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INTERNATIONAL BUSINESS MANAGEMENT

LESSON 26
HUMAN RESOURCE IN INTERNATIONAL & REQUIREMENT,
SELECTION, COMPENSATION, COMPARATIVE RELATIONAL.

Management Recruitment and Selection Taiwan 15


Many companies have personnel record systems that include Sweden 14
data on home- and foreign country nationals. These data Germany 11
include not only the usual technical and demographic data but
South Korea 11
also-if the company has international activities-information on
such adaptive capabilities as foreign-language qualifications, Switzerland 11
willingness to accept foreign assignments, and results of Japan 10
company-administered tests. However, a company may Average employees were assumed to work in industrial
encounter problems in bringing foreign managers into the companies with about $500 million in annual sales. Estimates
system; if the company owns less than 100 percent of the provided by worldwide Total Remuneration 2001-2002. Towers
foreign facility, the other stockholders may object. To the extent Perrin.
that companies have detailed personnel records, they can
Source: Eric Wahlgren, “Pay and Perks,” Business week (April
compare employees to gauge which ones may be best suited for
18, 2001).
positions with international responsibility.
For example, people who have successfully adjusted to domes-
Companies typically know more about their employees’
tic transfers or have previous international experience are more
technical capabilities than their adaptive ones. Still, improving
likely to adapt abroad. In addition, some companies use a
the selection of expatriates pushes them to measure personal
variety of personality testing mechanisms as assessment aids.
adaptability for foreign transfer.
Companies are increasingly including spouses and children in
Table 7.3 tests and extensive interviews because a foreign assignment is
The Difference In Pay Between Ceos And The Average Worker, usually more stressful for the family than for the transferred
2000 employee. For example, a survey of prominent multinationals
The difference in the compensation of chief executive offers found most expatriate assignments fail because of family
and that of the typical hourly employee varies among countries. difficulties. Problems arise because the expatriate employees
generally receive advanced training, but the spouses must start at
Country Ceo Compensation As A Multiple Of The Compensa- the bottom in developing new social relations and in learning
tion Of The Typical Hourly Employee how to carry out the day-to-day management of the home. The
United states 531 separation from friends, family, and career often make the
Brazil 57 nonworking spouses lonely, and so they increasingly look to
Venezuela 54 their working spouses for more companionship. Typically, the
working spouses have less time because of the demands of
South Africa 51 their new jobs. This situation can provoke marital stress, which,
Argentina 48 in turn, affects work performance. As a result, interviewers look
Malaysia 47 not only at likely adaptiveness but also at whether marriages can
Mexico 45 weather the stress of a foreign assignment.

Hong Kong 38 One way a company can bypass some of these problems is to
acquire a foreign company and, hence, its personnel. Companies
Singapore 37 may also form joint ventures with companies abroad so that
Britain 25 the partner will contribute personnel to the operation as well as
Thailand 23 take responsibility for hiring new personnel. In Japan, where
Australia 22 the labor market is tight and people are reluctant to move to
new companies, foreign firms use Japanese partners extensively.
Netherlands 22 However, relying on a partner to manage local human resources
Canada 21 creates the risk that employees may see their primary allegiance
China (Shanghai) 21 to that partner rather than to the foreign investor.
Belgium 19 International Development of Managers
Italy 19 Companies need people with a variety of specialized skills to
carry out global operations. Therefore, programs to develop
Spain 18
managers internationally must be tailored, to some degree, to
New Zealand 16 specific individuals and situations. There are three principle
France 16 developmental needs.

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1. Top executives must have a global mindset that is free of of global corporate cultures and achievement of integrated

