TRADITIONAL PHILOSOPHICAL THINKING AND ITS IMPLICATIONS
Generally speaking, traditional philosophical thinking in East Asia is rooted in ancient China thousands of years ago. During the period of Spring Autumn Warring States (770–221 BC), many different philosophical schools emerged in an age when old social rules (early Zhou dynasty 11th century – 771 BC) were collapsing and the search was on for new systems of thought to explain the resulting chaos (McGreal, 1995: 62). This era was named the ‘contention of a
hundred schools of thought’ (Chu, 1995).
Three major domains dominated traditional thinking and are relevant to management: Confucianism, Daoism, and War Strategies. One of the characteristics of Chinese thinking is that it does not divide the search for knowledge into separate and rigid categories with a separate set of principles governing each domain. Different philosophies benefit from each other and efforts to combine philosophical approaches are common.
A typical example of such efforts can be found in War Strategy and later Neo-Confucianism (AD 1130–1200). Confucius (Kongzi, 551–479 BC) developed a set of teachings based on absolute
respect for tradition (early Zhou Dynasty) and on a carefully ranked hierarchy founded on primary relationships between members of families and between the people and their rulers (De Mente, 1994). It has been seen as a philosophy guiding people’s daily life. The major ideas of Confucius were three basic guides (i.e. ruler guides subject, father guides son, and husband guides wife), five constant virtues (i.e. benevolence, righteousness, propriety, wisdom, and fidelity), and the doctrine
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of harmony. Confucius believed that Ren or human heartedness/benevolence is the highest virtue an individual can attain and that this is the ultimate goal of education (McGreal, 1995). Ren is a strictly natural and humanistic love, based upon spontaneous feelings cultivated through education. The path to the attainment of Ren is the practice of Li. Li can be interpreted
as rituals, rites or proprieties. In its broadest sense, the term includes all moral codes and social institutions. In its fundamental but narrow sense, it means socially acceptable forms of behaviour (McGreal, 1995). In addition, Li involves the deliberate devices used by the intellectuals to educate people and maintain social order. Since Li is a term for moral codes and social institutions, people are tempted to think that the practice of Li (proprieties) is intended to enforce conformity with social order at the cost of individuality (McGreal, 1995). However, in Confucianism, an individual is not an isolated entity. Confucius said, ‘In order to establish oneself, one has to establish others. This is the way of a person of Ren’ (McGreal, 1995: 5). Therefore, individualisation and socialisation are two aspects of the same process.
The principle governing the adoption of Li is Yi, which means righteousness or proper character and is a principle of rationality. Yi is the habitual practice of expressing one’s cultivated feeling at the right times and in the right places. Confucius said: ‘Junzi (a perfect person or superior) is conscious of, and receptive to Yi, but Xiaoren (a petty person) is conscious of, and receptive to
gains’ (McGreal, 1995: 6). According to Confucius, the right method of governing is not by legislation and law enforcement, but by supervising the moral education of the people
(McGreal, 1995: 6). The ideal government for him is a government of wuwei (non-action) based on the solid groundwork of moral education. The reason given by Confucius is: ‘If you lead the people with political force and restrict them with law and punishment, they can just avoid law violation, but will have no sense of honour and shame. If you lead them with morality and guide
them with Li, they will develop a sense of honour and shame, and will do good of their own accord’ (McGreal, 1995: 7). This is the doctrine of appealing to the human heart: self-realisation toward external world peace (harmony) and a peaceful world and orderly society are the ultimate goal of Confucianism.
H R M i n E a s t A s i a 197
Certainly, Confucianism dominated Chinese philosophy for many years. However, other philosophies before and after Confucianism were also influential, albeit with different emphases. Daoism is one of the other influential schools of thinking. The founding father of Daoism, Lao Zi (6th century BC–?) introduced the idea of yielding to the primordial ways of the universe
(Whiteley et al., 2000). Everything in the universe follows certain patterns and processes that escape precise definition and imprecisely this is called Dao, the ‘Way’ (McGreal, 1995: 9). In his work entitled Daode Jing (Classic of the Way and Its Power), Lao Zi claimed that De (virtue) cannot be strived for, but emerges naturally. The best ‘Way’ to act or think is wuwei (effortless activity).
However, the most important element of Daoism is the ‘Oneness’ and Yin- Yang. In Lao Zi’s work, he indicated that ‘Dao produces one. One produces two. Two produces three. And three produces ten thousand things (i.e. everything). The ten thousand things carry Yin and embrace Yang. By combining these forces, harmony is created’ (Daode Jing, Verse 42). These can be understood as the fundamentals of the universe that contains the polar complements of Yin
and Yang. Yin represents the dark, recessive, soft, feminine, low, contractive, centripetal, short, hollow, empty, and so forth, and Yang represents the light, dominant, hard, masculine, high, expansive, centrifugal, long, full, and solid. Nothing is ever purely one or the other; rather all things are in flux between one pole and its opposite (McGreal, 1995: 14).
De is the second important concept within Daoism. De, usually translated as ‘virtue’ or ‘power’, is an object’s personal stock of Dao, or, put another way, it is the natural potential or potency instilled within one. In contrast to Confucians who refer to De as a moral term, for Lao Zi De signifies natural abilities that enable things to be their best spontaneously and effortlessly
(McGreal, 1995: 13). Furthermore, Lao Zi argued that once ineffectual Ren has degenerated into rules, the conditions for conflict, rebellion and repression have emerged. Since rules advise doing something unnaturally through human intervention, there will always be someone who will refuse to comply. For a rule to remain meaningful and not become an empty rule, compliance must be enforced (McGreal, 1995: 13).
