Equity and Non-Equity Foreign Operations

Equity and Non-Equity Modes of Foreign Operations

• A non-equity cross-border alliance is an investment where profits and responsibilities are contractually assigned, with each party acting as a separate legal entity.
• Management contracts involve an enterprise vesting operational control in another enterprise for managerial functions in return for a fee.
• Licensing allows one company to manufacture its product with another company's permission for a payment.
• Franchising grants the franchisee the right to use the franchiser's trademark, business systems, and processes to produce and market goods or services under specific guidelines.
• Subcontracting involves a main contractor hiring subcontractors to complete a project, with the main contractor overseeing the project's execution per the contract.
• Outsourcing is when an individual or company performs tasks, provides services, or manufactures products for another company.
• Offshoring involves moving a company's operations to another country for reasons like lower labor costs or favorable economic conditions.
• An international joint venture is also mentioned
• Equity modes involve a foreign direct investor purchasing shares of an enterprise in another country.
• Subsidiaries are partly or wholly owned by a parent company, which holds a controlling interest.
• Joint ventures are commercial enterprises undertaken jointly by two or more parties, retaining their distinct identities and creating a third company.
• Mergers & acquisitions involve two organizations joining to form a new business, often with a new name.
• Intra-merger and Intra-acquisition HR Challenges are noted.

M&A Examples

• Vodafone and Mannesmann merged in 1999.
• Shenhua Group and China Guodian Corporation merged in 2017.
• AOL and Time Warner merged in 2000.
• ChemChina and Sinochem merged in 2018.
• Gaz de France and Suez merged in 2007.
• Glaxo Wellcome and SmithKline Beecham merged in 2000.
• Only 20% of the 10 largest mergers as of July 2002 led to shareholder wealth growth; the other 8 destroyed it.
• Within the first year of a merger, up to 20% of executives may be lost, and personnel/employee issues are often neglected.

M&A Phases

• A large number of M&As fail or do not produce the intended results.
• The Pre-M&A phase involves identifying people-related issues, planning due diligence, assessing people, organizational/cultural fit, forming a steering team, and educating the team on HR implications.
• The Due diligence phase includes estimating people-related, transactional, and ongoing costs, and identifying/assessing cultural issues.
• The Integration planning phase focuses on developing employee culture-sensitive communication strategies, designing key talent retention programs, leading integration efforts, developing a new strategy for the new entity, helping the organization cope with change, and defining an organizational blueprint and staffing plan.
• The Implementation and assessment phase involves managing ongoing change, especially cultural change.
• Focus on managing employee communications, advising management on people issues, aligning HR policies, monitoring organizational and people-related integration activities, ensuring the capture of synergies via incentives, and initiating learning processes for future M&As.

Acquisition Integration and Management

• Acquisition integration is a continuous process that starts with due diligence and continues through the ongoing management of the new enterprise.
• Integration management is a full-time job that should be recognized as a distinct business function.
• Decisions about key aspects of integration, such as management structure, key roles, reporting relationships, layoffs, and restructuring, should be made and implemented quickly.
• A successful integration process also melds the different cultures.

Understanding Migration

• A migrant is someone who has lived outside their country of birth for more than a year (Edwards& Rees).
• Permanent migration in the OESD (2024) is mainly for family (43%), labor (20%), free circulation (19%), and humanitarian reasons (11%).
• Factors influencing migration include technology, geopolitics, and the environment.
• In 2019, 56% of male migrants and 80% of female migrants worked in services.
• There were 272 million migrants, with 245 million being 15+ years old and 169 million being workers.
• International migrants account for only 3.6% of the world's population. Most people stay within their country of birth
• Migration patterns are not uniform and are shaped by economic, geographic, demographic, and other factors.
• The top destination for migrants is the USA, with over 51 million, while India has the largest emigrant population.
• The largest migration corridor is Mexico to the US, followed by Syrian Arab Republic to Turkey, and India to the United Arab Emirates, which is mainly labor migrants.

Understanding Immigration Laws

• Needs for certain professions (IT, qualified workers, nurses, seasonal agricultural)

• Talent visas (IT)

• Employers have to prove foreign worker fits job requirements

• Foreign worker wages equal to citizens/residents

• Transition plans are needed for high-wage applications

• Quantitative/qualitative mismatch in skills: manage skill flows to ensure balance in profile-providing and skill-deficit areas

• Employers must fill vacancies with suitable profiles

• Workers/job seekers require access to decent jobs and minimize different types of downgrades, and better career development

• Need to make the labor market better with better matching

• Ensure regular, mutually beneficial labor migration

• Offer training that is relevant, high-quality

PCN, HCN, TCN

• PCN refers to parent-country nationals, who are citizens of the country where the organization is headquartered.
• Headquarters controls PCNs, and they receive international exposure but adjust slowly to host countries.
• Subsidiary companies must adopt the policies of the host country.
• HCN refers to host-country nationals, who are citizens of the country where the subsidiary is located.
• Headquarters have less control over HCNs, and language/culture barriers aren’t an issue.
• TCN refers to third-country nationals, who are citizens of a country that is not the parent or host country.
• Headquarters have very little control over TCNs.
• Managers may be more familiar to host countries than parent country nationals.

