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Managing People in

Global Markets Monir Tayeb

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Managing People in Global Markets

Monir Tayeb has been conducting research into employee management and leadership styles practised in various countries since 1976. She has a BA in business studies from the University of Tehran, an M Litt in organisational behaviour from the University of Oxford, and a PhD from Aston University in Birming-ham. Prior to her studies in the UK and lectureship engagements at Sussex and Heriot-Watt universities, she worked as a senior finance officer with a state-owned company in Tehran for six years. She has published several books and articles, and has contributed to a large number of edited books and interna-tional conferences. She is currently an Honorary Reader at Heriot-Watt University, and acts as an external examiner for doctoral theses and MBA courses for several British universities.

First Published in Great Britain in 2008.

© Monir Tayeb 2008, 2016.

The rights of Monir Tayeb to be identified as Author of this Work has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publishers. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers.

Managing People in Global Markets Edinburgh Business School v

Contents

Module 1 The Global Market and Its Major Actors 1/1 1.1 Introduction 1/1 1.2 Going International and Global 1/4 1.3 Limits to the Globalisation of the Market 1/9 1.4 Managing People Globally 1/10 Learning Summary 1/13 Review Questions 1/14

Module 2 Major Approaches to Managing Employees 2/1 2.1 Introduction 2/1 2.2 The Evolution of Thinking on Managing Human Resources 2/2 2.3 Management of Employees in Our Time 2/5 Learning Summary 2/13 Review Questions 2/13

Module 3 The Global Context of Employee Management 3/1 3.1 Introduction 3/1 3.2 National Culture 3/2 3.3 Culture versus Nation 3/4 3.4 Culture Layers 3/5 3.5 The Origins of National Culture 3/6 3.6 Non-Cultural Influences on Values and Attitudes 3/18 3.7 Cultural Values and Attitudes Related to Management and Organisations 3/19 Learning Summary 3/23 Review Questions 3/23

Module 4 National Culture and Employee Management 4/1 4.1 Introduction 4/1 4.2 Concept of HRM and National Culture 4/2 4.3 National Culture and Broad Employee Management Issues 4/5 4.4 National Culture and Specific HRM Issues 4/11 4.5 Business Imperatives and Other Non-Cultural Influences on HRM 4/15 Learning Summary 4/21 Review Questions 4/22

Contents

vi Edinburgh Business School Managing People in Global Markets

Module 5 Institutional Context of Employee Management 5/1

5.1 Introduction 5/1 5.2 Institutional Influences on Organisations 5/2 5.3 National and International Institutions 5/4 5.4 National Institutions and HRM 5/6 5.5 International Institutions and HRM 5/14 Learning Summary 5/20 Review Questions 5/21

Module 6 Transferring HRM Practices across Borders 6/1 6.1 Introduction 6/2 6.2 Transfer of Management Practices across Cultures 6/2 6.3 Vehicles of Transfer 6/3 6.4 Transferability of HRM and Other Management Practices across Borders 6/4 6.5 Transferring HRM Strategies, Policies and Practices 6/8 6.6 Transfer Strategies Adopted by MNCS 6/9 6.7 Central and Eastern Europe and Capitalist Management Models 6/10 6.8 Developing and Emerging Economies and Advanced Nations’

Management Models 6/11 6.9 Teaching Management Practices 6/13 Learning Summary 6/17 Review Questions 6/17

Module 7 Global Human Resource Management: Major Strategies and Complications 7/1 7.1 Introduction 7/1 7.2 Parent–Subsidiary Relationship 7/2 7.3 Parent Company Perspective 7/2 7.4 Subsidiary Perspective 7/7 Learning Summary 7/15 Review Questions 7/16

Module 8 Global Human Resource Management: A Balancing Act 8/1 8.1 Introduction 8/1 8.2 Differentiation and Integration 8/2 8.3 Relevance of the Integration and Differentiation Dilemma 8/4

Contents

Managing People in Global Markets Edinburgh Business School vii

8.4 Mechanisms to Achieve Integration in Highly Differentiated and Global Companies 8/8

Learning Summary 8/16 Review Questions 8/17

Module 9 Expatriation as a Vehicle of Global Management 9/1 9.1 Introduction 9/1 9.2 Rationale for Foreign Assignment 9/2 9.3 What Price Expatriation? 9/6 9.4 Preparation for Foreign Assignment 9/8 9.5 Expatriates in Host Country 9/11 9.6 Freelance Expatriates 9/13 9.7 Expatriates Back Home 9/15 Learning Summary 9/18 Review Questions 9/19