For Lao Zi, balance between the poles does not mean static parity, but a dynamic reversion that perpetually counterbalances all propensities toward one extreme or the o her. However, the world tends to favour the Yang while ignoring or denigrating the Yin. Daoism aims to rebalance this by emphasising Yin over Yang. In Daode Jing, Lao Zi claimed: ‘Human beings are born soft and flexible; when they die they are hard and stiff. Plants arise soft and delicate, when they die they are withered and dry. Thus, the hard and stiff are disciples of death; the soft and flexible are disciples of life. An inflexible army is not victorious; an unbending tree will break’ (Daode Jing, Verse 76). Therefore, Daoism provides enlightenment for human beings to understand and follow the fundamental cycle of the universe.
Bing Fa (War Strategies)
Bing Fa is a form of strategic thinking that was first developed for military purposes and has since been applied to almost all human interactions. It was written down by Sun Zi in the fourth century BC. In his book Sun Zi Bing Fa, Sun Zi discussed the five elements that must be considered in formulating a strategy (Chu, 1995: 25–30): (1) the moral cause: the Dao addresses the morality and righteousness of a battle; (2) temporal conditions: heaven is signified by Yin
and Yang, manifested as summer and winter and the changing of the four seasons; (3) geographical conditions: the earth contains far and near, danger and ease, open ground and narrow passes; (4) leadership: the commander must be wise, trustful, benevolent, courageous, nd strict; (5) organisation and discipline: organisation and discipline must be thoroughly understood. Delegation
of authority and areas of responsibility within an organisation must be
absolutely clear. The harmony of the five elements is of great importance to
success in any endeavour (Chu, 1995: 32). These elements are intangible,
HRM in Europe
DISTINGUISHING FEATURES OF EUROPE
Geographically, Europe consists of the western part of the landmass of which Asia forms the eastern (and much greater) part, and includes Scandinavia, the British Isles and a number of smaller islands. It is broadly framed to the north by the Arctic Ocean, to the south by the Mediterranean Sea, to the west by the Atlantic Ocean and to the east by the Ural mountains.
Politically, the borders of Europe have been less clear. In some formulations only western Europe is included; in others Russia is too. In addition, the south-eastern edge of Europe has been a subject of particular debate for the last generation. Jean Monnet (1888–1979), one of the founders of the European Community, once asserted: ‘Europe has never existed. It is not the addition of national sovereignties in a conclave which creates an entity. One must genuinely
create Europe’ (Knowles, 1999: 526; from Anthony Sampson, The New Europeans, 1968, quoting Jean Monnet). The creation of a ‘united Europe’ was spurred by a desire for international reconciliation after World War II. Its first expression was the creation of the European Coal and Steel Community, founded by the Treaty of Paris in 1951 between Belgium, rance, Italy, Luxembourg, the Netherlands and West Germany. Thanks to the Treaty, coal
168 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t and steel resources could be pooled between ‘the Six’ countries, thus creating the basis for a greater common market. With the Treaty of Rome in 1957, ‘the Six’ agreed the framework for a more comprehensive European Economic
Community (EEC). With the EEC started a colossal endeavour to harmonise policies, touching areas of indirect taxation, regulation, border control, agriculture and fisheries, as well as monetary matters. In 1973, Denmark, Ireland and the United Kingdom (UK) joined the EEC. They were followed by Greece in 1981, Portugal and Spain in 1986. In 1987, the Europe of ‘the Twelve’ signed the Single European Act. This came into force on 1 January 1993, creating for
the first time a single market, which enabled the free movement of goods, services and people. The EEC became the European Union (EU), with significant implications for HRM. Following German reunification in 1990, the EEC enlarged to include the former East Germany. Later, in 1995, Austria, Finland and Sweden joined the EU, creating a ‘Europe of Fifteen’. The EU-15 comprises more than 375 million citizens (compared to around 280 million in the US), over an
area of 3,191,000 square km (compared to 9,159,115 square km for the US) (EIU Viewswire, 2002). Economically, it is one of the powerhouses of the world.
An important historical step was taken on 1 January 2002 with the introduction of a single currency, the Euro, across the EU (with the exception of Denmark, Sweden and the UK). This economic union has been accompanied by a desire to create and strengthen political and institutional co-ordination across the member states (the European Parliament, the European Court of Justice) and above all by a growing sense of European identity amongst EU citizens.
The EU Charter of Fundamental Social Rights, established in 1989, (see Table 7.1) is but one manifestation of this. Towards European HRM.
The establishment of the EU and the Charter have had significant implications for employing organisations and for HRM. As elsewhere, HRM in Europe is in transition but the circumstances here are unparalleled in history. There is a question about whether a distinct European HRM culture is in the making. In anticipation of the creation of the single European market, prior to 1993, organisations were beginning to review their strategies to take advantage of the
markets, freed from border tariffs, which were going to open before them. The 1990s witnessed an unprecedented number of mergers and acquisitions in Europe as organisations sought to develop an integrated Europe (see Chapter 4). This led HRM professionals across the different countries to start conversations: first, to map what practices prevailed at the national and industry level (Brewster et al., 2001); and second, to find common ground for European HRM policy. Communal (1999) reports such conversations between Swedish and
Geographically, Europe consists of the western part of the landmass of which Asia forms the eastern (and much greater) part, and includes Scandinavia, the British Isles and a number of smaller islands. It is broadly framed to the north by the Arctic Ocean, to the south by the Mediterranean Sea, to the west by the Atlantic Ocean and to the east by the Ural mountains.
