

overseas is a necessity for organizations. It can result in less expensive production and more potential

customers. Because of this, along with the strategic planning aspects of a global operation, human

resources needs to be strategic as well. Part of this strategic process can include staffing differences,

compensation differences, differences in employment law, and necessary training to prepare the

workforce for a global perspective. Through the use of trade agreements and growth of new markets, such

as the Chinese market, there are more places available to sell products, which means companies must be

strategically positioned to sell the right product in the right market. High performance in these markets

requires human capital that is able to make these types of decisions.

The level of education in the countries in which business operates is very important to the HR manager.

Before a business decides to expand into a particular country, knowledge of the education, skills, and

abilities of workers in that country can mean a successful venture or an unsuccessful one if the human

capital needs are not met. Much of a country’s human capital depends on the importance of education to

that particular country. In Denmark, for example, college educations are free and therefore result in a

high percentage of well-educated people. In Somalia, with a GDP of $600 per person per year, the focus is

not on education but on basic needs and survival.

Economics heavily influences HRM. Because there is economic incentive to work harder in capitalist

societies, individuals may be more motivated than in communist societies. The motivation comes from

workers knowing that if they work hard for something, it cannot be taken away by the government,

through direct seizure or through higher taxes. Since costs of labor are one of the most important strategic

considerations, understanding of compensation systems (often based on economics of the country) is an

important topic. This is discussed in more detail in Section 14.3.3 “Compensation and Rewards”.

The legal system practiced in a country has a great effect on the types of compensation; union issues; how

people are hired, fired, and laid off; and safety issues. Rules on discrimination, for example, are set by the

country. In China, for example, it is acceptable to ask someone their age, marital status, and other

questions that would be considered illegal in the United States. In another legal example, in Costa Rica,

“aguinaldos” also known as a thirteenth month salary, is required in December. [2]This is a legal

requirement for all companies operating in Costa Rica. We discuss more specifics about international laws

in Section 14.3.5 “The International Labor Environment”.

Table 14.2 Top Global 100 Companies

Rank Company Revenues ($ millions) Profits ($ millions)

1 Walmart Stores 408,214 14,335

2 Royal Dutch Shell 285,129 12,518

3 Exxon Mobil 284,650 19,280

4 BP 246,138 16,578

5 Toyota Motor 204,106 2,256

6 Japan Post Holdings 202,196 4,849

7 Sinopec 187,518 5,756

8 State Grid 184,496 −343

9 AXA 175,257 5,012

10 China National Petroleum 165,496 10,272

11 Chevron 163,527 10,483

12 ING Group 163,204 −1,300

13 General Electric 156,779 11,025

14 Total 155,887 11,741

15 Bank of America Corp. 150,450 6,276

16 Volkswagen 146,205 1,334

17 ConocoPhillips 139,515 4,858

18 BNP Paribas 130,708 8,106

Rank Company Revenues ($ millions) Profits ($ millions)

19 Assicurazioni Generali 126,012 1,820

20 Allianz 125,999 5,973

21 AT&T 123,018 12,535

22 Carrefour 121,452 454

23 Ford Motor 118,308 2,717

24 ENI 117,235 6,070

25 J.P. Morgan Chase & Co. 115,632 11,728

26 Hewlett-Packard 114,552 7,660

27 E.ON 113,849 11,670

28 Berkshire Hathaway 112,493 8,055

29 GDF Suez 111,069 6,223

30 Daimler 109,700 −3,670

31 Nippon Telegraph & Telephone 109,656 5,302

32 Samsung Electronics 108,927 7,562

33 Citigroup 108,785 −1,606

34 McKesson 108,702 1,263

35 Verizon Communications 107,808 3,651

36 Crédit Agricole 106,538 1,564

37 Banco Santander 106,345 12,430

38 General Motors 104,589 —

Rank Company Revenues ($ millions) Profits ($ millions)

39 HSBC Holdings 103,736 5,834

40 Siemens 103,605 3,097

41 American International Group 103,189 −10,949

42 Lloyds Banking Group 102,967 4,409

43 Cardinal Health 99,613 1,152

44 Nestlé 99,114 9,604

45 CVS Caremark 98,729 3,696

46 Wells Fargo 98,636 12,275

47 Hitachi 96,593 −1,152

48 International Business Machines 95,758 13,425

49 Dexia Group 95,144 1,404

50 Gazprom 94,472 24,556

51 Honda Motor 92,400 2,891

52 Électricité de France 92,204 5,428

53 Aviva 92,140 1,692

54 Petrobras 91,869 15,504

55 Royal Bank of Scotland 91,767 −4,167

56 PDVSA 91,182 1,608

57 Metro 91,152 532

58 Tesco 90,234 3,690

Rank Company Revenues ($ millions) Profits ($ millions)

