International human resource management

The main problem about understanding international HRM issues is that they evolve so rapidly; having worked out how to deal with one opportunity or challenge, you find that things have changed and your plans are obsolete. As one company chairman put it, ‘You feel as if you are driving from one station to another, hoping to get on a train, only to find that the train has just left and has gone on another route and your ticket is no longer valid’. The problem may be difficult, but solutions have to be found as this is an area where HR really is centre stage:

HR can add real value here. Enabling people to work most effectively in these changing, challenging contexts is still the ultimate competitive advantage of any organisation, and what it will take to survive and thrive in this new world. (Glanz and Hirsch 2006, p. 54)

Until the last quarter of the twentieth century, the term ‘international’ hardly appeared in HR/personnel thinking, which remained within the culture, politico/legal system and workforce of the country in which the business was based. With the excep­tion of inescapably international businesses, like oil companies and shipping, any HR issues were likely to be limited to deciding such matters as what expenses a sales manager could claim for travelling abroad, and whether or not the technician who was also going could stay at the same hotel. The establishment of overseas subsidiaries brought another range of issues to do with expatriation and responsibility not just for the expatriated employee, but also for the employee’s family. As subsidiaries grew they evolved into partner companies in an international business, with expatriation moving both ways, training and language issues became more important, and understanding cultural and national differences came to involve more than globe-trotting sales and technical people. The most recent evolutionary development of globalisation, which seeks to reduce the significance of national interests and emphasise the attachment to the whole business, is an intensification of the process we described in our opening chapter of changing from personnel management to human resource management. Personnel management is essentially workforce centred, while HRM is resource centred. Personnel management is preoccupied with managing the supply of people to the business. They are the ‘given’ of the situation. In contrast human resource management is preoccupied with managing the demand for human resources to meet the operational needs of the business, whether they be employees or not, whether they be the residents of the local community or not; whether they be citizens of the home country or not.

We first worked out this distinction in 1987, when HRM was still a novel idea that needed to be described. Some may regard it as simply a different way of describing the same thing: just playing with words. To a great extent it is the same thing because most of the things that HR people do remain the same, but the change in emphasis and approach is profound. It is rather surprising to realise that this now describes very pre­cisely, if not completely, the world of international HRM, which is much more strategic than operational in its main focus.

An axiom about any form of international management is ‘global thinking; local action’. This is not just a neat form of words, it sums up precisely the spread of under­standing that international management activity requires, and everyone requires it. On our website (www.pearsoned.co.uk/torrington) we have some additional reading about the types of people who represent their businesses in other countries, but everyone in the business is affected by the international developments in management. Local action increasingly requires global thinking, or at least global understanding, by everyone who goes to work anywhere.

In international matters HR has a more significant strategic input than in domestic man­agement. Global thinking in an international business is concerned with all the things that are different in doing business in more than one country at the strategic level, how the cultural differences between countries are understood and how the management of those differences can be coordinated effectively. The issues include how the cultural differences can be accommodated and how effective communication can be maintained across long distances, different time zones, different managerial assumptions, varying national norms and different languages. There are also differences in legislation, train­ing methods, education systems, social security arrangements and pension provision. This is human resource management at its most intellectually demanding because of the deep understanding that is needed of so many complex issues.

When you enter a company, differences in architecture, interior design, dress and behaviour and styles of interaction are immediately apparent. The styles of architecture and design may emphasize tradition or modernity and signal the importance of hierarchy or collegial relations. A telling clue would be the existence of an executive parking lot and dining rooms, of open office space or closed doors. Others include the dress code and forms of address (the use of first or last names, titles, spoken deference), and the ease of interaction between senior and junior members, or between peers. (Schneider and Barsoux 2003, p. 52)

Understanding these variations indicates the values that are held on crucial issues like the importance of rules and procedures, whether information flows easily or is jealously guarded by a few and how the role of manager is understood. Within a culture where we have grown up we develop this understanding by a protracted process of learning over decades. When trying to understand a different culture, the same level of learning is needed in a very short time.

