IHRM Trends and Future Challenges Chapter 11 IHRM Trends and Future Challenges IBUS 618, Dr. Yang

Chapter Objectives In this final chapter, we identify and comment on observed trends and future directions regarding: International business ethics and HRM. Mode of operation and IHRM. Ownership issues relating to IHRM requirements of organizations other than large multinationals, such as: Small and medium-sized firms (SMEs) Family-owned firms Non-government organizations (NGOs). Theoretical developments and research issues in IHRM. IBUS 618, Dr. Yang

Introduction In this course, we have explored the IHRM issues in a multinational context. To that end, we have focused on several aspects: The implications that the process of internationalization has for the HR activities and policies. Developing global leaders: who to place in charge of foreign operations and units to cater for the managerial and technical demands of international business growth. Host-country issues relating to standardization versus adaptation of work practices and their implications for HRM. (cont.) IBUS 618, Dr. Yang

Introduction (cont.) We tried to counter the imbalance towards expatriate issues, while recognizing the continued need to manage effectively international assignments, owing to the important strategic roles of expatriates and non-expatriates in sustaining international operations. We identified the managerial responses to the changing global work environment, particularly developing the required global mindset to accompany global operations, the use of informal control mechanisms, horizontal communication, cross-border teams and international assignments. We now turn our attention to trends and developments that present future challenges to IHRM. IBUS 618, Dr. Yang

International Business Ethics and HRM When business is conducted across borders, the ethics program takes on added layers of complexity. Especially problematic when multinationals operate in host countries that have: Different standards of business practice Economically impoverished Inadequate legal infrastructure Governments are corrupt, and Human rights are habitually violated The question arises not only in the context of different home- and host-country employment practices but also in the central operations and policies of multinationals. IBUS 618, Dr. Yang

Ethical Relativism or Global Values? Three main responses to the question: The ethical relativism believes that there are no universal or international rights and wrongs, it all depends on a particular culture’s values and beliefs - when in Rome, do as the Romans do. The ethical absolutism believes that when in Rome, one should do what one would do at home, regardless of what the Romans do. This view of ethics gives primacy to one’s own cultural values. In contrast, the ethical universalism believes that there are fundamental principles of right and wrong which transcend cultural boundaries and multinationals must adhere to these fundamental principles or global values. IBUS 618, Dr. Yang

Universal Ethical Principles Universal ethical principles can be seen in the agreements among nations who are signatories to: The United Nations Declaration of Human Rights The OECD Guidelines for Multinational Enterprises (adopted by the Organization of Economic Cooperation and Development) The Caux Roundtable Principles of Business They indicate the emergence of a trans-cultural corporate ethic and provide guidelines that have direct applicability to a number of the central operations and policies of multinationals including the HRM activities of staffing, compensation, employee training and occupational health and safety. However, there are a wide range of situations where variations in business practice are permissible. IBUS 618, Dr. Yang

Self-regulation Initiatives: International Corporate Codes of Conduct The need for international accords and corporate codes of conduct has grown commensurately with the spread of international business. Translating ethical principles and values into practice in the international business domain, even allowing for some consensus within the international community, is an enormous task in the absence of a supranational legislative authority. A number of mechanisms to facilitate the incorporation of ethical values into international business behavior have been suggested. IBUS 618, Dr. Yang

Caux Roundtable Principles for Business Conduct The first international ethics code for business Developed in 1994 by Japanese, European and North American business leaders meeting in Caux, Switzerland Aimed to set a global benchmark against which individual firms could write their own codes and measure the behavior of their executives. The Caux Principles are grounded in two basic ethical ideals: kyosei and human dignity. IBUS 618, Dr. Yang

Caux Roundtable Principles for Business Conduct (cont.) The Japanese concept of kyosei means living and working together for the common good – enabling cooperation and mutual prosperity to co-exist with healthy and fair competition. Human dignity relates to the sacredness or value of each person as an end, not simply as the means to the fulfillment of others’ purposes or even majority prescription. The Caux Principles aim to operationalize the twin values of living and working together and human dignity by promoting free trade, environmental and cultural integrity and the prevention of bribery and corruption. IBUS 618, Dr. Yang

Enforcement of Codes of Conduct The attitudes of senior management play a crucial role in developing, implementing and sustaining high ethical standards. HR professionals can help multinationals to institutionalize adherence to ethics codes through a range of HR activities including training and the performance–reward system, e.g. Johnson and Johnson’s Credo meets the standards of the Caux Principles, the UN’s Declaration of Human Rights and the OECD Guidelines for Multinational Enterprises. Addressing the core human values of good citizenship, respect for human dignity, respect for basic rights and justice, and using them to define ethical behavior. IBUS 618, Dr. Yang

