Chapter 14 - Human Resource Selection and Development Across Cultures

CHAPTER 14

HUMAN RESOURCE SELECTION AND DEVELOPMENT ACROSS

CULTURES

LEARNING OBJECTIVES AND SUMMARY OF THE CHAPTER

1. IDENTIFY the three basic sources that MNCs can tap in filling management
vacancies in overseas operations in addition to options of subcontracting and
outsourcing.

MNC’s can use five basic sources for filling overseas positions: home-country
nationals (expatriates), host-country nationals, third-country nationals, inpatriates,
and subcontracting or outsourcing. The most common reason for using home-
country nationals, or expatriates, is to get the overseas operation under way. Once
this is done, many MNC’s turn the top management job over to a host-country
national who is familiar with the culture and language and who often commands a
lower salary than the home-country national. The primary reason for using third-
country nationals is that these people have the necessary expertise for the job. The
use of inpatriates (a host-country or third-country national assigned to the home
office) recognized the need for diversity at the home office. This movement builds
a transnational core competency for MNC’s. Subcontracting and outsourcing are
used to take advantage of wage differentials, and to enhance flexibility.

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2. DESCRIBE the selection criteria and procedures used by the organization and
individual managers when making final decisions.

Many criteria are used in selecting managers for overseas assignments. Some of
these include adaptability, physical and emotional health, age, experience,
education, knowledge of the local language, motivation, the support of spouse and
children, and leadership.

Those who meet selection criteria then are given some form of screening. Some
firms use psychological testing, but this approach has lost popularity in recent
years. More commonly, candidates are given interviews. A recent development,
theoretic models that identify important anticipatory and in-country dimensions
adjustment, offers help in effective selection.

Compensating expatriates can be a difficult problem, because there are many

variables to consider. However, most compensation packages are designed around
four common elements: base salary, benefits, allowances, and taxes. Working
within these elements, the MNC will tailor-make the package to fit the specific
situation. In doing so, there are six different approaches that can be used, including
the balance sheet approach, the complementary approach, localization, lump sum
method, the cafeteria approach, and the regional method. Whichever one (or
combination) is used, the package must be both cost-effective and fair.
A manager might be willing to take an international assignment for a number of
reasons, including; increased pay, promotion potential, the opportunity for greater
responsibility, the chance to travel, and the ability to use his or her talents and
skills. Research shows that most home-countries prefer that the individual who is
selected to head the affiliate or subsidiary be a local manager, even though this
often does not occur.

3. DISCUSS the reasons why people return from overseas assignments, and present
some of the strategies used to ensure a smooth transition back into the home-market
operation.

Most expatriates return home, usually when the predetermined tour is over.
Sometimes managers return because they want to leave early; other times, they
return because of poor performance on their part. In any event, readjustment
problems can happen back home, and the longer the managers have been gone, the
bigger the problems usually are. Some firms now are developing transition
strategies to help expatriates adjust to their new environments.

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4. DESCRIBE the training process, the most common reasons for training, and the
types of training that often are provided.

Training is the process of altering employee behavior and attitudes to increase the
probability of goal attainment. Many expatriates need training before (as well as
during) their overseas stay. A number of factors will influence a company’s
approach to training. One is the basic type of MNC: ethnocentric, polycentric,
regiocentric, or geocentric. Another factor is the learning style of the trainees.

There are two primary reasons for training: organizational and personal.
Organizational reasons include overcoming ethnocentrism, improving
communication, and validating the effectiveness of training programs. Personal
reasons include improving the ability of expatriates to interact locally and
increasing the effectiveness of leadership styles. There are two types of training
programs: standard and tailor-made. Research shows that small firms usually rely
on standard programs and larger MNC’s tailor their training. The six major
functions of training include environmental briefings, cultural orientation, cultural
assimilators, language training, sensitivity training, and field experience.

5. EXPLAIN how cultural assimilators work and why they are so highly regarded.

A cultural assimilator is a programmed learning approach that is designed to expose

members of one culture to some of the basic concepts, attitudes, role perceptions,
customs, and values of another. Assimilators have been developed for many
different cultures. Their validity has resulted in the improved effectiveness and
satisfaction of those being trained as compared with other training methods.

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THE WORLD OF BUSINESS WEEK: Guess Who’s Hiring in America

1. Summary: This article describes the broad impacts of globalization on international

human resource selection and development in today’s business climate. Once, India
was seen as a source of never-ending talent. Today, India is beginning to seek out
American workers to take over jobs in the host countries. Companies in India are
experiencing the importance of international expansion, and can now appreciate the
costly investments of temporarily sending citizens to the United States to work. It is
now more efficient to hire U.S. citizens, and many Americans see it as a great
opportunity to train in Indian offices. The Indians are recruiting a combination of
fresh college grads and experienced vets who have worked at American companies.
Tata Consultancy Services Ltd., India’s largest outsourcing firm, plans on hiring an
additional 2,000 Americans within three years.

2. Suggested Class Discussion Questions:

1. Do you think that American workers will have to adapt to the corporate culture
of an Indian firm or do you think they want to become “Americanized”?

2. What are some of the advantages the United States will see from this change?
Are there any disadvantages?

3. Related Internet Sites:

• BusinessWeek: {http://www.businessweek.com}.

CHAPTER OUTLINE WITH LECTURE NOTES AND TEACHING TIPS

Importance of International Human Resources

1) Introduction – Human resources is an essential part of any organization, since it provides

the human capital that keeps operations running. Human resource management is also key
to an efficient, productive workplace. By focusing on the employees, or the human
resources themselves, organizations have found that the positive organizational structure
leads to company success in the market.

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Sources of Human Resources

1) Home-Country Nationals
a) Home-Country Nationals - Expatriate managers who are citizens of the country where
the multinational corporation is headquartered.
b) Expatriates - Managers who live and work away from their home-country. They are
citizens of the country where the multinational corporation is headquartered.

Teaching Tip: This is a website available on the Internet that may be of interest to your
students. This website provides helpful information for expatriates from different
countries, as well as forums to talk to one another and share their experiences. The site is
available at {http://www.expatfocus.com}.

Teaching Tip: A broad array of information about expatriate performance is provided by

the Integrated Resources Group at {http://www.expat-repat.com}. This site is well worth
a visit and can provide excellent lecture material.

2) Host-Country Nationals - Local managers who are hired by the MNC.

