The Global Challenge Managing People

1
Introduction to The Global

Challenge
NETFLIX: CONQUERING THE WORLD
Founded in 1997, Netflix let people obtain DVDs through the US Postal Service rather than
a shop. The company’s business model was a great success—until DVDs became obso-
lete. In 2007 Netflix ably switched gears and introduced another novel concept, internet
streaming services, and soon thereafter the company started to acquire (and co-produce)
original content, beginning with the political drama House of Cards in 2013. In 2019,
Netflix earned its first three Oscars. Today, the company produces and distributes con-
tent worldwide and is the dominant market leader in the global streaming business. With
a global footprint and streaming operations in more than 190 countries, Netflix overtook
Disney in November 2021 to become the most valuable media/entertainment company in
the world. How did Netflix manage to transform itself into a global entertainment power-
house, and what challenges did the company face when growing its operations worldwide?
Netflix co-founder, co-CEO and Chairman Reed Hastings argues in the book No Rules1
that a key factor in the company’s success has been Netflix’s strong “culture of reinven-
tion”, characterized by freedom for individuals (to make decisions, etc.) and responsibility
(for results). Netflix’s culture is supported by a number of distinctive people management
practices, including a focus on recruiting highly talented people who are then paid top of
market salaries, applying what it calls the “keeper test”: would the company be better off
with somebody else in the role? It encourages candid feedback, has a high degree of trans-
parency, and keeps corporate policies and decision-making approvals to a minimum—for
instance, Netflix has no vacation policy and no approval is necessary for work-related
travel.
Netflix started international operations in 2010 when it launched streaming in Canada.
In 2011 it expanded to Latin America, a year later to Europe, and by 2016 its services
were available almost worldwide. Responsiveness to local markets was important. For
example, six months after entering Poland and Turkey, Netflix added the local languages
to its user interface, with subtitles and dubbing.2 In parallel, Netflix began to establish op-
erating offices and gradually also content creation units overseas, opening regional hubs
in Tokyo, Singapore, Amsterdam, and Sao Paulo. While the process seemed quite swift,
Netflix deemed it important not to expand abroad too quickly in order to learn from its
initial forays abroad.3
Local content production not only helps to gain local customers but also to find broad-
er audiences. Supported by its superior ability to analyze customer preferences, Netflix
has been able to leverage locally produced films to attract an audience across a range of
countries. The scale and scope of its global activities are unmatched by its competitors.
For instance, the Squid Game series, produced in South Korea, quickly became a world
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2 THE GLOBAL CHALLENGE
hit after its release in September 2021, with viewers watching the series for 1.65 billion
hours during the first four weeks from launch—more than double that of the second-most
watched series released by Netflix.
But internationalization comes with controversies and challenges. In several countries—
including Singapore, Germany, Vietnam, and Saudi Arabia—Netflix has had to comply
with government requests to take down content deemed locally objectionable. In Russia,
officials argued that Netflix is part of a US government plot to influence world culture.
Certain parts of the organizational culture and the people management practices proved
more difficult than others to implement overseas. Some of the difficulties had to do with
differences in laws and regulations, while others concerned cultural differences between
countries.4
As with many multinational firms today, the ability to combine global reach with the
richness of local content is likely to remain a driver of Netflix’s competitive advantage in an
increasingly competitive industry. How Netflix will handle such challenges will determine
its long-term success.
OVERVIEW
A look at the history of international business shows balancing what is global and what is
local—as Netflix is attempting—has always been a concern. While changes in technology and
other elements of the global context of business impact how multinational organizations are
managed, certain key questions are constant: How can we build on the existing strengths of
a company when going abroad but also be responsive to local needs? How do we control and
coordinate diverse units and people across the world as well as capture the advantages of the
international operations of the firm?
In this chapter we first explore the challenges companies face as they internationalize. We
then address the question of how people management—or “Human Resource Management”
(HRM)—adds value in international firms, arguing that HRM can best contribute to firm
performance when people management practices support the organizational capabilities nec-
essary for the firm to compete. We review the domain, represented by a People Management
Wheel, highlighting its guiding principles, core people management practices, and desired
outcomes. We conclude that while the HR professionals have the functional responsibility,
people management must be part of the key responsibilities of line managers and top execu-
tives, and employees need to take responsibility for their own career development.
We would like the reader to note that in this book we use “people management” and “HRM”
as synonyms, while “HR” refers to the “Human Resources” function of the organization.
DEFYING BORDERS: WHAT’S NEW?
International business is not a recent phenomenon, neither is international people manage-