Government Regulation: New global developments on the criminalization of bribery Bribery and corruption top the list of the most frequent ethical problems encountered by international managers. The World Bank estimates that about $80 billion annually goes to corrupt government officials. (cont.) IBUS 618, Dr. Yang

Is Bribery a Business Necessity? Bribery involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage. Bribery can be distinguished from so-called gifts and ‘facilitating’ or ‘grease’ payments. The latter are payments to motivate agents to complete a task they would routinely do in the normal course of their duties. It is now generally agreed that bribery undermines equity, efficiency and integrity in the public service, undercuts public confidence in markets and aid programs, adds to the cost of products and may affect the safety and economic well-being of the general public. IBUS 618, Dr. Yang

US Foreign Corrupt Practices Act The US Foreign Corrupt Practices Act, enacted in 1977 Prohibits US-based firms and US nationals from making bribery payments to foreign government officials. Payments to agents violate the Act if it is known that the agent will use those payments to bribe a government official. Amended in 1988, to permit ‘facilitating’ payments but mandates record-keeping provisions to help ensure that illegal payments are not disguised as entertainment or business expenses. The US lobbied other nation states for almost two decades to enact uniform domestic government regulations IBUS 618, Dr. Yang

Global Movement to Criminalize Bribery The United Nations adopted the UN Declaration Against Corruption and Bribery in International Commercial Transactions, in December 1996. Committed UN members to criminalize bribery and deny tax deductibility for bribes. IBUS 618, Dr. Yang

World Corruption Index Top 10 most corrupt countries Corruption perceptions index score Top 10 least corrupt countries Bangladesh Nigeria Paraguay Madagascar Angola Kenya Indonesia Azerbaijan Uganda Moldova 1.2 1.6 1.7 1.9 2.0 2.1 Finland Denmark New Zealand Iceland Singapore Sweden Canada The Netherlands Luxembourg U.K. 9.7 9.5 9.4 9.3 9.0 8.7 Source: Adapted from the transparency International Corruption Perception Index 2002, Ranging from 10 (highly clean) and 1 (highly corrupt), www.transparency.or IBUS 618, Dr. Yang

OCED Members’ Tax Treatment of Bribes Members Denying Tax Deductibility Members Allowing Tax Deductibility Members Repealed Tax Deductibility Canada Czech Republic Finland Greece Hungary Ireland Italy Japan South Korea Mexico Poland Turkey U.K. U.S Australia Luxembourg New Zealand Sweden Switzerland Austria, 1998 Belgium, 1999 Denmark, 1998 France, 1997 Germany, 1997 Iceland, 1998 Netherlands, 1997 Norway, 1996 Portugal, 1997 Source: OECD IBUS 618, Dr. Yang

The Role of HR in Operationalizing Corporate Ethics Programs HR has a special role to play in the formulation, communication, monitoring, and enforcing an enterprise’s ethics program. The US-based business ethics literature generally presents the view that the HR function along with finance and law is the appropriate locus of responsibility for an enterprise’s ethics program. The 2003 SHRM/ERC survey found that 71% of HR professionals are involved in formulating ethics policies for their enterprises 69% are a primary resource for their enterprise’s ethics initiative. However, the SHRM respondents did not regard ethics as the sole responsibility of HR. (cont.) IBUS 618, Dr. Yang

The Role of HR in Operationalizing Corporate Ethics Programs (cont) The findings suggest that responsibility for ethical leadership should cut across all functions and managerial levels, including line and senior managers. At the same time, HR is well positioned to make an important contribution to creating, implementing and sustaining ethical organizational behavior within a strategic HR paradigm. HR professionals have specialized expertise in the areas of organizational culture, communication, training, performance management, leadership, motivation, group dynamics, organizational structure and change management – all of which are key factors for integrating responsibility for ethics into all aspects of organizational life. IBUS 618, Dr. Yang

The Role of HR in Operationalizing Corporate Ethics Programs (cont.) People involved in international business activities face many of the same ethical issues as those in domestic business, The issues are more complex for IHRM because of the different social, economic, political, cultural and legal environments in which multinationals operate. Consequently, multinationals will need to develop self-regulatory practices via codes of ethics and behavioral guidelines for expatriate, TCN and local HCN staff. Firms which opt consciously or by default to leave ethical considerations up to the individual not only contribute to the pressures of operating in a foreign environment (e.g., poor performance or early recall of the expatriate), but also allow internal inconsistencies that affect total global performance. (cont.) IBUS 618, Dr. Yang

