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
data on home- and foreign country nationals. These data
include not only the usual technical and demographic data but
also-if the company has international activities-information on
such adaptive capabilities as foreign-language qualifications,
willingness to accept foreign assignments, and results of
company-administered tests. However, a company may
encounter problems in bringing foreign managers into the
system; if the company owns less than 100 percent of the
foreign facility, the other stockholders may object. To the extent
that companies have detailed personnel records, they can
compare employees to gauge which ones may be best suited for
positions with international responsibility.
Companies typically know more about their employees’
technical capabilities than their adaptive ones. Still, improving
the selection of expatriates pushes them to measure personal
adaptability for foreign transfer.
Table 7.3
The Difference In Pay Between Ceos And The Average Worker,
2000
The difference in the compensation of chief executive offers
and that of the typical hourly employee varies among countries.
Country Ceo Compensation As A Multiple Of The Compensa-
tion Of The Typical Hourly Employee
United states 531
Brazil 57
Venezuela 54
South Africa 51
Argentina 48
Malaysia 47
Mexico 45
Sweden 14
Germany 11
South Korea 11
Switzerland 11
Japan 10
Average employees were assumed to work in industrial
companies with about $500 million in annual sales. Estimates
provided by worldwide Total Remuneration 2001-2002. Towers
Perrin.
Source: Eric Wahlgren, “Pay and Perks,” Business week (April
18, 2001).
For example, people who have successfully adjusted to domes-
tic transfers or have previous international experience are more
likely to adapt abroad. In addition, some companies use a
variety of personality testing mechanisms as assessment aids.
Companies are increasingly including spouses and children in
tests and extensive interviews because a foreign assignment is
usually more stressful for the family than for the transferred
employee. For example, a survey of prominent multinationals
found most expatriate assignments fail because of family
difficulties. Problems arise because the expatriate employees
generally receive advanced training, but the spouses must start at
the bottom in developing new social relations and in learning
how to carry out the day-to-day management of the home. The
separation from friends, family, and career often make the
nonworking spouses lonely, and so they increasingly look to
their working spouses for more companionship. Typically, the
working spouses have less time because of the demands of
their new jobs. This situation can provoke marital stress, which,
in turn, affects work performance. As a result, interviewers look
not only at likely adaptiveness but also at whether marriages can
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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214 11.154
1. Top executives must have a global mindset that is free of
national prejudices. They must understand the global
environment so that they can provide the leadership needed
to attain a global mission.
2. Managers with direct international responsibility must be
able to balance the well being of corporate and national
operations.
3. Managers without direct international responsibility must
understand the importance of international competition on
the company’s performance.
Managers can gain these perspectives and knowledge before they
join or after they begin working for a company.
To help meet these developmental needs, business schools are
expanding their international offerings and requirements. Still,
there is little agreement as to what students should study to
help prepare them for international responsibilities. Two
popular approaches are (1) to transfer specific knowledge about
foreign environments and international operation and (2) to
develop interpersonal awareness and adaptability. The former
may tend to remove some of the fear and aggression that
emerge when dealing with the unknown, whereas the latter
approach tends to make people more receptive to foreign
environments. However, the awareness of a difference does not
necessarily imply a willingness to adapt to it, particularly to a
cultural variation. Although either approach generally helps a
person adjust better than those who lack training, there appears
to be no significant difference in the effectiveness of the two
approaches.
Companies continue the international development of
employees after they hire them. Such companies must also
develop employees because many of them feel ill equipped to
manage growing worldwide responsibilities as they move up in
their organizations. To counter this tendency, a company can
train those people who are about to take a foreign assignment,
such as through language and orientation programs. Alterna-
tively, it could include international business components in
external or internal programs for all employees-irrespective of
whether the person plans to work abroad. Examples of internal
programs are those at PepsiCo and Raychem, which bring
foreign nationals to U.S. divisions for six months to a year;
IBM’s regional training centers, in which managers from several
countries convene for specific topics; P&G’s training on
globalization issues; and programs at GE, Motorola, and
Honda of America to teach foreign languages and cultural
sensitivity.
The most common predeparture training is an informational
briefing. Topics typically include cultural differences, political
structures, job design, compensation, housing, climate,
education, health conditions, home sales, taxes, transport of
goods, job openings after repatriation, and salary distribution.
