HR Management Systems

  

Instructions DUE 5/19/2020 BY 8PM EASTERN TIME

For this assignment, you will write an essay that assesses the role of culture in human resource management practices within a global organization. Give examples of how cultural differences may affect at least two human resource (HR) functions. Examples of these functions may include recruitment and hiring, employee and/or management development, performance reviews, promotions, compensation, and benefits, but you are not limited to these functions. 

Your essay should follow the guidelines below. 

Writing should include proper grammar, sentence structure, and writing mechanics. 

The organization of the paper should be logical, and you should include an introduction section with a clear thesis statement as well as a conclusion section. 

Your paper should be at least three pages in length. 

You must use a minimum of two outside sources. 

All sources used must be referenced; paraphrased and quoted material must have accompanying citations in APA format. 

Your paper must be formatted in APA style to include a title page, running head, and reference page. 

There are two additional references identified below that you may find helpful when completing this assignment, but you are not required to use them. 

In order to access the following resources, click the links below:

 (WILL BE ATTACHED LINK DOSENT WORK)

The Economist Intelligence Unit Limited. (2015). What’s next: Future global trends affecting your organization: Engaging and integrating a global workforce. Retrieved from https://www.shrm.org/hr-today/news/hr-magazine/documents/3-15%20eiu%20theme%202%20report-final
 

Von Glinow, M. A., Drost, E. A., & Teagarden, M. B. (2002). Converging on IHRM best practices: Lessons learned from a globally distributed consortium on theory and practice. Human Resource Management, 41(1), 123. Retrieved from

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=13641428&site=ehost-live&scope=site

 

Other References

Cultural difference in business: Valerie Hoeks: TEDxHaarlem [Video file]. Retrieved from

Geert Hofstede – Recent discoveries about cultural differences [Video file]. Retrieved from

Erin Meyer: How cultural differences affect business [Video file]. Retrieved from

Converging on IHRM Best Practices • 123

CONVERGING ON IHRM BEST PRACTICES:
LESSONS LEARNED FROM A
GLOBALLY DISTRIBUTED
CONSORTIUM ON THEORY
AND PRACTICE

Human Resource Management, Spring 2002, Vol. 41, No. 1, Pp. 123–140
© 2002 Wiley Periodicals, Inc. This article published in Wiley InterScience (www.interscience.wiley.com).
DOI: 10.1002/hrm.10023

Mary Ann Von Glinow, Ellen A. Drost, and Mary B. Teagarden

This article captures the results of the “Best Practices” Project and attempts to identify which
IHRM practices are universally embraced in our ten-country/region sample. Here we present a
compelling argument for understanding cultural contexts by seeking and establishing derived
etics. No longer content with the traditional conduct of cross-cultural research, we challenge
“how” we do research, and encourage gatekeepers to broaden their research lenses with multiple
embedded contexts—polycontextuality—as they search for answers. We find anomalies, and
counterintuitive findings, and through our “gap analysis,” we discovered several universally em-
braced etics or best practices. We believe we have not only made a significant contribution to
research, but, in particular, we offer a solution methodology for conducting globally distributed
IHRM research. These findings signal new directions for all deeply involved in managing within
and across different cultures. © 2002 Wiley Periodicals, Inc.

Introduction

This special issue has addressed a complicated
and somewhat maligned term of late—best
practices—in International Human Resource
Management. In brief, the challenge of the
Best Practices Project reported on in this spe-
cial issue was to identify which HR practices
stood out across which countries and why.
Were there universal “best practices,” or purely
context-specific practices that were meaning-
less out of cultural context? Such analyses de
facto demand consideration of a number of
contextual, cultural, and organizational vari-
ables. The research quandaries associated
within the massive data sets reported here
were exacerbated by philosophical challenges
which lie at the root of what researchers are
trained not to go beyond: the scientific
method. Despite it all, the Best Practices
Project (the multiresearcher, multicultural,
multinational, interdisciplinary research con-

sortium described in the previous articles) has
succeeded in shedding light on theoretical and
practical arguments for how IHRM practices
and the effectiveness of their use, can and do
vary in response to cultural and other contex-
tual factors. In short, this project’s findings
have revealed that there are IHRM “best prac-
tices.” However, they are not as universal as
we had hoped. This is not a semantic teaser.
We believe that, in total, we have been able to
derive some IHRM best practices common to
the cultures we have compared. However, we
haven’t analyzed the population of all cultures;
thus the term “universal” cannot be fully em-
braced. Some of this is simply not knowable
at this point in the research process: not from
these data nor from any other large scale, glo-
bally distributed research consortium such as
this. Some of this is due to the state of our
“theory” around IHRM; some of it is due to
methodological issues. We will begin with what
we do not know now (nor could we expect to

124 • HUMAN RESOURCE MANAGEMENT, Spring 2002

know as a result of this large-scale study) and
then iterate up the knowledge chain. We will
then identify what these data have told us
about “best practices” and subsequently dis-
cuss some of the unusual and/or
counterintuitive findings. Practitioners and
academics alike will not be surprised if we
suggest here that we have not, as yet, a unify-
ing theory of IHRM which drives questions
such as those posed throughout this special
issue. Ultimately it hangs on the theoretical
underpinnings, which we address next.

What Theory Drives a Multicultural
Study of “Best Practices?”

Huo, Huang, and Napier (in press) remind us
that IHRM research is best described as pa-
rochial, and this parochialism notwithstand-
ing, has found its way into the mainstream
even after its patrons were chastised.1 Witness
today just how much emphasis is on the costs
and benefits of various HR practices for the
entire Multinational Enterprise (MNE) rather
than the core characteristics of the HR prac-
tices in each country. In other words, we know
a great deal about compensating the expatri-
ate manager, and how expatriates fare in the
U.S., Europe, and Japan. We know next to
nothing about an international compensation
theory, or properties of compensation systems
in other countries (to which those expatriates
are sent!) (Lowe, Milliman, De Cieri, &
Dowling, in press) that can generalize with any
degree of accuracy. That said, there has been
scant research on “best IHRM practices” in
different countries. Possibly this is just be-
cause there is no IHRM theory that guides us,
or helps to meaningfully inform practice. Why?

There has been a long-standing debate in
most of the literatures of the social sciences,
from anthropology, psychology to organiza-
tional science about the usefulness of work-
ing intensively within one country to try to
understand the issues purely pertinent to that
culture (emic) versus those that believe work-
ing across cultures can reveal universal gen-
eralizations (etic) (Berry, 1990; Drost & Von
Glinow, 1998; Teagarden & Von Glinow,
1997). However, all such a debate ultimately
does is cloud the differences toward the
means, and the argument reheats. It is in that

spirit that we have had debates around uni-
versalism vs. particularism, or etic vs. emic,
or convergence vs. divergence. It is not our
purpose here to resolve that debate; however,
it is our purpose to try to understand HR prac-
tices uniquely within a culture (e.g., U.S.) and
compare them to some other culture’s practices
such that the overlap can be considered to be a
“derived etic” (Berry, 1990), or a set of results
that permit valid comparisons within the lim-
ited set of cultures compared. Berry (1990, p.
92) notes: “If this procedure were to be ex-
tended to all cultures and a derived etic thereby
attained, then there would be a universal es-
tablished. In other words, a universal is truly
‘universal to everyone’ while a derived etic is
limited to that set of cultures for which it has
been established.” Visually, it would look like
Figure 1 (adapted from Berry, 1990).

Several researchers have used this frame-
work, or variations on it, to try to get clarity
on cultural differences. We think it is useful
for two reasons: One is our discussion of “best
practices” across different cultures. Here we
have painstakingly sought to compare HR
practices derived in North America [i.e., the
U.S. (emic A)], then diffused to another cul-
ture, [i.e., Australia (imposed etic)] in an at-
tempt to discover HR practices in Australia’s
culture (emic B). This allows for possible com-
parison of emic A and emic B, and where com-
parison reveals overlaps between the two, we
have our “derived etic.” This is to say, (1) if
both the U.S. and Australia utilize the same
IHRM practices, (2) there is understanding of
the cultural context within which these IHRM
practices are applied, and (3) there is evidence
that these practices are effective in both coun-
tries, then it can be stipulated that the over-
lapping part of the Venn diagram represents a
“best practice,” or a “derived etic.”

The second reason we believe the “derived
etic” discussion is relevant here is that it may
structure our thinking about doing cross-cul-
tural comparisons by allowing us to use a com-
mon solution methodology as we aim for
theory development in IHRM.

Most of the work done within the field of
IHRM generally tries to compare a few prac-
tices across two countries. As a result, simi-
larities and differences are assiduously
reported, but there is little explanation given

… it is our
purpose to try to
understand HR
practices
uniquely within
a culture (e.g.,
U.S.) and
compare them to
some other
culture’s
practices such
that the overlap
can be
considered to be
a “derived etic”
(Berry, 1990), or
a set of results
that permit valid
comparisons
within the
limited set of
cultures
compared.

Converging on IHRM Best Practices • 125

as to why and under what conditions the simi-
larities and differences exist.2 There is no at-
tempt made to derive any “etics” or, for that
matter, to determine whether the practices of
the two countries are viewed from the same
cultural lenses. Thus, context needs to be
embedded into the discussion of “valid” ob-
served similarities and differences in HR prac-
tices, and it is to this methodological
discussion we now turn our attention.

Traditionally, the use of valid and reliable
standardized measurement scales3 is a prereq-
uisite for publication within any good research
outlet, thus the measurement scale becomes
the driver, and not the research question. Let
us leave aside the issue of relevance for the
moment, but take for example a selection tech-
nique common in France: graphology, or hand-
writing analysis. Any “measurement” device
that fails to assess this selection criterion may
be “standard/reliable” but not at all useful to
the French. No amount of statistical manipu-
lation or sophistication in structural equation
modeling will make it so either. And while the
“derived etics” that may emerge when it comes
to selection criteria in the U.S. and France
can exist, they will undoubtedly be somewhat
limited and more measurement-bound than
descriptive of selection practices. This is to
say that much of what we know about IHRM
today has unfortunately been bounded by our
measurement parochialism or dependency.
There is an overtendency to rely on measure-
ment precision in the reporting of differences
to the exclusion of rich, thick contextual de-

scriptions of cultures and their HR practices,
and the extent to which they overlap with other
countries. In other words, we have consider-
able sophistication with respect to measure-
ment devices, much like stomping out
cockroaches with weapons of mass destruc-
tion. Our intent here is not to criticize exist-
ing measurement theory, nor use it as a ruse
to obscure meaningful discussions as we at-
tempt to devise theory on IHRM derived etics.
Our intent here is to make meaningful cul-
tural comparisons and not be held prisoner to
our measurement guns in the interest of per-
mitting valid comparisons—a highly unortho-
dox research approach to be sure.

As Geringer, Frayne, and Milliman (in
press) more articulately note, we have a rather
unusual research instrument: We do not use
many standardized measurements. The LBDQ
Short Form was the only one used. Single
items (such as the graphology item discussed
earlier) were used to assess the extent to which
these practices are used now, and if the re-
spondents thought they should be used more
(or less) in the future. We looked at the rela-
tionships between “is now” and “should be”—
another taboo methodologically—as a proxy
for ideological/within-culture gaps. So, al-
though we tried to avoid comparing mean
scores across nations, we looked very closely
at the ideological gaps within a culture, since
they do share a common frame of reference.
Huo, Huang, and Napier (in press) note that
it is conceivable that a country could have a
large gap between “is now” and “should be”

Figure 1. Visual Model of Understanding of HR Practices within a Culture

1. Begin research in one’s own culture.

2. Transport to another culture.

3. Discover other culture.

4. Compare the two cultures.

5. Comparisons not possible?

6. Comparisons possible.

(Adapted from Berry, 1990)

EMIC A

IMPOSED ETIC

EMIC B

EMIC A vs EMIC B

EMIC A ≠ EMIC B

EMIC A EMIC B

DERIVED ETIC

126 • HUMAN RESOURCE MANAGEMENT, Spring 2002

means, but have a relatively low “should be”
mean score; thus, the “should-be” mean re-
veals much about how indigenous people view
IHRM practices. In addition, comparing “is-
now” practices with responses to how these
practices “should be” used in the future, may
be of some use in determining whether cur-
rent pervasive practices are likely to be an ef-
fective source of added value for the firm in
the long term (Jennings, Cyr, & Moore, 1995).
Therefore, managerial attitudes about future
practices may actually characterize the pref-
erence functions that will be used to main-
tain or adopt practices in organizations across
cultures. In our data analysis among ten coun-
tries/region, we have found the derived etics
featured in Table I to be perceived as univer-
sally important future IHRM practices.

Further, random sampling was often re-
jected, in favor of snowball, and convenience
sampling as well as personal contacts. We
aimed for functional equivalence, and could
hope for nothing more when it came to
“roughly equivalent items.” We did not get
hard data on organizational performance be-
cause it was impossible in many SOEs, and,
in any case, we took other proxies for organi-
zational effectiveness. We also asked everyone
to comment as to whether the HR practices
contributed to high performing employees,
satisfied employees, and organizational effec-
tiveness. We did this on the survey knowing
about common method bias, and attempted
to triangulate on these items in other mean-
ingful ways. We sought insights on IHRM
practices within cultural contexts, and, even
more importantly, we used the overlap of prac-
tices within those different cultural contexts
to help us with our derived etic, or in our ter-
minology, a best practice. Ultimately, we see
this as a first-stage attempt at theory develop-
ment of IHRM. The data analysis of the ten
countries and one region is still limited with
respect to the set of cultures upon which it is
now established. However, this derived etic has
allowed us to finally permit valid comparisons
within the set of cultures compared.

So, What Do We Know?

The results of this preliminary but massive
data collection effort permit one general ob-

servation and three categorizations. The gen-
eral observation demands that we address
methodological and contextual issues in cross-
cultural research much more carefully. It is
no longer enough to simply enter a new cul-
ture with the “extant” survey instrument de-
veloped and implemented in North America.
We were reminded of this years ago when
Chris Brewster (Brewster, Hegewisch, Holden,
& Lockhart, 1992) pummeled IHRM re-
searchers with the indictment of America’s
hegemony,4 particularly as pertains to the use
of measurements derived in the North Ameri-
can context, and then generalized all over the
world. The world in which we now live is much
more complicated, and even the word “rigor-
ous” must be questioned within this context.
It is not our intent to raise the specter of the
rigor vs. relevance argument here; our goal is
to sensitize researchers to key dilemmas en-
countered when rigor is pushed to its utmost
in order to conduct competent, publishable
research. We reported on some of the dilem-
mas encountered on these methodological
travels earlier (cf. Teagarden et al., 1995).
However, we must now reinforce this with new
and stronger cautions: Most of what cross-cul-
tural and international research does is empha-
size the imposed etic; from here on, we should
be striving toward derived etics, and using con-
structs that make sense within and across the
cultures under study regardless of how it seems
to those that would police such work.

To use an example mentioned throughout,
one can question the selection of a senior-level
French employee without acknowledging the
use of graphology. Can it be done? Of course.
Should it? Probably not. And since there are
no standardized instruments for assessing gra-
phology, does this mean we should not ask the
question in the first place? Our contention is
no! On the contrary, we may be forced to vio-
late some of the methodological tenets of
“good” research in order to hone in on the right
issues and to do it in such a way as to add
value to our knowledge of IHRM. This is not
to say the Best Practices Project has done this
throughout. In some cases, we were lucky; in
other cases, we were not as fortunate; how-
ever, we must in the future consider our in-
ternational methodological issues even more
judiciously. We can ill afford to conduct re-

It is no longer
enough to
simply enter a
new culture
with the
“extant” survey
instrument
developed and
implemented in
North America.

Converging on IHRM Best Practices • 127

search in the next millennium using the same
“scientific approaches” we have perfected in the
twentieth century. We have learned that the rig-
orous execution of a research design and in-
strument that masks the derived etic in favor of
the imposed etic is simply error of the third kind
or, solving the wrong problem well! We must
embed context into the explanation of any uni-
versals or derived etics; failure to do so will re-
sult in marginal understandings of meaningful
cross-cultural differences, or overly simplified
explanations of similarities and differences in
imposed etic HR practices.

In addition to the general observations
around methodology that pervades our think-
ing, we also observed three general catego-
ries, to which we now turn. These are
Universal Practices, Regional Practices, and
Country-Specific Practices for each of the
IHRM practices we probed: compensation,
selection, appraisal, training and development,
and strategic orientation. These comparisons
are vital for moving the field ahead, and es-
tablishing a theory of IHRM Best Practices.
However, this is not enough; it is necessary
but not sufficient. After years of data collec-
tion, and huge sums of research monies spent,
we wanted more than what seemed “interest-
ing” or even vital. What we discovered were
many anomalies and counterintuitive findings
that now empirically challenge much of what
we think we know about HR practices and their
generalizability. Let us examine each practice
in turn, for universal, regional, or country-spe-
cific practices and, in so doing, uncover some
disturbing new twists.

Compensation

Based on what we know from the literature,
our data provide some support, but more con-
tradictory evidence about how national cul-
ture might be expected to impact employee
preferences for compensation practices. In
terms of pay incentives, many countries
within our sample do not currently use pay
incentives very much. Of the ten countries/
region we surveyed, only Taiwan and the
PRC indicated above-average scores on the
use of incentives. That means individualis-
tic countries like the U.S. and Canada sur-
prisingly had low mean scores on pay

incentives (which seems remarkable in view
of the incredible emphasis on pay for perfor-
mance, merit pay, etc., in the literature as
well as the popular press). However, it also
means that Taiwan and China (both collec-
tively oriented societies) whose compensa-
tion systems have historically emphasized
collectivism and egalitarianism, now ironi-
cally prefer reward differentials “determined
primarily according to individual
contributions”(Zhao, 1995, p. 127). There is
also greater acceptance of wider reward dis-
parities based on individual performance
(Aiello, 1991, Ding, Fields, & Akhtar, 1997).
It is inevitable that compensation systems
based on individual performance and indi-
vidual incentives will become much more
common and entrenched within the Chinese
context, with further reforms on the horizon
(Zhu, 1997). This is important because for
China and Taiwan, much of the extant lit-
erature speaks to the “iron rice bowl” con-
cept. We have discovered just the reverse here
in terms of pay incentives with an overarching
emphasis on individual-level incentives!

Equally provocative is the more Anglo-ori-
ented countries’ (U.S./Canada/Australia) lack
of emphasis on pay incentives, individual or
otherwise! We expected from the literature
here that these types of individualistic coun-
tries would place a much higher emphasis on
“incentives” as a means of differentiating em-
ployees from each another, while more col-
lectively oriented countries would
deemphasize these incentives in order to pre-
serve group harmony (Milliman, Nason, Zhu,
& De Cieri, 1998; Schuler & Rogovsky, 1998).
The results indicate a nearly universal agree-
ment that incentives should comprise a lim-
ited portion of the compensation package. The
concept of “some, but not too much,” chal-
lenges much of what we know from the merit
pay and pay-for-performance literature. Per-
haps this is because most employees are risk-
averse, with cultural differences explaining
degrees of risk aversion.

Additionally, the data indicate some agree-
ment among our diverse countries that there
should be a larger emphasis placed on indi-
vidual job performance goals than specifically
on group or organizational goals. This also
contradicts much of the way global organiza-

That means
individualistic
countries like
the U.S. and
Canada
surprisingly had
low mean scores
on pay
incentives
(which seems
remarkable in
view of the
incredible
emphasis on pay
for performance,
merit pay, etc.,
in the literature
as well as the
popular press).

128 • HUMAN RESOURCE MANAGEMENT, Spring 2002

tions are heading—via the use of teams rang-
ing from globally distributed to co-located.
Again, this may also reflect risk aversion to
some extent, given that most employees see
individual performance as more controllable
than group performance; however, it does not
bode well for global organizations making wide
use of teams, whether virtual or traditional!

Similarly, our study challenges the role
that seniority plays in global organizations.
Seniority is a bona-fide occupational qualifi-
cation in the U.S. for many jobs, and is as-
siduously protected under the law. As well,
seniority has been prized in many parts of the
world for centuries. In much of Asian culture,
Confucian values emphasize the role of the
senior family member. Similarly, in Mexico and
much of Latin America, “el patron” is also held
with high respect. Collectivist cultures are
generally thought to emphasize seniority in HR
decisions to a much larger extent than indi-
vidualistic cultures (Milliman et al., 1998).
Only three countries in our sample (Mexico,
Korea, and the PRC) indicated that seniority
should be emphasized more in the future, and,
in a few cases, more individually oriented
countries scored similarly to the collectively
oriented countries. These findings may sug-
gest that some type of social change is occur-
ring, including a reduced emphasis on
seniority in societies that traditionally have
honored their elders (Stening & Ngan, 1997;
Zhu et al., 1998).

In terms of benefits, this was seen as uni-
versally important to compensation. Almost all
respondents indicated that it was not so much
the generosity of the benefits package, but that
benefits should be an important part of the
total compensation package.

Overall, the collectivist countries in our
sample have only a slight, to moderately
higher emphasis than the individualist coun-
tries on seniority-based pay, pay based on
group or organizational performance/goals,
and pay based on future goals. Even though
the pay systems between these various coun-
tries do have a number of important differ-
ences, they seem to share more similarities
than we had anticipated.

Our ideological difference analysis (differ-
ence between “is-now” and “should-be” scores
within a country) reveals that the countries in

the Americas had the largest gaps between
current practices and desired future practice
on pay policies. There were also large gaps on
many of the pay practices items. It is puzzling
as to why the gaps are greater in the Western-
ized countries rather than the Asian countries,
and we think it plausible that one reason is
what Kluckhohn and Strodbeck (1961) re-
ferred to as a culture’s “orientation toward
time.” It is generally assumed that most coun-
tries in Asia tend to share a time orientation
that looks to the past—emphasizing the sta-
tus quo, stability, and slow change. In con-
trast, countries such as the U.S. tend to have
a future time orientation, which emphasizes
flexibility, and more change to meet the de-
mands of the future (Milliman et al., 1998).
Another explanation would relate to harmony;
in this case the Asian countries seeking less
change or departure from the past to ensure
harmonious relations.

What appear to be universal trends for the
future include the use of benefits, the empha-
sis on individual performance rather than
group/team or organizational performance,
and a reduced emphasis on seniority.

Selection

Our data revealed a significant number of
cross-national differences in the recruiting
criteria and the procedures used to select
employees. By and large, the more individual-
istic countries of the U.S., Australia, and
Canada all considered the job interview, one’s
technical skills, and work experience as the
most important selection criteria. In fact, two
of those items were universally rated high in
all countries with one exception: China. The
items that seemed to be high in almost all
countries except China were the personal in-
terview and technical requirements of the job.
All of the other items seemed to have a high
degree of culture-driven, contextual diver-
gence. Indeed, there seems to be more diver-
gence here than convergence in recruiting
criteria with the earlier exception noted. There
is some similarity between Japan, Taiwan, and
Korea in selection criteria. However, this is
limited to a person’s potential to do a good job
and get along. What appears fascinating, how-
ever, is the ideological gap analysis. This sug-

What appear to
be universal
trends for the
future include
the use of
benefits, the
emphasis on
individual
performance
rather than
group/team or
organizational
performance,
and a reduced
emphasis on
seniority.

Converging on IHRM Best Practices • 129

gests that individualistic countries are
deemphasizing the “proven work experience”
in favor of “one’s ability to get along with oth-
ers,” and “how well the person will fit the
company’s values,” as part of the top three
hiring criteria for future hiring. This dovetails
with some more recent observations that a
person’s past work experience is no longer as
highly valued in the U.S. as it was in the past,
while the person’s potential to become a com-
petent employee in the future has become
much more important (Munk, 1999).

There is a striking similarity between Ja-
pan and Taiwan in terms of their current and
future selection practices. Some country-level
differences warrant comment here. As was
mentioned earlier, the French use of graphol-
ogy is critical to the French, so is the person’s
potential and ability to get along with others
critical to the Japanese. Japanese placed a rela-
tively low weight on job-related skills as a se-
lection criterion. One can only surmise why
this is so, and to what extent this need for
harmony and potential over technical/work
related skills has contributed to economic dif-
ficulties at the country level over the last de-
cade. The same could be said of Korea, which
shares with Japan a similarity in their hiring
practices with both deemphasizing proven
work experience in favor of hiring new gradu-
ates. However, the Koreans also favor use of
employment tests, and, when it comes to those
employment tests, many of the elements con-
tained within speak to the issue of harmony
and getting along with others. Taiwan is dif-
ferent here—the Taiwanese favor the job in-
terview, together with proven work experience
as the key selection criteria. So, while there is
some similarity at the country level there are
many differences observed between the coun-
tries in our sample. Overall, the results can
suggest a slight movement toward convergence
in global hiring practices in the future, but a
strong country emphasis dominates the land-
scape today. Huo, Huang, and Napier (in
press) speculate that the globalization of busi-
nesses, coupled with the communication and
IT revolution, will undoubtedly affect how
recruiting practices evolve toward the irresist-
ible—global convergence! This finding is less
controversial than our findings on compensa-
tion, but raise important issues that will be

discussed in the final section. Overall, it can
be said that future universal trends empha-
size “West meets East.” There is some conver-
gence in selection criteria away from the use
of experience (emphasized in the West) to
ability to get along with others and how well
the person fits with the company’s values (em-
phasized in the East).

Performance Appraisal

Just what are the purposes of performance
appraisal? Worldwide, it has been stated in the
(mostly North American) literature that ap-
praisals have been used for several different
purposes: (1) documentation (documenting a
subordinate’s performance, evaluation of the
subordinate’s strengths/weaknesses, etc.), (2)
future development, (3) administrative pur-
poses (for pay, salary, promotion decisions) and
(4) allowing subordinates to express their views
(Milliman, Nason, Zhu, & De Cieri, in press).
However, our data reveal a mixed picture on
the extent to which performance appraisals are
used to accomplish these purposes. The good
news is that virtually every country conducted
performance appraisals for these purposes;
however, the bad news is that this was only on
a low-to-moderate basis. Why else would per-
formance appraisals be practiced if not for
the aforementioned purposes? Is it because
it was expected on the part of someone, or a
parent company? Is it because it just seems
to be the right thing to do? Is it for fear of
legal ramifications encountered by many
MNEs? Furthermore, the is-now data contra-
dict our predictions from the literature review
on two of the purposes (documentation and
development) in many of the countries. The
current documentation scores were slightly
lower than we expected in both the U.S. and
Canada, very low in most other countries, but
higher than expected for Japan. The U.S. case
is intriguing, because most of the literature
stems from U.S.-based studies, and the U.S.
is-now scores were lower than what we had
expected for pay and promotion purposes. It
was also predicted that the development-re-
lated items would be highly emphasized in
many of the countries, but the data indicate
these purposes are emphasized only to a small
extent in most of the countries.

Just what are the
purposes of
performance
appraisal?

130 • HUMAN RESOURCE MANAGEMENT, Spring 2002

In terms of the ideological gaps, the should-
be means were uniformly higher than the is-
now means on every purpose in every country,
suggesting that the purposes of appraisal are
not implemented as satisfactorily as they were
intended to be implemented across the board.
Thus, it may be fair to say that the purposes of
performance appraisal have fallen short not only
in the U.S., but in every country we have
sampled. This borders on a universal finding;
however, it is surprisingly the reverse of what
we would have predicted based solely upon the
performance appraisal literature!

Even though it is difficult to draw defi-
nite conclusions relative to best practices with-
out assessing the contextual factors, there are
some interesting patterns that emerge region-
ally, based on the ideological gap analysis. The
countries of the Americas (Canada, the U.S.,
Mexico, and Latin America) in concert with
Australia and Taiwan revealed large should-be
means, on development and documentation
appraisal purposes. In particular, recognizing
the subordinate and evaluating the achieve-
ment of the subordinate’s goals received the
highest scores in documentation purposes,
along with two development items focusing
on improving performance. A similar pattern
is noted on two subordinate expression items
among the same countries with the exception
of Taiwan. It is noteworthy here that these
countries consider an important purpose of
the performance appraisal is to allow subor-
dinates’ freedon to express their thoughts,
whereas the rest of the countries indicated a
more moderate view of subordinate expression
in appraisal reviews. Perhaps, as Milliman and
his colleagues argue (1998), this is due to the
high power distance orientation of most Asian
countries which places less value on subordi-
nate input and participation in the appraisal
process (Huo, Huang, & Napier, in press).

Similar findings were observed for the ad-
ministrative purposes of pay and promotion,
which received only moderate emphases across
most of the countries. The exceptions were
Mexico, Taiwan, and Latin America where it
was generally seen that there should be more
emphasis on discussing promotions rather than
pay in appraisals. Perhaps the delicate if not
tenuous balance between discussions of pay
linked to appraisal is a dilemma worldwide.

Taken as a whole, development and docu-
mentation were viewed as more important
than administration and subordinate expres-
sion. But there are some important geographic
similarities between the four countries in the
American continent, Australia, and Taiwan, on
the one hand, and the four Asian countries of
Indonesia, Japan, Korea, and China, which
grouped together, on the other hand. Inter-
estingly, Taiwan follows much more closely the
U.S. than it does China perhaps because of
its strong market orientation and democratic
norms. Equally important is the controversial
nature of the performance appraisal process
worldwide. Whether we discuss appraisal prac-
tices as they are enacted now, or as they should
be enacted, there is considerable controversy
and contradiction based on what we could
have expected from the existing literature on
performance appraisal. Our ideological gap
analysis reveals greater “should-be” scores on
every purpose in every country, a stunning
universal trend for performance appraisal.

Training and Development

No universal or common T&D practices across
the countries and region examined were found;
however, significant similarities in practices
within country clusters were observed. The
managers from the Asian countries stood out
as the most consistently satisfied with their
organizations’ training and development prac-
tices. By contrast, the managers from Mexico
and Latin America observed their organiza-
tions’ training and development practices as
largely inadequate and in need of improve-
ment. The American, Canadian, and Austra-
lian managers perceived what we observe to
be “softer” T&D practices (team building,
understanding business practices, and corpo-
rate values) as well as the more “proactive”
T&D practices (preparation for future assign-
ment and cross-training) to be sadly lacking,
and in need of substantial improvement. The
common practices found within these three
country clusters are strongly influenced by
cultural values and type of industry, two im-
portant contextual elements.

Cultural Values. In Asia, the work culture
has been characterized as collectivist. In col-
lectivist societies, workers are integrated into

Our ideological
gap analysis
reveals greater
“should-be”
scores on every
purpose in every
country, a
stunning
universal trend
for performance
appraisal.

Converging on IHRM Best Practices • 131

strong, cohesive in-groups, which continue to
protect them in exchange for unquestionable
loyalty throughout their lives (Hofstede,
1991). Consistent with this philosophy is the
commitment to training as well as develop-
ment across the Asian countries evidenced by
the small ideological gap between the is-now
and should-be T&D practices. In contrast with
T&D practices in the U.S. which deemphasize
T&D in times of economic difficulties, many
of the Asian countries in our sample have ex-
perienced considerable economic difficulties
and yet they still emphasize T&D practices.

In the U.S., Canada, and Australia, work
cultures have been characterized as individu-
alistic in nature. In individualistic societies,
the relationship between employer and em-
ployee is utilitarian, or similar to a business
transaction (Hofstede, 1991). Here, a worker
acts to optimize his/her own needs, and the
employer expects him/her to perform the job
accordingly. Consistent with this philosophy
is a nonproactive, reactive, and task-oriented
approach to T&D practices in these Anglo
countries. This is seen as a small ideological
gap in technical training, and a large ideologi-
cal gap in all of the future-oriented training
practices, and the “softer” management prac-
tices such as team building, understanding
business practices and corporate values.

Industry Differences. Our results indicate
that T&D practices accommodate shifts in
industry requirements and relate to needs for
enhanced competitiveness. The Mexican and
Latin American country cluster is character-
ized by the continuous need to upgrade basic
skills in labor-intensive industries, as seen in
the large ideological gap in the “softer” man-
agement practices such as team building, un-
derstanding business practices and corporate
values. This could imply that the Mexican and
Latin organizations sampled were in a height-
ened learning state with respect to modern
management techniques, and in need of ap-
propriate training and development.

In the U.S., Canada, and Australia, where
industry and technology tend to be more ser-
vice-driven, worker productivity can be in-
creased by resourceful T&D practices
(Jennings, Cyr, & Moore, 1995). In such en-
vironments, companies require different skill
sets such as critical thinking, team skills, and

learning on the job. Another indication of the
trends facing different industries, and the ideo-
logical gaps in training is the pressure on com-
panies to cut costs and outsource training. As
training moves outside the organization, par-
ticularly in the U.S., there are myriad prob-
lems associated with its relevance. Witness the
recent aphorisms “training du jour” or “pro-
gram of the month” discussed in much of the
more recent literature on training and HR ini-
tiatives gone haywire (Kerr & Von Glinow,
1997; Salas, Cannon-Bowers, Rhodenizer, &
Bowers, 1999). The obvious conclusion here
is that employees perceive that training is nei-
ther valued nor effective; hence the large ideo-
logical gap between all T&D practices with
the exception of technical training.

In Asia, globalization and the expansion
of trade have altered the structure of many
industries. As a result, labor-intensive indus-
tries will shift locations to reduce costs
(Jennings, Cyr, & Moore, 1995). For example,
Taiwan and South Korea have traditionally
been the preferred low-cost sites for manu-
facturing operations. However, as wages and
other cost-related factors began to escalate
in these countries, multinationals began to
look toward Indonesia, Malaysia, and Thai-
land for their manufacturing operations
(Teagarden, Butler, & Von Glinow, 1992).
Therefore, industries in Taiwan and Korea
will, and have, become more capital-intensive
and technology-driven, creating different
training needs, as well as employee develop-
ment needs. There are very few training needs
assessments performed in the U.S. and else-
where, raising new challenges. Despite the
1997–1999 economic crisis which high-
lighted many training needs, the trend in

T&D

for Asian countries has remained surprisingly
stable and effective. These results may reflect
the collectivist mind-set of the Asian manag-
ers, perhaps indicating an unwillingness to
report inadequacies in their organizations’
training and development practices.

Role and Status of HRM Departments: Is
the HR Department Linked to Company

Strategy?

Bowen, Galang, and Pillai (in press) note that
there are few differences in the status of HRM

… industries in
Taiwan and
Korea will, and
have, become
more capital-
intensive and
technology-
driven, creating
different training
needs, as well as
employee
development
needs.

132 • HUMAN RESOURCE MANAGEMENT, Spring 2002

departments in this empirical investigation: All
countries view the HR Department’s status as
fairly high. Ironically, this is in direct contrast
with the evidently “old” assumption in the U.S.
of low status of the HR Department, and there
is evidence now that there is a strategic focus
for firms that see HRM status linked to orga-
nizational capability as a source of competi-
tive advantage (Becker & Gerhart, 1996). The
focus on organizational capability implies that
a company can develop a set of processes that
are capable of sustaining competitive advan-
tage. However, the HRM practices that were
highly correlated with increased organizational
capability in our study are somewhat surpris-
ing: Both training and development, as well
as performance appraisal practices, were
viewed as contributing to enhanced organiza-
tional capability. This is less surprising for
T&D than for performance appraisal, in view
of the finding on how poorly PA was imple-
mented worldwide (Milliman, Nason, Zhu, &
De Cieri, in press) as reported earlier in this
special issue. In some sense, the proliferation
of U.S.-based training models around the
world, especially in the English-speaking cul-
tures as well as widescale adoption of U.S.
models of performance appraisal in these cul-
tures (regardless of how poorly executed they
might be) could account for these findings.

It is more than intuitively appealing to
suggest that an organization’s strategy depends
upon certain contextual factors, as well as ef-
fective HRM practices. The finding that there
is a strong link between organizational capa-
bility, the collective abilities that an organiza-
tion needs to execute its business strategy, and
HR practices in a number of countries, is
worthy of further exploration. In companies
trained to view human resources as a distinct
source of competitive advantage, finding the
right cocktail mix of people, culture, process,
structure, and assets is an exercise in strength-
ening their organizational capabilities
(Turnbull, 1996). It is the sustainability of the
competitive advantage at stake here, and the
reason so many companies focus on organiza-
tional capability and increasingly seek HR so-
lutions to strategic goals. Specifically, the U.S.,
Australia, Canada, China, and Indonesia all
see the importance of linking HR practices to
strategy. Is this a passing fancy, or a finding

that can withstand the test of time? This is an
empirical question, however, there is increas-
ing theoretical and empirical support that
aligning a firm’s strategy with its HR practices
is critical to organizational performance
(Becker & Gerhart, 1996; Bird & Beechler,
1995). One study focused on “bundles” of HR
practices that included team-based work sys-
tems, extensive training, and performance-
based compensation systems rather than
individual human resource practices, and sug-
gested that the organization create mutually
reinforcing conditions that support productiv-
ity (Phipps, 1995). Our study finds a similar
connection between strategy and effective HR
practices and fuels future explorations as to
how this linkage translates into productivity
improvements. Bowen, Galang, and Pillai (in
press) caution that countries embroiled in
political turmoil, or that are lower on the in-
dustrialization or globalization chain, or those
that are moving from centrally planned toward
more market-driven economies are all subject
to dramatic shifts influencing the role and sta-
tus of HR Departments. What is becoming
abundantly clear is that rapid advances in com-
munication and information technology,
knowledge management, and global competi-
tion for markets has made it imperative that
companies of the future work toward adopt-
ing best practices that have been documented
within a polycontextual study, such as the one
reported on here. In other words, those best
practices that are truly universals are based
on derived etics and not simply on imposed
etics using North American standards.

Implications for Theory, Research, and

Practice

Table I presents the trends we have high-
lighted in this special issue. We have at-
tempted to identify those trends that appear
to have universal applicability, either now or
in the future as a desired end state. Further-
more, there are some clusters of countries or
regions that appear to group together and not
necessarily along immediately apparent clus-
ter lines. For example, sometimes Taiwan
aligns more with Australia and the U.S. than
it does with China, and as such, may seem
counterintuitive relative to the Asian region.