59 Deutsche Telekom 89,794 491

60 Enel 89,329 7,499

61 UnitedHealth Group 87,138 3,822

62 Société Générale 84,157 942

63 Nissan Motor 80,963 456

64 Pemex 80,722 −7,011

65 Panasonic 79,893 −1,114

66 Procter & Gamble 79,697 13,436

67 LG 78,892 1,206

68 Telefónica 78,853 10,808

69 Sony 77,696 −439

70 Kroger 76,733 70

71 Groupe BPCE 76,464 746

72 Prudential 75,010 1,054

73 Munich Re Group 74,764 3,504

74 Statoil 74,000 2,912

75 Nippon Life Insurance 72,051 2,624

76 AmerisourceBergen 71,789 503

77 China Mobile Communications 71,749 11,656

78 Hyundai Motor 71,678 2,330

Rank Company Revenues ($ millions) Profits ($ millions)

79 Costco Wholesale 71,422 1,086

80 Vodafone 70,899 13,782

81 BASF 70,461 1,960

82 BMW 70,444 284

83 Zurich Financial Services 70,272 3,215

84 Valero Energy 70,035 −1,982

85 Fiat 69,639 −1,165

86 Deutsche Post 69,427 895

87 Industrial & Commercial Bank of China 69,295 18,832

88 Archer Daniels Midland 69,207 1,707

89 Toshiba 68,731 −213

90 Legal & General Group 68,290 1,346

91 Boeing 68,281 1,312

92 US Postal Service 68,090 −3,794

93 Lukoil 68,025 7,011

94 Peugeot 67,297 −1,614

95 CNP Assurances 66,556 1,396

96 Barclays 66,533 14,648

97 Home Depot 66,176 2,661

98 Target 65,357 2,488

Rank Company Revenues ($ millions) Profits ($ millions)

99 ArcelorMittal 65,110 118

100 WellPoint 65,028 4,746

Source: Adapted from Fortune 500 List

2010,http://money.cnn.com/magazines/fortune/global500/2010/full_list/ (accessed August 11, 2011).

HRM Global Strategies

When discussing HRM from the global perspective, there are many considerations. Culture, language,

management styles, and laws would all be considerations before implementing HRM strategies. Beechler

et al. [3] argued that for multinational companies, identifying the best HRM processes for the entire

organization isn’t the goal, but rather finding the best fit between the firm’s external environment (i.e., the

law) and the company’s overall strategy, HRM policies, and implementation of those policies. To this end,

Adler and Bartholomew developed a set of transnational competencies that are required for business to

thrive in a global business environment.[4] A transnational scope means that HRM decisions can be made

based on an international scope; that is, HRM strategic decisions can be made from the global perspective

rather than a domestic one. With this HRM strategy, decisions take into consideration the needs of all

employees in all countries in which the company operates. The concern is the ability to establish

standards that are fair for all employees, regardless of which country they operate in.

Atransnational representation means that the composition of the firm’s managers and executives should

be a multinational one. A transnational process, then, refers to the extent to which ideas that contribute to

the organization come from a variety of perspectives and ideas from all countries in which the

organization operates. Ideally, all company processes will be based on the transnational approach. This

approach means that multicultural understanding is taken into consideration, and rather than trying to

get international employees to fit within the scope of the domestic market, a more holistic approach to

HRM is used. Using a transnational approach means that HRM policies and practices are a crucial part of

a successful business, because they can act as mechanisms for coordination and control for the

international operations. [5] In other words, HRM can be the glue that sticks many independent operations

together.

http://money.cnn.com/magazines/fortune/global500/2010/full_list/

Before we look at HRM strategy on the global level, let’s discuss some of the considerations before

implementing HRM systems.

Culture as a Major Aspect of HRM Overseas

Culture is a key component to managing HRM on a global scale. Understanding culture but also

appreciating cultural differences can help the HRM strategy be successful in any country. Geert Hofstede,

a researcher in the area of culture, developed a list of five cultural dimensions that can help define how

cultures are different. [6]

The first dimension of culture is individualism-collectivism. In this dimension, Hofstede describes the

degree to which individuals are integrated into groups. For example, in the United States, we are an

individualist society; that is, each person looks after him- or herself and immediate family. There is more

focus on individual accomplishments as opposed to group accomplishments. In a collective society,

societies are based on cohesive groups, whether it be family groups or work groups. As a result, the focus

is on the good of the group, rather than the individual.