Module 10 Managing People in International Joint Ventures 10/1 10.1 Introduction 10/2 10.2 Going International in Partnership with Others 10/2 10.3 International Joint Ventures and the Rationale behind Their Formation 10/3 10.4 Performance Record of Joint Ventures 10/4 10.5 Joint Ventures and National Culture 10/5 10.6 Effects of National Culture on IJV Operation 10/7 10.7 Organisational Culture and IJVs 10/10 10.8 Company Language in IJVs 10/11 10.9 Human Resource Management in Joint Ventures 10/12 10.10 Dealing with Difficulties Associated with HRM in IJVs 10/12 10.11 How Might IJVs Tackle the Culture ‘Problem’? 10/15 Learning Summary 10/18 Review Questions 10/18

Appendix 1 Practice Final Examinations A1/1

Practice Final Examination 1 A1/2 Practice Final Examination 2 A1/6 Examination Answers A1/9

Appendix 2 Answers to Review Questions A2/1

Module 1 A2/1 Module 2 A2/2 Module 3 A2/3

Contents

viii Edinburgh Business School Managing People in Global Markets

Module 4 A2/4 Module 5 A2/5 Module 6 A2/6 Module 7 A2/6 Module 8 A2/7 Module 9 A2/8 Module 10 A2/9

Index I/1

Managing People in Global Markets Edinburgh Business School 1/1

Module 1

The Global Market and Its Major Actors

Contents 1.1 Introduction .............................................................................................1/1 1.2 Going International and Global .............................................................1/4 1.3 Limits to the Globalisation of the Market ............................................1/9 1.4 Managing People Globally ................................................................... 1/10 Learning Summary ......................................................................................... 1/13 Review Questions ........................................................................................... 1/14

Learning Objectives

When you have finished reading this module, you will be able to:

understand why and how some companies engage in international business; configure a multi-stage approach to the internationalisation process of HRM

policies and practices experienced by companies, and identify the factors that are relevant to their own specific foreign operations;

engage in the globalisation debate with regard to HRM policies and practices; recognise the factors that might enhance globalisation of such policies and

practices; identify the factors that might enhance localisation of such policies and practices.

See also the closing case study, which shows how some of the issues discussed in this module are dealt with in practice by managers.

1.1 Introduction Have you ever thought about the extent to which international and global compa-nies affect our daily lives? Let’s take Mr Fraser, who lives in Edinburgh, Scotland, as an example.

Take a look at his bedroom. He has an alarm clock, made in China, and a bedside radio, made in Japan. It is six o’clock in the morning. He is listening to the latest news, gathered probably by Agence France-Presse (a French news agency) and brought to him by the London-based BBC. His early morning cup of tea, made with Assam tea, is spreading its aroma. There is also some sugar on his bedside table, made from West Indian sugar cane by a British company. He will soon get up to shave with an electric shaver made in the Netherlands.

Module 1 / The Global Market and Its Major Actors

1/2 Edinburgh Business School Managing People in Global Markets

Mr Fraser is now in the kitchen. Look around. There is a toaster made in Ger-many, an Italian washing machine, a fridge made in Scotland by a US firm, a Japanese portable television, a French food processor, a British microwave, and a spice rack full of exotic Indian spices and herbs. His car is parked outside the kitchen window; it has been built by a Japanese company located in north-east England.

While driving to work, he listens to the car radio (made in Malaysia) and is over-taken on the main road by a woman driving a Swedish-built car.

In his office, he types a letter on his personal computer, assembled in Taiwan with Japanese, South Korean and Taiwanese components. The software is made by a US firm. He is writing to a partner who works in Hong Kong.

Over a business lunch with colleagues he talks about the latest fluctuations in the stock exchange markets in Tokyo, London and Hong Kong, and how a recent interest rate rise in the US is going to affect share prices in New York and else-where.

The above example demonstrates graphically that we are living in a complex world, where peoples and countries are more than ever interdependent. Mass communication media and fast and far-reaching means of transport are bringing people from various parts of the world closer and closer. The electronic revolution, which started in the first half of the twentieth century and reached an incredible speed in the late 1980s and the 1990s, has contributed greatly to the shrinking of our world: it would now take only a few minutes to search the entire world through the Internet to find the best producer for the goods and services we want, place orders, and pay for them. We are literally just a few seconds away from any information on any subject in any part of the world we may wish.

Other technical and scientific discoveries and innovations have also left their imprints on our lifestyles. Multinational companies (MNCs), especially those with a global customer base and workforce, play a significant part in this complex, fast-moving and multi-faceted world. They sponsor innovations and apply scientific breakthroughs. Major MNCs, such as Hewlett-Packard, Toyota, IBM, Sony and Intel, are at the forefront of cutting-edge technology and innovation. They spend huge amounts of money on product research, development and design, and in the process spawn similar activities down the hierarchy of firms. MNCs are the main vehicle by which most goods and services are produced and moved around the world; they transfer ways of doing things from one country to another; and they also transform societies along the way (Tayeb, 2000), for better or for worse.