3) Third-Country Nationals - Managers who are citizens of countries other than the one in
which the MNC is headquartered or the one in which the managers are assigned to work
by the MNC.

4) Inpatriates - An individual from a host-country or a third-country national who is assigned

to work in the home-country.

5) Subcontracting and Outsourcing – While politically controversial and challenging to

coordinate, outsourcing can save companies significant costs and is very profitable for
those firms that specialize in providing these services on a contract basis.

Selection Criteria for International Assignments

1) International Selection Criteria - Factors used to choose personnel for international

assignments.
2) General Criteria - Typically, both technical and human criteria are considered. Firms that
fail to consider both often find that their rate of failure is quite high. Table 14-1 in the
chapter depicts the rank of criteria in expatriate selection for Australian and Asian
managers.

3) Adaptability to Cultural Change - Overseas managers must be able to adapt to change.

They also need a degree of cultural toughness.

4) Physical and Emotional Health - Most organizations require that their overseas managers
have good physical and emotional health.

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5) Age, Experience, and Education

a) Age and Experience - Most MNCs strive for a balance between age and experience.
There is evidence that younger managers are more eager for international assignments.
By the same token, young people often are the least developed in terms of
management experience and technical skills; they lack real-world experience.
b) Education - Many companies consider an academic degree, preferably a graduate
degree, to be of critical importance to an international executive; however, universal
agreement regarding the ideal type of degree is nonexistent.

6) Language Training - One recognized weakness of many MNCs is that they do not give
sufficient attention to the importance of language training. Traditionally, U.S. managers
have done very poorly in the language area.

Teaching Tip: There are number of resources available on the Internet to help
international executives overcome “language” barriers in doing business in other
countries. An entire menu of these resources and related sites is available at
{http://www.csuchico.edu/cedp/}.

7) Motivation for a Foreign Assignment - Although individuals being sent overseas should
have a desire to work abroad, this usually is not sufficient motivation. International
management experts content that the candidate also must believe in the importance of the
job and even have something of an element of idealism or a sense of mission.

8) Spouses and Dependents or Work-Family Issues - Spouses and dependents are another
important consideration when a person is to be chosen for an overseas assignment. If the
family is not happy, the manager often performs poorly.
a) Adaptability Screening - The process of evaluating how well a family is likely to stand
up to the stress of overseas life.

9) Leadership Ability - The ability to influence people to act in a particular way, commonly
called "leadership," is another important criterion in selecting managers for an
international assignment.

10) Other Considerations – Applicants also can take certain steps to prepare themselves better
for international assignments. Tu and Sullivan suggested the applicant can carry out a
number of different phases.
a) Phase one – they suggest focusing on self-evaluation and general awareness.
b) Phase two – characterized by a concentration on activities that should be completed
before a person is selected.
c) Phase three – consists of activities to be completed after being selected for an overseas
assignment.

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International Human Resource Selection Procedures

1) Testing and Interviewing Procedures - Some evidence suggests that although some firms
use testing, it is not extremely popular. For example, an early study found that almost 80
percent of the 127 foreign operations managers who were surveyed reported that their
companies used no tests in the selection process. Many MNCs report that the costs,
questionable accuracy, and poor predictive record make testing of limited value. Many
firms use interviews to screen people for overseas assignments.

2) The Adjustment Process - In recent years, international human resource management

scholars have developed theoretical models that help to explain the factors involved in
effectively adjusting to overseas assignments. There are two major types of adjustments
that an expatriate must make when going on an overseas assignment. One is the
anticipatory adjustment. This is carried out before the expat leaves for the assignment.
The other is the in-country adjustment, which takes place on-site.

Compensation

1) Introduction - One of the reasons why there has been a decline in the number of expats in
recent years is that MNCs have found that the expense can be prohibitive.

Teaching Tip: An insightful article dealing with the challenges of developing expatriate
compensation packages appeared in the Puget Sound Business Journal in 1997
{http://seattle.bizjournals.com/seattle/stories/1997/11/10/focus6.html}.

2) Common Elements in Compensation Packages - The overall compensation package often

will vary from country to country. There are, however, five common elements in the
typical compensation package. These include base salary, benefits, allowances,
incentives, and taxes.
a) Base Salary - Base salary is the amount of money that an expatriate normally receives
in the home-country.
b) Benefits - Approximately one-third of compensation for regular employees is benefits.
These benefits compose a similar, or even larger, portion of expat compensation.
c) Allowances - Allowances are an expensive feature of expatriate compensation
packages. One of the most common parts is a cost-of-living allowance - a payment for
differences between the home-country and the overseas assignment.
d) Incentives - In recent years some MNCs have also been designing special incentive
programs for keeping expats motivated.
e) Taxes - The other major component of expatriate compensation is tax equalization.

3) Tailoring the Package - Working within the five common elements just described, MNCs
will tailor-make compensation packages to fit the specific situation.

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4) Approaches for Formulating Compensation Packages

a) Balance Sheet Approach - An approach to developing an expatriate compensation
package that is based on ensuring the expat is "made whole" and does not lose money
by taking the assignment.
b) Localization - An approach to developing an expatriate compensation package that
involves paying the expat a salary comparable to that of local nationals.
c) Lump Sum Method - An approach to developing an expatriate compensation package
that involves giving the expat a predetermined amount of money and letting the
individual make his or her own decisions regarding how to spend it.
d) Cafeteria Approach - An approach to developing an expatriate compensation package
that entails giving the individual a series of options and letting the person decide how
to spend the available funds.
e) Regional System - An approach to developing an expatriate compensation package
that involves setting a compensation system for all expats who are assigned to a
particular region and paying everyone in accord with that system.

Individual and Host-Country Viewpoints

1) Candidate Motivations - Why do individuals accept foreign assignments? One answer is a

greater demand for their talents abroad than at home.

2) Host-Country Desires - Although many MNCs try to choose people who fit in well, little
attention has been paid to the host-country's point of view.

Teaching Tip: An article entitled “Myths of Expatriate Life” appeared in HR Magazine in

July of 1997. This is an excellent article and discusses many of the challenges involved
with working and living overseas. The article is available at
{http://www.shrm.org/hrmagazine/articles/0697int.asp}.

Repatriation of Expatriates

1) Repatriation - The return to one's home-country from an overseas management

assignment.

2) Reasons for Returning - The most common reason that expatriates return home from
overseas assignments is that their formally agreed-on tour of duty is over.

