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Chapter 02 – The Role of Globalization in HR Policy and Practice

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CHAPTER 2

THE ROLE OF GLOBALIZATION

IN HR POLICY AND PRACTICE

CHAPTER OBJECTIVES

After reading this chapter, you should be able to:

1. Describe the different ways companies may engage in international commerce.

2. Explain the different international business strategies

3. Explain how international human resources management (IHRM) differs from traditional domestic

HRM

4. Understand the different IHRM strategies

5. Describe the trends relating to international job assignments.

6. Understand the issues and trends relating to the development of globally competent business leaders.

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Chapter 2 – Summary

I. Overview

A. Increasing globalization of the world economy and competition

B. Growth of foreign direct investment (FDI) is control through ownership by a foreign company or

foreign individuals

C. Creation of offshore professional and operations centers

D. Why expand globally?

1. Access to additional resources (including skilled workers)

2. Lower costs

3. Economies of scale

4. Favorable regulations and tax systems

5. Direct access to new and growing markets

6. Ability to customize products to local tastes and styles

7. Rise of regional trade alliances (e.g., NAFTA, the European Union)

E. Majority of Fortune 500 companies are now multinational; deriving more than half of their revenues

1. To increase sales and revenues

2. To spread research and development costs over a larger sales volume

3. To relieve excess capacity

4. For diversification due to maturing domestic markets

5. Lack necessary knowledge to directly do business effectively on foreign shores

1. Relatively low investment

2. Ease of withdrawing from a market

E. Disadvantages of exporting include:

1. Tariffs and quotas

2. High transportation costs

3. Difficulty finding good distributors

F. License is when the licensor leases the right to use its intellectual property to the licensee for a fee.

methods and procedures.

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G. Franchise agreement allows franchisee to operate a business under the name of franchiser for a fee

H. Contract manufacturing is when outsourcing of the creation of products occurs

I. Management contracts occur when a company sells its management and/or technical expertise to

another

J. Foreign direct investment occurs when an organization owns part of or an entire business in a

foreign market

K. Partner alliance allows gradual investment and sharing risk with another

L. Joint ventures create a new, separate company owned jointly by partners

M. Strategic alliance – agreement to partner with one another, not as a separate entity

N. Sole ownership – high risk; single owner in foreign market ensures they have full decision-making

authority and operational control

III. What Influences the Decision to Invest in a Particular International Market?

A. General Environment

1. A particular country’s economic, legal, political, and socio-cultural systems, plus diversity in

1. Those forces that are directly related to the industry within which a firm operates

2. Cost pressures, the intensity of competitive rivalry, the ease with which organization may

3. Porter’s two types of international industries:

a. Multilocal industry – competition in each country or region is essentially independent

1. Relevant internal factors include an organizational culture, the expertise of its management

2. These are critical assets that add value within the firms

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IV. Domestic versus International HR

A. HR activities all relate to the procurement, allocation and utilization of people. The particular

activities themselves may not be all that different regardless of where they are performed or who

they cover.

B. Factors that differentiate domestic HR from international HR

1. Different national governments

2. Different legal systems

3. Different economic conditions

4. People of diverse cultures and values

5. Suppliers and customers over vast geographical distances

C. Factors that affect the level of difficulty involved in operating HR on an international basis

1. Legal complexity

2. Degree of cultural difference (Geert Hofstede)

a. Individualism/collectivism

3. Organization’s degree of foreign investment in relation to its domestic investment

4. Attitude of senior management toward international operations

a. Failure to recognize differences between domestic and international operations frequently

1. Ethnocentric approach – foreign subsidiaries have little autonomy, operations are typically

2. Polycentric philosophy – tend to treat each subsidiary as a distinct entity with some level of

decision-making authority

3. Geocentric managerial approach – strives to integrate headquarters and foreign subsidiaries

through a global workforce

4. Regiocentric managerial approach – may be thought of as a scaled-down version of the

geocentric model in that it tends to appoint people to positions within global regions

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1. General environment

2. The industry environment

3. Firm’s internal strengths and weaknesses

4. Firm’s strategy

VI. International Business Assignments

A. International businesses need international expertise

B. Expatriates: employees who are placed in an assignment outside their home country

Impatriates: individuals from a host country or a third county who are assigned to work in the

headquarters office

C. Goals of International Business Assignments

1. Key element in developing management teams that are globally focused & globally competent

2. Expatriate assignments encourage high levels of coordination and control among business units

3. Requires high levels of international communication, both information sharing and information

1. Assignment failure

2. International compensation: understand cost of living differences impact on setting competitive

wages

a. Balance sheet approach

b. Going rate approach

c. Cafeteria-style benefit package

d. Regional system

e. Trailing spouse benefits

3. Cross-cultural training for expatriate and family

a) Factual information

b) Cultural orientation and assimilation

c) Language training

d) Sensitivity training

e) Field experience

4. Repatriation

a. Difficulty retaining expatriates/ high turnover

b. Reverse culture shock

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1. Four types of expatriate assignments

a. Short-term assignments

2. More international assignments for women

3. Push for reducing expenses leads to reliance on shorter term assignments and localization

VII. Global Leadership Challenges

1. Integrators who see beyond obvious country and cultural differences

2. Diplomats who can resolve conflicts and influence locals to accept world standards or

commonalities

3. They can recognize the best from various places and adapt it for utilization elsewhere

4. They have an in-depth understanding of world markets: their potential and their problems

5. Masters of global supply chains and distribution channels

6. They skillfully embrace cultural diversity

C. Competency Model for global leadership: competencies have been identified, however, there is often

1. General components of a global mindset

a. Global data bank

b. Market knowledge

c. Understanding the global superstructure

d. Global economic systems

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VIII. Summary

A. Business and commerce are increasingly crossing national, regional, and continental borders.

B. Even if you never work for a multinational corporation, chances are the global economy will affect

you and your business.

meeting its objectives and global goals.