The Role of HR in Operationalizing Corporate Ethics Programs (cont.) When recruiting and selecting expatriates, ability to manage with integrity could be a job-relevant criterion. The pre-departure training of expatriates and the orientation program should include an ethics component. This might include formal studies in ethical theory and decision making as well as interactive discussion and role playing around dilemmas which expatriates are likely to encounter. In an effort to sensitize managers to cultural diversity and to accept the point that home practices are not necessarily the best or only practices, there has been an emphasis in international business training on adapting to the way in which other cultures do business. In designing training programs to meet the challenges of multinational business, HR professionals must raise not only the issue of cultural relativities but also the extent to which moral imperatives transcend national and cultural boundaries. Insufficient attention may result in unacceptable ethical compromises. (cont.) IBUS 618, Dr. Yang

The Role of HR in Operationalizing Corporate Ethics Programs (cont.) It is also important for the HR department to monitor the social, ethical performance of the expatriate managers to ensure that as managers become familiar with the customs and practices of competition in the host country, they do not backslide into the rationalization that ‘everybody else does it’. There is not yet agreement about what should constitute a global ethic to resolve the conflicts which arise in such a community. However, there is an emerging consensus about core human values which underlie cultural and national differences and the content of guidelines and codes which help to operationalize the ethical responsibilities of multinationals. IBUS 618, Dr. Yang

Mode of Operation and HRM Emphasis on IJVs Contractual modes such as licensing and management contracts present challenges for IHRM that have yet to be fully identified and explored International projects often involve host-government agencies and present specific HR challenges IBUS 618, Dr. Yang

Ownership Issues Small and medium-sized firms (SMEs) International activities place stress on limited resources especially staff Key individuals often represent the SME’s stock of international competence Retaining key staff critical Converting tacit knowledge into organizational knowledge a challenge IBUS 618, Dr. Yang

Family-owned Firms Not just a sub-set of SMEs Management succession presents special HR planning concerns The globalization of family-owned firms has been a remote topic in international business studies IBUS 618, Dr. Yang

Non-Government Organizations As active internationally as for-profit firms, yet receive less attention, e.g. Red Cross Greenpeace groups These organizations share similar management and HR concerns Often operate in high risk areas of the globe Anti-globalization rallies and protest Global terrorism Broadening our focus of IHRM is important IBUS 618, Dr. Yang

Research Issues The field of IHRM has been slow to develop a rigorous body of theory Regarded as a marginal area International studies are more expensive to fund Major methodological problems Defining culture and the emic-etic distinction Static group comparisons Translation and stimulus equivalence IBUS 618, Dr. Yang

Theoretical Developments Possible to identify two streams of inquiry The micro-level The macro level Low response to surveys may be a factor of Culture Language used Lack of use of teams of researchers IBUS 618, Dr. Yang

A Model of Strategic HRM in MNEs IBUS 618, Dr. Yang

Chapter Summary and Concluding Remarks Throughout this book, we have endeavored to highlight the challenges faced by firms as they confront human resource management concerns related to international business operations. This chapter has identified trends and future challenges – both managerial and academic – that are likely to have an impact on IHRM, as a function and as a scientific field of study. We specifically addressed several issues: (Cont.) IBUS 618, Dr. Yang

Chapter Summary (cont.) International business ethics and HRM responses. Modes of operation beyond wholly owned subsidiaries, and the IHRM activities that are required, such as training for contractual and project operations. Ownership issues relating to SMEs, family-owned firms and NGOs, and the IHRM challenges specific to these organizations as they grow internationally that have remained relatively under-identified, despite their continuing importance in international business and global activities. Research issues in IHRM studies and theoretical developments in order to understand the intricacies and inter-relationships between the IHRM functions and activities, firm internationalization, and strategic directions and goals. IBUS 618, Dr. Yang

Chapter Summary (cont.) A consistent theme throughout this book has been the way in which IHRM requires a broader perspective of what operating internationally involves, and a clear recognition of the range of issues pertaining to all categories of staff operating in different functional, task and managerial capacities is essential. As Poole stated “international human resource management archetypically involves the world-wide management of people in the multinational enterprise”. IBUS 618, Dr. Yang