The Global Enviornment

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Although the terms international, global multinational, and transnational tend to be used interchangeably, there are distinct differences. First, a domestic market is one in which a product or service is sold only within the borders of that country. Aninternational market is one in which a company may find that it has saturated the domestic market for the product, so it seeks out international markets in which to sell its product. Since international markets use their existing resources to expand, they do not respond to local markets as well as a global organization. A global organization is one in which a product is being sold globally, and the organization looks at the world as its market. The local responsiveness is high with a global organization. Amultinational is a company that produces and sells products in other markets, unlike an international market in which products are produced domestically and then sold overseas. A transnational company is a complex organization with a corporate office, but the difference is that much of the decision making, research and development, and marketing are left up to the individual foreign market. The advantage to a transnational is the ability to respond locally to market demands and needs. The challenge in this type of organization is the ability to integrate the international offices. Coca-Cola, for example, engaged first in the domestic market, sold products in an international market, and then became multinational. The organization then realized they could obtain certain production and market efficiencies in transitioning to a transnational company, taking advantage of the local market knowledge.

Table 14.1 Differences between International, Global, Multinational, and Transnational Companies
Global	Transnational
Centrally controlled operations	Foreign offices have control over production, markets
No need for home office integration, since home office makes all decisions	Integration with home office
Views the world as its market	High local responsiveness
Low market responsiveness, since it is centrally controlled
International	Multinational
Centrally controlled	Foreign offices are viewed as subsidiaries
No need for home office integration, as home office makes all decisions	Home office still has much control
Uses existing production to sell products overseas	High local responsiveness
Low market responsiveness

Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of trade agreements, growth of new markets such as China, education, economics, and legal implications all impact international business.

Trade agreements have made trade easier for companies. A trade agreement is an agreement between two or more countries to reduce barriers to trade. For example, the European Union consists of twenty-seven countries (currently, with five additional countries as applicants) with the goal of eliminating trade barriers. The North American Trade Agreement (NAFTA) lifts barriers to trade between Canada, the United States, and Mexico. The result of these trade agreements and many others is that doing business overseas is a necessity for organizations. It can result in less expensive production and more potential customers. Because of this, along with the strategic planning aspects of a global operation, human resources needs to be strategic as well. Part of this strategic process can include staffing differences, compensation differences, differences in employment law, and necessary training to prepare the workforce for a global perspective. Through the use of trade agreements and growth of new markets, such as the Chinese market, there are more places available to sell products, which means companies must be strategically positioned to sell the right product in the right market. High performance in these markets requires human capital that is able to make these types of decisions.

The level of education in the countries in which business operates is very important to the HR manager. Before a business decides to expand into a particular country, knowledge of the education, skills, and abilities of workers in that country can mean a successful venture or an unsuccessful one if the human capital needs are not met. Much of a country’s human capital depends on the importance of education to that particular country. In Denmark, for example, college educations are free and therefore result in a high percentage of well-educated people. In Somalia, with a GDP of $600 per person per year, the focus is not on education but on basic needs and survival.

Economics heavily influences HRM. Because there is economic incentive to work harder in capitalist societies, individuals may be more motivated than in communist societies. The motivation comes from workers knowing that if they work hard for something, it cannot be taken away by the government, through direct seizure or through higher taxes. Since costs of labor are one of the most important strategic considerations, understanding of compensation systems (often based on economics of the country) is an important topic. This is discussed in more detail in Compensation and Rewards.

The legal system practiced in a country has a great effect on the types of compensation; union issues; how people are hired, fired, and laid off; and safety issues. Rules on discrimination, for example, are set by the country. In China, for example, it is acceptable to ask someone their age, marital status, and other questions that would be considered illegal in the United States. In another legal example, in Costa Rica, “aguinaldos” also known as a thirteenth month salary, is required in December. 1This is a legal requirement for all companies operating in Costa Rica. We discuss more specifics about international laws in The International Labor Environment.

