Factors Affecting Global HR Management

Managing human resources in different cultures, economies, and legal systems presents some challenges. However, when well done, HR management pays dividends. A seven-year study in Britain of over 100 foreign companies showed that good HR management, as well as other factors, accounted for more of the variance in profitability and productivity than did technology, or research and development.The most common obstacles to effective HR management are cross-cultural adaptation, different organizational/workforce values, differences in management style, and management turnover. Doing business globally requires that adaptations be made to reflect these factors. It is crucial that such concerns be seen as interrelated by managers and professionals as they do business and establish operations globally. Figure depicts the general considerations for HR managers with global responsibilities. Each of those factors will be examined briefly.Legal and Political FactorsThe nature and stability of political systems vary from country to country. U.S. firms are accustomed to a relatively stable political system, and the same is true in many of the other developed countries in Europe. Although presidents, prime ministers, premiers, governors, senators, and representatives may change, the legal systems are well-established, and global firms can depend on continuity and consistency.However, in many other nations, the legal and political systems are turbulent. Some governments regularly are overthrown by military coups. Others are ruled by dictators and despots who use their power to require international firms to buy goods and services from host-country firms owned or controlled by the rulers or the rulers’ families. In some parts of the world, one-party rule has led to pervasive corruption, while in others there are so many parties that governments change constantly. Also, legal systems vary in character and stability, with business contracts sometimes becoming unenforceable because of internal political factors.International firms may have to decide strategically when to comply with certain laws and regulations and when to ignore them because of operational or political reasons. Another issue involves ethics. Because of restrictions imposed on U.S.-based firms through the Foreign Corrupt Practices Act (FCPA), a fine line exists between paying “agent fees,” which is legal, and bribery, which is illegal.HR regulations and laws vary among countries in character and detail. In many Western European countries, laws on labor unions and employment make it difficult to reduce the number of workers because required payments to former employees can be very high, as the HR Perspective on the next page indicates. Equal employment legislation exists to varying degrees.

In some countries, laws address issues such as employment discrimination and sexual harassment. In others, because of religious or ethical differences, employment discrimination may be an accepted practice.

All of these factors reveal that it is crucial for HR professionals to conduct a comprehensive review of the political environment and employment-related laws before beginning operations in a country. The role and nature of labor unions should be a part of that review.

Economic Factors

Economic factors affect the other three factors in Figure. Different countries have different economic systems. Some even still operate with a modified version of communism, which has essentially failed. For example, in China communism is the official ec

onomic approach. But as the government attempts to move to a more mixed model, it is using unemployment and layoffs to reduce government enterprises bloated with too many workers.Many lesser-developed nations are receptive to foreign investment in order to create jobs for their growing populations. Global firms often obtain significantly cheaper labor rates in these countries than they do in Western Europe, Japan, and the United States. However, whether firms can realize significant profits in developing nations may be determined by currency fluctuations and restrictions on transfer of earnings.Also, political instability can lead to situations in which t he assets of foreign firms are seized. In addition, nations with weak economies may not be able to invest in maintaining and upgrading the necessary elements of their infrastructures, such as roads, electric power, schools, and telecommunications. The absence of good infrastructures may make it more difficult to convince managers from the United States or Japan to take assignments overseas.

Economic conditions vary greatly. For example, Figure shows the relative cost of living for major cities in the world. Cost of living is a major economic consideration for global corporations.

Facts [+]

Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.

NEW YORK: Nearly half of workers around the world would consider moving to another country for the right job, a pay rise and other incentives such as trips home and language training, according to a new survey released on Monday.

With the global economy still struggling, employees in Mexico, Brazil, Russia, Turkey and India were most eager to grasp new opportunities, while workers in Sweden, the United States and Belgium preferred to stay closer to home, the Ipsos international poll showed.

Nearly 20 percent of people questioned said they would be very likely to work abroad for two to three years if they were given a 10 percent pay rise, and 30 percent said it was a possibility they would ponder.

At nearly 40 percent, higher pay was cited as the main incentive for workers to venture abroad, followed by better living conditions, a good career move, adventure and time for a change. A guarantee to resume their current job after two years away was another big incentive when considering a move.

In many developed countries, especially in Europe, unemployment has grown, but employment restrictions and wage levels remain high. Consequently, many European firms are transferring jobs to lower-wage countries, as Mercedes-Benz did at its Alabama plant. In addition, both personal and corporate tax rates are quite high. These factors all must be evaluated as part of the process of deciding whether to begin or purchase operations in foreign countries.

