WORK2217 - Lecture 1 and 2

Foundations and contexts of International HR In today’s global environment, businesses that understand cultural differences and its fundamentals have a decided advantage. The complexity involved in operating in different countries and employing different national categories of employees is a key variable differentiating domestic and IHRM, rather than any major differences between the HR activities performed. One of the main reasons IHR has grown in the last years is the worldwide globalisation, which has led to an interconnectivity and mobility never seen before. Globalisation is “the process of unification that have taken place in markets and consumer tastes, increasingly mobile investment capital, and the rapid spread of technology” (Brewster, Wood & Brooks 2008, p. 321)

Rieger and Leibfried (2003, p. 16-17) highlight that globalization is linked to:

1. The advancements in technology and transport. Much easier to stay in touch with people and not get those massive phone bills

2. Advancements of technologies and transport combined with the restructuring of firms seeking opportunities abroad in search of competitive advantages

3. The increase implementation neo-liberal policies by governments since the 1980s – following Thatcher (UK) and Reagan (USA)

4. Rise of capitalism as a dominant (sole) ideology – illustrated by the increasing number of liberal democracy states after the collapse of the communist USSR.

5. The decreasing protectionism of economic zones and the strive towards a world market.

6. Transition of the GATT to the WTO “The inexorable integration of markets, nation-states, and technologies to a degree never witnessed before — in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before and in a way that is enabling the world to reach into individuals, corporations, and nation-states farther, faster, deeper, and cheaper than ever before.” (Friedman 1999). Managing in an ever globalizing world – drivers of internationalization

1. Increase in trade agreements – think about EU 2. Search for new markets and reduced costs – operating in countries with less regulations 3. Rapid and extensive global communication 4. Rapid development and transfer new technologies

WORK2217 - Lecture 1 and 2 5. Improving global education and the emergence of a global talent pool – international

student 6. Increased travel and migration – much cheaper to fly between nations 7. Knowledge sharing 8. E-commerce 9. Homogenization of culture and consumers

The Rise of the Multinational Enterprise What is a MNE? “A firm that owns or controls business activities in more than one foreign country”. They are “any enterprise that carries out transactions in or between two sovereign entities, operating under a system of decision making that permits influence over resources and capabilities, where the transactions are subject to influence by factors exogenous to the home country environment of the enterprise” (Sundaram and Black 1992, p. 733) The rise of MNEs and FDI – MNEs and its main vehicle, foreign direct investment, are key forces in economic

globalization. – Since 1990 foreign direct investment has grown more rapidly than the world GDP and

world trade. (Brakman & Garrettsen 2008) Top 10 Most Transnational Non-Financial MNEs

The Transnationality Index (TNI) is calculated as the average of the following three ratios:

• Foreign assets to total assets, • Foreign sales to total sales, and • Foreign employment to total employment.

WORK2217 - Lecture 1 and 2 Foreign Direct Investment (FDI) flows in 2015 & 2016

Changing Profile of MNEs - Sectoral composition of top 100 MNEs We can see here that the sectoral composition of the top MNEs are changing quite drastically, where in the 90s most of the MNEs were manufacturing companies with less in services and primary. There has been a steady decrease of manufacturing MNEs over the last years, with a larger increase in services and a bit in primary. There is definitely a different type of product markets that we are looking at. Just think of how much more refined HR systems are in services firms like consulting, than what you would find in a manufacturing company.

WORK2217 - Lecture 1 and 2 Human Resource Management (HRM) HRM are those activities that are undertaken by an organization in order to affectively utilize the human recourses. To an extent HRM is a further development to what was known as personnel management, to change the focus to how organizations were dealing with their employees. A move from being very much cost focused to seeing the importance of proper people management and employees being real assets to any organization. We can identify core activities of the HR function: – HR planning – Staffing (recruitment, selection, placement) – Performance management – Training and development – Compensation (remuneration) and benefits – Industrial relations

What is International HRM? – The way in which international organisations manage their human resources across

different national contexts (Brewster et al. 2011, p. 13) – About the world-wide management of human resources … The purpose of IHRM is to

enable the firm, the multinational enterprise (MNE), to be successful globally (Schuler, Budwhar & Florkowski 2002, p. 41)

