International Human Resource Management and the Impact of Culture Dodo zu Knyphausen-Aufseß August 2006
Economic Integration: trade, foreign direct investment, portfolio capital flows, and investment income Technological Connectivity: Internet users, Internet hosts, and secure servers Personal Contact: international travel and tourism, international telephone traffic, and remittances and personal transfers (including worker remittances, compensation to employees, and other person-to- person and nongovernmental transfers) Political Engagement: member- ships in international organizations, personnel and financial contributions to U.N. Security Council missions, international treaties ratified, and governmental transfers ATKearney‘s Globalization Index (2004) India is No. 61!
Asian Indians in America
In 2000, there were about Million 1.7 American Indians
About 250.000 live in the Silicon Valley.
Asian Indians have outperformed all other minority groups in most measures of socioeconomic achievement.
Indian Americans are well-represented in the fields of medicine, engineering, finance and information technology . They are overrepresented as small business owners (e.g., proprietors of hotel and motel ), and cab drivers.
Asian Indians in Germany
In the end of 1999, about 30.000 Indians live in Germany, many of them students and residents without a green card
In 2000, in initiative was started to attract IT-professionals from India (and other eastern countries). At the end of 2000, the initiative has proved as not successful.
Major problems : Green card was limited to five years, “Kinder statt Inder“
The opposite direction: American and European firms find India attractive
Germany relations to india – still potential for improvement Trade, bill. of € FDI, mill. of € German-Indian firms outperform the stock market * Mumbai stock exchange Source: DBResearch
The basic question: Does culture have an impact?
Culture-free versus culture-bound
Universalism vs. Institutionalism
Convergence versus divergence
Impact of culture on HRM?
Culture is “the collective programming of the mind which distinguishes members of one group or category of people from another”
Culture is not innate, it is learned
Culture is dynamic
Facets of culture are interrelated
Culture is ethnocentric
Source: Hofstede, 1991: 5
Interacting spheres of culture Company Functional Professional National Regional Industry Geography, history, political and economic forces, climate, religion, language Resources, technology, product market, regulation, competitive Education, training, selection, socialisation External environment, nature of task, time horizon Founder, leader, administrative heritage, nature of product/ industry, stage of development Other cultures, e.g., family, associations, religion, etc.
Levels of Culture Artifacts and behaviour Beliefs and values Assumptions Methods for Discovery Observation Interviews and surveys Inference and interpretation
Hostede‘s study (1980)
Survey of more than 72.000 employees in one company – IBM – in 40 countries
Five dimensions to measure culture:
Collectivism versus individualism
Femininity versus masculinity
* This dimension was added in a follow-up study (Franke et al., 1991).
Power distance = the extent to which people accept that power is distributed unequally How frequently, in your experience, does the following problem occur: employees being afraid to express their disagreement with their managers? Source: based on Hofstede, 1991
Collectivism vs. individualism = the degree to which individuals are integrated into groups How important is it to you to have a job that leaves you sufficient time for your personal or family life? How important is it to you to have considerable freedom to adapt your own approach to the job? Source: based on Hofstede, 1991
Femininity vs. masculinity refers to the distribution of roles between the sexes Femininity: How important is it to you to have a good working relationship with your manager? How important is it to you to work with people who cooperate well with one another? Masculinity: How important is it to you to have an opportunity for high earnings? How important is it to you to get the recognition you deserve when you do a good job? Source: based on Hofstede, 1991
Uncertainty avoidance = the society’s tolerance for uncertainty or ambiguity Company rules should not be broken, even if the employee thinks it is in the company’s best interest? How long do you think you will continue working for this company? Source: based on Hofstede, 1991
= time horizon people have in mind when they think about the future
Are quarterly results more important than the long-term development of the company?
Responsibility for future generations?