Local action is informed by global thinking, but carried out quite separately as all action is local and has to be decided by referring to aspects of employment in one locality only. HRM deals with people who are employed within only one set of legal, cultural, demographic and physical conditions. A debug technician may be employed in Italy to do exactly the same job on exactly the same range of products as another

employee of the same company in Iowa or Indonesia, but the terms and conditions of employment and social conventions and the accepted management practices will be totally different.

In other chapters we frequently mention aspects of local action in different contexts. Here we shall introduce the general topic and then deal with just two aspects of global thinking that are particularly important to international HRM.

1. INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Europeans share a common heritage, no matter how bloodstained it may be, through fighting against each other in various combinations for a thousand years, throughout which time the Christian religion has been shared by all nationalities. North Americans stopped fighting each other on any big scale 150 years ago and share a common religious tradition with the Europeans, as well as sharing one of the European languages. Europe and North America also share the concept and practices of ‘westernisation’, but there is still regular misunderstanding between the two continents as well as between individual European countries. Contrasts become even starker when one moves to Arab countries, to India, to China or to South East Asia. This is just an illustration of the diversity that international HRM has to encompass.

Towards the end of the twentieth century there grew a concern about the ever-increasing significance of the multinational company as the means whereby individual economies are integrated into a global economy, with a small number of very large companies accounting for a disproportionately large number of the people in employment.

Globalisation has become a dirty word, sparking demonstrations and being blamed for many of the ills in the developing world, yet human resource management in any business has to contend with the human resource implications of globalisation. There is always an HRM dimension to any strategic initiative, and international moves perhaps present the strongest case for the HRM specialist to be involved at the beginning in formu­lating the overall approach, simply because the HRM implications and opportunities are not all immediately obvious.

International HRM is a particular type of decentralisation and expansion of the HR role. As an organisation increases its international activities, it inevitably steps up the degree of decentralisation, but internationalisation is not simply a form of decentral­isation. It is the most complex form of decentralising operations and involves types of difference – language, culture, economic and political systems, legislative frameworks, management styles and conventions – that are not found in organisational growth and diversification that stays within national boundaries.

In these circumstances human resource management logically follows, as well as helping to shape, the strategic direction set by the financial, marketing and operational decisions. In practice there may be a different pattern, as HR often remains one of the last centralising forces because of the importance of such features of management as equity, order, consistency and control.

Decentralisation is needed to empower subsidiaries, so that they become autonomous units within a corporate family instead of being overseas subsidiaries of a parent com­pany. Some features, like recruitment and industrial relations negotiations, are almost entirely decentralised, so that there is little need for a coordinated, centrally driven policy.

Integration is expansion of the HR role to achieve the necessary coordination so that the business remains whole. New features are added, like advanced schemes of remunera­tion for expatriate employees, new forms of communication to ensure the necessary ‘corporate glue’. Although nearly all recruitment and selection is decentralised, a new activity will develop in the recruitment, selection and training for an elite corps of international managers.

Another way of describing this is the concept of convergence and divergence, which was first introduced to organisation theory by Kerr and colleagues (1960). This describes the process of extending the principle of homogeneity across products and services throughout the business in order to achieve efficiency in management and consistency for the customer. Initially the focus was on mass production, using the term ‘Fordism’, coined in the United States to describe the economic philosophy that prosperity and high corporate profits can be achieved by high wages that allow the workers to purchase the output they produce.