– “We define the field of IHRM broadly to cover all issues related to managing the global workforce and its contribution to firm outcomes. Hence, our definition of IHRM covers a wide range of HR issues facing MNEs in different parts of their organizations. Additionally we include comparatively analyses of HRM in different countries.” (Stahl, Björkman & Morris 2012, p. 1)

– Bjorkman & Welch 2015 point out that IHRM concerns itself with 2 questions:

1. How people are managed in multinational corporations? 2. What are the outcomes?

What is the Research Field of IHRM Traditional focus IHRM was on expatriates / international assignees (IA) A staff member who is move across national boundaries into a role within an firm’s foreign subsidiaries. The IA is on a temporary assignment and resides in a foreign country. Widening Focus of IHRM – “Broadly defined, the field of international human resource management (IHRM) is the

study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment.” (Briscoe, Schuler & Tarique 2012 p. 11)

– “International HRM can be conceptualized as a field of enquiry dedicated to charting the anatomy of HRM in the MNC and the unearthing of the HRM strategies, systems and practices pursued in the context of internationalization. In this trajectory, it is recognized that the ever-increasing complexity and uncertainty in which MNCs operate creates a unique set of organizational, coordination and managerial issues for

WORK2217 - Lecture 1 and 2 the managers of these MNCs. Central among these is the management of employees on a global scale. In this international trajectory, HRM is concerned with identifying and understanding how MNCs manage their geographically dispersed workforces in order to leverage their HR resources for both local and global competitive advantage.” (Schuler, Budhwar and Florkowski 2002, p. 41-42).

Streams within IHRM – different studies

• Global talent management - without anchoring on specific national or organizational contexts.

• Cross-country theoretical and empirical comparative studies of HRM systems, policies and practices.

• Studies of HRM in MNCs in one or more countries (classic international HRM) • Expatriate Studies, at the individual level without examining the MNCs in which they

work for

Morgan’s (1986) three dimensions of IHRM

1. HR Activities (procurement, allocation, utilization) – “What you do?” - How do you procure and where from? Where do you put people to work? And finally how do you use their skills?

2. Countries of operation – “Where you do it” - Could be the host country, the parent country or other third party countries.

3. Type of employees – “With who” MNC Staffing Policies

WORK2217 - Lecture 1 and 2 International Assignments: The different types of Employees

Ethnocentric staffing involves staffing the most important positions in foreign subsidiaries with expatriates from the company's home country. Expatriates are often believed to better represent the interests of the home office and ensure that the foreign offices are aligned with home headquarters. In polycentric staffing, a company will hire host-country nationals for positions in the company from mailroom clerks all the way up to the executive suites. Polycentric staffing is particularly feasible in developed countries, such as European countries, Canada, Australia and Japan, where highly educated and trained employees can be easily located. Geocentric staffing is when a company adopts the strategy of recruiting the most suitable persons for the positions available in it, irrespective of their nationalities, it is called a geocentric approach. Companies that are truly global in nature adopt this approach since it utilizes a globally integrated business strategy.

WORK2217 - Lecture 1 and 2 Differences domestic and international HRM Domestic HRM are activities undertaken by an organisation to effectively utilize its human resources … within only one national boundary” (Dowling, Festing & Engle 2017, p. 3). – I.e. Recruitment & Selection, Performance & Reward Management, Training &

Development and Employment Relations – International HRM involves managing these processes across national boundaries

International HRM is more complex than domestic HRM due to six factors:

1. More HR activities 2. The need for a broader perspective 3. More involvement in employees’ personal lives 4. Changes in emphasis as the workforce mix of expatriates and local varies 5. Risk exposure – for both the firm sending someone and the expat itself 6. Broader external influences

A model of the variables that moderate differences between domestic and IHRM

Thematic Framework of International Human Resource Management

WORK2217 - Lecture 1 and 2 Global Realities of MNEs Economic characteristics – Globalization and free trade are the biggest realities and have many supporters and

critics – There are huge disparities in income and standards of living worldwide – The biggest markets for products and services are increasingly global – There are increasing demands on energy, raw materials and infrastructure – Concern by societies for worldwide competitiveness and job creation – Growth in foreign direct investment (FDI)