INTERNATIONAL BUSINESS MANAGEMENT


national prejudices. They must understand the global global strategies. To balance a company’s global and national
environment so that they can provide the leadership needed needs, managers must be neither too ethnocentric nor too
to attain a global mission. polycentric. Therefore, MNEs aim to develop managers who are
2. Managers with direct international responsibility must be committed to the subsidiary at which they work and also to the
able to balance the well being of corporate and national parent company’s global well being. However, companies rarely
operations. find such a dual allegiance.
3. Managers without direct international responsibility must Figure 9.5 shows four types of expatriate managers: (1) free
understand the importance of international competition on agent, (2) heart at home, (3) going native, and (4) dual citizen.76
the company’s performance. There are two types of free agent. The first includes people who
put their careers above either the parent company or the foreign
Managers can gain these perspectives and knowledge before they
operation where they are working. They often are highly
join or after they begin working for a company.
effective, but they will move with little warning from one
To help meet these developmental needs, business schools are company to another, may serve their own short-term interests
expanding their international offerings and requirements. Still, at the expense of the company’s long-term ones, and do not
there is little agreement as to what students should study to plan to return to their home country. The second type of free
help prepare them for international responsibilities. Two agent includes people whose careers have plateaued at home and
popular approaches are (1) to transfer specific knowledge about who take a foreign assignment only for the bigger paycheck. The
foreign environments and international operation and (2) to heart at home type is overly ethnocentric and is usually eager to
develop interpersonal awareness and adaptability. The former return home. When the company wants strong headquarters
may tend to remove some of the fear and aggression that control, this type of person may be quite effective. The going
emerge when dealing with the unknown, whereas the latter native type learns and accepts the local way of doing business,
approach tends to make people more receptive to foreign wants to stay in the foreign location, and prefers not to consult
environments. However, the awareness of a difference does not headquarters. This type of person may be appropriate for
necessarily imply a willingness to adapt to it, particularly to a situations in which the company follows multidomestic
cultural variation. Although either approach generally helps a practices. The dual citizen type has a clear understanding of
person adjust better than those who lack training, there appears global needs, why he or she is needed at the foreign subsidiary,
to be no significant difference in the effectiveness of the two and local realities that may necessitate national responsiveness.
approaches. This person usually finds methods to align the interests of
Companies continue the international development of headquarters and the subsidiary; overall, this is the most
employees after they hire them. Such companies must also effective type of expatriate manager.
develop employees because many of them feel ill equipped to To counterbalance the heart at home type, the company may
manage growing worldwide responsibilities as they move up in send younger managers abroad and go to great length to
their organizations. To counter this tendency, a company can facilitate their cultural adjustment. To counterbalance the going
train those people who are about to take a foreign assignment, native effect, the company may send people abroad who have
such as through language and orientation programs. Alterna- strong ties to the company, limit their time away from head-
tively, it could include international business components in quarters, keep in close contact with them (perhaps through a
external or internal programs for all employees-irrespective of mentor program), and assist their repatriation. In either
whether the person plans to work abroad. Examples of internal situation, the company should handle the international transfer
programs are those at PepsiCo and Raychem, which bring so that the expatriate understands why he or she has been
foreign nationals to U.S. divisions for six months to a year; selected for the post, how performance will be measured, the
IBM’s regional training centers, in which managers from several objectives of the parent company and local unit, and the
countries convene for specific topics; P&G’s training on location of control. These recommendations also may apply to
globalization issues; and programs at GE, Motorola, and other than expatriate employees. For example, local managers in
Honda of America to teach foreign languages and cultural foreign subsidiaries may be less apt to be a heart at home type if
sensitivity. they have closer contact with headquarters and believe their
The most common predeparture training is an informational future is tied more to global than to local interests.
briefing. Topics typically include cultural differences, political The degree to which companies develop the international
structures, job design, compensation, housing, climate, capabilities of their managers depends on the importance of
education, health conditions, home sales, taxes, transport of their international operations. The MNE that is highly depen-
goods, job openings after repatriation, and salary distribution. dent on and committed to international operations has more
Companies sometimes follow predeparture training with extensive international human resource needs than those of a
cultural training about six months after expatriates arrive in a company that exports or imports a small share of its output.
foreign country in the belief that they can then better engage The latter type of company mostly needs personnel who are
these topics. technically trained or knowledgeable about trade documenta-
While working in foreign countries, managers strive to break tion, foreign-exchange risk, and political-economic conditions.
down nationalistic barriers that impair companies’ development

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Labor Market Differences Migrant workers in many countries have permission to stay for
INTERNATIONAL BUSINESS MANAGEMENT

