Niranjan Chatterjee’s Weblog

August 22, 2013

Human Capital Management

Table of Contents

1)      A perspective of international human resource management 2

2)      Case Study 1 – Lincoln Electric in China. 5

a)      A brief history of the organization. 5

b)      The Lincoln Electric (Shanghai) Welding Company. 6

3)      Case Study 2 – Training for transnational managers at Johnson Wax, IBM, 3M and McGraw-Hill 12

4)      References. 16


A perspective of international human resource management

Globalization and liberalization earnestly followed by economies and governments across the world have created an all new set of paradigms in companies that operate across political boundaries and interact with multi-cultural workforce. Negotiations have now to be done at multiple levels with labor and trade unions at different countries to reach mutually acceptable and amicable resolutions (Prahalad & Doz, 1987). The obvious fallout of such a complex situation is an automatic loss of managerial flexibility as what might be perfectly acceptable for a union in one might be completely abominable in the eyes of another union in another country where the organization operates. Moreover, the terms and conditions of appointment and remunerations and perquisites in one country might sound outrageous in another country. Basic issues that make transnational human resource management such a daunting task are (Poole, 1986):

  • Degree of unionization and technological competence in a specific country
  • Levels of governmental intervention varies from country to country
  • Influence of religion, if at all, on labor unions of a particular country
  • Influence of mainstream political parties on labor unions
  • Managerial strategies in tackling such diverse scenarios

Such a multifaceted environment might also result in multiple agreements within the same organization.

The situation gets even more critical as expatriate managers are often sent to foreign locations to tackle labor issues arising at offshore locations. Any issue related to labor can be successfully tackled only when cultural divides that normally exist between people of different countries, cultures and traditions are bridged (Shenkar, 2001). While on the issue of cultural differences a reputed group of management authors opine cultural differences per se are not something absolute and predetermined but largely depend on historical interlocutions between concerned countries. Stereotyping foreigners, which is an integral part of every culture, has its roots in level and nature of interaction between two nationalities over centuries (Chapman, et al., 2008). According to authors, this approach is not any different from four-dimensional approach of Hofstede in categorizing a culture (Hofstede, 1983) but actually supplements it in a large way. The authors are firm in their opinion that any international manager needs to have a workable knowledge of bilateral history to overcome any ingrained prejudices or biases that he may have to face simply because of his nationality as he steps in a foreign location. But one must admit Hofstede’s cultural matrix and its logical inference of cultural distances is still one of the best guides for an expatriate manager as they prepare for a foreign stint (Kogut & Singh, 1988).

Any expatriate manager could be, rather, should be given training regarding host country’s cultural typicality and should be made aware of negotiating styles prevalent in the country the manager is supposed to perform their duties. However, no training is better than hands on experience, so an expatriate manager has to stumble and find their way through uncertain territories once they are on foreign shores. The only issue that they must never let go out of their sight is empathy towards foreign culture. To help international managers in negotiating across political and national boundaries, some authors have prepared a ten-point checklist (Salacuse, 1998):

  1. What is the final goal of the negotiation process (Is it a legal contract or striking a long standing and sustainable business relationship?)
  2. What is the approach to the negotiating process (Would it be a mutual win/win or a more dominant win/lose?)
  3. What would be the style adopted by negotiators during the process (Would it be formal or informal?)
  4. What would be the nature of communication (Would it be direct or indirect?)
  5. How much sensitive should the parties be towards time factor and punctuality (Would it be high or low?)
  6. What should be the optimum level of emotionalism in the process (Would it be high or low?)
  7. What will be the final form of the agreement arrived upon (Would it be a generalized agreement or would it be extremely specific regarding details?)
  8. How should the agreement constructing process unfold (Would it be top-down or bottom-up in nature?)
  9. What would be constitution of the organization (Would it have only one leader deciding important issues or would decision be taken through consensus?)
  10. What would be degree of risk taking during the negotiation process (Would it adopt a high-risk approach or would it stick to the more conservative low-risk approach?)