Politically, the borders of Europe have been less clear. In some formulations only western Europe is included; in others Russia is too. In addition, the south-eastern edge of Europe has been a subject of particular debate for the last generation. Jean Monnet (1888–1979), one of the founders of the European Community, once asserted: ‘Europe has never existed. It is not the addition of national sovereignties in a conclave which creates an entity. One must genuinely
create Europe’ (Knowles, 1999: 526; from Anthony Sampson, The New Europeans, 1968, quoting Jean Monnet). The creation of a ‘united Europe’ was spurred by a desire for international reconciliation after World War II. Its first expression was the creation of the European Coal and Steel Community, founded by the Treaty of Paris in 1951 between Belgium, rance, Italy, Luxembourg, the Netherlands and West Germany. Thanks to the Treaty, coal
168 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t and steel resources could be pooled between ‘the Six’ countries, thus creating the basis for a greater common market. With the Treaty of Rome in 1957, ‘the Six’ agreed the framework for a more comprehensive European Economic
Community (EEC). With the EEC started a colossal endeavour to harmonise policies, touching areas of indirect taxation, regulation, border control, agriculture and fisheries, as well as monetary matters. In 1973, Denmark, Ireland and the United Kingdom (UK) joined the EEC. They were followed by Greece in 1981, Portugal and Spain in 1986. In 1987, the Europe of ‘the Twelve’ signed the Single European Act. This came into force on 1 January 1993, creating for
the first time a single market, which enabled the free movement of goods, services and people. The EEC became the European Union (EU), with significant implications for HRM. Following German reunification in 1990, the EEC enlarged to include the former East Germany. Later, in 1995, Austria, Finland and Sweden joined the EU, creating a ‘Europe of Fifteen’. The EU-15 comprises more than 375 million citizens (compared to around 280 million in the US), over an
area of 3,191,000 square km (compared to 9,159,115 square km for the US) (EIU Viewswire, 2002). Economically, it is one of the powerhouses of the world.
An important historical step was taken on 1 January 2002 with the introduction of a single currency, the Euro, across the EU (with the exception of Denmark, Sweden and the UK). This economic union has been accompanied by a desire to create and strengthen political and institutional co-ordination across the member states (the European Parliament, the European Court of Justice) and above all by a growing sense of European identity amongst EU citizens.
The EU Charter of Fundamental Social Rights, established in 1989, (see Table 7.1) is but one manifestation of this. Towards European HRM.
The establishment of the EU and the Charter have had significant implications for employing organisations and for HRM. As elsewhere, HRM in Europe is in transition but the circumstances here are unparalleled in history. There is a question about whether a distinct European HRM culture is in the making. In anticipation of the creation of the single European market, prior to 1993, organisations were beginning to review their strategies to take advantage of the
markets, freed from border tariffs, which were going to open before them. The 1990s witnessed an unprecedented number of mergers and acquisitions in Europe as organisations sought to develop an integrated Europe (see Chapter 4). This led HRM professionals across the different countries to start conversations: first, to map what practices prevailed at the national and industry level (Brewster et al., 2001); and second, to find common ground for European HRM policy. Communal (1999) reports such conversations between Swedish and
Culture in Management: the Measurement of Differences
HOFSTEDE
Geert Hofstede’s Culture’s Consequences (1980, 2001) explores the differences ‘in thinking and social action’ at the country level between members of 50 nations and three regions. Hofstede originally used IBM employees’ answers to a company attitude survey conducted twice, around 1968 and 1972. The survey generated more than 116,000 questionnaires, with the number of respondents used in the analysis being approximately 30,000 in 1969 and 41,000 in 1973.
Hofstede identified and validated four cultural dimensions from respondents’ patterned answers. For each dimension, he presented possible origins as well as predictors and consequences for management behavior.
Hofstede’s cultural Geert Hofstede’s Culture’s Consequences (1980, 2001) explores the differences ‘in thinking and social action’ at the country level between members of 50 nations and three regions. Hofstede originally used IBM employees’ answers to a company attitude survey conducted twice, around 1968 and 1972. The survey generated more than 116,000 questionnaires, with the number of respondents used in the analysis being approximately 30,000 in 1969 and 41,000 in 1973.
Hofstede identified and validated four cultural dimensions from respondents’ patterned answers. For each dimension, he presented possible origins as well as predictors and consequences for management behavior.
Contribution to cross-cultural management
Undoubtedly Hofstede’s contribution to management is the fact that he could identify cultural dimensions with hard data, make comparisons across countries and show culture’s consequences in managerial behaviors. Previously, culture was seen as vague and intangible, a soft dimension that couldn’t be quantified nor measured. Hofstede influenced the way culture is perceived in
management: composed of recognizable dimensions, centered on values and relatively stable over time.
Hofstede shows that national cultures contain at least five universal dimensions. These dimensions are said to be universal because they appear to be fundamental problems with which all societies have to cope. Power Distance deals with human inequality, Uncertainty Avoidance with the level of stress caused by an unknown future, Individualism versus Collectivism deals with individuals’ relationships with primary groups, Masculinity versus Femininity relates to emotional role differentiation, and finally, Long-Term versus Short- Term Orientation deals with people’s choice of focus for their actions. Cultural dimensions rest on value systems that are said to affect ‘human thinking’. Culture is consequently presented as consisting of values, organized
into systems (dimensions). Hofstede’s definition of culture presents ‘traditional (i.e. historically derived and selected) ideas and especially their attached values’ as ‘the essential core of culture’ (Kroeber and Kluckhohn, 1952: 181). Individuals raised in a society have acquired components of the national culture and its implicit values to which they are exposed from early childhood. Culture is learned partly unconsciously; cultural values are deep-rooted. This is what
ofstede calls the ‘mental programming’ that influences people’s thinking action. He argues that this mental programming is at the source of differences in management practices across countries. Hofstede presents possible sources for each of the dimensions and expresses his belief that ‘there must be mechanisms in societies that permit the maintenance of stability in culture patterns across many generations’. He suggests the following mechanisms. First, value systems have been influenced by physical and social factors (e.g. climate, demography). These value systems are then expressed as societal norms that help develop and maintain institutions
(e.g. family, social groups, religion). ‘The institutions, once established, reinforce the societal norms and the conditions that led to their establishment. In a relatively closed society, such a system will hardly change at all.’