3) Readjustment Problems - After returning home, some expatriates have readjustment

problems.

4) Transition Strategies - Strategies used to help smooth the adjustment from an overseas to a
stateside assignment.
a) Repatriation Agreements - Agreements whereby the firm tells the individual how long
she or he will be posted overseas and promises to give the individuals, on return, a job
that is mutually acceptable.

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Teaching Tip: There are a number of private HRM firms that provide selection, training, and
repatriation services for expatriate managers. An example of one of these companies can be
found at {http://www.global-dynamics.com/}.

Training in International Management

1) Training - The process of altering employee behavior and attitudes in a way that increases
the probability of goal attainment.

Teaching Tip: A forum for international trade training is available online at

{http://www.fitt.ca/}. Established in 1992, the Forum for International Trade Training
(FITT) is a not-for-profit organization mandated by the Canadian government in
partnership with private industry to remedy the shortage of people with the skills
necessary to succeed in overseas markets.

2) The Impact of Overall Management Philosophy on Training - The type of training that is
required of expatriates is influence by the firm's overall philosophy of international
management. Briefly, four basic philosophic positions of multinational corporations
(MNCs) can influence the training program.
a) Ethnocentric - An MNC that stresses nationalism and often puts home office people in
charge of key international management positions.
b) Polycentric - An MNC that places local nationals in key positions and allows these
managers to appoint and develop their own people.
c) Regiocentric - An MNC that relies on local managers from a particular geographic
region to handle operation in and around that area.
d) Geocentric - An MNC that seeks to integrate diverse regions of the world through a
global approach to decision-making.

3) The Impact of Different Learning Styles on Training and Development

a) Learning - The acquisition of skills, knowledge, and abilities that results in a relatively
permanent change in behavior.

4) Reasons for Training - Training programs are useful in preparing people for overseas
assignments for many reasons. These reasons can be put into two general categories:
organizational and personal.
a) Organizational Reasons - Organizational reasons for training relate to the enterprise at
large and its efforts to manage overseas operations more effectively.
i) Ethnocentrism - The belief that one's own way of doing things is superior to that of
others.
b) Personal Reasons - The primary reason for training overseas managers is to improve
their ability to interact effectively with local people in general and their personnel in
particular.

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Types of Training Programs

1) Introduction - There are many different types of multinational management training

programs. Some last only a few hours; others last for months. Some are very superficial;
others are extensive in coverage. Figure 14-6 in the chapter shows some of the key
considerations that influence development of these programs.

2) Standardized vs. Tailor-Made - Some management training is standard, or generic. In

contrast, tailor-made training programs are created for the specific needs of the
participants.

3) Cultural Assimilators - A programmed learning technique designed to expose members of

one culture to some of the basic concepts, attitudes, role perceptions, customs, and values
of another culture.
a) Choice of Content of the Assimilators - One of the major problems in constructing an
effective cultural assimilator is deciding what is important enough to include. Some
assimilators use critical incidents that are identified as being important.
b) Validation of the Assimilator - The term validity refers to the quality of being
effective, of producing the desired results.
c) The Cost-Benefit Analysis of Assimilators - The assimilar approach to training can be
quite expensive. A typical 75- to 100-incident program often requires approximately
800 hours to develop.

4) Global Leadership Development - Another current trend of human resource development

is to focus on leadership.
a) GLP Program - One of the best examples of the emerging leadership development
programs used by MNCs is the Global Leadership program (GLP), which is a
consortium of leading U.S., European, and Japanese firms, global faculty, and
participating host countries.

5) Positive Organizational Behavior – The study and application of positively oriented

human resource strengths and psychological capacities that can be measured, developed,
and effectively managed for performance improvement in today’s workplace.

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THE WORLD OF BUSINESS WEEK - REVISITED

Questions & Suggested Answers

1. What are the costs and benefits of hiring home-, host-, and third-country nationals
for overseas assignments?

Answer: Home-country nationals tend to have the technical expertise and

knowledge of the organization’s strategy, which are necessary to start operations
abroad. They provide control of international operations, especially in situations
where intellectual property and/ or substantial financial resources are at stake.
However, the cost of hiring and retaining home-country nationals is usually
prohibitive. Moreover, home-country nationals usually need a significant amount of
cross-cultural training, require time for adjustment, and expect special
arrangements for repatriation.

Host-country nationals are significantly less expensive than home-country

nationals. The primary advantage they possess is their knowledge of the language
and the culture. Sometimes host-country governments expect MNCs to hire host-
country nationals, and such actions may cause the firm to be perceived as more
local, which is beneficial from a public relations point of view. However, host-
country nationals may lack the technical expertise, managerial skills, or ethical
standards (if from a high-corruption country) deemed necessary by the
organization.

Third-country nationals are usually less expensive than home-country nationals.

They are usually hired due to their expertise in a specific area that best qualifies
them for the job. They also provide a fresh, neutral perspective that can enhance
creativity, innovation, flexibility, and responsiveness to market changes. Many
third-country nationals may have also worked in similar positions at the country
where the assignment is, and are thus familiar with the language and culture.

2. What skill sets are important for international assignments, and how can employees
be prepared for them?

Answer: Skills include adaptability, physical and emotional health, age, experience,
education, knowledge of the local language and culture, motivation, the support of
spouse and children, and leadership. Employees can be prepared through
appropriate selection criteria, support through anticipatory and in-country
adjustment processes, various types of training, adequate and equitable
compensation, and effective arrangements for repatriation.

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3. What are the implications of offshore outsourcing for the management of human
resources globally?

Answer: Offshore outsourcing will provide MNC managers with tremendous

opportunities for finding the right talent in an extremely large, global local market.
This talent is also available at a more competitive cost, which will provide MNCs
with opportunities for labor cost savings. Moreover, offshore outsourcing will
provide companies with increased flexibility, and responsiveness to local culture.

On the other hand, offshore outsourcing presents substantial challenges, particularly

in terms of coordination, integration, and quality management. Moreover,
innovative human resource management are necessary in order to manage
organizational commitment, employee morale, and job satisfaction in an
environment that lacks face-to-face contact. Finally, depending on the source of
human resources, many other issues may need to be managed, such as corruption,
variations in technical or ethical standards, human rights violations, language and
cultural barriers, and perceptual biases, which might further complicate
coordination and integration.