Cultural differences have a great impact on perceptions of negotiating parties and it quite often happens that these parties work on different objectives throughout the negotiation process thus making the entire process rather choppy and difficult to traverse. American executives would most probably define a negotiation process to be successful only if a legally enforceable contract emerges out of the process, but Japanese and most Chinese executives would define successful completion of a negotiation process as a situation where foundation stone for a long-term business relation is laid. Therefore, an American or a Japanese or a Chinese executive should be aware of these subtleties prior to engaging in a negotiation process (Pye, 1982).

Culture indeed has a great influence on the negotiating style of an individual and a manager has to negotiate for the most part of his professional day with either outside entities or subordinates or with peer groups. Thus, an expatriate manager needs proper grooming about cultural backgrounds of entities they have to negotiate to emerge successful in a negotiation process. While Japanese, Indians and Chinese mostly view negotiation process as an integrative bargaining endeavor, majority of Spanish do not have the same perception, rather, they view negotiation as a distributive bargaining process (Salacuse, 1998).

Thus, it might safely be concluded that culture divide creates big hurdles in the communication and negotiation process undertaken by a manager and expatriate managers must take special care to bridge this hiatus to the extent possible. Also, there is a difference from professional and social culture of the people of a country and the cultural labyrinth that an expatriate manager faces is a complex combination of the two (Salacuse, 1993).

Case Study 1 – Lincoln Electric in China

A brief history of the organization

Lincoln Electric Company was founded in 1895 by John Lincoln and was subsequently joined in 1907 by his younger brother James Lincoln. The company started off with manufacturing small electric motors at Cleveland, Ohio and within 1911 also included arc welding equipment and battery chargers for battery operated vehicles within its product range. Arc welding equipment soon became its core product and leading revenue generator and with path breaking innovations in this product line, the company soon became the leading name in the world in this particular item. Just to put things in proper perspective, it might be stated that more than 90% of the company’s $1.2 billion global sales was generated by arc welding equipments alone.

By 1914 the younger brother was at the helm of affairs of the company and, being gifted with more managerial acumen than his elder sibling, he charted a divergent path from what was followed by majority of the companies during that period by introducing piecework remuneration system rather than opting for prevailing time based payment system. But that did not mean he considered his employees as mere inputs to the production process and was blind to their welfare and development. He introduced Employee Advisory Board that constituted of elected representatives from almost all operating units and also made it a routine of holding regular meeting of this Board with owners and senior managers of the company. With passage of time, the company introduced life insurance policies to each employee in 1915, started am employee training and skill development school in 1916, implemented employee stock ownership plan in 1925 and also incorporated employee suggestion program in 1929. The company progressed further to streamline its job evaluation system to rationalize job rates and introduced a properly designed merit rating system to determine employee bonuses. Since 1939, the company has consistently shared profits with its employees. After successive regimes of home grown managers, Anthony Massaro became the first Chairman and CEO without having a prolonged tenure with the company as an employee.

The Lincoln Electric (Shanghai) Welding Company

This was Lincoln’s first foray in China and the plant was inaugurated by company Chairman Anthony Massaro on May 13, 1998. The company was established as a wholly-owned subsidiary of a Singapore-based joint venture between Lincoln Electric and its distributor partners. Lincoln Electric was the majority shareholder in the joint venture and solely responsible for the management of the company in Shanghai. Jeffrey Kundrach was appointed General Manager of this unit.

He and some of his fellow expatriate managers were faced with the same intriguing question of how to successfully implement the company’s managerial policies in a country so culturally distant from the occidental culture of United States. Should the management totally avoid existing managerial policies at home or should it try to find an acceptable mix and match of home policies and some element of local flavor so that local employees are suitably motivated to perform at their peak abilities. For Lincoln Electric (Shanghai) the problem was all the more acute as it was well known in the west for its very successful piece-rate payment scheme that paid employees only for what they produced, and a bonus system that provided employees with year-end bonuses based on their performance (Lincoln, 1991). Though several management experts of west were of the firm opinion that this was one of the reasons for the company’s dominant position in western markets, they were not quite sure whether this model would work in China.

