1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Becoming Locally Responsive Chapter 3

2. 3-2 Why did eBay fail in China? A successful company in the 10 years under Meg Whitman ­ 1998-2008: $4.7m-$8b sales; 50-15000 employees But what went wrong in Asia, notably China? Why was eBay unable to compete with Alibaba and local competitors? Failure to adapt the business model; no Chinese features No innovation to fit the Chinese market No localization of management, sidelined managers leave HQ in the US doesn’t listen Lack of Local Responsiveness A successful company in the 10 years under Meg Whitman ­ 1998-2008: $4.7m-$8b sales; 50-15000 employees But what went wrong in Asia, notably China? Why was eBay unable to compete with Alibaba and local competitors? Failure to adapt the business model; no Chinese features No innovation to fit the Chinese market No localization of management, sidelined managers leave HQ in the US doesn’t listen Lack of Local Responsiveness

3. 3-3 The Multidomestic Growth Strategy Local responsiveness was the typical path to internationalization until the 1960’s European firms like Nestlé, Unilever, Shell in the early 20C No modern logistics and transport; poor communications Trade barriers in 1920s and 30s; WWII dislocation US firms internationalizing in 60s and 70s felt less pressure to be sensitive to national differences « Local » means more than national : in fact it refers to any distinct market It also means differentiated or non-standardized Local responsiveness was the typical path to internationalization until the 1960’s European firms like Nestlé, Unilever, Shell in the early 20C No modern logistics and transport; poor communications Trade barriers in 1920s and 30s; WWII dislocation US firms internationalizing in 60s and 70s felt less pressure to be sensitive to national differences « Local » means more than national : in fact it refers to any distinct market It also means differentiated or non-standardized

4. 3-4 The Issues What are the business advantages of Local Responsiveness? Localizing Practices and Management Understanding Diversity: Three Perspectives 1.Know yourself and others (Cultural) 2.Know where you are (Institutional) 3.Know who you talk to (Network) What shapes management practices? What are the business advantages of Local Responsiveness? Localizing Practices and Management Understanding Diversity: Three Perspectives 1.Know yourself and others (Cultural) 2.Know where you are (Institutional) 3.Know who you talk to (Network) What shapes management practices?

5. 3-5 What are the business drivers of local responsiveness? Industries where there are no advantages to standardization or coordination Customer needs: Where customers have differentiated expectations Local substitutes: Where local products or services have different price/performance characteristics Differences in markets and distribution channels Host government regulations Industries where there are no advantages to standardization or coordination Customer needs: Where customers have differentiated expectations Local substitutes: Where local products or services have different price/performance characteristics Differences in markets and distribution channels Host government regulations

6. 3-6 People Management: To Adjust or Not to Adjust? Strong arguments for a local approach to people management … Cultural differences Institutional differences (regulations, local practices) … but a differentiated perspective is needed Some practices are more contextual than others Blue collar practices may be more local than managerial practices There are usually advantages to global standardization of some people practices Strong arguments for a local approach to people management … Cultural differences Institutional differences (regulations, local practices) … but a differentiated perspective is needed Some practices are more contextual than others Blue collar practices may be more local than managerial practices There are usually advantages to global standardization of some people practices

7. 3-7 Implementing Localization Local responsiveness means the influence of capable local managers on decisions They can be expatriates But this typically means paying attention to local people development The arguments for localization? (local recruitment, staffing, development and retention) Better understanding of markets, customers, opportunities Goodwill among local authorities and media Improved local networks and connections Better employee commitment and motivation Lower costs Local responsiveness means the influence of capable local managers on decisions They can be expatriates But this typically means paying attention to local people development The arguments for localization? (local recruitment, staffing, development and retention) Better understanding of markets, customers, opportunities Goodwill among local authorities and media Improved local networks and connections Better employee commitment and motivation Lower costs

8. 3-8 How to Localize Management? Grow your own timber – Be good at attracting and developing talent Establish a visible presence in local markets Adjust selection criteria Sell careers and not just jobs Pay attention to retention! Compensation is important, but don’t pay your way out of the market Grow your own timber – Be good at attracting and developing talent Establish a visible presence in local markets Adjust selection criteria Sell careers and not just jobs Pay attention to retention! Compensation is important, but don’t pay your way out of the market

9. 3-9 Head Office: The Localization Bottleneck Expatriates have to take the responsibility for localization Avoid the traps: Serial cycles of localization – It’s not a one-shot effort Local HR managers are often too operational Don’t take localization so far that cross-border experience is compromised Expatriates have to take the responsibility for localization Avoid the traps: Serial cycles of localization – It’s not a one-shot effort Local HR managers are often too operational Don’t take localization so far that cross-border experience is compromised

10. 3-10 Managing Diversity: THE CULTURAL PERSPECTIVE KNOW YOURSELF AND OTHERS National cultures differ … Source: G.Hofstede, « Motivation, leadership and organization: Do American theories apply abroad? » Organizational Dynamics, Summer 1980.

