Human Resources Management and Exporting Firms
Our discussion so far has focused on larger firms with international facilities (that is, those in stages 3 to 5 of internationalization). However, the practices we have discussed are also relevant to smaller firms that are interested solely in exporting their products. It is estimated that only about 20 percent of U.S. firms with fewer than 500 employees have ever been active exporters, a percentage that lags way behind that found in most industrialized nations. At least 30,000 small firms in the United States have the potential to export competitively but do not do so.112
A number of studies have shown that the key impediments to exporting are (1) lack of knowledge of international markets, business practices, and competition and (2) lack of management commitment to generating international sales.113 These impediments can be largely attributed to poor utilization of human resources within U.S. firms rather than to external factors. There is some evidence that a company that clearly reinforces international activities in its HRM practices is more likely to fare well in its export attempts.114 Reinforcing international activities in HRM practices requires a company to:
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▪ Explicitly consider international experience when making promotion and recruitment decisions, particularly to the senior management ranks.
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▪ Provide developmental activities designed to equip employees with the skills and knowledge necessary to carry out their jobs in an international context. Developmental activities that enhance a firm’s ability to compete globally include (1) programs designed to provide specific job skills and competencies in international business, (2) opportunities for development and growth in the international field, and (3) the use of appraisal processes that explicitly consider international activities as part of performance reviews.
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▪ Create career ladders that take into account short- and long-term international strategies.
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▪ Design a reward structure that motivates key organizational players to take full advantage of the company’s export potential. Reinforcing desired export-related behaviors is likely to increase commitment to foreign sales as managers devote greater attention to skill development, information gathering, and scanning the environment for international opportunities.
The decision to export will require CEOs and senior marketing personnel to spend a significant time away from the office attending trade shows and developing relationships with distributors and companies abroad. Particularly in small companies, this means that the staff back home must be empowered to make decisions regarding the running of the business, with the traveling CEOs and executives keeping in touch via phone, fax, or e-mail.
The process of making the right export connections and establishing relationships used to be slow and painstaking, but the Web is changing all that, opening exports to firms of any size. For instance, net sales of clothing and accessories overseas by U.S. firms through the Internet are projected to soar to $70 billion by 2020. In the first year of its operation, New York-based [no longer online] Girlshop.com, for example, exported $2,000,000 worth of avant-garde merchandise and made $250,000 in operating profit.115
To succeed internationally on the Web, however, firms must implement HR practices such as selection and training programs. These services can help firms surmount language barriers, use cutting-edge technology to mix and match products to diverse customer needs, adapt products to different cultural tastes and preferences, engender customer trust, and the like. Although many of these issues also apply to the domestic market, they become more challenging overseas where the market is far more heterogeneous and segmented.116
Ethics and Social Responsibility
Globalization increases. the possibility that managers, especially those sent to regions very different from their home country, will face ethical dilemmas. For instance, as noted earlier, in many countries what would be considered a bribe in the United States would be considered a commission or an expected gift of reciprocity, part of doing business. Because competition is global, expatriates may feel that if they apply a stricter code of ethics than managers at other firms, the company may be put at a disadvantage, which would reflect poorly on their performance evaluations.
The U.S. Congress passed the Foreign Corruption Practices Act in 1977 as a result of United Brand’s $2.5 million bribe to a Honduran government official to reduce the banana tax. The law expressly forbids substantial payments by U.S. firms to foreign officials to influence decisions. The act does not appear to have had an adverse effect on U.S. firms operating overseas. It is even possible that the legislation improved the image of U.S. firms, counterbalancing any losses.117 Yet despite the act, U.S. expatriates may still be tempted to take the risk of paying foreign bribes to generate more business.
What is ethical and what is legal may differ, and the differences are probably more pronounced when HR practices are considered on a global basis. In many countries, for instance, child labor is not illegal and discrimination against women in employment is viewed as normal. Hence, the multinational firm—and more specifically the expatriates who are often in top management positions overseas—confront tough ethical choices even though legality is not the issue. Consider, for instance, the following story from the late 1990s. Kathie Lee Gifford tearfully confessed on her morning talk show that she had not known that her Wal-Mart outfits were made by Honduran girls paid 31 cents an hour. Made in the U.S.A., a lobbying group, informed consumers that Michael Jordan reportedly earned $20 million a year endorsing Nike sneakers—more than the total annual payroll for the thousands of Indonesians who made them.