It must be mentioned at this juncture while Lincoln transferred used machinery in Indonesia, it rolled out latest technology at both its plants at Shanghai and Cleveland. The basic idea behind it was if both plants have same technology, they would benefit by sharing their mutual experiences. So, the stake was rather high at Shanghai plant to ensure high productivity with a completely new set of workers that had very little experience of Lincoln style of functioning. The hiring process at Lincoln Shanghai thus was rather elaborate.

Each worker was interviewed for two days and was observed while working at shop floor so that he can be observed by higher management and the worker also gets a feel of real time functioning. The basic idea was to get the right person for the job at hand and ensure that he does not leave due technical incompetence. However, there was no system of guaranteed employment or salary package and it depended entirely on productivity of individual workers. Each worker was provided with a booklet that detailed in Mandarin operational procedures of the job assigned to him.

Within the first year of operation Lincoln Shanghai had in 1999 a head count of forty employees at shop floor, another ten at Quality Control Department and twenty other people employed in administrative and service jobs in the company. The sales personnel were reporting to the representative office in Shanghai and with the other offices in Tianjin, Xian, and Shenyang. The first year was marked by very large growth, so much so that the Shanghai factory was planning to introduce other products of Lincoln as well in this manufacturing unit.

However, the single most worrying point in manufacturing at the Shanghai unit was maintenance of quality – one of the main reasons for the fame and goodwill earned by the company in United States of America and Europe. The company was determined to retain the high standards it had already set for itself in matters of quality. The company put in place a regular system of Quality Audit by experts from United States to ensure no slackness or complacence set in this regard.

Such a near perpetual quality audit threw up a rather fortuitous avenue for interacting more closely with workers. It allowed management to sit down with workers at least twice a year and frankly deal with issues of individual efficiencies and inefficiencies and discuss ways and means to improve productivity of those that were lagging behind while finding out means to ensure that those that were more efficient retained their superior efficiency. However, this was possibly the right time to introduce the incentive system that so famously served the Cleveland so well over decades, but some members of the top management thought that introduction of bonus system would not be as great a motivator for works as would a properly designed piece rate system at Shanghai unit. Though none of the top management denied bonus was a very effective system of not only evaluating individual efficiency but also simultaneously provided efficient workers something tangible other than only appreciation by the top management.

In spite of such tangible benefits of productivity linked bonus system, Lincoln was not yet ready to introduce this system at Shanghai unit. The prevalent mood of management was though bonus is a genuine motivator, it appears only twice during a year and there might be lot of hectic activity during periods approaching declaration of bonus while leaving the rest of the year in a relatively uninspiring mode. A properly calibrated Piece Rate System would be a much better motivator as it operated throughput the year without any peak or bust periods. Thus, the organization would benefit far more than any such seasonal thrust in the form of bonuses.

The company also reaped the benefits of a workforce that was more than amenable to remuneration schemes tried out by the management. Moreover, it was far easier to set up free and forthright communication channels between management and shop floor employees than it could be in Australia. This was true in spite of the very big and genuine language barrier between largely expatriate managers and local workforce. It was far easier for senior managers to stroll down the production lines and physically pat the backs of workers and enquire about their well being. Not only did they respond but they actually responded enthusiastically as they felt their endeavors were recognized and felt proud and contented due to that. Thus, it implied that the workforce, though new to Lincoln culture, already started trusting the management and a Piece Rate System would work perfectly in an environment of such healthy mutual trust.

However, there were several serious cultural barriers that needed to be crossed and language was one of those which might pose a very big hindrance to effective communication – the lifeblood of effective management and motivation. Also, Piece Rate wage system exposed workers to poor company performance and it might also result in sustained depression of worker remuneration, especially during times of downswings in the economy or the industry where Lincoln is operating. This might send wrong signals about the company’s intentions in a country that is not habituated with such a flexible wage rate system. Chinese government might also decide to interfere if it finds workers are continually subjected to reduced earnings for no fault of theirs. In Cleveland, workers could speak out their mind and offer suggestions to improve the prevailing scenario but that should not be expected in China as it has a society where workers are traditionally considered to be at the lowest rung of corporate hierarchy and expected to faithfully carry out orders of superiors than offering them suggestions and tips for improving the current scenario.