Geert Hofstede’s Culture’s Consequences (1980, 2001) explores the differences ‘in thinking and social action’ at the country level between members of 50 nations and three regions. Hofstede originally used IBM employees’ answers to a company attitude survey conducted twice, around 1968 and 1972. The survey generated more than 116,000 questionnaires, with the number of respondents used in the analysis being approximately 30,000 in 1969 and 41,000 in 1973.
Hofstede identified and validated four cultural dimensions from respondents’ patterned answers. For each dimension, he presented possible origins as well as predictors and consequences for management behavior.
Hofstede’s cultural Geert Hofstede’s Culture’s Consequences (1980, 2001) explores the differences ‘in thinking and social action’ at the country level between members of 50 nations and three regions. Hofstede originally used IBM employees’ answers to a company attitude survey conducted twice, around 1968 and 1972. The survey generated more than 116,000 questionnaires, with the number of respondents used in the analysis being approximately 30,000 in 1969 and 41,000 in 1973.
Hofstede identified and validated four cultural dimensions from respondents’ patterned answers. For each dimension, he presented possible origins as well as predictors and consequences for management behavior.
Contribution to cross-cultural management
Undoubtedly Hofstede’s contribution to management is the fact that he could identify cultural dimensions with hard data, make comparisons across countries and show culture’s consequences in managerial behaviors. Previously, culture was seen as vague and intangible, a soft dimension that couldn’t be quantified nor measured. Hofstede influenced the way culture is perceived in
management: composed of recognizable dimensions, centered on values and relatively stable over time.
Hofstede shows that national cultures contain at least five universal dimensions. These dimensions are said to be universal because they appear to be fundamental problems with which all societies have to cope. Power Distance deals with human inequality, Uncertainty Avoidance with the level of stress caused by an unknown future, Individualism versus Collectivism deals with individuals’ relationships with primary groups, Masculinity versus Femininity relates to emotional role differentiation, and finally, Long-Term versus Short- Term Orientation deals with people’s choice of focus for their actions. Cultural dimensions rest on value systems that are said to affect ‘human thinking’. Culture is consequently presented as consisting of values, organized
into systems (dimensions). Hofstede’s definition of culture presents ‘traditional (i.e. historically derived and selected) ideas and especially their attached values’ as ‘the essential core of culture’ (Kroeber and Kluckhohn, 1952: 181). Individuals raised in a society have acquired components of the national culture and its implicit values to which they are exposed from early childhood. Culture is learned partly unconsciously; cultural values are deep-rooted. This is what
ofstede calls the ‘mental programming’ that influences people’s thinking action. He argues that this mental programming is at the source of differences in management practices across countries. Hofstede presents possible sources for each of the dimensions and expresses his belief that ‘there must be mechanisms in societies that permit the maintenance of stability in culture patterns across many generations’. He suggests the following mechanisms. First, value systems have been influenced by physical and social factors (e.g. climate, demography). These value systems are then expressed as societal norms that help develop and maintain institutions
(e.g. family, social groups, religion). ‘The institutions, once established, reinforce the societal norms and the conditions that led to their establishment. In a relatively closed society, such a system will hardly change at all.’
Recent Developments in Theory and Empirical Research
STRATEGY AND INTERNATIONAL HRM
While the majority of international HRM research continues to focus on aspects of expatriation (Kochan et al., 1992), there is a growing literature which seeks to contribute to a better understanding of the relationship between international strategy and HRM (Welch, 1994; De Cieri and Dowling, 1999; Schuler et al., 1993; Dowling et al., 1999; Kobrin, 1994; Hendry, 1994). It has been argued that the fundamental strategic problem for top managers in international firms is balancing the economic need for integration with the pressures for local responsiveness
(Bartlett and Ghoshal, 1989, 1998; Doz and Prahalad, 1986), while recent research suggests that at the international level the firm’s strategic choices impose constraints or limits on the range of international HRM options (De Cieri and Dowling, 1999). The argument is that there should be distinct differences in international HRM policy and practice in multidomestic and transnational or globally integrated firms (Kobrin, 1992). Other researchers link international HRM staffing policy and practice to strategy (Edstrom and Galbraith, 1977; Scullion, 1996) while yet others suggest linkages between the product life cycle stage/international strategy and HRM policy and practice (Adler and Ghadar, 1990; Milliman et al., 1991). Increasingly the central issue for MNCs is not to identify the best IHRM policy per se but rather to find the best fit for the firm’s
strategy, structure and HRM approach. While global strategy is a significant determinant
of IHRM policy and practice, it has been argued that international human resources are a trategic resource, which should affect strategy formulation as well as its implementation Harvey, 1997). In this section we will examine two classic models of strategic international human resource management:
Adler and Ghadar’s phases of internationalization and the De Cieri and Dowling integrative framework of strategic HRM in MNCs. Adler and Ghadar’s phases of internationalization
Adler and Ghadar’s model (1990) is based on Vernon’s life cycle theory (1966). Vernon istinguishes three phases in the international product life cycle. The first phase (‘high tech’) focuses on the product, research and development (R&D) playing an important role as a unctional area. The second phase (‘growth and internationalization’) concentrates on developing and penetrating
markets, not only at home but also abroad. The focus therefore shifts from R&D
to marketing and management control. In the third and final phase (‘maturity’),
intense efforts are made to lower prices by implementing cost control measures.