Social characteristics (geopolitical, cultural and technological) – More integration and expansion within the EU, ASEAN, WTO, COMESA, NAFTA, GCC – Increased recognition of relationship between government efficiency and business

efficiency – Greater concern by societies for sustainability – More complexity, volatility and unpredictability – Still many local and regional legal and cultural qualities – Technology is making the world flatter, more accessible and less costly

Strategic (enterprise) characteristics – An increasingly larger number of MNEs and SMEs – Consolidation through increased merger and acquisition activity – Opportunities for growth and expansion are in the emerging markets – Global competitive advantage attained through scale, scope, local adaptation, – knowledge management and optimal relocation – Costs, risks and uncertainties are high, so greater need for alliances such as IJVs – There is a need to change business and organization models constantly

Workforce characteristics – There is a huge potential labour force that is more highly educated and growing – There is a greater awareness of worldwide disparities in income and lifestyles – Workers can be adaptable to workplace styles and human resource practices – Emigration flows will accelerate in some areas; reverse in others – Workers need not move: work can move to them through offshoring and outsourcing

Debates in the IHRM literature

WORK2217 - Lecture 1 and 2

Contexts of International HR Work behavior is culturally determined. Whether corporate culture would supersede or supplant other ‘cultures’ is a subject of much debate. Often, what is meant by corporate culture translates into universal work practices – standardization of work practices. Common practices rather than common values. Host Country Context Culture consists of “patterned ways of (1) thinking, (2) feeling and (3) reacting. Acquired, and transmitted mainly by symbols, constituting the distinctive achievements of human groups [….], including their embodiments in artefacts. The essential core of culture consist of traditional […] ideas, and especially their attached values”. Hofstede’s definition of ‘mental programming’ of the mind - The collective programming of the mind that distinguishes one group of people form another in terms of norms and values. It is the part of our conditioning that we share with other members of our nation, region or group” (Hofstede 1983) National Culture National cultures distinguish similar people, institutions and organizations in different countries. Hofstede operationalized 4 dimensions of culture:

1. Power distance: degree to which the less powerful members of a society accept and expect that power is distributed unequally.

2. Uncertainty avoidance: the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity.

3. Femininity vs. masculinity: femininity, stands for a preference for cooperation, modesty, caring for the weak and quality of life (consensus-oriented). Masculinity represents a societal preference for achievement, heroism, assertiveness and material rewards for success (competition focused).

4. Individualism vs. collectivism: extent to which individual initiative and caring for oneself and relatives is preferred opposed to public assistance or the concept of extended family

5. Confucianism or long-term orientation was later introduced as another dimension

Organisational Culture Work culture plays an important role in extracting the best out of employees and making them stick to the organization for a longer duration. The organization must offer a positive ambience to the employees for them to concentrate on their work rather than interfering in each other’s work. Organisational cultures distinguish different organisations within the same country or countries. – Schein’s (1990) concept of organizational culture

– Artefacts: visible organisational structures and processes – Values: intermediate level of consciousness – Underlying assumptions: invisible, unconscious

WORK2217 - Lecture 1 and 2 – Successful management requires

success in managing national/organisational culture differences.

The Organizational Context The Balance between Standardization and Localization Every major global company continually faces the decision whether to standardize its international branding strategy or customize branding tactics to meet local preferences. While some level of consistency is essential to the brand’s success, a certain amount of freedom to react to the local environment can benefit the brand as a whole. Every company must balance these opposing strategies and arrive at a point that they feel maximizes their brand’s potential.

Factors influencing HRM practices in host country Institutional and Social Dimensions 1.. Labour market and employment relations regulations

– Employment Relations Systems, including worker protections, minimum wage regulations, Work time and leave regulations

– Status of trade unions and collective bargaining (often differs between industries)

2.. Production systems and work organisation

– Different ways that goods and services are produced – Production systems distinguished by their variation in terms of skill and task

discretion (high vs low), which influence managerial styles (e.g. supervisory or technically proficient)

WORK2217 - Lecture 1 and 2 – Local traditions and national institutional arrangements relating to employment

and skills influence MNE decisions over which production systems to use in subsidiaries

3.. Education, training, and careers

– Different countries have different dynamics and comparative advantages – May affect MNE recruitment, selection and training decisions (e.g. recruiting

staff through apprenticeships, from universities, on-the-job training, participation in industry-wide schemes etc.)