Henry Ford improved mass production methods and developed the assembly line by 1910. He sold large numbers of inexpensive automobiles and made a fortune, while his employees became the highest paid factory workers in the world. This idealist approach carried negative implications and Braverman (1974, 1994) argued that the type of managerial control of the production process that was needed was achieved by mono­polising judgement, knowledge and decision making with the effect that workers lose control of their work, the knowledge and their skill. This was applied not only to manual workers, but to most white collar employees (‘the new middle class’) as well. Marxists Antonio and Bonanno (2000) traced the development of Fordism and subsequent eco­nomic stages to globalisation, emphasising routinised and intensified labour to promote production. This has underpinned some of the large-scale protests against meetings of G8 heads of state in recent years. As the epitome of what the protesters object to, Fordism has now turned into ‘McDonaldisation’, a description of the reach of stand­ardised products and services into every part of the globe. A management perspective on convergence is a little more benign:

Where organisations possess a strong corporate culture seen as vital to maintaining competitive advantage, this is likely to be translated into standardisation of operating methods, work organisation and employment policies. Although terms of employment may be set locally, there may … be corporate co-ordination exercised according to over-arching guiding principles embedded in corporate values. (Lucas et al. 2006)

Despite the apparent managerial benefits of convergence, a more divergent approach is also widely practised, for two powerful reasons. One reason is cultural variation, which is explored shortly, the other is labour market considerations. National labour markets operate in quite different ways, due to different institutions, legal frameworks, labour market conventions and national political and social factors. The pan-European ‘super­jumbo’ Airbus 380 may revolutionise air travel or not, but it will certainly have a significant effect – if it is ever built. In February 2007 the parent company EADS had to postpone announcing details of its restructuring plans because Britain, France, Germany and Spain could not agree on how to share the work. EADS Chief Executive Louis Gallois expected to reveal how it planned to restructure to save around £3.4 billion over the next three years. Mr Gallois urged the four countries to reach an agreement quickly, saying the workforce ‘are eager to know how the future of their company, together with their own future, is being shaped’.

This type of analysis is one framework for considering international human resource management. Other members of management may deal with aspects of takeover and merger, global computer systems, technology transfer and international investment, but HR specialists will be concerned with such matters as comparative pay rates, perform­ance assessment, employee voice in the business, employee relocation and expatriation, cultural variation and communication.

2. CULTURAL DIFFERENCES IN MANAGEMENT

The history of the European Union in attempting to establish a supranational institution is one of constant, but reluctant recognition of the stubbornness of national differences and the accentuation of regional differences among, for instance, the Basques, the Flemish and the Scottish. The cultural diversity and intensity of feeling on national

issues in a close-knit and economically developed region like Western Europe indicates the significance of cultural difference on a global scale. Nationality is important in human resource management because of its effect on human behaviour and the con­sequent constraints on management action.

Some things that initially appear specific to a particular national culture turn out to be understood and welcomed in almost all cultures. Westernisation and globalisation are prime targets for international terrorism because of the cultural values that are seen to undermine the social cohesion of other cultures, as well as the apparent reluctance of western governments to change their colonial assumptions and interference in the internal affairs of other countries. Despite that widespread hostility Italian pizza has been adopted in most countries of the world, and the expansion has been largely brought about by Pizza Hut, which is owned by Pepsi-Cola, an American company known for a drink that has also gone to every corner of the globe. Who would have expected that Muscovites would daily queue up outside the largest McDonald’s in the world until it was overtaken by the branch in Beijing? Few brands are more obviously global than Microsoft.

Newspapers and magazines in social democracies and socialist republics frequently devote more space in twelve months to the British Royal Family than to any other topic, despite the fact that the institution is utterly British and theoretically alien to their polit­ical systems. Countless millions every day follow the fortunes of some very ordinary people in the fictional Australian setting of Ramsey Street, Erinsborough, and even more watch association football. The wide international acceptability of these things could suggest that we are all members of the global village with converging tastes and values. Yet certain facets of national culture remain deeply rooted and have a way of under­mining that argument.

It is difficult to prove that any given language determines management behaviour in specific ways. Nevertheless, it seems incontestable that the French have developed their language as a precision tool for analysis and conceptualisation; that the Japanese use their language as an emollient for creating an atmosphere conducive to harmonious interaction; and that the Americans use their version of English as a store of snappy neologisms to excite, distract and motivate. (Holden 1992)

HR professionals in businesses with an international dimension have a job that is forcing them to be more internationally minded almost daily, yet they do not always realise the impacts of different national cultures on management practices.