Moreover, these firms operate, like the rest of us, in a world that has witnessed rapid political and social changes of late. The collapse of the Soviet bloc, the forging ahead of European countries’ integration, the emergence of China as a major economic player, the economic crisis in South East Asia, the end of apartheid in South Africa and the nuclear race in the Indian subcontinent are but a few of these changes. They have implications not only for us as individuals but also for the international companies that are moving within and between various countries around the world.



It is fair to say that major multinational companies have been the principal agents of the globalisation of the market, and indeed the world. A study of the global market, and of managing people within it, is inextricably linked with the study of multinational and global companies. The main focus and objective of the Managing People in Global Markets course is to examine how global companies go about managing their multicultural workforce, what complications they may encounter in doing so, and how they might deal with these complications. But, where appropri-ate, we shall also discuss other strategic and managerial issues that have a bearing on global employee management. The present module discusses the major motives and drivers behind the decision of MNCs to go international, and the various entry strategies and options available for them to do so.

Figure 1.1 maps out the course outline and the topics discussed in the individual modules.

Figure 1.1 Managing people in global markets: course outline

Module 1lobal market and its majorThe g

actors

Module 2Major approaches to managing

employees

Module 3The global context of employee

management

Module 4National culture and employee

management

Module 5Institutional context of employee

management

Module 6Transferring practicesHRM

across borders

Module 7Global human resource management:

major strategies and complications

Module 8Global human resource management:

a balancing act

Module 9Expatriation as a vehicle of

global management

Module 10Managing people in international

joint ventures

SETTING THE SCENE

GLOBAL CONTEXT

MANAGING IN GLOBAL CONTEXTA



1.2 Going International and Global MNCs have a great deal in common with single-nation firms, but at the same time they are unique, because their operation sites, distribution networks, suppliers and customers are spread across nations beyond their familiar home ground. In order to operate internationally or globally, they need to negotiate entry into other countries, adjust their operations to comply with the host country legal requirements, modify their products and services to reflect the religious and other cultural preferences of their foreign customers, and deal with a variety of accounting and taxation systems and trade policies. They also employ people from different parts of the world. The multicultural nature of MNCs’ workforces makes their human resource management strategies, policies and practices perhaps one of the most delicate and complicated of all managerial tasks.

The size and geographical reach of these companies are important factors here. The larger a company is in terms of market and number of employees, the more complicated are its business affairs, and the more complex its management. A small MNC with a few hundred employees and a customer base in a handful of neigh-bouring countries has far less to worry about than an MNC that has subsidiaries in, say, over 50 countries, serves a global customer base and recruits tens of thousands of employees from all over the world.

It is useful at this stage to make a distinction between the various forms of inter-nationalisation of business, before concentrating on those that are truly global in character. But let us first explore why some companies decide to expand their operations beyond their home country and engage in international business, in the first place.

1.2.1 Motives behind Internationalisation

The primary objectives of any business organisation are to make profits, to grow and to increase market share and power. Companies engage in international business when the possibility of achieving these objectives is diminishing at home and/or when there are great opportunities abroad.

Market saturation, fierce competition from domestic and foreign companies, high costs of production (wages, raw material, capital, land) and shortage of required managerial and technical skills are some of the reasons why firms might find further investment in home markets less attractive than in foreign markets – the so-called push factors.

Various opportunities and advantages abroad – the so-called pull factors – may also entice companies to internationalise their operations: low production costs, closeness to raw materials, advanced technology, skilled human resources, estab-lished customer base, tax incentives in host countries and the like. Sometimes, because of a change in foreign governments’ political and economic ideologies and policies, new markets with exciting opportunities open up. The fall of communist regimes in the late 1980s in the former Soviet bloc is a good example. Many MNCs from the industrialised countries, which hitherto had been barred from investment in the countries concerned, took advantage of the change of policies and ‘went in’.



Companies that wish to internationalise can do so only if they have the required core competencies, such as operational capability, managerial skills, and the ability to work with foreign partners and/or in foreign countries.

Having established that they wish to and can go international, what forms of internationalisation are available to companies with international ambitions?

1.2.2 Major Internationalisation Strategies

Some internationalisation options, such as importing, exporting, franchising and licensing, do not involve direct investment in other countries, and may suit compa-nies that are at the initial stages of the internationalisation process. Other, more sophisticated forms entail progressive business involvement in foreign countries, ranging from investment only, for example portfolio investment, to partnership with local companies, or to complete managerial and financial control of foreign opera-tions. The decision to adopt any or all of these depends of course not only on the company’s internal strengths and capabilities but also on the host country’s policies and preferences.

Although many countries have open-door foreign trade policies, welcome im-ports from abroad, and encourage foreign firms to set up operations within their territories, there are also many that set down various rules and regulations that limit the extent to which foreign companies can get involved in their economy. For example, some countries might prefer joint ventures between local and foreign firms; some might allow foreign direct investment, provided that all the generated profits are spent in the host country. In some cases the home country may also influence the company’s decision to invest in or deal with certain foreign countries on political or human rights grounds, for example.