F. Traditionally US companies have used key management talent and international job rotation as a

means for developing and deploying strategic capability during efforts to internationalize.

G. Development of effective global leadership continues to be a major challenge

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CHAPTER 2 – IMPORTANT TERMS

Acquisitions – involve the purchase of an existing business

Balance sheet approach – international compensation approach that ensures the expatriate maintains the

same standard of living in the host country as he/she had in the home country by providing a variety of

financial, social, and family benefits

Business Partnership- allows gradual investment and sharing risk with another

Cafeteria-style benefit package – international compensation approach where expatriates can choose from a

variety of benefits, at costs that meet a specified total

high potential fast tracker in many large international companies

Ethnocentric approach – foreign subsidiaries have little autonomy, operations are typically centralized, and

major decisions are made at the corporate headquarters

Expatriates– Employees who are placed in an assignment outside their home country

Export – when a company sells it goods or services to a foreign market

language and religious beliefs that influences an organization’s decision to invest in a particular international

market

Geocentric – managerial approach strives to integrate headquarters and foreign subsidiaries

Global approach – combines export orientation and multilocal management

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balance between global competitiveness and local respoinsiveness.

Global mindset – a general description of the need for all organizational decision-makers to think well beyond

domestic issues

Global workforce – a workforce that can be deployed in a variety of ways throughout the world. Individual

differences in nationality are not as important as individual differences in talent

office, when it is located in a different county

Individualism vs. Collectivism – refers to the degree to which individuals looks after themselves or operate in

groups

Intermediaries – third parties that specialize in importing and exporting

Joint ventures – create a new, separate company owned jointly by partners

start-ups or ongoing managerial presence to resolve major problems and would typically be taken by a ‘career

expatriate”

Long-term vs. Short-term orientation – refers to the extent to which members of a society accept delayed

gratification of their material, social or emotional needs

Management contracts – occur when a company sells its management and/or technical expertise to another

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Offshore professional and operations center – either as a form of sole ownership or a strategic alliance, these

centers involve the exporting of the work itself to places around the globe in order to obtain competitive

advantage by leveraging combination of such factors as workforce skills, cultural similarities, costs, time, and

government policies, regardless of where the work product is ultimately marketed

distributed unequally

Regiocentric managerial approach – may be thought of as a scaled-down version of the geocentric model in

that it tends to appoint people to positions within global regions

Regional System– international compensation approach that sets wages for all expatriates assigned to a

particular region according to the system that exists in that region

Sole ownership – has full decision-making authority and operational control

Strategic alliance – agreement to partner with one another, not as a separate entity

Strategic assignments – an expatriate assignment that involves persons with special skills who are moved to

become a country manager in an unfamiliar area

Task environment – the forces that are directly related to the industry within which a firm operates that

Uncertainty avoidance – refers to whether members of society feel comfortable in structured situations

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Chapter 2 – Discussion Questions

1. Why do you think businesses internationalize? Which forces are most influential and which are

secondary forces?

Major reasons include access to additional resources, lower costs, economies of scale, favorable regulations and

tax systems, direct access to new and growing markets, ability to customize products to local tastes and styles,

and the rise of regional trade alliances. The identification of the most influential forces depends on the business.

2. Think of three or four organizations with which you are familiar. How have they been affected by

the globalization of business? Make sure you consider both direct and indirect influences. If they

have not been particularly affected, what are some of the reasons for their insulation from the

trend?

Answers will vary. Direct effects will either be increases to the bottom line or decreases to the bottom line.

Increases to the bottom line are generally derived from one or more of the internationalization influences:

access to additional resources, lower costs, economies of scale, favorable regulations and tax systems, direct

access to new and growing markets, ability to customize products to local tastes and styles, and the rise of

3. Think about two businesses: (1) a manufacturer of athletic gear and (2) a property and casualty

insurance company. How might the internationalization of each of these companies differ from one

another? What factors might account for these differences? Choose one company and pretend that

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you’re the HR director. How would you figure out the “right” way to manage this international

expansion?

Similar factors for both companies in developing an international strategy are the economic, legal, political, and

socio-cultural systems, language, and predominant religion in the chosen country. Both would also have to look

at the industry specific issues and the internal strengths within their respective organizations.

The athletic gear manufacturer will probably choose the country that has more advantages for lower labor and

material costs. The country chosen would depend on whether it is rich with skilled or unskilled labor, depending

on how difficult each step of the manufacturing process is. The company will be concerned about regulations

4. How do differences in international HR management (IHRM) strategies affect the relative

importance of each of the HR domains?

Domestic HR and international HR management strategies perform the same activities, yet international HR

management must be aware and involved with the different cultures and the different employment and

5. What are the advantages and disadvantages of using home-country, host-country, and third-country

nationals? Under what specific circumstances might an organization choose to utilize third-country

nationals?

Companies that use home-country nationals believe that their management and human resource practices are a

critical core competence that gives them a competitive advantage. These companies usually centralize their

operations and the control is focused on the parent company and country. Firms of this strategy would typically

have a large domestic market in the home country and cater to that market. Home-country nationals are

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and trained, turn the operations over to the host country nationals. Major disadvantages to using home-country

nationals are the high cost, the poor success rate of expatriates, and the culture shock. Advantages are that the

home country national possesses the knowledge about the parent company and can communicate the

expectations and standards to the local workforce.