Industrial Relations

• The most difficult case is high context and high context (Chinese Brazilian)

• The most important relations for global companies are employment/industrial relations.

• Industrial (employment) relations involve interrelations between employers/employees, employers/labor unions, employers/employer organizations and also relations between employers and the state

• Economies can be liberal market economy (LME)

• Industrial (employment) relations are "Hire and fire"

• HRM is individualized

• Coordinated (CME) examples are Germany, Japan, Scandinavian economies, the Netherlands, Austria, Switzerland

• There is more centralised (sectoral or national level).

• Long-term relationships

• More collective principles, collectively oriented HRM

• Basic Conditions of Employment Act: conditions of employment (working hours and overtime, vacations, sick and parental leave, renumeration, unemployment, meal break, termination of employment etc)

• Employment Equity Act: equal opportunity in employment

• Civil Rights Act: Prohibits discrimination on the basis of race, colour, religion, national origin or gender

• Special laws: provide legal rights of employees

• The USA is the only country with no provision on annual leave, with 40 hours work week

• 63% of countries - more than 3 weeks of paid vacation

• France has 25-30 days and 11 holidays, 35 hours week

• Many countries have employment laws with trilingual or regional HR policies, regulations by sector or city etc

• France provides the 2nd highest level of benefits worldwide, and collective bargaining

MNCs and Trade Unions

• Social dumping is when employers use cheaper labor than is usually available by moving production to low-wage regions.
• MNCs have significant financial resources, alternative sources of supply, the possibility to move production facilities, a remote locus of authority, production facilities in many industries and knowledge of industrial relations..
• Trade Unions influence wage levels, constrains the ability of MNC to vary employment levels, and hinder/prevent global integration of operations.
• Strikes can cause costs!
• Labor regulation varies significantly, and union membership is declining in most countries.

Approaches to Labor/Employee Relations

• Possible HR roles consult with unions/employee representatives, manpower planning, employee redeployment, internal comms and also identify training needs.
• Also design new jobs from offshoring operations and highlight potential risks.

AI and Migration

• AI and digitalization influence how people migrate.
• Can be used for chatbots
• Returning Migrants can even use "Migration smart cards"

Cross-Cultural Issues in IHRM

• Is a group phenomenon with shared customs, beliefs, norms and values, and it is passed from generation to generation.
• World culture has 11 clusters

Organizational vs cultural

• culture encompasses group and organizational culture and has 6 levels
• These are Symbols, Behavior, Attitudes, Rituals, Belief
• Org culture focuses on practices and changes a lot more
• There are many impacted values

Understanding Hofstede, kluckhohn and more!

• Have techniques for motivation, a time horizon for plans, selection practices and attitudes towards customer service
• Florence Kluckhohn and Fred Strodtbeck created Harvard value project with models to help understand and improve them

Power Distance and culture

• "When interacting with someone from another culture, try to watch more, listen more and speak less. Listen before you speak and learn before you act"
• Linear scheduling is important as well as trust
• Can also analyse whether companies trust relationships or trust in skills
• High or low context communication
• Consensual top down decision making
• Individualistic culture is important as well

Ethnocentrism

• Means headquaters runs and controls everything

Hofstede's Dimensions

• Cultures lie on a spectrum of Egalitarian to Hierarchical scales
• Cultures lie on a spectrum of Collectivism to individualism scales
• Individualism is prominent in the US/UK
• Consensual is one end while Top down is the other

Approaches to time

• M time refers to monoactive monochronic cultures
• They are concrete and value being on time and view M time as very important
• P time can be polyactive or polychronic cultures
• Have flexible approach to time

Multinational Corporation Models: From Global to Transnational

Defining IHRM

• Goal is to empower any corporation to get succesful internationally
• It is more than just a process
• There are so many aspects to consider
• More activities + exposure to laws

Globalization

• People and goods move all the time with markets integrating all the time
• Deregulation is important and so is privatisation

Implications

• national systems of management are unstable
• 'new international division of labour' shifts work to poorer countries but research goes to richer countries
• More migration