The most prevalent and perhaps the oldest form of international business is import and export of goods and services. Some firms may buy, or sell, or facilitate the import and export of commodities, products and services of other companies in international markets. Others may import raw materials and semi-processed goods for use in their own manufacturing operations, mainly because these either do not exist in their own country in sufficient quantity, or might be cheaper abroad. There are also companies that export their own products and services. Individual firms may, of course, engage in any combination of these forms of import and export activities.

Exporting firms could choose to have local partners or sales agents abroad to handle the sale of the goods once they arrive at their destination. Some will go further than this, and operate their own transport and distribution network in the foreign country.

Sometimes a seller of goods or services undertakes to buy goods or services from its trade partner, under the conditions of the contracts signed between the respec-tive governments. This type of obligation based on contracts is called countertrade. It is a useful means of trading, employed not only by countries with non-convertible currencies, but also by many developing countries that wish to increase their exports and attain better terms of trade with their international partners.



Some firms choose, for economic, technical and sometimes political reasons, not to export their products to some countries, but to license certain companies in those countries to use their production technology and components to produce similar products.

Franchising is very similar to licensing, but the products are made under the original company’s brand name. The US company McDonald’s, which has ham-burger restaurant chains in many countries, is an example of this kind of international business.

One factor that all of the above forms of international business share is that the companies concerned do not normally have managerial control over the foreign part of the operation. Another form of non-managerial foreign involvement is portfolio investment, whereby a company may decide to buy shares in one or more firms operating in other countries. These shares entitle the investing company to divi-dends but not to managerial control.

Control of assets and management distinguishes foreign direct investment (FDI) from portfolio investment. FDI normally takes one of two forms. One is partnerships with firms, also known as joint ventures; the other is wholly owned subsidiaries.

Joint ventures are companies with multinational ownership, usually involving two or three countries. Joint ventures can be established as such from the outset, or foreign investors can buy into a uninational company and change it to a joint venture.

There can be any number of reasons why some companies are established as or are converted to a joint venture (see also Module 10). Sometimes a company might face financial difficulties, and unless it is bailed out by another company, it will cease to exist. An electronics firm in the southeast of Britain, researched by the present author, is an example of this kind. A few years ago this company was suffering from serious financial problems. The management decided to sell one third of the company to a German firm and a further one third to a Japanese multinational. The company was soon back on its feet and in full operation again.

For companies that seek to expand their operations and markets, but have lim-ited capital and other resources, such as expertise and technology, a joint venture with a partner who possesses these can be an attractive course of action.

There are of course some disadvantages for companies that involve themselves in joint ventures, such as clashes of cultures and management styles. There is more on this subject in Module 10.

Joint ventures have their attraction for governments too. Some countries, notably developing and communist/socialist ones, need the technologies and skills of Western companies, but also want to be in control of their policies and operations. These countries normally allow foreign direct investment in their territories only in the form of joint ventures. The proportion of ownership by foreign investors and local interests varies from time to time, and from country to country, but the host country usually holds the overall controlling power.



These kinds of restrictions on foreign companies are not, of course, unique to the less technically advanced countries. Japan, a highly industrialised and advanced country with some protectionist trade policies, has until relatively recently been virtually closed to foreign firms, be they exporters of cars and electronics, or investors. It was only after months of meetings, negotiations and threats of retalia-tion that the US and western Europeans were able to persuade Japan to open up its market to imports and allow foreign direct investment.

Multinational companies may choose a wholly owned subsidiary as an option for FDI. They can set up a new plant, or take over an existing one.

Setting up a new plant gives the managers the opportunity to ‘build up’ the or-ganisational culture from scratch and to shape it the way they want. Many Japanese multinationals operating abroad, particularly in the UK, prefer new plants. They normally recruit young school leavers. These ‘fresh’ employees have no union membership experience, and are not ‘contaminated’ by the hostility and confronta-tional culture of British industrial relations. The managers can then train the new recruits and implement Japanese management practices, which are based on Japanese-style cooperative management–employee relationships.

Companies have more freedom to choose the location of the plant. They can, for instance, set it up in a development zone, where there are government tax and other financial concessions for investors. The usually high rates of unemployment in such regions also enable the foreign investor to dictate certain employment terms, such as no-strike agreements and single-union contracts. (See the case study in Module 6 for a real-life example.)

Taking over an existing firm also has its attractions: an established market, a customer base, a distribution network, and the invaluable knowledge that the management team has of local conditions and local ‘ways of doing things’. But the companies that have been taken over also suffer from the drawbacks of joint ventures mentioned earlier, such as clash of cultures between the ‘old’ employees and management team and the ‘new’ owners. These require mutual understanding and sound managerial judgement on the part of the new team and the old one.

1.2.3 Major Drivers and Obstacles in Foreign Direct Investment

Foreign direct investment, in the form of both joint ventures and wholly owned subsidiaries, and indeed so-called globalisation, has been on the increase in recent decades, building on a trend of wide-and-deep multinationalisation that character-ised the twentieth century.