As a company moves onto foreign production, it must consider only short periods, such as three to six months for New
how to staff, motivate, compensate, and retain its foreign Zealand’s workers from Fiji and Tonga. In many other cases,
workforce. The norms in these human resource activities vary workers leave their families behind in the hope of returning
substantially from one country to another. Thus, there is some home after saving enough money while working in the foreign
danger in a company’s effort to replicate home-office organiza- country. This creates workforce uncertainty for employers.
tional structures, office routines, and job descriptions abroad, Another uncertainty is the extent to which government
particularly in developing countries. In addition, laborsaving authorities will restrict the number of foreign workers because
devices that are economically justifiable at home, where wage of pressures both from domestic laborers who want to protect
rates are high, may be more costly than labor-intensive types of their job opportunities and from groups prejudiced against
production in a country with high unemployment rates and low foreigners.
wages. Because of differences in labor skills and attitudes, the The influx and use of foreign workers create additional
company also may find it beneficial to simplify tasks and use workplace problems. For example, in parts of Western Europe,
equipment that would be considered obsolete in an industrial companies relegate certain nationality groups to less complex
economy. Finally, using labor-intensive methods may gain the jobs because their native language complicates training them.
favor of government officials who are combating local unem- One result has been the development of homogeneous ethnic
ployment. work groups at cross-purposes with other groups in the
International Labor Mobility organization, as well as the emergence of go-betweens who can
People often try to emigrate from countries with high unem- communicate with management and labor.
ployment and low wages to countries with labor shortages and Since September 11, 2001, entering and residing in many
high wages. Migration flows are shaped by the type of legal countries, particularly the United States, has become more
entry difficult. Prior to September 11, the United States relied on its
Visa Waiver Program, established in 1986, to permit the citizens
of 28 participating countries to travel to the United States for
business visits, temporary local assignments, or tourism for 90
days or less without first obtaining a visa from U.S. embassies
abroad. Travelers from visa waiver countries to the United States
totaled approximately 17.6 million in 2000 and 14.7 million in
2001. The events preceding 9/11-many of the terrorists who
hijacked the commercial flights had fabricated visa applications-
led many to question the effectiveness of U.S. visa programs
Some worried that terrorists could again exploit these programs
to enter the United States. Consequently, in 2002, the U.S.
Congress passed the Border Security Act, which mandated a
registration system that would allow authorities to track all
Figure 9.5 Allegiance of Expatriate Managers
incoming visa holders by 2005. The U.S. Justice Department
restrictions that a country uses to minimize the economic and widened the new law’s instructions, setting up a special program
social problems of absorbing large numbers of immigrants. to register visa holders already living in the United States-
Because of these restrictions, companies depend less today on regardless of how long they had lived in the country. Increased
imported labor than in earlier generations, despite the presence visa security has also impeded the international mobility of
of sizable numbers of legal and illegal workers in industrial businesspeople. For example, in 2003, several hundred
countries. international passengers a day were missing connecting flights at
The incentive to hire immigrant workers is straightforward: Bush Intercontinental Airport in Texas because of delays at the
They often work for a fraction of what domestic workers with immigration counter. Revised visa regulations now required
comparable skills demand. This is especially true of illegal virtually all international travelers arriving on direct flights from
immigrants who cannot afford-or prefer not-to return to their other countries to appear before an immigration inspector
home countries. It is also true within the European Union, before catching a connecting flight to other U.S. cities. Motions
where workers may move legally from one country to another in for more detailed visa processing requirements along with
response to wage rate differences. For example, construction pending calls for biometric collection threatened to further
workers from other EU countries (mainly Britain, Ireland, and complicate international labor mobility.
Portugal) work in Germany for considerably less than the wages
Labor Compensation Differences
paid to German laborers. In other cases, companies have
Companies can gain competitive advantages by establishing
sought specialists from abroad. Shared Resources, a small U.S.-
production facilities where they can pay labor less than their
based computer system company, recruits employees in India to
competitors pay. We now examine national differences in the
work on contracts in Columbus, Ohio. Critics usually accuse
amount and method of paying workers, along with the
companies of behaving unethically when they hire foreign
dynamics of comparative labor costs.
employees at lower wages than domestic workers.

