Chapter 4 Achieving Global Integration Mc GrawHillIrwin Copyright

Leveraging Global Capabilities at Nokia’s strategy in the early 1990’s: Build on R&D investment in mobile phones • Maximizing efficiency and speed of product development • Exploiting manufacturing economies of scale Nokia’s company culture (the Nokia Way) – a key tool to manage the integration of growing global operations Nokia’s culture spread abroad through the expatriate network (mainly Finnish) Today, Nokia continues to rely on expatriates to coordinate business globally - but they now come from many countries 4 -2

Global Integration 2 Sets of conflicting demands 1. Local Responsiveness 2. Global Efficiency Local Resp. İs achieved by delegating decision making responsibility to local units and by appointing local managers to the top management team of subsidiaries. 4 -3

Global Integration (Chptr-4) means different parts of the corporation constitute a whole and that decisions made are based on a global perspective. In pursuing global integration ; - - The development of new knowledge takes place at the global hub, HQ / Worldwide product division/. . Foreign subsidiaries depend on the centre for resources direction + information. They act as product delivery pipelines to foreign markets implementing the strategies of parent company. 4 -4

Global Integration We call companies that use ‘One – Country’ approach to creating competitive advantage Maganational Firms. Many companies expand internationally while maintaining close control over the value chain primary activities (R&D, manufacturing, logistics, marketing, etc. ) and supporta activities (HR& Procurement) that are the sources of added value. 4 -5

Business Advantages of Global Integration Global integration does not mean centralization of all aspects. It may be limited to product / function/ value chain. P&G standardized products worldwide , bacause its key success factor compared to its competitors; is tecnological innovation and rapid application to all markets. Packing+advertsing are adapted to local markets. As global competition increases, emerging global consumers also increases as well as great homogeneity of tastes. That requires FAST DEC. Mak. At the rapid changing environment. 4 -6

Advantages of Global Integration • • Economies of scale Tight links in the value chain (bet. R&D, manuf. Martketing, in home tight integr. Makes technological dev laso more efficient) • Supporting global customers • Global branding • Leveraging home market capabilities • World-class quality assurance • Rapid response to change in competitive conditions 4 -7

Tools for Global Integration Both hierarchical control and horizontal coordination facilitate global integration by increasing organizational alignment • The emphasis on control is especially strong in meganational firms Most multinationals use four types of control mechanisms: • Procedural control (standardization) – US firms • Personal control (expatriation) – Japanese firms • Output control (performance management-objectives and targets) – US firms • Normative control (shared values- socialization) - European firms A common element in all control mechanisms is at least some degree of standardization and the use of expatriates 4 -8

Global Integration and Use Of Expatriation is a form of direct hierarchical personal control, - HQ trust them more than their local employees, Trusted Expats have been through intense socialization and may be levers for standardisation of practices Centralization is the key issue (centralization of Dec. Mak. ) Senior Managers at HQ extremely busy with operational issues. 4 -9

Global Standardization Global standardization is more than a “cost game” Multinationals mandate global operating standards for distant activities • To ensure consistent delivery on customer expectations (Mc. Donalds) • To enforce health and safety (Dupont, Exxon. Mobil) • To optimize work processes (Toyota, IKEA) Effective global standardization requires simplification, otherwise it just codifies complexity Standardization involves many people-related elements, such as training and socialization 4 -10

Respective Advantages of Global Standardization and Local Adaptation in HR Practices Global Standardization Local Adaptation Allows specialization and scale (cost) advantages in the HR function Fit with local culture, institutional, and labor market considerations Serves as control mechanism Helps fulfill local legal requirements Facilitates coordination across units Appropriate HR practices may enhance local goodwill and image Can transfer best HR practices and work systems Motivates host country managers to have locally developed practices Facilitates the use of IT-based HR tools and processes May be needed to support the strategy of the local unit Global (foreign) HR practices are sometimes preferred by host country nationals 4 -11