Companies sometimes follow predeparture training with
cultural training about six months after expatriates arrive in a
foreign country in the belief that they can then better engage
these topics.
While working in foreign countries, managers strive to break
down nationalistic barriers that impair companies’ development
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of global corporate cultures and achievement of integrated
INTERNATIONAL BUSINESS MANAGEMENT
global strategies. To balance a company’s global and national
needs, managers must be neither too ethnocentric nor too
polycentric. Therefore, MNEs aim to develop managers who are
committed to the subsidiary at which they work and also to the
parent company’s global well being. However, companies rarely
find such a dual allegiance.
Figure 9.5 shows four types of expatriate managers: (1) free
agent, (2) heart at home, (3) going native, and (4) dual citizen.76
There are two types of free agent. The first includes people who
put their careers above either the parent company or the foreign
operation where they are working. They often are highly
effective, but they will move with little warning from one
company to another, may serve their own short-term interests
at the expense of the company’s long-term ones, and do not
plan to return to their home country. The second type of free
agent includes people whose careers have plateaued at home and
who take a foreign assignment only for the bigger paycheck. The
heart at home type is overly ethnocentric and is usually eager to
return home. When the company wants strong headquarters
control, this type of person may be quite effective. The going
native type learns and accepts the local way of doing business,
wants to stay in the foreign location, and prefers not to consult
headquarters. This type of person may be appropriate for
situations in which the company follows multidomestic
practices. The dual citizen type has a clear understanding of
global needs, why he or she is needed at the foreign subsidiary,
and local realities that may necessitate national responsiveness.
This person usually finds methods to align the interests of
headquarters and the subsidiary; overall, this is the most
effective type of expatriate manager.
To counterbalance the heart at home type, the company may
send younger managers abroad and go to great length to
facilitate their cultural adjustment. To counterbalance the going
native effect, the company may send people abroad who have
strong ties to the company, limit their time away from head-
quarters, keep in close contact with them (perhaps through a
mentor program), and assist their repatriation. In either
situation, the company should handle the international transfer
so that the expatriate understands why he or she has been
selected for the post, how performance will be measured, the
objectives of the parent company and local unit, and the
location of control. These recommendations also may apply to
other than expatriate employees. For example, local managers in
foreign subsidiaries may be less apt to be a heart at home type if
they have closer contact with headquarters and believe their
future is tied more to global than to local interests.
The degree to which companies develop the international
capabilities of their managers depends on the importance of
their international operations. The MNE that is highly depen-
dent on and committed to international operations has more
extensive international human resource needs than those of a
company that exports or imports a small share of its output.
The latter type of company mostly needs personnel who are
technically trained or knowledgeable about trade documenta-
tion, foreign-exchange risk, and political-economic conditions.
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 Labor Market Differences
INTERNATIONAL BUSINESS MANAGEMENT
As a company moves onto foreign production, it must consider
how to staff, motivate, compensate, and retain its foreign
workforce. The norms in these human resource activities vary
substantially from one country to another. Thus, there is some
danger in a company’s effort to replicate home-office organiza-
tional structures, office routines, and job descriptions abroad,
particularly in developing countries. In addition, laborsaving
devices that are economically justifiable at home, where wage
rates are high, may be more costly than labor-intensive types of
production in a country with high unemployment rates and low
wages. Because of differences in labor skills and attitudes, the
company also may find it beneficial to simplify tasks and use
equipment that would be considered obsolete in an industrial
economy. Finally, using labor-intensive methods may gain the
favor of government officials who are combating local unem-
ployment.
International Labor Mobility
People often try to emigrate from countries with high unem-
ployment and low wages to countries with labor shortages and
high wages. Migration flows are shaped by the type of legal
entry
Figure 9.5 Allegiance of Expatriate Managers
restrictions that a country uses to minimize the economic and
social problems of absorbing large numbers of immigrants.
Because of these restrictions, companies depend less today on
imported labor than in earlier generations, despite the presence
of sizable numbers of legal and illegal workers in industrial
countries.
The incentive to hire immigrant workers is straightforward:
They often work for a fraction of what domestic workers with
comparable skills demand. This is especially true of illegal
immigrants who cannot afford-or prefer not-to return to their
home countries. It is also true within the European Union,
where workers may move legally from one country to another in
response to wage rate differences. For example, construction
workers from other EU countries (mainly Britain, Ireland, and
Portugal) work in Germany for considerably less than the wages
paid to German laborers. In other cases, companies have
sought specialists from abroad. Shared Resources, a small U.S.-
based computer system company, recruits employees in India to
work on contracts in Columbus, Ohio. Critics usually accuse
companies of behaving unethically when they hire foreign
employees at lower wages than domestic workers.