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Reasons for Country Differences in Labor Compensation the United States compared with those in Western Europe, so

INTERNATIONAL BUSINESS MANAGEMENT


The compensation that companies pay depends on workers’ there is more incentive for unemployed U.S. workers to find
contributions to the business, the supply of and demand for new jobs.
particular skills (the so-called going wage) in the area, the cost of Too often, companies compare compensation expenses on a
living, government legislation, and collective-bargaining ability. per-worker basis, which may bear little relationship to the total
Company’s methods of payment (salaries, wages, commis- expenditure for employees. Workers’ abilities and motivations
sions, bonuses, and fringe benefits) depend on local customs, vary widely. Consequently, it is the output associated with labor
feelings of security, taxes, and government requirements. Both cost, or labor productivity, which is important. Seemingly cheap
the amount and method of payment are affected by a country’s labor actually may raise the total compensation expenditure
culture. For example, within a highly individualistic, meritocratic because of the need for more supervision, added training
society such as the United States, there is a preference for expenses, and adjustments in production methods. For
compensation based ‘on proportional contribution-the result example, Quality Coils, a small U.S. company, moved some
being a heavy reliance on bonuses and a high disparity in operations to Mexico because hourly wages were only about
incomes within the organization. In a collectivist society, such as one-third of what the company paid in Connecticut. However,
Japan, there is a preference for more egalitarian allocations, ‘the company later returned to Connecticut because of high
regardless of contributions. In an economy in which people absenteeism and low productivity in Mexico. Further, if labor
have a high need to avoid risk, workers prefer job security and turnover is high, there is an ongoing, continuing need to hire
income preservation rather than income growth. and train workers.
MNEs usually pay slightly better than their local counterparts Differences among countries in the amount and type ‘of
do in lower-wage countries (although they still pay less than compensation continually change. Salaries and wages (as well as
what they do in higher-wage countries). They typically pay more other expenditures) may rise more rapidly in one locale than in
because of their management philosophies and structures. An another. Therefore, the competitiveness of operations in
MNE’s usual management philosophy, particularly in contrast different countries may shift. For example, in the 1980s, Korean
to that of a local, family-run company, is to attract higher skilled workers made millions of shoes for Nike and Reebok; how-
workers by offering higher relative wages. In addition, the ever, as Korean labor costs grew, most of these jobs shifted to
higher productivity of its product and process technologies may China and Indonesia, which eventually saw some of these jobs
allow it to compensate employees more, than local companies move onto lower-cost producers in Vietnam.
do. Further, when a company enters a country, experienced The process of comparing costs is difficult due to shifting
workers may demand higher compensation purely because they capabilities. An example illustrates this idea. Assume U.S.
expect foreign companies to pay higher wages. productivity per worker in manufacturing increased by 2.8
Differing Cost of Benefits percent (or 1.028 of what it was before), and hourly compensa-
Fringe benefits differ radically from one country to another. tion rates went up by 10.2 percent (or 1.102) of what they were
Consequently; direct-compensation figures do not accurately before. The result was a unit labor-cost increase of 7.2 percent
reflect the amount a company must pay for a giving job in a (1.102 divided by 1.028). Meanwhile, in the United Kingdom,
given country. The types of benefits that are either customary or productivity increased by 5.9 percent (or 1.059 of what it was
have been required also vary. In Japan, for example, large before) and hourly compensation rates by 16.2 percent (or 1.162
companies commonly give workers such benefits as family of what they were before), amounting to a unit labor-cost
allowances, housing loans and subsidies, lunches, children’s increase of 9.7 percent (1.162 divided by 1.059). This meant that
education, and subsidized vacations. As a result, fringe benefits labor costs adjusted to productivity were rising more rapidly in
make up a much higher portion of total compensation in Japan the United Kingdom than in the United States in terms of local
than in the United States. Moreover, in many countries, currencies. However, if the pound depreciated substantially in
companies give end-of-the year bonuses, housing allowances, relation to the dollar, the labor cost measured in dollars could
long vacations, profit sharing, and payment supplements based actually have become more favorable in the United Kingdom
on the number of children the worker has. than in the United States.
In many countries, firing or laying off an employee may be Comparative Labor Relations
either expensive or nearly impossible, resulting in unexpectedly In each country in which an MNE operates, it must deal with
higher costs for a company accustomed to the efficient econo- groups of workers whose approach to the workplace reflects the
mies of regulating its workforce. In the United States, for sociopolitical environment of the country. This environment
example, companies expect to layoff workers when demand affects whether they join labor unions, how they bargain, and
falls seasonally or cyclically. In many countries, however, a what they want from companies.
company has no legal recourse except to fire workers-and then Sociopolitical Environment
perhaps only if it is permanently closing down its operations, at There are striking international differences in how labor and
which time it must pay high severance compensation. To halt management view each other. When there is little mobility
operations in such countries, a company must come to an between the two groups (generally, children of laborers become
agreement with its unions and the government on such issues laborers, and children of managers become managers), a
as extended benefits and the retraining and relocation of marked class difference exists. Companies may face considerable
workers. At the same time, unemployment benefits are low in