Table 14.2 Top Global 100 Companies
Rank	Company	Revenues ($ millions)	Profits ($ millions)
1	Walmart Stores	408,214	14,335
2	Royal Dutch Shell	285,129	12,518
3	Exxon Mobil	284,650	19,280
4	BP	246,138	16,578
5	Toyota Motor	204,106	2,256
6	Japan Post Holdings	202,196	4,849
7	Sinopec	187,518	5,756
8	State Grid	184,496	−343
9	AXA	175,257	5,012
10	China National Petroleum	165,496	10,272
11	Chevron	163,527	10,483
12	ING Group	163,204	−1,300
13	General Electric	156,779	11,025
14	Total	155,887	11,741
15	Bank of America Corp.	150,450	6,276
16	Volkswagen	146,205	1,334
17	ConocoPhillips	139,515	4,858
18	BNP Paribas	130,708	8,106
19	Assicurazioni Generali	126,012	1,820
20	Allianz	125,999	5,973
21	AT&T	123,018	12,535
22	Carrefour	121,452	454
23	Ford Motor	118,308	2,717
24	ENI	117,235	6,070
25	J.P. Morgan Chase & Co.	115,632	11,728
26	Hewlett-Packard	114,552	7,660
27	E.ON	113,849	11,670
28	Berkshire Hathaway	112,493	8,055
29	GDF Suez	111,069	6,223
30	Daimler	109,700	−3,670
31	Nippon Telegraph & Telephone	109,656	5,302
32	Samsung Electronics	108,927	7,562
33	Citigroup	108,785	−1,606
34	McKesson	108,702	1,263
35	Verizon Communications	107,808	3,651
36	Crédit Agricole	106,538	1,564
37	Banco Santander	106,345	12,430
38	General Motors	104,589	—
39	HSBC Holdings	103,736	5,834
40	Siemens	103,605	3,097
41	American International Group	103,189	−10,949
42	Lloyds Banking Group	102,967	4,409
43	Cardinal Health	99,613	1,152
44	Nestlé	99,114	9,604
45	CVS Caremark	98,729	3,696
46	Wells Fargo	98,636	12,275
47	Hitachi	96,593	−1,152
48	International Business Machines	95,758	13,425
49	Dexia Group	95,144	1,404
50	Gazprom	94,472	24,556
51	Honda Motor	92,400	2,891
52	Électricité de France	92,204	5,428
53	Aviva	92,140	1,692
54	Petrobras	91,869	15,504
55	Royal Bank of Scotland	91,767	−4,167
56	PDVSA	91,182	1,608
57	Metro	91,152	532
58	Tesco	90,234	3,690
59	Deutsche Telekom	89,794	491
60	Enel	89,329	7,499
61	UnitedHealth Group	87,138	3,822
62	Société Générale	84,157	942
63	Nissan Motor	80,963	456
64	Pemex	80,722	−7,011
65	Panasonic	79,893	−1,114
66	Procter & Gamble	79,697	13,436
67	LG	78,892	1,206
68	Telefónica	78,853	10,808
69	Sony	77,696	−439
70	Kroger	76,733	70
71	Groupe BPCE	76,464	746
72	Prudential	75,010	1,054
73	Munich Re Group	74,764	3,504
74	Statoil	74,000	2,912
75	Nippon Life Insurance	72,051	2,624
76	AmerisourceBergen	71,789	503
77	China Mobile Communications	71,749	11,656
78	Hyundai Motor	71,678	2,330
79	Costco Wholesale	71,422	1,086
80	Vodafone	70,899	13,782
81	BASF	70,461	1,960
82	BMW	70,444	284
83	Zurich Financial Services	70,272	3,215
84	Valero Energy	70,035	−1,982
85	Fiat	69,639	−1,165
86	Deutsche Post	69,427	895
87	Industrial & Commercial Bank of China	69,295	18,832
88	Archer Daniels Midland	69,207	1,707
89	Toshiba	68,731	−213
90	Legal & General Group	68,290	1,346
91	Boeing	68,281	1,312
92	US Postal Service	68,090	−3,794
93	Lukoil	68,025	7,011
94	Peugeot	67,297	−1,614
95	CNP Assurances	66,556	1,396
96	Barclays	66,533	14,648
97	Home Depot	66,176	2,661
98	Target	65,357	2,488
99	ArcelorMittal	65,110	118
100	WellPoint	65,028	4,746
Source: Adapted from Fortune 500 List 2010,http://money.cnn.com/magazines/fortune/global500/2010/full_list/ (accessed August 11, 2011).

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