Cultures can be very different Hofstede‘s study PD = Power Distance, IND = Individualisms, UA = Uncertainty Avoidance, MAS = Masculinity, LTO = Long-term Orientation Source: Frank, R./ Hofstede, G./ Bond, M., Cultural Roots of Economic Performance: A Research Note, in: Strategic Management Journal 12 (1991), Special Issue (Summer), S. 165-173 India PD IND UA MAS LTO USA 40 91 46 62 29 Europe Germany 35 67 65 66 31 France 68 71 86 43 30 England 35 89 35 66 25 Sweden 31 71 29 5 33 Asia Japan 54 46 92 95 80 Taiwan 58 17 69 45 87 South Korea 60 18 85 39 75
Cultures can be very different Hofstede‘s study PD = Power Distance, IND = Individualisms, UA = Uncertainty Avoidance, MAS = Masculinity, LTO = Long-term Orientation Source: Frank, R./ Hofstede, G./ Bond, M., Cultural Roots of Economic Performance: A Research Note, in: Strategic Management Journal 12 (1991), Special Issue (Summer), S. 165-173 India 77 48 40 56 PD IND UA MAS LTO USA 40 91 46 62 29 Europe Germany 35 67 65 66 31 France 68 71 86 43 30 England 35 89 35 66 25 Sweden 31 71 29 5 33 Asia Japan 54 46 92 95 80 Taiwan 58 17 69 45 87 South Korea 60 18 85 39 75
German/Indian experiences: An interview with Cornelia Schultheiss, DaimlerChrysler (1) MM: Are there any differences in the form of communication ? Schultheiss: Yes, most certainly. This is definitely where most problems arise. Mainly this is due to different basic communication needs. Germans, for example, communicate in a very direct way whereas Indians tend to use an indirect approach. As well as this, the German teams are used to an impersonal form of communication. Indians, on the other hand, talk far more often, in greater depth, for a longer time but then also more personally with each other. This comes from the fact that Indian colleagues have a greater need for communication and it’s tremendously important for them to establish a personal level. A personal level like this helps develop trust and paves the way for a good working relationship.
German/Indian experiences: An interview with Cornelia Schultheiss, DaimlerChrysler (2) MM: What role does an understanding of hierarchies play in this context? Schultheiss: Hierarchies are much more important in India than in Germany. You can observe this particularly clearly in meetings. In Germany you may well find in a meeting chaired by a person with a democratic leadership style that the conversation tends to be fairly spontaneous and comes from all directions. When Indian workers are in a meeting attended by their supervisor, they will generally wait until their supervisor has finished speaking. Yet for us Germans, this taking it in turns to talk according to the hierarchy is not always visible at first sight.
German/Indian experiences: An interview with Cornelia Schultheiss, DaimlerChrysler (3) MM: Are there any other cultural differences that affect the cooperation? Schultheiss: The feeling for time! The German sense of time has a linear nature. We work on a time line where all the different events are defined as fixed points. Indians, on the other hand, have a circular conception of time. The idea of cycles, whether for the day, year of life cycle, is a very strong feature among Indians. Indian people therefore tend to think of phases within these cycles rather than of fixed points in time. It is also matters more to Indians whether the person they’re talking to is young or old, whether the appointment is taking place in the morning, evening or at a particular time of year. The exact date or the precise time of the meeting is less important to them.
The U.S and Japan as polar types (1) Source: Pudelko, M., A Comparison of HRM Systems in the USA, Japan and Germany in their Socio-Economic Context, Working Paper, University of Edinburgh, 2005 USA Cultural context Japan Individualistic, self-assertive, individual freedom, opposing interests General characteristics Collective, consensus and cooperation oriented, embeddedness in society, harmony Low power distance, low uncertainty avoidance, very high individualism and high masculinity Geert Hofstede: Culture’s Consequences High power distance, very high uncertainty avoidance, low individualism and very high masculinity Universalism, individualism, emotional relations, specific culture Fons Trompenaars: Riding the waves of cultures Particularism, collectivism, neutral relations, vague culture
The U.S and Japan as polar types (2) Source: Pudelko (2005) USA Socio-political context Japan Little government interference in the market, distrust of powerful institutions, adversarial relations among and no shared responsi-bility of all economic players Economic system Much government interference in the market, trust of powerful national institutions, cooperation among and shared responsibility of all economic players Job market requires little stabil-ity of socio-demographic factors, little conformity to traditional roles, strong heterogeneity of employees Socio-demographic factors Job market requires much stabil-ity of socio-demographic factors, high conformity to traditional roles, relative homogeneity of employees Stress on creativity and inde-pendent thinking, top universi-ties and top-educated graduates responsible for high competitive-ness in tech sectors, neglect of mass education responsible for lower competitiveness in low tech sectors Educational system Stress on group integration, in-sufficient top universities and top-educated graduates respon-sible for lower competitiveness in high tech sectors, good mass education responsible for high competitiveness in middle tech sectors