Cultural diversity in management is so extensive that anyone’s brain hurts when trying to comprehend it and then trying to remember the details. For example, to the European, Israel is in the Middle East and has a government. To the Malaysian, Israel is in West Asia and has a regime. The cultural range is so great that there is a danger of international managers operating simply at the level of caricature, folklore and trivia, such as learning how to present one’s business card to a Japanese person, or what it means when a German takes his jacket off.

Hofstede

One approach to understanding the maze of cultural diversity is the classic study by Geert Hofstede, first published in 1980 and then re-visited in 1984, 1988 and 1991. As with any original piece of work it has been criticised, but it remains the most convincing analysis. One of his critics acknowledges:

The importance and value of Hofstede’s work cannot be overstated . . . the criticisms levelled against him are dwarfed by the strengths of [his] work in comparing cultures and applying cultural analysis to practical management problems . . . The four dimensions tap into deep cultural values and allow significant comparisons to be made across national cultures. To ignore his findings would be inexcusable. (Tayeb 2003, p. 71)

Hofstede (1980) analysed 116,000 questionnaires administered to employees of IBM in seventy different countries and concluded that national cultures could be explained by four key factors.

  • Individualism This is the extent to which people expect to look after themselves and their family only. The opposite is collectivism, which has a tight social framework and in which people expect to have a wider social responsibility to discharge because others in the group will support them. Those of a collectivist persuasion believe they owe absolute loyalty to their group.
  • Power distance This factor measures the extent to which the less powerful members of the society accept the unequal distribution of power. In organisations this is the degree of centralisation of authority and the exercise of autocratic leadership.
  • Uncertainty avoidance The future is always unknown, but some societies socialise their members to accept this and take risks, while members of other societies have been socialised to be made anxious about this and seek to compensate through the security of law, religion or technology.
  • Masculinity The division of roles between the sexes varies from one society to another. Where men are assertive and have dominant roles these values permeate the whole of society and the organisations that make them up, so there is an emphasis on showing off, performing, making money and achieving something visible. Where there is a larger role for women, who are more service oriented with caring roles, the values move towards concern for the environment and the quality of life, putting the quality of relationships before the making of money.

Hofstede found some clear cultural differences between nationalities. A sample of scores on the four criteria are in Table 4.1.

These findings were then compared with the large-scale British study of organisations carried out in the 1970s (Pugh and Hickson 1976) and some unpublished analysis of MBA students’ work at INSEAD, which suggested that there were clusters of national cultures that coincided with different organisational principles, when Hofstede’s results were plotted against two of his dimensions: uncertainty avoidance and power distance. Hofstede argues (1991, pp. 140-6) that countries emphasising large power distance and strong uncertainty avoidance were likely to produce forms of organisation that relied heavily on hierarchy and clear orders from superiors: a pyramid of people.

In countries where there is small power distance and strong uncertainty avoidance there would be an implicit form of organisation that relied on rules, procedures and clear structure: a well-oiled machine.

The implicit model of organisation in countries with small power distance and weak uncertainty avoidance was a reliance on ad hoc solutions to problems as they arose, as many of the problems could be boiled down to human relations difficulties: a village market.

The picture is completed by the fourth group of countries where there is large power distance and weak uncertainty avoidance, where problems are resolved by constantly referring to the boss who is like a father to an extended family, so there is concentration of authority without structuring of activities. The implicit model of organisation here is: the family. Table 4.2 shows which countries are in the different segments.

So now we have a classification of cultural diversity that helps us. Table 4.2 tells us that the implicit form of organisation for Britain is a village market, for France it is a pyramid of people, for Germany it is a well-oiled machine and for Hong Kong it is a family. If we can understand the organisational realities and detail in those four coun­tries, then this can provide clues about how to cope in Denmark, Ecuador, Austria or Indonesia because they each share the implicit organisational form and implicit organ­isational culture of one of the original four.

 

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

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