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216
Migrant workers in many countries have permission to stay for
only short periods, such as three to six months for New
Zealand’s workers from Fiji and Tonga. In many other cases,
workers leave their families behind in the hope of returning
home after saving enough money while working in the foreign
country. This creates workforce uncertainty for employers.
Another uncertainty is the extent to which government
authorities will restrict the number of foreign workers because
of pressures both from domestic laborers who want to protect
their job opportunities and from groups prejudiced against
foreigners.
The influx and use of foreign workers create additional
workplace problems. For example, in parts of Western Europe,
companies relegate certain nationality groups to less complex
jobs because their native language complicates training them.
One result has been the development of homogeneous ethnic
work groups at cross-purposes with other groups in the
organization, as well as the emergence of go-betweens who can
communicate with management and labor.
Since September 11, 2001, entering and residing in many
countries, particularly the United States, has become more
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
incoming visa holders by 2005. The U.S. Justice Department
widened the new law’s instructions, setting up a special program
to register visa holders already living in the United States-
regardless of how long they had lived in the country. Increased
visa security has also impeded the international mobility of
businesspeople. For example, in 2003, several hundred
international passengers a day were missing connecting flights at
Bush Intercontinental Airport in Texas because of delays at the
immigration counter. Revised visa regulations now required
virtually all international travelers arriving on direct flights from
other countries to appear before an immigration inspector
before catching a connecting flight to other U.S. cities. Motions
for more detailed visa processing requirements along with
pending calls for biometric collection threatened to further
complicate international labor mobility.
Labor Compensation Differences
Companies can gain competitive advantages by establishing
production facilities where they can pay labor less than their
competitors pay. We now examine national differences in the
amount and method of paying workers, along with the
dynamics of comparative labor costs.
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Reasons for Country Differences in Labor Compensation
The compensation that companies pay depends on workers’
contributions to the business, the supply of and demand for
particular skills (the so-called going wage) in the area, the cost of
living, government legislation, and collective-bargaining ability.
Company’s methods of payment (salaries, wages, commis-
sions, bonuses, and fringe benefits) depend on local customs,
feelings of security, taxes, and government requirements. Both
the amount and method of payment are affected by a country’s
culture. For example, within a highly individualistic, meritocratic
society such as the United States, there is a preference for
compensation based ‘on proportional contribution-the result
being a heavy reliance on bonuses and a high disparity in
incomes within the organization. In a collectivist society, such as
Japan, there is a preference for more egalitarian allocations,
regardless of contributions. In an economy in which people
have a high need to avoid risk, workers prefer job security and
income preservation rather than income growth.
MNEs usually pay slightly better than their local counterparts
do in lower-wage countries (although they still pay less than
what they do in higher-wage countries). They typically pay more
because of their management philosophies and structures. An
MNE’s usual management philosophy, particularly in contrast
to that of a local, family-run company, is to attract higher skilled
workers by offering higher relative wages. In addition, the
higher productivity of its product and process technologies may
allow it to compensate employees more, than local companies
do. Further, when a company enters a country, experienced
workers may demand higher compensation purely because they
expect foreign companies to pay higher wages.
Differing Cost of Benefits
Fringe benefits differ radically from one country to another.
Consequently; direct-compensation figures do not accurately
reflect the amount a company must pay for a giving job in a
given country. The types of benefits that are either customary or
have been required also vary. In Japan, for example, large
companies commonly give workers such benefits as family
allowances, housing loans and subsidies, lunches, children’s
education, and subsidized vacations. As a result, fringe benefits
make up a much higher portion of total compensation in Japan
than in the United States. Moreover, in many countries,
companies give end-of-the year bonuses, housing allowances,
long vacations, profit sharing, and payment supplements based
on the number of children the worker has.