11. 3-11 Seven Cultural Tensions 1.Universalism versus particularism: When no code, rule, or law seems to cover an exceptional case, should the most relevant rule be imposed, or should the case be considered on its merits? 2.Analyzing versus integrating: Are managers more effective when they break up a problem or situation into parts, or integrate the parts into a whole? 3.Individualism versus communitarianism: When people reach decisions or make choices, should they consider their own best interests, or should they base their choices on the considerations of the wider team, organization, collectivity, or community to which they belong? 4.Inner-directed versus outer-directed: Should managers be guided by internal standards, or should they be flexible and adjust to external signals, demands, and trends? 5.Sequential versus synchronic view of time: Should managers get things done as quickly as possible, regardless of the negative impact that their actions may have on others, or should they synchronize efforts so that completion is coordinated and the negative impact minimized? 6.Achieved versus ascribed status: Should individuals be judged primarily or solely by their achievements, or by their status, as reflected in age, length of service, or other ascriptions? 7.Equality versus hierarchy: Should subordinates be treated as equals and allowed to exercise discretion in decision-making, or should relationships be delimited by hierarchy? Source: Adapted from C. Hampden-Turner and A. Trompenaars, Building Cross-Cultural Competence (New York: Wiley, 2000).

12. 3-12 Concepts of HRM vary from one culture to another: European differences Integration (Involvement of HR function in strategic and business manag- ment processes) Devolvement of HRM responsibility to line management « Policeman » Professional Mechanic Pivotal- Business Partner Wild West N orway F rance E Spain S Sweden CH Switzerland DK Denmark NL Netherlands I taly UK D Germany SOURCE : C.Brewster & H.H. Larsen, Human resource management in Europe, International Journal of Human Resource Management, December 1992 (Revised data 2002)

13. 3-13 The Cultural Perspective is Intuitive … but there is a danger of taking it too literally Clear differences, especially regarding authority, teamwork and collaboration … BUT … Don’t stereotype cultures! There is more variation within a culture than there is between cultures The importance of selection Generational differences and global convergence Culture can often be an alibi for resisting change Culture can become a catch-all for not trying to understand complexity Clear differences, especially regarding authority, teamwork and collaboration … BUT … Don’t stereotype cultures! There is more variation within a culture than there is between cultures The importance of selection Generational differences and global convergence Culture can often be an alibi for resisting change Culture can become a catch-all for not trying to understand complexity

14. 3-14 Low Power Distance High Power Distance The US China ‘Power distance’ among inhabitants in two countries Culture as « Normal Distribution »

15. 3-15 Managing Diversity: THE INSTITUTIONAL PERSPECTIVE Know where you are! It may be quite OK to ask someone to work a 50-hour week in the US … but questionnable in some cultures and against the law in others (e.g. Germany) This is what we call Institutional Differences (legal systems, political and social norms) Know where you are! It may be quite OK to ask someone to work a 50-hour week in the US … but questionnable in some cultures and against the law in others (e.g. Germany) This is what we call Institutional Differences (legal systems, political and social norms)

16. 3-16 CountryEase of employing workers Rigidity of employment index Firing costs (weeks of salary) Ease of doing business rank Singapore1041 United States1003 Denmark10 05 Japan17 412 United Kingdom2814226 United Arab Emirates47138446 Italy75381165 India893056122 Netherlands98421726 Brazil1214637125 Germany142446925 France148563231 Korea152459123 Indonesia15740108129 China159279161 Spain16056 49 Venezuela18079 Not possible 174 Ranking of 17/181 countries on Ease of Employing Workers and Doing Business (Source: World Bank Group, http://www.doingbusiness.org/, 2009 data)http://www.doingbusiness.org/

17. 3-17 Strategy External Institutional Environment Technology & work organization Culture Work Force Six different configurations of Capitalism Source: Redding, G. (2001). “The evolution of business systems.” Euro-Asia Centre Report no. 72. INSEAD, Fontainebleau and Singapore.