The finding that
there is a strong
link between
organizational
capability, the
collective
abilities that an
organization
needs to execute
its business
strategy, and HR
practices in a
number of
countries, is
worthy of further
exploration.

Converging on IHRM Best Practices • 133

Practice

COMPENSATION

SELECTION

Universals Derived ETICS
“Best Practices”

Pay incentives should not
comprise too much of an
employee’s compensation
package.

Compensation should be
based on individual job
performance.

There should be a reduced
emphasis on seniority.

Benefits should comprise
an important part of a
compensation package.

“Getting along with others”,
and “Fit with the Corporate
Values” signals a shift in
selection from “West meets
East.”

Regional or Country Clusters

Seniority-based pay, pay based
on group/team or organiza-
tional goals, and pay based on
future goals—all are used to a
larger extent in the Asian and
Latin countries now.

Selection practices were
remarkably similar among the
Anglo countries. Specifically,
job interview, technical skill,
and work experience are the
most important selection
criteria. How well the person
fits the company’s values
replaces work experience as
one of the top selection
criteria for future selection
practices.

Selection practices are quite
similar in Korea, Japan, and
Taiwan. Specifically, proven
work experience is de-
emphasized as a selection
practice in these countries.
In the Anglo and Latin
American countries, allowing
subordinates to express
themselves is perceived as an
important future appraisal
practice.

Country Specific

U.S. and Canada had less
use of pay incentives than
expected.

China and Taiwan had
above-average use of pay
incentives, and wanted
more based on individual
contributions.

In Japan, a heavy emphasis
is placed on a person’s
potential (thus hiring new
graduates) and his/her
ability to get along with
others. A relatively low
weight was given to job-
related skills, and experi-
ence as a selection
criterion.

In Korea, employment
tests are considered crucial
and are used to a large
extent as a selection tool,
as well as hiring new
graduates. Koreans de-
emphasize experience.

In Taiwan, the job
interview is considered the
most important criterion in
the selection process.

TABLE I Trends in International Human Resource Management Practices Across Selected Countries and Regions.

However, Table I also attempts to identify
country-specific findings that will be useful
for IHRM researchers and practitioners alike,
which have been highlighted throughout this
special issue. Because our findings were puz-
zling, counterintuitive, and contrary to what
the research literature suggests on each of
the HR practices in the ten countries/region,
we have attempted to illustrate how the use

of derived etics/universals/best practices can
indeed add value to theory, research meth-
odology as well as practice.

Earlier, we indicated that we had no
overarching theory of IHRM that would help
to guide our thinking. Even worse, our meth-
ods for conducting so-called traditional5 cross-
cultural research masked discovery of
universal practices constituting a “derived

(continued on next page)

134 • HUMAN RESOURCE MANAGEMENT, Spring 2002

etic.” Our discussion of just how derived etics
might help us master this dilemma throws us
squarely into the realm of what we call
polycontextuality, or the embeddedness of
multiple contextual elements. This in turn
influences more how researchers think about

universal best practices rather than what they
think about them. In other words, culture re-
searchers discuss national culture, strategy
researchers discuss contingencies, and HRM
researchers discuss specific HR practices;
however, we submit that the way in which we

Universals Derived ETICS
“Best Practices”

In all countries, the
“should- be” scores were
higher on every purpose,
suggesting that the pur-
poses of PA have fallen
short in every country.

All countries indicated that
a greater emphasis be
placed on development and
documentation in future PA
practices. In particular,
recognizing subordinates,
evaluating their goal
achievement, planning their
development activities, and
(ways to) improving their
performance are considered
the most important
appraisal practices for the
future.

In most countries, T&D
practices are used to
improve employees’
technical skills.

There is a growing trend
toward using T&D for team
building and “soft manage-
ment practices.”

Regional or Country Clusters

In contrast, in the Asian
countries expression is used
to a low extent, particularly in
Korea.

In the Latin American
countries, the administrative
purposes of performance
appraisal are considered
important in future practice.

In the Anglo countries, the
softer T&D practices such as
team building, understanding
business practices and
corporate culture, and the
pro-active T&D practices
such as preparation for future
assignment and cross-training
are used moderately; however,
a significant increase in these
practices is desired.

In the Latin countries, an
increase in the extent to which
all T&D practices are used is
desired.

In the Asian countries, most
T&D practices are used
moderately and are consis-
tently considered satisfactory.

Practice

PERFORMANCE
APPRAISAL

T&D

TABLE I (continued.)

Country Specific

In Taiwan, the administrative
purposes of performance
appraisal are considered
important in future practice.

In Mexico, T&D as a reward to
employees is considered a
highly desirable practice.

In the U.S. and Korea,
preparing employees for future
job assignments is used to a
lesser extent.
U.S. is using outsourcing more.

In Japan, remedying past
performance is used to a small
extent, however, a significant
increase in this practice is
desired.

In Korea, team building is used
extensively and emphasized in
all T&D practices.

(continued on next page)

Converging on IHRM Best Practices • 135

should think about the embeddedness of mul-
tiple contextual elements, or polycontextuality,
is critical to understanding universality. We do
not believe that much value can be added by
examining single HR practices without exam-
ining them within their multiple embedded
contexts. Thus, it is imperative to seek derived
etics where possible, and to do so with full
understanding of specific practices within
context. Let us revisit the French graphology
discussion to elaborate this point. We now
believe we have some universal best practices
on selection criteria; those should be employed
in France in concert with practices (graphol-
ogy tests) made salient by the French context.
This allows us to bring context into the equa-
tion more openly. We are not suggesting a vari-
ant on configurational approaches for IHRM
theory building, but instead a strong empha-
sis on embedding context into specific coun-
try practices so that emic practices
(graphology) can become embedded in etic
theories (selection). Does this mean that we
have universally derived etics on all aspects of
selection? No; however, it does allow us to
suggest a solution methodology to the research
around global selection. Recall that a derived
etic hinges on both cultures A and B using
some of the same IHRM practices. However,
recall also that there must be understanding

of each culture’s context, and there must be
some evidence of effectiveness in both A and
B; then it can be stipulated that the overlap of
A and B is the derived etic. This is not a solu-
tion, but a solution methodology that allows
us to finally permit valid comparisons within
the set of cultures compared. Therefore, al-
though we suspect we have not made head-
way on a theory of IHRM with this large-scale
study, we do think we have contributed to a
solution methodology by which we can now
examine derived etics, not just imposed etics,
or emic practices, a common practice in
IHRM research. After all, best practices, or
universals do not exist independently of cul-
tural context, and it may well be that best prac-
tices or these derived etics we have been
discussing may act in combination with one
another for an even greater impact: The whole
may indeed be greater than the sum of the
parts.

One noteworthy area is the debate re-
ported on by Becker and Gerhart (1996) of
what was termed “best practice-fit” which fo-
cuses on a within-company levels of analysis
argument. They discuss the overarching ru-
bric within which best practice can be best
discussed as the architecture of the system.
Thus, a best practice effect might be attrib-
uted to some overarching architecture, which

Practice

RELATION TO
BUSINESS STRATEGY

STATUS OF
HRM FUNCTION

Universals Derived ETICS
“Best Practices”

Across most countries, the
HRM practices most
closely linked to organiza-
tional capability are
training and development
and performance appraisal.

Regional or Country
Clusters

In the Asian countries,
linkages were indi-
cated between both
low cost and differen-
tiation strategies and
HRM practices.

Country Specific

In Mexico, no linkages
were indicated between
organizational capabil-
ity and HRM practices.

In Japan and Taiwan
few linkages were
indicated between
organizational capabil-
ity and HRM practices.

Status of HRM was
highest in Australia and
lowest in Indonesia.

TABLE I (continued.)

136 • HUMAN RESOURCE MANAGEMENT, Spring 2002

would account for differences in practices.
They focus on the strategic element of best
practice in this argument, whereas we are at-
tempting to derive etics, or best practices that
have universally been endorsed at the level of
practice taking polycontextuality into account.

That said, we also believe that there are
implications for practice as well here. Clearly
the previous discussion suggests much greater
attention to the multiple contexts within which
international business is done. These local
contextual issues should not be dismissed as
irrelevant to the “corporate culture” of the
parent company; in fact, they are critical and
can influence, as we have seen, all HR prac-
tices that are “imposed” on the local enter-
prise, subsidiary or its indigenous peoples. We
briefly highlight these implications now:

Compensation. Overall, our research re-
veals that, in the future, compensa-
tion systems should be based more on
individual level job performance, and
not team or organizational perfor-
mance. Global firms should also re-
duce their reliance on seniority, and
pay incentives should not comprise
very much of the compensation pack-
age at all. Benefits should continue
to play an important role in all com-
pany compensation packages. Does
context matter in these findings? Of
course! In some cultures, compensa-
tion is set at the level of the “state”
which mandates the conditions. If
seniority were automatically dismissed
in the U.S. where seniority can be a
bona-fide occupational qualification,
even though a finding here suggests
worldwide movement away from se-
niority-based systems, there could be
debilitating labor relations problems
encountered. Thus, any of these find-
ings must examine the contexts within
which these best practices emerge as
universally endorsed.

Selection. The universal/derived etics on
selection reinforce a shift, which we
term “West meets East.” For example,
in most selection decisions, there was
universal endorsement of how well the
person “fits” with the corporate/com-

pany values, and how well the person
“gets along” with others in the corpo-
ration. There were regional or coun-
try-cluster findings showing striking
similarities among Anglo countries.
Specifically, the job interview, techni-
cal skill proficiency, and work experi-
ence were all seen as the most
important selection criteria today;
however, the shift toward the more
Eastern notion of getting along with
others and fit to company values was
noted for the future. If these best prac-
tice selection/recruiting practices vary
only slightly all over the world, but,
perhaps along critical context lines,
the company could still encounter dif-
ficulties. For example, if an American
MNE goes into the Korean market
vowing to select personnel by using a
“fit to the corporate values” criterion
along with their other top three crite-
ria, using personal interviews and fail-
ing to use employment tests can be
just as disastrous as going into France
without the graphology test. Unfortu-
nately, a little knowledge can be a dan-
gerous thing, and if American MNEs
want to navigate the Korean terrain
using American preferred selection
criteria, and are inattentive to Korean
contextual elements, it is no wonder
that they encounter selection difficul-
ties.

Performance Appraisal. Given the ubiquity
of U.S.-based performance appraisal
instruments, and the presumed popu-
larity of these devices to “change” per-
formance, it was surprising to us just
how poorly executed most perfor-
mance appraisal events were in our
entire sample. However, our research
revealed that PA should be used to rec-
ognize subordinates, evaluate
subordinate’s goal achievement, plan
subordinate’s development activities,
and focus on ways to improve
subordinate’s performance. Our sense
here is that context-specific issues
were not taken into consideration
when executing a performance ap-
praisal activity. For example, we have

Overall, our
research reveals
that, in the
future,
compensation
systems should be
based more on
individual level
job performance,
and not team or
organizational
performance.

Converging on IHRM Best Practices • 137

generally operated under the fairly old
assumption of “praise in public, criti-
cize in private.” However, there are
some cultural contexts wherein pub-
lic praise presumes the employee
could not perform the activity in the
first instance, and thus praise can be
seen as unintentionally demeaning.
There are other cultures where criti-
cism should not be delivered verbally;
clearly context matters.

Training and Development. Training and
development activities globally seem
to be moving toward team building
and “soft management practices.”
However, T&D continues to be used
currently to improve employees’ tech-
nical skills. Hence, a gap exists be-
tween what employees have now, and
what is desired in the future, particu-
larly for Anglo and Latin American
employees. Small gaps also exist in
Asia, where T&D is highly valued.
Ironically, for all countries, gaps exist
despite an appalling lack of training
“needs assessments” or training
“evaluations.”

In summary, we found some significant
global or converging trends in IHRM practices
across the cultures, industries, and organiza-
tions we examined. These trends are derived
etics and to some extent reflect the diffusion
of HRM practices wherein traditional West-
ern approaches are converging to more East-
ern HRM practices and vice versa. We believe
that we have made a significant contribution
to the IHRM literature, particularly as regards
the development of a shared methodology to
unearth vexing issues such as universal best

practices, and derived etics, and hone in on
IHRM practices that seem to withstand the
“test of time.” In so doing, we have a height-
ened awareness of the polycontextuality that
surrounds all of our IHRM practices.

Similarly, we also believe we have some-
thing very important to say to practitioners,
HR professionals, and those concerned with
managing globally distributed teams. We be-
lieve that what we have discovered global
managers desire more (or less) of (compared
to what they have presently) reflects their per-
ception of effective practices in the future.
This might be construed as a preference func-
tion for how selection, training and develop-
ment, compensation, and performance
appraisal should be done for an organization
to increase their capabilities for enhanced
competitiveness in tomorrow’s pressure-
packed global environment. These global man-
agers have been quite clear on this as
important universal “best practices” which can
enhance a firm’s capability. Our gap analysis
reveals some universal “best practices” that
may well contribute to sustainable competi-
tive advantage. Although sustainability (from
a resource-based view) is based on inimitable
practices, understanding the polycontextuality
of an IHRM practice might just provide the
organization with the inimitability of such a
practice, ultimately resulting in its competi-
tive advantage. We strongly believe that this
ten-country/nation study has been able to con-
tribute to our overall understanding of how
context affects IHRM practices. New ways of
thinking about IHRM practices can ultimately
allow us to think more broadly about how best
to conduct our business in the 21st century
for positive results well beyond a firm’s com-
petitive advantage.

138 • HUMAN RESOURCE MANAGEMENT, Spring 2002

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ENDNOTES

1. The indictment of IHRM as atheoretical could
well be applied to many fields of research; how-
ever, for illustrative purposes, we discuss this in
the context of IHRM.

2. In traditional SHRM research, the discussion
might revolve around horizontal or vertical fit,
or alignment of HR practices with internal or
external factors; however, fit has dominated the
landscape. In practice most research has been
focused on a simple interaction between two vari-
ables at a time, i.e., pay and business strategy
(Becker & Gerhart, 1996).

140 • HUMAN RESOURCE MANAGEMENT, Spring 2002

3. While it is true that valid and reliable measures
are a necessary condition for comparison be-
tween groups, validity must be established only
once, and this is generally established using
measures developed in North America on North
American populations. If the reliability coeffi-
cients are less than desirable, or less than ideal,
researchers fall back on the validity reported
elsewhere. This gives rise to the “one way fits
all” modality in most international research ini-
tiatives, and this is what we wish to challenge in
the ensuing argument.

4. Brewster’s contention was that most research
on IHRM automatically assumed that what-
ever practices were in place, they must have
been invented in the U.S. and were therefore
ubiquitous. He challenged this with his
Cranfield project, which suggested that not
all IHRM practices were in fact invented in
the U.S.!

5. “Traditional” here defined as using standardized
instruments developed in the North American
context, and examining a few select “HR prac-
tices” in two or three countries.

Seven myths of global talent management

Dana Minbaeva
a
* and David G. Collings

b

a
Global and Strategic HRM, Department of Strategic Management and Globalisation, Copenhagen
Business School, Copenhagen, Denmark;

b
Human Resource Management, DCU Business School,

Dublin City University, Dublin, Ireland

The challenges associated with managing talent on a global scale are greater than those
faced by organisations operating on a domestic scale. We believe that the former relate to
the fact that a number of key myths regarding talent management may undermine talent
management’s contribution to multinational corporation effectiveness and retard the
development of management practice in this regard. Our aim is to unpack some of those
myths and offer some suggestions for advancing the practice of talent management on
the basis of insights from both practice and academic thinking in this area.

Keywords: global talent management; international HRM

Introduction

After a group of McKinsey consultants proclaimed a ‘War for Talent’ in the late 1990s,

‘talent management’ became one of the most common terms in the managerial lexicon. A

simple Google search for the term returns over 24 million results.
1

Initially, the war for

talent was driven by intense competition among leading US organisations to attract key

talent, as demand for talent far exceeds its availability. This trend was exacerbated by

demographic trends in the US labour market, the most notable of which was a decline in

the number of workers aged 35 – 44, which was expected to continue through 2015

(Chambers, Foulon, Handfield-Jones, Hankin and Michaels 1998). In fact, this trend

remains evident in much of the developed world. While the demographics in key emerging

economies, such as China and India, may be more favourable, organisations in such

countries face similar challenges related to the availability of talent with the skill sets that

organisations require (Ali 2011; Cooke 2011; Doh, Tymon and Stumpf 2011; McDonnell,

Collings and Burgess 2012). Therefore, the focus is again on labour quality.

In the European context, a study conducted by the Boston Consulting Group identified

talent management as one of the five key challenges facing human resources (HR) during

the last decade (Boston Consulting Group 2007). Notably, talent management was the one

challenge that the surveyed executives felt least prepared to handle. The demographic

challenges associated with the ageing workforce were another of the top five concerns

(Collings, Scullion and Vaiman 2011b). These challenges have brought people issues to

the fore and put talent management at the top of organisational leaders’ agendas.

Organisations have invested significant efforts and resources into recruiting, developing

and retaining top talent with the potential to contribute significantly to performance (see

Tarique and Schuler 2010). However, the talent management process is difficult. As noted

above, many organisations struggle to effectively manage talent.

In this paper, we are particularly interested in talent management challenges in the

context of the multinational corporation (MNC), an activity that is broadly captured under

q 2013 Taylor & Francis

*Corresponding author. Email: dm.smg@cbs.dk

The International Journal of Human Resource Management, 2013

Vol. 24, No. 9, 1762–1776, http://dx.doi.org/10.1080/09585192.2013.777539

the rubric of ‘global talent management’ (GTM). GTM involves: (1) the systematic

identification of key positions that differentially contribute to an organisation’s sustainable

competitive advantage on a global scale, (2) the development of a talent pool of high-

potential, high-performing incumbents to fill those roles that reflect the global scope of the

MNC and (3) the development of a differentiated human resource architecture to facilitate

the filling of positions with the best available incumbents and to ensure their continued

commitment to the organisation (Mellahi and Collings 2010).

Clearly, the challenges associated with managing talent on a global scale are greater

than those faced by organisations operating on a domestic scale. For example, how can

MNCs identify, develop and utilise their top performers regardless of where those staff

members are located? What are the barriers to and enablers of top talent relocation? How

can MNCs sufficiently involve subsidiary managers in GTM decisions and actions? Are

decisions related to talent made by the corporate headquarters perceived as fair? What is

the role of corporate HR function in GTM?

We believe that the challenges associated with GTM are related to the fact that

GTM

is poorly defined. Furthermore, the academic research upon which practitioners can draw

is extremely limited (for exceptions, see Scullion, Collings and Caligiuri 2010; Tarique

and Schuler 2010; Stahl et al. 2012). In addition, we contend that a number of key myths

regarding talent management have the potential to undermine talent management’s

contribution to MNC effectiveness and to retard the development of management

practice. Therefore, our aim is to unpack some of those myths and present some ideas for

advancing the practice of talent management. We rely on insights found in both practice

and academic thinking. We have also included comments from our discussions with

senior HR professionals, such as Maria Pejter, Head of Global Talent Management at

A.P. Møller-Mærsk, on the topic of GTM in MNCs.

In the ensuing sections, we outline each myth, explain why we believe the myth exists

and offer some suggestions for minimising the impact of the myth in question. We

conclude the paper by highlighting some avenues for future research on GTM that may

encourage researchers to move away from the myths to focus on the actual issues at hand.

The myths

Myth 1: Talent management is not an HR responsibility

Much of the academic work on talent management has argued in favour of ‘putting talent

management issues on top management’s agenda’ (Schuler, Jackson and Tarique 2010).

As Murray Dalziel, Group Managing Director of Hay Group, explains: ‘These issues

aren’t HR issues anymore. They are line management issues. There’s been a profound

shift’. A survey of CEOs in the European context finds that most CEOs feel that talent

management is ‘too important to be left to HR alone’ (Economist Intelligence Unit 2006).

Furthermore, the majority of those CEOs surveyed report that they spend more than 20%

of their time on these issues. Former Senior Vice President of General Electric (GE), Bill

Conaty, argues that the first principle of mastering talent management is ensuring the

support of an enlightened leadership team, starting with the CEO, as ‘the enlightened CEO

recognizes that his top priority for the future is building and deploying the talent that will

get it there’ (Conaty and Charan 2010, p. 18).

Although we do not doubt the critical roles played by the CEO and other senior leaders

in setting the tone for talent management within the organisation, we argue that corporate

HR should retain a central role in the operationalisation of GTM. Talent management

initiatives should be aligned and integrated with other HRM systems, policies and

The International Journal of Human Resource Management 1763

practices implemented in different units of MNCs. Together with the HR systems, we

suggest that GTM practices can contribute to strategy implementation across MNCs.

Maria Pejter, from A.P. Møller-Maersk, comments: ‘Yes, GTM is the critical business

process, but it is governed by HR and it resides with HR. Can HR run it alone? No. As any

other critical business process, it should be anchored in strategy and owned by senior

management, much like the budgeting processes are owned by senior management, but

governed by the accounting function’.

The challenge for HR is convincing organisational leadership of its capability to

manage global talent. As noted above, several consultancy reports indicate that HR

departments often have little capability to manage talent (Boston Consulting Group 2008,

2009). In essence, top leaders question the ability of HR to accommodate the strategic

importance of talent management, while the HR departments themselves believe that they

lack the competencies needed to effectively address the GTM challenge (Schuler, Jackson

and Tarique 2011).

How can HR departments convince top management that they are capable of managing

talent on a global scale? First and foremost, GTM must be linked to the global business

strategy or the global strategic intent of the firm. GTM should then be understood as a

strategic business process – one of several interrelated business processes that link global

strategy and edge global performance (Becker and Huselid 2006). A ‘business process’

refers to the way in which the competitive potential of a firm’s resources and capabilities

are realised (Ray, Barney and Muhanna 2004). Such a process has significant, firm-specific

dimensions and results in ‘strategic implementation effectiveness’. Given its firm

specificity, which implies both effectiveness and difficulty of imitation, a business process

may result in a sustained competitive advantage.

As a strategic business process, GTM should be manifested in the HR architecture (core

and differentiated) that, when implemented, aims to change employees’ behaviour and, in

turn, affect the effectiveness of a GTM programme’s implementation (see Figure 1).

Although a core HR architecture consists of best practices that have ‘equal value in all

strategic business processes’, a differentiated HR architecture is ‘structured to provide the

unique human requirements of a specific business process’ – GTM in this case (Becker and

Huselid 2006, p. 906). In other words, GTM must be linked to the core and differentiated

architectures of HRM systems that aim to support and develop the knowledge, skills and

competencies needed for those employees included in GTM programmes (in the case of

differentiated architectures) or the whole organisation (in the case of core architectures). In

such a system, the selected group of employees are included in the GTM pool and managed

Global
business
strategy

Strategic business
process

HR system
to support

GTM

Human
capital

attributes

needed

Differentiated HR architecture

Core HR architecture

Desired
individual
behavior

Strategic
implementation

effectiveness
Global

performance

HR system
Human
capital

attributes

Strategic
employee
behavior

GTM GTM

Figure 1. Differentiating the HR architecture contingent on strategic business processes. Source:
Adapted from Becker and Huselid (2006).

D. Minbaeva and D.G. Collings1764

on a differentiated basis, while other employees remain outside the talent system. However,

there must be enough fluidity within the system to enable emerging talent to gain entry to

the differentiated architecture and those who perform poorly to be removed from the

differentiated

architecture.

Conquering myth 1: In MNCs, GTM is the joint responsibility of top management and
corporate HR, as it is owned by management but governed by HR through the differentiated
HR architecture.

Myth 2. It is all about people

Central to much of the early thinking about talent management was the idea that talented

people were critical to organisational performance and success (Michaels, Handfield-

Jones and Axelrod 2001; Pfeffer 2001). However, organisations that place too much

emphasis on attracting the ‘best’ may fail to think strategically about how that talent can

best be deployed in the origination (Pfeffer 2001; Gladwell 2002).

In this regard, a growing body of literature on strategic talent management calls for the

consideration of strategic positions as a key point of departure for talent management

systems. This approach follows more general calls for greater differentiation among roles

within organisations and a greater focus on strategic jobs (Becker and Huselid 2006),

particularly those organisational roles that can create an above average impact (Boudreau

and Ramstad 2007). This is especially relevant for GTM in MNCs, where the differences

between strategic and non-strategic jobs are highly reflective of their respective impacts

(above average versus marginal) on the MNC’s overall global performance. For example,

a corporate function, such as marketing, may be important but not in terms of its impact on

the MNC’s overall performance. In contrast, variations in the performance of sales

managers in a subsidiary located in an MNC’s fastest-growing market may significantly

affect the global performance of the entire MNC, as there is potential for greater

differentials in performance between an average-performing and a high-performing

incumbent in this role.

We argue that the focus of GTM should switch from evaluating the importance of jobs

based on the inputs required to handle those jobs (such as qualification or experience) to

evaluating the importance of jobs based on the potential outputs from the job combined

with the potential for differential performance within the job’s role. In line with Huselid,

Beatty and Becker (2005), we argue that the focus of the differentiated architecture should

be on the human-capital attributes required for resourcing A-level positions, which are

strategic positions (see Figure 1). These positions: (1) relate to company strategy and have a

direct impact on the effectiveness of strategic implementation, (2) exhibit high variability

in the quality of the work carried out by the people who occupy them and (3) require unique,

firm-specific know-how, tacit knowledge and industry experience that cannot be easily

found in the external labour market (Huselid et al. 2005; Evans, Pucik and Bjorkman 2011).

As Huselid et al. (2005) note, even for jobs that are strategically important, regulation

and standardised training or professional qualification mean that performance in a role may

be relatively standardised. For such jobs, the potential for differentiation is limited. Some

roles allow little room for individuals to excel beyond a predefined performance level.

Take, for example, an airline pilot. Although an airline cannot function without a team of

pilots who possess the skills and capabilities necessary to fly their fleet of aircraft, as long as

these pilots meet a minimum prescribed set of performance criteria, their potential to

deliver added value to the airline is limited. Their performance is highly prescribed by

training, procedures and restrictions from air traffic controllers and other authorities. Pilots

The International Journal of Human Resource Management 1765

generally do not have the autonomy to alter routes, arrive earlier than their prescribed slot

or otherwise attempt to improve service for customers or save costs for the airline. In

contrast, members of the cabin crew can widely vary in their interactions with passengers,

and the level of service they provide is not as tightly prescribed. By going the extra mile for

passengers, they can significantly improve customer satisfaction and enhance the levels of

return business the airline receives (see, for example, Boudreau and Jesuthasan 2011,

pp. 34 – 39). Thus, the relative impact of the group of pilot employees will be minimal,

while the potential value added by high-performing members of the cabin crew can be far

more significant. An equally significant role in airlines might be held by those people who

negotiate landing rights in different countries (Evans, Pucik and Bjorkman 2010). In

addition to outstanding firm- and industry-specific know-how, their position requires local

tacit knowledge and extensive experience in the local market. Variability in their

performance has a much greater impact on the company’s overall success.

Conquering myth 2: When MNCs design GTM systems, strategic positions should be taken as
a key point of departure. Such positions should (1) relate to global strategy and have a direct
impact on strategic implementation effectiveness, (2) exhibit high-performance variability in
terms of the quality of the work carried out by the people who occupy them and (3) require
unique firm- and industry-specific know-how, local tacit knowledge and experience in the
given market.

Myth 3. All positions should be filled by ‘A players’

Closely linked to the preceding myth is the opinion pervasive in the literature that all

positions should be filled with star employees or ‘A players’, and that ‘C players’

(consistently poor performers) should be managed out of the organisation (Michaels et al.

2001). In this regard, talent is viewed rather generically as an unqualified positive resource

for the organisation regardless of how it is deployed (Lewis and Heckman 2006). This

approach calls for talent to be managed on the basis of performance, with a resultant

emphasis on forced performance distribution. Forced performance distributions, or ‘rank

and yank’ systems, became pervasive after they were pioneered by Jack Welch at GE. In

such systems, only a set percentage of employees (perhaps 20%) can be identified as top

talent, while the largest cohort (perhaps 70%) of employees makes up the core group of

average performers. A residual group (perhaps 10%) of low performers is targeted for

development or termination. This approach results in the pursuit of ‘topgrading’, or the

filling of all positions with star performers (Smart 2005).

Although we agree that talent matters and that key talents might contribute

disproportionately more to organisational performance, we suggest that the all positions do

not require ‘A players’. As Huselid et al. (2005) astutely note, companies simply cannot

afford to have ‘A players’ in all positions. Indeed, there is a growing awareness that many

organisations overinvest in non-strategic employees and fail to invest enough in strategic

ones (Huselid et al. 2005; Boudreau and Ramstad 2007; Collings and Mellahi 2009). We

argue that resources are wasted when a star performer is in a position with little potential for

differentiation between an average and a top performer. In line with Huselid et al. (2005),

we argue for differentiation not just by performance (A, B and C players) but also by

position (strategic and non-strategic). Accordingly, we suggest that ‘A players’ should

predominantly occupy strategic positions, while their presence in non-strategic could be

smaller.

In this regard, the clear challenge for MNCs is to ensure internal equity in the global

performance management and rewards for ‘A players’ in strategic positions regardless their

D. Minbaeva and D.G. Collings1766

location. Although global companies such as Schlumberger, Novartis and Microsoft are

insistent on strict global consistency in performance evaluation and rewards, especially for

top performers, they also acknowledge the need to vary appraisal and feedback processes

according to local cultures (Evans et al. 2010). Such variation may be negatively perceived

by ‘A players’ and create retention problems for the MNC.

An even greater cultural challenge arises when dealing with ‘C players’ – those whom

the ‘topgrading’ perspective suggests should be replaced. Along this line, Evans et al.

(2010) report a remarkable story. In a speech to Japanese industrialists, Jack Welch’s

remarks on leadership were frequently interrupted by applause, but his advice on how to

deal with ‘C players’ was met with stony silence.

Conquering myth 3: MNCs’ GTM systems should focus on placing and retaining “A players”
in strategic positions regardless of where they are located.

Myth 4. Talent is portable

When organisations speak of GTM, their discussions are generally premised on the

assumption that their internal talent systems and markets operate on a global, coordinated

basis. However, this myth questions the ‘G’ in GTM. Our argument is premised on two

key misunderstandings in the MNC. First, when there is a shortage of local talent,

headquarters tend to assume that they can simply transfer talent from other parts of MNCs

to fill the talent gap. This implies a second assumption – that there are few barriers to

individual mobility. Therefore, organisations often operate under the assumptions that

talent is portable and that re-locating top talent within MNCs will result in immediate

improvements in performance. However, individuals are often reluctant to relocate

internationally, as such relocations disrupt family and personal lives, and many individuals

harbour some scepticism regarding the potential career benefits of a sojourn abroad (see,

for example, Collings, Scullion and Morley 2007; Collings, Doherty, Osborn and

Luethy 2011a; Hippler 2009). The literature also indicates that it is unwise to “force”

individuals to relocate globally. For example, Feldman and Thomas (1992) find a positive

relationship between an individual’s perception of whether they are free to choose to

accept an overseas assignment and their success on that assignment. Similarly, Kramer

and Wayne (2004) find a negative relationship between a lack of free choice and an

expatriate’s adjustment to the new environment and their commitment to the foreign

subsidiary.

Indeed, even when individuals who are viewed as top talent choose to relocate

internationally, there is no guarantee that their high performance will be maintained in the

foreign context. Specifically, ample evidence indicates that technical competence is often

emphasised in selection for an international role (Harris and Brewster 1999). However,

technical competence in the home country is no guarantee of success in an international

role, where ‘softer’ skills and adaptability emerge as central to performance (Harris and

Brewster 1999). This demonstrates the importance of effective selection systems and

effective cross-cultural preparation for assignees and their families in advance of their

taking on international roles (see Collings et al. 2011a).

While research on the global context is somewhat limited, a stream of literature points

to the limited portability of performance. For example, in their analysis of the performance

of Wall Street’s top market analysts over almost a decade, Groysberg, McLean and Nohria

(2006) find that analyst performance declines when they changed employers nearly 50% of

the time. Furthermore, their performance falls by an average of 20% and it often takes up

to 5 years for their performance to return to the levels evident before the move. Based on

The International Journal of Human Resource Management 1767

this analysis, Groysberg et al. (2006) argue that only 30% of analyst performance is

determined by the individual. The other 70% is determined by resources and qualities

specific to the firm. Such resources include reputation, IT, leadership, training and team

chemistry. However, when star analysts moved with other members of their original

teams, the decline in performance was mitigated to a significant degree. Specifically,

‘when analysts who switched firms moved with teammates there was no significant effect

of performance’ (Groysberg 2010). Workers who move with teams bring many of the

relationships that enable their performance with them.

Similarly, another study examined the performance of GE executives who were hired

as CEOs of other organisations from 1989 to 2001 (Groysberg et al. 2006). This study,

which includes data on approximately 20 moves, found that hiring a former GE executive

as a CEO had a positive impact on the share price in all instances. However, very different

stories emerged thereafter. When the systems and culture of the new organisation were

similar to those of GE, the returns were positive. In contrast, when the systems and culture

of the new organisation differed from those of GE and the skill sets of the executives were

mismatched, returns were significantly negative. As Groysberg et al. (2006, p. 4) surmise,

‘when the strategic need matched the strategic experience of the hired GE executive, the

company saw annualized abnormal returns of 14.1%, while mismatched pairings saw

returns of 241.3%’. The positive impact of teams of colleagues simultaneously joining a

new organisation was also evident in this study. When three of more GE alumni joined an

organisation at the same time, the returns were more than 15% above average.

On a more general level, the importance of context is reinforced in a recent study of

cardiac surgeons performing the same surgical procedures across multiple hospitals at

roughly the same time (Huckman and Pisano 2006). This study identifies significant

performance differentials among individual surgeons working across different hospitals.

Surgeons perform better (measured in terms of risk-adjusted mortality) in hospitals where

they perform a higher number of procedures. The fact that the same talented surgeon can

perform differently in different hospitals at roughly the same time may be explained by the

surgeon’s familiarity with critical assets in the hospital, such as specific employees, team

structures and operating routines, and by the fact that surgeons with higher volumes at a

specific hospital may be able to bring their influence to bear in ensuring access to better

resources. Again, the importance of the discreet social and physical context is apparent.

As a whole, this body of work confirms the importance of the GTM context. A star’s

performance is not solely a function of individual capabilities. That performance also

relies on a range of factors and resources, some of which are clearly firm specific and

therefore lost when these employees change employers. ‘The talent myth assumes that

people make organizations smart. More often than not, it is the other way around’, writes

Malcolm Gladwell in The New Yorker. Maria Pejter agrees:

We truly believe that talent management is contextual: it matches with the business you are in
and the culture of your company. Just because you are a talent in your company, does not
mean that you automatically become talent elsewhere.

Conquering myth 4: When re-locating top talent within MNCs, GTM systems should strive to
offer access to social and physical contexts that are similar to those from which the talent comes.

Myth 5. Talent turnover is always bad for the organisation

Ever since the war for talent was declared, a major concern among executives has been the

resolution of any issues that might push top talent to seek employment elsewhere. People

deemed ‘top talent’ have therefore been constantly promoted, moved into new jobs and

D. Minbaeva and D.G. Collings1768

trained to be globally mobile. These firms assume that it is only a matter of time before their

top-talent assets cash in on their global experience in the external labour market by joining

another organisation. Nevertheless, the reality of the twenty-first century is that employee

mobility has become – and is likely to remain – more pronounced owing to increased

globalisation, demographic shifts, changing career norms and new trends in education. As

Somaya and Williamson (2011) argue, the war for talent is over talent has won. A number

of years ago, Bill Gates argued that if the top 20 talents in Microsoft left the company, the

organisation would quickly become ‘ordinary’. However, when the top 20 eventually left

over a period of time, Microsoft sustained its performance to a large degree.

Therefore, the crucial issues for MNCs are determining when they should strive to

retain talent that is otherwise intent on leaving and when to allow that talent to leave quietly.

Experience and research suggest that managers responsible for GTM have often been

advised ‘to invest in A performers, raise the game of B performers, and . . . deal decisively

with C performers’ (Axelrod, Handfield-Jones and Michales 2002). However, this advice

may be too general. As Cappelli (2000) advises, employees who generate difficult-to-

replace value for the organisation and who are likely to be poached should be the target of

the most aggressive retention efforts. Maria Pejter of A.P. Møller-Mærsk comments:

What if your top talent, a specialist who can drill in the frozen ground, in an oil and gas
company, threatens to leave and there are limited amount of specialists of this kind in the
world? Indeed, if such a position is pivotal for your success, you have no other choice but pay
the price of such a specialist and do whatever it takes to retain them and go to war for this talent.

If the position in question is clearly not strategic, the MNC may wish to consider

allowing talent to leave the organisation – even when an ‘A player’ is leaving. In such

cases, instead of the old ‘war’ mentality, which frames all employee turnover as a win –

lose scenario, companies should adopt a more holistic perspective by considering other

implications of employee mobility. A key contribution to our understanding of the

potential benefits of employee turnover from an organisation perspective is the relational

approach advocated by Somaya and Williamson (2011). Central to this approach is the

understanding that not all employees join competitors when they leave an organisation.

Some join what Somaya and Williamson term ‘cooperators’ – potential clients or partners.

When these employees leave, they take their human capital with them. However, if their

departure is managed effectively, they may retain their social capital with former work

colleagues. The key for organisations is to carefully monitor turnover in terms of

performance levels, difficulty of replacement and destination employer (competitor versus

cooperator). If employees leave to join a cooperator, there may be significant merit in

maintaining relationships with those employees. For example, a number of major

consulting firms make major investments in alumni networks with the express aim of

maintaining links and building potential working relationships with the new firms.