KEY TERMS
Adaptability screening
Balance-sheet approach
Cafeteria approach
Cultural assimilator
Ethnocentric MNC
Ethnocentrism
Expatriates
Geocentric MNC
Home-country nationals
Host-country nationals
Inpatriates
International selection criteria
Learning
Localization
Lump-sum method
Polycentric MNC
Positive organizational behavior (POB)
Regional system
Regiocentric MNC
Repatriation
Repatriation agreements
Third-country nationals
Transition strategies
Training
Validity

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REVIEW AND DISCUSSION QUESTIONS

1. A New York-based MNC is in the process of staffing a subsidiary in New Delhi,

India. Why would it consider using expatriate managers in the unit? Local
managers? Third-country managers?

Answer: The New York-based MNC might use any of the three options, depending
on the situation. If the New Delhi operation were a start-up situation, home-
country nationals would be the logical choice. Home-country nationals might also
be used if the managerial position required certain technical expertise only found in
the New York parent company. Additional reasons might include the need to
maintain coordination and control, and the lack of managerial talent in New Delhi.

The New York MNC should consider local managers for middle or lower
management positions. Also the hiring of locals would help maintain positive
relationships in New Delhi. The advantages of using local managers are: (a) they
are familiar with the culture; (b) they know the language; (c) it is often less
expensive; and (d) it is good public relations.

If the positions at the New Delhi subsidiary required skills or technical expertise
that was not available in New Delhi or in the New York operation, the company
might opt for third-country managers. Third-country nationals would be hired
when the MNC is in the more advanced stages of doing business internationally.

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2. What selection criteria are most important in choosing people for an overseas
assignment? Identify and describe the four that you judge to be of most universal
importance and defend your choice.

Answer: There are a number of selection criteria that should be considered in

choosing someone for an overseas assignment.

These criteria would include the following:

a. Age, experience, and education. Most organizations send both

young and seasoned personnel to the same overseas operation. This
gives them a mix of cultural appreciation and real world experience.

b. Language training. This is a critical, yet often overlooked factor.

Managers who only speak English are at a distinct disadvantage
when doing business in non-English speaking countries.

c. Motivation and leadership. The ability to communicate well,

maturity, independence, initiative, and creativity are characteristics
considered to be important for overseas success.

d. Spouses and dependents. Family stability is critical to an overseas

manager's success. It is important to interview both the candidate
and the spouse for overseas assignments.

3. What are the major common elements in an expat's compensation package?

Besides the base pay, which would be most important to you? Why?

Answer: The common elements generally consist of base salary, benefits,

allowances, and taxes. In answering the second part of the question, it is important
to stress that different people have different needs. Therefore, there is not one right
answer to this question.
This should point out the importance of having different packages available to
different people. Also, what an expat desires in a compensation package could vary
based upon to which part of the world he or she is assigned. Europe or Japan would
be more expensive than a developing country, but the MNC may have to pay a
premium (“combat pay”) for the expatriate to live in an undesirable location.

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4. Why are individuals motivated to accept international assignments? Which of these

motivations would you rank as positive reasons? Which would you regard as
negative reasons?

Answer: The positive reasons for accepting an international assignment include:

training, challenge, autonomy, and a chance to use technical competence. The
negative reasons from the MNC's standpoint might include: career enhancement,
desire to live abroad, and an increase in earnings.

5. Why do expatriates return early? What can MNCs do to prevent this from
happening? Identify and discuss three steps they can take.

Answer: Some of the common reasons for an early return include: the expatriate is
not happy in the overseas position, the expatriate is not doing a good job, and the
family is not adjusting to life overseas.

To prevent early returns, MNCs can: (a) make sure to give the manager and his/her
family a realistic preview of the situation they are about to enter; (b) equip both the
manager and the family with methods to deal with the adjustment process; (c)
choose managers and families who are most likely to be able to make the difficult
adjustments to overseas life.

6. What kinds of problems do expatriates face when returning home? Identify and
describe four of the most important. What can MNCs do to deal with these
repatriation problems effectively?

Answer: Many expatriates feel that their international experience is not highly
valued by the company or that their current jobs have less responsibility and are
boring when compared to the challenges of their overseas positions. Others have
no specific job to return to and seem to be out of touch. There can also be various
personal problems that expatriates encounter ranging from getting used to a
different standard of living to having to purchase a new house.

Some MNCs are developing transition strategies to help smooth the adjustment
from an overseas to a stateside assignment. For example, some firms are promising
to give the expatriate upon return, a job that is equal to, if not better than, the one
they had before leaving. Others are renting or maintaining the expatriates' homes
until they return and keeping them informed of what is going on at corporate
headquarters. Some are even going so far as to include expatriates on projects at
the home office when they are on leave. These types of efforts on the part of the
MNC help ensure that the expatriate is looked on as a regular member of the staff.

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7. How do the following types of MNCs differ: ethnocentric, polycentric,

regiocentric, and geocentric? Which most likely would provide international
management training to its people? Which would least likely provide international
management training to its people?

Answer: The type of training that is required of expatriates is influenced by the

firm's overall philosophy of international management. The ethnocentric MNC
puts home office personnel in charge of key international management positions.
The MNC headquarters group and the affiliated overseas operations all have the
same basic experiences, attitudes, and beliefs about how to manage. A polycentric
MNC places local nationals in key positions and allows these people to appoint and
develop their own personnel. A regiocentric MNC relies upon local managers from
a particular geographic region to handle operations in and around that area. A
geocentric MNC seeks to integrate diverse regions of the world through a global
approach to decision-making. Assignments are made on the basis of qualifications,
and subsidiary managers throughout the structure are regarded as equal to those at
headquarters.

8. IBM is planning on sending three managers to its Zurich office, two to Madrid, and
two to Tokyo. None of these individuals has any international experience. Would
you expect the company to use a standard training program or a tailor-made
program for each group?

Answer: Standard training programs concentrate on basic skills and abilities such as
decision-making, communication, motivation, and leadership that are applicable
universally. The tailor-made training programs are created for specific needs of the
participants. For example, these latter programs are designed to provide
information about social, economic, governmental, legal, and technological
developments in a particular locale.

This is an opinion question; however, the argument can be made that both types are
important. Managers being sent overseas need training in basic decision-making,
motivation, and leadership. But in addition, they need to know how to deal with the
specific situation they are assigned to. Another important factor to be considered,
in this case, is the learning style of the individual to be trained. Finally, the budget
must be considered. Tailor-made training programs are considerably more
expensive than standard programs.

