Chapter-11

IHRM Trends and Future Challenges

1
 Introduction

• In this course, we have explored the IHRM issues in a

multinational context. To that end, we have focused on
several aspects:
– The implications that the process of internationalization has
for the HR activities and policies.
– Developing global leaders: who to place in charge of foreign
operations and units to cater for the managerial and technical
demands of international business growth.
– Host-country issues relating to standardization versus
adaptation of work practices and their implications for HRM.
(cont.)

2
 Introduction (cont.)

• We tried to counter the imbalance towards expatriate issues,

while recognizing the continued need to manage effectively
international assignments, owing to the important strategic roles
of expatriates and non-expatriates in sustaining international
operations.
• We identified the managerial responses to the changing global
work environment, particularly developing the required global
mindset to accompany global operations, the use of informal
control mechanisms, horizontal communication, cross-border
teams and international assignments.
• We now turn our attention to trends and developments that
present future challenges to IHRM.

3
 International Business Ethics
and HRM
• When business is conducted across borders, the ethics
program takes on added layers of complexity.
• Especially problematic when multinationals operate in host
countries that have:
– Different standards of business practice
– Economically impoverished
– Inadequate legal infrastructure
– Governments are corrupt, and
– Human rights are habitually violated
• The question arises not only in the context of different home-
and host-country employment practices but also in the central
operations and policies of multinationals.

4
 Ethical Relativism or Global
Values?
• Three main responses to the question:
– The ethical relativism believes that there are no universal or
international rights and wrongs, it all depends on a particular
culture’s values and beliefs - when in Rome, do as the
Romans do.
– The ethical absolutism believes that when in Rome, one
should do what one would do at home, regardless of what
the Romans do. This view of ethics gives primacy to one’s
own cultural values.
– In contrast, the ethical universalism believes that there are
fundamental principles of right and wrong which transcend
cultural boundaries and multinationals must adhere to these
fundamental principles or global values.

5
 Universal Ethical Principles

• Universal ethical principles can be seen in the agreements among

nations who are signatories to:
– The United Nations Declaration of Human Rights
– The OECD Guidelines for Multinational Enterprises (adopted by the
Organization of Economic Cooperation and Development)
– The Caux Roundtable Principles of Business
• They indicate the emergence of a trans-cultural corporate ethic and
provide guidelines that have direct applicability to a number of the
central operations and policies of multinationals including the HRM
activities of staffing, compensation, employee training and
occupational health and safety.
• However, there are a wide range of situations where variations in
business practice are permissible.

6
 Self-regulation Initiatives: International
Corporate Codes of Conduct

• The need for international accords and corporate codes of

conduct has grown commensurately with the spread of
international business.
• Translating ethical principles and values into practice in the
international business domain, even allowing for some
consensus within the international community, is an
enormous task in the absence of a supranational legislative
authority.
• A number of mechanisms to facilitate the incorporation of
ethical values into international business behavior have been
suggested.

7
Caux Roundtable Principles for
Business Conduct

• The first international ethics code for business

• Developed in 1994 by Japanese, European and North
American business leaders meeting in Caux, Switzerland
• Aimed to set a global benchmark against which
individual firms could write their own codes and
measure the behavior of their executives.
• The Caux Principles are grounded in two basic ethical
ideals: kyosei and human dignity.

8
Caux Roundtable Principles for Business
Conduct (cont.)

• The Japanese concept of kyosei means living and working

together for the common good – enabling cooperation and
mutual prosperity to co-exist with healthy and fair competition.
• Human dignity relates to the sacredness or value of each
person as an end, not simply as the means to the fulfillment of
others’ purposes or even majority prescription.
• The Caux Principles aim to operationalize the twin values of
living and working together and human dignity by promoting
free trade, environmental and cultural integrity and the
prevention of bribery and corruption.

9
 Enforcement of Codes of Conduct

• The attitudes of senior management play a crucial role in

developing, implementing and sustaining high ethical
standards.
• HR professionals can help multinationals to institutionalize
adherence to ethics codes through a range of HR activities
including training and the performance–reward system, e.g.
– Johnson and Johnson’s Credo meets the standards of the Caux
Principles, the UN’s Declaration of Human Rights and the OECD
Guidelines for Multinational Enterprises.
– Addressing the core human values of good citizenship, respect for
human dignity, respect for basic rights and justice, and using them to
define ethical behavior.

10
 Government Regulation:

• New global developments on the criminalization of

bribery
– Bribery and corruption top the list of the most frequent
ethical problems encountered by international managers.
– The World Bank estimates that about $80 billion annually
goes to corrupt government officials.
(cont.)

11
Is Bribery a Business Necessity?

• Bribery involves the payment of agents to do things that are

inconsistent with the purpose of their position or office in order to
gain an unfair advantage.
• Bribery can be distinguished from so-called gifts and ‘facilitating’ or
‘grease’ payments. The latter are payments to motivate agents to
complete a task they would routinely do in the normal course of
their duties.
• It is now generally agreed that bribery undermines equity,
efficiency and integrity in the public service, undercuts public
confidence in markets and aid programs, adds to the cost of
products and may affect the safety and economic well-being of the
general public.

