LHR305:
Lesson 14: Managing HR Globally
Lesson Overview
To this point we have focused on functional responsibilities consistent with law and custom in the United States. A growing number of companies in this country (and around the world) must populate facilities overseas. These multi-national corporations will often assign home country nationals to these facilities. This lesson addresses the variety of ways an organization can insure these expatriate assignments are as successful as possible.
Lesson Objectives
Upon successful completion of this lesson, you should be able to
- identify variables that affect HR practices globally;
- compare and contrast HR policies and practices when managing within the global environment; and
- apply the distinction between Liberal Market Economics (LME) and Coordinated Market Economies (LME) when considering HR related options affecting HR responsibilities in the global economic environment.
Lesson Readings & Activities
By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 14 Course Schedule.
Human Resources
To this point in the course, you have studied human resource issues from both the firm’s perspective as well as the employee’s perspective; however, all of the discussion has occurred in relation to the social, political and economic environment within the United States. In fact, most large and many smaller firms routinely operate in the larger global environment.
HR practices and experiences can be different depending on where they occur. One way to understand the variations is to consider the differences in employment relations systems. In this context, how stakeholders engage each other will depend on a wide array of factors. Most scholars believe that one of the important variables is termed “varieties of capitalism” (VOC). According to this framework, capitalism is the dominant economic environment in which most countries operate. In other words, markets to a great degree determine HR related behaviors and outcomes.
There are two primary categories associated with VOC, although within each there is significant variation. On the one hand there are those countries that represent liberal market economies (LME). Ultimately decision makers in LMEs must take into account government and culture, but they generally possess great flexibility in responding to markets. The United States, Canada, Great Britain, and Australia fall into this particularly category. In coordinated market economies (CME) government and culture, stressing more communal considerations, will tend to create environments where market forces are less dominant. Corporate executives operate within a more narrow range of options that tend to reduce the flexibility they might exert in promoting, for example, a narrow shareholder perspective when responding to competitive forces. Germany, Sweden, China, and Japan are examples of CMEs.
These categories help predict important organizational behaviors related to changes in economic conditions. Suppose a firm in the United States has to react to a recession. The common (although not exclusive) response in LMEs is to lay off employees. Most employees understand and expect such a response. In CME environments the response is generally different. For example, during the 2008 recession, “Employment (in Germany) fell only slightly, but part time work increased sharply as jobs were spread.” (http://www.becker-posner-blog.com/2010/08/germany-vs-us-two-different-approaches-to-the-recession-becker.html) In other words, layoffs were not the primary means by which German firms addressed the need for less labor.
The problem for organizations operating in a global environment is that the same organization will have to accommodate itself to different environments when addressing a common challenge. The text provides a comprehensive description of how the human resource function addresses such issues.
PROFESSOR: We have with us today Dr. Elaine Farndale, Associate Professor at the School of Labor and Employment Relations. She's also the Director of the Center for International Human Resource Studies at the school. Dr. Farndale is an expert in international human resource management.
She received her PhD from the Cranfield School of Management in the United Kingdom. She has published academic and practitioner journals, and has attended conferences on the subjects in which she's expert around the world. Thank you very much, Elaine, for joining us today. Very much appreciate it. By the way, she's a great colleague, also.
ELAINE FARNDALE: Thank you very much, Antone.
PROFESSOR: Good to have you. What I'd like to ask you about is the issues around companies that have to deal in multiple environments, making human resource management decisions of all sorts. One of the things our students have studied is the fact that we have these liberal market economies, these coordinated market economies, each one presenting a variety of expectations and challenges for companies that are operating in those situations. Can you give us some examples of how companies have to react, or react to some of the challenges they face in those situations?
ELAINE FARNDALE: Sure. So one of the first things you need to think about is when we we're talking about organizations that want to operate across different national boundaries-- and in this case across different market economies-- they have options. So they need to decide how they're going to go about this globalization process. So we often talk about them having two options-- to either standardize everything that they do, or localize what they do, or some variation in between there.