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9. Zygen Inc., a medium-sized manufacturing firm, is planning to enter into a joint

venture in China. Would training be of any value to those managers who will be
part of this venture? If so, what types of training would you recommend?

Answer: Yes, the training might help the managers to overcome the belief that their
way of doing things is superior to that of others. Training can facilitate the
manager's understanding of values and customs in China. Training might also
improve communication between the home office and the Chinese operation. The
main benefit of training will be to improve the overseas manager's ability to interact
effectively with the Chinese people. Personal problems such as politeness,
punctuality, tactfulness, and orderliness can be improved through effective training
programs.

10. Hofstadt & Hoerr, a German-based insurance firm, is planning on expanding out of
the EU and opening offices in Chicago and Buenos Aires. How would a cultural
assimilator be of value in training the MNC's expatriates? Is the assimilator a valid
training tool?

Answer: A cultural assimilator would be of value to Hofstadt and Hoerr in that it

would expose employees who are members of one culture (German) to some of the
basic concepts, attitudes, role perceptions, customs, and values of another culture
(Chicago or Buenos Aires). The cultural assimilator will be of value only to the
extent that it includes critical incidents that are likely to occur in Chicago and
Buenos Aires. Care must be taken in developing the critical incidents used in the
assimilator. Experienced expatriates and host-country nationals should be
consulted on the choice of critical incidents. The critical incidents must be ones in
which one or more of the following factors are present.

a. an expatriate and a host national interact

b. the situation is puzzling or likely to be misinterpreted by the
expatriate
c. the situation can be accurately interpreted only with sufficient
knowledge about the culture
d. the situation must be relevant to the expatriate's task or mission
requirements

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11. Ford is in the process of training managers for overseas assignments. Would a
global leadership program be a useful approach? Why or why not?

Answer: This is a good thought question for your students. Encourage your
students to make their answers as substantive as possible. The company could
profit with the development of a global expansion program. An organization must
conduct marketing research to understand the needs, customs, practices, and
product acceptance in a foreign market. An expansion strategy can be successful
for an organization understanding the market, its tastes and preferences, and a full
appreciation of the foreign culture. A global strategy tailored to meet the needs of
that foreign culture is extremely important. In addition to a global strategy, a
human resource plan must be developed to reflect and meet the needs of the master
strategy. This would include a recruiting and selection, orientation and training,
and a fair and equitable wage and salary structure.

12. Microsoft is weighing setting up a new R&D facility in India to develop new
software applications. Should it staff it with Microsoft employees? Indian
employees? Or should it subcontract with an Indian firm? Explain your answer and
some of the potential challenges in implementing it.

Students should be encouraged to discuss the pros and cons of each alternative, also
highlighted in review question 1. Subcontracting with an Indian firm is also a viable
alternative. However, Microsoft’s new R&D facility will run a very high risk, as it
will be exposing its core competence area and intellectual property to another firm,
located in a country where piracy and counterfeit practices are high. Thus, it may be
necessary for Microsoft to reconsider this option, as well as the option to hire
Indian employees, or even the decision to locate and R&D facility in India.

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INTERNET EXERCISE: GOING INTERNATIONAL WITH COKE

Suggestion for Using the Exercise

1. As seen in this chapter, the recruiting and selecting of managers is critical to

effective international management. This is particularly true in the case of firms
that are expanding their international operations or currently do business in a large
number of countries. These MNCs continually have to replace managers who are
retiring or moving to other companies. Coca-Cola is an excellent example. Go to
the company’s Web site at www.coke.com and look at the career opportunities that
it offers overseas. In particular, pay close attention to current opportunities in
Europe, Africa, and Asia. Read what the company has to say and then contact one
of the individuals whose e-mail address is provided. Ask this company
representative about the opportunities and challenges of working in that country or
geographic area. Then, using this information coupled with the chapter material,
answer these questions: (1) From what you have learned from the Coca-Cola
inquiry, what types of education or experience would you need to be hired by the
company? (2) What kinds of international career opportunities does Coke offer? (3)
If you were hired by Coke, what type of financial package could you expect? (4) In
what areas of the world is Coke focusing more of its attention? (5) What kinds of
management leadership training programs does Coke offer?

IN THE INTERNATIONAL SPOTLIGHT: RUSSIA

Questions & Suggested Answers

1. What are some current issues facing Russia? What is the climate for doing business
in Russia today?

Answer: One of the current issues facing Russia today is who is going to end up
running the government and what rights will private businesses have. A second
issue is whether the economy will continue to falter or will there be a turnaround
that provides jobs for the population and profits for those who invest in the country.
Although it is still a very poor economy, it is improving slightly, although the
climate for doing business in Russia is still very poor. Only time will tell if things
will improve, but there are still many obstacles to overcome.

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2. What are some of the benefits of using home-country nationals in overseas

operations? What are some of the benefits of using host-country nationals?

Answer: Some of the benefits of using home-country nationals are that it helps the
firm maintain control of operations and these nationals have a good working
knowledge of how the home office wants things to be done. Some of the benefits
of using host-country nationals are that the local work force is likely to respond
better to this direction and these nationals know the inner-workings of the
environment and are likely to get things done with less red tape and delay.

3. Why would a multinational such as EI be interested in bringing in third-country

nationals?

Answer: A company like EI would be interested in bringing in third-country

nationals because these individuals can provide additional insights that are not
available from either host or home-country nationals. In the case of EI, the Italians
and Germans know the European market better than the other two groups and can
help the firm sell in western Europe, especially in the EU.

4. What criteria should EI use in selecting personnel for the overseas assignment in
Russia?

Answer: There are a series of criteria that EI should use in selecting personnel for
assignment in Russia. Five that should be given major consideration include: (a)
the candidate's motivation; (b) the individual's ability to live in a third world
environment; (c) the individual's willingness to accept new challenges; (d) the
person's ability to get along with others; and (e) the candidate's ability to adjust to
changing conditions. Other considerations should include the person's ability to
master a foreign language and the willingness of the individual's family to be
separated or relocated to Russia.