Degree of Global Standardization and Local Adaptation of HR Practices in Western-Owned Companies in China Global Standardization Local Adaptation Methods used when recruiting new local managers and professionals 4. 4 3. 9 Criteria used when recruiting new local managers and professionals 5. 0 4. 1 Amount of management and professional training 4. 4 3. 4 Content of management and professional training 4. 7 3. 6 Relative importance of bonuses as a percentage of total compensation 4. 1 4. 2 Criteria employed to determine financial bonuses 5. 1 3. 8 Methods used to assess performance of professionals and managers 5. 4 3. 7 Criteria used to assess performance of professionals and managers 5. 4 3. 7 Global standardization: (7) very similar to … (1) very different from … …the home country HR Practices. Local adaptation: (7) very similar to … (1) very different from … … HR practices found in local firms. 4 -12

Transplanting the Work System Standardization of HR practices facilitates the replication of entire operating systems in foreign subsidiaries, such as the Toyota Production Process (TPS) HR drivers of work process standardization • • Recruitment and selection Socialization Training and development Work organization (problem solving) The ability to transfer work systems is a fundamental organizational capability of many leading multinational firms 4 -13

Transplanting Capabilities Cultural norms and values are often perceived as a major obstacle to the transfer of capabilities Transplanting capabilities requires an understanding of how the whole system works • What is the core? • What can/should be changed? • What can be learned locally? Strong local management teams and well-trained expatriates are essential for the transfer of capabilities 4 -14

The Evolution of Expatriation has been a tool of organizational control since the days of ancient Rome. For many years, the main focus of international HRM was on the selection and compensation of expatriates In the academic field, international HRM was synonymous until recently with studies of expatriation The profile of an “expatriate” has changed in recent years – more diverse in ethnic origins, gender and age, as well as in the roles expatriates are expected to play 4 -15

The Evolution of Expatriation Today emphasis of HRM changed. Effective management of expatriation - / İnternational transfers remains one of the foundations for the implementation of GLOBAL STRATEGY. 4 -16

The Evolution of Expatriation It has been a tool of organisational control. 4 -17

The Motives of Expatriation Focus on international assignments of parent employees. 3 reasons of their dispatch; 1. 2. 3. Simply to fill positions that cannot be staffed locally, Support mgmt development, enablling high potential individuals to acquire international experience, Organisational development that is the control/informal social networks, Cross border mobility is a potential learning tool. 4 -18

Managing International Transfers Making an expat. Assignment a success for the individual + family+ the firm requires paying attention to many factors. From the time of initial selection until repatriation. The starting point is the recognition that expatriation is a process not an event. 4 -19

Managing the Expatriation Process All elements in the expatriate cycle are important • • • Selecting expatriates Preparation and orientation Supporting adjustment to the expatriate role Managing the performance of expatriates Compensation and rewards Repatriation The issues in the later stages have to be considered early – for example, repatriation has to be taken into the account already during the selection Expatriation is a process, not an event 4 -20

Managing the Expatriation Process Repatriation Compensation and rewards Selecting expatriates The Expatriate Cycle Managing the performance of expatriates Preparation and oriantation Adjusting to the expatriate role 4 -21

1. Selecting axpatriate: Technical expertise + domestic track record + language skills+ international adaptability is concerned. It is called ‘coffee machine’ system. Candidates are likely to be known personally to the senior managers in the parent company. Real decision is made informally. (discussions made by coffee machine) Sometimes positions are announced openly. But usually after the informal selection is made. 4 -22

A Portrait of Expatriates A 2009 survey profiled expatriates in 180 multinationals from the Americas (50%), Europe, the Middle East, and Africa (49%), and Asia Pacific (1%) • 18% of assignments expected to be less than 1 year, 55% 1 -3 years • 20% of the expatriates were women • 86% were accompanied by a spouse • 30% of spouses were employed before but not during the assignment, 13% during but not before, and 10% both before and during the assignment • 49% had children with them on the assignment Other findings: • 57% of the expatriate assignments were to/from the home country of the multinational • 33% of the companies expected an increase in expatriates, 25% a decrease • The most frequent expatriate locations: China, the US, and the UK • The most common assignment objective: Filling a managerial or technical skills gap, followed by building management expertise • The most critical challenges: Assignment costs, finding candidates, controlling policy exceptions, and career management 4 -23