According to Adler and Ghadar (1990: 239), the average length of the product
life cycle shortly after the Second World War was 15–20 years. Nowadays this
is 3–5 years; for some products it is as short as 5 months. An important implication
is that the various areas of emphasis in Vernon’s life cycle must increasingly
be dealt with simultaneously. Adler and Ghadar saw this as sufficient
reason to suggest a fourth phase (incidentally following in the footsteps of
Prahalad and Doz and Bartlett and Ghoshal as discussed in Chapter 2), in which
the company must achieve differentiation (as a way to develop and penetrate
markets) and integration (as a way to achieve cost control). Having introduced
a fourth phase, the authors then proceed to develop a model in which cultural
aspects and human resource management form the main focus of attention. In
short, they link Vernon’s phases, which concentrate largely on strategic and
structural issues, to culture and human resource management.
The influence of culture
According to Adler and Ghadar (1990), the impact of the cultural background
of a country or region differs from one phase to the next. They identify these
phases as:
• domestic: focus on home market and export;
• international: focus on local responsiveness and transfer of learning;
• multinational: focus on global strategy, low cost and price competition;
• global: focus on both local responsiveness and global integration.
(Please note that Adler and Ghadar use the same terms as Bartlett and Ghoshal, but attach them to different phases, which could be confusing.) The cultural component hardly plays a role in the first phase (domestic).
Management operates from an ethnocentric perspective and can afford to ignore the influence of foreign cultures. The attitude towards foreign buyers – which is a somewhat arrogant one – is he following: ‘We allow you to buy our product’ (Adler and Ghadar, 1990: 242). By contrast, in the second phase (international) the cultural differences of each foreign market are highly important hen entering into external relations. From the polycentric perspective, product design, marketing and production will concentrate on finding a good match between the product and the preferences and style of the relevant foreign market segment. That is why production is often transferred to the relevant country and/or region.
While the majority of international HRM research continues to focus on aspects of expatriation (Kochan et al., 1992), there is a growing literature which seeks to contribute to a better understanding of the relationship between international strategy and HRM (Welch, 1994; De Cieri and Dowling, 1999; Schuler et al., 1993; Dowling et al., 1999; Kobrin, 1994; Hendry, 1994). It has been argued that the fundamental strategic problem for top managers in international firms is balancing the economic need for integration with the pressures for local responsiveness
(Bartlett and Ghoshal, 1989, 1998; Doz and Prahalad, 1986), while recent research suggests that at the international level the firm’s strategic choices impose constraints or limits on the range of international HRM options (De Cieri and Dowling, 1999). The argument is that there should be distinct differences in international HRM policy and practice in multidomestic and transnational or globally integrated firms (Kobrin, 1992). Other researchers link international HRM staffing policy and practice to strategy (Edstrom and Galbraith, 1977; Scullion, 1996) while yet others suggest linkages between the product life cycle stage/international strategy and HRM policy and practice (Adler and Ghadar, 1990; Milliman et al., 1991). Increasingly the central issue for MNCs is not to identify the best IHRM policy per se but rather to find the best fit for the firm’s
strategy, structure and HRM approach. While global strategy is a significant determinant
of IHRM policy and practice, it has been argued that international human resources are a trategic resource, which should affect strategy formulation as well as its implementation Harvey, 1997). In this section we will examine two classic models of strategic international human resource management:
Adler and Ghadar’s phases of internationalization and the De Cieri and Dowling integrative framework of strategic HRM in MNCs. Adler and Ghadar’s phases of internationalization
Adler and Ghadar’s model (1990) is based on Vernon’s life cycle theory (1966). Vernon istinguishes three phases in the international product life cycle. The first phase (‘high tech’) focuses on the product, research and development (R&D) playing an important role as a unctional area. The second phase (‘growth and internationalization’) concentrates on developing and penetrating
markets, not only at home but also abroad. The focus therefore shifts from R&D
to marketing and management control. In the third and final phase (‘maturity’),
intense efforts are made to lower prices by implementing cost control measures.
According to Adler and Ghadar (1990: 239), the average length of the product
life cycle shortly after the Second World War was 15–20 years. Nowadays this
is 3–5 years; for some products it is as short as 5 months. An important implication
is that the various areas of emphasis in Vernon’s life cycle must increasingly
be dealt with simultaneously. Adler and Ghadar saw this as sufficient
reason to suggest a fourth phase (incidentally following in the footsteps of
Prahalad and Doz and Bartlett and Ghoshal as discussed in Chapter 2), in which
the company must achieve differentiation (as a way to develop and penetrate
markets) and integration (as a way to achieve cost control). Having introduced
a fourth phase, the authors then proceed to develop a model in which cultural
aspects and human resource management form the main focus of attention. In
short, they link Vernon’s phases, which concentrate largely on strategic and
structural issues, to culture and human resource management.
The influence of culture
According to Adler and Ghadar (1990), the impact of the cultural background
of a country or region differs from one phase to the next. They identify these
phases as:
• domestic: focus on home market and export;
• international: focus on local responsiveness and transfer of learning;
• multinational: focus on global strategy, low cost and price competition;
• global: focus on both local responsiveness and global integration.
(Please note that Adler and Ghadar use the same terms as Bartlett and Ghoshal, but attach them to different phases, which could be confusing.) The cultural component hardly plays a role in the first phase (domestic).
Management operates from an ethnocentric perspective and can afford to ignore the influence of foreign cultures. The attitude towards foreign buyers – which is a somewhat arrogant one – is he following: ‘We allow you to buy our product’ (Adler and Ghadar, 1990: 242). By contrast, in the second phase (international) the cultural differences of each foreign market are highly important hen entering into external relations. From the polycentric perspective, product design, marketing and production will concentrate on finding a good match between the product and the preferences and style of the relevant foreign market segment. That is why production is often transferred to the relevant country and/or region.