Power distance, Hofstede’s second dimension, refers to the extent to which the less powerful members of

organizations accept that power is not distributed equally. For example, some societies may seek to

eliminate differences in power and wealth, while others prefer a higher power distance. From an HRM

perspective, these differences may become clear when employees are asked to work in cross-functional

teams. A Danish manager may have no problem taking advice from employees because of the low power

distance of his culture, but a Saudi Arabian manager may have issues with an informal relationship with

employees, because of the high power distance.

Uncertainty avoidance refers to how a society tolerates uncertainty. Countries that focus more on

avoidance tend to minimize the uncertainty and therefore have stricter laws, rules, and other safety

measures. Countries that are more tolerant of uncertainty tend to be more easygoing and relaxed.

Consider the situation in which a company in the United States decides to apply the same HRM strategy

to its operations in Peru. The United States has an uncertainty avoidance score of 46, which means the

society is more comfortable with uncertainty. Peru has a high uncertainty avoidance, with a score of 87,

indicating the society’s low level of tolerance for uncertainty. Let’s suppose a major part of the pay

structure is bonuses. Would it make sense to implement this same compensation plan in international

operations? Probably not.

Masculinity and femininity refers to the distribution of emotional roles between genders, and which

gender norms are accepted by society. For example, in countries that are focused on femininity,

traditional “female” values such as caring are more important than, say, showing off. The implications to

HRM are huge. For example, Sweden has a more feminine culture, which is demonstrated in its

management practices. A major component in managers’ performance appraisals is to provide mentoring

to employees. A manager coming from a more masculine culture may not be able to perform this aspect of

the job as well, or he or she may take more practice to be able to do it.

The last dimension is long-term–short-term orientation, which refers to the society’s time horizons. A

long-term orientation would focus on future rewards for work now, persistence, and ordering of

relationships by status. A short-term orientation may focus on values related to the past and present such

as national pride or fulfillment of current obligations. We can see HRM dimensions with this orientation

in succession planning, for example. In China the person getting promoted might be the person who has

been with the company the longest, whereas in short-term orientation countries like the United States,

promotion is usually based on merit. An American working for a Chinese company may get upset to see

someone promoted who doesn’t do as good of a job, just because they have been there longer, and vice

versa.

Based on Hofstede’s dimensions, you can see the importance of culture to development of an

international HRM strategy. To utilize a transnational strategy, all these components should be factored

into all decisions such as hiring, compensation, and training. Since culture is a key component in HRM, it

is important now to define some other elements of culture.

Table 14.3 Examples of Countries and Hofstede’s Dimensions

Country

Power

Distance Individualism/Collectivism Masculinity/Femininity

Uncertainty

Avoidance

Long/Short

Term

Orientation

New

Zealand 22 79 58 49 30

UK 35 89 66 35 25

United

States 40 91 62 46 29

Country

Power

Distance Individualism/Collectivism Masculinity/Femininity

Uncertainty

Avoidance

Long/Short

Term

Orientation

Japan 54 46 95 92 80

Taiwan 58 17 45 69 87

Zambia 64 27 41 52 25

India 77 48 56 40 61

China 80 20 66 40 118

Philippines 94 32 64 44 19

Chile 63 23 28 86

(this

dimension

was only

studied in 23

countries)

Power distance: Refers to the comfort level of power differences among society members. A lower score
shows greater equality among levels of society, such as New Zealand.

Individualism/collectivism: A high ranking here, such as the United States, means there is more concern
for the individualistic aspects of society as opposed to collectivism. Countries with high scores on

individualism means the people tend to be more self-reliant.

Masculinity/femininity: A lower score may indicate lower levels of differentiation between genders. A
lower score, such as Chile, may also indicate a more openly nurturing society.

Uncertainty avoidance: Refers to the tolerance for uncertainty. A high score, such as Japan’s, means
there is lower tolerance for uncertainty, so rules, laws, policies, and regulations are implemented.

Long/short term orientation: Refers to thrift and perseverance, overcoming obstacles with time (long-
term orientation), such as China, versus tradition, social obligations.

Culture refers to the socially accepted ways of life within a society. Some of these components might

include language, norms, values, rituals, andmaterial culture such as art, music, and tools used in that

culture. Language is perhaps one of the most obvious parts of culture. Often language can define a culture

and of course is necessary to be able to do business. HRM considerations for language might include

something as simple as what language (the home country or host country) will documents be sent in? Is

there a standard language the company should use within its communications?