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YOU BE THE INTERNATIONAL CONSULTANT: A SELECTION DECISION

Questions & Suggested Answers

1. What selection criteria would you recommend to Star when deciding whom to send
to mainland China?

Answer: The Asian cultures are quite different from that of the U.S. Star
Corporation must be very careful about who they send to China. Criteria must
include the employee being fluent in the Mandarin and Cantonese languages,
adaptability to change, an independent responsible person who is physically and
emotionally in good health, has proven leadership ability, and has the motivation to
take the foreign assignment and believe in the job's importance. An older person
with a great deal of experience would probably perform better in China than a
young one, because the Chinese accord a great deal of respect to age. A 25 or 30-
year-old manager might be seen as an insult to them. The family of the employee
will also be important. A Chinese assignment will not be anything like a European
assignment. An adaptability screening may be advisable to evaluate how well the
family is likely to stand up to the very different life in China.

2. What procedures should the company use in making the final selection?

Answer: Selection tests and interviews of the candidates would be appropriate.

Testing is commonly done in the U.S. for managers, but firms tend not to test for
foreign assignments. It is a wise thing to do though because of the large amounts of
money that it can cost a firm if an assignment doesn't work out. It is important that
the firm use validated psychological tests that are related to overseas adjustment
and performance. Physicals are also important. Many overseas candidates have
gone for physicals and found a heart condition or ailment that prevented him or her
from taking an assignment. The best method for final selection is an extensive
interviewing process of the candidates and their spouses. Multiple interviews or
panel interviews are not uncommon and seem to be the preferred method for final
selection.

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3. What type of repatriation agreement would you recommend the firm use? Be
specific regarding some things you would suggest be contained in the agreement.

Answer: Star Corporation needs to guarantee the individuals that they will be given
jobs that are mutually acceptable upon their return. The job should be equal to or
better than the one the individual had before leaving. Work should begin on
finding such a position at least six months prior to the expatriate's return. The firm
should either rent or maintain their homes while they are in China. If the employee
is assigned a job in a different American city upon his or her return, the firm should
agree to sell the employee’s home and make up for any losses in market value the
family might experience. All costs of air tickets and transport of domestic
possessions to the U.S. should be paid for by Star. Free psychological counseling
should be covered for any family members who need help with the readjustment
upon return.

Brief Integrative Case 1

A Copy Shop Goes Global

1. What are some of the general challenges of starting a new business in another
country? What are the specific challenges Copy General faced in Eastern and
Central Europe?

Answer: Important challenges primarily relate to cross-cultural differences. These

in turn include language, cultural and perceptual barriers, which reflect on customer
tastes and preferences, as well as work ethic and labor relations. Other challenges
include differences in the political, economic and legal climate, as well as varying
degrees of development in physical and administrative infrastructure and moral
standards.

Particularly relevant to Eastern and Central Europe is the political environment,

characterized at that time by instability and uncertainty as the region moved from
socialism to capitalism. The economic environment was characterized by poverty,
economic deterioration, and inflation, to name a few. Physical, legislative and
institutional infrastructure was non-existent, and the region was dominated by
opaqueness, corruption and illegal activities. This was further complicated by the
unique cultural dimensions and language barriers that Copy General had to face in
order to operate effectively in the region.

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2. How important was Paul Panitz’ vision to the decision to go into Hungary? How
would you characterize Panitz’ leadership and management style and his
commitment to “doing well by doing good”?

Answer: Panitz’s vision was instrumental in the decision to go into Hungary, as it

was in leading Copy General into expansion in various Central and Eastern
European countries. Panitz is an entrepreneurial, visionary, transformational leader.
He would rank very high on his use of participative leadership. His ethical
orientation implies that he is also an authentic charismatic leader, and his global
orientation would indicate that he is an ethically responsible global leader.

3. Compare the recollection of Ken Chaletsky, a U.S. manager with Copy General
reflected throughout the case, and Erno Duda, Copy General’s initial country
manager in Hungary. What is different about their perspectives and how do they
reflect the cultural values of their respective countries?

Answer: As expected, Chaletsky’s initial reaction was skepticism, which gradually

and over time and subsequent failures led into confusion, frustration and despair.
Clearly, such deterioration of Chaletsky’s enthusiasm was not due to lack of
technical knowledge, but rather due to inadequate understanding of the culture and
system (or lack thereof) of doing business in Central and Eastern Europe.

On the other hand, Duda’s insider perspective reflected cultural understanding, not
only for his own culture, but also for that of Chaletsky and Panitz. It was clear that
Chaletsky and Panitz were used to market capitalism, free competition, and system
transparency, along with the U.S. cultural dimensions of individualism, low power
distance, low uncertainty avoidance, masculinity, universalism, specificity,
achievement, relative neutrality, sequential time orientation, and internal locus of
control. On the other hand, Duda understood that Central and Eastern Europeans
have cultural values that nearly contradict the U.S. on each on of these dimensions,
which hindered Chaletsky and Panitz’s ability to even get started in what they
perceived to be an obscure, unorganized and frustrating environment.

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4. What lessons (if any) can you derive from Copy General’s successful experience in
Eastern Europe and beyond?

Answer: First is the lesson of the importance of being first (or one of the first) to
market. Globalization continuously presents tremendous opportunities, especially in
developing and emerging economies. However, companies that are quick to take
advantage of those opportunities are likely to reap most of the benefits before these
markets become extremely competitive in the near future.

Second is the vital role of a clear vision that goes beyond profit motives. This is
what helped Chaletsky and Panitz to hold on when the situation seemed hopeless.
Related to that is the importance of ethically responsible leadership that seeks
mutually beneficial arrangements for the geographic locales they choose to operate
in.

Third is the indispensable role of cross-cultural understanding. It seemed that

Central and Eastern Europeans had a better understanding of the U.S. culture than
Chaletsky and Panitz knew about the Central and Eastern European culture, which
caused Chaletsky and Panitz a lot of frustration and the potential for being taken
advantage of initially. However, it was intelligent of them, and advisable for any
manager or MNC starting operations in a new culture to seek the help and support
of local partners. These partners can be individuals or organizations (e.g., local
consultants, translators, joint venture partnerships, governmental or non-
governmental bodies, and others, depending on the situation).

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Brief Integrative Case 2

The Road to Hell

1. What mistake did John Baker make? Why did he not realize this mistake when it
occurred?

Answer: John Baker is an expatriate from Europe working as the chief engineer of
the Caribbean Bauxite Company of Barracania in the West Indies. His successor
Matthew Rennalls, a Barracanian, was to take over Baker’s job after he left to take
a promotion to production manager of Keso Mining Corporation near Winnipeg.
Prior to leaving Baker sits down with Rennalls to have a final discussion of his
“plus and minus” traits. He accuses Rennalls of prejudice toward European
expatriates. Rennalls acknowledges this and claims that the two specific examples
given by Baker were actually difficult to work with and would have been treated
the same if they were inpatriates. He expresses that he will watch for future
prejudices in order to correct his behavior. Baker decides to continue the
conversation and implies that Europeans are more advanced with commercial
enterprise (200 or 300 years experience) than Barracanians (50 or 60 years
experience in a commercial environment). This insults Rennalls, who hands in his
resignation the next morning.