In many countries, firing or laying off an employee may be
either expensive or nearly impossible, resulting in unexpectedly
higher costs for a company accustomed to the efficient econo-
mies of regulating its workforce. In the United States, for
example, companies expect to layoff workers when demand
falls seasonally or cyclically. In many countries, however, a
company has no legal recourse except to fire workers-and then
perhaps only if it is permanently closing down its operations, at
which time it must pay high severance compensation. To halt
operations in such countries, a company must come to an
agreement with its unions and the government on such issues
as extended benefits and the retraining and relocation of
workers. At the same time, unemployment benefits are low in
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the United States compared with those in Western Europe, so
INTERNATIONAL BUSINESS MANAGEMENT
there is more incentive for unemployed U.S. workers to find
new jobs.
Too often, companies compare compensation expenses on a
per-worker basis, which may bear little relationship to the total
expenditure for employees. Workers’ abilities and motivations
vary widely. Consequently, it is the output associated with labor
cost, or labor productivity, which is important. Seemingly cheap
labor actually may raise the total compensation expenditure
because of the need for more supervision, added training
expenses, and adjustments in production methods. For
example, Quality Coils, a small U.S. company, moved some
operations to Mexico because hourly wages were only about
one-third of what the company paid in Connecticut. However,
‘the company later returned to Connecticut because of high
absenteeism and low productivity in Mexico. Further, if labor
turnover is high, there is an ongoing, continuing need to hire
and train workers.
Differences among countries in the amount and type ‘of
compensation continually change. Salaries and wages (as well as
other expenditures) may rise more rapidly in one locale than in
another. Therefore, the competitiveness of operations in
different countries may shift. For example, in the 1980s, Korean
workers made millions of shoes for Nike and Reebok; how-
ever, as Korean labor costs grew, most of these jobs shifted to
China and Indonesia, which eventually saw some of these jobs
move onto lower-cost producers in Vietnam.
The process of comparing costs is difficult due to shifting
capabilities. An example illustrates this idea. Assume U.S.
productivity per worker in manufacturing increased by 2.8
percent (or 1.028 of what it was before), and hourly compensa-
tion rates went up by 10.2 percent (or 1.102) of what they were
before. The result was a unit labor-cost increase of 7.2 percent
(1.102 divided by 1.028). Meanwhile, in the United Kingdom,
productivity increased by 5.9 percent (or 1.059 of what it was
before) and hourly compensation rates by 16.2 percent (or 1.162
of what they were before), amounting to a unit labor-cost
increase of 9.7 percent (1.162 divided by 1.059). This meant that
labor costs adjusted to productivity were rising more rapidly in
the United Kingdom than in the United States in terms of local
currencies. However, if the pound depreciated substantially in
relation to the dollar, the labor cost measured in dollars could
actually have become more favorable in the United Kingdom
than in the United States.
Comparative Labor Relations
In each country in which an MNE operates, it must deal with
groups of workers whose approach to the workplace reflects the
sociopolitical environment of the country. This environment
affects whether they join labor unions, how they bargain, and
what they want from companies.
Sociopolitical Environment
There are striking international differences in how labor and
management view each other. When there is little mobility
between the two groups (generally, children of laborers become
laborers, and children of managers become managers), a
marked class difference exists. Companies may face considerable
217
 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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218 11.154
collective-bargaining process usually is characterized by a single
company on one side rather than an association of different
companies that deals with one of the unions representing a
certain type of worker in all of the companies’ plants. In Japan,
one union typically represents all workers in a given company
and has informal affiliations with unions in other companies.
This purportedly explains why Japanese unions are less militant
than those in most other industrialized countries. They seldom
strike, and when they do, they may stop working for only a
short period of time or may continue working while wearing
armbands to symbolize their protest. Because of workers’
stronger identification with the company, Japanese union
leaders are hesitant to risk weakening the company’s interna-
tional competitiveness through protracted strikes. In Sweden,
bargaining tends to be highly centralized-that is, employers
from numerous companies in different industries deal together
with a federation of trade unions. In Germany, employers from
associations of companies in the same industries bargain jointly
with union federations.
Protection from Closures and Redundancy
In response to proposed layoffs, shifts in production location,
and cessation of operations, workers in many countries have
actually taken over plants and continued to produce goods until
they ran out of inputs. Although usually peaceful, this process
is occasionally violent. These efforts have sometimes prevented
the plant’s closing.