A major political force behind the sudden increase in foreign direct investment, especially in western Europe, by US multinationals in the mid-1940s and 1950s was the Marshall Plan. This accelerated a trend that had already started in the interven-ing years between the two world wars in the first half of the twentieth century. Western European countries had been devastated by the ravages of the Second World War; they had to be rebuilt, and become a powerful counterbalance to the communist Eastern Bloc. In addition, these countries needed to shift their manufac-turing sector from producing armaments and other war-related products to making



commercial and other civilian goods. This required new skills and technologies, which US firms were able to provide.

In our own time, especially since the early 1990s, we have seen a remarkable increase in the openness to trade and investment flows in a large part of the world. This has, in part, been because of the spread of new information technology; in part, because of the demise of the central planning and communist model, which embodies the ultimate closed-door protectionist ideology; and, in part, because of the success of the World Trade Organisation (WTO) and its predecessor GATT (General Agreement on Tariffs and Trade) in getting member nations to agree on a certain measure of liberalisation.

At both national and company levels, decisions to engage in foreign direct in-vestment are influenced by political and cultural factors as well as by economic and commercial ones – both at the entry stage and once the company is operational within the host country.

Some developing countries choose to have foreign investment on a temporary basis, notably in the form of turnkey projects. These nations, although they might need foreign firms for economic reasons, prefer to reduce their dependence on them, for long-term political and economic reasons. A limited-life turnkey operation could bring the usual benefits of inward investment, such as technical and manage-rial know-how, and employment. But at the same time it will not remain long enough to either dominate the local economy or make itself indispensable forever.

A variation on such a theme has been employed by Iran in recent years, in the form of buy-back projects to engage foreign multinationals in its oil industry, an industry that has been engulfed by foreign and domestic politics as well as by economic considerations since its birth in the late nineteenth century.

In fact, strategic industries are especially sensitive areas in many developing coun-tries when it comes to foreign investment involvement. Governments in these countries are most reluctant to let go of the control and ownership of such indus-tries, or even to pass them on to their own private sector domestic firms, let alone foreign multinationals.

Foreign direct investment among industrialised nations of western Europe and North America and some other OECD member states is relatively unproblematic. There is virtually no political control over the process. British companies can set up plants in the US and US firms in the UK just as easily as they can in their respective home countries. They are more or less subject to the same laws and regulations in their host country as their local counterparts are.

However, many other nations, especially the former colonies of today’s major economic powers, or those that have somehow been manipulated and exploited by such powers in the past, are suspicious of multinational companies from these powers. The East India Company still lives on in the collective memory of Indian people, even after over two and a half centuries. Certain US companies have in the past been instrumental in furthering their home countries’ political goals in Latin America. The involvement of AT&T in the US-supported coup d’état that led to the overthrow of Allende’s regime and the coming to power of General Pinochet in Chile in 1973, and the role of the Anglo-Iranian Oil Company (now British Petrole-



um) in the 1953 coup d’état in Iran, staged and perpetrated by the British government and the CIA, are textbook examples of such political interventions.

The situation, however, appears to have changed since those heady days. Nowa-days multinational firms have a good record of observing the regulations imposed by governments and international organisations. They appear to be, in any case, too preoccupied with survival, profitability and growth to interfere directly in any major way in the social, cultural and other non-economic areas of national activity. The nature of triad-based (US, EU, Japan) competition faced by these multinational firms limits their ability to pursue political goals directly, since they are forced to concentrate on their ongoing operational efficiency and strategic planning in order to survive. Conflict can arise between foreign firms and government in the arena of international political economy. This relates to the ability of such firms to lobby and otherwise influence the policies of national and local governments in areas such as trade, investment, and science and technology, and in the administration of these policies by bureaucracies (see also Rugman, 1998).

This change in the situation may in part be a reason why some previously scepti-cal countries are now gradually opening up their doors to foreign investors. India, for instance, has – albeit very reluctantly – in the past few years allowed 100 per cent foreign ownership in a limited number of industries. Foreign companies that are in rare occasions able to invest in Iran are allowed to hold up to 49 per cent shares. China and the ex-socialist countries of central and eastern Europe on the whole prefer joint ventures to wholly owned subsidiaries, but have allowed some foreign investors to own 100 per cent shares.

However, restrictions on foreign ownership still remain in large parts of the world, including industrialised nations. In Sweden, for instance, foreign investors cannot own more than 40 per cent of a company’s equity, and are limited to 20 per cent of shareholders’ votes. South Korea and Japan have until recently refused permission for foreign companies to own shares above certain percentages in local firms, and have given permissions to just a few foreign firms to set up wholly owned operating units. As recently as 1986 only 1 per cent of Japan’s assets were owned by foreign-controlled firms, and just 0.4 per cent of its workers were employed by them. As was mentioned earlier, pressure from the US and western Europeans persuaded Japan to open up its market to foreign direct investment. This contrasts, for example, with the US, where foreign-controlled firms owned 9 per cent of the assets, employed 4 per cent of the workers, and accounted for 10 per cent of all sales. In Britain, foreign-controlled firms owned 14 per cent of the assets, employed one in seven workers and accounted for one-fifth of all sales. In Germany foreign-controlled companies owned 17 per cent of assets (Julius, 1990).