He realized the mistake after the fact because Baker did not explore the matter
fully. Baker could have been influenced by his own values, prejudice, and bias in
communicating with Rennalls. He should have placed himself in Rennalls’ shoes
before communicating this information. A degree of empathy was needed here and
was not forthcoming until after the statement was made.

2. What would you recommend that Baker do now? Explain.

Answer: The recommendation for Baker is to apologize to Rennalls so there is no

misunderstanding. He must admit he acted in haste without giving any forethought
in making this statement to Rennalls. This type of conflict is blatant and should be
rectified as soon as possible by Baker.

3. What does this case illustrate about human resource management in the
international environment? Be complete in your answer.

Answer: The concept of human resource management from an international

perspective is to understand the culture and values of an expatriate. There is a
socialization process that is important to understand in being able to address issues
that require sensitivity training. It further illustrates that the needs of Rennalls must
be accounted for. Baker made incorrect assumptions in making this communication
statement. The learning phenomenon from this experience, Baker should not have
jumped to conclusions because communications can break down as a result.

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In-Depth Integrative Case 1

HSBC in China

1. How has HSBC adapted its global strategy to operate in China, both before and
after China’s WTO accession?

Answer: Prior to the WTO accession negotiations, China’s banking industry

operated as a cog in China’s centrally planned economy. The banks adhered to
directed lending practices from the government and in turn created some of China’s
most successful enterprises, but also supported thousands of other, inefficient, and
unprofitable state-owned enterprises. This practice left state commercial banks with
massive amounts of debt that were largely unrecoverable and hordes of
nonperforming loans. In 1865, HSBC was founded to finance the growing trade
between Europe, India, and China. HSBC rapidly expanded by opening agencies
and branches across the globe, but maintained a distinct focus on China and the
Asia-Pacific region. By the 1880s, the bank issued banknotes and held government
funds in Hong Kong, and also helped manage British government accounts in
China, Japan, Penang, and Singapore. After the world wars, HSBC turned to
dramatic expansion through acquisitions and alliances in order to diversify. The
bank moved its headquarters in 1993 to London from Hong Kong and continued its
global acquisition strategy.

In December 2001, China finally acceded to the World Trade Organization (WTO).
A number of implementations were immediately made such as foreign banks were
allowed to conduct foreign currency business without any market access
restrictions. Foreign banks were allowed to conduct local currency business with
foreign-invested enterprises. With its longstanding presence in China, HSBC was
among the most well-positioned financial institutions to take advantage of China’s
market opening. HSBC is an institution that actively seeks new opportunities;
HSBC was the first foreign bank to invest in China in 2001. In 2002, HSBC
announced it had taken a 10 percent stake and an additional 9.91 percent in 2005 in
Ping An Insurance, China’s second largest insurer for $600 million. HSBC also
applied for its own life insurance license in China. Three domestic firms hold 76
percent of the market share for life insurance in China and HSBC has not revealed
its partner, but hopes to start operations in 2008. HSBC also invested a 19.9 percent
stake in BoCOM. HSBC’s chairman at the time, Sir John Bond, stated “It is
inevitable that China will become a superpower. And indeed, desirable. And we are
positioning our business for the decades ahead accordingly.” HSBC recognized the
huge potential in the market for banking services, as well as credit cards. The
competition in China’s banking industry is continuing to grow. HSBC’s strategy is
to buy large domestic banks.

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2. Discuss HSBC’s strategy for entering and operating in other emerging markets.
Where has it found success, and where has it faced setbacks? Why?

Answer: HSBC implemented a strategic plan called “Managing for Growth” in the
fall of 2003. This strategy builds upon HSBC’s global, international scope and
seeks to grow by focusing on the key customer groups of personal financial
services: consumer finance; commercial banking; corporate, investment banking,
and markets; and private banking. HSBC expects to grow earnings over the long
term and use its peers as a benchmark.

Since 2000, many of HSBC’s emerging markets’ profits have increased by leaps
and bounds. HSBC has had phenomenal success in Mexico. Mexico’s market is
expanding at a very rapid pace and in 2002, HSBC purchased the undercapitalized
Mexican bank Grupo Financiero Bital SA. HSBC’s plan includes offering credit
cards to a customer base that uses primarily debit cards.

Not all emerging markets have been as successful for HSBC as Mexico. HSBC
placed a large investment in Argentina that spiraled out of control. After acquiring
Grupo Roberts in 1997, HSBC became one of the major players in the country and
expanding its Latin American presence. However, Argentina went from seemingly
one of Latin America’s strongest economies to a stunning reduction. This reduction
was mostly due to a government-mandated conversion of U.S.-dollar-denominated
assets into pesos. Argentina removed an 11-year-old mechanism pegging the peso
one to one to the dollar, which led to the peso’s sharp devaluation, and resulted in
massive losses for many banks.

3. What are the pros and cons of HSBC’s “Managing for Growth” strategy?

Answer: “Managing for Growth” aims to vault HSBC to the world’s leading
financial services company. One of the pros of this strategy is that it seeks to grow
earnings over the long term rather than expecting immediate results. Another pro is
that HSBC will be using its peers to set a benchmark or target for themselves. The
strategy also consists of eight strategic pillars. Each of these pillars consists of a
goal or its plan to achieve its goal. As part of the managing for growth strategy,
HSBC launched an ambitious plan to strengthen investment banking (IB). After
hiring new IB talent, HSBC’s spending drastically increased. Expenses were
increasing, but profits were down. HSBC was outranked by other banks in terms of
mergers and acquisitions for 2006. HSBC realized that the differences related to the
strategy execution were the key for slowing HSBC expansion and not achieving the
planned results. As a result, employees soon began leaving the company.

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4. Discuss Stephen Green’s leadership style. How does he differ from his predecessor,
Sir John Bond? How might Michael Geoghegan lead HSBC going forward?