Workers’ willingness to try to prevent a plant from closing
underscores the importance of this issue. In some countries,
particularly those in Western Europe, workers have negotiated
prenotification requirements or persuaded government officials
to legislate them. Workers prefer prenotification so that they
have time to try to counter companies decisions and, if
unsuccessful, to” adjust better to their changed workplace. The
Western European situation contrasts with that of Canada and
the United States, where few labor contracts require employers
to give workers more than a week’s notice of closure.
Codetermination
In some countries, particularly in northern Europe, labor
participates in the management of companies. This idea-known
as codetermination-emphasizes cooperative decision making
within firms. It largely reflects the statutory framework of legal
codes specifying such behavior as well as the cultural orientation
toward a “works community” that involves the entire
workforce. Procedurally, labor is represented on the board of
directors, either with or without veto power.
Despite some voluntary moves toward codetermination, most
existing examples have been mandated by legislation, such as
that in Germany. These moves have been dictated by employee
pressures because of the employees’ belief that, like stockhold-
ers, they also bear risks and have stakes in the success of the
company. Although there are some early examples of workers
deterring investment outflows, acquisitions, and plant closures,
codetermination has had little effect on companies’ international
business decisions or on the speed with which companies reach
those decisions. One reason for this weak effect is that workers’
broad range of goals prevents their representatives from taking
strong stances on particular Issues.
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Team Efforts
INTERNATIONAL BUSINESS MANAGEMENT
In some countries, companies emphasize work teams to foster
group cohesiveness and to involve workers in multiple, rather
than in a limited, number of tasks. It is common for com-
panies to compensate employees partly on group output so
that their peers will exert pressure to reduce absenteeism and. to
increase work effort. Involving workers in multiple tasks by
rotating their jobs within work groups improves motivation
and develops replacement skills that are useful when someone
is absent. Companies have also instituted practices that allow
workers’ groups to control their own quality procedures and
repair their own equipment. Although the team efforts have
worked well in some places, such as Sweden, they have occasion-
ally failed. For example, Levi-Strauss introduced the team
concept to its U.S. factories but got poor results because its
workers wanted to be paid on an individual incentive system.
Generally, MNEs have adapted the team concept to national
cultures. For example, in Japanese quality circles, small groups
of workers concentrate on precise problems. GE tried transfer-
ring this concept to work groups in the United States, but
workers found it too constricting. GE then adopted large-group
meetings on ill-structured issues called “Work-Out,” during
which workers could legitimately debate managers about tactical
and strategic matters.
International Pressures on National Practices
The International Labor Organization (ILO) dates back to 1919.
It was founded on the premise that the failure of any country
to adopt humane labor conditions impedes other countries’
efforts to improve their own conditions. Several associations of
unions from different countries also support similar ideals.
These associations include various international trade secretariats
representing workers in specific industries-for example, the
International Confederation of Free Trade Unions (ICFTU),
the World Federation of Trade Unions (WFTU), and the World
Confederation of Labour (WCL). These organizations’
activities, along with the general enhancement of worldwide
communications, increasingly publicize the different labor
conditions among countries. Among the newsworthy reports
have been legal proscriptions against collective bargaining in
Malaysia, wages below minimum standards in Indonesia, and
the use of forced labor and child labor in developing countries.
Upon publicizing such conditions, these organizations then
champion economic and political sanctions to provoke change.
Similarly, various codes of conduct on industrial relations, such
as those issued by the OECD, ILO, and EU, influence MNE
labor practices. Although the codes are voluntary, they may
signal future transnational regulations of MNE activities. Trade
unions have been anxious for clarifications of the guidelines
and want to make them legally enforceable because the typical
vagueness of the content creates considerable room for
interpretation.
Multinational Ownership and Collective Bargaining
An unresolved debate is whether companies systematically
weaken labor, especially collective bargaining procedures, by
having multinational operations. We now examine this issue
along with labor union responses to companies’ multinational.
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 MNE Advantages
INTERNATIONAL BUSINESS MANAGEMENT
Critics argue that MNE weaken labor because their product and
resource flows let them hold out longer before settling a strike,
their multiple operations let them switch production to another
country where labor conditions are more favorable, and their
size and complexity prevent unions from determining their
capacity to meet their demands. We review each rationale.
Product and Resource Flows
Presumably, the MNE that can divert output from its facilities
in different countries and sell it to the consumers in the country
where a strike is occurring has little incentive to settle a strike.