The U.S and Japan as polar types (3) Source: Pudelko (2005) USA Economic context Japan Remuneration is based on market forces, resulting in low unemployment but also in ‘working poor’ Macro economic factors: Distribution of work and income Remuneration and employment for the core workforce is based on the collective will to be fair to all Consumer orientation, pursuing the ‘American Dream’, lower average standard of product and production technologies in middle value-added industries, but high standard in high value added and service industries because of high performers, high importance of shareholder value, innovative start-ups Market characteristics Producer orientation, promoting ‘Japan Inc.’, high average stand-ard of product and production technologies in middle value-added industries, but lower standard in high value added industries because of lack of high performers, little importance of shareholder value due to bank lending, few innovative start-ups Strongly adversarial, formalised and standardised industrial relations Industrial relations Cooperative, little formalised and standardised industrial relations
The U.S and Japan as polar types (4) Source: Pudelko (2005) USA Managerial context Japan High importance of short-term financial objectives in order to increase shareholder value, management strategies, structures, systems and techniques as well as top- managers of importance Management principles Financial and non-financial ob-jectives of importance in order to secure long-term survival, inde-pendence and growth of the company which is in the interest of all stakeholders, all those in the production process are valued High importance of top-management and individual decision making responsibility allows for quick strategy changes, functional specialists, pyramid corporate structure Organizational structure Top management mediates between various proposals, status quo and stability orientation, cross-departmental thinking, network-like corporate structure Low importance of HR depart-ment compared to other depart-ments and compared to line management, stress on management, less on the human resources themselves Significance of HRM for overall management High importance of HR depart-ment compared to other depart-ments and compared to line management, stress on both management and on the human resources
The U.S and Japan as polar types (5a) Source: Pudelko (2005) USA HRM Japan Finding the best qualified person for a specific job (job-oriented), high labour turnover Recruitment and release of personnel Finding the person who fits best for the company (people-oriented), lifelong employment Training focused on specific, limited knowledge for individuals for narrowly defined tasks (specialist training) Training and development Widespread, extensive and group-oriented training for broadly defined tasks (generalist training) Individual achievements and quantifiable criteria of importance (results oriented), specialist career path Employee assessment and promotion criteria Seniority and contribution to collective achievements of importance (behaviour-oriented), generalist career path
The U.S and Japan as polar types (5b) Source: Pudelko (2005) USA HRM Japan Primarily material incentives, pay based on individual achievements, significant pay differences Employee incentives Material and immaterial incentives, pay based on seniority, little pay differences Primarily vertical, structured and efficient Communication within the company Primarily horizontal, unstructured and extensive Top-down, authoritative, individual, confrontational and based on hard facts Decision making within the company Bottom-up, participative, collective, consensus-oriented and based on soft facts Specific, task-oriented, based on regulations Superior-subordinate-relationship Holistic, person-oriented, based on common values
The U.S and Japan – and Germany and India in-between? Recall, for example, Hofstede‘s dimensions!
Industrial Relations in Germany: Legal framework
- The German constitution (“Basic Law“; Grundgesetz) guarantees the right to free collective bargaining as well as freedom of association
Trade Unions, Employer‘s organizations
No uniform regulation under German labor law: no statutory minimum wage nor a statutory right to strike
Bunch of different laws which protect the employees (e.g., statutory sick pay, employment protection law)
Industrial Relations in Germany: Wage and work conditions negotiations
Level of wage negotiations: Collective bargaining can take place only between trade unions and individual employers or employer‘s associations.
Two kinds of collective agreements: Blanket collective agreements (usually on a long-term basis) and wage agreements (usually on an annual basis)
Strikes: Collective agreements also include a “peace clause” that prohibits industrial action during the lifetime of an agreement and for a period thereafter.
Industrial Relations in Germany: Trade unions
The German Trade Union Federation as a federation of 8 member unions in all major industries. Biggest union: “Ver.di“
2005: 6,78 Mill.
Industrial Relations in Germany: Work Councils
Work councils (Betriebsräte, i.e., committees of employee-representatives) must be formed in all companies with five or more employees if the employees request so. Members are elected for four years and need not be union members.
The rights of the works council, as set forth in the Works Constitution Act (Betriebsverfassungs- gesetz, BetrVG), range from information rights to codetermination rights in organizational, social and other matters.
Industrial Relations in Germany: Co-determination
The Co-determination Act 1976 requires that all companies with more than 2,000 employees must give employees equal representation with shareholders on the supervisory board.
The chairman (usually a representative of the share- holders) has the deciding vote in the event of a tie.
Management board must include at least one management employee representative.
Companies with less than 2,000 employees: “One-third-parity“
Corporate Governance: An American Definition “ Corporate Governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers?” Source: Shleifer, A./ Vishney, R., A Survey of Corporate Governance, in: Journal of Finance 52 (1997), pp. 737-782 (737) Very different mindset in Germany!!