Though aware of the risks involved, management at Shanghai unit continued with the Piece Rate system while continually encouraging workers to become more forthright and participative in the management process. This happened because of a few influential members of the managerial team who felt that barriers of communication and traditional Chinese mindset would not be that a big a hurdle that could not be crossed through sustained managerial efforts towards bridging that gap. This small but enthusiastic band of managers believed Chinese workers would welcome a remuneration system that is easy to understand, transparent and rewards efficiency as Chinese are inherently competitive and would never shy away from proving their worth by competing with their peer group. The situation was more favorable as the traditional concept of an egalitarian remuneration framework where very little difference in salaries existed between different grades of workers was gradually giving way to differentiated salary structure as more and more foreign as well as Chinese firms opted for Piece Rate system. So, principally there should not be any impediments in successfully implementing a performance based remuneration system; the main and most crucial element was its implementation at an opportune moment.

The main issue was not only setting up a fair system of Piece Rate but also make it appear fair in the eyes of the workers. Once they are convinced that the system is indeed fair, more than half the problem is solved. Thus, a lot of homework is necessary to fix the rate structure so that it is able to sustain itself through varied and often extreme economic and business scenarios. One of the worst things that might happen to an already implemented Piece Rate system is management realizes that the system has set such high rates that it would not be possible to maintain during leaner periods and goes back to revise those rates. It has a tremendous demoralizing effect on workforce and might lead to massive labor turnover and low employee morale as they simply fail to understand (as such it is also not expected that shop floor workers would be able to understand such macro level company wide economic compulsions) why their earnings are curtailed when they were making so much money only a fortnight earlier. It might lead to an almost irreparable loss of goodwill of the company in labor market and management might find it extremely difficult to recruit new employees.

The trust factor which is so very important in maintaining the health of an organization might just disappear altogether and it would become an impossible task to turn things around. The unit is newly set up and the equipments and technology are also new, thus, everyone, right from the workers to the top management are in some sort of a learning curve and it is not possible to introduce a fixed Piece Rate system in such a scenario. Rather, it would be better to start at comparatively lower rate and constantly modify it by little adjustments till the learning stage is over. Just because a few workers perform at a level which is 20% more than the basis cannot be the reason for drastically altering the rates. Any such impulsive action might erode the trust base for ever.

Lincoln’s Shanghai unit took full two years of continuous modification of the remuneration system to finally reach that sustainable remuneration structure that effectively motivated the workforce while boosting its commitment towards higher levels of productivity.

Case Study 2 – Training for transnational managers at Johnson Wax, IBM, 3M and McGraw-Hill

Training workforce on a global scale is an extremely complex issue and actual experiences and approaches to the issue of four business organizations operating in different industries have been clubbed together in this case study to provide a comprehensive picture.

Johnson Wax, headquartered at Wisconsin arranges for training of managers located in their subsidiaries at forty different countries in the world. This company does not, generally, modify its training courses to suit cultural and attitudinal idiosyncrasies of countries it operates in as it strongly believes in maintaining uniformity in its corporate culture and attitude. In spite of that, the company has observed and accordingly incorporated some changes in its training programs to suit peculiarities of some countries as it has found in some cases the imparted training is superfluous in one country while it is futile in some other country.

As for example, the company did not impart its team building training to employees of Brazil as it found that the concept of working as a team is so ingrained in Brazilian psyche that imparting any training on that aspect not only would be a complete waste of time and efforts but also might become counterproductive as Brazilian employees might consider it downright insulting or lack of faith of the company on their commitment and loyalty.

In China, however, trainers at Johnson Wax felt it to necessary to counter the prevailing fatalist attitude among employees for better coordination and higher productivity. Chinese employees have strong belief in destiny and any training on self-development often has little or no effect on employee motivation and morale. The prevailing attitude among Chinese employees is that if one is destined to be supervisor it is totally pointless to make any attempt to become a manager as destiny has not ordained that post for that particular individual. Setting objectives and undertaking performance appraisals against those targets is a very common and routine managerial activity in the United States, but is often considered redundant and even improper in some countries. So, trainers should also keep this latent but extremely potential difference in mind while imparting training to employees from different nationalities and cultures. Johnson Wax would ideally like to have its HR directors across the world advice the training managers on what would be the best fit for employees of a particular country by considering the impact of indigenous culture on the entire program. Local general managers should ideally be kept in the loop in this entire process as they are the ones with their ears to the ground and would possibly the best judge of whether a particular program is appropriate for a country or not. The head of training at corporate headquarters at Wisconsin would ideally love to have a dedicated training manager at each location that would be able deliver training in local language but some of the foreign units are not large enough to make such a move economically feasible.