Strategy and Structure of Multinational Companies
DIFFERENCES BETWEEN DOMESTIC AND MULTINATIONAL FIRMS
Multiculturalism and geographic dispersion lead to greater complexity. When asked to describe this complexity more concretely by completing the statement: 34 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t ‘In comparison with domestic organizations, complexity is greater in multinational organizations because of…’ the experts predominantly agreed with the following (the figure in parenthesis represents the percentage of experts that agreed
with the statement):
• the need for multinational corporations to be more sensitive to government, labour, and public opinion concerns (91.7%) and regulations (62.5%);
• home-country philosophies and practices that are inapplicable in foreign locales
(83.3%);
• the impossibility of implementing uniform personnel practices (83.3%) and performance
standards (70.8%) (Adler, 1983: 15). These different factors will be dealt with extensively in this and subsequent chapters.
Potential benefits of multiculturalism and geographic dispersion
Multiculturalism and geographic dispersion can be accompanied by both advantages and disadvantages. Regarding multiculturalism, the panel of experts made a distinction between current and future benefits. According to the panel the most important future benefits of multiculturalism would be:
• increasing creativity and innovation (83.3%);
• demonstrating more sensitivity in dealing with foreign customers (75%);
• being able to get the best personnel from everywhere (i.e. not being ‘stuck’ with just local talent (66.7%);
• taking a global perspective (e.g. the MNC choosing the best opportunities globally) (62.5%);
• creating a ‘superorganizational culture’, using the best of all cultures (based on the need for a unifying, transcending culture) (62.4%);
• greater flexibility within the organization both to adapt to a wider range of environments and to change within those environments (62.5%) (Adler, 1983: 21).
SOURCES OF COMPETITIVE ADVANTAGE AND STRATEGIC OBJECTIVES
In the previous chapter we discussed how Ghoshal (1987) identified three fundamental ways of building global competitive advantage for multinational companies. In later work these means for achieving worldwide competitiveness were linked to the different ends in terms of strategic objectives. In this section we will discuss the three major strategic objectives of multinational companies and will show how MNCs following different competitive strategies use different
combinations of means and ends. In a final subsection, we will discuss work by Rugman and Verbeke that links the transactions cost theory of international production as discussed in Chapter 1 to the competitive strategies identified by Bartlett and Ghoshal.
Strategic objectives
Bartlett and Ghoshal (2000) discuss three different strategic objectives for multinational companies. They argue that multinational companies need to meet the challenges of global efficiency, multinational flexibility and worldwide learning. It is important to realize that global efficiency can be enhanced both by increasing revenues and by lowering costs. Global integration of activities allows firms to realize economies of scale and scope and hence leads to lower cost. Most authors have focused on this part of global efficiency.
However, firms can also increase their revenues by differentiating their products to respond to national differences in tastes, industry structures, distribution systems and government regulations (Bartlett and Ghoshal, 2000: 242). Multinational flexibility is defined as ‘the ability of a company to manage the risks and exploit the opportunities that arise from the diversity and volatility of the global environment’ (Bartlett and Ghoshal, 2000: 243). Bartlett and Ghoshal identify four sources of diversity and volatility that can offer both risks and opportunities:
• macro-economic factors, such as wars, interest and wage rates, exchange rates;
• policy actions of national governments, such as expropriation and changes in exchange rates;
36 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t
• responses of competitors in the host market;
• resources, including natural, financial and human resources.
The very presence of multinational companies in diverse national environments creates opportunities for worldwide learning. MNCs are exposed to a wide range of different stimuli and this allows them to develop the diverse resources and capabilities that give them the ability to innovate and exploit these innovations worldwide (Bartlett and Ghoshal, 2000: 246). It is important though that the MNC creates the mechanisms and systems to facilitate learning.
The existence of diversity alone does not guarantee learning.
Multiculturalism and geographic dispersion Adler (1983) tried to identify the major differences between domestic and multinational firms by asking a selected group of experts in this field. Two factors were considered to be of primary importance in differentiating between domestic and multinational firms: multiculturalism and geographic dispersion. Multiculturalism is defined as ‘the presence of people from two or more cultural backgrounds within an organization’. Geographic dispersion is defined as ‘the location of various subunits of the parent firm in different countries’. According to Adler the combination of both multiculturalism and geographic
dispersion is of fundamental importance. So far, most international business studies have focused on the consequences of geographic dispersion and tended to give little attention to the consequences of multiculturalism. Most comparative management studies reversed the emphasis. They tended to focus on cultural differences, while more or less neglecting the geographic dispersion aspect of multinational firms. To get a complete picture of multinational firms, both perspectives are equally important. As the subjects in this chapter fall mainly in the
realm of international business, multiculturalism will occupy only a modest role. Other chapters in this book, however, will compensate for this shortfall.
Complexitydispersion is of fundamental importance. So far, most international business studies have focused on the consequences of geographic dispersion and tended to give little attention to the consequences of multiculturalism. Most comparative management studies reversed the emphasis. They tended to focus on cultural differences, while more or less neglecting the geographic dispersion aspect of multinational firms. To get a complete picture of multinational firms, both perspectives are equally important. As the subjects in this chapter fall mainly in the
realm of international business, multiculturalism will occupy only a modest role. Other chapters in this book, however, will compensate for this shortfall.
Multiculturalism and geographic dispersion lead to greater complexity. When asked to describe this complexity more concretely by completing the statement: 34 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t ‘In comparison with domestic organizations, complexity is greater in multinational organizations because of…’ the experts predominantly agreed with the following (the figure in parenthesis represents the percentage of experts that agreed
with the statement):
• the need for multinational corporations to be more sensitive to government, labour, and public opinion concerns (91.7%) and regulations (62.5%);
• home-country philosophies and practices that are inapplicable in foreign locales
(83.3%);
• the impossibility of implementing uniform personnel practices (83.3%) and performance
standards (70.8%) (Adler, 1983: 15). These different factors will be dealt with extensively in this and subsequent chapters.
