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CHAPTER 19 International
Human Resource Management and
Labor Relations
Chapter Objectives
After studying this chapter, students should be able to:
2. Detail how firms recruit and select managers for international
assignments.
4. Discuss how international firms conduct performance appraisals and
determine compensation for their expatriate managers.
6. Explain basic human resource issues involving nonmanagerial
employees.
7. Describe labor relations in international business.
LECTURE OUTLINE
OPENING CASE: An Emerging Voice for Workers
The opening case discusses the changing nature of the Chinese workforce, as workers
become more aware of their value to employers.
Key Points
• China is becoming the largest manufacturing center in the world, providing a large
number of workers who are willing to work long hours for low pay.
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• The All China Federation of Trade Unions (ACFTU) is the only legal labor union in
the country, which hopefully gives the workers something through which they can air
their grievances.
• For the first time workers in china are going on strike.
• In 2010 and 2011, Honda Motors experienced a strike, and Foxconn, a Taiwanese
owned electronic firm (based in China) also had employees committing suicide due
to low wages and poor working conditions.
CHAPTER SUMMARY
Chapter 19 explores international human resource management. The chapter begins by
discussing the strategic significance of human resource management, and then goes on
to consider staffing needs, recruitment and selection, training and development,
performance appraisal and compensation, and retention and turnover. The chapter
concludes with a discussion of issues related to nonmanagerial employees.
THE NATURE OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT
• Human resource management (HRM) is the set of activities directed at attracting,
developing, and maintaining the effective workforce necessary to achieve a firm’s
objectives. Recruiting and selecting employees, providing training and development,
market.
Strategic Significance of HRM
• The international HRM process involves understanding the strategic context of HRM
within the firm’s overall strategy, recruiting and selecting appropriate managerial
personnel, providing necessary training and development, assessing performance,
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INTERNATIONAL MANAGERIAL STAFFING NEEDS
There are two broad categories of staffing needs facing international human resource
managers: (1) recruiting, training, and retaining managerial and executive employees;
and (2) recruiting, training, and retaining nonmanagerial employees, such as blue-collar
production workers and white-collar office staff.
Scope of Internationalization
• As noted in Chapter 14, organizational structure usually evolves along the following
lines: export department, international division, and global organization. As the
organization evolves, so do the staffing needs.
• Most firms begin their international expansion with small-scale exporting. Thus,
Centralization versus Decentralization of Control
• Firms that centralize decision making at headquarters typically favor home country
managers while firms that decentralize decision making to the subsidiary level often
employ host country nationals. Since most companies do not fall at one extreme or
the other, most companies have a combination of both home and host country
managers.
Staffing Philosophy
• Managers can be hired from three groups: parent country nationals; host country
nationals; and third country nationals. Parent country nationals (PCNs) are
residents of the international business’s home country who are transferred to one of
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EMERGING OPPORTUNITIES
Thinking Globally but Hiring Locally
As recently as the mid-1990s, foreign firms operating in China filled most of their
upper and middle management positions with home country nationals. However, now
it is estimated that around 70 percent of foreign firms’ top management positions are
filled by Chinese managers. The same trend is true in India. Hiring local managers is
much cheaper, and they have a strong understanding of the local market and local
culture.
• Third country nationals (TCNs) are neither the firm’s home country nor of the host
country. TCNs are most likely to be employed in upper-level or technical positions.
TCNs and PCNs are collectively known as expatriates (people working and residing
in countries other than their native country).
• An ethnocentric staffing model may be used to help a firm choose among HCNs,
BRINGING THE WORLD INTO FOCUS
Schlumberger Profits from Geocentric Staffing
This box discusses the staffing policies of one of the world’s largest suppliers of
technology, project management, and information solutions to the oil and gas
industries. They have operations in over 80 countries, assisting their customers in
RECRUITMENT AND SELECTION
• The skills and abilities needed by international managers fall into two general
categories: those needed to do the job, and those needed to work in a foreign
location. See Figure 19.2 here.
Recruitment of Managers
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• Recruitment of Experienced Managers. Experienced managers can be recruited
from within the firm itself or from other firms. In some cases, headhunters
(recruiting firms that actively seek qualified managers and other professionals for
possible placement in positions in other organizations) may be called on to assist in
Selection of Managers
• When selecting from a pool of prospective managers, HR managers typically look for
those individuals who are competent managers, have appropriate training, and can
adapt to new situations.
Expatriation and Repatriation Issues
• Managers sent on foreign assignments may experience culture shock, a
psychological phenomenon that may lead to feelings of fear, helplessness, irritability,
and disorientation. Acculturation typically proceeds through four phases. Discuss
Figure 19.3 here. The four phases include honeymoon, disillusionment, adaptation,
and biculturalism.
• Because an expatriate suffering from culture shock may be less effective and
productive, companies typically take measures to limit its effects, such as providing
pre-departure language and cultural training.
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TRAINING AND DEVELOPMENT
Training is instruction directed at enhancing specific job-related skills and abilities.
Development is general education concerned with preparing managers for new
assignments and/or higher-level positions.