Conquering myth 5: In MNCs, the key is to develop a more nuanced understanding of employee
turnover. Attrition levels should be monitored in terms of the quality and roles of departing
employees, and their destination organisations should also be carefully monitored. As the effect
of an employee’s departure on turnover may not be negative, expensive retention efforts may be
misguided. Instead, investments should focus on maintaining positive relationships with
departing employees, as those relationships may benefit the MNE in the future.

Myth 6. There is a clear line of sight between GTM and organisational performance

The measurement of the return on investment associated with HR interventions has been

the ‘holy grail’ of HR practitioners and consultants for a number of decades (see Fitz-Enz

The International Journal of Human Resource Management 1769

2009). Like many HR processes, the challenge for GTM is that it can easily become a

‘cost’ if senior executives do not have a line of sight of the link between investment in the

programme and the return on this investment. Some recent analyses by consultancy

companies, such as Ernst and Young, suggest that organisations that align talent

management with business strategy achieve an ROI that is 20% higher over 5 years than

competitors who do not. However, establishing the cause and effect in this performance

link is exceptionally difficult because the distance between the actual investment in

an individual HR practice and organisational effectiveness is significant. This distance

is likely to be even greater in the MNC context, where the nuances and volatility of the

global business context come to the fore. An additional challenge is the fact that HR often

fails to understand – let alone articulate – the value of the GTM function (Fitz-Enz 2010).

In recent years, contributors such as Boudreau, Cappelli and Fitz-Enz have suggested a

number of techniques to enable HR managers to better articulate the contribution of

investments in talent management to organisational performance. For example, Cappelli

(2008, pp. 10 – 11) points to key similarities between talent management and supply chain

management in managing talent management for better performance. He argues that these

two types of management largely involve similar steps – forecasting product demand

equates with forecasting talent needs; estimating the cheapest, fastest ways to make products

is the equivalent of developing talent; deciding which aspects of the process to outsource

equates with external hiring; and ensuring timely delivery relates to planning for succession.

Fundamentally, these techniques hinge on enhancing the analysis, communication and

decision making handled by HR professionals through the utilisation of proven business

tools. As Davenport, Harris and Shapiro (2010, p. 54) argue ‘if you want better performance

from your top employees – who are perhaps your greatest assist and your largest expense –

you’ll do well to favor analytics over your gut instincts’. Furthermore, the deployment of

these tools should enhance communication between HR leaders and other organisational

stakeholders, as they reframe HR issues in language and frameworks with which other

stakeholders are comfortable (Boudreau 2010, p. 11), and they create a clear line of sight

between investment in talent systems and organisational performance.

In addition, Davenport et al. (2010) call for the use of data analytics to ensure top

talent’s productivity, engagement and retention. However, they also caution organisations

against the mistakes commonly made when utilising talent analytics. These include the use

of analytics as an excuse to treat employees like interchangeable widgets; overdependence

on a small number of metrics to evaluate performance; the putting of employees’ learning

at risk in order to play the system; the use of inappropriate metrics or the maintenance of

metrics that do not match ongoing business requirements; a failure to adopt metrics and

analyses to changes in organisational priorities; the use of talent metrics solely for lower

level employees; and a focus on aspects of performance that are easier to quantify.

Nevertheless, creating a line of sight between investments in talent management and

corporate performance is undoubtedly a key challenge for the HR function. This challenge

is even greater in MNCs. On the other hand, the MNC context stresses the importance of

going beyond the numbers provided by HR analytics to include qualitative measures of

return on talent (ROT). Insights from recent developments in the organisational justice

perspective (see Shao, Rupp, Skarlicki and Jones 2013, for a meta-analytic review)

indicate that the perceptions of those not included in talent management programmes of

how fairly are they treated at work may serve as an indicator of how well talent

management programmes are organised, communicated and implemented across the

MNC. As Shao et al. (2013) confirm, such perceptions are affected by such factors as

national cultural differences. Although doing so is fraught with difficulty, making positive

D. Minbaeva and D.G. Collings1770

strides on this front may well enable the HR and talent functions to position themselves

more centrally in the MNC’s network.

In MNCs, a well-designed ROT measure might include a measure of whether the key

talents exhibit behaviours that reinforce the values that are central to the organisation’s

core values and mission. More than ever before, top managers articulate, nurture and

utilise values to achieve desired organisational goals. In that regard, top managers rely on

global talents that live the corporate values and bring those values to every corner of the

MNC. Accordingly, an increasing number of MNCs assess talent ‘not only according to

what they achieve but also on how they reflect or exemplify shared values’ (Stahl et al.

2012, p. 29).

Conquering myth 6: In MNCs, an ROT measure should combine quantitative and qualitative
measures, subjective employee perceptions, and objective indicators of talent performance.

Myth 7. Talent decisions are ‘fair’

An assumption often pervades organisations that talent decisions are fair, as they are based

on performance management systems that have been developed at great expense in order

to ensure consistency. In reality, however, talent decisions are frequently based on

incomplete information. Often, talent management fails because top managers do not

always have accurate information or enough time to collect and analyse information.

Furthermore, they have limited cognitive capabilities to make a judgement using all

pertinent information. The situation is even more complicated in MNCs, as there are at

least three types of distance – structural, geographical and social – that limit managers to

‘good-enough’ decisions rather than ideal ones. Structural distance is related to the fact

that subsidiaries have a self-serving interest in retaining their best talent, even though that

talent may be underutilised. Bjorkman, Barner-Rasmussen and Li (2004) argue that an

agent – principle relationship arises because of the potential asymmetry between the goals

and objectives of headquarters and those of the subsidiary. Similarly, there are many

reasons why talent markets operate as silos, and why local managers may not be

incentivised to highlight their star employees on corporate talent markets and thereby risk

losing the contribution of such talent at the subsidiary level.

Consistent with bounded rationality, Melahi and Collings (2010) argue that social and

geographical distances turn subsidiaries into blind spots and limit the ability of decision

makers at headquarters to tap into global talent. Talent located in the centre is more visible

to and more valued by key corporate decision makers than talent located in the subsidiary.

In this regard, social distance limits the opportunities available to talent located outside

corporate headquarters to become acquainted with the top managers who make GTM

decisions. Moreover, the executive suites of MNCs are dominated by parent-country

nationals (Adler and Bartholomew 1992). There may, therefore, be significant cultural

barriers between those who make decisions and ‘global’ talent.

Similarly, the idea that global talent systems are efficient in identifying high

performers and facilitating their transfer around MNCs is often unfounded. For example,

Mäkela, Bjorkman and Ehrnooth (2010) argue that a decision to include an employee in a

corporate talent pool is the result of a two-stage decision process. This process involves,

first, experience-based (on-line) performance appraisal evaluations and, second, the use of

those evaluations as an input in the largely cognition-based (off-line) managerial decision-

making process for selecting talent. Mäkela et al. (2010) argue that inclusion in the talent

pool is not only determined by apparently objective performance appraisal evaluations but

also by a number of subjective factors that affect decision making in the second stage of

The International Journal of Human Resource Management 1771

the process. In relation to the performance evaluation process, Mellahi and Collings

(2010) point to differences in how managers and employees from different cultures

approach performance appraisal. These differences significantly limit the comparability of

performance ratings. Despite the well-known limitations of the subjectivity of

performance appraisals, performance ratings may be based on some objective assessment

of performance. In a western context, such ratings may be inflated to minimise the risk of

losing face among subordinates. Thus, supposedly comparable performance scores may

not be comparable in reality. Central to this second stage are the cultural and institutional

distances between the locations of potential talents and decision makers at corporate

headquarters (see Mellahi and Collings 2010); homophily between the individual and the

decision makers; and the network position of the person in question.

Conquering myth 7: In MNCs, it is important to recognise the limitations of systems and
processes aimed at standardising ratings of performance and potential across the global
organisation. In reality, there are significant barriers to such standardisation. Organisations
must ensure that talent decisions are based on a number of different inputs, such as
performance reviews, 360 degree feedback, assessment and development centres, and other
culturally appropriate inputs. These should be combined with talent discussion forums in
which senior leaders assess talent in a more qualitative way.

Conclusions and implications

Although GTM may have entered the mainstream practitioner context in the last decade, it

remains a significant challenge for organisations. A key limitation in this regard has been

the lack of significant progress in academic research in terms of providing coherent and

integrated guidance for managerial practice. Therefore, GTM practice is often premised

on a number of misguided myths. In this paper, we identify seven such myths. Our

consideration of these myths is in line with recent calls for the development of evidence-

based HR (EBHR), as ‘faulty practices and decision making abound in HR’ (Rousseau and

Barends 2011, p. 221). Central to the notion of EBHR is the call for the inclusion of critical

thinkers in the GTM function. The following of fads and fashions, and the uncritical

adoption of ‘best practices’ must take a back seat to critical reflection and the evaluation of

tools and techniques to advance the GTM agenda. Such critical thinking involves ‘actively

exploring alternatives, seeking understanding and testing assumptions about the

effectiveness of one’s own professional decisions and activities’ (Rousseau and Barends

2011, p. 221). In part, we hope this paper begins to address this agenda by highlighting

some of the myths that perpetuate current GTM practices.

We suggest that significant progress in GTM research would consist of the formulation

of theories about (latent) mechanisms that can account for links among global strategy,

GTM, core and differentiated architectures; the effectiveness of the implementation of

GTM programmes; and global performance. In this regard, Figure 1 maps possible future

research directions, including the following:

. Analysing the fit between GTM as a strategic business process and the HR
architecture,

. investigating how HR systems within a differentiated architecture affect the human
capital attributes needed for strategic positions,

. examining the human-capital attributes needed for strategic positions and their
effects on behaviour, and

. analysing the aggregation from individual behaviour to effective GTM
implementation at the group and organisational

levels.

D. Minbaeva and D.G. Collings1772

In this section, we further elaborate on these possible topics for future research. For

each topic, we also suggest some key research questions and empirical considerations.

1. analyzing the fit between GTM as a strategic business process and the HR

architecture.

What is the nature of intra-firm HR differentiation for GTM as a strategic

business process and what is the appropriate level of such differentiation? How do

core and differentiated HR architectures interact in supporting GTM as a strategic

business process? What should be the locus of differentiation: the job or the

employee? When approaching these questions, researchers should bear in mind

that the nature of the fit between GTM as a strategic business process and the HR

architecture is inherently multidimensional, and that it is not easily captured by

simple bivariate statements (Becker and Huselid 2006). Given the focus on

differentiation not just across but also within firms, more preference needs to be

given to experiments involving cutting-edge organisations. For large-sample

empirical surveys, one-site sampling may be preferable to ensure that the research

design can control for a number of broad contextual factors that are known to

influence the horizontal fit.

2. Investigating how HR systems within a differentiated architecture affect the

human- capital attributes needed for strategic positions.

What are the nature and the scope of the HR systems needed to ensure adequate

human-capital attributes for strategic positions? What are the differences between

intended, implemented and perceived HR practices? What factors explain such

differences? When approaching these questions, future studies should (a) use a

multi-level approach that considers relationships at both the job and individual

levels and (b) collect data from multiple sources in multiple organisations.

3. Examining the human- capital attributes needed for strategic positions and their

effects on behaviour.

What are the nature and potential interdependencies of the human capital

attributes needed for strategic positions? How do human capital attributes result in

the desired behaviour? How do other individual-level factors, such as gender, age

and national identity, matter? When approaching these questions, future research

should strive to combine perceptual and self-reported measures with more

objective indicators in order to develop more elaborate measures of human capital

attributes. The integration of traditional measures with measures obtained through

social network analysis may also be highly beneficial.

4. Analysing the aggregation from individual level behaviour to implementation

effectiveness of GTM implementation programmes at the group and organisational

levels.

How can we measure GTM effectiveness? How can firms fine-tune individual

behaviours so that they lead to positive results on the aggregate level? When approaching

these research questions, longitudinal research is highly desirable for verifying the

causality of the aggregation from the individual to the collective. Multi-level reasoning and

methods must be applied.

This paper also has some practical implications for those MNCs considering

investments in GTM. First, we suggest that MNCs start by aligning their GTM with global

strategy. They can seek to answer the following questions: What is the global strategy?

Does the MNC have a truly global strategy or multiple regional strategies? The answers to

these two questions define the MNC’s GTM.

The International Journal of Human Resource Management 1773

Second, MNCs should establish core and differentiated architectures for GTM. The

differentiated architecture will focus on pivotal positions, while the core architecture will

cover the rest of the organisation.

Third, MNCs should differentiate among the pivotal positions. To do so, they must

establish policies for dealing with A, B and C players for every pivotal position.

Finally, MNCs would find it beneficial to review the role of the corporate HR function

in GTM. In this regard, corporate HR should be responsible for (a) developing,

implementation and measuring the effects of GTM; (b) balancing global and local talent

needs; and (c) making GTM a basis for global employer branding through differentiation.

In conclusion, managing talent on a global basis is complex and challenging. These

challenges and complexities are amplified by the misguided assumptions (or myths) that

underscore many decisions related to the development of talent systems in MNCs and the

more general management of talent in ‘born globals’, international organisations and

alike. We hope that this paper will help to guide practice and theoretical work in the field

by highlighting some of these myths and proposing ways in which they can be mitigated.

Acknowledgements

We thank the participants of the Global HR Seminars on Global Talent Management organised by
Copenhagen Business School and Confederation of Danish Industries in December 2010. We are
especially grateful to Maria Pejter and A.P. Møller-Mærsk for inspiration and support.

Note

1. The authors undertook this search in March 2012.

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Annual Global CEO Survey, http://www.pwc.com/gx/en/ceo-survey/2012/index.jhtml

Ray, G., Barney, J.B., and Muhanna, W.A. (2004), ‘Capabilities, Business Processes, and
Competitive Advantage: Choosing the Dependent Variable in Empirical Tests of the Resource-
Based View,’ Strategic Management Journal, 25, 23 – 37.

Rousseau, D.M., and Barends, E.G.R. (2011), ‘Becoming an Evidence-Based HR Practitioner,’
Human Resource Management Journal, 21, 3, 221 – 235.

Schuler, R.S., Jackson, S.E., and Tarique, I. (2010), ‘Global Talent Management and Global Talent
Challenges: Strategic Opportunities for IHRM,’ Journal of World Business, 46, 4, 506 – 516.

Schuler, R.S., Jackson, S.E., and Tarique, I. (2011), ‘Frameworks for Global Talent Management:
HR Actions for Dealing With Global Talent Challenges,’ in Global Talent Management, eds. D.
Collings and H. Scullion, New York: Routledge, pp. 17 – 36.

Scullion, H., Collings, D.G., and Caligiuri, P. (2010), ‘Global Talent Management,’ Journal of
World Business, 45, 2, 105 – 108.

Shao, R., Rupp, D., Skarlicki, D., and Jones, K. (2013), ‘Employee Justice across Cultures: A Meta-
Analytic Review,’ Journal of Management, 39, 263 – 301.

Smart, B.D. (2005), Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping
the Best People, Paramus, NJ: Prentice Hall Press.

Somaya, D., and Williamson, I. (2011), ‘Embracing Turnover: Moving beyond the “War for
Talent”,’ in Global Talent Management, eds. D. Collings and H. Scullion, New York:
Routledge, pp. 74 – 86.

Stahl, G., Björkman, I., Farndale, E., Morris, S., Paauwe, J., Stiles, P., Trevor, J., and Wright, P.
(2012), ‘Six Principles of Effective Global Talent Management,’ MIT Sloan Management
Review, 53, 2, 25 – 32.

Tarique, I., and Schuler, R.S. (2010), ‘Global Talent Management: Literature Review,
Integrative Framework, and Suggestions for Further Research,’ Journal of World Business,
45, 2, 122 – 133.

D. Minbaeva and D.G. Collings1776

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MHR 6451, Human Resource Management Methods 1

Course Learning Outcomes for Unit VIII

Upon completion of this unit, students should be able to:

3. Assess the role of culture in human resource management practices within a global organization.

Reading Assignment

The following videos and articles were mentioned in the unit lesson and are required reading for this unit.

In order to access the following resources, click the links below.

Altaf, A. (2011). The impact of organizational culture on organizational effectiveness: Implication of Hofstede

cultural model as organizational effectiveness model. International Journal of Interdisciplinary Social
Sciences, 6(1), 161-174. Retrieved from
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t=true&db=a9h&AN=73343667&site=ehost-live&scope=site

Please watch the video below (from 4:10 to 21:24):

Geert Hofstede Consortium. (2013, January 19). Geert Hofstede – Recent discoveries about cultural

differences [Video file]. Retrieved from https://youtu.be/LBv1wLuY3Ko

To view the transcript of the video above, click here.

TEDx Talks. (2014, July 22). Cultural difference in business: Valerie Hoeks: TEDxHaarlem [Video file].

Retrieved from https://www.youtube.com/watch?v=VMwjscSCcf0&feature=youtu.be

To view the transcript of this video, click here.

Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad?

Organizational Dynamics, 9(1), 42-63. Retrieved from
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t=true&db=bth&AN=5143098&site=ehost-live&scope=site

The Lavin Agency Speakers Bureau. (2014, December 10). Erin Meyer: How cultural differences affect

business [Video file]. Retrieved from https://youtu.be/zQvqDv4vbEg

To view the transcript of the video above, click here.

Minbaeva, D., & Collings, D. G. (2013). Seven myths of global talent management. International Journal of

Human Resource Management, 24(9), 1762-1776. Retrieved from
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t=true&db=bth&AN=86994264&site=ehost-live&scope=site

UNIT VIII STUDY GUIDE

The Role of Culture in
Global HRM Practices

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MHR 6451, Human Resource Management Methods 2

Unit Lesson

In order to access the following resource, click the link below.

College of Business – CSU. (2016, September 1). Impact of culture on human resource management [Video

file]. Retrieved from https://youtu.be/o-xm5ZZ13TY

To view the transcripts for this video, click here.

In the video indicated below, you will be introduced to Valerie Hoeks as she discusses her experiences with
cultural differences on an individual basis, and she also discusses business or group differences between
Chinese and Dutch cultures.

TEDx Talks. (2014, July 22). Cultural difference in business: Valerie Hoeks: TEDxHaarlem [Video file].

Retrieved from https://www.youtube.com/watch?v=VMwjscSCcf0&feature=youtu.be

To view the transcript of this video, click here.

In the article indicated below, you will be introduced to Dr. Geert Hofstede, a well-known Dutch psychologist
who is famous for pioneering studies of national cultures (Jan, n.d.). Initially, Dr. Hofstede presented four
dimensions of culture: power distance, individualism and collectivism, masculinity and femininity, and
uncertainty avoidance (Hofstede, 1980). Dr. Hofstede says inhabitants of most countries tend to share a
national character, which is often more apparent to foreigners than themselves. This national culture
embodies the ethnic perceptual instruction that nationals have in common (Hofstede, 1980). When describing
the common elements within each nation, Hofstede is not describing individuals but, rather, is describing the
national norm. Keep this in mind when reading about the four dimensions explained in the reading.

Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad?

Organizational Dynamics, 9(1), 42-63. Retrieved from
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t=true&db=bth&AN=5143098&site=ehost-live&scope=site

Hofstede’s theory is not without critics. Some critics say that his theory is generalized and based on faulty
assumptions, some claim that the questionnaires he used were culturally biased, and some assert that
multiple cultures within an organization were ignored. Regardless of these criticisms, the popularity of the
theory continues, and the theory is used by other researchers because it assists in understanding national
cultures and their inferences within the framework of doing business globally (Kermally, 2005).

For instance, Altaf (2011) conducted research using the dimensions within Hofstede’s cultural model to
determine factors that influence organizational performance. Some of the findings indicate that two factors,
power distance and collectivism, were found to be significantly related to organizational effectiveness. The
study found low power distance to be significant. In previous studies by Hofstede, power distance was found
to have two dimensions: either low or high. The higher the power distance, the more difficult it is to manage or
motivate people. By delegating authority and dispersing the pecking order, the low power distance helps
reduce the difficulties with managing, communication, and integration. For more insight and findings as well
as suggestions for affecting organizational performance, please read the study:

Altaf, A. (2011). The impact of organizational culture on organizational effectiveness: Implication of Hofstede

Cultural Model as organizational effectiveness model. International Journal of Interdisciplinary Social
Sciences, 6(1), 161-174. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=a9h&AN=73343667&site=ehost-live&scope=site

Recent discoveries about cultural differences were made as Hofstede and his son accumulated research that
was conducted across the globe using his model. The result of the analysis of data led to the addition of
dimensions. The Hofstede model is now a six-dimensional model. As before, the model continues to be used
to understand and improve cross-cultural communication. In the following video, Dr. Hofstede describes six
values, and he explains how a society’s culture influences these values in its members. He then
demonstrates how these values influence their behavior. Most of the six values will be familiar to you. They
are power distance, uncertainty avoidance, individualism, masculinity, long-term versus short-term orientation,

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MHR 6451, Human Resource Management Methods 3

and indulgence versus restraint (Geert Hofstede Consortium, 2013). You are encouraged to watch from 4:10
to 21:24.

Geert Hofstede Consortium. (2013, January 19). Geert Hofstede – Recent discoveries about cultural

differences [Video file]. Retrieved from https://youtu.be/LBv1wLuY3Ko?t=4m9s

To view the transcript of this video, click here.

There are many cultural lessons we have learned from Dr. Hofstede that can be applied to business. An
example is that employees in different cultures behave differently. Knowing these differences advances our
understanding of how to more effectively manage people and enhance the productivity of multicultural teams.
Also, misunderstandings are lessened when collaboration between organizations across different cultures is
improved. The importance and influences of cultural differences must be recognized by leadership and
incorporated into the mission and values of organizations (Kermally, 2005).

There are leaders who have understood the importance and influence of establishing an organizational
culture. One such leader is Simon Green, Vice President and General Manager of NetApp-Asia Pacific.
Green expressed NetApp’s commitment to building and sustaining their successful global corporate culture in
his article “Why Culture Counts” (2009). Their culture is the foundation of the company’s success, not just
because of the amount of solutions sold, but due to the innovative ideas of their people and those who assist
customers in sharing their value proposition. The corporate culture can be seen in the ways in which the
organization conducts business and regards its employees and customers, the degree of freedom allowed in
decision-making, the growth of new ideas, and the level of individual articulation. Their culture reveals the
depth of employee commitment to their customers and owners.

Green (2009) believes a company’s culture can be the secret ingredient that transforms it aggressively into a
zone of opportunity. Just how employees react during difficult moments could make the distinction between
profit and loss—this is the advantage, or the return on investment, of corporate culture. What a company is,
and being able to understand and articulate how its employees work intensely to set it apart from competitors
to deliver products or services, defines what corporate culture is all about.

There are, at the same time, CEOs who doubt the very existence of corporate culture. How can this be?
Geographical regions, production, and budget discussions are tangible; attitude and behavior discussions are
less tangible and are often uncomfortable for some CEOs and management to discuss. They assume that the
company’s vision, values, and strategy define their culture.

Some aspects of culture can be observed; however, the most powerful aspects are found in the core, which is
composed of values in action (e.g., ethical behaviors, standards, moods, world views, paradigms, company
myths and stories—internal and private conversations of employees who belong to a team, and employee
enthusiasm). The cultural core is the basis of all actions and decisions. An organization has a distinct
competitive advantage when positive and value-creating behavior is driven by the culture. If culture was not
proactively created and nourished by the leadership team to support the purpose of the organization, then it is
likely that it will be a hidden liability (Green, 2009).

Global companies must pull all different geographical cultures together and make sure that they are able to
work as a cohesive team. The ingredient to creating and sustaining a healthy and energetic culture involves a
daily reinforcement of the culture, which requires proactive conversations and communications. NetApp’s
approach is to educate employees on the culture while being sensitive to local cultures around the globe
(Green, 2009).

Fortune magazine named NetApp as one of the best companies to work for during the last seven consecutive
years. It was number one in January 2009, and it was in the top 15 for three consecutive years. It was also
named as one of the top eight companies to work for in Australia in 2008, and NetApp was one of the best
tech companies to work for in India in 2007 (Green, 2009).

Today, businesses that move offices, stores, or production facilities to several different countries create
multinational corporations (MNCs). An MNC may even hire people from surrounding countries as well. This
multicultural environment can be a challenge for not only the human resource (HR) department in the host
country and the HR professionals at the national level, but, as you will see, the multicultural environment can
be a challenge for the leadership as well. The purpose of the article indicated below is to reveal and dismiss a

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MHR 6451, Human Resource Management Methods 4

number of key myths regarding talent management that may damage global talent management’s (GTM’s)
impact of MNC effectiveness. The authors present suggestions for improving talent management
performance that is grounded in practice, academic reasoning, and discussions with senior HR professionals
(Minbaeva & Collings, 2013).

Minbaeva, D., & Collings, D. G. (2013). Seven myths of global talent management. International Journal of

Human Resource Management, 24(9), 1762-1776. Retrieved from
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t=true&db=bth&AN=86994264&site=ehost-live&scope=site

Effective communication skills for management and employees within an MNC are critical to the success of
the business. Being able to correctly understand the cultural differences, such as being able to read the
atmosphere in a multicultural facility, can make the difference in obtaining employee understanding and
engagement (The Lavin Agency Speakers Bureau, 2014). For more than 16 years, Professor Erin Meyer has
studied essential elements of international communication, which affects the daily interactions of
businesspeople globally. Learn more by watching the video of her presentation:

The Lavin Agency Speakers Bureau. (2014, December 10). Erin Meyer: How cultural differences affect

business [YouTube video]. Retrieved from https://youtu.be/zQvqDv4vbEg

To view the transcript of this video, click here.

As a result of her research, which is based on the work of many famous researchers before her such as Geert
Hofstede, Professor Meyer has developed a cultural map. This map is a tool that plots national business
cultures on eight behavioral scales. The profiles that result come from surveys and interviews obtained from
people in the countries being studied at that time. The results show where there are similarities and
differences between the nations’ cultures with respect to the way they respond to the eight behavior scales,
such as how they lead, persuade, decide, trust, communicate, evaluate, schedule, and disagree. Professor
Meyer has published several articles in the Harvard Business Review. If you are interested, you can read
more about her profile and work by going to her website, which is listed in the suggested reading section of
this unit.

References

Altaf, A. (2011). The impact of organizational culture on organizational effectiveness: Implication of Hofstede

Cultural Model as organizational effectiveness model. International Journal of Interdisciplinary Social
Sciences, 6(1), 161-174.

Geert Hofstede Consortium. (2013, January 19). Geert Hofstede – Recent discoveries about cultural

differences [Video file]. Retrieved from https://youtu.be/LBv1wLuY3Ko

Green, S. (2009). Why culture counts. New Zealand Management, 56(5), 19.

Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad?

Organizational Dynamics, 9(1), 42-63.

Jan, G. (n.d.). Home page. Retrieved from http://www.geerthofstede.eu/

Kermally, S. (2005). Gurus on people management. Retrieved from

http://site.ebrary.com/lib/columbiasu/detail.action?docID=10088338&p00=kermally

The Lavin Agency Speakers Bureau. (2014, December 10). Erin Meyer: How cultural differences affect

business [Video file]. Retrieved from https://youtu.be/zQvqDv4vbEg

Minbaeva, D., & Collings, D. G. (2013). Seven myths of global talent management. International Journal of

Human Resource Management, 24(9), 1762-1776.

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MHR 6451, Human Resource Management Methods 5

Suggested Reading

In order to access the following resources, click the links below.

To learn more about Erin Meyer, the creator of the culture map that was mentioned in the unit lesson, take a
few minutes to explore her website at

Welcome!

Now more than ever, business is becoming more global. The article below looks at how globalization may
affect industrial and employee relations in a company.

Cambridge, C. (2001). Compassion versus competitiveness: An industrial relations perspective on the impact

of globalization on the standards of employee relations ethics in the United States. Ethics & Behavior,
11(1), 87-103. Retrieved from
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t=true&db=a9h&AN=3970466&site=ehost-live&scope=site

India has quickly become a power player in the business world. It is important to understand the cultural
differences and how to navigate them. This video explores those topics and more.

Cook. R. (Producer). (2011). Communicating in India: International business communication [Video file].

Retrieved from
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ylists.aspx?wID=273866&xtid=49178

Learning Activities (Nongraded)

Nongraded Learning Activities are provided to aid students in their course of study. You do not have to
submit them. If you have questions, contact your instructor for further guidance and information.

Check for Understanding: Word Search Puzzle

Click here to download a word search puzzle that reinforces the terms covered in this unit. You can print it out
or use the highlighting or drawing tools to circle the words directly on the PDF.

Welcome!

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The Impact of Organizational Culture on Organizational
Effectiveness: Implication of Hofstede Cultural Model
as Organizational Effectiveness Model
Amal Altaf, Mohammad Ali Jinnah University, Pakistan

Abstract: This study is a suggestion of using Hofstede Cultural Model to bring about organizational
effectiveness. Being based on Hofstede cultural dimensions it helps determine the ways to achieve ef-
fectiveness within an organization. 123 responses were received and evaluated. Significant results
have been determined and concluded that culture has a significant impact on organizational effective-
ness. Four most well known variables of Hofstede Cultural Framework were used namely, power dis-
tance, collectivism vs. individualism, masculinity vs. femininity, and uncertainty avoidance. A general
model of organizational effectiveness was made based on Georgeopoulos and Mann’s study on com-
munity general hospital for determining effectiveness. To a surprise only two of the Hofstede Cultural
Model had been found significantly related to organizational effectiveness. This research has also
suggestedways touseHofstedeCulturalModel tonotonlydeterminenationalcultureororganizational
culture but rather how the model can improve performances and bring about overall effectiveness.

Keywords: Hofstede Model, Effectiveness

Introduction

SEVERAL STUDIES HAVE been conducted on culture and how it affects the per-formance, the working life and working conditions of the workers and eventuallyhow it brings about effectiveness. Culture may be defined as the shared values, beliefs
and norms in an organization. It is a process of sense making through communication

and interaction. Depending on how strongly the values and control have been implemented
in an organization, it may have a strong or weak culture.
According to Schein culture is the most difficult to change attribute. The most important

role that organization needs to play in order to have a strong culture is to adapt to the external
environment and integrating individuals. Gareth Morgan describes culture as “an active living
phenomenon through which people jointly creates and recreates the place they live in”.
Positive organization culture increases staff alignment which in-turn increases organiza-

tional effectiveness. Effectiveness may be achieved by strong strategic direction, increased
employee productivity and high commitment. According to Avolio, organizational culture
can increase commitment, productivity and profitability (1991). Therefore in some cases we
can assume it may increase effectiveness.
Effectiveness is therefore how affective an organization is in meeting its objectives or

outcomes. It can also be described as the extent to which an organization is successful in
achieving its desired future state. Other researchers define effectiveness as a measure of the
match between stated goals and their achievement (Fraser, 1994). Effectiveness is doing the
right things (Erlendsson 2002). When an organization tends to achieve its outcomes or desired

The International Journal of Interdisciplinary Social Sciences
Volume 6, Issue 1, 2011, http://www.SocialSciences-Journal.com, ISSN 1833-1882
© Common Ground, Amal Altaf, All Rights Reserved, Permissions:
cg-support@commongroundpublishing.com

state it is said to be effective. As the competition for resources increases and survival becomes
more important day-by-day organizations need to develop more effective processes and
strategies not only to compete but also to survive. Considering the organizations there are
several ways which help the organization achieve effectiveness. For example to be effective
organizations may focus on performance, including both employees and organization as a
whole. Organizations may also focus on strategies to adapt to change and new technologies
in order to compete. They may also focus on external environment, internal relationships,
employee’s needs, and leadership, depending on which area requires the most attention. All
these factors collectively play a vital role in bringing about the effectiveness within any or-
ganization. Factors affecting organizational effectiveness include environment, structure of
the organization, strategy, culture, technology and human resources. The focus of this study
is mainly on organizational culture. It describes the extent to which culture plays its part in
bringing about the effectiveness required by any organization. Having a strong culture prevents
conflicts among employees and managers. It makes sure that every employee is valued and
shares the same direction as the organization. Several researchers have described different
insights regarding organizational culture. The focus of this study is on Hofstede Cultural
Model and how it can be applied to determine the organizational effectiveness. Hofstede’s
cultural model is based on the study of cultural differences across national and regional
sectors. Hofstede identified four dimensions of culture namely, power distance, masculin-
ity/femininity, collectivism/individualism, and uncertainty avoidance. Power distance de-
termines how any society handles unequal distribution of power. High power distance
countries rely more on power holders and centralization of activities occurs. In organizations
power distance occurs when subordinates are differentiated from their bosses with respect
to salaries, status, promotions and benefits. Similarly lower power distance is decentralized
and power is distributed equally. The second dimension is individualism vs. collectivism.
Individualism defines the extent to which people stress on” every man for himself”. It focuses
on people concentrating on their own interests and likes to work individually, or only with
the people they trust. Similarly collectivism is the opposite of individualism and it is based
on alliance, which ensures trusts and protection. Collectivism in workplace is an example
of team work, social interaction and integration. Third cultural dimension is masculinity vs.
femininity. This dimension stresses on the role distribution among the genders. The more
the roles are equally distributed and equal opportunities are provided to both genders the
more the culture is feminine and vice versa. The fourth cultural dimension of Hofstede cul-
tural model is uncertainty avoidance. This dimension stresses on weak and strong culture.
People in weak culture dislike rules, have less formalized and standardized system and work
only when needed. People in strong culture system like to be busy, have a formalized and
standardized system, and believe time is money.
Two factors are the focus of this study; one is the organizational culture, based on the

Hofstede cultural model and second is the organizational effectiveness with respect to that
culture. The cultural focus is on distribution of power, gender wise role distribution, uncer-
tainty avoidance and working individually or collectively.
Several models exist to determine the organizational effectiveness. This study has adopted

the general idea of Georgopoulos and Mann’s study on Community General Hospital and
Basil S. Georgopoulos and Alexender Matejko study on American General Hospital as a
Complex Social System, for determining effectiveness. In both the studies researchers
measured effectiveness in terms of different dimensions which were based on the effectiveness

162

THE INTERNATIONAL JOURNAL OF INTERDISCIPLINARY SOCIAL SCIENCES

itself. Questionnaires were developed, scores of which were used to compare result and de-
termine the final results. A similar criterion is followed in this research and general organiz-
ational effectiveness dimensions including innovation, commitment, strategy, and flexibility
are used. These proxies will help measure effectiveness.
This study examines the “impact of four dimensions of Hofstede culture model on organ-

izational effectiveness”.

Objectives of this Research
The objectives of the study are as follows:

• To assess critically how the different dimension of culture relates with the organizational
effectiveness.

• To find out the role of organizational culture to improve the effectiveness of the organ-
ization.

Significance of the Study
This study tries to fill the gap in the literature as there is very less work done on the Hofstede
cultural dimensions in relation to the effectiveness of the organization. Moreover the study
will reveal the importance of organizational culture to improve the performance and efficiency
of the company to increase its effectiveness. This study will also help the institutions to
foster the culture keeping in mind the organization and its people so that effectiveness can
be achieved

Scope of the Study
The present study covers the different aspects of culture dimensions and how they relate
with organization effectiveness possessing some culture that may be strong or weak. The
study is important in the global environment to find out the means to help the human resource
management examine the impact of culture on the effectiveness of the organization. This
study falls in the area of management specifically culture and organizational effectiveness.

Literature Review
Several researchers have conducted many studies and identified different dimensions of
culture. One study by Hofstede 1980 identifies 5 dimensions of national culture. These in-
cluded power distance, uncertainty avoidance, individualism, collectivism, masculinity and
femininity. Further, Deal and Kennedy defined culture as how things get done. They measured
organization is terms of risk, feedback, process, tough guy macho culture, work hard/ pay
hard culture, bet your company culture. Charles Handy 1985 worked on Roher Harrison
work on culture and popularized it as power culture, role culture, task culture and person
culture. Edgar Schein defined organizational culture as shared assumptions that people learn
while solving a problem that may include both external and internal integration and must be
valid. Arthur F. Carmazzi 2007 identified, the blame culture, multi-directional culture, live
and let live culture, brand congruent culture and leadership enriched culture. Robert A. Cooke
defines culture as the behaviors that are required in order to convene the expectations of the

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organization. He identified three cultural dimensions which further has other norms included
in them. He identified constructive culture, passive culture/ defensive culture, aggressive/
defensive culture.
Culture is described by how much the organizational culture is people oriented and team

oriented (Quinn, 1988). Fairness, team-oriented, taking initiative, result oriented, achievement
orientation, flexibility, action orientation, collaboration with others, aggressive factors have
a great influence on organizational culture change (Hergunerand Reeves, 2000). Organizations
have to adapt to change toward the organization of the participation, broader decision making,
building teamwork, faster decision making and more idea factors (Denison, 2004). Greater
attention needs to be paid to organizational culture along with structural explanations for
managerial effectiveness (Parasuraman and Deshpande, 1984).
Several models have been introduced for the study of effectiveness. Achieving effectiveness

at organizational level is said to be organizational effectiveness (Cameron and Whetten,
1983; Quinn and Rohrburgh, 1983). It is also defined as extent to which organization achieves
its goals (Georgopoulos and Mann, 1962). Effectiveness is also linked with control, inform-
ation, management and goal setting (Quinn, 1998; Dension, Haaland and Geolzer, 2004).
Boerman and Bechger 1997 used organizational growth, interaction, evaluation by external
factors, stability, and control and information system, commitment an educational planning
for studying effectiveness. The four cultural traits in Dension model included, integration,
coordination and goal setting importance. Measurement of organizational effectiveness has
been the topic of interest of every scholar and researcher. Many researchers have identified
different models for measuring the effectiveness, but the validity and reliability remains
questioned. Many measures are not generalized therefore coming to a more standardized
measurement remains a problem.