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labor tension in such situations. Labor may perceive itself in a
INTERNATIONAL BUSINESS MANAGEMENT

class struggle, even in the face of shrinking wage gaps. In such


countries as Brazil, Switzerland, and the United States, labor
and management tend to be adversaries in a zero sum game. In
contrast, labor groups in many countries vote the way their
labor leaders instruct them to vote; typically, they rely on
national legislation rather than on collective bargaining to
negotiate with management. Such mechanisms as strikes or
slowdowns to effect changes also may be national in scope. In
these situations, a company’s production or ability to distribute
its product may be much more dependent on the way labor
perceives general work conditions in the whole country rather
than on how it perceives specific conditions in the company
where it works.
Approaches to reconcile labor tension differ by country. The use
of mediation by an impartial party is mandatory in Israel but
voluntary in the United States and the United Kingdom.
Among countries that have mediation practices, attitudes
toward it are diverse. For example, there is much less enthusi-
asm for it in India than in the United States. Not all differences
are settled through changes either in legislation or through
collective bargaining. Other means are the labor court and the
government-chosen arbitrator. For example, wages in many
Austrian industries are arbitrated semiannually.
Union membership as a portion of the total workforce has
been falling in most countries. This is illustrated in Figure 9.6.
There are several reasons for this decline.
• Increase in white-collar workers as a percentage of total
workers. White-collar workers see themselves more as
managers than as laborers.
• Increase in service employment in relation to manufacturing
employment. There is more variation in service assignments
than in manufacturing, so many workers believe their
situations differ from that of their coworkers. Figure 9.6 Trade Union Decline in Industrialized Countries
• Rising portion of women in the workforce. Traditionally, • Decline in the belief in collectivism among younger workers.
women have been less apt to join Unions. Few of to day’s younger workers have suffered economic
• Rising portion of part-time and temporary workers. Workers deprivation; hence, they question the value of collective
do not see themselves in the job long enough for a union to solutions.
help them much. The overall decline in union membership is a long-running
• Trend toward smaller average plant size. More direct trend. Still, there are exceptions. Unions in Sweden, for instance,
interactions between workers and managers align their have maintained their strength because they have forged
interests, thereby harmonizing outlooks. cooperative relationships with large companies (such as
Electrolux and Volvo) to improve corporate competitiveness
and to share the rewards from the results.
Union Structure
Companies in a given country may deal with one or several
unions that, depending on the situation, may represent workers
in many industries, in many companies within the same
industry, or in only one company. If it represents only one
company, the union may represent all plants or just one plant.
Although there are variations within countries, one type of
relationship typically predominates within most countries. For
example, unions in the United States tend to be national,
representing certain types of workers (for example, airline pilots,
coal miners, truck drivers, or university professors). Thus, a
company may deal with several different national unions. Each

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collective-bargaining process usually is characterized by a single Team Efforts