Moreover, because each country may comprise only a small
percentage of an MNE’s total worldwide sales, profits, and cash
flows, a strike in one country may minimally affect its global
performance. Again, an MNE faces slight pressure to resolve
labor tensions. Therefore, an MNE’s ability to hold out longer
may give it an advantage over labor in collective bargaining that a
domestic company does not have.
Operationally, an MNE can continue to supply customers in the
strike-afflicted country only if it has excess capacity and produces
an identical product in more than one country. Even if it meets
these preconditions, an MNE would still confront the transport
and tariff costs that led it to establish multiple production
facilities in the first place. If the MNE partially owns the struck
operation, partners or even minority stockholders may balk at
financing a lengthy work stoppage. Further, if the idle facilities
normally produce components needed for integrated produc-
tion in other countries, then a strike may have far-reaching
effects. For example, a strike at one GM facility in the United
States prevented GM’s Mexican plants from getting parts
needed for assembly operations. Moreover, Mexican laws
against layoffs meant GM had to maintain its Mexican workers
on the payroll, thus adding pressure on GM to settle the strike.
In summary, there appear to be advantages of international
diversification for collective bargaining, but only in limited
circumstances.
Production Switching
Companies sometimes threaten to move production to other
countries to extract wage reductions from their workers. This
tactic presses unions to demand less compensation in favor of
more job security. For example, Daimler-Benz’s German
workers agreed to accept lower wages after the company
procured agreements from French, Czech, and British labor to
work for less.
Although production shifts would seem plausible when a
company has manufacturing facilities in more than one country,
at other times they would seem more plausible when different
companies own facilities in different countries. For example,
suppose a Canadian company competes with Brazilian imports.
If Canadian workers demand and get substantial wage increases
that result in higher product prices, the Brazilian competitor will
likely seize the opportunity to build Canadian market share at
the expense of the Canadian company and its workers.
However, suppose the Brazilian company also owns the facility
in Canada. The Brazilian management would have to weigh the
cost-saving advantages of moving its production from Canada
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220
to Brazil against the losses it would incur in Canada by discard-
ing its facilities there.
Size and Complexity of MNEs
Observers claim it is difficult for labor unions to deal with
MNEs because of the complexities in the location of their
decision-making and the difficulties in interpreting their
financial data. Essentially, critics reason that when the ultimate
decision makers are far removed from the bargaining location,
such as home-country headquarters, arbitrarily stringent
management decisions are more likely. Conceivably, the
opposite might happen, particular1y if the demands abroad
seem low in comparison with those being made at home. In
reality, labor relations usually are delegated to subsidiary
management.
Unions regularly examine MNEs’ financial data to determine
MNEs’ ability to meet their demands. Interpreting these data is
complex because of disparities among managerial, tax, and
disclosure requirements in home and host countries. Labor has
been particularly leery of the possibility that MNEs might
manipulate transfer prices (recall the discussion in Chapter 19)
to give the appearance that a given subsidiary cannot meet labor
demands. However, these concerns overemphasize a company’s
ability to increase compensation and deemphasize the seemingly
more important issue of going-wage rates in both the industry
and geographic area. Although MNEs may report many
complex data, at least one set of financial statements must
satisfy local authorities. This set should be no more difficult to
interpret than that of a purely local company. In terms of
transfer pricing, it is doubtful that MNEs set artificial levels to
aid in collective bargaining situations since doing so simply
creates problems elsewhere. Specifically, if an MNE understates
profits in one country, it would have to overstate them
elsewhere, which would then put it at a disadvantage in
collective bargaining in that country.
Looking For The Future
Which Countries Will Have the Jobs of the Future?
As capital technology, and information grow more mobile
among countries and companies, human resource developing
should account increasingly for competitive differences.
Consequently, companies’ access to and retention of more
qualified personnel should grow more important. This will be a
Challenge because companies will run into greater difficulty
retaining highly skilled, highly valued workers in future. De-
mographers are nearly unanimous in projecting that
populations will grow much faster in developing countries
(China being an exception) than in industrial countries-at least
up to the year2030. At the same time, the number of retirees as
a percentage of the population in industrial countries will grow
as people live longer and retire earlier. People will also need to
be educated for more years to get the so-called better jobs.
Overall, these industrial-country trends indicate that there will
be fewer people to do the productive work within society.
Industrial countries may adjust in any of sever always of
combinations of them. Each way has a number of social and
economic consequences to Which MNEs must adapt.
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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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