18. 3-18 Shareholder value Market-oriented Contracts Goal-oriented Output based Egalitarian Transactional Instrumental Competitive Diversity The Anglo-American model of Capitalism

19. 3-19 Long-term development Employment of people Collaborative within the Establishment Horizontal linkages Socialization Learning Team-oriented Empowerment Interdependence Trust Homogeneous The Japanese Model of Capitalism

20. 3-20 Family wealth Networked, Relationships, Guanxi Efficient external labor market Owner-centered Entrepreneurial Nodal Hierarchic – Confucian social order/harmony Paternalistic (reciprocity) More heterogeneous Insiders and outsiders The Private Chinese Firm Model of Capitalism

21. 3-21 Differences between the US and Continental European Institutional Frameworks There is a higher level of state regulation in Europe that constrains organizations in their HR practices, particularly with regard to lay-offs and dismissals. Labor unions are larger and have more influence in many European countries (union recognition can be a legal requirement for the purposes of collective bargaining). There is stronger European tradition of employee representation, in particular in countries such as Germany and The Netherlands. There is a higher level of state regulation in Europe that constrains organizations in their HR practices, particularly with regard to lay-offs and dismissals. Labor unions are larger and have more influence in many European countries (union recognition can be a legal requirement for the purposes of collective bargaining). There is stronger European tradition of employee representation, in particular in countries such as Germany and The Netherlands.

22. 3-22 Trade unions and Collective bargaining coverage in Selected Countries CountryTrade union coverage (%) Collective bargaining coverage (%) Australia2580+ Austria3795+ Belgium5690+ Czech Republic 27 Denmark7480+ Finland7690+ France1090+ Germany2568 Japan2215+ Korea11 The Netherlands2380+ Portugal2470+ Spain1580+ UK3130+ US1314

23. 3-23 It’s vital to keep the Institutional Perspective in mind The danger of projecting one’s one national institutional context abroad Question: How does your own home institutional context shape human resource practices? The critical role of HR managers in negotiating with institutional differences in mind: What do you do in for example Germany when the NY HQ says « Cut headcount by 15% across the board! » The danger of projecting one’s one national institutional context abroad Question: How does your own home institutional context shape human resource practices? The critical role of HR managers in negotiating with institutional differences in mind: What do you do in for example Germany when the NY HQ says « Cut headcount by 15% across the board! »

24. 3-24 Managing Diversity: THE NETWORK PERSPECTIVE Know who you talk to The HR practices of foreign firms are often more similar (1) to parent company practices and (2) to those of other multinationals than to local firms. WHY? Companies and people copy the practices of similar people to themselves They go to the same clubs, schools, networks People learn from their networks Networks and relationship are reshaping the world … but we tend to network with people we know and who are similar to us Know who you talk to The HR practices of foreign firms are often more similar (1) to parent company practices and (2) to those of other multinationals than to local firms. WHY? Companies and people copy the practices of similar people to themselves They go to the same clubs, schools, networks People learn from their networks Networks and relationship are reshaping the world … but we tend to network with people we know and who are similar to us

25. 3-25 It’s important to network with others … but watch out for the bandwagon effect How many of you have heard about lean management, GE’s Workout, and Six Sigma? How many have you have heard about CAP (change acceleration process)? The Japanese management rage Anglo-Saxon performance management practices Sustainable competitive advantage never comes from benchmarking and copying others ­ Be aware of the dangers of social legitimacy ­ Try to network with people who are different from yourself How many of you have heard about lean management, GE’s Workout, and Six Sigma? How many have you have heard about CAP (change acceleration process)? The Japanese management rage Anglo-Saxon performance management practices Sustainable competitive advantage never comes from benchmarking and copying others ­ Be aware of the dangers of social legitimacy ­ Try to network with people who are different from yourself

26. 3-26 What Shapes Management Practices? There are 5 different influences: The country-of-origin effect The company-of-origin effect The host country effect The foreign firm network effect The global convergence effect Global convergence or divergence? It is a bit more complex than that There are 5 different influences: The country-of-origin effect The company-of-origin effect The host country effect The foreign firm network effect The global convergence effect Global convergence or divergence? It is a bit more complex than that

27. 3-27 A Final Paradox about Local Responsiveness Local responsiveness doesn’t necessarily mean playing by local rules … Local managers often have a better sense for which rules they can break So the transnational ideal is to have local managers who are part of global networks – redefining the boundaries of what is considered to be « local » Local responsiveness doesn’t necessarily mean playing by local rules … Local managers often have a better sense for which rules they can break So the transnational ideal is to have local managers who are part of global networks – redefining the boundaries of what is considered to be « local »