Hofstede Cultural Framework
Hofstede put forth 4 cultural dimensions with respect to cultural studies conducted by 1980-
2000. His dimensions include power distance, masculinity vs. femininity, collectivism vs.
individualism and uncertainty avoidance described below:

Power Distance
Power distance is the degree to which differences in power and status are accepted in a culture
(Hofstede 1980a, 2001). Some nations accept high differences in power and authority between
members of different social classes or occupational levels; other nations do not. For example,
the French are relatively high in power distance, but Israelis and Swedes are very low. In
Israel and Sweden, worker groups demand and have a great deal of power over work assign-
ments and conditions of work (Adler 1997, Cole 1989). French managers tend not to interact
socially with subordinates and do not expect to negotiate work assignments with them
(Laurent 1986). In the low power distance countries, individuals feel less discomfort and
stress when disagreeing with the boss. Based on that the following hypothesis was made:

H1: Power distant has a negative impact on organizational effectiveness

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Uncertainty Avoidance
Societies high in uncertainty avoidance tend to prefer rules and to operate in predictable
situations, as opposed to situations where the appropriate behaviors are not specified in ad-
vance (Hofstede 1980a, 2001). In these societies, people are uncomfortable with high risk
and ambiguity in other cultures, there is a greater tendency to take risks. In nations low in
uncertainty avoidance such as the United States, there are fewer acceptances of rules and
less conformity to the wishes of authority figures. The opposite is true in high uncertainty
avoidance nations such as Germany and Japan (Brislin 1993). This desire to minimize uncer-
tainty will be reflected in the level of performance risk that shows the decrease in organiza-
tional effectiveness. Therefore,

H2: Uncertainty avoidance has a negative impact on organizational effectiveness

Masculinity
The masculinity-femininity dimension of a culture refers to the degree to which values asso-
ciated with stereotypes of masculinity (such as aggressiveness and dominance) and femininity
(such as compassion, empathy, and emotional openness) is emphasized. High masculinity
cultures such as Japan, Germany, and the United States tend to have more gender-differenti-
ated occupational structures with certain jobs almost entirely assigned to women and others
to men. There is also a stronger emphasis on achievement, growth, and challenge in jobs
(Hofstede 1980a, b; 1998; 2001). In highly masculine cultures, people are also more assertive
and show less concern for individual needs and feelings, more concern for job performance,
and less concern for the quality of the working environment. In high masculinity cultures
individuals tend to have higher achievement motivation and achievement is defined in terms
of recognition and wealth (Hofstede 1980a, 2001). These cultures also admire the acquisition
of material possessions and value aggressive attempts to acquire additional wealth or income
(Gomez-Mejia and Welbourne 1991). However, in countries high on the feminine dimension,
such as Sweden and Norway, working conditions, job satisfaction, and employee participation
are emphasized. Therefore,

H3: Masculinity has a negative impact on organizational effectiveness

Collectivism vs. Individualism
Individualism-collectivism refers to whether individual or collective action is the preferred
way to deal with issues. In cultures oriented toward individuals such as the United States,
the United Kingdom, and Canada-people tend to emphasize their individual needs, concerns,
and interests over those of their group or organization. In individualistic cultures, individual
initiative is encouraged (Hofstede 1980a, 2001). The opposite is true in countries high on
collectivism, such as the Asian economies such as Japan and Taiwan. In a collectivist society,
an individual is expected to interact with members of his or her group. It is almost impossible
to perceive a person as an individual, rather than one whose identity comes from groups
with which that person is associated (Brislin 1993). Certain work behaviors may also be af-
fected. For example, in an individualistic society such as the United States, people tend to

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AMAL ALTAF

shirk when tasks are assigned to a group, as opposed to when tasks are assigned to individuals,
a tendency not present in the collectivist country of Taiwan (Grabrenya et al. 1985). Finally,

H4: Collectivism has a positive impact on organizational effectiveness

Theoretical Framework

Methodology
The methodology has been as follows:

For the research work, primary data has been used. SPSS has been used for reliability
analysis, regression and impact analysis.
The information has been collected directly from the managers, staff and other employees
of different banks in Pakistan. Data collection was by Questionnaire and Surveys: This
includes range of response questions, close ended questions, providing limited answers
to specific responses or on a numeric scale. The sample size was 200 respondents from
different banks. Only 123 responses were received and hence evaluated.

Results
The most important thing in the results of the study was the reliability of the data used. To
calculate that reliability analysis was used. According the results of 120 questionnaire analyzed
the results have been found to be highly reliable.
Table 1.1 shows the reliability of the questions asked with respect to Power distance in

the organization. It shows that the reliability of the data is found to be 0.814.which is highly
reliable.

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Table 1.

1

Reliability Statistics

NCronbach’s Alpha Based on Standard-

ized Items
Cronbach’s Alpha

of Items
50.8140.814

Table 1.2 shows the reliability of the questionnaire asked with respect to uncertainty avoidance
in an organization. It has found to be 0.877 making it highly reliable.

Table 1.2

Reliability Statistics

N of Items
Cronbach’s Alpha Based on

Standardized ItemsCronbach’s Alpha
5.877.876

Similarly Table 1.3 shows the reliability of the questions with respect to masculinity in the
organization. It has found to be reliable with a cronbach’s alpha of 0.729.

Table 1.3

Reliability Statistics
N of Items
Cronbach’s Alpha Based on

Standardized ItemsCronbach’s Alpha
5.729.723

Table 1.4 shows the reliability of the questionnaire asked about collectivism in the organiz-
ation. Results show it is reliable with the alpha of 0.793.

Table 1.4

Reliability Statistics
N of Items
Cronbach’s Alpha Based on

Standardized ItemsCronbach’s Alpha
4.793.785

Table 1.5 shows the reliability of organizational effectiveness data and it found to be 0.829.

Table 1.5

Reliability Statistics

N of Items
Cronbach’s Alpha Based on
Standardized ItemsCronbach’s Alpha

8.829.834

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AMAL ALTAF

Organizational Culture and Organizational Effectiveness
A significant relationship has been found between organizational culture and organizational
effectiveness. Therefore we have concluded that organizational culture does have an impact
on bringing about organizational effectiveness.
According to both the tables of Model summary and Anova F change is higher than 3 and

is significant. The relationship among the variables is also found to be highly significant
with a value of 0.000.

Model Summary b

Change StatisticsStd.AdjustedRRModel

R
Square

Square Error of
the Sig. F

Changedf2df1
F
Change

R
Square

Estimate Change
.00011547.372.204.59330.176.204.452a1

b. Dependent Variable: Effectiveness

ANOVA b

Sig.FMean SquaredfSum of SquaresModel
.000a7.3722.595410.379Regression1

.35211540.480Residual
11950.859Total

a. Predictors: (Constant), Collectivism, Masculinity, Power Distant, Uncertainty
Avoidance
b. Dependent Variable: Effectiveness

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Coefficientsa

Collinearity95%ConfidenceSig.t
Standard-
ized

Unstandard-
ized

Model
Statistics

Interval for
B

CoefficientsCoefficients

VIF
Toler-
ance

Up-
per

Lower
Beta

Std.
B

BoundBoundError
2.4850.6550.0013.3980.4621.57(Constant)

1

1.0720.9330.2390.0150.0272.2440.1930.0570.127
Power
Distant

1.2540.7970.316-0.0880.2671.1150.1040.1020.114
Uncer-
tainty
Avoidance

1.0340.9670.113-0.1620.725-0.353-0.030.069-0.024
Masculin-
ity

1.2880.7770.5430.19404.180.3950.0880.368
Collectiv-
ism

a. Dependent Variable: Effectiveness

Hypothesis Testing
According to the coefficients table the hypothesis results are determined as follow.

H1: Power distance has a negative impact on organizational effectiveness

According to the coefficient table significance of power distance is 0.027, which is signi-
ficantly related dependent variable-organizational effectiveness. T value for power distance
is found to be 2.244 which is higher than 1.96. According to results H1 is accepted.

H2: Uncertainty avoidance has a negative impact on organizational effectiveness

Insignificant relationship has been found between uncertainty avoidance and organizational
effectiveness. According to these results it has been found that this dimension does not have
any direct impact on organizational effectiveness. Therefore, H2 is rejected. High uncertainty
avoidance according to theory and research has found to be positively related to organiza-
tional performance factors. Therefore, the measurement and hypothesis is rejected as high
power distance may not be negatively impacting organizational effectiveness.

H3: Masculinity has a negative impact on organizational effectiveness

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According to the statistical data masculinity is found to be negatively and insignificantly
impacting organizational effectiveness. This means that masculinity is not found to be im-
pacting the dependent variable and therefore, H3 is rejected.

H4: Collectivism has a positive impact on organizational effectiveness

According to the coefficient table significance level of collectivism is high and t-value is
found to be 4.180. H4 is accepted. Therefore it is found that collectivism is related to organ-
izational effectiveness.

Conclusions and Disscussions
Organizational culture has been the focus of many researchers and management theories
over the years, many cultural models and dimensions have been introduced by several re-
searchers which play a vital role in not only determining organizational performance but
also several other factors including effectiveness, turnover, absenteeism, employee develop-
ment, and cultural focus itself. The main idea generated and implied with this research was
the use of Hofstede Cultural Model in determining Organizational Effectiveness. Over the
years several studies have been conducted using Hofstede Cultural model to study the changes
in culture or differences in culture across regions or countries. Little research is available or
is done based on using these dimensions to determine other factors which influence the or-
ganizations overall performance. Competition is very important in this era. If you cannot
compete, you cannot win. Changes and flexibility both are important while conducting or-
ganizational affairs. As people are the main source of achievement for any organization,
therefore cultural criteria and norms have a severe impact, good or bad, on organizations
operations. According to the research conducted Using Hofstede Cultural Model, two factors
have been found to be significantly related to organizational effectiveness. Power distance
and collectivism both have been found to affect effectiveness. Power distance according to
the study was based on low power distance. According to several researches conducting by
Hofstede 2001 and other researchers power distance was either found to be low or high. The
higher the power distance the more it is difficult to coordinate and motivate people. Assigning
authority may decentralize the hierarchy and it does help the organization to reduce its
problems, such as coordinating, communication and integration. Similarly working collect-
ively and in teams is more of the trend in today’s era. The organizations now focus on job
rotating, integrating and assigning different jobs to employees. The more the team work and
socialization in an organization, the more employees feel valued and part of the organization.
This helps them feel they own a piece of the organization and try to achieve organizational
goals, as they become their own goals.
Inequality in anything is always undesirable. People like to be treated with respect and

equality in organizations too. In high power distance organizations higher level usually
sustain power and lower level is dependent on every decision of the higher level. Such au-
thority distribution not only results in de-motivation, it is also the sole cause of lack of cre-
ativity, unresponsiveness to new issues and lack of opportunity to enhance competencies.
Therefore, proper distribution of authority would provide the organizations with more
competences and skill development, which in result will help organizations compete. Simil-
arly, working collectively and for the welfare of the whole group may also help the organiz-

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ation achieve employee’s loyalty and acceptance. The more the organization and its people
care for each other the more there are positive impacts. The more the people feel lack of
care, politics and leg pulling phenomenon within an organization the more the organization
is individualistic and everyone focuses on their own benefits. Focusing on personal benefits
may help only the individual working in the organization to achieve his goals and his personal
needs. The basic success of every organization is committing to organizational goals and
doing everything to achieve those. Without that the individuals may achieve their interest
but it will be at the stake of the organization.

Recommendations
In high power distance organizations those in authority openly demonstrate their rank. Sub-
ordinates are highly dependent on higher level management. Employees do not have close
or friendly relationships with top management. Politics is commonly practiced and subordin-
ates are usually blamed for things that go wrong. Therefore, if any organization would want
to be successful a low power distance authority relationship would be successful. Practicing
friendly relations, giving authority to employees to make on spot decisions and respecting
and trusting each other are part of low power distance. In such an environment subordinates
are trusted with projects and equality is more often practiced. To a similar extent this research
also recommends the practice of low power.
Similarly practicing a friendly and caring action is always best. Developing a culture

which focuses on every employee, rather than on a single employee is based on collectivism.
The research also shows a significant impact it has on organizational effectiveness. Having
a family- like culture and managing the needs of employees makes sure they feel they are
part of the organization. Organization can also opt for either masculinity or femininity culture.
Based on the facts if organizations need is more towards a logical approach, or towards
achievement, profits, and ambition it may use masculine culture. On the contrary feminine
culture is based on innovation, creativity, relationships, compromise and care. To achieve
effectiveness in the current era flexibility and innovation are more important than logic and
ambitions. Environment is changing, globalization is happening, things are changing with
the passage of time. With these changes organizations need to develop a system which can
work along the change rather than remaining stable. To achieve this, a feminine culture may
be appropriate. Similarly avoiding situations that cause worries and anxiety is based on
strong uncertainty avoidance. This fact is also similar to maintaining a flexible culture, which
may adapt to changes occurring in the environment easily. Uncertainty can result in several
issues. It is important to face these issues in a way that is successful. Failing to do so may
lead organizations to fail and liquidate.

Further Suggestions
As the research is based on Hofstede Cultural Model, suggestions to use this model for
achieving effectiveness have been made. Several other models and ideas exist in order to
achieve effectiveness like differentiation, centralization and standardization. As theory and
research suggest a balance among those to achieve effectiveness, this research suggests a
similar recommendation. One might not need to completely or separately use the dimensions
on its own, for example, power distance in certain conditions may be high or may be low,

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AMAL ALTAF

therefore an organization can adjust its power and authority distribution according to its
system and its requirements. Where lower level requires low authority and control one can
practice accordingly and top management can sustain high power, similarly, where more
authority is required power can be distributed equally and low power distance can be main-
tained. It is also important that power given to any individual may be monitored to make
sure no misuse occurs. Similarly a balance of individualism and collectivism is suggested.
If an organization needs employees to compete and achieve targets they may choose an in-
dividualistic culture. This will help the employees compete with one another, develop skills
and knowledge, and perform better. Similarly if a group or team work is required to work
together one may practice a collectivismculture. Providing the employees a sense of belonging
and family helps achieve these factors. The end results are usually successful. Further accord-
ing to organizational departments and type or system it can maintain a balance between
masculinity and femininity. If the production department requires innovation and creativity
to compete and satisfy customers and more flexible and feminine culture may be adopted.
Similarly if an organization main focus is on profits, ambitions, achievements, assertiveness
then a more masculine culture can be followed. Lastly, an organization may also work ac-
cording to uncertain situations. Usually it is important to behave according to the situation.
For example it may happen that in a strong uncertainty avoidance culture, unknown situations
may cause anxiety and fear. This anxiety may lead to emotional disturbance. In an organiz-
ation people get into stress when they feel pressured by time and uncertainty to accomplish
a target or to solve a problem. This may help them achieve targets on time or take decisions
on spot. As it is said, some people work better under pressure, therefore uncertainty may
prove a better option for them. Similar to that if low uncertainty avoidance exists, in such
situations people tend to remain calm and take necessary steps as required. For both the
situations there may be a benefit or a disadvantage, but based on what is required an organ-
ization can maintain a balance and act accordingly in order to succeed.

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AMAL ALTAF

About the Author
Amal Altaf
I am entreperneur, based in Pakistan, running an online decorative and designing busi-
nesses,and looking forward to setup new businesses based on different projects. Research
is a part of my business projects, based on human resources, management, and new ideas.
Currently in the final semester of my Mphil and looking forward to do Phd from America
or UK.

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individual use.

WHAT’SNEXT:

FUTURE GLOBAL TRENDS
AFFECTING YOUR ORGANIZATION

Engaging and Integrating
a Global Workforce

02

SHRM Foundation 1 © The Economist Intelligence Unit Limited 2015

Engaging and Integrating a Global Workforce

Custom Research

Global Trends Impacting
the Future of HR Management

Engaging and Integrating
a Global Workforce

February 2015
The Economist Intelligence Unit
750 Third Avenue
New York, NY 10017

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Engaging and Integrating a Global Workforce

The Economist Intelligence Unit

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across national borders. For almost 60 years it has been a source of information on business developments, econom-
ic and political trends, government regulations and corporate practice worldwide.

The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest
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Engaging and Integrating a Global Workforce

TABLE OF CONTENTS

Foreword 4

Executive summary 5

Introduction 7

Driving forces behind a globalized workforce 8

Free movement of goods and services 8

Expansion of transnational companies 10

Technological advancement 12

Labor migration 13

Greater risk exposure 15

Profile of the global workforce: present and future 17

Age profile 17

Gender diversity 20

Size of the workforce 21

Education and skills 22

Talent flow 23

Temporary workers 26

Remote workers 27

Cultural differences: Inevitability in a global economy 29

Culture defined 29

Culture complexities 30

Culture: distance and friction 31

Cultural issues in the workplace 32

Cultural diversity – a liability, an asset, or both? 35

Corporate social responsibility and global workforce dynamics 37

CSR in the global context 37

The business case for CSR 37

Challenges for human resource management and global business strategy 41

Conclusion 45

Appendix 46

SHRM Foundation 4 © The Economist Intelligence Unit Limited 2015

Engaging and Integrating a Global Workforce

FOREWORD

As organizations become increasingly global, business success often hinges on a leader’s ability to bridge cultural
differences and build a productive, cohesive workforce spanning multiple countries or regions. This presents a new
set of challenges for HR professionals and other leaders.

At the SHRM Foundation, we believe that understanding the fundamental changes impacting the world of work is the
first step towards preparing for them—and ultimately leveraging them for competitive advantage. That’s why we
launched a multi-phase initiative to identify and analyze critical trends likely to affect the workplace in the next 5-10
years. Through a rigorous process of surveys, expert-panel discussions and analysis conducted in partnership with
The Economist Intelligence Unit (EIU), we identified the following key themes:

1. Evolution of work and the worker. (2014) The globalization of business, changing demographics and
changing patterns of mobility will continue to transform the nature of work and the worker.

2. Engaging and integrating a global workforce. (2015) Cultural integration and clashes/unrest will
continue to grow globally, at both societal and corporate levels.

3. Use of talent analytics for competitive advantage. (2016) Talent shortages will continue to grow
globally, requiring HR to become the provider of human-capital analytics for input to strategic business
decision-making.

Focusing our program of work on one key theme each year, our goal is to drive evidence-based research and identify
solutions. This report, Engaging and Integrating a Global Workforce, presents the data and evidence to support and
explain theme 2. It provides relevant background information and data for researchers interested in the many ques-
tions raised. Additional materials will be created to identify specific implications for HR and to guide future research.

We encourage you to get involved. Share this report with your colleagues, use it in the classroom, or design a re-
search study to extend our knowledge of these issues. You can also support the initiative with a tax-deductible con-
tribution to the SHRM Foundation at shrmfoundation.org. To read the theme 1 report and learn more about this
project, please visit our digital hub at futureHRtrends.eiu.com.

Now, let’s explore the challenges and opportunities of Engaging and Integrating a Global Workforce.

Mark J. Schmit, Ph.D., SHRM-SCP
Executive Director, SHRM Foundation
February 2015

SHRM Foundation 5 © The Economist Intelligence Unit Limited 2015

Engaging and Integrating a Global Workforce

EXECUTIVE SUMMARY

Key findings from our research into global trends impacting the future of HR management include the following:

l The boost in global trade and the expansion of transnational companies have resulted in cross-cultural
workforces

Trade liberalization and technological advancements have encouraged companies to expand internationally and
trade their products and services on a global scale. The world’s largest companies have stretched across borders to
the point where they have greater operations and more employees in other parts of the world than in their countries
of origin. Foreign direct investment (FDI) in developing countries now accounts for more than half of global FDI in-
flows, reaching a new high of US$759 billion in 2013. Free trade is an agent of economic progress, and technology
has opened access to a global talent pool. This international expansion by companies will continue, as will the inter-
nationalization of the world’s workforces.

l Global interdependencies increase exposure to risks

Binding companies through infrastructure and trade links brings great opportunities, but it also increases opera-
tional risks. Seismic events, whether economic, political, regulatory or societal, impact the entire value chain in
developing and developed countries.

l The global workforce is ageing and becoming both gender and ethnically diverse

Older workers will grow in number globally, while in developed countries the share of youthful workers declines, re-
sulting in shortages in those countries. The shortages will be remediated somewhat by older workers who stay in the
workforce. Women have surpassed men in education, and 1 billion will enter the workforce over the next two dec-
ades. More workers are also migrating or are being hired across borders. Organizations thus need to adapt to the
needs of older workers, women and multi-ethnic workforces.

l Skilled workers from emerging countries will improve productivity while seeking higher wages across borders

Workers are becoming better educated and more skilled globally, resulting in higher productivity. The number of
educated workers is near parity between OECD and non-OECD countries, and individuals are migrating abroad in
search of better opportunities and wages.

l Remote and temporary workers increase flexibility to meet labor needs but increase demands on management

Remote and temporary workers address short-term labor demands and provide a hedge against risk without increas-
ing ongoing costs. However, management needs to understand how to transfer knowledge from temporary to per-
manent employees and how to develop a corporate culture that keeps people engaged and maintains productivity.

l Organizations struggle to balance societal culture and their corporate culture

Culture impacts productivity. Two types of culture exist: societal culture develops very slowly and becomes a part of
a person’s self-identity. Corporate culture comprises the values, beliefs and practices a company chooses to adopt.
Organizations need to understand how to manage cultural distance—the gaps between cultures—and the points of
friction. They also need to understand how and when to impose their corporate culture.

l Cultural differences affect management styles and employee development

Many merger and acquisition (M&A) failures are attributed to culture. Employees from different backgrounds are
motivated by different incentives and react differently to various management and communication styles.

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Engaging and Integrating a Global Workforce

l Cultural diversity contributes to success

Local labor brings in-depth cultural understanding that organizations can use to their advantage and to avoid mis-
steps. Multicultural workforces also contribute to creativity and innovation thanks to diverse perspectives and expe-
riences.

l Corporate social responsibility helps manage risk while boosting the bottom line

Socially responsible organizations adopt rights-aware, anti-corruption policies that improve recruitment and reten-
tion, reduce risk and solidify the corporate brand. By ignoring corporate social responsibility (CSR) they risk incur-
ring legal penalties, even if violations occur remotely in the global supply chain. Local customs and competitor ac-
tions may be contrary.

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Engaging and Integrating a Global Workforce

INTRODUCTION

Borders are no longer restrictive. Companies are not constrained by the physical boundaries of the countries where
they are located and can now choose from the best talent available to build innovative and competitive global work-
forces. Many workers in emerging countries are as skilled as those in developed countries; women outpace men in
higher education; and older workers are staying in their jobs longer. Businesses no longer have a “typical” worker—
diversity in terms of gender, ethnicity and religion abounds within organizations.

To understand how the make-up of the global workforce has shifted and will continue to do so, it is crucial to first
explore the forces that are driving these changes. Expansion of transnational companies, migration patterns and
technological advances are the characteristics of an increasingly globalized world and economic system. Of course,
with the increased diversity and internationalization of the workforce comes the unavoidable clash between person-
al culture and corporate culture. Additionally, there are new challenges associated with global operations—includ-
ing human and labor rights violations, corruption and local regulations—that have forced companies to look for new
ways to manage risk while increasing opportunity.

These are just some of the implications of a truly global and interconnected work environment. This paper seeks to
explore the driving forces behind the globalization of the workforce, the new demographic profile of that workforce,
how the global workforce of today and tomorrow will impact corporate culture and corporate social responsibility,
and the ways in which HR can address this changing environment.

Before this can occur, however, it is imperative to answer a key question: what is a global workforce? Though this
question has many answers and can encompass a broad spectrum of issues, for the purposes of this paper the global
labor force is one that has been integrated into the interconnected system of global capital movement. This integra-
tion manifests itself in two separate ways:

1 Through its connection to international production and exchange structures. As economic activities—such as
trade and production—across the world merge, there is increased connectivity among workers.

2 The increase in personal, organizational and economic links among workers globally drives the internation-
alization of structures further and has created a more interconnected workforce that is impacting—and in
certain cases driving—the development of global corporations and international organizations.1

As the “West to East” economic movement persists and a combination of trade and technology allows for further in-
terconnectedness, firms are finding it necessary to develop effective approaches on how to best engage and inte-
grate their employees. Identifying geographies with attractive talent, blending corporate and local cultures, under-
standing the value of diversity and establishing effective risk-management practices are all challenges that
companies will face as they seek to take full advantage of the future global workforce.

1 James, Paul and Robert O’Brien, “Globalizing Labor”, Globalization and the Economy, Vol. 4, 2006. (http://www.academia.edu/4303461/Globalization_and_Economy_
Vol._4_Globalizing_Labour_2007_)

http://www.academia.edu/4303461/Globalization_and_Economy_Vol._4_Globalizing_Labour_2007_

http://www.academia.edu/4303461/Globalization_and_Economy_Vol._4_Globalizing_Labour_2007_

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Engaging and Integrating a Global Workforce

DRIVING FORCES BEHIND A GLOBALIZED WORKFORCE

The globalization of today’s workforce has not developed on its own, but rather through a set of interlinked forces.
The greater openness of economies, the never-ending push by firms to support the bottom line via resource- and
market-seeking efforts, the growth of labor migration and technological advancements have all played a role in
globalizing the deployment of human capital. Understanding these factors and their underlying drivers is critical not
only to understanding the current make-up of the global workforce, but also its future trajectory.

Additionally, labor migration has grown significantly as increasingly well-educated workforces in the developing
world have searched for more attractive economic opportunities in more developed regions. Companies, therefore,
have reduced their reliance on the fortunes of their own domestic or regional marketplace, and prospective employ-
ers are more likely to seek business opportunities outside their home countries.

But even well-educated workers who do not venture abroad—constituting by far the overwhelming proportion of the
global workforce—are still much more likely to work in a more international environment than their counterparts a
generation or two ago. Growing numbers of people have poured into cities where international commercial connec-
tions are much more widespread and deeply embedded than in rural areas.

Free movement of goods and services

At the forefront of these forces has been
the relaxation of trade barriers. Region-
ally, these have dissolved with the ad-
vent of free-trade zones in Europe, North
America and Asia, including the Europe-
an Union (EU), the North American Free-
Trade Agreement (NAFTA) and the Asso-
ciation of South-East Asian Nations
(ASEAN). Common economic benefits of
such zones include the deferral or elimi-
nation of customs duties and exemption
from certain taxes.

Boosted by this open economic princi-
ple, global trade has grown considerably
over the past years. Indeed, statistics
continue to demonstrate this growth in the movement of goods and services as well as its geographical diversity:

l Merchandise exports of World Trade Organization (WTO) members totaled US$17.3 trillion in 2012, with exports of

commercial services amounting to US$4.25 trillion. Developing economies accounted for 42 percent of world mer-

chandise trade and 35 percent of trade in world commercial services, with Brazil, Russia, India and China (the

BRICs) contributing much of this share. Although the United States was the leading merchandise trading nation

overall, China exported more than any other country.2

l Global exports have more than doubled since 2003, with the developing world responsible for much of that in-

crease and for the resulting intensification of economic competition. Europe’s share of merchandise exports de-

2 World Trade Organization, International Trade Statistics, 2013. (http://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e )

http://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e

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clined from 45.9 percent in 2003 to

35.6 percent in 2012, despite the

value of European exports nearly

doubling during this period. Mean-

while, China’s export share jumped

from 5.9 percent to 11.4 percent.

Africa, the Middle East and Central

and South America also registered

significant increases in their

shares, albeit from lower levels.3

The trend towards trade liberalization
has brought stiffer competition, making
constant innovation a must for compa-
nies wishing to maintain and improve
their market position. This, in turn, has led to better products and services for customers. Companies themselves
have been able to realize global economies of scale, increase their market share by selling products more widely, and
secure cheaper property and labor.

Although the concept of free trade is now widely accepted as a vital agent of economic progress, significant popular
opposition still lingers, particularly during times of austerity. Since the onset of the 2007/08 financial crisis there
have been more instances of public discontent with globalization, and support for political parties which openly
oppose the status quo has grown. The elections to the European Parliament in May 2014 provided a clear example of
this trend, with the economically protectionist and anti-immigration National Front in France winning the leading
share of the vote at around 25 percent. More recently the Syriza party in Greece, which advocates renationalization
and a steep rise in taxation for wealthier citizens, achieved a similar result at the national election in January 2015.

Governments, therefore, have periodically re-
sorted to protectionist measures. In early
2014, for example, Indonesia’s parliament
passed a new trade law handing authorities
far-reaching powers to restrict exports and
imports, with the aim of insulating local pro-
ducers against foreign competition.4

Though protectionist measures in the trade of
goods—through tariffs and quotas—are easily
monitored, the same cannot be said about

protectionist measures in services trade. The latter are usually embedded in domestic laws and regulations, making
them harder to monitor, and once altered they are tougher to undo. With the growing importance of services trade,
which by WTO definition encompasses a range of services from health and transportation to e-commerce and tempo-
rary migrants, policymakers need to grasp the urgency of promoting a freer flow of services at both the national and
the global level. In 2012, when global foreign direct investment (FDI)—defined as an investment made by a company
or entity in one country into a company or entity based in another country—was deteriorating, FDI in the services

3 Ibid.

4 The Economist, “Fragile no more”, February 22nd 2014. (http://www.economist.com/news/finance-and-economics/21596989-how-worlds-fourth-most-populous-
country-weathering-emerging-market)

http://www.economist.com/news/finance-and-economics/21596989-how-worlds-fourth-most-populous-country-weathering-emerging-market

http://www.economist.com/news/finance-and-economics/21596989-how-worlds-fourth-most-populous-country-weathering-emerging-market

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Engaging and Integrating a Global Workforce

sector, such as business services, finance, trade and transportation, was the most resilient.5

One part of services trade that is growing rapidly is digital trade/e-commerce, which involves the distribution of
products via the Internet. The industry is growing at a rapid pace (exports from the United States alone increased by
26 percent from 2007 to 2011, to reach US$356 billion).6 A survey of 3,600 businesses across the US revealed that
some of the biggest obstacles in the sector are localization requirements, market-access limits, data privacy and
protection requirements, intellectual property rights infringement, uncertain legal liability rules, and customs
measures in other countries.7 If these obstacles were to be eliminated, it is projected that sales would increase the
sector’s contribution to US GDP from US$16.7 billion to US$41.4 billion (an increase from 0.1 percent to 0.3 per-
cent).

As cross-border trade has risen, individual companies have sought to diversify and expand existing operations to
counteract stagnation in domestic demand. At the same time, governments have sought ways to attract foreign in-
vestment to boost macroeconomic performance. A direct consequence of increasing cross-border trade is that many
more workers are now communicating on a regular basis with colleagues and clients across the world.

Expansion of transnational companies

Falling trade barriers have been part
of a larger economic liberalization
story that has further propelled com-
panies to operate and compete
abroad. From the privatization of
previously state-owned utilities to
the relaxation of local regulations to
allow for the greater inclusion of for-
eign investors, countries as large as
China and as small, but attractive, as
Chile have become destinations for
firms in search of top- and bot-
tom-line growth.

Initially the primary factor driving
companies abroad was re-
source-seeking,8 not just for hard
assets such as commodities but also human capital (skilled and unskilled). As an example, in many global industries
with a heavy manufacturing component, multinational firms entered China attracted by low wages and an abundance
of labor. Indeed, in 2004 over 70 percent of the FDI coming into China was in manufacturing, at the time a sector
well-known for its labor-intensive nature.9

However, with time other motivations—namely, market efficiency and/or strategic asset-seeking—have come into
play. China’s evolution provides a prime example, as both the size of its domestic market and its importance as a
supply-chain hub have now become the trigger for local investment. With over 40 percent of electronics manufactur-

5 UN Conference on Trade and Development (UNCTAD), World Investment Report, 2013. (http://unctad.org/en/publicationslibrary/wir2013_en )

6 United States International Trade Commission, Digital Trade in the U.S. and Global Economies, Part 1, 2013. (http://www.usitc.gov/publications/332/pub4415 )

7 United States International Trade Commission, Digital Trade in the U.S. and Global Economies, Part 2, 2013.

8 Buck, Trevor, Michael Mayer and Frank McDonald, The Process of Internalization. New York: Palgrave Macmillan, 2006.

9 National Bureau of Statistics of the People’s Republic of China, China Statistics, 2005. (http://www.allcountries.org/china_statistics/18_17_foreign_direct_investment_
by_sector.html)

http://unctad.org/en/publicationslibrary/wir2013_en

http://www.usitc.gov/publications/332/pub4415

http://www.allcountries.org/china_statistics/18_17_foreign_direct_investment_by_sector.html

http://www.allcountries.org/china_statistics/18_17_foreign_direct_investment_by_sector.html

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ing coming into the Asia-Pacific region
(minus Japan),10 firms have appreciated
China as gaining strategic proximity to
their clients. Intel’s decision in 2007 to
build a chip-manufacturing facility in Dali-
an, China reflected the need not only for
lower labor costs, but also for greater effi-
ciency in reaching their customer base.11

Independent of the motivating factor for
international expansion, increased eco-
nomic liberalization has meant that many of the best-known and largest companies in the world now hold only a
small minority of their assets in the countries where they were originally founded, which has an obvious impact on
the whereabouts of their employees. Transnational companies—companies that own or control operations in one or
more foreign countries—generate substantial employment throughout the world. The UN Conference on Trade and
Development (UNCTAD) estimates that foreign affiliates of transnational companies employed 69 million workers in
2011, generating sales of US$28 trillion.12

For example, General Electric (GE), established in the late 19th century in the United States, had over US$330 billion
worth of foreign assets in 2013, amounting to more than 50 percent of its total. More than half of its 300,000-strong
workforce is based outside of the United States. In 2012, of the 100 companies with the most foreign assets, 17 held
over 90 percent abroad, including ArcelorMittal, Nestlé, Anheuser-Busch InBev and Vodafone.13

Much of this corporate activity is now located in developing countries. FDI to the developing world reached a new
high of US$759 billion in 2013, accounting for more than half (52 percent) of global FDI inflows.14 Greenfield activ-
ity (building new operations from scratch) constitutes the majority of global FDI.

The direction of FDI flows continues to
shift, with now well-established, interna-
tional companies based in developing
countries expanding operations aggres-
sively in the developed world. Within NAF-
TA, mergers and acquisitions (M&As) by
companies from developing countries in-
creased by 63 percent in 2013, to US$37
billion. Tata Group, the Indian multina-
tional conglomerate which earned more
than two-thirds of its US$103 billion reve-
nue from abroad in 2013,15 and Haier
Group, the Chinese multinational consumer electronics company which sells its products to consumers in more than
100 countries,16 both reflect this trend.

10 Frost & Sullivan, “Next Stage of Chinese Business Environment – Impact on Transport and Logistics Industry”, Report # P0B0-18, 2007.

11 Wall Street Journal, “Intel to Build Factory and Put Some Chips in China”, 2007.

12 UN Conference on Trade and Development (UNCTAD), World Investment Report, 2012. (http://www.unctad-docs.org/files/UNCTAD-WIR2012-Full-en )

13 The Economist, “Biggest transnational companies”, July 10th 2012. (http://www.economist.com/blogs/graphicdetail/2012/07/focus-1)

14 UN Conference on Trade and Development (UNCTAD), Global Investment Trends Monitor, 2014. (http://unctad.org/en/PublicationsLibrary/webdiaeia2014d1_en )

15 Tata fast facts. (http://www.tata.com/pdf/Tata_fastfacts_final )

16 Haier Group, “Haier ranks as number 1 Global Major Appliances Brand for 5th consecutive year”, 2014. (http://www.haier.com/uk/newspress/pressreleases/201401/
t20140107_204053.shtml)

http://www.unctad-docs.org/files/UNCTAD-WIR2012-Full-en

http://www.economist.com/blogs/graphicdetail/2012/07/focus-1

http://unctad.org/en/PublicationsLibrary/webdiaeia2014d1_en

http://www.tata.com/pdf/Tata_fastfacts_final

http://www.haier.com/uk/newspress/pressreleases/201401/t20140107_204053.shtml

http://www.haier.com/uk/newspress/pressreleases/201401/t20140107_204053.shtml

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Engaging and Integrating a Global Workforce

The implications of economic liberalization for global talent—whether from traditional resource-seeking or more ad-

vanced driving factors—have been a more diverse firm-level workforce and a more dispersed location of human capital in

an industry’s value chain. More importantly, the internationalization of the workforce will continue to run parallel with

economic globalization. A 2012 Economist Intelligence Unit (EIU) survey found that the vast majority of companies in-

terviewed were planning overseas expansion in the short term. These companies include a substantial number that are

not transnational in the strict definition of the term, but nevertheless trade with foreign entities while based solely in

their home country (see figure).

Technological advancement

The expansion of transnational companies
is also closely tied to technological ad-
vancement. The proliferation of modern
communications technology has enabled
companies and their employees to trans-
form the way in which they interact with
customers and colleagues in distant loca-
tions. Regardless of the physical distance,
instant communication and access to rele-
vant information have become readily
available and have encouraged greater
collaboration across borders.

Beyond financial performance, technology-enabled communications may also improve team work and build a strong-
er corporate identity across borders. When global companies place their talent around the world, the conventional
wisdom is that employees located far from headquarters will feel detached and isolated, thus decreasing their pro-
ductivity and sense of company integration. Technology can eliminate this problem. Continuous interaction through
emails, chats, cloud collaboration platforms such as Dropbox, Google Docs and Evernote, even without a face-to-face
interface, can increase trust among dispersed team members.17

Within the individual company, current technology-enabled communication channels—from email to video confer-
encing—facilitate cross-border collaborations and are crucial to improving organizational performance. An EIU sur-
vey of 572 executives found that the overwhelming majority of respondents (bordering on 90 percent) believe that
if cross-border communication were to improve at their company, then profit, revenue and market share would im-
prove as well (see figure)18.

Real-time information system technology that can keep track of a company’s resources—from logistics to human
resources—enables modern companies to undertake more sophisticated recruitment planning, detecting supply
gaps and finding suitable candidates to fill those gaps anywhere in the world. In reality, however, this has not yet
seen widespread adoption. According to Jim Schultz, Chevron Corporation Advisor to the Human Resources Vice-Pres-
ident, the technology of workforce planning is sure to be a major boon for international companies, but has still to
be perfected: “Getting the right expertise and mix of people (engineers, construction workers, consultants) in a
particular place at the right time will become yet more important as we start to operate as a genuinely global compa-
ny,” he says. “There is substantial complexity involved in these calculations, and no one has yet perfected that sys-
tem globally. We need an algorithm that enables human resources to be allocated in the most efficient way.”