Assessing Training Needs
• Firms assess training and development needs by determining the difference between
Basic Training Methods and Procedures
• Firms must decide whether to use standardized training and development programs,
such as language courses, or to develop their own programs. Developing a
customized program, although more expensive than using a standardized program,
may better meet the needs of the firm.
Developing Younger International Managers
• Most MNCs now recognize the importance of internationalizing their managers early
PERFORMANCE APPRAISAL AND COMPENSATION
Assessing Performance in International Business
• Performance appraisal is the process of assessing how effectively a person is
performing his or her job. Performance appraisals have several important objectives.
Determining Compensation in International Business
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• Competitive international firms provide prevailing compensation packages for their
managers in each market. The text provides examples of common components in a
EMERGING OPPORTUNITIES
How About Moving to India?
Businesses have identified a need to develop strategies in order to increase labor
productivity overseas, by integrating foreign workers into the company’s workforce.
There is now an awareness of the need to outsource, in order for business to remain
competitive.
• A tax-equalization program is a means of ensuring that the expatriate’s after-tax
income in the host country is similar to what the person’s after–tax income would be
in the home country. The text illustrates this concept with a discussion of how one
RETENTION AND TURNOVER
• Retention is the extent to which a firm is able to retain employees. Turnover, the
opposite, is the rate at which people leave a firm. Turnover can be controlled by
reducing expatriate failure and repatriate failure.
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HUMAN RESOURCE ISSUES FOR NONMANAGERIAL EMPLOYEES
Recruitment and Selection
• In most MNCs, nonmanagerial employees are HCNs. Employing HCNs is cheaper
than employing PCNs or TCNs, and may enable firms to avoid laws limiting
opportunities for PCNs or TCNs.
• Firms hiring HCNs must adapt to laws in the host country. The text notes that Toyota
had to select and hire its U.S. workers in accordance with U.S. law.
Training and Development
• Training and development required by a host country’s workforce depends in part on
Compensation and Performance Appraisal
• International firms normally adapt their compensation and performance appraisal
systems to local laws, customs, and cultures. The text notes, for example, that while
U.S. workers appreciate feedback from an appraisal system, German workers are
resentful of feedback.
LABOR RELATIONS
In many companies, a separate organizational function is established for labor relations.
Comparative Labor Relations
• A country’s laws, culture, social structure, and economic conditions may impact labor
relations. The text notes, for example, that the role of unions varies greatly among
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Collective Bargaining
• Collective bargaining is the process used to make agreements between
Union Influence and Codetermination
• The premise of industrial democracy – the belief that workers should have a voice
in how businesses are run – is an important influence in labor unions in Europe. In
fact, in Germany an approach called codetermination provides for cooperation
between management and labor in running a business.
CHAPTER REVIEW
1. Along what dimensions does domestic HRM differ from international HRM?
International HRM differs from domestic HRM in several ways. First, firms may have to
adapt hiring, firing, training, and compensation practices on a country–by-country basis to fit
2. How does the degree of centralization or decentralization affect international staffing?
Firms that are highly centralized (decision making is mainly done at corporate headquarters)
3. What are the basic issues involved in recruiting and selecting managers for foreign
assignments?
When recruiting and selecting managers for foreign assignments, firms must initially identify
4. What issues are at the core of expatriation and repatriation problems?
A primary concern of firms with expatriate managers is culture shock. Culture shock may
affect employees who are working in and coping with a foreign culture and may reduce an
5. Why is performance appraisal important for international firms?
Performance appraisal is important for international firms because it indicates how well an
6. What special compensation and benefits issues arise in international HRM?
There are several special compensation and benefits issues in international HRM. For
7. How does international HRM for nonmanagerial employees differ from that for managerial
employees?
A primary difference between international HRM for managerial employees and international
HRM for nonmanagerial employees is the fact that nonmanagerial employees are typically
QUESTIONS FOR DISCUSSION
1. How does HRM relate to other functional areas such as marketing, finance, and operations
management?
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Most students will probably recognize that HRM is strongly interrelated with other functional
areas such as marketing, finance, and operations management. Each of the other
functional areas will be directly impacted by the overall strategy followed by the firm. In turn,
2. Why and how does the scope of a firm’s internationalization effort affect its HRM practices?
3. How are the different approaches to recruiting and selecting managers for foreign
assignments similar and dissimilar?
4. Which are easier to assess, business skills or international skills? Why?
5. If you were being assigned to a foreign position, what specific training requests would you
make of your employer?
Most students will probably suggest that foreign language skills and information on the
6. Do you agree or disagree with the idea that some international assignments require special
compensation?
7. How easy or difficult do you think it is to handle the equity issue in international
compensation?
19.4; AACSB Skills: Analytic Skills; Learning Outcome: Identify and discuss the components
of the global human resources management process)
8. What does the high cost of replacing an international manager suggest regarding staffing
philosophy?
9. Which do you think is easier, HRM for managerial employees or HRM for nonmanagerial
employees? Why?