FORTUNE 500 FOCUS

For anyone who has traveled, seeing a McDonald’s overseas is common, owing to the need to expand

markets. McDonald’s is perhaps one of the best examples of using cultural sensitivity in setting up its

operations despite criticism for aggressive globalization. Since food is usually a large part of culture,

McDonald’s knew that when globalizing, it had to take culture into consideration to be successful. For

example, when McDonald’s decided to enter the Indian market in 2009, it knew it needed a vegetarian

product. After several hundred versions, local McDonald’s executives finally decided on the McSpicy

Paneer as the main menu item. The spicy Paneer is made from curd cheese and reflects the values and

norms of the culture.[7]

In Japan, McDonald’s developed the Teriyaki Burger and started selling green tea ice cream. When

McDonald’s first started competing in Japan, there really was no competition at all, but not for the reason

you might think. Japanese people looked at McDonald’s as a snack rather than a meal because of their

cultural values. Japanese people believe that meals should be shared, which can be difficult with

McDonald’s food. Second, the meal did not consist of rice, and a real Japanese meal includes rice—a part

of the national identity [8] and values. Most recently, McDonald’s introduced the McBaguette in France to

align with French cultural values. [9] The McBaguettes will be produced in France and come with a variety

of jams, a traditional French breakfast. Just like in product development, HRM must understand the

differences between cultures to create the best HRM systems that work for the individual culture.

Norms are shared expectations about what is considered correct and normal behavior. Norms allow a

society to predict the expected behavior and be able to act in this manner. For many companies operating

in the United States, a norm might be to dress down for work, no suit required. But if doing business

overseas, that country’s norm might be to wear a suit. Not understanding the norms of a culture can

offend potential clients, customers, and colleagues.

Values, another part of culture, classify things as good or bad within a society. Values can evoke strong

emotional feelings from a person or a society. For example, burning of the American flag results in strong

emotions because values (love of country and the symbols that represent it) are a key component of how

people view themselves, and how a culture views society. In April 2011, a pastor in Florida burned a holy

book, the Koran, which sparked outrage from the Muslim community all over the world. This is an

example of a strongly held value that when challenged can result in community rage. [10]

Rituals are scripted ways of interacting that usually result in a specific series of events. Consider a

wedding in the United States, for example. The basic wedding rituals (first dance, cutting of cake, speech

from best man and bridesmaid) are practiced throughout society. Besides the more formalized rituals

within a society, such as weddings or funerals, daily rituals, such as asking someone “How are you?”

(when you really don’t want to know the answer) are part of culture, too. Even bonding rituals such as

how business cards are exchanged and the amount of eye contact given in a social situation can all be

rituals as well.

The material items a culture holds important, such as artwork, technology, and architecture, can be

considered material culture. Material culture can range from symbolic items, such as a crucifix, or

everyday items, such as a Crockpot or juicer. Understanding the material importance of certain items to a

country can result in a better understanding of culture overall.

HUMAN RESOURCE RECALL

Which component of culture do you think is the most important in HRM? Why?

KEY TAKEAWAYS

 Offshoring is when a business relocates or moves part of its operations to a country different

from the one it currently operates in.

 Outsourcing is when a company contracts with another company to do some work for another.

This can occur domestically or in an offshoring situation.

 Domestic market means that a product is sold only within the country that the business operates

in.

 An international market means that an organization is selling products in other countries, while

a multinational one means that not only are products being sold in a country, but operations are

set up and run in a country other than where the business began.

 The goal of any HRM strategy is to be transnational, which consists of three components. First,

the transnational scope involves the ability to make decisions on a global level rather than a

domestic one. Transnational representation means that managers from all countries in which the

business operates are involved in business decisions. Finally, a transnational process means that

the organization can involve a variety of perspectives, rather than only a domestic one.

 Part of understanding HRM internationally is to understand culture. Hofstede developed five

dimensions of culture. First, there is the individualism-collectivismaspect, which refers to the

tendency of a country to focus on individuals versus the good of the group.

 The second Hofstede dimension is power distance, that is, how willing people are to accept

unequal distributions of power.

 The third is uncertainty avoidance, which means how willing the culture is to accept not knowing

future outcomes.

 A masculine-feminine dimension refers to the acceptance of traditional male and female

characteristics.

 Finally, Hofstede focused on a country’s long-term orientation …

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