17 Kirkman, Bradley L et al., “Five Challenges to Virtual Team Success: Lessons from Sabre, Inc.”, Academy of Management Executives, 2002, Vol. 16, Issue 3, 2002. (http://
ereserve.library.utah.edu/Annual/MGT/6050/Diekmann/writingandknowing )

18 The Economist Intelligence Unit, “Competing across borders: How cultural and communication barriers affect business”, 2012.

http://ereserve.library.utah.edu/Annual/MGT/6050/Diekmann/writingandknowing

http://ereserve.library.utah.edu/Annual/MGT/6050/Diekmann/writingandknowing

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Engaging and Integrating a Global Workforce

Developments in technology have also
greatly assisted the process of locating
and recruiting suitable employees. Job va-
cancies, which may previously have only
been advertised in provincial newspapers
or through the personal network of domes-
tic recruitment agencies, are now dissemi-
nated far and wide through the Internet.
Globally minded employees can identify
opportunities abroad or in multinational
companies based locally through a variety
of online channels such as LinkedIn. Social
media are already the preferred outlet for
many jobseekers, especially in Asia (see figure).

Additionally, Internet proliferation helps reduce the cost of research, the cost of coordinating with foreign counter-
parts and even the cost of hiring internationally. Further still, digital platforms, such as Kickstarter for crowdfunding
and Alibaba and Amazon for distribution, have reduced the previously restrictive costs of access to finance and dis-
tribution to smaller businesses, and in turn have enabled more of them to engage in international trade.

Crowdsourcing is also being used by some firms and will likely be used by many more in the future. Using these inno-
vative Internet technologies, companies can break jobs into discrete tasks that they can offer to internal employees
or groups of freelancers to complete. Technology platforms such as oDesk, Elance and Guru, which serve as a market
where freelancers and companies meet, enable companies to tap into a flexible workforce market, but by doing so
they also displace traditional workers. Additionally, for tasks that can be sourced internationally, these sites enable
companies to capitalize on internationally competitive wages as some of these freelance platforms allow both sides
to bid on compensation.

However, advancements in communications technology alone are not sufficient for companies managing a global
team that is both dispersed and multicultural. As companies expand across borders, managing talent and ensuring
that organizational values are consistent across the board becomes more challenging. International rotations,
short- to medium-term assignments (6-8 months) and focusing on specific business needs are particularly effective
ways to ensure that organizational culture and values are maintained across borders.19

Labor migration

Another mega-trend impacting the make-up and utilization of the global workforce is labor migration, both across
borders and within a country. Economic prosperity, the rapid rise in educational standards in parts of the developing
world, and greater integration across markets continue to contribute to labor mobility and cross-border migration.
The total number of international migrants rose from 154 million in 1990 to 232 million in 2013, with most of this
traffic directed to OECD countries. Migrants are increasingly living in high-income countries, with an estimated 69
percent of migrants residing in high-income countries in 2013, compared with 57 percent in 1990. Around half of
international migrants reside in ten countries—the United States alone accounted for 20 percent of the total number
in 2013, followed by Russia, Germany, Saudi Arabia, the United Arab Emirates and the United Kingdom. One of the
countries with the highest percentage of migrants in its workforce was Qatar with 87 percent.20

19 Stahl, Günter, “Global Talent Management: How Leading Multinationals Build and Sustain Their Talent Pipeline”, INSEAD Faculty Research, 2007. (http://www.insead.edu/
facultyresearch/research/doc.cfm?did=2738)

20 International Organization for Migration, Migration Facts and Figures. (https://www.iom.int/cms/media/infographics)

http://www.insead.edu/facultyresearch/research/doc.cfm?did=2738

http://www.insead.edu/facultyresearch/research/doc.cfm?did=2738

https://www.iom.int/cms/media/infographics

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Engaging and Integrating a Global Workforce

These modern cross-border migrants are
looking to pursue economic opportunities
and are increasingly coming from mid-
dle-income countries. Approximately 135
million, or six in ten, migrants in 2013
were born in middle-income countries,
compared with less than half, or just 74
million, of migrants in 1990.21 About 50
percent of migrants in the OECD economies
came from 16 countries. Mexico easily
topped the list with 11 million emigrants
(predominantly to the United States), way
ahead of China (3.8 million), followed by
the United Kingdom, India, Poland (where
emigration rose steeply after the country’s
2004 accession to the European Union,
which allows free movement of labor within its constituent countries), and Germany.

Labor migration does not stop at national borders, as the urbanization trend at the country level has also become a
driving force. Motivated by the same economic prospects and social needs, well over half (54 percent) of the world’s
population lives in an urban environment—a radical shift from 1950, when nearly two-thirds resided in rural areas.22
While regional differences still exist (the urbanization rates in the Americas and in Europe are currently above 80
percent and 70 percent, respectively, while in Asia and Africa they continue to be below the 50 percent threshold),
this gap will continue to close. Nations such as India and Nigeria will be adding 404 million and 212 million urban
dwellers respectively between 2014 and 2050,23 with mega- and medium-sized cities as the beneficiaries. China’s
internal city migration story has been particularly stunning—from 140 million people in 1980 to 670 million by 2010
to an expected 938 million by 2030.24

The effect of migration on the global workforce has been obvious, with access to a larger pool of candidates to meet
firms’ needs. Transnational corporations (TNCs) have recognized this shift and have become aggressive in targeting
the best talent. A cross-country study of FDI by the OECD showed that foreign TNCs offer a 40 percent higher wage
than local firms, while domestic multina-
tional enterprises (MNEs) offer a 15 per-
cent higher wage than local firms. The
magnitude of wage premiums varies across
the regions—they are considerably larger
in low-income developing countries, in-
cluding parts of Asia and Latin America,
than in Europe—but it remains a signifi-
cant factor everywhere and gives TNCs a
leg-up in the competition to attract the
best talent. Additionally, by offering pro-

21 Pew Research, Changing Patterns of Global Migration and Remittances, December 2013. (http://www.pewsocialtrends.org/2013/12/17/changing-patterns-of-global-
migration-and-remittances/)

22 United Nations, World Urbanization Prospects, 2014. (http://esa.un.org/unpd/wup/)

23 Ibid.

24 The Economist Intelligence Unit, “China’s urban dreams and the regional reality”, 2014.

http://www.pewsocialtrends.org/2013/12/17/changing-patterns-of-global-migration-and-remittances/

http://www.pewsocialtrends.org/2013/12/17/changing-patterns-of-global-migration-and-remittances/

http://esa.un.org/unpd/wup/)\

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spective employees access to their global network through internal corporate transfers, placements abroad or inter-
national training, TNCs appeal to the globally minded workforce.

Realizing the tough competition posed by TNCs, local private employers and governments have started to offer better
career development opportunities and benefits. In China, for example, TNCs have begun to feel the pressure of
tougher competition for hiring talent: a survey of Chinese job-seekers in 2010 revealed that the number of respond-
ents putting TNCs as their primary choice was down by 10 percent, while the number of those who chose Chinese
private companies was up by 5 percent.25

Greater risk exposure

While the confluence of globalization forces has
generated numerous opportunities for firms to
exploit and has increasingly bound economies
together through more efficient infrastructure
networks and trade links,26 this shift has also re-
sulted in a greater exposure to local operating
risks. The potential for significant negative im-
pacts from local events—whether economic, po-
litical, regulatory or societal—which might have
consequences that trickle down both at a global
and a firm level, is higher. Moreover, increased
global interdependency means that companies,
regardless of whether they themselves are inter-
national, are impacted.

A prime example of the direct and indirect conse-
quences of risk is the recent Russia-Ukraine conflict. As international sanctions against Russia for its actions in
Ukraine increased in the summer of 2014, American and European companies, especially carmakers and energy
conglomerates, girded themselves for the possible repercussions and acted to limit the risks of the conflict to their
businesses. The French oil company Total SA stopped increasing its stake in Russia’s second-largest natural gas pro-
ducer, OAO Novatek. British Petroleum warned investors that sanctions could weigh against its future earnings,
while French carmakers Renault SA and PSA Peugeot Citroën both issued warnings about the repercussions for the
Russian automotive market from a sliding domestic economy.27

However, European, Russian and American companies were not the only ones which considered the impact that
sanctions could have on their businesses. As the European Council on Foreign Relations noted, the reduction of Eu-
ropean energy dependence on Russia would inevitably result in Europe looking to the Middle East for oil. The Iranian
energy market could look more attractive, European leaders could seek to drive a wedge between Russia and Iran, or
Europe could focus on Libya as a potential energy source.28 This political shift would have an unexpected impact on
the current political dynamics between the United States, Europe and Iran. Closer ties between the Iranian energy
market and European energy companies could result in production increases in Iran that could drive job growth in
the Iranian oil sector. Negotiations between Europe, Iran and Libya could result in European energy companies mov-

25 ManpowerGroup, Winning in China: Building Talent Competitiveness, 2010. (http://www.manpowergroup.com/wps/wcm/connect/8501c928-bde7-4556-88cd-
7f8679c4abb2/Winning+in+China-+Buliding+Talent+Competitiveness ?MOD=AJPERES)

26 World Economic Forum, Global Risks Report, 2014. (http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2014 )

27 Wall Street Journal, “Global Firms See Risks in New Russia Sanctions”, July 30th 2014. (http://www.wsj.com/articles/total-to-review-russia-sanctions-1406702075)

28 European Council on Foreign Relations, “Ten global consequences of the Ukraine crisis”, June 2014. (http://www.ecfr.eu/article/commentary_ten_global_consequences_
of_ukraine272)

http://www.manpowergroup.com/wps/wcm/connect/8501c928-bde7-4556-88cd-7f8679c4abb2/Winning+in+China-+Buliding+Talent+Competitiveness ?MOD=AJPERES

http://www.manpowergroup.com/wps/wcm/connect/8501c928-bde7-4556-88cd-7f8679c4abb2/Winning+in+China-+Buliding+Talent+Competitiveness ?MOD=AJPERES

http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2014

http://www.ecfr.eu/article/commentary_ten_global_consequences_of_ukraine272

http://www.ecfr.eu/article/commentary_ten_global_consequences_of_ukraine272

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Engaging and Integrating a Global Workforce

ing workers to, or hiring workers in, Iran or Libya, while Middle Eastern companies could seek employees in Europe.

The Russia-Ukraine scenario demonstrates the downsides of operating internationally; for a more global firm (and
those across the value chain), this means a higher probability of being faced with such situations. In this sense, the
growth of global risk exposure has made it crucial for companies to understand the nature of the risks they might
encounter. While risk presents itself in obvious areas (such as political corruption or exchange-rate volatility), it is
not limited to the macroeconomic or political environment, as issues range from labor strikes in Vietnam to worker
lawsuits in Brazil. At the same time, it has been assumed that the developed world is less risky than the developing
world; however, stagnation and heavy debt in the developed world, especially since the recession, have begun to
make the operational risks (such as political stability and labor-market risk) in the developing world a challenge that
many companies are willing to face owing to the potentially high returns in these fast-growing markets.

Many companies are looking to counter global risks by becoming too diversified to fail. Emerging economies offer
many business opportunities that make them compelling markets for multinationals. GE, for example, has invest-
ments in China that span dozens of sectors and timelines. This diversification of products and time frames allows GE
to make new investments and promote new products through local partners as the old ones become less attractive.
Even if global risks impact one sector or a specific investment, this constant variation and expansion ensures that
China remains one of GE’s most lucrative markets.29

29 Harvard Business Review, “The New Rules of Globalization”, January 2014. (https://hbr.org/2014/01/the-new-rules-of-globalization/ar/1)

https://hbr.org/2014/01/the-new-rules-of-globalization/ar/1

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PROFILE OF THE GLOBAL WORKFORCE: PRESENT AND FUTURE

As the workforce becomes more global—a product of the economic, political, social and technological forces described

in the previous section—the dynamics underpinning human capital have been altered extensively. Today, the profile of

the average global worker entails a myriad of characteristics:

l An older, more gender and ethnically diverse workforce, with increased interconnectivity, has become the standard;

l Country of origin and ethnicity no longer dictate a worker’s geographical scope, especially with developing coun-

tries producing at least as many skilled, educated workers and managers as developed countries;

l Working from remote locations no longer prevents employees from communicating with their colleagues, allowing

teams to collaborate with ease across national borders and time zones;

l Increased global connectivity

means that workers can move

around more frequently and

might choose to migrate for

both permanent and temporary

jobs.

While all these changes have positive
implications for firms and workers
alike (more opportunities, greater
flexibility, etc.), they also come with
negative repercussions. The dearth of
experienced leaders, the lack of cul-
tural knowledge, inconsistent educational standards and greater risk exposure all imply new challenges not encoun-
tered in previous decades. Thus, understanding how the workforce profile has evolved and will continue to change is
critical if firms and society in general are to be able to maximize its potential and minimize its downsides.

Age profile

The make-up of the global population
is undergoing a profound shift—a shift
that started about 50 years ago and is
projected to continue over the next 50
years. In the past, when short life ex-
pectancy and high mortality rates
were the norm, the pyramid used to be
a common way of visualizing the age
structure of a society. Children formed
the largest group at the bottom of the
pyramid, while the elderly accounted
for the smallest group at the top. This
population pyramid has ceased to exist.

Today the global population is undergoing a transformation unlike anything before, and its age structure is increas-

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ingly shaped like a dome (see
chart).30 Over the last 50 years the
global fertility rate—the average
number of children born to a woman
over her lifetime—has halved from
4.99 children per woman in 1965 to
2.47 in 2012.31 As a result of this
large decline, families today are
much smaller. In 2015 those aged
5-40 will account for roughly the
same percentage of the population.
Given today’s longer life expectancy,
which increased by 15 years to 70.8
years over the period 1965 to 2012,
most people are now living longer
than their parents. During the period
2015-2060, ageing will have the
largest impact on the population
structure.

This transformation of the age structure of the population will have a profound impact on the make-up of the work-
force globally. Pronounced variations exist across countries with regard to the ageing of their populations and the
size of their youth labor force, itself a reflection of differences in the rate and timing of fertility decline.

Youth labor force

The rapid increase in the participation rate of the youth labor force (aged 15-24), which includes everyone in this age

group either in work or actively seeking work, witnessed over recent decades has reached its peak and is now beginning

to shrink.

One factor impacting this decline is the shift in the rate of growth of the global population of 15-24-year-olds, which is

expected to remain at around 4.4 percent during 2010-2030, a much lower rate than the overall growth rate in the work-

ing-age population. While the relevant youth populations may still account for a disproportionately large share of the

overall workforce, their share is no longer growing in most regions and will decline precipitously in some regions during

the coming few decades. For example, in Europe the youth population will decrease by 13.6 percent between 2010 and

2030, while in Asia—previously known for the rapid growth in the number of young workers—it will fall by 6.7 percent.

Africa, with a projected 57 percent increase for young workers, is the exception to this global trend.32

Furthermore, the youth labor force participation rate has been falling as more young people leave the workforce to
continue their education or because they are discouraged from looking for work after long-term unemployment. This
decline not only aggravates the skills gap found in today’s markets but is also a huge cost to society, both in forgone
earnings and in lower earnings in the future. Studies have shown that workers who are unemployed as young adults
and do not continue their education earn lower wages for many years following the unemployment period owing to
a lack of work experience and missed opportunities to develop skills.33 According to a report by Young Invincibles, a

30 The Economist, “The world reshaped”, November 20th 2014. (http://www.economist.com/news/21631911-end-population-pyramid-world-reshaped)

31 World Bank data, latest year.

32 United Nations, World Population Prospects: The 2012 Revision. (http://esa.un.org/wpp/)

33 Center for American Progress, The high cost of youth unemployment, April 2013. (https://www.americanprogress.org/issues/labor/report/2013/04/05/59428/
the-high-cost-of-youth-unemployment/)

http://esa.un.org/wpp/

https://www.americanprogress.org/issues/labor/report/2013/04/05/59428/the-high-cost-of-youth-unemployment/

https://www.americanprogress.org/issues/labor/report/2013/04/05/59428/the-high-cost-of-youth-unemployment/

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Engaging and Integrating a Global Workforce

young people’s advocacy organiza-
tion, the youth unemployment crisis
is costing American taxpayers US$25
billion annually in the form of lost
tax revenue and government benefit
payouts.34

Ageing workforce

The mushrooming group of
45-64-year-olds has been driving
the overall growth rate of the work-
ing-age population from 1990 to
2010 with a 67 percent growth rate.
This trend is expected to continue
over the 2010-2030 period, with the
number of those aged between 45
and 64 predicted to rise by 41.2 per-
cent, fuelled mostly by growth in the
developing world (see figure). While
this age group is growing slowly in
developed regions (North America,
Europe), it is the only group growing
at all in Europe, albeit at a rate of just
0.7 percent.

The traditional definition of the work-
ing-age population, usually defined
as those aged 15-64, has been shift-
ing slowly. Across advanced econo-
mies, there has been an increase in those of retirement age who opt to remain in the workforce. The Bureau of Labor
Statistics in the United States predicts that 35 percent of men aged 65-74 will be in the workforce by 2020, up from
25 percent in 2000.35 This increase in retirement age will doubtless become much more widespread in emerging
economies too as their societies continue to age.

As the workforce ages around the world, companies benefit from having more experienced workers. In addition,
those older workers who choose to remain in the workforce are likely to be the more highly skilled. According to the
US Department of Labor, the decline in the participation rate as a result of age is highest among less-educated work-
ers, mainly because their limited skills leave them with only low-wage options.36 This could make it more lucrative to
draw a pension rather than remaining a salaried employee, or the job might be too manual for an older person to
continue past a certain age. As employers struggle with talent shortages and skills gaps, many are providing incen-
tives to keep their older workers from retiring. However, retaining older workers also results in an increased health-
care burden on employers.

34 Young Invincibles, The hidden cost of young adult unemployment, January 2014. (http://younginvincibles.org/wp-content/uploads/2014/01/In-This-Together-The-
Hidden-Cost-of-Young-Adult-Unemployment )

35 Stanford Center on Longevity, The Ageing US Workforce, 2013. (http://longevity3.stanford.edu/wp-content/uploads/2013/09/The_Aging_U.S.-Workforce )

36 US Department of Labor, Trends and Challenges for Work in the 21st Century, 1999. (https://www.dol.gov/oasam/programs/history/herman/reports/futurework/report.
htm)

http://younginvincibles.org/wp-content/uploads/2014/01/In-This-Together-The-Hidden-Cost-of-Young-Adult-Unemployment

http://younginvincibles.org/wp-content/uploads/2014/01/In-This-Together-The-Hidden-Cost-of-Young-Adult-Unemployment

http://longevity3.stanford.edu/wp-content/uploads/2013/09/The_Aging_U.S.-Workforce

https://www.dol.gov/oasam/programs/history/herman/reports/futurework/report.htm

https://www.dol.gov/oasam/programs/history/herman/reports/futurework/report.htm

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Engaging and Integrating a Global Workforce

While a portion of the older population will choose to remain in the workforce past retirement age, it is inevitable
that the retired workforce is growing in size. This increases the burden on the current workforce and society in gen-
eral. For instance, in Japan the old-age dependency ratio—the number of elderly people as a share of those of work-
ing age—is predicted to rise to a remarkable 72 percent by 2050 (see figure).

Gender diversity

A little over half of the world’s population
is composed of women, yet their contribu-
tion to economic activity and growth re-
mains below its full potential. Women have
become an increasingly well-educated
source of talent, outnumbering men in ter-
tiary education at a rate of 108 to 100 in
2012 globally.37 However, in 2012 only
about half of the working-age women were
in the labor force (50.5 percent), com-
pared with approximately eight out of
every ten working-age men (76.8 per-
cent).38

The average labor force participation rate masks significant cross-regional differences in levels and trends. The gender

gap is especially wide between men and women in the Middle East and North Africa and in South-Asian regions, with 21

percent and 32 percent participation rates for women respectively in 2012. Meanwhile, in Latin America and the Carib-

bean the participation rate for women rose from 40.3 percent to 53.5 percent between 1990 and 2010.39

But even when women are present in the

workforce, they are still disproportionately

represented in low-skilled fields and vulner-

able employment opportunities, which has

contributed to a significant gender wage

differential. This is particularly true in soci-

eties with traditional views of gender roles,

where women account for a much larger

share of the unpaid labor force, of the infor-

mal sector (jobs that are often low-paid,

temporary and exempt from taxes and other

government regulations), and of the poor. Over 60 percent of female workers in the developing world are in the informal

sector. For example, 84 percent of women in Sub-Saharan Africa and 58 percent in Latin America work in the informal

sector.40 Meanwhile, women in developed economies continue to be underrepresented in senior positions: over the peri-

od 2008-2012 the share of females among CEOs in Standard & Poor’s 500 companies remained at 4 percent.41 However,

with women’s increased educational levels, their participation in highly skilled positions is expected to increase. The

37 World Bank, latest data.

38 Ibid.

39 Ibid.

40 Seager, Joni, The Penguin Atlas of Women in the World. 4th ed. New York: Penguin Books. Part 5, 2008.

41 Barsh, Joanna and Lareina Yee, “Unlocking the Full Potential of Women at Work”, McKinsey & Company/Wall Street Journal, 2012. (http://online.wsj.com/public/
resources/documents/womenreportnew )

SHRM Foundation 21 © The Economist Intelligence Unit Limited 2015

Engaging and Integrating a Global Workforce

wage differential should therefore

continue the downward slide that has

become apparent in many developed

countries in recent years.

Over the next two decades an esti-
mated 1 billion women will enter the
global workforce, with an expected
impact on the global economy at
least as significant as that of the bil-
lion-plus populations in both China
and India.42 Of these women, ap-
proximately 94 percent will be in
emerging and developing econo-
mies. In developed economies, the
increasing number of women in the
workforce is expected to mitigate the impact of a shrinking workforce and boost growth. In November 2014 the
leaders of the G20 group of major economies pledged to work towards a more gender-balanced economy by reducing
the gap between female and male participation in the workforce by 25 percent over the next ten years. This could
bring an additional 100 million women into the workforce.43 An OECD study recently estimated that closing the labor
force gender gap could yield a potential gain of 12 percent to the size of the total economy by 2030 on average across
OECD countries.44

In its latest “Womenomics” report for Japan, the Goldman Sachs Group reported that closing the gender employment
gap could boost Japan’s GDP by 13 percent. “Japan can no longer afford not to leverage half its population,” Goldman
Sachs Chief Japan Strategist Kathy Matsui writes.45 The Japanese Prime Minister, Shinzo Abe, expects to see women
at the center of his growth strategy for the country. By 2020 he wants women to occupy 30 percent of all “leadership”
positions, which would include members of parliament, heads of local government and corporate executives.46 Given
that less than 40 percent of Japanese women return to work after having their first baby, Mr. Abe has launched an
ambitious plan to create 400,000 new day-care spaces nationwide by 2018.47 Additionally, the government is in the
process of overhauling tax breaks for taxpayers with spouses to encourage more women to take up jobs.

Size of the workforce

The ageing of the working population has tempered the growth rate of the global workforce, but the increased par-
ticipation of women in the workforce has the potential to greatly swell the size of the global workforce. However, the
number of women anticipated to join the workforce over the next few decades will not be great enough to maintain
the exponential growth recorded between 1990 and 2010, when the global working-age population grew by 40

42 Aguirre, DeAnne, Leila Hoteit, Christine Rupp and Karim Sabbagh, Empowering the Third Billion. Women and the World of Work in 2012. Booz & Company, 2012. (http://
www.strategyand.pwc.com/media/uploads/Strategyand_Empowering-the-Third-Billion_Full-Report )

43 The Independent, “G20 summit: World’s leaders promise to get 100 million more women into work”, November 17th 2014. (http://www.independent.co.uk/news/business/
news/g20-summit-worlds-leaders-promise-to-get-100-million-more-women-into-work-9864274.html)

44 Thévenon, Olivier et al., “Effects of Reducing Gender Gaps in Education and Labour Force Participation on Economic Growth in the OECD”, OECD Social, Employment and
Migration Working Papers, No. 138, OECD Publishing, 2012.

45 Goldman Sachs, “Womenomics 4.0: Time to walk the talk”, 2014. (http://www.goldmansachs.com/our-thinking/outlook/womenomics4-folder/womenomics4-time-to-
walk-the-talk )

46 The Economist, “Holding back half the nation”, March 29th 2014. (http://www.economist.com/news/briefing/21599763-womens-lowly-status-japanese-workplace-has-
barely-improved-decades-and-country)

47 Washington Post, “Japanese leader Abe wants more women to work. So he’s got big plans for day care”, August 1st 2014. (http://www.washingtonpost.com/world/asia_
pacific/japanese-leader-abe-wants-more-women-to-work-so-hes-got-big-plans-for-day-care/2014/08/01/8dcd84f5-c4b2-4e39-a1e0-125eaa57309b_story.html)

http://www.independent.co.uk/news/business/news/g20-summit-worlds-leaders-promise-to-get-100-million-more-women-into-work-9864274.html

http://www.independent.co.uk/news/business/news/g20-summit-worlds-leaders-promise-to-get-100-million-more-women-into-work-9864274.html

http://www.goldmansachs.com/our-thinking/outlook/womenomics4-folder/womenomics4-time-to-walk-the-talk

http://www.goldmansachs.com/our-thinking/outlook/womenomics4-folder/womenomics4-time-to-walk-the-talk

http://www.economist.com/news/briefing/21599763-womens-lowly-status-japanese-workplace-has-barely-improved-decades-and-country

http://www.economist.com/news/briefing/21599763-womens-lowly-status-japanese-workplace-has-barely-improved-decades-and-country

http://www.washingtonpost.com/world/asia_pacific/japanese-leader-abe-wants-more-women-to-work-so-hes-got-big-plans-for-day-care/2014/08/01/8dcd84f5-c4b2-4e39-a1e0-125eaa57309b_story.html

http://www.washingtonpost.com/world/asia_pacific/japanese-leader-abe-wants-more-women-to-work-so-hes-got-big-plans-for-day-care/2014/08/01/8dcd84f5-c4b2-4e39-a1e0-125eaa57309b_story.html

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Engaging and Integrating a Global Workforce

percent, or 1.3 billion, to 4.5 billion
people.48 Approximately 95 percent
of that growth occurred in less devel-
oped regions, mainly in Africa, Asia
and the Middle East.

Nevertheless, between 2010 and
2030 the global working-age popu-
lation is expected to grow by only 20
percent, or 900 million people. In
more developed regions the work-
ing-age population is expected to
shrink by 5 percent over 2010-2030,
mainly owing to declines in the
working-age population across Eu-
rope, China and Japan. For the first
time, more workers retired in Europe in 2010 than joined the workforce. While this labor gap, at 200,000, is still
relatively manageable, it is expected to grow to 8.3 million by 2030.49 Meanwhile, in less developed regions the
working-age population is projected to grow by almost 1 billion people, with 70 percent of them spread between
Sub-Saharan Africa and South-Central Asia. Improved health outcomes (the slowing of HIV infection rates and lower
infant mortality rates) and relatively high fertility rates are expected to fuel this growth.

One additional aspect that indirectly impacts the size of the workforce is the state of the local informal sector. Defined as

those whose employment lacks basic social and legal rights, the informal sector is most prevalent in the emerging world,

ranging from 30 percent of those in non-agricultural employment in Turkey to 75 percent of those in Bolivia.50 China and

India represent the polar opposites, making up 32 and 83 percent of informal employment, respectively.51 And while it is

inconclusive whether the global informal economy is currently on a rising or declining trajectory, it does play a role in

the total labor supply available for formal employment. In the case of South Africa, while the informal sector accounted

for a similar share of GDP (5 percent) from 2001 to 2013, employment fell from 2.3 million to 1.5 million,52 indicating

growth in the number of formal-sector workers during that period.

Education and skills

Globally, the workforce is becoming more “skilled” and specialized. During the period 1990-2010 the gross enroll-
ment ratio in tertiary education over the world more than doubled from 13.6 percent to 29.2 percent.53 However,
disparities between countries remain large. In 2010 the gross enrollment ratio in tertiary education was 73.5 percent
in developed countries and a mere 22.4 percent in developing countries. While all regions saw an increase in enroll-
ment, a large portion of the global growth has been fuelled by Asia, Latin America and North Africa. Most notably,
eastern Asia grew by 470 percent over 1990-2010 from an average enrollment ratio of 4.5 percent to 25.5 percent.

Variations across regions do not only exist with regard to educational attainment, but also with regard to the quality
of education and skills attained. Even among the most educated workforces, large disparities exist. The OECD

48 Calculations based on data from the United Nations, World Population Prospects: The 2012 Revision. (http://esa.un.org/wpp/)

49 Ernst & Young, Tracking global trends: how six key developments are shaping the business world, 2010. (www.ey.com/globaltrends)

50 International Labor Organization, Statistical update on employment in the informal sector, June 2012. (http://laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/2012-
06-Statistical%20update%20-%20v2 )

51 Ibid.

52 Statistics South Africa, Survey of Employers and the Self-Employed, 2014. (http://beta2.statssa.gov.za/?p=3016)

53 UNESCO Institute for Statistics.

http://esa.un.org/wpp/

http://laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/2012-06-Statistical update – v2

http://laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/2012-06-Statistical update – v2

PRESS STATEMENT: Survey of Employers and the Self-Employed (SESE), 2013: 14 August 2014

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Engaging and Integrating a Global Workforce

launched a survey in 2012, the Pro-
gram for the International Assess-
ment of Adult Competencies (PIAAC),
across 22 OECD countries to measure
levels of literacy, numeracy (or
mathematical literacy) and prob-
lem-solving among adults in the
workplace.54 The study found that
almost one-third of adults in Italy,
Spain and the US performed poorly
in numeracy, compared with only
one in eight in Finland and the Czech
Republic and less than one in ten in
Japan. Countries with greater socio-
economic inequality overall fared
more poorly than those with more
egalitarian societies, such as the
Nordic countries.55 South Korea’s older workers ranked poorly, but the younger workers massively outperformed
them, which suggests that rigorous school reforms can yield relatively quick results.

One consequence of the increasingly skilled workforces in developing markets is the emergence of the new profile of
a worker who seeks higher wages to compensate for high skills. For instance, wages in China’s manufacturing sector
have risen by 71 percent since 2008, according to the National Bureau of Statistics. Improvements in labor produc-
tivity—which the World Bank estimates is growing at about 8.3 percent a year—have offset some but not all of the
wage growth. Rising labor costs in China have eroded its manufacturing cost advantage. In fact, a new study by
AlixPartners, a consulting firm, estimates that by 2015 the cost of outsourcing manufacturing to China will be equal
to the cost of manufacturing in the United States.56

The rise of skilled workforces is impacting the industry make-up of many emerging economies. In particular, China is

succeeding in moving into high-value-added, high-technology manufacturing and is competing with Western companies

for high-tech products and research and development (R&D) investment. According to a 2013 study, the US may lose its

title as the world’s leader in R&D spending by 2023.57 If the federal government’s R&D spending continues to decline or

remains flat, China could overtake the US in approximately ten years.

Talent flow

The number of university-educated workers in the developing world has increased significantly in recent decades. By

2010 the number of people with higher education (tertiary) degrees in non-OECD G20 countries was roughly similar to

the number in developed OECD countries.58 A 2005 McKinsey Institute report, The Emerging Global Labor Market, conclud-

ed: “India alone has nearly as many young professional engineers as the United States, and China has more than twice

as many. Russia has almost ten times as many finance and accounting professionals as Germany.”

54 OECD Skills Outlook, 2013. (http://skills.oecd.org/OECD_Skills_Outlook_2013 )

55 The Economist, “Measuring adult skills: What can you do?”, October 12th 2013. (http://www.economist.com/news/international/21587823-new-study-shows-huge-
international-variations-skills-what-can-you-do)

56 AlixPartners, 2013 Manufacturing-Sourcing Outlook, 2013. (http://www.alixpartners.com/en/Publications/AllArticles/tabid/635/articleType/ArticleView/
articleId/602/2013-Manufacturing-Sourcing-Outlook.aspx)

57 Battelle and R&D Magazine, 2013 Global R&D Funding Forecast, 2013. (http://www.rdmag.com/sites/rdmag.com/files/GFF2013Final2013_reduced )

58 OECD, Education Indicators in Focus, May 2012. (http://www.oecd.org/edu/50495363 )

http://skills.oecd.org/OECD_Skills_Outlook_2013

http://www.economist.com/news/international/21587823-new-study-shows-huge-international-variations-skills-what-can-you-do

http://www.economist.com/news/international/21587823-new-study-shows-huge-international-variations-skills-what-can-you-do

http://www.alixpartners.com/en/Publications/AllArticles/tabid/635/articleType/ArticleView/articleId/602/2013-Manufacturing-Sourcing-Outlook.aspx

http://www.alixpartners.com/en/Publications/AllArticles/tabid/635/articleType/ArticleView/articleId/602/2013-Manufacturing-Sourcing-Outlook.aspx

http://www.rdmag.com/sites/rdmag.com/files/GFF2013Final2013_reduced

http://www.oecd.org/edu/50495363

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Many of these well-educated individ-
uals have been seeking better-paid
opportunities abroad (see figure).
The number of immigrants in OECD
countries who had been educated to
tertiary level increased by 70 percent
from 2000 to 2010 and reached 27
million overall.59 One-fifth of these
immigrants emanate from India, Chi-
na and the Philippines.

In countries and economic sectors
where the demand for highly skilled workers outweighs the supply, cross-border migration is likely to keep growing
in the coming years, although it slowed somewhat in the aftermath of the global financial crisis. The growth in inter-
national migrant stock, which accelerated to about 4.6 million people annually in the first decade of the century (up
from 2 million a year in the 1990s), has fallen to about 3.6 million per year since 2010.60

Additionally, highly skilled migrant workers have started returning to their home countries. New legal restrictions,
recession and higher unemployment in many developed countries, in addition to improved economic opportunities
in countries of origin, are encouraging reverse migration. For example, migration flows between the United States
and Mexico have reached equilibrium. In the five-year period from 2005 to 2010, 1.4 million people migrated from
Mexico to the United States, down from 3 million in the previous five-year period. Approximately the same number,
1.4 million, moved from the United States to Mexico, up from 670,000 in 1995-2000.61

In Spain, the proportion of international migrants within the country as a whole rose massively in just two decades,
from 2 percent in 1990 to 14 percent in 2010.62 During this period Spain received 5.5 million immigrants, second
only to the US. Of these, over 1.5 million came from Latin American countries, 2 million from EU states (especially
from Eastern Europe) and 750,000 from Morocco.63 Many factors, including Spain’s geographical proximity to North
Africa, the eastward expansion of the EU (thereby allowing an influx of migrants from Eastern Europe), the large size
of Spain’s underground economy and the strength of the agricultural and construction sectors explain this large
increase in the immigrant population. For example, the number of Romanians coming to Spain rose from 31,600 in
2001 to 798,000 in 2011. However, growing mass unemployment and the economic turmoil during the financial
crisis and recession have resulted in emigrants outnumbering immigrants in 2012.64 This trend of migrants returning
to their home countries has coincided with the increase of skilled workers moving to foreign countries for temporary
work.

59 OECD, World Migration in Figures, 2013. (http://www.oecd.org/els/mig/World-Migration-in-Figures )

60 Ibid.

61 Pew Research Hispanic Trends Project, Migration between the United States and Mexico, April 2012. (http://www.pewhispanic.org/2012/04/23/ii-migration-between-the-
u-s-and-mexico/)

62 World Bank, latest data.

63 Instituto Nacional de Estadistica, “La población empadronada en España supera los 46,6 millones de personas a 1 de enero de 2009”. (http://www.ine.es/prensa/np551 )

64 European Commission, Migration and migrant population statistics, 2014. (http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_
population_statistics)

http://www.oecd.org/els/mig/World-Migration-in-Figures

http://www.pewhispanic.org/2012/04/23/ii-migration-between-the-u-s-and-mexico/

http://www.pewhispanic.org/2012/04/23/ii-migration-between-the-u-s-and-mexico/

http://www.ine.es/prensa/np551

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statistics

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statistics

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Engaging and Integrating a Global Workforce

Case study: The rise of cities as global talent clusters

Today, cities continue to evolve as centers of innovation and engines of economic growth. Many cities, having
become attractive destinations for high-skilled global workers, use talent as a competitive advantage. While
these cities are hubs and continue to attract many businesses, they have a lot more to offer to the modern ex-
patriate who seeks, in addition to good employment prospects, a high quality of life, a family-friendly environ-
ment, cultural diversity and access to activities and attractions.

Hong Kong:

Hong Kong is considered a great urban success story. Originally a fishing village, it became a British colony in
1842. The dynamism created by the British laissez-faire economic policies and the Chinese entrepreneurial
spirit transformed Hong Kong into one of the liveliest and fastest-growing cities. Its thriving economy and
cultural diversity have over the years turned Hong Kong into a global hub for talent, housing one of the most
competitive workforces in Asia. Already one of the major finance and transport hubs in Asia, Hong Kong has
been building on previous sectors to attract new ones, most recently high-tech. Today Hong Kong is quickly
becoming one of Asia’s technology hubs, with some of China’s leading Internet giants, including Tencent and
Alibaba (until recently) having chosen to list in Hong Kong rather than in New York. Hong Kong, with its twin
Chinese and Western identities, has always been an attractive proposition for expats, especially those from
English-speaking countries like the US, England, Canada and Australia. Since the 1997 handover to China the
number of Western expats has fallen, mainly owing to tighter work visa regulations. According to government
figures, in 2012 foreign-born residents comprised 8% of the population. In 2013 Hong Kong ranked 4th glob-
ally in the EIU City Competitiveness Index,1 which measures the demonstrated ability of a city to attract capital,
businesses, talent and visitors. Furthermore, a 2012 version of the EIU Liveability Index,2 adjusted for spatial
characteristics (green spaces, sprawl, natural assets, cultural assets, connectivity, isolation and pollution),
ranked Hong Kong as the best city to live in among 70 cities surveyed.