Answer: Stephen Green recognizes the company’s rule “to follow the letter and
spirit of regulations” and signaled his intention to protect the bank’s reputation as it
extends into consumer finance. He underlined HSBC’s focus on the potential of
emerging markets stating, “There is a general rule of thumb that says the emerging
markets grow faster than mature markets as economies and the financial services
sector grows faster than the real economy in emerging markets because you are
starting from very low penetration of financial services in general.” Green’s style is
known to be more cerebral and low key than his predecessor.

Sir John Bond spent most of his early career in Asia and the United States, and is
credited with turning around Marine Midland Bank in the late 1980s. Bond became
CEO in 1993 and chairman of HSBC in 1998 and brought a hands-on
entrepreneurial style and exceptional ambitious goals. He pursued acquisitions
beyond HSBC’s traditional constraints, in pursuit of such attractive financial
segments as wealth management, investment banking, online retail financing, and
consumer finance.

Michael Geoghegan has a reputation as an aggressive banker who is not afraid to

make tough strategic decisions. With competitors aggressively seeking
opportunities in China, Geoghegan will have to utilize his aggressive decision
making and ensure HSBC maintains and expands its market position. He will also
have to find opportunities in other emerging markets of the world and act on them.

5. Do you think HSBC should reevaluate its corporate strategy in China, now that the
WTO deadline has passed and the new regulations for foreign banks are in place?

Answer: China indirectly delayed the implementation of its WTO commitments.

People’s Bank of China issued regulations and implementation rules governing
foreign-funded banks. These rules included: foreign–funded banks could open only
one branch every 12 months. Capital requirements were reduced, additional cities
were opened to up to foreign banking, and the restriction of only “one branch every
12 months” was lifted. Central bank officials have indicated willingness to
eventually elevate the foreign ownership limit. Under new rules, foreign banks in
China finally have the opportunity to offer services in the local currency – yuan –
which was banned until now. HSBC needs to take advantage of these new rules and
incorporate them into their strategy. However, the two main things that HSBC’s
future depends on is their ability to maintain and expand its market position with an
increasing number of aggressive competitors and the opportunities that the
company can spot in other emerging markets of the world.

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In-Depth Integrative Case 2

Chiquita’s Global Turnaround

1. How would you characterize Chiquita’s historic approach to global management?

Answer: Historically, Chiquita adopted a highly centralized, purely ethnocentric

philosophy, where operations were carried out the same way everywhere, solely
motivated by profitability. The economic imperative has been emphasized. Since
most of Chiquita’s suppliers and employees were located in Latin America, it may
have perceived such an approach as adequate for managing where cultural
differences are not substantial. However, Chiquita’s diversity of customers,
shareholders, and other stakeholders apparently necessitated more proactivity and
national responsiveness.

2. Describe Chiquita’s approach to human resource management in its global supply

chain. What particular human resource challenges does Chiquita face as the
purchaser, producer, and supplier of a commodity?

Answer: Chiquita’s past approach has primarily treated its human resources in the
same way it dealt with any of its other resources. Decisions were solely motivated
by costs. This is one of the primary challenges that producers of commodities face,
as lack of brand recognition and opportunities for differentiation take away the
motivation for any strategies other than cost-leadership. Customer indifference and
price-consciousness contribute to such challenges. This may render investments in
human resource management activities such as higher compensation, better benefits
and working conditions, training and development, and others, as unnecessary costs
and threats to the thin profit margins.

Chiquita’s current approach strives to change the rules of the game by shifting to a
differentiation strategy and collaborating with third parties to create brand
recognition and loyalty. However, this would create substantial challenges for
Chiquita as a purchaser of a commodity. Holding its suppliers responsible for such
costly measures and standards may result in suppliers selling their output to
Chiquita’s less stringent competitors at lower prices and higher profits, causing
Chiquita to lose a substantial proportion of its supplies and market share to cheaper
competitors, with minimal human resource management initiatives.

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3. Does Chiquita’s global corporate responsibility program create a conflict between

shareholders and other stakeholders? Who are Chiquita’s main stakeholders in the
United States and around the world, and how are they affected by Chiquita’s CR
program?

Answer: Conflict of interest across stakeholders is inevitable with any corporate

action, regardless of whether it is ethically responsible or not. The key is for the
organization to balance the interests of its diverse stakeholders based on their
relative importance and influence of the future viability of the firm, as well as
aligning the organization’s actions with its philosophies, values and strategies.
Students may discuss the impact of Chiquita’s CR program on stakeholder such as
suppliers (increased costs and standards), customers (increased prices), employees
(higher wages and more favorable working conditions), governments (potentially
better relations), competitors (higher standards, different competitive rules and
positioning strategies), special interest groups (e.g., environmentalist groups,
human rights NGOs).

4. How would you characterize Chiquita’s past and present leadership? How does
leadership affect a company’s overall reputation?

Answer: Chiquita’s past leadership was primarily transactional. Present leadership

is more value-based, transformational and ethically responsible, with a global
perspective and future orientation. This has led the whole company into a highly
noticeable change in direction that protected the company’s ultimate survival and
viability.

5. Do you believe Chiquita would have changed its policies without the presence of
damaging stories in the media? If not, what does this say about Chiquita’s old
management style?

Answer: Answers may vary. Had Chiquita resorted to a short-term fix, it may have
restored its market position and profitability in the short-term. However, the long
run would have still been uncertain and risky. According to the case, one of such
quick fixes was changing the company’s name (and little else) from United Fruit to
Chiquita. This reflects the short-term orientation and focus on immediate bottom-
line results by the old management style. On the other hand, dealing with the root
causes of problems and proactively turning them into opportunities for
differentiation competitive advantage seems to be a more effective approach that
Chiquita has adopted under its new leadership.

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6. What challenges does Chiquita’s new CEO face in continuing to turn the company
around and balance the interests of competing stakeholders?

Answer: As discussed earlier, Chiquita’s product is a commodity, and if consumer

responses are not supportive enough of Chiquita’s differentiation strategies, it may
lose the market to its fierce competitors. Moreover, the dependence on third-parties
for spreading the word around may not produce sufficient impact in terms of sales
and profits, forcing Chiquita to go back to its cost-oriented strategies and
approaches, which may further distort its image. On the other hand, with the
increased awareness and emphasis on human rights, labor relations, environmental
conservation, and corporate social responsibility in general, Chiquita may be on the
right track with its proactive plans. Uncertainty lies in whether, when, and to what
extent these initiatives will materialize into results, in terms of profitability and
effectiveness.

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