4.. Social stratification and living standards

– Wage differentials between jobs are shaped by countries’ social hierarchies (e.g. CEO to average employee remuneration expectations)

– Compensation for cost of living increases, collectivised or individualized approaches

5.. Welfare arrangements

– Extent to which social policies encourage labour market participation and mobility, e.g. among care-givers, young workers, older workers

– Potentially affects MNE recruitment, remuneration and diversity management policies and practices

6.. Household, family and gender systems

– Cultural expectations around workforce participation versus domestic responsibilities among women and men

– Cultural differences around the interactions between women and men in the workplace can influence HR practices, e.g. the work roles that women and men can be expected to perform

– MNEs need to be aware of local norms relating to equality, discrimination and social expectations of gender roles – these may have implications for HR practices relating to the engagement of PCNs, TCNs and HCNs

Local and cross-national isomorphism Local isomorphism - the subsidiary behaves similar other organisations within the host-country environment Corporate isomorphism - pressures for conformity with HQ policies among host-country subsidiaries Cross-national isomorphism - HQ’s policies informed by home country institutions that are subsequently transmitted to host-country subsidiaries (effectively an extension of corporate isomorphism with an explicit focus on the home-country influence) Global inter-corporate isomorphism – MNEs are subjected to (mimetic) isomorphic pressures from their key international competitors Subsidiaries’ Role: Gupta and Govindarjan’s four generic subsidiary roles

WORK2217 - Lecture 1 and 2

Challenges in facilitating corporate knowledge flows Dowling, Festing & Engele (2017, p. 55) highlight that “the ‘sticky’ nature of knowledge, for example, applies regardless of its origins, but the designated role of the subsidiary and the standing of its management are critical in determining the spread and adaptation of subsidiary–initiated practices.”

- Corporate immune system – Birkinshaw & Ridderstrale (1999) - ‘Knowledge sharing hostility’ and ‘knowledge hoarding’ (Michailova & Husted 2003) - How to overcome intra-organisational barriers and fiefdoms?

Standardization vs. Localization in MNEs’ HRM practices The extent to which HRM practices are standardised (the same practices used regardless of location) or localised (each subsidiary is able to develop its own practices) will differ:

• Pressures for convergence: International market competition, technological change, increased MNE activity. Example of HRM practices that are likely to converge: executive remuneration.

• Pressures for divergence: Local labour market conditions, economic development, laws and institutions, norms, organisational politics. Example of HRM practices HRM practices likely to diverge: working time and leave arrangements, pay and benefits, gender composition of staff

Stages of Internationalization The role of HR will vary on the stage of development and the adopted organizational structure

WORK2217 - Lecture 1 and 2 MNE Organisational Structures Organizational Structure – Centralization /De-centralization

of decision making – Control by parent over subsidiary

“The think local, act global paradox” Maturation of foreign production / services – Global Product Division – Global Area Division – Global Matrix Structure

Beyond the matrix – The Heterarchy – The Transnational – The Network

Beyond the network - The Meta-nationals 3 types of units to compete in a global tournament at 3 levels: – Sensing units: Uncover widely dispersed engineering & market insights – Magnet units: Attract and create business plan to convert innovations into products and

services – Marketing and production units: Market and produce adaptations of these products and

services around the world Cross-border Alliances MNE decisions to establish local operations – Business arrangements

– MNEs enter the host country directly by creating wholly-owned subsidiaries or creating joint ventures with local firms or through mergers and acquisitions

– Alternatively, they may establish indirect arrangements by engaging local suppliers to provide certain goods or services

– Staffing arrangements

WORK2217 - Lecture 1 and 2 – MNEs will staff their local operations through a combination of strategies – Engaging PCNs/TCNs through work visas that comply with local rules – Engaging HCNs through direct employment relationships – Engaging subcontractors to employ staff

Types of Cross-border Alliances

Mergers & Acquisitions (M&A) HR activities in cross-border alliances

Aguilera and Dencker (2004) argue that firms should match their M&A strategy with their HR strategy while relying on three conceptual tools: – Resources: tangible assets (money & people) and intangible asses (brands

&relationships) – Processes: activities used to convert resources in valuable goods & services