Potential benefits of multiculturalism and geographic dispersion
Multiculturalism and geographic dispersion can be accompanied by both advantages and disadvantages. Regarding multiculturalism, the panel of experts made a distinction between current and future benefits. According to the panel the most important future benefits of multiculturalism would be:
• increasing creativity and innovation (83.3%);
• demonstrating more sensitivity in dealing with foreign customers (75%);
• being able to get the best personnel from everywhere (i.e. not being ‘stuck’ with just local talent (66.7%);
• taking a global perspective (e.g. the MNC choosing the best opportunities globally) (62.5%);
• creating a ‘superorganizational culture’, using the best of all cultures (based on the need for a unifying, transcending culture) (62.4%);
• greater flexibility within the organization both to adapt to a wider range of environments and to change within those environments (62.5%) (Adler, 1983: 21).
SOURCES OF COMPETITIVE ADVANTAGE AND STRATEGIC OBJECTIVES
In the previous chapter we discussed how Ghoshal (1987) identified three fundamental ways of building global competitive advantage for multinational companies. In later work these means for achieving worldwide competitiveness were linked to the different ends in terms of strategic objectives. In this section we will discuss the three major strategic objectives of multinational companies and will show how MNCs following different competitive strategies use different
combinations of means and ends. In a final subsection, we will discuss work by Rugman and Verbeke that links the transactions cost theory of international production as discussed in Chapter 1 to the competitive strategies identified by Bartlett and Ghoshal.
Strategic objectives
Bartlett and Ghoshal (2000) discuss three different strategic objectives for multinational companies. They argue that multinational companies need to meet the challenges of global efficiency, multinational flexibility and worldwide learning. It is important to realize that global efficiency can be enhanced both by increasing revenues and by lowering costs. Global integration of activities allows firms to realize economies of scale and scope and hence leads to lower cost. Most authors have focused on this part of global efficiency.
However, firms can also increase their revenues by differentiating their products to respond to national differences in tastes, industry structures, distribution systems and government regulations (Bartlett and Ghoshal, 2000: 242). Multinational flexibility is defined as ‘the ability of a company to manage the risks and exploit the opportunities that arise from the diversity and volatility of the global environment’ (Bartlett and Ghoshal, 2000: 243). Bartlett and Ghoshal identify four sources of diversity and volatility that can offer both risks and opportunities:
• macro-economic factors, such as wars, interest and wage rates, exchange rates;
• policy actions of national governments, such as expropriation and changes in exchange rates;
36 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t
• responses of competitors in the host market;
• resources, including natural, financial and human resources.
The very presence of multinational companies in diverse national environments creates opportunities for worldwide learning. MNCs are exposed to a wide range of different stimuli and this allows them to develop the diverse resources and capabilities that give them the ability to innovate and exploit these innovations worldwide (Bartlett and Ghoshal, 2000: 246). It is important though that the MNC creates the mechanisms and systems to facilitate learning.
The existence of diversity alone does not guarantee learning.
International Human Resource Management
Internationalization: Context, Strategy, Structure and Processes
STATISTICS ON INTERNATIONALIZATION TRENDS
International trade
The year 2001 saw the first decline in the volume of world trade since 1982, mostly due to a decline of economic activity in the three major developed markets (the USA, Japan and the European Union), the bursting of the global IT bubble and the aftermath of the tragic events of September 11 (WTO, 2002). However as Figure 1.1 indicates, historical data show that international trade has become much more important in the last 50 years. The growth in international trade has consistently surpassed the growth in production. While the world production in 2001 is seven times as high as in 1950, international trade is more than 20 times as high. It is important to note, however, that a lot of international trade could more properly be called regional trade, covered by major regional trade agreements such as NAFTA (North American Free Trade Agreement), the EU (European Union) and APEC (Asia Pacific Economic Cooperation): 43% of the exports within NAFTA, 65% of the exports within the EU and 68% of the exports within APEC do not leave the region (WTO, 2002). In Section 3 we will discuss a number of theories which explain the existence of international trade.
Foreign direct investment
Foreign investments of multinational firms are even more important than international trade for the growth of the world economy. In 2001 the sales of foreign subsidiaries of multinational companies (MNCs) were nearly twice as high as world exports, while in 1990 the two were roughly equal. Although, just like international trade flows, FDI flows have suffered a substantial decline in 2001, the longer term prospects remain promising, with major MNCs likely to continue their international expansion (UNCTAD, 2002). The influence of MNCs is reflected in the increase in the stock of foreign direct investment (FDI) and the growth in the number of multinationals and their foreign subsidiaries. As shown in Table 1.1, the total stock of foreign investment has reached almost $7 trillion. More than 850,000 foreign subsidiaries of about 65,000 parent firms contributed approximately $18.5 trillion to world sales in 2001, while the
number of employees in foreign affiliates has more than doubled in the last decade. In Section 4 we will discuss a number of theories which explain the existence of foreign direct investment.
DETERMINANTS OF INTERNATIONAL TRADE
In this section we will briefly consider a number of theories which explain why countries trade with one another. We will therefore be emphasizing the country level. In the following section we will shift our discussion to theories focusing on the multinational organization. These theories explain why multinationals exist.
First, we will consider two ‘classic’ theories of trade, which are based on the idea that country-specific factors (also known as location-specific factors) are decisive for international trade. Such country-specific factors may offer absolute or relative comparative cost advantages. A third theory explains why international trade may arise even in the absence of such cost advantages. The key term here is economies of scale. Later, in Section 5, we will explore Porter's analysis, the latest in a long line of international trade theories reaching back more than two centuries.