Cost-of-Living Comparison in Major World Cities

Cultural FactorsCultural forces represent another important concern affecting international HR management. The culture of organizations was discussed earlier in the text, and of course, national cultures also exist. Culture is composed of the societal forces affecting the values, beliefs, and actions of a distinct group of people. Cultural differences certainly exist between nations, but significant cultural differences exist within countries also. One only has to look at the conflicts caused by religion or ethnicity in Central Europe and other parts of the world to see the importance of culture on international organizations. Getting individuals from different ethnic or tribal backgrounds working together may be difficult in some parts of the world. Culture can lead to ethical differences among countries. The HR Perspective on the next page gives several examples.One widely used way to classify and compare cultures has been developed by Geert Hofstede, a Dutch scholar and researcher. Hofstede conducted research on over 100,000 IBM employees in 53 countries, and he identified five dimensions useful in identifying and comparing culture. A review of each of those dimensions follows.POWER DISTANCE The dimension of power distance refers to the inequality among the people of a nation. In countries such as Germany, the Netherlands, and the United States, there is a smaller power distance—which means there is less inequality—than in such countries as France, Indonesia, Russia, and China. As power distance increases, there are greater status and authority differences between superiors and subordinates.One way in which differences on this dimension affect HR activities is that the reactions to management authority differ among cultures. A more autocratic approach to managing is more common in most other countries, while in the United States there is a bit more use of participatory management.INDIVIDUALISM Another dimension of culture identified by Hofstede is individualism, which is the extent to which people in a country prefer to act as individuals instead of members of groups. On this dimension, people in Asian countries tend to be less individualistic and more group-oriented, whereas those in the United States score the highest in individualism. An implication of these differences is that more collective action and less individual competition is likely in those countries that deemphasize individualism.MASCULINITY/FEMININITY The cultural dimension masculinity/femininity refers to the degree to which “masculine” values prevail over “feminine” values. Masculine values identified by Hofstede were assertiveness, performance orientation, success, and competitiveness, whereas feminine values included quality of life, close personal relationships, and caring. Respondents from Japan had the highest masculinity scores, while those from the Netherlands had more femininity-oriented values. Differences on this dimension may be tied to the role of women in the culture. Considering the different roles of women and what is “acceptable” for women in the United States, Saudi Arabia, Japan, and Mexico suggests how this dimension might affect the assignment of women expatriates to managerial jobs in the various countries.

Facts [+]

According the Bureau of Labor Statistics, there are sixty-three million working women in America. Though women make up nearly half the workforce, those with families perform more than 90 percent of the household and childhood duties.

90 percent British firms have no women bosses

LONDON: Around 90 percent of Britain's top companies have no women bosses, according to a parliament report.

A parliament written answer obtained by former Treasury spokesman Matthew Oakeshott said there was no woman executive director in 310 of the top 350 companies in the country, The Sun reported.

Only 43 women are working in other senior roles.

Oakeshott, a Liberal Democrat member of the House of Lords, said: "Britain's big businesses are an old boys' club."

16 Jan, 2012, The Economic Times

UNCERTAINTY AVOIDANCE The dimension of uncertainty avoidance refers to the preference of people in a country for structured rather than unstructured situations. A structured situation is one in which rules can be established and there are clear guides on how people are expected to act. Nations high on this factor, such as Japan, France, and Russia, tend to be more resistant to change and more rigid. In contrast, people in places such as Hong Kong, the United States, and Indonesia tend to have more “business energy” and to be more flexible.A logical use of differences on this factor is to anticipate how people in different countries will react to changes instituted in organizations. In more flexible cultures, what is less certain may be more intriguing and challenging, which may lead to greater entrepreneurship and risk taking than in the more “rigid” countries.LONG-TERM ORIENTATION The dimension of long-term orientation refers to values people hold that emphasize the future, as opposed to short-term values, which focus on the present and the past. Long-term values include thrift and persistence, while short-term values include respecting tradition and fulfilling social obligations. People scoring the highest on long-term orientation were China and Hong Kong, while people in Russia, the United States, and France tended to have more short-term orientation.

Differences in many other facets of culture could be discussed. But it is enough to recognize that international HR managers and professionals must recognize that cultural dimensions differ from country to country and even within countries. Therefore, the HR activities appropriate in one culture or country may have to be altered to fit appropriately into another culture or country.