12
 US Foreign Corrupt Practices
Act
• The US Foreign Corrupt Practices Act, enacted in 1977
– Prohibits US-based firms and US nationals from making bribery
payments to foreign government officials.
– Payments to agents violate the Act if it is known that the agent will
use those payments to bribe a government official.
– Amended in 1988, to permit ‘facilitating’ payments but mandates
record-keeping provisions to help ensure that illegal payments are
not disguised as entertainment or business expenses.
• The US lobbied other nation states for almost two decades to
enact uniform domestic government regulations

13
 Global Movement to Criminalize
Bribery

• The United Nations adopted the UN Declaration

Against Corruption and Bribery in International
Commercial Transactions, in December 1996.
• Committed UN members to criminalize bribery and
deny tax deductibility for bribes.

14
World Corruption Index

15
 OCED Members’ Tax Treatment of Bribes

Members Denying Tax Members Allowing Tax Members Repealed Tax

Deductibility Deductibility Deductibility
Canada Australia Austria, 1998
Czech Republic Luxembourg Belgium, 1999
Finland New Zealand Denmark, 1998
Greece Sweden France, 1997
Hungary Switzerland Germany, 1997
Ireland Iceland, 1998
Italy Netherlands, 1997
Japan Norway, 1996
South Korea Portugal, 1997
Mexico
Poland
Turkey
U.K.
U.S
Source: OECD

16
 The Role of HR in Operationalizing
Corporate Ethics Programs

• HR has a special role to play in the formulation, communication,

monitoring, and enforcing an enterprise’s ethics program.
• The US-based business ethics literature generally presents the view
that the HR function along with finance and law is the appropriate
locus of responsibility for an enterprise’s ethics program.
– The 2003 SHRM/ERC survey found that 71% of HR professionals are
involved in formulating ethics policies for their enterprises
– 69% are a primary resource for their enterprise’s ethics initiative.
– However, the SHRM respondents did not regard ethics as the sole
responsibility of HR.
(cont.)

17
 The Role of HR in Operationalizing
Corporate Ethics Programs (cont)

• The findings suggest that responsibility for ethical leadership should

cut across all functions and managerial levels, including line and
senior managers.
• At the same time, HR is well positioned to make an important
contribution to creating, implementing and sustaining ethical
organizational behavior within a strategic HR paradigm.
• HR professionals have specialized expertise in the areas of
organizational culture, communication, training, performance
management, leadership, motivation, group dynamics,
organizational structure and change management – all of which are
key factors for integrating responsibility for ethics into all aspects of
organizational life.

18
 The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)

• People involved in international business activities face many of the same

ethical issues as those in domestic business,
• The issues are more complex for IHRM because of the different social,
economic, political, cultural and legal environments in which multinationals
operate.
• Consequently, multinationals will need to develop self-regulatory practices
via codes of ethics and behavioral guidelines for expatriate, TCN and local
HCN staff.
• Firms which opt consciously or by default to leave ethical considerations up
to the individual not only contribute to the pressures of operating in a
foreign environment (e.g., poor performance or early recall of the
expatriate), but also allow internal inconsistencies that affect total global
performance.
(cont.)

19
 The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)

• When recruiting and selecting expatriates, ability to manage with integrity could be a
job-relevant criterion.
• The pre-departure training of expatriates and the orientation program should include
an ethics component. This might include formal studies in ethical theory and decision
making as well as interactive discussion and role playing around dilemmas which
expatriates are likely to encounter.
• In an effort to sensitize managers to cultural diversity and to accept the point that
home practices are not necessarily the best or only practices, there has been an
emphasis in international business training on adapting to the way in which other
cultures do business.
• In designing training programs to meet the challenges of multinational business, HR
professionals must raise not only the issue of cultural relativities but also the extent to
which moral imperatives transcend national and cultural boundaries. Insufficient
attention may result in unacceptable ethical compromises.
(cont.)

20
 The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)

• It is also important for the HR department to monitor the social,

ethical performance of the expatriate managers to ensure that as
managers become familiar with the customs and practices of
competition in the host country, they do not backslide into the
rationalization that ‘everybody else does it’.
• There is not yet agreement about what should constitute a global
ethic to resolve the conflicts which arise in such a community.
However, there is an emerging consensus about core human values
which underlie cultural and national differences and the content of
guidelines and codes which help to operationalize the ethical
responsibilities of multinationals.

21
 Mode of Operation and HRM

• Emphasis on IJVs
• Contractual modes such as licensing and
management contracts present challenges
for IHRM that have yet to be fully identified
and explored
• International projects often involve host-
government agencies and present specific
HR challenges

22
 Ownership Issues

• Small and medium-sized firms (SMEs)

– International activities place stress on limited
resources especially staff
– Key individuals often represent the SME’s stock
of international competence
• Retaining key staff critical
• Converting tacit knowledge into organizational
knowledge a challenge

23
 Family-owned Firms

• Not just a sub-set of SMEs

• Management succession presents special
HR planning concerns
• The globalization of family-owned firms has
been a remote topic in international
business studies

24
Non-Government Organizations

• As active internationally as for-profit firms, yet

receive less attention, e.g.
• Red Cross
• Greenpeace groups
• These organizations share similar management
and HR concerns
• Often operate in high risk areas of the globe
• Anti-globalization rallies and protest
• Global terrorism
• Broadening our focus of IHRM is important

25
 Research Issues

• The field of IHRM has been slow to

develop a rigorous body of theory
– Regarded as a marginal area
– International studies are more expensive to fund
– Major methodological problems
Defining culture and the emic-etic distinction
Static group comparisons
Translation and stimulus equivalence

26
 Theoretical Developments

• Possible to identify two streams of inquiry

– The micro-level
– The macro level
• Low response to surveys may be a factor of
– Culture
– Language used
– Lack of use of teams of researchers

27
A Model of Strategic HRM in MNEs

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