The flaying of celebrities like Gifford and Jordan makes it easy to miss the point. As noted by one ethics writer:
For years, children have been sold as slaves, blinded or maimed for crying or rebelling, or trying to return home, ill-fed, bone-weary, short-lived. They file the scissors blades, mix the gunpowder for the firecrackers, knot the carpets, stitch the soccer balls with needles longer than their fingers. Human-rights groups guess there may be 200 million children around the world, from China to South America, working full time—no play, no school, no chance. All of which raises the question, once the news lands on the front page: How much are we willing to sacrifice the children of other countries to give our children what they want? Americans search for bargains with enduring passion, but it is hard to find them—such as a handmade rug for only $7,000—without tiny fingerprints on them somewhere. If child-labor and safety laws were truly enforced, trade experts say, whole industries in many countries would collapse, at great cost to both developing and developed economies.118
These issues are still with us, although international firms are becoming much more concerned about self-regulation to prevent the worst abuses. Nike, for example, has done much to change the negative image it had a few years back for exploiting young children (often under the age of 10) in Indonesia by paying them a dime per hour (although from time to time similar issues with Nike resurface). It was alleged that many of these children developed permanent disabilities after working in Nike’s factories. Many firms and industry groups have developed or are developing their own voluntary code of conduct for foreign operations. For example, the American Apparel Manufacturers Association (AAMA), whose members include Munsingwear, Jockey International, and VF, requires members to pay the existing minimum wage, maintain certain minimum safety standards, and avoid the use of child labor. For a related discussion, see the Manager’s Notebook, “Toxic Factories Take Hold of China’s Labor Force.”
MANAGER’S NOTEBOOK Toxic Factories Take Hold of China’s Labor Force
Ethics/Social Responsibility
Inexpensive, long-lasting, rechargeable, and safe to use, nickel-cadmium batteries quickly became a mainstay in many toys made in China for export to the United States. Yet many U.S. companies have begun phasing these batteries out of their products because their manufacture is so hazardous to Chinese workers. Cadmium, a toxic metal that causes cancer, is banned in Europe and Japan, and cadmium batteries have not been made in the United States for many years.
The United States has seen a wave of recent scares and recalls of products made in China that contain lead and other substances hazardous to consumers. The widespread rejection of nickel-cadmium batteries by U.S. firms such as Hasbro, Mattel, Wal-Mart, and Toys ‘R’ Us goes further, recognizing a manufacturing component’s danger to workers in China, where the vast majority of the world’s toys are made.
The response was spurred by a front-page news story that profiled a Chinese engineer. Her blog, written in Chinese and translated by The Wall Street Journal, chronicled her experience with the debilitating symptoms of cadmium poisoning acquired at the battery factory where she worked for nine years and against which she has filed a lawsuit. About 400 workers at the company, GP Batteries International Ltd., were also found to have elevated levels of cadmium, making them vulnerable to kidney failure, lung cancer, and bone disease. Hundreds more quit their jobs there.
When the last U.S. cadmium-battery factory closed in 1979, the site required a $130 million clean-up and sparked a multimillion-dollar class action suit by residents of the area. But the unending search for cheaper means of production often sends hazardous manufacturing processes to developing countries, where workers have fewer protections. GP Batteries paid more than $1 million in worker compensation and medical bills, but now outsources production of cadmium batteries to independent factories elsewhere in China.
Dealing with Political Risks
As noted earlier, the more a firm expands to multiple countries, the more exposed it becomes to political risk. By political risk, we mean the possibility that social (and often governmental) pressures in a foreign country may negatively affect the firm’s operation. American firms operating in France, for instance, are under a great deal of pressure to avoid layoffs, even if they are overstaffed. Internet providers such as Google and Yahoo! have been widely criticized in the United States for collaborating with the Chinese government, blocking content that the government considers “subversive” and informing authorities on the Internet use of dissidents. In Russia, local companies often pay public officials to raid the offices of business rivals and subject them to criminal investigation, with foreign-owned firms becoming easy targets.119
In most of Western Europe, the image of the “ugly American” has resurfaced in recent years, complicating the work of expatriates there. As noted in a 2008 article in BusinessWeek, “as credit woes endanger the world economy, they’re giving Europeans another reason to resent U.S. influence. Anti-Americanism was already simmering because of the Iraq war, dislike for President George W. Bush, and mistrust of rampaging buyout firms.”120 A U.S. expatriate may feel the heat of Europe’s simmering anti-Americanism, even though the subprime mess and the Wall Street crash are not his or her fault.
In short, expatriates are increasingly thrown into the middle of political storms, and they need to be able to respond appropriately to manage potentially damaging situations. This means that besides learning about the foreign culture, expatriates should be prepared to deal with the political forces that they might face. Although this in itself is nothing new, there is little doubt that the political landscape for most companies is far more complex now than it used to be in the not too distant past.