Rank Spatial Adjusted EIU Liveability
Index 2012

EIU Liveability
index 2012

EIU Liveability
index 2014

1 Hong Kong Melbourne Melbourne

2 Amsterdam Vienna Vienna

3 Osaka Vancouver Vancouver

4 Paris Toronto Toronto

5 Sydney Calgary Calgary

6 Stockholm Adelaide Adelaide

7 Berlin Sydney Sydney

8 Toronto Helsinki Helsinki

9 Munich Perth Perth

10 Tokyo Auckland Auckland

Toronto:

Toronto is globally renowned as a city of unmatched diversity. It has one of the highest percentages (46 per-
cent) of constant foreign-born populations among global cities, second only to Miami, Florida.3 However, un-
like Miami, no single culture or nationality dominates the immigrant population. With strongly performing
economic sectors, Toronto is Canada’s commercial capital and a global leader in financial services. Faced with
an ageing population, the local government has long viewed immigrants as the main source of labor force

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Temporary workers

Temporary workers, or employees who are contracted to work for a short period of time either directly through a
company or through a recruitment agency, include temporary migration workers—workers who move to a host coun-
try temporarily—and temporary workers who either work remotely or are hired locally for a short term to meet imme-
diate demand or to provide specialization.

Temporary migration schemes have traditionally been associated with low-skilled or seasonal work. However, many
developed economies, such as those in the EU, where shortages of workers with the right training and skills are be-
coming a drag on business expansion and national GDP growth,65 are increasingly trying to increase the temporary
migration of skilled workers.66 Difficulties may arise in the temporary migration of highly skilled workers owing to
the unwillingness of host countries and companies to part with skilled talent once such individuals are hired, and
because of the unattractiveness of temporary work to the highly skilled worker who might be able to gain permanent
employment elsewhere. As a result, countries and companies that face immediate skills needs are eager to attract
temporary skilled workers abroad.

Theoretically, the migration of temporary workers benefits the host country or company, the individual migrant, and
the country of origin. The host country or company fills short-term labor shortages and is able to respond to any
growth or decline in labor shortages. Migrant temporary workers gain skills that increase their employability in their
country of origin or somewhere else, and the country of origin benefits from the new skills of returning migrants and
potentially from remittances.67 There are questions, however, about whether or not employers, especially those of
low-skilled workers, invest resources to improve a temporary worker’s personal development and career trajectory.

This question of investment in personal development also applies to temporary workers, including contract employ-
ees and paid interns, who are either hired remotely or locally but are not considered migrant temporary workers. A
temporary job often means reduced access to benefits such as paid sick leave, unemployment insurance and retire-
ment pension, as well as higher insecurity owing to reduced protection in the event of a termination of the employ-
ment relationship. Coupled with these disadvantages, temporary employees typically receive lower pay and have
fewer prospects of promotion. Finally, the access of temporary workers to training is generally reduced or non-exist-

65 McKinsey Global Institute, Help wanted: The future of work in advanced economies, March 2012. (http://www.mckinsey.com/insights/employment_and_growth/
future_of_work_in_advanced_economies)

66 European Migration Network, Temporary and Circular Migration: empirical evidence, current policy practice and future options in EU Member States, 2011. (http://ec.europa.
eu/dgs/home-affairs/what-we-do/networks/european_migration_network/reports/docs/emn-studies/circular-migration/0a_emn_synthesis_report_temporary__
circular_migration_final_sept_2011_en )

67 Ibid.

strength, having had over the decades a very progressive and successful immigration policy. On November 5th
2012 Ontario (of which Toronto is the provincial capital) released an immigration strategy to increase the num-
ber of highly skilled immigrants.4 This multicultural workforce has allowed Toronto to have a competitive work-
force, placing it 10th in the 2013 EIU City Competitiveness Index. In addition, Toronto has consistently been
ranked as one of the best locations to live in, coming in 4th place in the 2014 EIU Liveability Index.
1 Citi-commissioned EIU report, “Hot Spots 2025: Benchmarking the Future Competitiveness of Cities”, 2013.

2 The EIU’s liveability index ranks 140 cities around the world across a variety of categories (stability, healthcare, culture and environment, education and
infrastructure) to assess which locations have the most favorable living conditions. In 2012 the EIU released a special report with a “spatial adjusted liveability
index”, which aimed to complement the existing EIU liveability index with an awareness of cities’ spatial characteristics.

3 Canada’s National Household Survey 2011; US 2010 Census Bureau; UNDP.

4 Ontario’s Long-Term Report on the Economy, 2014. Chapter 1: Population and Labor Force Trends and Projections.

http://www.mckinsey.com/insights/employment_and_growth/future_of_work_in_advanced_economies

http://www.mckinsey.com/insights/employment_and_growth/future_of_work_in_advanced_economies

http://ec.europa.eu/dgs/home-affairs/what-we-do/networks/european_migration_network/reports/docs/emn-studies/circular-migration/0a_emn_synthesis_report_temporary__circular_migration_final_sept_2011_en

http://ec.europa.eu/dgs/home-affairs/what-we-do/networks/european_migration_network/reports/docs/emn-studies/circular-migration/0a_emn_synthesis_report_temporary__circular_migration_final_sept_2011_en

http://ec.europa.eu/dgs/home-affairs/what-we-do/networks/european_migration_network/reports/docs/emn-studies/circular-migration/0a_emn_synthesis_report_temporary__circular_migration_final_sept_2011_en

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Engaging and Integrating a Global Workforce

ent.68 Nonetheless, temporary agency employment has doubled over the past decade in most developed econo-
mies.69

Clearly, lower overhead costs, temporary access to specialized skills and the chance to address short-term labor de-
mand make temporary employment attractive to organizations. Flexible and temporary employment enables firms to
address pressures for lower costs. Temporary workers allow organizations to remain competitive because such work-
ers provide numerical flexibility without continuing costs. Additionally, companies use temporary and flexible work-
forces to withstand uncertainty and risk in international markets. Recruiting temporary workers as an initial risk re-
duction is a tactic used primarily by born-global firms, or organizations that from their inception seek to derive
competitive advantage from sourcing and selling in many countries.70 However, there are inherent risks in depend-
ing on temporary workers both in international markets and within the country of origin.

As their presence in new countries grows, international firms need to foster human capital in each global location
where they are active. The knowledge derived from temporary workers in international locations must be codified
and internalized, and ultimately the best way to retain crucial location-based knowledge is through the stability of a
permanent workforce. Thus, the transfer of knowledge from temporary employees to permanent employees becomes
a key step in the development of international organizations in global locations as dependence on temporary work-
ers decreases with operational success.71 If this transfer of knowledge is incomplete or unsuccessful, companies will
likely suffer.

Organizations foster a corporate culture that most employees embrace. The corporate culture is a fundamental ele-
ment which ensures that the employees of an organization remain engaged and connected. George P Huber, in his
book The Necessary Nature of Future Firms: Attributes of Survivors in a Changing World, suggests that the use of tem-
porary workers, especially those who work remotely, weakens a firm’s culture. Both their temporary status and their
potential remoteness tend to result in workers absorbing very few of the organization’s beliefs and values, which are
more strongly adhered to by permanent workers. Temporary workers are more likely to be “influenced by forces and
entities outside the firm than are the beliefs of permanent employees”.72 The importance of a corporate culture that
is able to integrate the diversities of the global workforce is discussed in the next section.

Remote workers

Remote work has increased exponentially over the last two decades. The proportion of employees in the United
States who work primarily from home rose from 0.75 percent in 1980 to 2.4 percent in 2010.73 Additionally, the in-
creased share of managers, especially those in developed countries, who work from home during normal working
hours signals that remote working has now become part of the mainstream work culture: in the US, the UK and Ger-
many almost 50 percent of managers are allowed to work remotely. Additionally, the share of managers who work at
home in many developing countries has risen to between 10 and 20 percent, indicating that the trend of remote
working is a global phenomenon.74 Rising traffic congestion, coupled with increased cellphone access and the growth
of laptop use, is driving up remote working among the global workforce, especially in emerging economies.

Companies generally support remote work, as it decreases overhead costs by reducing the office space needed
and by increasing hiring options. Talent or specialization that might not be available locally can be hired re-

68 Cazes, Sandrine and Juan R de Laiglesia, Temporary Contracts, Labour Market Segmentation and Wage Inequality, International Labor Organization, 2014.

69 Jahn, Elke J and Jan Bentzen, “What Drives the Demand for Temporary Agency Workers?”, Labour, Vol. 26 Issue 3, September 2012.

70 Galister, Alison J et al., “Externalizing, Internalizing and Fostering Commitment: The Case of Born-Global Firms in Emerging Economies”, Management International Review,
Vol. 54, Issue 4 , pp 473-496, July 2014.

71 Ibid.

72 Huber, George P, The Necessary Nature of Future Firms. Sage Publications, 2004.

73 Bloom, Nicholas, “Does Working From Home Work? Evidence From A Chinese Experiment”, November 2014. (https://web.stanford.edu/~nbloom/WFH )

74 Ibid.

https://web.stanford.edu/~nbloom/WFH

https://web.stanford.edu/~nbloom/WFH

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motely, and the cost of moving talent de-
creases. However, the growth of remote
work among employees has raised the is-
sue of how to balance freedom, engage-
ment levels and connectivity among
workers. Though technology has allayed
many fears about connectivity, loss of
oversight and diminished engagement
levels among employees are also a con-
cern.75

The most significant benefit for remote
employees is an improved work-life balance, which corresponds strongly with increased job satisfaction. Of
course, working at home is a popular option among employees with young children; however, in their book Mak-
ing Telework Work, Offstein and Morwick76, found that workers nearing retirement also prefer to work remotely
in order to spend more time with their families and to have a more flexible schedule.

Team workers who work remotely, or who have managers who work remotely, do not have constant oversight, giving
them autonomy and responsibility for their processes and work. A Gallup poll found that the freedom that comes
from working remotely has a positive outcome on engagement levels; however, working remotely too frequently
actually diminishes engagement levels (see chart).77 Finally, without effective communication that caters to a re-
mote employee’s preferred method of communication and connectivity, both employer and employee satisfaction is
unlikely to be met. As organizations employ an increasingly global workforce, establishing individual preferences
and means of interaction is crucial for the success and productivity of remote workers.

75 Jauman, Amy L, “How the Alignment of an Organization’s Communication Methods and a Remote Employee’s Learning Style Impact the Effectiveness of a Remote Worker: A
Positivistic Case Study”, Education Doctoral Dissertations in Organization Development, 2012. (http://ir.stthomas.edu/cgi/viewcontent.cgi?article=1011&context=caps_
ed_orgdev_docdiss)

76 Offstein, Evan and Jason Morwick, Making Telework Work: Leading People and Leveraging Technology for High-Impact Results. Boston and London: Davies-Black, 2009.

77 Gallup, Can People Collaborate Effectively While Working Remotely?, March 2014. (http://www.gallup.com/businessjournal/167573/people-collaborate-effectively-working-
remotely.aspx)

http://ir.stthomas.edu/cgi/viewcontent.cgi?article=1011&context=caps_ed_orgdev_docdiss

http://ir.stthomas.edu/cgi/viewcontent.cgi?article=1011&context=caps_ed_orgdev_docdiss

http://www.gallup.com/businessjournal/167573/people-collaborate-effectively-working-remotely.aspx

http://www.gallup.com/businessjournal/167573/people-collaborate-effectively-working-remotely.aspx

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CULTURAL DIFFERENCES: INEVITABILITY IN A GLOBAL ECONOMY

“Seeing through the lens of the folks in the regions is difficult. What does it look and feel like to be elsewhere? How do they

solve problems?”

Nicholas Garbis, Leader, Workforce Intelligence COE at GE Power & Water

While the previous section outlines the principal characteristics of the current workforce from a demographic, edu-
cational and work environment perspective, it does not touch upon one additional, equally important issue: culture.
Encompassing a wide spectrum of behavioral traits—from how individuals greet each other to the principles they
hold dear—culture has a tremendous impact on employee engagement and cross-organizational interaction. When
the concept of corporate culture is overlaid on top of this diverse environment, the level of complexity intensifies, so
much so that business leaders have identified the lack of interest to assimilate into organizational values as the area
in need of greatest change for future HR strategies.78

Culture defined

There is no agreed definition of cul-
ture as used in the workforce discus-
sion. Broadly speaking, the Oxford
English Dictionary defines culture as
“the ideas, customs, and social be-
havior of a particular people or soci-
ety”. By its nature, culture refers to,
and in many ways defines, a “par-
ticular” group, and in so doing makes
that group distinct from others. It
thus separates people from, as much
as it creates, a community. That
community need not be a country: it can be ethnic, religious or even professional or corporate.

An individual’s ethnicity and religious affiliation are the most commonly recognized cultural factors. While the for-
mer is too challenging to categorize on a global scale (and even increasingly difficult on a local level), the latter has
much clearer parameters. Indeed, nearly 70 percent of the global population is represented within the top three
religions, Christianity, Hinduism and Islam.79

Even the concept of dialect can be considered as community-defining, given the underlying commonality in commu-
nication. Through the language lens, the existing diversity is tremendous, with the top-five spoken first languages
(Mandarin, Spanish, English, Hindi, Arabic) covering just one-third of the global population.80 Additionally, the use
of local idioms and accent variations implies significant differences across countries (Arabic in Egypt and Algeria) as
well as within national borders (Portuguese in the south vs. the north-east of Brazil). Naturally, these communica-
tion differences can be minimized by a common language, with English being the most widespread, used by upwards
of 1.75 billion people.81 However, even this has its limitations given the wide range of fluency: while 57 percent of

78 The Economist Intelligence Unit, Values-based diversity report, 2014.

79 Pew Research Center, The Global Religious Landscape, December 2012. (http://www.pewforum.org/2012/12/18/global-religious-landscape-exec/)

80 Ethnologue, Statistical Summaries. (http://www.ethnologue.com/statistics/size)

81 Harvard Business Review, “Global Business Speaks English”, May 2012.

http://www.ethnologue.com/statistics/size

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English-speakers in Asia have a moderate to very high proficiency, only 14 percent in Latin America achieve that
same level.82

Culture complexities

At the same time, while the community concept is a key distinction for societal culture, there are other critical layers to

take into account when trying to understand its impact on the global workforce:

l Culture is multifaceted. Customs and ideas are the most readily visible manifestations, but underlying these are
ideas, often religious or philosophical ones, broadly shared within a group that can have a profound effect on

people’s self-understanding, and even identity, as well as on how they act. The ability of foreign executives to do

the latter properly may be essential for a negotiation, but it does not mean they understand the potentially rele-

vant implications of the former.

l Culture change tends to be slow but evolving. Data from the World Values Survey, a global research project which
covers 82 countries, have shown that cultural values show substantial resilience over time.83 It would be hard,

however, to imagine a major national one, for example, that has not seen substantial evolution on any number of

fronts over the last century. Quantum shifts can even occur, such as an apparent increase in the cultural affinity

with individualism that took place

rapidly in Eastern Europe after the

fall of the communist regimes.84

l Culture is borderless. A meta-analy-
sis of intra-national compared with

international differences a decade

ago found, to the surprise of its au-

thors, greater variety within than

between countries.85 One important

reason for this variety is the notion

of agency—that people can and do

make independent choices. Another

is that culture is not invariably exclusive. Instead, people are simultaneously part of overlapping, sometimes even

apparently contradictory, cultures through circumstance and choice.

Corporate culture is another matter. This comprises the values, beliefs and practices of the company86 and is created
either by design or is naturally based on the personalities of executives. Employees learn the culture through train-
ing and by observation. Corporate culture may include practices such as integrity, frugality, and giving back to the
community. Chevron, for example, requires all employees globally to adopt its culture of ethics, safety, and person-
al leadership.87 Organizational values also typically reflect unspoken, but understood, social norms shaped by di-
verse influences such as internal reward structures, how senior officials act in practice, and the national culture
surrounding a given operation.

Organizations that ignore the issues of culture and cultural integration will likely face difficulties attracting, retain-

82 EF English Proficiency Index, Education First, 2014.

83 World Values Survey, Findings and Insights. (http://www.worldvaluessurvey.org/WVSContents.jsp). See also Inglehart, Ronald and Wayne E Baker, “Modernization, Cultural
Change, and the Persistence of Traditional Values”, American Sociological Review, 2000; Schwartz, Shalom, Cultural Value Orientations, 2008.

84 Taras, Vas et al., “Improving national cultural indices using a longitudinal meta-analysis of Hofstede’s dimensions”, Journal of World Business, 2012.

85 Gerhart, Barry and Meiyu Fang, “National culture and human resource management: assumptions and evidence”, International Journal of HRM, 2005.

86 KPMG, Post Merger People Integration, 2011. (http://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/Post%20Merger%20People%20
Integration )

87 Interview with Jim Shultz, Advisor to the Human Resources Vice President, Chevron Corporation.

http://www.worldvaluessurvey.org/WVSContents.jsp

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ing and motivating the best workers, or outright failure. Lack of initiatives to properly integrate corporate culture is
a contributor to the fact that 70 percent of M&As fail and more than 50 percent destroy value.88 Specifically, 30 per-
cent of integration failures are attributed to culture.89 Integrating workers from multiple societal environments into
the organizational values requires not only learning the critical differences but also finding a balance between some
parts of the corporate culture that should not change, while other parts may need to be reconsidered and adapted to
the cultures of the local workforce.

Although clearly a potentially powerful shaper—and predictor—of thoughts and actions, ironically one danger with
culture is attributing too much to it. Indeed, it is also often an all too convenient excuse: a recent study found that
more experienced executives tend to credit their own skills for success in cross-border M&As, but to blame failures
on cultural differences.90

Culture: distance and friction

From a purely academic perspective,
sociologists and business research-
ers have been struggling to tease out
and quantify key cultural averages
for decades. The first major contrib-
utor to this field was the Dutch soci-
ologist Geert Hofstede. Drawing on a
survey of over 100,000 IBM employ-
ees in 40 countries in the late 1960s
and early 1970s, in 1980 he posited
the existence of four key dimensions
where national cultures diverge, all
of which are relevant for business: power distance, his term for the extent to which leadership is hierarchical or flat;
the degree to which individual or collective goals are prized; the extent to which members of the culture seek to
avoid uncertainty; and the degree to which attitudes typically associated with masculine or feminine viewpoints
predominate. His work provided quantitative results for all of these measures.91

A natural corollary, first advanced by Bruce Kogut and Harbir Singh, was cultural distance: a measure of the differ-
ence between national scores on a composite index made up of Hofstede’s dimension scores.92 Measures of distance
can help in academic analysis of cultural effects on business activity such as FDI success or failure. They may also be
used actively to help companies understand the likely gaps that will need bridging in international differences. HR
executives from a country with little power distance, for example, would need to change management styles to be
successful in a country where this measure is higher.93

The concepts of cultural dimensions and cultural distance remain popular today, but they have several problems,
especially when applied simplistically. The first, as mentioned above, is the danger of providing an at best incom-
plete understanding of complex situations. Different regional and national cultures, overlapping types of cultures
and individual choices get lost in this sort of analysis. Also, the underlying studies used to calculate cultural dimen-

88 KPMG, Post Merger People Integration, 2011.

89 Deloitte, Cultural issues in mergers and acquisitions, 2009.

90 Vaara, Eero et al., “Attributional Tendencies in Cultural Explanations of M&A Performance”, Strategic Management Journal, 2013.

91 Hofstede, Geert, Culture’s Consequences: International Differences in Work-Related Values,. Sage, 1980 (expanded second edition published in 2001).

92 Kogut, Bruce and Harbir Singh, “The Effect of National Culture on the Choice of Entry Mode”, Journal of International Business Studies, 1988.

93 For a recent example of this approach, with its own set of cultural dimensions, see Erin Meyer, “The Culture Map: Breaking Through the Invisible Boundaries of Global
Business”, Public Affairs, May 2014.

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sions can sometimes be old because the necessary survey work tends to be expensive. This creates the danger of
missing out for a few years on any quantum shifts that may have occurred.

Another practical issue is determining the relevant cultural dimensions to measure. There has been substantial
work, usually based on comprehensive surveys, which have come up with sometimes quite different answers. One of
the most prominent of these is that of the Israeli sociologist Shalom Schwartz, whose seven dimensions have some
overlap with Hofstede’s, although they are divided up in different ways. He also adds harmony with nature and the
world.94 More recently, the Global Leadership and Organizational Behavior Effectiveness (GLOBE) group has derived
nine dimensions, including some of Hofstede’s, such as power distance and uncertainty avoidance, but adding ele-
ments such as gender egalitarianism and performance orientation, from its survey work.95 Meanwhile, Hofstede has
added two further dimensions to his own framework as a result of further research: one, now called pragmatism but
earlier called, more descriptively, long-term/short-term orientation, and the other relating to the degree to which
people control their self-indulgence.

In some ways, the whole enterprise of cultural dimensions relies on the assumption that with enough research it will
be possible to find a set of measurable, identifiable dimensions that can adequately encapsulate cultural differences.
However, success in such a complex field is not a given, and the lure of having something readily quantifiable may be
so appealing that weaknesses in the approach are overlooked. In the meantime, the results of divergence in key
dimensions are far from trivial: two different approaches to creating a cultural map—one based on Hofstede’s rank-
ings of uncertainty avoidance and power distance; the other based on two key variables found by another research
effort, the World Values Survey, which uses traditional vs. secular thinking and survival vs. self-expression values—
interpret the world in sometimes similar but sometimes very different ways.

More recently, rather than relying purely on abstract quantitative measures, Oded Shenkar, a sociologist and profes-
sor of business management, has argued for the need to move away from the idea of cultural distance to “cultural
friction”. Rather than dealing in pre-existing differences between presumed cultural poles in a way which tends to
avoid consideration of the context of intercultural contact—such as different power levels within the relationship—
friction focuses on the interaction, in situation-specific circumstances, of actors from different cultures. In some
cases, the result may be that culture plays no role at all, and in others the underlying assumptions and values may
lead to results inimical to the goal of one or both parties. Proponents of this metaphor argue that certain manage-
ment actions can reduce or increase friction.96 The extent to which friction will replace distance as the dominant way
to understand cultural interaction remains to be seen. It has the strength of avoiding a sometimes almost mathe-
matically deterministic view of cultural differences, but its close focus on specific conditions means that it is less
likely to yield straightforward advice on where problems will occur and how they are best addressed.

Cultural issues in the workplace

While the true impact of cultural differences in the workplace is challenging to measure, it is clear that the drivers of
the global workforce will and can lead to a breakdown in corporate homogeneity. More importantly, this will only
intensify with time as peers, subordinates and bosses are increasingly likely to be based in, or at least come from,
another country. As Nicholas Garbis of General Electric, which has half of its assets outside of its home base in the
United States, explains: “It’s part of working [at GE] that you have contacts and experience with people from around
the globe.” GE is far from alone. A 2010 survey of randomly selected employees at multinational corporations found

94 Schwartz, Shalom, “Mapping and interpreting cultural differences around the world”, in H Vinken et al. (eds), Comparing Cultures, Dimensions of Culture in a Comparative
Perspective. Leiden: Brill, 2004.

95 House, Robert et al., “Culture, Leadership, and Organizations”, The GLOBE Study of 62 Societies, 2004.

96 Shenkar, Oded, “Cultural Distance Revisited: Towards a More Rigorous Conceptualization and Measurement of Cultural Differences”, Journal of International Business
Studies, 2001; Shenkar, Oded et al., “From ‘Distance’ to ‘Friction’: Substituting Metaphors and Redirecting Intercultural Research”, Academy of Management Review, 2008;
Yadong, Luo and Oded Shenkar, “Toward a perspective of cultural friction in international business”, Journal of International Management, 2011.

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that 64 percent were involved in a virtual work team, and this group reported that on average 52 percent of team
members were based outside the company’s home country.97

The multicultural environment facing global and local employers alike manifests itself on a number of different lev-
els. At a very basic level, culturally appropriate communication and non-verbal business etiquette are essential to
success in running international teams or engaging in negotiations with foreign firms.98 The benefits and necessity
of being polite may seem obvious, but it also requires knowing what an interlocutor thinks is polite: indeed, no dis-
cussion of culture and business would be complete without a passing reference to the need to receive Chinese and
Japanese business cards in a formal, almost ritualistic way.

Additionally, worker norms and expectations in the workplace can vary greatly, given the likelihood of having people
of very different cultural backgrounds working side by side. Religion, for example, frequently has a profound impact
on personal identity. In Britain, an average company employing 200 people is statistically likely to have, in addition
to a few dozen atheists and practicing Christians, at least one observant Muslim, Sikh, Buddhist, and Jew.99 This is
not an inevitable recipe for conflict, but issues of accommodation of differences can sometimes range from practical
matters of dress requirements and leave for diverse holy days to potentially larger ones such as distinct approaches
to moral questions. Companies are not necessarily very good at this challenge: in the United States—a country with
decades of exposure to workforce diversity—just under half of non-Christians and of evangelical Christians, as well
as 40 percent of atheists, reported in a 2013 survey experiencing or witnessing religious non-accommodation at
work. The problem is exacerbated as diversity among a company’s employees increases.100

The difficulties compound with more intensive interaction. Many cross-border M&A deals fail on a cultural level, with
significant levels of employee loss or dissatisfaction. This cultural integration failure does not always lead to disaster
by other measures, such as share value, but it can sometimes bring about huge failures. Over the decades, for exam-
ple, the automotive industry alone has seen major divorces in once promising links—such as between Daimler and
Chrysler, Volvo and Renault and SAIC and Ssang Yong—where any number of cultural differences, ranging from mis-
trust between people of different nationalities to distinct workforce practices, played an important role. Literature
reviews suggest that the tendency of purchasing firms to exercise stronger central control, which feels like cultural
imperialism to those at the receiving end, exacerbates cultural problems.101

Lastly, studies show that each culture exhibits unique behavior that must be considered when it comes to organiza-
tional leadership and employee development. For example, Indian workers tend to appreciate a paternalistic style of
leadership, respecting their superiors’ skills and expecting attention, direction, top-down communication, and ap-
proachability. Japanese workers, on the other hand, align more quickly with company objectives and are loyal, but
are less satisfied individually.102 In this same light, having identical reward systems worldwide can be ineffective, as
the factors most likely to produce employee retention differ markedly by geography. In most of the world, for exam-
ple, career development opportunities are the leading magnet for top talent, but in Germany it is the ability of cor-
porate leadership to inspire. The latter is much less important to Mexicans, who place it lower than stress—a factor
which is not a primary concern in any other leading market (see chart).103

Given the difficulties involved, it can be tempting for HR functions, or corporate leaders in general, to ignore cultur-

97 EIU calculations based on data from RW3, The Challenges of Working in Virtual Teams, 2010.

98 For a review of this area, see Okoro, Ephraim, “Cross-Cultural Etiquette and Communication in Global Business: Toward a Strategic Framework for Managing Corporate
Expansion”, International Journal of Business and Management, 2012.

99 Webley, Simon, “Religious Practices in the Workplace”, Institute of Business Ethics Occasional Paper 3, 2011.

100 Tanenbaum Center for Interreligious Understanding, What American Workers Really Think About Religion: Tanenbaum’s 2013 Survey of American Workers and Religion, 2013.

101 Xu, Bo et al., “The Effects of Cultural Difference on Cross-border M&A Integration”, International Journal on Data Mining and Intelligent Information Technology Applications,
2013; Stahl, Günter and Andreas Voigt, “Impact of Cultural Differences on Merger and Acquisition Performance: A Critical Research Review and an Integrative Model”,
Advances in Mergers and Acquisitions, 2005.

102 International Culture: Chapter 5, “The Environment of International Business”, August 2008. http://www.unice.fr/crookall-cours/iup_cult/_docs/_RUGM_Chapter-05

103 Cisco, Transitioning to Workforce 2020, 2011; Towers Watson, Insights from the 2014 Global Workforce and Global Talent Management and Rewards Survey, 2014.

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al issues or to seek an unthinking, least common-denominator approach to differences. This arises from two misper-
ceptions: that culture can be confined among reasonable people to external manifestations rather than something
deeper that shapes many individuals’ understanding of important aspects of life; and that these differences are
not—or should not be—relevant to an enterprise focused on profit.

Matters become even more complex when corporate values are incorporated into the cultural equation. Teaching and
embedding a common organizational culture is widely viewed as a critical success factor, particularly for multina-
tional firms. Mara Swan, Vice President of Global Strategy and Talent at ManpowerGroup, a multinational HR consult-
ing firm, notes: “Having a common purpose and values is what really drives a global organization.” However, state-
ments of supposedly common business values are also potentially far less universal than thought: what is considered
“ethical” or “safe” can vary widely between countries, and even supposedly neutral codes of conduct can be misun-
derstood and cause friction within parts of an organization based amid different national cultures.104 One study
showed that even the understanding of the meaning of common management goals and terminology, such as
“shareholder value”, could vary by country owing to different institutional, political, and cultural contexts.105

Culture, then, matters too much and impacts too many facets of business for companies to ignore. The concept,
however, is a diffuse one and difficult to make actionable. While McDonald’s Corporation chose to have its global
franchises run by locals because they innately understand their own culture and thus know how to manage simple
but critical issues (for example, McDonald’s workers in Saudi Arabia just know not to seat single men together with
unrelated families),106 the challenges specific to each firm are more nuanced and require mostly customized ap-
proaches. In this sense, understanding how culture might affect a company and the implications for talent manage-
ment requires some consideration of what the word does, and does not, mean.

Cultural diversity – a liability, an asset, or both?

Metaphors such as cultural distance and cultural friction point toward the negative side of cultural differences. In-
deed, much of the literature frames the topic as a series of communication, etiquette or other, more serious prob-
lems that must be overcome.That tendency is understandable: as noted earlier, cultural differences obviously have

104 Barmeyer, Christoph and Eric Davoine, “The intercultural challenges in the transfer of codes of conducts from the USA to Europe”, in H Primecz et al., Cross-Cultural
Management in Practice. Culture and Negotiated Meanings, 2011.

105 Geppert, Mike, “Sensemaking and Politics in MNCs”, Journal of Management Inquiry, 2003.

106 Barboza, David, “When Golden Arches Are Too Red, White and Blue”, New York Times, October 14th 2001; Karon, Tony, “Adieu, Ronald McDonald”, Time.com, Jan 24th 2002;
Romero, Simon, “War and Abuse Do Little to Harm US Brands”, New York Times, May 9th 2004.

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Engaging and Integrating a Global Workforce

the potential not only to complicate talent management, but also to impede negotiations and undermine the success
of M&A activity.

At the same time, a culturally diverse organization with a similar workforce has a range of potential advantages over
its more monolithic peers. Those most often cited can be divided into two groups: ones where the cultural differenc-
es are inevitable but almost incidental to the benefit obtained, and ones where the diversity is the cause of the
benefit. Access to talent, a perennial problem for firms, falls in the former category. Seeking talent worldwide pro-
vides a broader recruitment pool than a restrictive, domestic focus. Thus, a benefit of openness to cultural diversity
is that a company has more choices for, say, an accountant: it can employ an Arab or an Argentinian, and that per-
son’s culture is largely incidental as long as he or she is competent. Similarly, global sourcing and markets provide
better opportunities for purchasing and sales than purely national ones.

The more relevant benefit for this discussion, however, is what diverse cultural backgrounds within the workforce can

Case study: IBM forms a model for a globally integrated enterprise

IBM defined a model it calls the
Globally Integrated Enterprise
(GIE) with flexible, coun-
try-based teams. The GIE fo-
cuses on three activities:
1. Growing locally and globally

by aligning business strate-

gies with national priorities

and societal goals, building

local expertise, and expand-

ing market relevance.

2. Developing leadership by

providing more employees

with opportunities to build

their skills early.

3. Promoting enterprise-wide collaboration based on shared values.

IBM formed enablement teams with four to five executives from different geographies. They worked with general
managers in nine countries, who worked with HR and employees in 30 countries to develop a holistic approach that

identified five skills required from leaders and employees:

i. All employees: Basic cross-cultural awareness and access to resources and knowledge.

ii. Client-facing employees: Greater levels of cultural intelligence, training and skills.

iii. Leaders: Skills and knowledge to lead and perform effectively across cultures.

iv. Client-facing leaders: Skills and knowledge to collaborate effectively and deliver products to cross-culture

customers.

v. Global client-facing employees: Skills and knowledge to inspire and manage multicultural employees.
Source: IBM, “The Enterprise of the Future”, 2008.

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Engaging and Integrating a Global Workforce

bring to a firm. Benefits commonly cited include in-depth local knowledge of different markets and the increased
probability of successful operations in a range of locations, as well as an appreciation of different ways of doing
things, which is likely to lead to more creativity and innovation. This range of knowledge and experience should also
make companies more adaptable to change.

While existing research is unclear about the benefits of cultural differences, one particularly relevant and rich area
of study has been the impact of diversity policies, especially those relevant to ethnic and racial diversity, in the Unit-
ed States. While any number of papers show some positive impact—Orlando Richard’s work from 2000 and 2003 in-
dicating that racial diversity can improve productivity and returns on equity107 has been particularly influential—a
substantial literature review found in 2009 that, overall, research in this area shows either no impact from diversity
or a slightly negative one. Much of this work, including Richard’s, indicates that the matter requires nuance to un-
derstand: diversity, when well-managed, seems beneficial in certain circumstances, but can be an apparent impedi-
ment in others.108

Less research is available on the effect of international cultural diversity in companies, but what exists points in a
similar direction. A large meta-analysis of the effect of cultural diversity on both single-country and international
teams found that for both the net benefits and losses from having a wider range of backgrounds largely cancelled
each other out. “Cultural diversity leads to process losses through task conflict and decreased social integration, but
to process gains through increased creativity and satisfaction.”109

In short, the impact of cultural diversity on firms depends, as having a variety of cultural attributes and the inevita-
ble diversity it entails brings both gains and losses. Maximizing the former and minimizing the latter appears to be,
at least partially, a result of the environment that the company creates for individuals. A recent study found that,
while an absence of cultural tensions did not add to a company’s creative output, their existence had a negative ef-
fect on the ability both of those directly affected by clashes and of other employees to innovatively combine ideas
from multiple cultures.110 Rather than a problem, resources—including investment of time and money—are required
to fully exploit culture’s potential as an asset. Culture can cause damage if it is not properly overseen and managed;
the obvious challenge then becomes how best to manage it.

107 Richard, Orlando, “Racial diversity, business strategy and firm performance: A resource-based view”, Academy of Management Journal, 2000; Orlando, Richard et al.,
“Employing an innovation strategy in racially diverse workforces”, Group and Organization Management, 2003.

108 Shore, Lynn, “Diversity in organizations: Where are we now and where are we going?” Human Resource Management Review, 2009.

109 Stahl, Günter et al., “Unraveling the effects of cultural diversity in teams: A meta-analysis of research on multicultural work groups”, Journal of International Business
Studies, 2009.

110 Chua, Roy, “The Costs of Ambient Cultural Disharmony: Indirect Intercultural Conflicts in Social Environment Undermine Creativity”, Academy of Management Journal, 2012.

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Engaging and Integrating a Global Workforce

CORPORATE SOCIAL RESPONSIBILITY AND GLOBAL WORKFORCE
DYNAMICS

“Friends, together, we can achieve a new phase of globalization—one that creates inclusive and sustainable mar-
kets, builds development and enhances international cooperation. We each have a responsibility in moving our
agenda forward.”

Ban Ki-moon, Secretary-General of the United Nations, Closing Remarks at the
UN Global Compact Leaders Summit, Geneva, July 6th 2007

As mentioned earlier as one of the outcomes of globalization, firms operating more and more internationally have
become exposed to a higher level of operational risk. Whether as a result of a local presence or through partners, this
risk comes in many different forms related to the workplace—illegal labor practices, moral harassment lawsuits and
even brand erosion through negative consumer perceptions. Numerous strategies exist to mitigate these risks (or at
least minimize their impact), from developing a detailed understanding of the local environment to establishing
clear protocols and HR procedures that have been customized to the country’s unique features.

However, increasingly companies and the marketplace are taking a broader view of the proactive engagement with
employees and the societies in which they operate at home and abroad. This is where the concept of corporate social
responsibility (CSR) has become a critical component of a firm’s international strategy. While this has undoubtedly
been deployed as both a risk-mitigating and an opportunity-generating strategy that positively affects the bottom
line, CSR has also come to represent a moral obligation of business that is a key component to developing a global
and sustainable community.