The Heckscher–Ohlin theorem
This brings us to the question: where do such cost differences come from? One answer, known as the Heckscher–Ohlin (H–O) theorem, was introduced by the Swedish economists Heckscher and Ohlin. Comparative cost differences are the result of differences in factor endowments (labour, land and capital). Some countries, for example, have a relatively large quantity of capital and relatively small labour force (for example, Western nations). Other countries have relatively little capital and a large labour force (for example, most of the developing nations).
Note that it is the relative position of these production factors with respect to one another that counts. We would not, for example, say that Zaire has more labour than the US (which is untrue) or that it has more labour than capital (how would one go about measuring that?). We can, however, say that Zaire has more labour available per quantity of capital than the United States does.
Production factors available in relatively large quantities will be inexpensive, and vice versa. (For the time being we will not consider the demand conditions. A country may, for example, have absolutely no demand for a domestic good produced with scarce production factors, resulting in a low price.) In a country that possesses a relatively large amount of capital and very little labour, capital-intensive products will be cheap and labour-intensive products expensive.
The reverse will be true for a country with a relatively small amount of capital and a large labour force. The same arguments can be offered for the production factor ‘land’. The impact on international trade is that commodities requiring for their production much of [abundant
factors of production] and little of [scarce factors] are exported in exchange for goods that call for factors in the opposite proportions.
Thus indirectly, factors in abundant supply are exported and factors in scant supply are imported. (Ohlin, 1933: 92) In global terms, we can explain international trade flows rather well using this theorem. Japan, a country with a relatively limited amount of land, imports many of its primary products. Third World countries with a relatively large body of (unskilled) labour export labour-intensive products such as textiles and shoes.
STATISTICS ON INTERNATIONALIZATION TRENDS
International trade
The year 2001 saw the first decline in the volume of world trade since 1982, mostly due to a decline of economic activity in the three major developed markets (the USA, Japan and the European Union), the bursting of the global IT bubble and the aftermath of the tragic events of September 11 (WTO, 2002). However as Figure 1.1 indicates, historical data show that international trade has become much more important in the last 50 years. The growth in international trade has consistently surpassed the growth in production. While the world production in 2001 is seven times as high as in 1950, international trade is more than 20 times as high. It is important to note, however, that a lot of international trade could more properly be called regional trade, covered by major regional trade agreements such as NAFTA (North American Free Trade Agreement), the EU (European Union) and APEC (Asia Pacific Economic Cooperation): 43% of the exports within NAFTA, 65% of the exports within the EU and 68% of the exports within APEC do not leave the region (WTO, 2002). In Section 3 we will discuss a number of theories which explain the existence of international trade.
Foreign direct investment
Foreign investments of multinational firms are even more important than international trade for the growth of the world economy. In 2001 the sales of foreign subsidiaries of multinational companies (MNCs) were nearly twice as high as world exports, while in 1990 the two were roughly equal. Although, just like international trade flows, FDI flows have suffered a substantial decline in 2001, the longer term prospects remain promising, with major MNCs likely to continue their international expansion (UNCTAD, 2002). The influence of MNCs is reflected in the increase in the stock of foreign direct investment (FDI) and the growth in the number of multinationals and their foreign subsidiaries. As shown in Table 1.1, the total stock of foreign investment has reached almost $7 trillion. More than 850,000 foreign subsidiaries of about 65,000 parent firms contributed approximately $18.5 trillion to world sales in 2001, while the
number of employees in foreign affiliates has more than doubled in the last decade. In Section 4 we will discuss a number of theories which explain the existence of foreign direct investment.
DETERMINANTS OF INTERNATIONAL TRADE
In this section we will briefly consider a number of theories which explain why countries trade with one another. We will therefore be emphasizing the country level. In the following section we will shift our discussion to theories focusing on the multinational organization. These theories explain why multinationals exist.
First, we will consider two ‘classic’ theories of trade, which are based on the idea that country-specific factors (also known as location-specific factors) are decisive for international trade. Such country-specific factors may offer absolute or relative comparative cost advantages. A third theory explains why international trade may arise even in the absence of such cost advantages. The key term here is economies of scale. Later, in Section 5, we will explore Porter's analysis, the latest in a long line of international trade theories reaching back more than two centuries.
The Heckscher–Ohlin theorem
This brings us to the question: where do such cost differences come from? One answer, known as the Heckscher–Ohlin (H–O) theorem, was introduced by the Swedish economists Heckscher and Ohlin. Comparative cost differences are the result of differences in factor endowments (labour, land and capital). Some countries, for example, have a relatively large quantity of capital and relatively small labour force (for example, Western nations). Other countries have relatively little capital and a large labour force (for example, most of the developing nations).
Note that it is the relative position of these production factors with respect to one another that counts. We would not, for example, say that Zaire has more labour than the US (which is untrue) or that it has more labour than capital (how would one go about measuring that?). We can, however, say that Zaire has more labour available per quantity of capital than the United States does.
Production factors available in relatively large quantities will be inexpensive, and vice versa. (For the time being we will not consider the demand conditions. A country may, for example, have absolutely no demand for a domestic good produced with scarce production factors, resulting in a low price.) In a country that possesses a relatively large amount of capital and very little labour, capital-intensive products will be cheap and labour-intensive products expensive.
The reverse will be true for a country with a relatively small amount of capital and a large labour force. The same arguments can be offered for the production factor ‘land’. The impact on international trade is that commodities requiring for their production much of [abundant
factors of production] and little of [scarce factors] are exported in exchange for goods that call for factors in the opposite proportions.
Thus indirectly, factors in abundant supply are exported and factors in scant supply are imported. (Ohlin, 1933: 92) In global terms, we can explain international trade flows rather well using this theorem. Japan, a country with a relatively limited amount of land, imports many of its primary products. Third World countries with a relatively large body of (unskilled) labour export labour-intensive products such as textiles and shoes.
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