The above discussion brings us to the next point.

1.3 Limits to the Globalisation of the Market It is customary nowadays to talk about the global village, but it is important to note that the village is not really all that global. And it exists, in its limited scope, only for major multinational companies that operate within and between a handful



of advanced nations, notably OECD member states, and the more successful emerging economies of Asia and the Latin America, which account for a large proportion of cross-border trade, partnerships and foreign direct investment. Some central and eastern European countries have joined the village only since the early 1990s, but largely as receivers and not providers of investment, products or services. The global village, in other words, is dominated – geographically, economically and politically – by the so-called triad (the US, the EU, Japan) and a handful of other countries. The vast majority of countries located in Asia, Africa and Latin America are either effectively excluded from this global village or play a minor role in it as movers and shakers. Moreover, major strategic economic decisions that will have significant bearings on the rest of the world are made at the G8 annual meetings, where only the top seven economies plus Russia attend as active participants. No other part of the world is actively represented in these annual summits, although some countries might be invited to attend such meetings just as observers.

A brief word regarding the origin and composition of the so-called G8 countries may be useful here.

In 1975 the French president invited the leaders of Germany, Japan, the United Kingdom, the US and Italy to an informal gathering at Rambouillet near Paris to discuss current world issues. Following the success of the Rambouillet summit, these meetings became an annual event.

Canada joined the group at the 1976 summit. In 1997, Russia, which had attend-ed the meetings as an observer throughout the 1990s, was invited to formalise this relationship. The first G8 Summit subsequently took place in 1998.

Since then, the G8 Summit has evolved from a forum dealing essentially with macroeconomic issues to an annual meeting that addresses a wide range of interna-tional economic, political and social issues.

The leader of the country holding the presidency of the European Council and the president of the European Commission also attend the summit to represent the European Union.

1.4 Managing People Globally Once a company has gone international in some form, what HRM policies and practices should it adopt in a foreign country?

The answer to this question depends on the form of internationalisation, and on the extent and depth of the company’s involvement in the local market. The HRM-related issues in a foreign country are relevant only if the company recruits and manages people in that country. Importing, exporting, franchising, licensing and portfolio investment do not involve employee management as part of foreign operations in the host country. There are, however, some exceptions. For example, some multinational restaurant chains, such as McDonald’s, take an active role in selection and training of the staff in their foreign as well as their domestic outlets. In most cases, however, it is when a company is engaged in wholly owned subsidiaries and joint ventures that it comes into direct contact with local people (or other nationals) as its employees. It therefore needs to have HRM strategies, policies and



practices in place to manage these employees. In such cases the company becomes deeply engaged in the host country, and its foreign engagement becomes wider as it enters other countries as well. Figure 1.2 illustrates this point.

Figure 1.2 Relevance of host country culture for MNCs’ HRM policies

and practices

As the MNC moves from an initial position at the extreme top-left corner of the figure to one at the extreme bottom-right corner, it becomes more deeply and more widely involved with foreign countries and their culture. As a result – as we shall see in later modules – the MNC’s HRM policies and practices will become increasingly complicated.

The remaining modules of this course will focus mainly on HRM issues within the context of MNCs’ relationships with their foreign subsidiaries, generally referred to in the literature as the parent–subsidiary relationship. Module 10 will deal with HRM issues related to international joint ventures.

Illustrative scenario ________________________________________ Investing Abroad: Rainbow Rainbow, a major multinational manufacturing company, intends to enter into a foreign country where it has currently no presence. The main products of the company are television sets, computer monitors, DVD recorders, and CD players. The country concerned is situated in Asia, and is very keen to acceler-ate its industrialisation and increase its economic growth. You have been asked by the chief executive of Rainbow to prepare a report on a feasible entry strategy. How would you go about conducting and completing this assignment?

Low internationalisation

High internationalisation

One hostcountry

Many hostcountries

Low relevanceof culture

High relevanceof culture

import/export import/export

wholly ownedsubsidiary

wholly ownedsubsidiaries



There are certain steps that one needs to take before relevant information and facts are collected and ready for consideration. Some of these steps may have to be taken simultaneously and in conjunction with the others. 1. What do you consider to be the main issues in this scenario from the point

of view of managing people? 2. Taking these general headings for question 1, expand on each to identify

specifically what needs to be investigated. 3. Evaluate the potential for investment in the country in which Rainbow is

interested on the criteria listed in question 2. __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Answer guidance for illustrative scenario 1. Issues to be considered:

What are the company’s main objectives in going to this country? What entry options are potentially open to the company with respect to this country? What are the company’s financial and managerial capabilities? In other words, if there are no impediments from the country concerned, what is the company itself able to do in this country? What are the main characteristics/features of the country that one needs to take into consideration before deciding whether to go there or not? What type of investment and entry mode is appropriate for this particular country, given its various features? What products can be made there?