So when we're talking about two contrasting market economies, so that liberal market economies are known for being less regulated when it comes to HR and employment issues, they're much more focused on delivering shareholder value, which generally means short-term decisions. You've got to be able to get return on investment in a very short period of time to deliver to the shareholders, whereas in coordinated market economies, we have a lot more regulation around employment. We have a lot more employee voice mechanisms through which employees are represented in the organization, and a longer-term perspective, so we're talking about an environment in which we can make an investment in our employees with the expectation that 10 years from now, will have kind of a result of this. So those are kind of the core issues that are different between these markets.
So when you are a multinational organization, you can be thinking about, well, I want to standardize the way I do HR around the world. So if I take that standardized approach, when I am entering another country, then I'm trying to impose the HR practices and policies and everything that I have that have been developed in, say, the parent country, the home country, for the organization, and we're trying to implement this in a different country. The problem can be that-- it depends on the gap between the two countries that we're talking about.
So this might be a cultural gap whereby the values and what motivates employees can be different. It can be a legislation gap, so what depends on what employment legislation there is in one country compared to another country. There can be difference is in the infrastructure around employment. And by that, I mean things like the extent to which government gets involved in employment situations, that there are benefits available to employees through government welfare systems. All of these affect how we actually employ people in the organization.
So if we're trying to standardize, the problem we can come up against is that first of all, employees might just not respond to the practices in the way that they have done in the home country because they have different values. It might be that it's illegal, that we can't actually put that practice in place. It's just not allowed.
It might be that it just goes against the norm, and you're going to stand out as a strange organization. As such, if you are not quite fitting the norm, it's harder for you to get access to the talent pool that's out there. This needs to be a little bit of kind of legitimacy around what you're doing.
So to the other end of the scale, then, is to localize. And "localized" basically says, OK, we will adapt everything we do in HR specific to the location that we're going into. And that then means that you're getting all the local buy-in and everything. You're not breaking any laws. You're doing what you need to do in that context. But as a multinational organization, that means you're doing that 10, 15, 20 times around the world, reinventing the wheel every time. So you've lost all the efficiencies in scope and scale.
Specific to the LME, CME dichotomy, if you're coming from the liberal market economy, the LME, context, you're used to autonomy as an organization to be able to do what you need to do largely. You go into a coordinated market economy, and suddenly there are all these regulations and restrictions around you. So you have to start to operate in an uncomfortable way.
I'll give you an example. When McDonald's first went into Germany-- so McDonald's, US firm, liberal market economy. You're coming from lack of regulation in general about how you manage your employees. Going into Germany, the prototypical coordinated market economy.
They started off-- because McDonald's prefers an anti-union stance. They don't want to recognize unions. Germany requires some form of employee voice and representation. But they only require it when you're above a certain threshold of employees.
So what McDonald's did when they first entered Germany was they only set up franchises. So each franchise could fall below the requirements of the number of employees for implementing some kind of an employee voice system. And that way, as a whole, McDonald's could exist in Germany but not have to fall into line with some of the employee voice issues.
As they grew, that changed, and they had to go into line. And they did have to give some form of representation for local legitimacy and things. But that's just an example of one of the challenges where you're coming with this standardized mindset, saying, we're going to operate this way. If you're going from the coordinated market economy to the liberal market economy, you're then in a situation where suddenly you've got this freedom. And I find it really interesting to see how a company that is used to being kind of strongly regulated, how it reacts going into that more liberal kind of environment.
I did some research with Siemens a few years ago looking at what they were doing, because Siemens is a German engineering company. And as soon as they got out of Germany-- I was watching what they were doing in Ireland. And when they come into the UK and the US that were more liberal market economies, we kind of expected them to keep some of the things that they had been doing all along. But gradually, over time, they found the only way to compete was to relax some of the things that they were offering to employees that had been required by legislation was no longer required. So they were able to relax some of these things.
So we can kind of see firms are very much affected by their context. So the context of the liberal market economy or the context of the coordinated market economy really affects how they can manage their employees. And then when you start crossing those borders, it becomes a challenge. And it's about organizational decisions as to how much they want to adapt to the new context, or whether they're happy, try to standardize across operations.
PROFESSOR: Interesting. I want to thank you so much for being with us, this Elaine. And appreciate the information. I hadn't realized McDonald's was such an issue in Germany. Every time I go to McDonald's now, I'll remember this. Thank you very much for being with us.
ELAINE FARNDALE: Thank you very much.