INTERNATIONAL BUSINESS MANAGEMENT


company on one side rather than an association of different In some countries, companies emphasize work teams to foster
companies that deals with one of the unions representing a group cohesiveness and to involve workers in multiple, rather
certain type of worker in all of the companies’ plants. In Japan, than in a limited, number of tasks. It is common for com-
one union typically represents all workers in a given company panies to compensate employees partly on group output so
and has informal affiliations with unions in other companies. that their peers will exert pressure to reduce absenteeism and. to
This purportedly explains why Japanese unions are less militant increase work effort. Involving workers in multiple tasks by
than those in most other industrialized countries. They seldom rotating their jobs within work groups improves motivation
strike, and when they do, they may stop working for only a and develops replacement skills that are useful when someone
short period of time or may continue working while wearing is absent. Companies have also instituted practices that allow
armbands to symbolize their protest. Because of workers’ workers’ groups to control their own quality procedures and
stronger identification with the company, Japanese union repair their own equipment. Although the team efforts have
leaders are hesitant to risk weakening the company’s interna- worked well in some places, such as Sweden, they have occasion-
tional competitiveness through protracted strikes. In Sweden, ally failed. For example, Levi-Strauss introduced the team
bargaining tends to be highly centralized-that is, employers concept to its U.S. factories but got poor results because its
from numerous companies in different industries deal together workers wanted to be paid on an individual incentive system.
with a federation of trade unions. In Germany, employers from Generally, MNEs have adapted the team concept to national
associations of companies in the same industries bargain jointly cultures. For example, in Japanese quality circles, small groups
with union federations. of workers concentrate on precise problems. GE tried transfer-
ring this concept to work groups in the United States, but
Protection from Closures and Redundancy
workers found it too constricting. GE then adopted large-group
In response to proposed layoffs, shifts in production location,
meetings on ill-structured issues called “Work-Out,” during
and cessation of operations, workers in many countries have
which workers could legitimately debate managers about tactical
actually taken over plants and continued to produce goods until
and strategic matters.
they ran out of inputs. Although usually peaceful, this process
is occasionally violent. These efforts have sometimes prevented International Pressures on National Practices
the plant’s closing. The International Labor Organization (ILO) dates back to 1919.
Workers’ willingness to try to prevent a plant from closing It was founded on the premise that the failure of any country
underscores the importance of this issue. In some countries, to adopt humane labor conditions impedes other countries’
particularly those in Western Europe, workers have negotiated efforts to improve their own conditions. Several associations of
prenotification requirements or persuaded government officials unions from different countries also support similar ideals.
to legislate them. Workers prefer prenotification so that they These associations include various international trade secretariats
have time to try to counter companies decisions and, if representing workers in specific industries-for example, the
unsuccessful, to” adjust better to their changed workplace. The International Confederation of Free Trade Unions (ICFTU),
Western European situation contrasts with that of Canada and the World Federation of Trade Unions (WFTU), and the World
the United States, where few labor contracts require employers Confederation of Labour (WCL). These organizations’
to give workers more than a week’s notice of closure. activities, along with the general enhancement of worldwide
communications, increasingly publicize the different labor
Codetermination conditions among countries. Among the newsworthy reports
In some countries, particularly in northern Europe, labor have been legal proscriptions against collective bargaining in
participates in the management of companies. This idea-known Malaysia, wages below minimum standards in Indonesia, and
as codetermination-emphasizes cooperative decision making the use of forced labor and child labor in developing countries.
within firms. It largely reflects the statutory framework of legal Upon publicizing such conditions, these organizations then
codes specifying such behavior as well as the cultural orientation champion economic and political sanctions to provoke change.
toward a “works community” that involves the entire
workforce. Procedurally, labor is represented on the board of Similarly, various codes of conduct on industrial relations, such
directors, either with or without veto power. as those issued by the OECD, ILO, and EU, influence MNE
labor practices. Although the codes are voluntary, they may
Despite some voluntary moves toward codetermination, most signal future transnational regulations of MNE activities. Trade
existing examples have been mandated by legislation, such as unions have been anxious for clarifications of the guidelines
that in Germany. These moves have been dictated by employee and want to make them legally enforceable because the typical
pressures because of the employees’ belief that, like stockhold- vagueness of the content creates considerable room for
ers, they also bear risks and have stakes in the success of the interpretation.
company. Although there are some early examples of workers
deterring investment outflows, acquisitions, and plant closures, Multinational Ownership and Collective Bargaining
codetermination has had little effect on companies’ international An unresolved debate is whether companies systematically
business decisions or on the speed with which companies reach weaken labor, especially collective bargaining procedures, by
those decisions. One reason for this weak effect is that workers’ having multinational operations. We now examine this issue
broad range of goals prevents their representatives from taking along with labor union responses to companies’ multinational.
strong stances on particular Issues.