Most students will probably suggest that HRM for managerial employees is more difficult
than HRM for nonmanagerial employees. Students taking this perspective are likely to point
out that HRM for managerial employees involves recruiting, selecting, and training an
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BUILDING GLOBAL SKILLS
Essence of the exercise
Answers to the follow-up questions:
1. Working alone, carefully consider the strengths and weaknesses of each of the four leading
candidates for the job. Select the individual that you think is the best qualified candidate.
Students will probably have differences of opinion regarding who is the best qualified
2. Form small groups of four. Share with each other your individual choices for the job in
Japan, along with the reasons for making those choices.
Students will probably get involved in considerable debate as they share their views of who
CLOSING CASE
“Training for the World”
The closing case examines the process many Japanese companies use to staff their
American operations.
Key Points
• All firms that open new facilities in foreign countries must determine how many
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conform to the Japanese tradition of company loyalty, teamwork, and flexibility
along the production line.
Case Questions
1. How does HRM in the United States differ from HRM in Japan?
HRM refers to the activities directed at attracting, developing, and maintaining an
effective workforce to achieve an organization’s objectives. Students will probably
2. What do you see as the basic advantages and disadvantages of each system?
Most students will probably suggest that the extensive effort that appears to go into
3. If Toyota truly wants to emphasize growth over quality, what changes to its HRM
system would be needed?
A primary issue that would have to be addressed is a change in compensation
packages that were previously offered by Toyota. In the past when the focus was on
4. Why don’t all multinational firms use the same approach as Toyota?
Most students will probably suggest that the issues of quality and growth are both
PART FOUR CLOSING CASES
CASE 1:
The Aramco Advantage
The closing case describes the so-called Aramco advantage that allowed
the Aramco consortium of companies to make enormous profits, and the
Internal Revenue Service’s efforts to collect taxes on the revenues.
Key Points:
• Aramco, a consortium of four U.S. oil companies, originally controlled Saudi oil fields.
Although the Saudi government eventually expropriated the oil reserves, Aramco
continued to play an active role in marketing Saudi oil.
• The so-called Aramco advantage began in 1979 when Saudi Oil Minister Yamani
forbade the consortium to sell Saudi oil for more than the price set by Yamani’s
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Case Questions
1. Which unit of Texaco really “earned” the Aramco advantage? Aramco itself?
Texaco’s foreign refineries? Texaco’s marketing operations? Or the parent
corporation?
The unit of the company that actually earned the advantage is open to debate.
Texaco argued that the benefits of the advantage would be captured by a company
operating further down the production-distribution chain and that in fact, the parent
2. Had Aramco sold the crude oil to Texaco’s U.S. refineries, would Texaco have been
able to avoid U.S. taxation on the Aramco advantage?
It appears that Aramco’s ability to avoid paying taxes on the income derived from the
3. Since Minister Yamani created the Aramco advantage in part in response to U.S.
diplomatic pressure, should Exxon and Texaco have been required to sell their
allotment of Saudi crude oil to their domestic refineries?
Students may look at this question from different perspectives. Some students are
likely to suggest that Aramco benefited from being in the right place at the right time,
4. The IRS’s lawyers argued that the appeals court ruling amounted to a “blueprint for
the evasion of U.S. taxes. [It] …. creates substantial tax incentives for United States
corporations to encourage or endure the adoption of profitable foreign ‘legal
restrictions’ that ‘require’ such corporations to avoid United States taxation.” Do you
agree with the IRS position? Or is it just being a cry-baby because it lost?
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Many students will probably take a stand against the IRS simply because they feel
the IRS already has too much power. Others, however, may feel that the companies
involved unfairly profited from a situation, and that since the advantage was a direct
Additional Case Application
The case examines the unique situation that Aramco found itself in when political
CASE: 2
NUCOR Navigates the Global Economy
This closing case describes the Human Resource practices at NUCOR, a
progressive mini steel mill.
Key points:
• With the global recession, NUCOR has managed to avoid employee layoffs.
• This is in part due to the company’s culture and Human Resource practices.
• CEO Ken Iverson has shaped the company’s culture to be even handed,
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Case Questions:
1. Instead of a system of individual performance appraisals, NUCOR appraises employee
performance according to division-wide quality, productivity and profitability goals and
targets. What are the advantages and disadvantages of this approach?
The main advantage of NUCOR’S group based performance appraisal system is that it
2. Identify the incentives, both financial and non financial, that NUCOR uses to motivate
employees.
Financially, NUCOR pays bonuses that are tied to the quality and productivity of the
3. How does NUCOR’S flat organization structure contribute to the success of the
compensation system?
4. Many firms today use temporary, part time or virtual workers to reduce costs and gain
flexibility. NUCOR has never taken this route. Should management consider it in the
future? Why or why not?
5. CEO Dan DiMicco believes that when the economy turns around, NUCOR will be “first
out of the box” in the steel industry. What reasons does he have for being so optimistic?
6. Can NUCOR’S human resource strategy be successful in other countries or other
cultures?
The process of global negotiations differs from culture to culture in language, negotiating
style, approaches to problem solving, etc. One of the cultural dimensions that is used to
differentiate culture is “Uncertainty Avoidance.” Uncertainty orientation refers to the