International human resource strategy
More/different HR activities needed
More complex/diverse personnel policies and practices in MNCs
More stakeholders influence HR policies
Source: Hiltrop, 1999: 48
Expat assignments – a difficult issue
” It is easy to get lost in the world of the subsidiaries and to be out of sight, out of mind when promotions come up at headquarters”
” Whoever wants to climb the ranks in our company needs international experience from at least two different assignments”
CEO of foreign branch/subsidiary
Coordination and control
Information sharing and exchange
Profile of expat population
Gender: Male 87%, Female 13%
Accompanied by a spouse: 77%
Single males 75%, Single females 25%
Employment status of spouse:
Spouse employed before assignment 49%
Spouse employed during assignment 11%
Accompanying children: 61%
Length of assignments:
Less than 1 year 8%
1-2 years 30%
2-3 years 39%
3 or more years 23%
Source: Global Relocation Trends 1999 Survey Report
Expat assignments are often unsuccessful
Reasons for expatriate failure:
Inability of spouse to adjust
Manager’s inability to adjust
Other family problems
Manager’s personal or emotional maturity
Inability to cope with larger overseas responsibilities
Inability of spouse to adjust
Inability to cope with larger overseas responsibilities
Difficulties with new environment
Personal or emotional problems
Lack of technical competence
Inability of spouse to adjust
Source: Tung, in Hill, 1998: 570
Rank order of expatriate selection criteria
Ability of an expat candidate to adapt to a foreign culture
Ability of a candidate´s spouse and family members to adapt to a foreign culture
Technical capabilities and competence for a foreign assignment
Human relation skills (relational characteristics and abilities)
Motivation and desire to work in a foreign environment
Understanding the host-country culture and society
Extent of relevant overseas experience
Academic qualifications and job-related credentials
Language skills and literacy applicable in the host country
Understanding of the home-country culture and society
Source: Holt, 1998: 572
People experience culture shock when they find that familiar cues are missing
Information or fact-oriented training
Cultural awareness training
Honeymoon Culture shock Adjustment Mastery TIME IN MONTH S ADJUSTMENT Sources: Black/Mendenhall, 1991; Landis/Brislin, 1983
Matrix of international communicators Gone Native (lose-win) Ugly Tourist (win-lose) Isolationist (lose-lose) Global Communicator (win-win) Low Courage High Low Consideration High Source: Davis et al. 1997
Components and activities for a comprehensive expatriate program Preparation: Predeparture activities Adaptation: Host-country activities Repatriation: Reentry activities Source: Holt, 1998: 565
Components and activities for a comprehensive expatriate program Preparation: Predeparture activities Adaptation: Host-country activities Repatriation: Reentry activities
Job criteria planning
Housing and supplies
Car or transportation
Home leave adjustment
Career review and job
Source: Holt, 1998: 565
How to execute cultural training DEGREE OF INTEGRATION LEVEL OF RIGOR High Low Length of Training 1-2 months+ 1-4 weeks Less than a week Length of stay 1 month or less 2-12 months 1-3 years Source: Mendenhall/Oddou, 1986 CROSS-CULTURAL TRAINING APPROACHES INFORMATION-GIVING APPROACH Area briefings Cultural briefings Films/books Use of interpreters „ Survival-level“ language training IMMERSION APPROACH Assessment center Field experiences Simulations Sensitivity training Extensive language training AFFECTIVE APPROACH Culture assimilator training Role playing Critical incidents Cases Stress reduction training Moderate language training Low Moderate High
However, many companies do not invest in expat training
The primary reasons are:
Top management perceives no need
No evidence of substantial benefits
Training is not a cost-effective investment
Selection leaves too little time before new assignments
Companies prefer to hire locally
Employees feel dissatisfied with training programs
Source: Holt, 1998: 576
German companies in Japan …
… rely on Japanese employees as much as possible
… but find it difficult to hire Japanese employees
… invest in relations to Japanese universities to become better known
… try to adapt to Japanese work systems but also to implement “western“ work practices (e.g. pay for performance)
… motivate Germany expatriates to stay as long as possible
… heavily invest in on-the-job training
Japanese companies in
... rely on Japanese employees as much as possible
… find it hard to understand the German legislation
… tend to have a work council only when the HRM manager is German
… do adapt to German or “western“ compensation systems
… are looking more and more to U.S. work practices!