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MNE Advantages to Brazil against the losses it would incur in Canada by discard-
INTERNATIONAL BUSINESS MANAGEMENT

Critics argue that MNE weaken labor because their product and ing its facilities there.
resource flows let them hold out longer before settling a strike,
Size and Complexity of MNEs
their multiple operations let them switch production to another
Observers claim it is difficult for labor unions to deal with
country where labor conditions are more favorable, and their
MNEs because of the complexities in the location of their
size and complexity prevent unions from determining their
decision-making and the difficulties in interpreting their
capacity to meet their demands. We review each rationale.
financial data. Essentially, critics reason that when the ultimate
Product and Resource Flows decision makers are far removed from the bargaining location,
Presumably, the MNE that can divert output from its facilities such as home-country headquarters, arbitrarily stringent
in different countries and sell it to the consumers in the country management decisions are more likely. Conceivably, the
where a strike is occurring has little incentive to settle a strike. opposite might happen, particular1y if the demands abroad
Moreover, because each country may comprise only a small seem low in comparison with those being made at home. In
percentage of an MNE’s total worldwide sales, profits, and cash reality, labor relations usually are delegated to subsidiary
flows, a strike in one country may minimally affect its global management.
performance. Again, an MNE faces slight pressure to resolve Unions regularly examine MNEs’ financial data to determine
labor tensions. Therefore, an MNE’s ability to hold out longer MNEs’ ability to meet their demands. Interpreting these data is
may give it an advantage over labor in collective bargaining that a complex because of disparities among managerial, tax, and
domestic company does not have. disclosure requirements in home and host countries. Labor has
Operationally, an MNE can continue to supply customers in the been particularly leery of the possibility that MNEs might
strike-afflicted country only if it has excess capacity and produces manipulate transfer prices (recall the discussion in Chapter 19)
an identical product in more than one country. Even if it meets to give the appearance that a given subsidiary cannot meet labor
these preconditions, an MNE would still confront the transport demands. However, these concerns overemphasize a company’s
and tariff costs that led it to establish multiple production ability to increase compensation and deemphasize the seemingly
facilities in the first place. If the MNE partially owns the struck more important issue of going-wage rates in both the industry
operation, partners or even minority stockholders may balk at and geographic area. Although MNEs may report many
financing a lengthy work stoppage. Further, if the idle facilities complex data, at least one set of financial statements must
normally produce components needed for integrated produc- satisfy local authorities. This set should be no more difficult to
tion in other countries, then a strike may have far-reaching interpret than that of a purely local company. In terms of
effects. For example, a strike at one GM facility in the United transfer pricing, it is doubtful that MNEs set artificial levels to
States prevented GM’s Mexican plants from getting parts aid in collective bargaining situations since doing so simply
needed for assembly operations. Moreover, Mexican laws creates problems elsewhere. Specifically, if an MNE understates
against layoffs meant GM had to maintain its Mexican workers profits in one country, it would have to overstate them
on the payroll, thus adding pressure on GM to settle the strike. elsewhere, which would then put it at a disadvantage in
In summary, there appear to be advantages of international collective bargaining in that country.
diversification for collective bargaining, but only in limited Looking For The Future
circumstances.
Production Switching
Which Countries Will Have the Jobs of the Future?
Companies sometimes threaten to move production to other
countries to extract wage reductions from their workers. This As capital technology, and information grow more mobile
tactic presses unions to demand less compensation in favor of among countries and companies, human resource developing
more job security. For example, Daimler-Benz’s German should account increasingly for competitive differences.
workers agreed to accept lower wages after the company Consequently, companies’ access to and retention of more
procured agreements from French, Czech, and British labor to qualified personnel should grow more important. This will be a
work for less. Challenge because companies will run into greater difficulty
retaining highly skilled, highly valued workers in future. De-
Although production shifts would seem plausible when a
mographers are nearly unanimous in projecting that
company has manufacturing facilities in more than one country,
populations will grow much faster in developing countries
at other times they would seem more plausible when different
(China being an exception) than in industrial countries-at least
companies own facilities in different countries. For example,
up to the year2030. At the same time, the number of retirees as
suppose a Canadian company competes with Brazilian imports.
a percentage of the population in industrial countries will grow
If Canadian workers demand and get substantial wage increases
as people live longer and retire earlier. People will also need to
that result in higher product prices, the Brazilian competitor will
be educated for more years to get the so-called better jobs.
likely seize the opportunity to build Canadian market share at
Overall, these industrial-country trends indicate that there will
the expense of the Canadian company and its workers.
be fewer people to do the productive work within society.
However, suppose the Brazilian company also owns the facility
Industrial countries may adjust in any of sever always of
in Canada. The Brazilian management would have to weigh the
combinations of them. Each way has a number of social and
cost-saving advantages of moving its production from Canada
economic consequences to Which MNEs must adapt.