2. Detailed issues to be investigated: Company objectives:

enter into a market where your competitors are be close to suppliers of raw material expand your market access to cheap labour access to skilled employees benefit from tax concession learn successful management practice

Potential entry options: portfolio investment export joint venture wholly owned subsidiary

Company capabilities: capital excellent management team familiarity with foreign cultures able to work in other countries international mindset



Main features of the country national culture (see also Modules 3, 4, 5): values and attitudes held by people in general work-related values and attitudes of the people as a whole competitive advantage (or disadvantage) of the country economic, political and other major national institutions and their policies prevalent management styles, HRM and organisational characteristics in the country major attractions of the country from foreign companies’ perspective major unattractive aspects of the country from foreign companies’ per-spective

Appropriate mode: choose those that are listed in potential entry options, given the main fea-tures of the country. (For example, if the government allows only joint ventures, then that is the form your investment is going to take.)

Appropriate products: choose those that are acceptable, given the main features of the country. (For example, if the predominant religion of the country is Islam, you may not be able to start up a business producing pork sausages.)

3. Based on your evaluation, you decide for example that the best option for Rainbow would be to engage in a joint venture with a local partner, produc-ing television sets. This is an example of the rationale for a joint venture. Your managers do not know much about the local culture or ways of

doing business – a local partner can be of great help on that front. The country concerned prefers joint ventures: this option ensures that its

nationals can learn managerial and technical skills, but at the same time it will have some control over the running of the business and a share in its profit.

The product line would consist only of television sets, at least in the early years, because there is a high demand for televisions in the country at prices that are more affordable than your company’s other products.

Learning Summary This module discussed major motives and drivers behind the internationalisation – and indeed globalisation – of companies’ operations. External and internal reasons for such moves were briefly pointed out. The module also outlined various entry strategies and options that companies might adopt when going international. However, it was argued that various political economic and sociocultural factors tend to limit the extent to which companies can truly globalise their operations. The implications of these, especially for HRM, were briefly pointed out, to be explored in detail in subsequent modules of the course.



Review Questions

Closing Case Study: NCR in Scotland and China

NCR in Scotland

NCR (Manufacturing) Ltd Dundee is a subsidiary of NCR, a US multinational company whose headquarters is situated in Dayton, Ohio. NCR was taken over by another USmultinational company, AT&T, in September 1991, and the name of the company waschanged to reflect the new ownership. The union, however, did not work out quite as expected. In September 1995 AT&T announced that it was splitting off the company andit was called NCR again. The two companies parted ways officially early in 1997.

Dundee NCR’s products are all called self-service systems and they split into two main categories: ATMs (automated teller machines), which provide cash among other things; and other financial automated machines, which provide a variety of services other than cash such as bank statements, and marketing machines.

Dundee NCR exports 90 per cent of its products and competes globally with major international players in the field, such as IBM, Olivetti, Siemens, Fujitsu, Hitachi andToshiba.

The company’s overall market share is very high and they are probably No. 3 or 4 in the global financial machines market. But in some products they clearly hold the firstposition.

The parent company was set up in the last decade of the nineteenth century in Day-ton. The Dundee plant was established in 1946, as part of the Marshall Plan. At the time on the international scene there was a move towards multinational companies, where most of the skills were, and so the British government offered incentives to attractinward investment. These incentives, coupled with the aid from the Marshal Plan,allowed them to set up various large companies within the central belt of Scotland andto start new industries. These companies, among whom were IBM, Honeywell, Singerand NCR, created the infrastructure for a new era of work within central Scotland and the same within the Midlands of England, and indeed in the south. They brought newtechniques in mass manufacture, mass merchandising and mass marketing into Europe.

There were some very important reasons why they chose the UK for their initialEuropean location at that time. The first was English language, and British culture in general. There were so many similarities between the cultures of the two countries thatmade it easier for the US multinationals to come in. The second reason was the fact thatthe UK was a victor in the war rather than one of the vanquished and was in a better state, despite the fact that it had major problems, than Germany or France or Italy.Another reason was that the multinationals found a skilled workforce here, people whohad dexterity and knew how to work in a factory. In addition, they were willing and ableto switch from the old industries, such as armaments, mining, shipbuilding, heavy engineering and steel, to a new kind of skill and job that the Americans were bringing in. There was one major thing they did not do at that time, which, with hindsight, the UK authorities should have insisted on: the R&D did not follow the less creative jobs. As a result, the central region of Scotland, like other parts of the country which benefited from the Marshall Plan, ended up with most of the second-source manufacturing for USmultinationals. However, this was not entirely bad, as people learned a lot from the incoming companies. In the case of NCR Dundee, the company was later able to set up a major R&D unit which now employs some 300 people.