CSR in the global context

Human rights are the basic rights of people, regardless of their race, sex, religion, political opinion, social status or
any other characteristic.111 Dan Viederman, CEO of Verité, a Massachusetts-based non-profit that monitors and re-
ports on labor rights abuses around the world, states: “Human rights problems tend to be more prevalent in societies
that are poorer and more corrupt. There is a correlation between the overall level of development, income and wealth
with labor violations. Labor rights violations are also common among migrant workers, because their foreign status
increases their vulnerability.”112

For example, nearly 21 million people are subject to forced labor around the world today. Of these, 17.2 million live
in the developing countries of Asia, Africa, and Latin America. Women and girls make up about 55 percent, or 11.4
million, of the world’s forced labor victims.113 Additionally, more than 122 goods from 58 countries are produced by
slave or forced labor, with migrant workers and indigenous people being especially vulnerable.114 Many countries did
not pass anti-trafficking laws until after the United Nations passed the UN Protocol to Prevent, Suppress and Punish
Trafficking in Persons, Especially Women and Children, in 2000. These countries include China, which passed an-
ti-trafficking legislation as late as 2011, Russia in 2008, and Peru in 2007.115

111 United Nations Global Compact, Business Leaders Initiative on Human Rights, A Guide for Integrating Human Rights into Business Management. (http://www.ohchr.org/
Documents/Publications/GuideHRBusinessen )

112 Interview with Dan Viederman, CEO, Verité.

113 International Labor Organization, ILO 2012 Global Estimate of Forced Labour Executive Summary, 2012. (http://www.ilo.org/wcmsp5/groups/public/—ed_norm/—
declaration/documents/publication/wcms_181953 )

114 Verité, Modern Day Slavery, April 2014. (http://www.sedexglobal.com/wp-content/uploads/2014/04/Sedex-Briefing-Modern-Day-Slavery-April-2014-Final )

115 Verité, Human Trafficking & Global Supply Chains: A Background Paper, 2012. (http://www.ohchr.org/Documents/Issues/Trafficking/Consultation/2012/BackgroundPaper.
pdf)

http://www.sedexglobal.com/wp-content/uploads/2014/04/Sedex-Briefing-Modern-Day-Slavery-April-2014-Final

http://www.ohchr.org/Documents/Issues/Trafficking/Consultation/2012/BackgroundPaper

http://www.ohchr.org/Documents/Issues/Trafficking/Consultation/2012/BackgroundPaper

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By definition, CSR is the term for businesses’ obligation to honor and protect human rights, avoid corruption, protect
the environment, and support the communities where they operate through philanthropy in the workplace, market-
place, supply chain, community, and public.116 The UN Industrial Development Organization (UNIDO) supports the
notion that CSR is “a management concept whereby companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders”. Moreover, companies use CSR as a way to achieve a
balance of economic, environmental and social imperatives, or “triple-bottom-line approach”, while at the same
time addressing the expectations of shareholders and stakeholders.117

The business case for CSR

Although protecting human rights is the primary responsibility of governments, businesses with global workforces
recognize that ensuring human and labor rights among their employees—and within their supply chains—makes
good business sense. As Dan Viederman explains: “There is agreement right now that individual businesses having
effective HR and treating workers well increases productivity, and therefore has positive economic returns.” He adds:
“The Western concept of human rights is now broadly adopted at a conceptual level around the world. This has been
a leveling force that has helped make sure human rights are at least noted in places where before they would not
have emerged in a conversation.”118

In this sense, the concept of CSR has evolved and goes well beyond just good corporate citizenship or charity. Man-
aging the many risks—including those related to the work environment—is at the heart of the CSR business case. The
most recognizable risk comes with brand perception, as firms face damage to their reputation as a result of social
missteps. Consider upscale apparel-makers that have been criticized for employing sweatshops in third-world coun-
tries, the Exxon Valdez oil spill in Alaska, and big pharmaceuticals that tried to block generic AIDS drugs from being
sold in South Africa. Even without breaking local laws, companies such as these often do irreparable damage to their
reputation.

While most businesses respect human rights and have adopted policies to protect their own operations, gaining an
insight into the practices of all the partners in their supply chain is problematic.119 Nike learned this the hard way in
1996, when rumors surfaced that its downstream partners were using sweatshops to create its athletic clothing. Nike
tried to calm the rising tide of protests with spot-checks in Asian factories and agreements with suppliers. However,
it was not until the company incorporated a CSR program into its core business functions and changed its approach
to labor that the problem came under control.120 In the end, businesses depend on their own human rights record to
maintain their reputation and business viability.

Corruption is another risk factor firms must take into consideration when operating abroad. Coming in the form of
bribery and usury fees paid by workers to recruitment agents, both of which are closely tied to human trafficking,
corruption is a stronger predictor of human trafficking than other poverty-related indicators. It is illegal for US busi-
nesses to participate in bribery—giving anything of value to a buyer that results in an “improper business advan-
tage”—under the Foreign Corrupt Practices Act (FCPA). The Department of Justice and the Securities and Exchange
Commission, the agencies that enforce the law, apply the rules broadly, holding the company liable for the activities
of parties in its supply chain, including agents, business partners and suppliers. In 2012 companies paid US$259.4
million in fines and penalties for violating FCPA rules, and 16 people were sentenced to terms in prison. 121

116 Harvard University, “Corporate Social Responsibility as Risk Management”, March 2005. (http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_10_
kytle_ruggie )

117 United Nations Industrial Development Organization. (http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html#pp1[g1]/0/).

118 Interview with Dan Viederman, CEO, Verité.

119 United Nations Global Compact, Business Leaders Initiative on Human Rights, Guide for Integrating Human Rights into Business Management.

120 Harvard University, Corporate Social Responsibility as Risk Management, March 2005.

121 Verité, Corruption & Labor Trafficking in Global Supply Chains, December 2013. (http://www.verite.org/sites/default/files/images/WhitePaperCorruptionLaborTrafficking )

http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_10_kytle_ruggie

http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_10_kytle_ruggie

http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html%23pp1%5bg1%5d/0/

http://www.verite.org/sites/default/files/images/WhitePaperCorruptionLaborTrafficking

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Engaging and Integrating a Global Workforce

As firms driven by economic oppor-
tunities and competitive pressures
push particularly into emerging mar-
kets, their exposure to operational
and government effectiveness risk—
including corruption and lack of ac-
countability among public officials—
becomes more profound. According
to the EIU’s Risk Briefing indicators,
which measure operational risk in
186 countries, corruption levels are
highest in countries throughout Lat-
in America and the Caribbean, in-
cluding Ecuador, Haiti and Hondu-
ras; countries in South Asia
(Bangladesh, Cambodia, Indonesia
and others); and countries in Sub-Saharan Africa (see map). With the continual search for top-line growth or bot-
tom-line impact the need to operate in these geographies intensifies, and CSR programs that offset these risks be-
come a staple in a company’s global strategic playbook.

Integrating human rights principles into its operations also brings the organization a number of benefits. This in-
cludes improved relations with stakeholders, better relationships with customers, a more secure license to operate,
shareholder confidence, and an admirable corporate reputation and brand image. The impact translates into the
human capital management space; implementing proactive policies that support workplace diversity is just one ex-
ample where CSR can increase the size of the talent pool, improve worker productivity and drive creativity.

Sustainability and volunteer initiatives integrated into firms’ work cultures also help in terms of recruiting and re-
taining sought-after human capital and talent. This is especially true for younger workers like the Millennials—those
born between the 1980s and 2000s, also known as Generation Y—who increasingly favor working for organizations
with a positive social impact and whose values match their own. According to a 2012 Net Impact Survey, 72 percent
of students about to enter the workforce noted that “a job where I can make an impact” was important to their hap-
piness, compared with 53 percent for active workers. A more recent 2014 survey noted that graduating students
would take a 15 percent pay cut to work for an organization that was committed to corporate and environmental
responsibility (71 percent), work in a job that had a social or environmental impact in the world (83 percent), or
work for an organization with values like their own (88 percent).122

While compelling business and moral cases can be made for a CSR approach to workforce management, it can also
lead to difficult decisions that could harm the organization’s competitiveness. As Mara Swan of ManpowerGroup ex-
plains: “Many companies struggle with the fact that local competitors, especially in many emerging and developing
countries, do not always strictly follow the law.”123 Conversely, local practices may be at odds with the organization’s
CSR policies and international laws. For example, bribes may be common, but the organization’s policies must not be
compromised. At the same time, the organization should set policies specifically for certain locations when needed,
such as affirmative action, gender equity, and rights for people with disabilities.124

122 Net Impact Survey, 2014 Business as UNusual, 2014. (https://netimpact.org/business-as-unusual/infographic-students-weigh-in-on-impact-issues?src=hp-tri-2)

123 Interview with Mara Swan, Vice President of Global Strategy, ManpowerGroup.

124 United Nations Global Compact, Business Leaders Initiative on Human Rights, Guide for Integrating Human Rights into Business Management.

https://netimpact.org/business-as-unusual/infographic-students-weigh-in-on-impact-issues?src=hp-tri-2

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Engaging and Integrating a Global Workforce

Despite the challenges and costs associated with CSR programs, it is clear that their adoption and transparent integra-

tion with broader corporate strategies is a growing trend. The United Nations Global Compact, a commitment by firms to

adopt sustainable and socially responsible practices (including those pertaining to labor and human rights), has seen

more than 8,000 companies join since the year 2000, over half of which submitted corporate disclosure reports during

the latest annual review.125 More importantly, organizations such as the Reputation Institute, Ethisphere and Dow Jones

all produce annual rankings of the most ethical and sustainable firms, a fact of which both the firms and the marketplace

are taking note.

The approach taken by the Campbell Soup Company and its former CEO, Doug Conant, is a prime example of the CSR value

creation. The company’s ten-year journey to ensure “ethical and responsible” initiatives was publicly expressed as a key

component of Campbell’s long-term business strategy, resulting in the firm being ranked in the top tier of all three of the

above-mentioned company rankings. Mr. Conant’s “people first” approach and focus on employee engagement was in-

strumental in turning the previously failing company around.126 Ultimately, the recognition of such direct benefits is

expected to result in CSR becoming the norm and not the exception in years to come.

125 United Nations, Global Compact Annual Report, 2011.

126 Harvard Business School, “Pulling Campbell’s Out of the Soup”, March 2013. (http://hbswk.hbs.edu/item/7133.html)

Case study: Nestlé’s human rights impact assessment1

Nestlé SA is a multinational food and beverage company based in Switzerland. Nestlé asked the Danish Insti-
tute for Human Rights (DIHR) to conduct a Human Rights Impact Assessment (HRIA) of its corporate policies in
2008. The company is now using the results of the assessment to establish itself as a leader in business and
human rights.

Following the UN Guiding Principles on Business and Human Rights, Nestlé and the DIHR conducted a four-step
assessment process. They first scoped the human rights risks at the country level using surveys sent to employ-
ees in various locations. Second, they conducted onsite interviews. Third, they analyzed the results and com-
piled a report that became the baseline for all Nestlé locations. This step also included a set of recommenda-
tions. The fourth step included an action plan with timelines for implementation. For every action, a person was
designated to ensure the action happened in a timely manner.

Nestlé discovered that it is one of the top employers in many areas, but it did not settle for patting itself on the
back. The company used the findings to set a number of additional actions it will take to further improve its
human rights practices in the areas of living wages, health and safety, security, business integrity, community
impacts, procurement, sourcing of raw materials, and products and marketing practices.

1 Nestlé, “Talking the Human Rights Walk,” 2013. (http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-hria-
white-paper )

http://hbswk.hbs.edu/item/7133.html

http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-hria-white-paper

http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-hria-white-paper

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Engaging and Integrating a Global Workforce

CHALLENGES FOR HUMAN RESOURCE MANAGEMENT AND GLOBAL
BUSINESS STRATEGY

More than ever in history, companies and organizations today face both the opportunity and the challenge of em-
ploying global workforces that diverge in age, gender, education and culture.

This paper has shown how and why workforces will continue to comprise these differing attributes, as well as the
advantages and pitfalls. This section presents the challenges human resources managers face when ensuring that
their organizations succeed in the global environment.

THE GLOBALIZED WORKFORCE
HR challenge: Adapting hiring and retention strategies to prepare for tomorrow’s changing workforce

A dwindling youth population in developed economies and high youth unemployment in developing regions is caus-
ing skills shortages. Some of these shortages are being filled by older workers, more women in the workforce and
cross-border migration. Demographic as well as cultural diversity will continue to define the global workforce as
companies seek to fill shortages, gain market efficiencies and acquire strategic assets.

Older workers provide experience, but they also pose challenges for organizations, including providing healthcare
for a population that will experience four-and-half-times as many disabilities as younger workers,127 creating flexible
work schedules and shifting responsibilities away from physically demanding work. This is compounded in a global
workforce that combines differing management and work styles based on individual cultures. The challenge is to
identify the right job roles, incentives and retraining opportunities for each worker while avoiding age-discrimina-
tion practices.

The challenge is similar where gender is concerned. Governments and companies are creating accommodations such
as day-care centers and flexible working hours for women, but taking advantage of a gender-diverse workforce re-
quires an understanding of how to attract women into the workforce and providing rewards parity. In South Korea,
only 60 percent of 25-64-year-old women are contributing to the workforce owing to social pressures, resulting in
senior-level positions being exclusively filled by men. In response to this imbalance, Goldman Sachs is promoting
underutilized female talent in South Korea.128

Many organizations are already using HR analytics for workforce planning. To avoid coming skills shortages, HR can
expand its use of analytics such as gender and other diversity metrics to further understand the make-up of recruits
and provide matching incentives.

HR challenge: Preparing for the complexities of hiring, managing and integrating a global workforce

The growth of liberal cross-border trade, the use of communications technology and the expansion of transnational

companies are not likely to let up. Attracting global talent requires staying abreast of new strategies for finding and at-

tracting talent. Business technology consultancy Infosys decided to hire Chinese graduates and started by inviting and

teaching a select group of Chinese students English at its office in Mysore, India, allowing the company to source workers

from a neighboring country cost-effectively.129

127 The NTAR Leadership Center, Employer Strategies for Responding to an Aging Workforce, 2012.

128 Deloitte Review, Headwinds, Tailwinds and the Riddles of Demographics, 2012.

129 Accenture, Multi-Polar World 2: The Rise of the Emerging-Market Multinational, 2008.

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Engaging and Integrating a Global Workforce

Technologies such as social media
are essential for recruiting, but the
challenge is to align these new strat-
egies with business goals. Aberdeen
Group, a provider of business re-
search intelligence, found that suc-
cessful organizations are taking a
holistic approach to recruitment that
includes company branding, screen-
ing, assessment, hiring and on-
boarding, with technology helping
at each step.130

Companies are also faced with the need to develop the means to assess skills across divergent talent sources and
then creating training programs to fill skills gaps after employees are hired. In addition, they need to understand
how to manage and integrate multicultural employees. When US pharmaceutical Upjohn merged with Swedish
Phamarcia AB, no one foresaw the resistance to company-imposed policies such as alcohol-testing and smoking,
which resulted in cost overruns, a slowdown in product launches and the eventual sale of the company.131

130 Aberdeen Group, Talent Acquisition 2013: Adapt Your Strategy or Fail, 2013.

131 The Cultural Environment of International Business, Chapter 5, International Culture, 2008.

Average and intra-country ranking of work goals: a seven-nation comparison
Work goals Belgium UK Germany Israel Japan Netherlands United States
Opportunity to learn 5.80 5.55 4.97 5.83 6.26 5.38 6.16

7 8 9 5 7 9 5
Interpersonal relations 6.34 6.33 6.43 6.67 6.39 7.19 6.08

5 4 4 2 6 3 7
Opportunity for promotion 4.49 4.27 4.48 5.29 3.33 3.31 5.08

10 11 10 8 11 11 10
Convenient work hours 4.71 6.11 5.71 5.53 5.46 5.59 5.25

9 5 6 7 8 8 9
Variety 5.96 5.62 5.71 4.89 5.05 6.86 6.10

6 7 6 11 9 4 6
Interesting work 8.25 8.02 7.26 6.75 6.38 7.59 7.41

1 1 3 1 2 2 1
Job security 6.8 7.12 7.57 5.22 6.71 5.68 6.30

3 3 2 10 4 7 3
Match between the people 5.77 5.63 6.09 5.61 7.83 6.17 6.19
and the work 8 6 5 6 1 6 4
Pay 7.13 7.80 7.73 6.6 6.56 5.27 6.82

2 2 1 3 5 5 2
Working conditions 4.19 4.87 4.39 5.28 4.18 5.03 4.84

11 9 11 9 10 10 11
Autonomy 6.56 4.69 5.66 6.00 6.89 7.61 5.79

4 10 8 4 3 1 8
Fi rst row shows average rank on a scal e of 1 to 10
Second row shows ranki ng of work goal s wi thi n each country, wi th a rank of 1 bei ng most important and 11 bei ng least important .
Source: Adapted from Itzhak Harpaz, “The Importance of Work Goal s: An Internati onal Perspecti ve,” Journal of International
Business Studies , vol .21, no 1(1990), p. 81.

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Engaging and Integrating a Global Workforce

Managers can begin by understanding the nuances of the cultures using various tools such as Hofstede’s lenses,
explained earlier in this paper, or the GLOBE project’s nine dimensions of culture.132 Although these tools tend to
simplify the complex issues, they provide good bases for understanding the diverse cultures of employees and en-
couraging sensitivity.

GUIDING CORPORATE STRATEGIC DECISION-MAKING
HR challenge: Incorporating the human capital opportunities and risks from operating abroad into corporate
strategic decision-making

Workforce opportunities are marked both by steady improvements through the political machinations that open trade
across borders and enable cross-border migrations, and by sudden and often unexpected changes such as the relaxa-
tion in relations between the United States and Cuba; conflicts in Syria, Iraq and Ukraine; and dramatic swings in oil
prices. The challenge for companies is to remain nimble to take advantage of the opportunities while avoiding the risks.

HR’s challenge is to gather, assess and understand all the cultural, labor and market complexities of operating in
each market so that the company can predict opportunities and risks, know when to enter or exit a market, and inte-
grate successfully into new local markets.

The success of a company’s global growth hinges on HR integrating the workforce. HR-led teams need to assess the
complexities of bringing together workforces with often dissimilar societal and corporate cultures. HR can, for exam-
ple, identify potential roadblocks early and plan interventions before problems arise. The food facilities manage-
ment company Sodexo identified a need for diversity and inclusion across its 355,000 employees from North Ameri-
can to China. It developed training programs that resulted in significant numbers of women, youths, people with
disabilities and indigenous workers productively joining its workforce across the globe.133

HR challenge: Making the business case for CSR

Corporate social responsibility is among the top challenges companies face when expanding into new markets, espe-
cially in developing regions. Business practices that are acceptable locally are frequently at odds with the values of
the company and the laws of its regulatory agencies. This creates a tug-of-war between social responsibility and the
need to be successful in those markets, which can turn into significant risk.

The challenge for HR is to gain a detailed understanding of local environments and their accepted business practices.
It then needs to establish protocols that are customized for each region and communicate these protocols through-
out the organization and across its supply chain.

When local labor laws or practices conflict with the organization’s CSR policies, HR needs to be the voice of the indi-
vidual and ensure that the company maintains its integrity, even when this goes against the potential economic
value. HR faces the additional challenge of demonstrating to the company how good CSR policies strengthen the
brand, increase customer loyalty and boost shareholder value.

HR challenge: Balancing corporate and societal cultures while promoting diversity

Some cultural attributes, such as a command-and-control management style, can be modified to fit local cultures,
while others, such as integrity and human rights policies, cannot be compromised. HR needs to understand and deal
with the complexities, deciding which corporate culture elements can change and which are essential to protecting
the organization’s values and ethics. The company cannot change anti-bribery policies, but it may choose to change

132 Ibid.

133 Sodexo, Global Diversity & Inclusion Report, 2009.

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Engaging and Integrating a Global Workforce

its dress-down-Fridays rule. Management may also choose to impose cultural elements, such as giving back to the
community consistently across the global organization. The challenge becomes even more complex when dealing
with new workers, those engaged through means such as crowdsourcing, as well as remote and temporary workers.
HR also needs to develop programs to assist executives to adapt when they move from the head office to regions with
different societal and cultural norms.

PREPARING FOR THE FUTURE
HR challenge: Preparing a new set of globally prepared leaders

Cultural diversity is frequently seen as a challenge, but it also provides great advantages. For example, a culturally
diverse workforce may come up with more creative and innovative solutions to problems, because each person brings
more unique perspectives and experiences to the table.

The challenge for HR is to educate managers on how to take advantage of the cultural differences while mitigating
any friction. Developing practices for promoting collaboration among diverse workers and communicating values
and policies across countries and ethnicities will be important to driving success within global organizations.

HR challenge: Identifying skills on a local level

Companies that can identify skills beyond those presented in traditional CVs and résumés will have an advantage
over their competitors. Identifying the desired skills and finding them in a pool of candidates is a significant chal-
lenge for HR, especially when entering new markets and geographies.

STAYING WITHIN LAWS
HR challenge: Maintaining a comprehensive understanding of regulations and hiring laws

Temporary and part-time workers play an important role in today’s workforce. Yet laws regarding these workers differ
from country to country. Indonesian law, for example, does not recognize the concept of part-time workers, who are
consequently entitled to the same rights as full-time workers. Temporary workers, too, must receive the same bene-
fits as permanent workers.

HR’s challenge when conducting workforce planning is to understand the nuances of the laws and customs in each
of the regions where it operates and ensure that it is treating part-time, temporary and remote workers legally.

Regulations become murkier when the employment process is conducted through online crowdsourcing or other,
less traditional recruiting methods, further increasing the risks while demanding greater understanding of compli-
ance from HR.

Keeping up-to-date with ever-changing and complex labor laws in each country and region will continue to present
a constant challenge beyond the traditional visa issues, local versus foreign worker regulations and migration laws.

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Engaging and Integrating a Global Workforce

CONCLUSION

Globalization is a force that increasingly touches the lives of people living in all countries of the world.134 Country
borders are metamorphosing from barriers to bridges as a result of trade liberalization, increasing levels of educa-
tion among women and workers in developing countries, and advancements in technology. Goods, services and la-
bor talent are now flowing more freely across the globe than ever before. Except for occasional protectionist flare-
ups, these trends will likely continue.

The opportunities are abundant, from greater efficiencies and access to new markets for organizations to improved
job opportunities and higher wages for skilled workers. The challenges are equally copious. Organizations need to
deal with an ageing workforce; they must attract, integrate and maintain multicultural employment pools; and they
have to contend with human rights and business practices that may be counter to the values and laws governing the
organization.

Solutions that take advantage of each opportunity and rise above each challenge become ever more complex when
the global element is added. Providing hiring incentives and developing a management and reward system that
takes into account a spectrum of societal and corporate cultures can be daunting. Organizations that manage these
challenges skillfully will find success and improve the lives of workers throughout the world.

134 http://www.imf.org/external/ns/search.aspx?NewQuery=globalization+force+lives&submit.x=0&submit.y=0

http://www.imf.org/external/ns/search.aspx?NewQuery=globalization+force+lives&submit.x=0&submit.y=0

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Engaging and Integrating a Global Workforce

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• _Hlt106070018

Many of the differences in employee motivation, management styles, and
organizational structures of companies throughout the world can be
traced to differences in the collective mental programming
of people in different national cultures.

Motivation, Leadership,
and Organization:
Do American Theories
Apply Abroad?

Geert Hofstede

well-known experiment used in organiza-
tional behavior courses involves showing the
class an ambiguous picture—one that can be
interpreted in two different ways. One such
picture represents either an attractive young
girl or an ugly old woman, depending on the
way you look at it. Some of my colleagues
and I use the experiment, which demon-
strates how different people in the same situ-
ation may perceive quite different things.
We start by asking half of the class to close
their eyes while we show the other half a

slightly altered version of the picture—one in
which only the young girl can be seen—for
only five seconds. Then we ask those wh

o

just saw the young girl’s picture to close their
eyes while we give the other half of the class
a five-second look at a version in which only
the old woman can be seen. After this
preparation we show the ambiguous picture
to everyone at the same time.

The results are amazing—most of
those “conditioned” by seeing the young girl
first see only the young girl in the ambiguous

42
Organizational Dynamics, Surfimer 1980. © 1980, AMACOM, a division of

American Munagement Associations. All rights reserved. 0090-2616/80/0014-0042/$02.00/0

picture, and those “conditioned” by seeing
the old woman tend to see only the old
woman. We then ask one of those who per-
ceive the old woman to explain to one of
those who perceive the young girl what he or
she sees, and vice versa, until everyone
finally sees both images in the picture. Each
group usually finds it very difficult to get its
views across to the other one and sometimes
there’s considerable irritation at how
“stupid” the other group is.

CULTURAL CONDITIONING

I use this experiment to introduce a discus-
sion on cultural conditioning. Basically, it
shows that in five seconds 1 can condition
half a class to see something different from
what the other half sees. If this is so in the
simple classroom situation, how much
stronger should differences in perception of
the same reality be between people who have
been conditioned by different education and
life experience—not for five seconds, but for
twenty, thirty, or forty years?

I define culture as the collective
mental programming of the people in an en-
vironment. Culture is not a characteristic of
individuals; it encompasses a number of
people who were conditioned by the same
education and life experience. When we
speak of the culture of a group, a tribe, a
geographical region, a national minority, or
a nation, culture refers to the collective
mental programming that these people have
in common; the programming that is differ-
ent from that of other groups, tribes,
regions, minorities or majorities, or nations.

Culture, in this sense of collective
mental programming, is often difficult to
change; if it changes at all. It does so slowly.
This is so not only because it exists in the
minds of the people but, if it is shared by a
number of people, because it has become
crystallized in the institutions these people

have built together: their family structures,
educational structures, religious organiza-
tions, associations, forms of government,
work organizations, law, literature, settle-
ment patterns, buildings and even, as I hope
to show, scientific theories. All of these re-
flect common beliefs that derive from the
common culture.

Although we are all conditioned by
cultural influences at many different
levels—family, social, group, geographical
region, professional environment—this ar-
ticle deals specifically with the influence of
our national environment; that is, our coun-
try. Most countries’ inhabitants share a na-
tional character that’s more clearly apparent
to foreigners than to the nationals them-
selves; it represents the cultural mental pro-
gramming that the nationals tend to have in
common.

NATIONAL CULTURE IN FOUR DIMENSIONS

The concept of national culture or national
character has suffered from vagueness.
There has been little consensus on what rep-
resents the national culture of, for example,
Americans, Mexicans, French, or Japanese.
We seem to lack even the terminology to de-
scribe it. Over a period of six years, I have
been involved in a large research project on
national cultures. For a set of 40 independent
nations, 1 have tried to determine empirical-
ly the main criteria by which their national
cultures differed. I found four such criteria,
which I label dimensions; these are Power
Distance, Uncertainty Avoidance, Individ-
ualism-Collectivism, and Masculinity-Fem-
ininity. To understand the dimensions of na-
tional culture, we can compare it with the di-
mensions of personality we use when we de-
scribe individuals’ behavior. In recruiting,
an organization often tries to get an impres-
sion of a candidate’s dimensions of personal-
ity, such as intelligence (high-low); energy 43

THE RESEARCH

The four dimensions of national culture were found through a combination of theoretical
reasoning and massive statistical analysis, in what is most likely the largest survey material ever
obtained with a single questionnaire. This survey material was collected between 1967 and 1973
among employees of subsidiaries of one large U.S.-based multinational corporation (MNC) in
40 countries around the globe. The total data bank contains more than 116,000 questionnaires
collected from virtually everyone in the corporation, from unskilled workers to research Ph.D.s
and top managers. Moreover, data were collected twice—first during a period from 1967 to 1969
and a repeat survey during 1971 to 1973. Out of a total of about 150 different survey questions (of
the precoded answer type), about 60 deal with the respondents’ beliefs and values; these were
analyzed for the present study. The questionnaire was administered in the language of each
country; a total of 20 language versions had to be made. On the basis of these data, each of the
40 countries could be given an index score for each of the four dimensions.

I was wondering at first whether differences found among employees of one single cor-
poration could be used to detect truly national culture differences. I also wondered what effect
the translation of the questionnaire could have had. With this in mind, I administered a number
of the same questions in 1971-1973 to an international group of about 400 managers from dif-
ferent public and private organizations following management development courses in
Lausanne, Switzerland. This time, all received the questionnaire in English. In spite of the dif-
ferent mix of respondents and the different language used, I found largely the same differences
between countries in the manager group that I found among the multinational personnel. Then
I started looking for other studies, comparing aspects of national character across a number of
countries on the basis of surveys using other questions and other respondents (such as students)
or on representative public opinion polls. I found 13 such studies; these compared between 5
and 19 countries at a time. The results of these studies showed a statistically significant similari-
ty (correlation) with one or more of the four dimensions. Finally, I also looked for national in-
dicators (such as per capita national income, inequality of income distribution, and government
spending on development aid) that could logically be supposed to be related to one or more of
the dimensions. I found 31 such indicators—of which the values were available for between 5
and 40 countries—that were correlated in a statistically significant way with at least one of the
dimensions. All these additional studies (for which the data were collected by other people, not
by me) helped make the picture of the four dimensions more complete. Interestingly, very few
of these studies had even been related to each other before, but the four dimensions provide a
framework that shows how they can be fit together like pieces of a huge puzzle. The fact that
data obtained within a single MNC have the power to uncover the secrets of entire national cul-
tures can be understood when it’s known that the respondents form well-matched samples from
their nations: They are employed by the same firm (or its subsidiary); their jobs are similar (I
consistently compared the same occupations across the different countries); and their age cate-
gories and sex composition were similar—only their nationalities differed. Therefore, if we look
at the differences in survey answers between multinational employees in countries A, B, C, and
so on, the general factor that can account for the differences in the answers is national culture.

level (active-passive); and emotional stabil- but it’s essential to have a set of criteria
ity (stable-unstable). These distinctions can whereby the characteristics of individuals

44 be refined through the use of certain tests, can be meaningfully described. The dimen-

sions of national culture I use represent a
corresponding set of criteria for describing
national cultures.

Characterizing a national culture
does not, of course, mean that every person
in the nation has all the characteristics as-
signed to that culture. Therefore, in describ-
ing national cultures we refer to the common
elements within each nation—the national
norm—but we are not describing individ-
uals. This should be kept in mind when in-
terpreting the four dimensions explained in
the following paragraphs.

Power distance

The first dimension of national culture is
called Power Distance. It indicates the extent
to which a society accepts the fact that
power in institutions and organizations is
distributed unequally. It’s reflected in the
values of the less powerful members of so-
ciety as well as in those of the more powerful
ones. A fuller picture of the difference be-
tween small Power Distance and large Power
Distance societies is shown in Figure 1. Of
course, this shows only the extremes; most
countries fall somewhere in between.

Uncertainty avoidance

The second dimension. Uncertainty Avoid-
ance, indicates the extent to which a society
feels threatened by uncertain and ambiguous
situations and tries to avoid these situations
by providing greater career stability, estab-
lishing more formal rules, not tolerating de-
viant ideas and behaviors, and believing in
absolute truths and the attainment of exper-
tise. Nevertheless, societies in which uncer-
tainty avoidance is strong are also charac-
terized by a higher level of anxiety and
aggressiveness that creates, among other
things, a strong inner urge in people to work
hard. (See Figure 2.)

Geert Hofstede is Director. Human Resources,
of Fasson Europe at Le\fden. the Netherlands.
and vice-president. Internationa! Research and
Program Development. Management Decisions
Systems. Inc.. Darien. Connecticut. He has been
a professor of organizational behavior and his
earlier work experience includes ten years in his
native Holland as an industrial worker, fore-
man, and department manager: six years of be-
havioral research on the international staff of a
multinational corporation: and teaching at
IMEDE (Lausanne. Switzerland) and INSEAD
(Fontainebleau. France). He holds a
master’s-level degree in mechanical engineering
from Delft Institute of Technology. Holland.
and a doctorate in social psychohgy from
Groningen University. also in Holland. An ear-
lier article by Hofstede, “Alienation at the
Top. ” appeared in Organizational Dynamics,
Winter 1976.

Individualism-Collectivism

The third dimension encompasses Individ-
ualism and its opposite. Collectivism. Indi-
vidualism implies a loosely knit social frame-
work in which people are supposed to take
care of themselves and of their immediate
families only, while collectivism is character-
ized by a tight social framework in which
people distinguish between in-groups and
out-groups; they expect their in-group (rela-
tives, clan, organizations) to look after
them, and in exchange for that they feel they
owe absolute loyalty to it. A fuller picture of 45

T H E POWER

Figure 1

DISTANCE DIMENSION

Small Power Distance Large Power Distance

Inequality in society should be minimized.

All people should be interdependent.

Hierarchy means an inequality of roles,
established for convenience.

Superiors consider subordinates to be
“people like me.”

Subordinates consider superiors to be
“people like me.”

Superiors are accessible.

Tlie use of power should be legitimate and
is subject to the judgment as to whether
it is good or evil.

All should have equal rights.

Those in power should try to look less
powerful than they are.

The system is to blame.

The way to change a social system is to
redistribute power.

People at various power levels feel less
threatened and more prepared to trust
people.

Latent harmony exists between the power-
ful and the powerless.

Cooperation among the powerless can be
based on solidarity.

There should be an order of inequality in
this world in which everybody has a right-
ful place; high and low are protected by
this order.

A few people should be independent;
most should be dependent.

Hierarchy means existential inequality.

Superiors consider subordinates to be a
different kind of people.

Subordinates consider superiors as a
different kind of people.

Superiors are inaccessible.

Power is a basic fact of society that ante-
dates good or evil. Its legitimacy is
irrelevant.

Power-holders are entitled to privileges.

Those in power should try to look as
powerful as possible.

The underdog is to blame.

The way to change a social system is to
dethrone those in power.

Other people are a potential threat to
one’s power and can rarely be trusted.

Latent conflict exists between the powerful
and the powerless.

Cooperation among the powerless is diffi-
cult to attain because of their low-faith-
in-people norm.

46

this dimension is presented in Figure 3.

Masculinity

The fourth dimension is called Masculinity
even though, in concept, it encompasses its
opposite pole. Femininity. Measurements in
terms of this dimension express the extent to
which the dominant values in society are
“masculine”—that is, assertiveness, the ac-

quisition of money and things, and not
caring for others, the quality of life, or peo-
ple. These values were labeled “masculine”
because, within nearly all societies, men
scored higher in terms of the values’ positive
sense than of their negative sense (in terms of
assertiveness, for example, rather than its
lack)—even though the society as a whole
might veer toward the “feminine” pole. In-
terestingly, the more an entire society scores

Figure 2
THE UNCERTAINTY AVOIDANCE DIMENSION

\Neak Uncertainty Avoidance Strong Uncertainty Avoidance

The uncertainty inherent in life is more
easily accepted and each day is taken as
it comes.

Ease and lower stress are experienced.

Time is free.

Hard work, as such, is not a virtue.

Aggressive behavior is frowned upon.

Less showing of emotions is preferred.

Conflict and competition can be contained
on the level of fair play and used con-
structively.

More acceptance of dissent is entailed.

Deviation is not considered threatening;
greater tolerance is shown.

Tlie ambiance is one of less nationalism.

More positive feelings toward younger
people are seen.

There is more willingness to take risks in
life.

The accent is on relativism, empiricism.

There should be as few rules as possible.

If rules cannot be kept, we should change
them.

Belief is placed in generalists and common
sense.

The authorities are there to serve the citizens.

The uncertainty inherent in life is felt as a
continuous threat that must be fought.

Higher anxiety and stress are experienced.

Time is money.

There is an inner urge to work hard.

Aggressive behavior of self and others is
accepted.

More showing of emotions is preferred.

Conflict and competition can unleash
aggression and should therefore be avoided.

A strong need for consensus is involved.

Deviant persons and ideas are dangerous;
intolerance holds sway.

Nationalism is pervasive.

Younger people are suspect.

There is great concern with security in life.

The search is for ultimate, absolute truths
and values.

There is a need for written rules and
regulations.

If rules cannot be kept, we are sinners
and should repent.

Belief is placed in experts and their knowl-
edge.

Ordinary citizens are incompetent com-
pared with the authorities.

to the masculine side, the wider the gap be-
tween its “men’s” and “women’s” values (see
Figure 4),

A SET OF CULTURAL MAPS OF THE WORLD

Research data were obtained by comparing
the beliefs and values of employees within

the subsidiaries of one large multinational
corporation in 40 countries around the
world. These countries represent the wealthy
countries of the West and the larger, more
prosperous of the Third World countries.
The Socialist block countries are missing,
but data are available for Yugoslavia (where
the corporation is represented by a local,
self-managed company under Yugoslavian 47

Figure 3
THE INDIVIDUALISM DIMENSION

Collectivist Individualist

In society, people are bom into extended
families or clans who protect them in ex-
change for loyalty.

“We” consciousness holds sway.

Identity is based in the social system.

There is emotional dependence of individual
on organizations and institutions.

The involvement with organizations is moral.

The emphasis is on belonging to organiza-
tions; membership is the ideal.

Private life is invaded by organizations and
clans to which one belongs; opinions are
predetermined.

Expertise, order, duty, and security are pro-
vided by organization or clan.

Friendships are predetermined by stable
social relationships, but there is need for
prestige within these relationships.

Belief is placed in group decisions.

Value standards differ for in-groups and out-
groups (particularism).

In society, everybody is supposed to take
care of himself/herself and his/her
immediate family.

“I” consciousness holds sway.

Identity is based in the individual.

There is emotional independence of individ-
ual from organizations or institutions.

The involvement with organizations is cal-
culative.

The emphasis is on individual initiative and
achievement; leadership is the ideal.

Everybody has a right to a private life and
opinion.

Autonomy, variety, pleasure, and individ-
ual financial security are sought in the system.

The need is for specific friendships.

Belief is placed in individual decisions.

Value standards should apply to all (univer-
sal ism).

48

law). It was possible, on the basis of mean
answers of employees on a number of key
questions, to assign an index value to each
country on each dimension. As described in
the box on page 44, these index values ap-
pear to be related in a statistically significant
way to a vast amount of other data about
these countries, including both research re-
sults from other samples and national indica-
tor figures.

Because of the difficulty of repre-
senting four dimensions in a single diagram,
the position of the countries of the dimen-
sions is shown in Figures 5, 6, and 7 for two
dimensions at a time. The vertical and hori-
zontal axes and the circles around clusters of
countries have been drawn subjectively, in

order to show the degree of proximity of
geographically or historically related coun-
tries. The three diagrams thus represent a
composite set of cultural maps of the world.

Of the three “maps,” those in
Figure 5 (Power Distance X Uncertainty
Avoidance) and Figure 7 (Masculinity X Un-
certainty Avoidance) show a scattering of
countries in all corners—that is, all combina-
tions of index values occur. Figure 6 (Power
Distance X Individualism), however, shows
one empty corner: The combination of Small
Power Distance and Collectivism does not
occur. In fact, there is a tendency for Large
Power Distance to be associated with Collec-
tivism and for Small Power Distance with
Individualism. However, there is a third

Figure 4

THE MASCULINITY DIMENSION

Feminine Masculine

Men needn’t be assertive, but can also
assume nurturing roles.