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220 11.154
One adjustment might be for industrial countries to encourage related industries, and company councils that include representa-

INTERNATIONAL BUSINESS MANAGEMENT


emigration from developing countries, which don’t generate tives from an MNCs plants around the world all participate in
enough jobs for their potential workers. In Canada, the United the exchange of information. European work councils (EWCs)
States, and part of Western Europe, there has been a long-term represent a company’s employees throughout the European
entry of foreign workers, both legally and illegally, from Union. Through an EWC, a company informs and consults
developing countries. This entry generates assimilation costs with employees on such issues as its corporate strategies so that
within industrial countries and a brain drain from developing the employees can prepare for possible product and market
countries when highly qualified people leave for other countries. changes.
Some, however suggest that emigration benefits everyone by
Assistance to Foreign Bargaining Units
encouraging brain circulation among industrial and developing
Labor groups in one country may support their counterparts in
countries. Specifically, an increasing number of Taiwan’s,
other countries. Popular measures include refusing to work
China’s, Korea’s, and India’s biggest U.S. success stories, lives
overtime to supply a market normally served by striking
that become firmly rooted in that country, are returning to their
workers’ production, sending financial aid to workers in other
native homes to start companies. Nonetheless, times of
countries, and disrupting work in their own countries. For
economic downturns will likely see unemployed industrial-
example, French workers pledged to disrupt work at Pechiney in
country citizens blame foreign workers for their plight. Under
support of striking workers in the company’s U.S. facilities.
this scenario, companies will have to spend more time getting
However, this type of support is still extremely rare.
work permits and integrating different nationalities into their
workforces. National Approaches
Unions’ efforts to counter MNCs power have taken place
Another potential adjustment in industrial countries is the
primarily on a national basis. Usually, there is little enthusiasm
continued push toward adopting robotics and other
among workers to support their counterparts in another
laborsaving equipment. Although this may help solve some of
country, largely because workers tend to view each other as
the employee shortages in industrial countries, it will escalate
competitors. Even when labor in one country helps labor in
companies’ need for workers with higher skill levels. In fact, less
another, it likely is trying to achieve its own specific goals. For
educated members of the workforce may be either unemploy-
example, a union representing U.S. tomato pickers helped its
able, forced to take lesser-paying jobs in the service sector, or
Mexican counterpart win a stronger contract-thus dissuading the
compete with immigrants for less appealing jobs. Gaps
Campbell Soup Company from moving operations to Mexico.
between haves and have-nots may thus widen within industrial
Even in Canada and the United Stares, which have long shared a
countries as well as between those countries and developing
common union membership, there has been a move among
countries. In this scenario, have-nots may pressure governments
Canadian workers to form unions independent of those in the
to push companies to shift technological development away
United Stares. One Canadian organizer summed up much of
from laborsaving priorities.
the attitude by saying, “An American union is not going to
A third possible adjustment is the acceleration of industry fight to protect Canadian jobs at the expense of American
migration to developing countries to tap supplies of productive jobs.” The logic is that international unions will adopt policies
labor. At the same time, developing countries may devise ways favoring the bulk of their member shop, which in any joint
to support brain circulation or, if unsuccessful, halt the Canadian-U.S. relationships is bound to be American.
process of brain drain. Either approach will shift more entry-
National legislation in some countries has provided for worker
level production jobs away from industrial countries. If
representation on boards of directors, has regulated the entry
successful, businesspersons who return to their countries will
of foreign workers, and has limited imports and foreign
likely shift many low-skilled jobs to their home market.
investment outflows. Most future initiatives will likely take place
Industrial-country governments will then face the tough
at the national rather than at the international level.
problem of what to do with underqualified workers who face
deteriorating job Various factors have influenced the general decline of the trade
union membership in select industrialized countries. Compiled
Labor Initiatives From Various Sources.
Union can engage several tactics to counter the power of MNCs.
Internationally, they can share information, assist bargaining
units in other countries, and deal simultaneously with MNEs.
Nationally, they can pressure for laws that restrict the mobility
and methods of MNCs.
Information Sharing
The most common international cooperation among unions is
exchanging information. This sort of collaboration helps them
to determine the validity of a company’s claims as well as to
reference precedents form other countries on bargaining issues.
International confederations of unions, trade secretariats
composed of unions in a single industry or a complex of

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