NCR Dundee Goes into China

A few years ago NCR Dundee started a process of negotiations with would-be Chi-nese partners to enter into a joint venture and set up a manufacturing plant in China.Initially the venture was intended to last for a period of 30 years, with an option to extend it further or become wholly owned.

The company recognised China as one of the major emerging markets, and that inorder to do business with China they must have a manufacturing presence. At the time NCR Dundee was one of the preferred suppliers. Also, there were a lot of incentives –especially financial ones – for NCR to manufacture locally: import duty on ATMs was about 30 per cent at the time and this hampered their efforts to export to China. So the company was looking to set up a joint venture.

Chinese people like to have joint ventures for a certain line of product: ‘they do not like one big company coming in saying they can manufacture anything; they like one line of product, and so that is what NCR are currently to do’, says a company director. The Chinese company that will be their partner is owned and managed by the government.

NCR Dundee’s negotiating team was made up of five people with expertise in mar-keting, manufacturing, product, law and business development in China, among others. Two members of the team were fluent Mandarin speakers.

The negotiations progressed at a very slow pace – a pace that was determined by the Chinese partners. When the team first went to China, colleagues from AT&T who were already posted there warned them of what to expect: ‘the Chinese will move at the speed they want to move at; they probably don’t have all that much in the way of concern for schedule. Time isn’t of the essence; it’s more the quality of the discussion or the quality of the exchange. And the faster that we try to go then the more it wouldcost us to do it. We would have to give up more and more and more until we’reprobably losing money on the deal.’

In spite of the problems and frustrations involved in setting up joint ventures withChina, the country cannot be ignored. It is in the luxurious position where almosteverybody recognises its potential for growth over the next 10–20 years. As a result there is no shortage of companies who want to do business there.

The person who was destined to be the general manager of the joint venture wasborn in Shanghai, brought up in Taiwan and Hong Kong, and has worked for NCR for many years in the US and Canada.

The challenge facing NCR Dundee is not to change the cultural attitudes and valuesof their Chinese workforce, but to help them unlearn unproductive working practices,and replace them with those that are more conducive to greater efficiency.

In addition, what the company is aiming for is to recruit young employees who are moreadaptable, and who have not been subject to traditional working practices. They willthen train these employees to work ‘the NCR way’. The belief is that the Chinese would not have any problem with this approach, because they need to be competitive inthe world market. So they will be keen to learn the way their foreign partners do things,and maybe within 20 or 30 years they will be doing it even better than them.

NCR in China

NCR (Beijing) Financial Equipment Co. is a major ATM supplier for Chinese commercialbanks. The parent company, NCR Corp, will expand production and productivity at its



Beijing manufacturing plant in support of its growth plans in China and the Asia region.

ATM production in NCR’s Beijing facility is predicted to achieve compound produc-tion growth of 66 per cent by 2012, as NCR continues to grow its financial industrybusiness in China and other parts of Asia, according to Rick Marquardt, senior vice-president, Worldwide Operations for NCR.

In addition, the Beijing plant has now extended its production portfolio to includeretail point-of-sale (POS) terminals and kiosks in support of NCR’s strategy to extendits industry and solution portfolio in the world’s fastest-growing market.

Eyeing huge potential business, NCR plans to base its future business growth on itsfurther involvement in the Chinese industries. The US company now faces considerablecompetition in the industries it serves, including ATM maker Diebold, among other rivals in financial services, industry experts said.

‘China is a key growth market for NCR, where there is huge market potential forself-service solutions across multiple industries,’ Rick Marquardt told China Daily.

‘The Beijing plant is critical to support our regional manufacturing model in enablingus to create better customer intimacy, respond faster to market demand and fosterinnovations locally. The strong volume growth is not only driven by local marketgrowth, it has also proven our success for ongoing investment in automation innovation to increase employee productivity,’ he added.

In expanding the production to include point-of-sale machines, the Beijing plant has invested in developing a locally designed automated production system. This newly developed production line will increase productivity by more than 50 per cent, accord-ing to NCR.

Sources:

NCR in Scotland: Monir Tayeb’s research and interview at NCR Dundee.

NCR in China: A 2012 report in China Daily, accessed online on 30 June 2015.

1 What attracted NCR to Britain as a location for investment?

2 What do you think motivated the British government to agree to NCR’s entry into the country?

3 What are the major challenges that NCR Dundee is facing concerning its entry into the Chinese market?

References Julius D (1990) Global Companies and Public Policy. London: Pinter. Rugman A (1998) ‘Multinationals as regional flagships’. Financial Times, 30 January, survey

p 6. Tayeb M H (ed.) (2000) International Business: Theories, Policies and Practices. London: Pearson

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