Sex roles in society are more fluid.

There should be equality between the sexes.

Quality of life is important.

You work in order to live.

People and environment are important.

Interdependence is the ideal.

Service provides the motivation.

One sympathizes with the unfortunate.

Small and slow are beautiful.

Unisex and androgyny are ideal.

Men should be assertive. Women should
be nurturing.

Sex roles in society are clearly differentiated.

Men should dominate in society.

Performance is what counts.

You live in order to work.

Money and things are important.

Independence is the ideal.

Ambition provides the drive.

One admires the successful achiever.

Big and fast are beautiful.

Ostentatious mjinliness (“machismo”) is
appreciate^.

factor that should be taken into account
here: national wealth. Both Small Power
Distance and Individualism go together with
greater national wealth (per capita gross na-
tional product). The relationship between
Individualism and Wealth is quite strong, as
Figure 6 shows. In the upper part (Collectiv-
ist) we find only the poorer countries, with
Japan as a borderline exception. In the lower
part (Individualism), we find only the
wealthier countries. If we look at the poorer
and the wealthier countries separately, there
is no longer any relationship between Power
Distance and Individualism.

THE CULTURAL RELATIVITY OF MANAGEMENT

THEORIES

Of particular interest in the context of this
discussion is the relative position of the
United States on the four dimensions. Here is
how the United States rates:

• On Power Distance at rank 15
out of the 40 countries (measured from be-
low), it is below average but it is not as low

as a number of other wealthy countries.
• On Uncertainty Avoidance at

rank 9 out of 40, it is well below average.
• On Itidividualism at rank 40 out

of 40, the United States is the single most in-
dividualist country of the entire set (followed
closely by Australia and Great Britain).

• On Masculinity at rank 28 out of
40, it is well above average.

For about 60 years, the United
States has been the world’s largest producer
and exporter of management theories cover-
ing such key areas as motivation, leadership,
and organization. Before that, the centers of
theorizing about what we now call “manage-
ment” lay in the Old World. We can trace
the history of management thought as far
back as we want—at least to parts of the Old
Testament of the Bible, and to ancient
Greece (Plato’s The Laws and The Republic,
350 B.c.), Sixteenth-century European
“management” theorists include Niccolo
Machiavelli (Italy) and Thomas More (Great
Britain); early twentieth-century theorists in-
clude Max Weber (Germany) and Henr

i

Fayol (France). 49

ARG

AUL

AUT
BEL
BRA
CAN
CHL
COL
DEN
FIN

Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
Colombia
Denmark
Finland

T H E 4 (

(Showing Abbreviations

FRA
GBR
GER
GRE
HOK

IND

IRA
IRE
ISR
ITA

France
Great Britain
Germany (West)
Greece
Hong Kong

India
Iran
Ireland
Israel
Italy

) COUNTRIES

used in Figures 5, 6, and 7.)

JAP

MEX
NET
NOR
N2L
PAK
PER
PHI
POR
SAF

Japan
Mexico
Netherlands
Norway
New Zealand
Pakistan
Peru
Philippines
Portugal
South Africa

SIN
SPA
SWE
SWI
TAl
THA
TUR
USA
VEN
YUG

Singapore
Spain
Sweden
Switzerland
Taiwan

Thailand
Turkey
United States
Venezuela
Yugoslavia

50

Today we are all culturally condi-
tioned. We see the world in the way we have
learned to see it. Only to a limited extent can
we, in our thinking, step out of the bound-
aries imposed by our cultural conditioning.
This applies to the author of a theory as
much as it does to the ordinary citizen:
Theories reflect the cultural environment in
which they were written. If this is true, Ital-
ian, British, German, and French theories
reflect the culture of Italy, Britain, Ger-
many, and France of their day, and Ameri-
can theories reflect the culture of the United
States of its day. Since most present-day
theorists are middle-class intellectuals, their
theories reflect a national intellectual mid-
dle-class culture background.

Now we ask the question; To what
extent do theories developed in one country
and reflecting the cultural boundaries of that
country apply to other countries? Do Amer-
ican management theories apply in Japan? In
India? No management theorist, to my
knowledge, has ever explicitly addressed
himself or herself to this issue. Most prob-
ably assume that their theories are universal-
ly valid. The availability of a conceptual
framework built on four dimensions of na-
tional culture, in conjunction with the cul-
tural maps of the world, makes it possible to
see more clearly where and to what extent

theories developed in one country are likely
to apply elsewhere. In the remaining sections
of this article 1 shall look from this viewpoint
at most popular American theories of man-
agement in the areas of motivation, leader-
ship, and organization.

MOTIVATION

Why do people behave as they do? There is a
great variety of theories of human motiva-
tion. According to Sigmund Freud, we are
impelled to act by unconscious forces within
us, which he called our id. Our conscious
conception of ourselves—our ego—tries to
control these forces, and an equally uncon-
scious internal pilot—our superego—criti-
cizes the thoughts and acts of our ego and
causes feelings of guilt and anxiety when the
ego seems to be giving in to the id. The
superego is the product of early socializa-
tion, mainly learned from our parents when
we were young children.

Freud’s work has been extremely
influential in psychology, but he is rarely
quoted in the context of management theo-
ries. The latter almost exclusively refer to
motivation theories developed later in the
United States, particularly those of David
McClelland, Abraham Maslow, Frederick

Figure 5
THE POSITION OF THE 40 COUNTRIES

O N THE POWER DISTANCE AND UNCERTAINTY AVOIDANCE SCALES

Power Disfonce Index

8
11
13
16
19
21
24
27
29
32
35
37
40

S 43
3 45
a> 48
^

51

o

‘c

53
56
59
61

S 64
I 67
^ 69
^ 72

75
77
80
83
85
88
91
93
96
99
101
104
107
109
112

11
I

28
1

(4) Small Power D
Weak Uncertainty
Avoidance

61
-t

77
+

94

,(1) Large Power
Distance/Weak
Uncertainty
Avoidance

•ITA

;G SPA CHL

BRA
*

*COL
TUR

* VEN

* MEX

Smalf Power Distance/
Strong Uncertainty
Avo(dance

JAP
i

11
+
28

(2) Large Power
Distance/Strong
Uncertainty
Avaidance

+
94

51

Figure 6
THE POSITION OF THE 40 COUNTRIES

O N THE POWER DISTANCE AND INDIVIDUALISM SCALES

Power Distance Index

(4) Small Power Distance/
Collectivist

(J} Large Power
Distance/

*SIN Collectivist

(2) Large Pawer Distance/
Individual ist

(3) Small Power Distance/
Individual ist

52

Herzberg, and Victor Vroom. According to
McClelland, we perform because we have a
need to achieve (the achievement motive).
More recently, McClelland has also paid a
lot of attention to the power motive. Mas-
low has postulated a hierarchy of human
needs, from more “basic” to “higher”: most
basic are physiological needs, followed by
security, social needs, esteem needs and,
finally, a need for “self-actualization.” The
latter incorporates McClelland’s theory of
achievement, but is defined in broader
terms. Maslow’s theory of the hierarchy of
needs postulates that a higher need will be-
come active only if the lower needs are suffi-
ciently satisfied. Our acting is basically a ra-
tional activity by which we expect to fulfill
successive levels of needs. Herzberg’s two-
factor theory of motivation distinguishes
between hygienic factors (largely corre-
sponding to Maslow’s lower needs—physio-
logical, security, social) and motivators
{Maslow’s higher needs—esteem, self-actual-
ization); the hygienic factors have only the
potential to motivate negatively (demoti-
vate—they are necessary but not sufficient
conditions), while only the motivators have
the potential to motivate positively. Vroom
has formalized the role of “expectancy” in
motivation; he opposes “expectancy” the-
ories and “drive” theories. The former see
people as being pulled by the expectancy of
some kind of result from their acts, mostly
consciously. The latter (in accordance with
Freud’s theories) see people as pushed by
inside forces—often unconscious ones.

Let us now look at these theories

through culture-conscious glasses. Why has
Freudian thinking never become popular in
U.S. management theory, as has the think-
ing of McClelland, Maslow, Herzberg, and
Vroom? To what extent do these theories re-
flect different cultural patterns? Freud was
part of an Austrian middle-class culture at
the turn of the century. If we compare
present-day Austria and the United States on
our cultural maps, we find the following:

• Austria scores considerably lower
on Power Distance.

• Austria scores considerably high-
er on Uncertainty Avoidance.

• Austria scores considerably lower
on Individualism.

• Austria scores considerably high-
er on Masculinity.

We do not know to what extent
Austrian culture has changed since Freud’s
time, but evidence suggests that cultural pat-
terns change very slowly. It is, therefore, not
likely to have been much different from to-
day’s culture. The most striking thing about
present-day Austrian culture is that it com-
bines a fairly high Uncertainty Avoidance
with a very low Power Distance (see Figure
5). Somehow the combination of high Un-
certainty Avoidance with high Power Dis-
tance is more comfortable (we find this in
Japan and in all Latin and Mediterranean
countries—see Figure 5). Having a powerful
superior whom we can both praise and
blame is one way of satisfying a strong need
for avoiding uncertainty. The Austrian cul-
ture, however (together with the German,
Swiss, Israeli, and Finnish cultures) cannot

‘Tor strong Uncertainty Avoidance countries like
Austria, working hard is caused hy an inner
urge—it is a way of relieving stress,” 53

Figure 7
THE POSITION OF THE 40 COUNTRIES

O N THE UNCERTAINTY AVOIDANCE AND MASCULINITY SCALES

Masculinity Index

(4) Weak Uncertainty
Avaidance/Fern in ine

(1) Weak Uncertainty
Avoidance/Mas culin

GBR * ‘ IRE

IND

USA ‘ * PHI

CAN NZL *SAF
*

AUL

(3) Strong Uncertainty
Avoidance/Fern in ine

(2) Strong Uncertainty
GRE ^ Avoidance/Masculine

54

rely on an external boss to absorb its uncer-
tainty. Thus Freud’s superego acts naturally
as an inner uncertainty-absorbing device, an
internalized boss. For strong Uncertainty
Avoidance countries like Austria, working
hard is caused by an inner urge—it is a way
of relieving stress. (See Figure 2.) The Austri-
an superego is reinforced by the country’s
relatively low level of Individualism (see
Figure 6). The inner feeling of obligation to
society plays a much stronger role in Austria
than in the United States. The ultrahigh Indi-
vidualism of the United States leads to a
need to explain every act in terms of self-in-
terest, and expectancy theories of motiva-
tion do provide this explanation—we always
do something because we expect to obtain
the satisfaction of some need.

The comparison between Austrian
and U.S. culture has so far justified the pop-
ularity of expectancy theories of motivation
in the United States. The combination in the
United States of weak Uncertainty Avoid-
ance and relatively high Masculinity can tell
us more about why the achievement motive
has become so popular in that country.
David McClelland, in his book The Achiev-
ing Society, sets up scores reflecting how
strong achievement need is in many coun-
tries by analyzing the content of children’s
stories used in those countries to teach the
young to read. It now appears that there is a
strong relationship between McClelland’s
need for achievement country scores and the
combination of weak Uncertainty Avoid-
ance and strong Masculinity charted in
Figure 7. (McClelland’s data were collected
for two historic years—1925 and 1950—but
only his 1925 data relate to the cultural map
in Figure 7. It is likely that the 1925 stories
were more traditional, reflecting deep under-
lying cultural currents; the choice of stories
in 1950 in most countries may have been af-
fected by modernization currents in educa-
tion, often imported from abroad.)

Countries in the upper righthand

comer of Figure 7 received mostly high
scores on achievement need in McClelland’s
book; countries in the lower lefthand corner
of Figure 7 received low scores. This leads us
to the conclusion that the concept of the
achievement motive presupposes two cul-
tural choices—a willingness to accept risk
(equivalent to weak Uncertainty Avoidance;
see Figure 2) and a concern with perfor-
mance (equivalent to strong Masculinity; see
Figure 4). This combination is found exclu-
sively in countries in the Anglo-American
group and in some of their former colonies
(Figure 7). One striking thing about the con-
cept of achievement is that the word itself is
hardly translatable into any language other
than English; for this reason, the word could
not be used in the questionnaire of the multi-
national corporation used in my research.
The English-speaking countries all appear in
the upper righthand corner of Figure 7.

If this is so, there is reason to re-
consider Maslow’s hierarchy of human needs
in the light of the map shown in Figure 7.
Quadrant 1 (upper righthand corner) in
Figure 7 stands for achievement motivation,
as we have seen (performance plus risk).
Quadrant 2 distinguishes itself from quad-
rant 1 by strong Uncertainty Avoidance,
which means security motivation (perfor-
mance plus security). The countries on the
feminine side of Figure 7 distinguish them-
selves by a focusing on quality of life rather
than on performance and on relationships
between people rather than on money and
things (see Figure 4). This means social moti-
vation: quality of life plus security in quad-
rant 3, and quality of life plus risk in quad-
rant 4. Now, Maslow’s hierarchy puts self-
actualization (achievement) plus esteem
above social needs above security needs.
This, however, is not the description of a
universal human motivation process—it is
the description of a value system, the value
system of the U.S. middle class to which the
author belonged. 1 suggest that if we want to 55

continue thinking in terms of a hierarchy for
countries in the lower righthand corner of
Figure 7 (quadrant 2), security needs should
rank at the top; for countries in the upper
lefthand corner (quadrant 4), social needs
should rank at the top, and for countries in
the lower iefthand comer (quadrant 3) both
security and social needs should rank at the
top.

One practical outcome of present-
ing motivation theories is the movement
toward humanization of work—an attempt
to make work more intrinsically interesting
to the workers. There are two main currents
in humanization of work—one, developed in
the United States and called job enrichment,
aims at restructuring individual jobs. A chief
proponent of job enrichment is Frederick
Herzberg. The other current, developed in
Europe and applied mainly in Sweden and
Norway, aims at restructuring work into
group work—forming, for example, such
semiautonomous teams as those seen in the
experiments at Volvo. Why the difference in
approaches? What is seen as a “human” job
depends on a society’s prevailing model of
humankind. In a more masculine society like
the United States, humanization takes the
form of masculinization, allowing individual
performance. In the more feminine societies
of Sweden and Norway, humanization takes
the form of femininization—it is a means
toward more wholesome interpersonal rela-
tionships in its deemphasis of interindividual
competition.

LEADERSHIP

One of the oldest theorists of leadership in
world literature is Machiavelli (1468-1527).
He described certain effective techniques for
manipulation and remaining in power (in-
cluding deceit, bribery, and murder) that
gave him a bad reputation in later centuries.

56 Machiavelli wrote in the context of the Italy

of his day, and what he described is clearly a
large Power Distance situation. We still find
Italy on the larger Power Distance side of
Figure 5 (with all other Latin and Mediter-
ranean countries), and we can assume from
historical evidence that Power Distances in
Italy during the sixteenth century were con-
siderably larger than they are now. When we
compare Machiavelli’s work with that of his
contemporary. Sir Thomas More (1478-
1535), we find cultural differences between
ways of thinking in different countries even
in the sixteenth century. The British More
described in Utopia a state based on con-
sensus as a “model” to criticize the political
situation of his day. But practice did not al-
ways follow theory, of course: More, deemed
too critical, was beheaded by order of King
Henry VIII, while Machiavelli the realist
managed to die peacefully in his bed. The
difference in theories is nonetheless remark-
able.

In the United States a current of
leadership theories has developed. Some of
the best known were put forth by the late
Douglas McGregor (Theory X versus Theory
Y), Rensis Likert (System 4 management),
and Robert R. Blake with Jane S. Mouton
(the Managerial Grid®). What these theories
have in common is that they all advocate
participation in the manager’s decisions by
his/her subordinates (participative manage-
ment); however, the initiative toward partic-
ipation is supposed to be taken by the man-
ager. In a worldwide perspective (Figure 5),
we can understand these theories from the
middle position of the United States on the
Power Distance side (rank 15 out of 40 coun-
tries). Had the culture been one of larger
Power Distance, we could have expected
more “Machiavellian” theories of leadership.
In fact, in the management literature of
another country with a larger Power Dis-
tance index score, France, there is little con-
cern with participative management Ameri-
can style, but great concern with who has

the power. However, in countries with
smaller Power Distances than the United
States (Sweden, Norway, Germany, Israel),
there is considerable sympathy for models of
management in which even the initiatives are
taken by the subordinates (forms of indus-
trial democracy) and with which there’s little
sympathy in the United States. In the ap-
proaches toward “industrial democracy”
taken in these countries, we notice their dif-
ferences on the second dimension. Uncer-
tainty Avoidance. In weak Uncertainty
Avoidance countries like Sweden, industrial
democracy was started in the form of local
experiments and only later was given a legis-
lative framework. In strong Uncertainty
Avoidance countries like Germany, indus-
trial democracy was brought about by legis-
lation first and then had to be brought alive
in the organizations (“Mitbestimmung”).

The crucial fact about leadership in
any culture is that it is a complement to sub-
ordinateship. The Power Distance Index
scores in Figure 5 are, in fact, based on the
values of people as subordinates, not on the
values of superiors. Whatever a naive litera-
ture on leadership may give us to under-
stand, leaders cannot choose their styles at
will; what is feasible depends to a large
extent on the cultural conditioning of a lead-
er’s subordinates. Along these lines. Figure 8
describes the type of subordinateship that,
other things being equal, a leader can expect
to meet in societies at three different levels of
Power Distance—subordinateship to which
a leader must respond. The middle level
represents what is most likely found in the
United States.

Neither McGregor, nor Likert, nor
Blake and Mouton allow for this type of cul-
tural proviso—all three tend to be prescrip-
tive with regard to a leadership style that, at
best, will work with U.S. subordinates and
with those in cultures—such as Canada or
Australia—that have not too different
Power Distance levels (Figure 5). In fact, my

research shows that subordinates in larger
Power Distance countries tend to agree more
frequently with Theory Y.

A U.S. theory of leadership that
allows for a certain amount of cultural rela-
tivity, although indirectly, is Fred Fiedler’s
contingency theory of leadership. Fiedler
states that different leader personalities are
needed for “difficult” and “easy” situations,
and that a cultural gap between superior and
subordinates is one of the factors that makes
a situation “difficult.” However, this theory
does not address the kind of cultural gap in
question.

In practice, the adaptation of man-
agers to higher Power Distance environ-
ments does not seem to present too many
problems. Although this is an unpopular
message—one seldom professed in manage-
ment development courses—managers mov-
ing to a larger Power Distance culture soon
leam that they have to behave more autocrat-
ically in order to be effective, and tend to do
so; this is borne out by the colonial history
of most Western countries. But it is interest-
ing that the Westem ex-colonial power with
the highest Power Distance norm—France—
seems to be most appreciated by its former
colonies and seems to maintain the best
postcolonial relationships with most of
them. This suggests that subordinates in a
large Power Distance culture feel even more
comfortable with superiors who are real
autocrats than with those whose assumed
autocratic stance is out of national charac-
ter.

The operation of a manager in an
environment with a Power Distance norm
lower than his or her own is more problem-
atic. U.S. managers tend to find it difficult to
collaborate wholeheartedly in the “industrial
democracy” processes of such countries as
Sweden, Germany, and even the Nether-
lands. U.S. citizens tend to consider their
country as the example of democracy, and
find it difficult to accept that other countries 57

might wish to develop forms of democracy
for which they feel no need and that make
major inroads upon managers’ (or leaders’)
prerogatives. However, the very idea of
management prerogatives is not accepted in
very low Power Distance countries. This is,
perhaps, best illustrated by a remark a Scan-
dinavian social scientist is supposed to have
made to Herzberg in a seminar: ‘Tou are
against participation for the very reason we
are in favour of it—one doesn’t know where
it will stop. We think that is good.”

One way in which the U.S. ap-
proach to leadership has been packaged and
formalized is management by objectives
(MBO), first advocated by Peter Drucker in
1955 in The Practice of Management. In the
United States, MBO has been used to spread
a pragmatic results orientation throughout
the organization. It has been considerably
more successful where results are objectively
measurable than where they can only be in-
terpreted subjectively, and, even in the
United States, it has been criticized heavily.
Still, it has been perhaps the single most pop-
ular management technique “made in
U.S.A.” Therefore, it can be accepted as fit-
ting U.S. culture. MBO presupposes:

• That subordinates are sufficient-
ly independent to negotiate meaningfully
with the boss (not-too-large Power Distance).

• That both are willing to take
risks (weak Uncertainty Avoidance).

• That performance is seen as im-
portant by both (high Masculinity).

Let us now take the case of Ger-
many, a below-average Power Distance
country. Here, the dialogue element in MBO
should present no problem. However, since
Germany scores considerably higher on Un-
certainty Avoidance, the tendency toward
accepting risk and ambiguity will not exist to
the same extent. The idea of replacing the ar-
bitrary authority of the boss with the imper-
sonal authority of mutually agreed-upon ob-

58 jectives, however, fits the small Power Dis-

tance/strong Uncertainty Avoidance cultural
cluster very well. The objectives become the
subordinates’ “superego.” In a book of case
studies about^MBO in Germany, Ian R. G.
Ferguson states that “MBO has acquired a
different flavour in the German-speaking
area, not least because in these countries the
societal and political pressure towards in-
creasing the value of man in the organization
on the right to co-determination has become
quite clear. Thence, MBO has been translit-
erated into Management by Joint Goal Set-
ting (Fiihrung durch Zielvereinbarung).” Fer-
guson’s view of MBO fits the ideological
needs of the German-speaking countries of
the moment. The case studies in his book
show elaborate formal systems with exten-
sive ideological justification; the stress on
team objectives is quite strong, which is in
line with the lower individualism in these
countries.

The other area in which specific in-
formation on MBO is available is France.
MBO was first introduced in France in the
early 1960s, but it became extremely popular
for a time after the 1968 student revolt. Peo-
ple expected that this new technique would
lead to the long-overdue democratization of
organizations. Instead of DPO (Direction
par Objectifs), the French name for MBO be-
came DPPO (Direction Participative par
Objectifs). So in France, too, societal devel-
opments affected the MBO system. How-
ever, DPPO remained, in general, as much a
vain slogan as did Libert^, Egalit^, Fraternity
(Freedom, Equality, Brotherhood) after the
1789 revolt. G. Franck wrote in 1973 ” . . . I
think that the career of DPPO is terminated,
or rather that it has never started, and it
won’t ever start as long as we continue in
France our tendency to confound ideology
and reality. . . .” In a postscript to Franck’s
article, the editors of Le Management write:
“French blue- and white-collar workers,
lower-level and higher-level managers, and
patrons’ all belong to the same cultural sys-

tem which maintains dependency relations
from level to level. Only the deviants really
dislike this system. The hierarchical struc-
ture protects against anxiety; DPO, how-
ever, generates anxiety. . . .”The reason for
the anxiety in the French cultural context is
that MBO presupposes a depersonalized au-
thority in the form of internalized objectives;
but French people, from their early child-
hood onward, are accustomed to large Power
Distances, to an authority that is highly per-
sonalized. And in spite of all attempts to in-
troduce Anglo-Saxon management methods,
French superiors do not easily decentralize
and do not stop short-circuiting intermediate
hierarchical levels, nor do French subordi-
nates expect them to. The developments of
the 1970s have severely discredited DPPO,
which probably does injustice to the cases in
which individual French organizations or
units, starting from less exaggerated expecta-
tions, have benefited from it.

In the examples used thus far in this
section, the cultural context of leadership
may look rather obvious to the reader. But it
also works in more subtle, less obvious
ways. Here’s an example from the area of
management decision making: A prestigious
U.S. consulting firm was asked to analyze
the decision-making processes in a large
Scandinavian “XYZ” corporation. Their re-
port criticized the corporation’s decision-
making style, which they characterized as
being, among other things, “intuitive” and
“consensus based.” They compared “obser-
vations of traditional XYZ practices” with
“selected examples of practices in other com-
panies.” These “selected examples,” offered
as a model, were evidently taken from their
U.S. clients and reflect the U.S. textbook
norm—”fact based” rather than intuitive
management, and “fast decisions based on
clear responsibilities” rather than the use of
informal, personal contacts and the concern
for consensus.

Is this consulting firm doing its

Scandinavian clients a service? It follows
from Figure 7 that where the United States
and the Scandinavian culture are wide apart
is on the Masculinity dimension. The use of
intuition and the concern for consensus in
Scandinavia are “feminine” characteristics of
the culture, well embedded in the total tex-
ture of these societies. Stressing “facts” and
“clear responsibilities” fits the “masculine”
U.S. culture. From a neutral viewpoint, the
reasons for criticizing the U.S. decision-mak-
ing style are as good as those for criticizing
the Scandinavian style. In complex decision-
making situations, “facts” no longer exist in-
dependently from the people who define
them, so “fact-based management” becomes
a misleading slogan. Intuition may not be a
bad method of deciding in such cases at all.
And if the implementation of decisions re-
quires the commitment of many people,
even a consensus process that takes more
time is an asset rather than a liability. But
the essential element overlooked by the con-
sultant is that decisions have to be made in a
way that corresponds to the values of the en-
vironment in which they have to be effec-
tive. People in this consulting firm lacked in-
sight into their own cultural biases. This
does not mean that the Scandinavian corpo-
ration’s management need not improve its
decision making and could not learn from
the consultant’s experience. But this can be
done only through a mutual recognition of
cultural differences, not by ignoring them.

ORGANIZATION

The Power Distance X Uncertainty Avoid-
ance map (Figure 5) is of vital importance for
structuring organizations that will work best
in different countries. For example, one
U.S.-based multinational corporation has a
worldwide policy that salary-increase pro-
posals should be initiated by the employee’s
direct superior. However, the French man- 59

agement of its French subsidiary interpreted
this policy in such a way that the superior’s
superior’s superior—three levels above—
was the one to initiate salary proposals. This
way of working was regarded as quite natu-
ral by both superiors and subordinates in
France. Other factors being equal, people in
large Power Distance cultures prefer that
decisions be centralized because even superi-
ors have strong dependency needs in relation
to their superiors; this tends to move deci-
sions up as far as they can go (see Figure 8).
People in small Power Distance cultures
want decisions to be decentralized.

While Power Distance relates to
centralization. Uncertainty Avoidance re-
lates to formalization—the need for formal
rules and specialization, the assignment of
tasks to experts. My former colleague O. J.
Stevens at INSEAD has done an interesting
research project (as yet unpublished) with
M.B.A. students from Germany, Great Brit-
ain, and France. He asked them to write
their own diagnosis and solution for a small
case study of an organizational problem— a
conflict in one company between the sales
and product development departments. The
majority of the French referred the problem
to the next higher authority (the president of
the company); the Germans attributed it to
the lack of a written policy, and proposed es-
tablishing one; the British attributed it to a
lack of interpersonal communication, to be
cured by some kind of group training.

Stevens concludes that the “implicit
model” of the organization for most French
was a pyramid (both centralized and
formal); for most Germans, a well-oiled
machine (formalized but not centralized);
and for most British, a village market
(neither formalized nor centralized). This
covers three quadrants (2, 3, and 4) in Figure
5. What is missing is an “implicit model” for
quadrant 1, which contains four Asian coun-
tries, including India. A discussion with an

60 Indian colleague leads me to place the family

(centralized, but not formalized) in this
quadrant as the “implicit model’ of the or-
ganization. In fact, Indian organizations
tend to be formalized as far as relationships
between people go (this is related to Power
Distance), but not as far as workflow goes
(this is Uncertainty Avoidance).

The “well-oiled machine” model
for Germany reminds us of the fact that Max
Weber, author of the first theory of bureau-
cracy, was a German. Weber pictures bu-
reaucracy as a highly formalized system
(strong Uncertainty Avoidance), in which,
however, the rules protect the lower-ranking
members against abuse of power by their su-
periors. The superiors have no power by
themselves, only the power that their bu-
reaucratic roles have given them as incum-
bents of the roles-the power is in the role,
not in the person (small Power Distance).

The United States is found fairly
close to the center of the map in Figure 5,
taking an intermediate position between the
“pyramid,” “machine,” and “market” im-
plicit models—a position that may help ex-
plain the success of U.S. business operations
in very different cultures. However, accord-
ing to the common U.S. conception of or-
ganization, we might say that hierarchy is
not a goal by itself (as it is in France) and
that rules are not a goal by themselves. Both
are means toward obtaining results, to be
changed if needed. A breaking away from
hierarchic and bureaucratic traditions is
found in the development toward matrix or-
ganizations and similar temporary or flexible
organization systems.

Another INSEAD colleague, Andr^
Laurent, has shown that French managers
strongly disbelieve in the feasibility of ma-
trix organizations, because they see them as
violating the “holy” principle of unit of com-
mand. However, in the French subsidiary of
a multinational corporation that has a long
history of successful matrix management,
the French managers were quite positive

Figure 8
SUBORDINATESHIP FOR THREE LEVELS OF POWER DISTANCE

Small Power Distance
Medium Power Distance

(United States) Large Power Distance

Subordinates have weak dependence
needs.

Superiors have weak dependence
needs toward their superiors.

Subordinates expect superiors to
consult them and may rebel or
strike if superiors are not seen as
staying within their legitimate
role.

Ideal superior to most is a loyal
democrat.

Laws and rules apply to all and
privileges for superiors are not
considered acceptable.

Status symbols are frowned upon
and will easily come under at-
tack from subordinates.

Subordinates have medium depen-
dence needs.

Superiors have medium depen-
dence needs toward their
superiors.

Subordinates expect superiors to
consult them but will accept
autocratic behavior as well.

Ideal superior to most is a re-
sourceful democrat.

Laws and rules apply to all, but a
certain level of privileges for su-
periors is considered normal.

Status symbols for superiors con-
tribute moderately to their au-
thority and will be accepted by
subordinates.

Subordinates have strong
dependence needs.

Superiors have strong de-
pendence needs toward
their superiors.

Subordinates expect su-
periors to act auto-
cratically.

Ideal superior to most is
a benevolent autocrat
or paternalist.

Everybody expects super-
iors to enjoy privileges;
laws and rules differ
for superiors and sub-
ordinates.

Status symbols are very
important and contrib-
ute strongly to the su-
perior’s authority with
the subordinates.

toward it; obviously, then, cultural barriers
to organizational innovation can be over-
come. German managers are not too favor-
ably disposed toward matrix organizations
either, feeling that they tend to frustrate
their need for organizational clarity. This
means that matrix organizations will be ac-
cepted if the roles of individuals within the
organization can be defined without ambigu-
ity.

The extreme position of the United
States on the Individualism scale leads to
other potential conflicts between the U.S.
way of thinking about organizations and the
values dominant in other parts of the world.
In the U.S. Individualist conception, the re-
lationship between the individual and the or-

ganization is essentially calculative, being
based on enlightened self-interest. In fact,
there is a strong historical and cultural link
between Individualism and Capitalism. The
capitalist system—based on self-interest and
the market mechanism—was “invented” in
Great Britain, which is still among the top
three most Individualist countries in the
world. In more Gollectivist societies, how-
ever, the link between individuals and their
traditional organizations is not calculative,
but moral: It is based not on self-interest, but
on the individual’s loyalty toward the clan,
organization, or society—which is sup-
posedly the best guarantee of that
individual’s ultimate interest. “Collectivism”
is a bad word in the United States, but “indi- 61

vidualism” is as much a bad word in the
writings of Mao Tse-tung, who writes from
a strongly Collectivist cultural tradition (see
Figure 6 for the Collectivist scores of the
Chinese majority countries Taiwan, Hong
Kong, and Singapore). This means that U.S.
organizations may get themselves into con-
siderable trouble in more Collectivist en-
vironments if they do not recognize their
local employees’ needs for ties of mutual loy-
alty between company and employee. “Hire
and fire” is very ill perceived in these coun-
tries, if firing isn’t prohibited by law alto-
gether. Given the value position of people in
more Collectivist cultures, it should not be
seen as surprising if they prefer other types of
economic order to capitalism—if capitalism
cannot get rid of its Individualist image.

CONSEQUENCES FOR POLICY

So far we have seriously questioned the uni-
versal validity of management theories de-
veloped in one country—in most instances
here, the United States.

On a practical level, this has the
least consequence for organizations operat-
ing entirely within the country in which the
theories were born. As long as the theories
apply within the United States, U.S. organi-
zations can base their policies for motivating
employees, leadership, and organization de-
velopment on these policies. Still, some cau-
tion is due. If differences in environmental
culture can be shown to exist between coun-
tries, and if these constrain the validity of
management theories, what about the sub-
cultures and countercultures within the
country? To what extent do the familiar the-
ories apply when the organization employs
people for whom the theories were not, in
the first instance, conceived—such as mem-
bers of minority groups with a different edu-
cational level, or belonging to a different

62 generation? If culture matters, an organiza-

tion’s policies can lose their effectiveness
when its cultural environment changes.

No doubt, however, the conse-
quences of the cultural relativity of manage-
ment theories are more serious for the multi-
national organization. The cultural maps in
Figures 5, 6, and 7 can help predict the kind
of culture difference between subsidiaries
and mother company that will need to be
met. An important implication is that iden-
tical personnel policies may have very differ-
ent effects in different countries—and within
countries for different subgroups of em-
ployees. This is not only a matter of different
employee values; there are also, of course,
differences in government policies and legis-
lation (which usually reflect quite clearly the
country’s different cultural position). And
there are differences in labor market situa-
tions and labor union power positions.
These differences—tangible as well as in-
tangible—may have consequences for per-
formance, attention to quality, cost, labor
turnover, and absenteeism. Typical univer-
sal policies that may work out quite differ-
ently in different countries are those dealing
with financial incentives, promotion paths,
and grievance channels.

The dilemma for the organization
operating abroad is whether to adapt to the
local culture or try to change it. There are
examples of companies that have successful-
ly changed local habits, such as in the earlier
mention of the introduction of matrix orga-
nization in France. Many Third World coun-
tries want to transfer new technologies from
more economically advanced countries. If
they are to work at all, these technologies
must presuppose values that may run coun-
ter to local traditions, such as a certain dis-
cretion of subordinates toward superiors
(lower Power Distance) or of individuals
toward in-groups (more Individualism). In
such a case, the local culture has to be
changed; this is a difficult task that should
not be taken lightly. Since it calls for a con-

scious strategy based on insight into the local
culture, it’s logical to involve acculturated
locals in strategy formulations. Often, the
original policy will have to be adapted to fit
local culture and lead to the desired effect.
We saw earlier how, in the case of MBO, this
has succeeded in Germany, but generally
failed in France.

A final area in which the cultural
boundaries of home-country management
theories are important is the training of man-
agers for assignments abroad. For managers
who have to operate in an unfamiliar cul-
ture, training based on home-country the-
ories is of very limited use and may even do
more harm than good. Of more importance
is a thorough familiarization with the other
culture, for which the organization can use
the services of specialized crosscultural train-
ing institutes—or it can develop its own pro-
gram by using host-country personnel as
teachers.

ACKNOWLEDGMENTS

This article is based on research carried out in the
period 1973-78 at the European Institute for Ad-
vanced Studies in Management, Brussels. The ar-
ticle itself was sponsored by executive search con-
sultants Bemdtson International S.A., Brussels.
The author acknowledges the helpful comments
of Mark Cantley, Andr^ Laurent, Ernest C.
Miller, and Jennifer Robinson on an earlier ver-
sion of it.

SELECTED BIBLIOGRAPHY

The first U.S. book about the cultural relativity of
U.S. management theories is still to be written, I
believe—which lack in itself indicates how difficult
it is to recognize one’s own cultural biases. One of

the few U.S. books describing the process of cul-
tural conditioning for a management readership is
Edward T. Hall’s The Silent Language (Fawcett,
1959, but reprinted since). Good reading also is
Hall’s article ‘The Silent Language in Overseas
Business” {Harvard Business Review, May-June
1960). Hall is an anthropologist and therefore a
specialist in the study of culture. Very readable on
the same subject are two books by the British an-
thropologist Mary Douglas, Natural Symbols: Ex-
ploration in Cosmology (Vintage, 1973) and the
reader Rules and Meanings: The Anthropology of
Everyday Knowledge (Penguin, 1973). Another
excellent reader is Theodore D. Weinshall’s Cul-
ture and Management (Penguin, 1977).

On the concept of national character,
some well-written professional literature is
Margaret Meads “National Character,” in the
reader by Sol Tax, Anthropology Today (Univer-
sity of Chicago Press, 1962), and Alex lnkeles and
D. J. Levinson’s, “National Character,” in Lindzey
and Aronson’s Handbook of Social Psychology.
second edition, volume 4, (Addison-Wesley,
1969). Critique on the implicit claims of universal
validity of management theories comes from some
foreign authors: An important article is Michel
Brossard and Marc Maurice’s “Is There a Univer-
sal Model of Organization Structure?” {Interna-
tional Studies of Management and Organization,
Fall 1976). This journal is a journal of translations
from non-American literature, based in New
York, that often contains important articles on
management issues by non-U.S. authors that take
issue with the dominant theories. Another article
is Gunnar Hjelholt’s “Europe Is Different,” in
Geert Hofstede and M. Sami Kassem’s reader,
European Contributions to Organization Theory
(Assen Netherlands: Von Gorcum, 1976).

Some other references of interest: Ian R.
G. Ferguson’s Management by Objectives in
Deutschland, (Herder und Herder, 1973) (in Ger-
man); C Franck’s “Epitaphe pour la DPO,” in
Le Management, November 1973 (in French); and
D. Jenkins’s Blue- and White-Collar Democracy,
(Doubleday, 1973).

Note: Details of Geert Hofstede’s study
of national cultures has been published in his
book. Culture’s Consequences: International Dif-
ferences in Work-Related Values (Beverly Hills:
Sage Publications, 1980). 6 3