Johnson Wax would have loved to emulate IBM in this regard but it is not quite possible for Johnson Wax to spend so much money on training its employees across the world. IBM has an education wing directly connected and catering to each of its 132 units across the world. As it is not a feasible idea to have a dedicated education centre at each location, IBM divides its worldwide operations in five geographic zones and in each zone there is an education centre that works as a coordinating hub within the zone. Therefore, each country has a specified education centre with which it can interact and coordinate. It is but natural that size of these education centers varies widely – while some centers have only a few staff, the education center at the United States employs more than 2000 people. But the moot issue is, every unit of IBM in the world has a specified education centre with which it can coordinate when need for training arises or thought appropriate by the top management. However, it must also be mentioned here that with rapid advancement of technology it is not always necessary that trainer and trainees need to be physically proximate and a technology company like IBM takes full advantage of internet to make every course available for every employee situated anywhere in the world. But heads of every zonal training centre still remain responsible for devising training programs and very often even training materials within their jurisdiction.

3M adopts an even more decentralized approach than IBM in imparting their training programs. The company has subsidiaries in fifty two different countries across the world and each subsidiary is responsible for training it imparts within its ambit. However, to keep some semblance of uniformity, the training centre at its European headquarters at Dusseldorf coordinates between units spread across Europe without in any way impeding autonomy of each centre. While subsidiaries develop and impart training to its employees, US headquarters is always at hand to offer suggestions and consulting that a subsidiary may request for. Such a situation evolves especially when a new product or technology is developed in the United States and subsidiaries are asked to produce or implement it. In fact, top training executives of 3M are extremely open minded in this regard and have no problems at all with the notion of a training program developed in Europe or any other continent and imported to the US. This attitude is surely an extremely welcome deviation from the usual attitude of ethnocentric domination.

Situated at somewhat the opposite end of the spectrum is McGraw-Hill which believes in sending trainers from headquarters to subsidiaries spread in different corners of the world. However, the company tries to modify and accommodate local sensibilities to the extent possible in the centralized training program. Actually the case at McGraw-Hill is somewhat different from the others. Before merger of the company’s US and international operations there was not much training programs to speak of. It was only after the merger took place did the top executives wake up to the idea of imparting training to its transnational employees for better coordination and cohesion among staff and higher, more streamlined productivity metrics. Generally the need for a training program is put up by regional subsidiaries and trainers from corporate headquarters travel there to impart training.

But the company’s basic aim is to develop in due course of time local trainers in each subsidiary as sending trainers from headquarters each and every time there is a need for training is not an economically feasible proposition. So trainers from headquarters typically arrive quite a few days in advance before the actual program starts and try to soak in the local ambience to the extent possible and also interact with prospective trainees to get a feel of their needs, aspirations, doubts and queries that keep swirling in their minds. In this way, trainers are better able to tailor their training programs to make those interesting and easily intelligible to those for whom it is intended. Trainers from headquarters are acutely aware of the need to modify programs to suit local idiosyncrasies to make those really effective as anything forcibly imposed from above might actually turn out to be counterproductive. They consciously try to rein in their personal ethnocentricity to the extent possible while delivering these training programs.

In this regard, these trainers coordinate extensively with local general managers to gauge the type, extent and intensity of training required as local general managers are best suited to provide genuine feedback. Sometimes such interactions carry on for weeks and even months before a training program is actually given the go ahead. These trainers also interact regularly and intensively with training managers in other companies and independent training consultants to enrich themselves from their knowledge, expertise and real life experiences. All these efforts tend to temper these training programs to a great extent when they are delivered in foreign shores and employees located in subsidiaries do not have that much trouble in identifying themselves with either course content or global culture and aspirations of the company.


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