The Purpose of Expatriation: Demand-driven versus Learning-driven Long Assignment duration Short CORPORATE AGENCY Control/Knowledge transfer COMPETENCE DEVELOPMENT PROBLEM SOLVING BUILDING EXPERIENCE Demand-driven Learning-driven Assignment purpose Different objectives may require differentiation in the way international assigments are managed 4 -24

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Studying Expatriate Failure Much past research on expatriation has focused on analyzing the cause of failure in overseas assignments The empirical evidence does not support claims of very high rates of expatriate failure – if defined as “premature” return From a corporate perspective, it is important to assess “success” directly The time to proficiency or mastering the new role • Achievement of learning objectives • Assessment of overall job performance Many expatriates who remain in their positions underperform relative to the original expectations 4 -26

Characteristics of Successful Expatriates Expatriate selection criteria • • • Professional and technical competence Relationship and communication abilities Cultural sensitivity and flexibility Self-efficacy and tolerance for ambiguity Family factors Language skills (sometimes) Some of these skills are difficult to develop. . . The relevance of particular traits and skills depends on the objectives of the assignment • Agency roles: managerial qualifications and leadership skills • Learning assignments: relationship abilities and cultural awarness 4 -27

Preparing for an assignment Early planning and training are important because international experience is a key component in management development. What kind of training? Cross-Cultural issues - cultural briefing , books, videos, case studies, crosscultural simulations, web sites or pre-assignment visits. 4 -28

Developing Expatriates: Questions to Ask How much cross-cultural training is needed? • The greater the cultural distance from the host country and the more social interaction involved in the job, the more important this is When should training take place? • Training about the host culture should be linked to the expatriate’s experience; real-time coaching is beneficial Is language competence essential? • Not essential in all assignments, but it helps develop relationships and the effort shows respect for the local culture What about the family? • Family considerations have a critical impact on an individual’s willingness to relocate and on the outcome of the assignment 4 -29

English is becoming rapidly the Company Language for Many expatriate jobs for cross-border control and coordination. Local language is not essential for these issues. Local language is essential when they have a problem with local customers or other authorities. It helps to adjust the country for living. 4 -30

Is it OK to say NO? Lets discuss. . . 4 -31

It may mean the end of promising career because international mobility is an integrated part of the employment relationship. 4 -32

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Adjusting to the Expatriate Role At an unfamiliar environment they have to learn to adjust to bahaviours, norms, values, and assumptions. 3 dimensions for adjustment 1 st Adjustment to work: If the job is unclear, if there is inherent conflict in the role, if there is little discretion in the work adjustment is difficult. 2 nd Adjustment to the general environment 3 rd Adjustment to interaction with local nationals. ++ Family adj. E. g. Honda has a family Centers in Ohio and Tokyo to help for cultural adaptation. 4 -34

Adjusting to the Expatriate Role Satisfaction & work performance 0 3 6 9 12 15 18 Months Stages in the Adjustment Process • • Honeymoon Culture shock: depression, anger, frustration – but it is the first step towards learning Adjustment Mastery Does previous experience facilitate the speed of adjustment? 4 -35

The Dual Allegiance of Expatriates Low Expatriates who see themselves as FREE AGENTS Expatriates who leave their HEARTS AT HOME Expatriates who “GO NATIVE” Expatriates who see themselves as DUAL CITIZENS Allegiance to local firm High Low Allegiance to parent firm High Source: Adapted from S. Black, H. Gregersen, and M. Mendenhall, Global Assignments: Successfully Expatriating and Repatriating International Managers, San Francisco: Jossey-Bass, 1992. 4 -36

The Expatriate Spouse Obstacles to successful adjustment • • • Culture shock – often stronger than for the working expatriate Loss of career in the case of dual-career couples Loss of “life back home”: friends, hobbies New family challenges – children’s education, etc. Partner works long hours (especially in the beginning!) …but often more time to invest in new challenges What can the company do? • Plan assignments based on joint preferences to get the buy-in • Provide counselling and assistance in finding jobs; collaborate with other MNCs to find opportunities • Subsidize educational programs 4 -37

Research on Expatriate Repatriation Most companies lack effective repatriation practices and international career development systems Most expatriates feel their reentry position is less challenging and satisfying than their international assignment Repatriates often feel that their international expertise is not valued by the company; they have little opportunity to use and share their experience A substantial percentage of expatriate managers leave their company within a year or two of returning home Source: Mendenhall, Kühlmann, Stahl & Osland (2002) 4 -38

Facilitating the Repatriation Process • • • Assign a mentor; regularly inform expatriates about changes in the organization; back home visits Give expatriates project assignments at headquarters, to enable them to cultivate their social capital Systematically examine possible reentry positions for the expatriate at least six months ahead of repatriation Provide career counseling and clearly delineate difficulties expected upon return; avoid making false promises Bring back expatriates after a 3 -4 year assignment (otherwise transfer to local contract) Make international assignments an integral part of the career development process 4 -39

HR Practices that Support Effective Expatriation Staffing and Selection Communicate the value of international assignments for the company’s global mission. • Ensure that people with the highest potential move internationally • Provide short-term assignments to increase the pool of employees with international experience • Recruit employees who have lived or who were educated abroad • Training and Career Development Make international assignment planning a part of the career development process • Encourage early international experience • Create learning opportunities during the assignment • Use international assignments as a leadership development tool • 4 -40

HR Practices that Support Effective Expatriation (cont’d) Performance Appraisal and Compensation • • • Differentiate performance management based on expatriate roles Align incentives with expatriation objectives Tailor benefits to the expatriate’s needs Focus on equality of opportunities, not cash Emphasis on rewarding careers rather than short-term outcomes Expatriation and Repatriation Activities • • Involve the family in the orientation programs Promote home-country mentor relationship Provide support for dual careers Secure opportunities for the returning manager to use acquired knowledge and skills 4 -41

Tensions in the Expatriate Cycle Home/Host tensions • Some expatriates show lack of sensitivity to local context Global/Local tensions • Expatriation may limit career opportunities for local managers Short-term/Long-term tensions • Too much emphasis on short-term solutions Tension between cost and investment • Cost-driven strategy may lead to “boom-bust” cycles Demand/Supply tension • Constraints on international mobility increasing reflect family and career considerations 4 -42

Changing Expatriate Demographics Increased heterogeneity of the employee population • • Female expatriates Younger expatriates (learning assignments) Third country nationals Dual career couples Advantages of young expatriates • Less costly (lower positions, smaller families) • More willing to take career risks • More opportunities to tackle the dual career challenge Third-country nationals • Originally driven by cost, now part of the talent pool • The difficult question: where is home? • Professional expatriates – Is this desirable? 4 -43

Female Expatriates Three common assumptions about female expatriates • Women do not want to become international managers • Companies refuse to send women overseas • The prejudice of locals against women may render them ineffective What we learned from research? • No gender differences in willingness to work overseas • Still some resistance to selecting female expatriates (perceived as high risk) • No difference in effectiveness Factors helping women to be effective expatriates • Relative visibility enhances local access • Communication and relational skills • Experience with being an “outsider” helps to manage stress 4 -44

The Changing Nature of Assignments Fewer opportunities for traditional (long-term corporate agency) expatriate roles More ’business as usual’ - with less generous compensation and benefits than in the past Two trends impacting demand supply: • Increase in short-term assignments (less than one year) - Offer flexibility; simpler to plan and execute • Perceived insecurity of expatriation - Fewer companies guarantee a job upon return At the same time, international experience is seen in many firms as a prerequisite for a successful career 4 -45

Alternatives to Expatriation Increasing global integration without traditional expatriation • • More short term assignments Self-initiated assignments Returnee assignments International commuter assignments Virtual assignments Rotational assignments Impatriation The key issues in managing impatriation? • Typical expatriate policies may not be suitable for impatriates, as most such moves are learning assignments • Companies underestimate the cross-cultural challenges facing impatriates 4 -46

The Limits of Global Integration An emphasis on global integration alone may lead to a lack of responsiveness to local stakeholders (customers, employees, governments) • Increasing local responsiveness is difficult unless the organization is able to attract, develop and retain local talent • Staffing policies based on expatriation create perceptions of unfairness – leading to talent retention problems The emerging challenge of many multinationals is how to leverage the capabilities of the whole network A shift from vertical control to lateral coordination is required to meet the challenge of being global and local at the same time 4 -47