ment. The Assyrians, Phoenicians, Greeks, and Romans all engaged in extensive cross-border
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INTRODUCTION 3
trade. There is evidence that shortly after 2000 BC, Assyrian commercial organizations already
had many of the traits of modern multinational companies, complete with head offices and
branches, clear hierarchy, foreign employees, and value-adding activities in multiple regions.5
So when can we situate the birth of international companies?
International operations in the pre-industrial era
The real pioneers of international business were the sixteenth- and seventeenth-century
trading companies—the English and Dutch East India companies, the Muscovy Company, the
Hudson’s Bay Company, and the Royal African Company.6 These companies exchanged mer-
chandise and services across continents and had a geographical spread to rival today’s multi-
national firms. They signed on crews and chartered ships and engaged the services of experts
with skills in trade negotiations and foreign languages, capable of assessing the quality of goods
and determining how they should be handled and loaded. The companies were obliged to del-
egate considerable responsibility to local representatives running their operations in far-away
countries, which created a new challenge: how to develop control structures and systems to
monitor the behavior of their scattered agents?
Distance makes control more difficult, especially in an era when the means of transport
and communication were inseparable and slow.7 Initially, companies demanded not only
accounts but also written records of decisions and notification of compliance with directives
from home. They formed administrative units to process receipts and accounts and to handle
correspondence at the home office. By the mid-eighteenth century, the Dutch and English
East India companies each employed over 350 salaried staff involved in office administration.
Establishing formal rules and procedures was one way of exercising control but these
trading companies developed other control measures, such as employment contracts stipulat-
ing that managers would work hard and in the interests of the company. Failure to do so could
lead to reprimand or dismissal. Setting performance measures was the next step.
They staffed ships with pursers, rewarded ships’ captains for detecting illegal goods, and
read private correspondence to minimize the risk of violations. There were sometimes gener-
ous financial incentives, such as remuneration packages comprising a fixed component and
a sizeable bonus. Such a mix of control approaches was not far off contemporary methods used
to evaluate and reward performance in large multinationals.8
The impact of industrialization
The Industrial Revolution originated in Britain in the late eighteenth century. The emergence
of the factory system had a dramatic impact both on international business and on people
management.
The development of rail networks and the advent of steamships brought new speed and
reliability to international travel and the invention of the telegraph uncoupled long-distance
communication from transportation. Improved communication and transportation opened
new markets and facilitated access to resources in distant locations. Cross-border manufactur-
ing began to emerge by the mid-nineteenth century.

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Still, it was difficult to exercise control over distant operations. The manufacturing firms
that ventured abroad often used family members to manage their international operations. For
example, when Siemens set up its St Petersburg factory in 1855, a brother of the founder was in
charge. In 1863 another brother established a factory to produce sea cables in Britain. Keeping
control of operations in the family was a guarantee that those in distant subsidiaries could be
trusted not to act opportunistically.
Prelude to the modern era
The late nineteenth and early twentieth centuries saw a number of developments in interna-
tional business, leading to a degree of globalization that the world would not see again until it
had fully recovered from the damage to the global economy created by two world wars.
By 1914, the list of companies with foreign subsidiaries was starting to have a contemporary
look about it.9 Singer’s second Scottish sewing machine factory, opened in 1885, was bigger
than any of its domestic factories in the US. The first large cross-border merger, between
Britain’s Shell and Royal Dutch, took place in 1907.
The growth in international manufacturing sustained a flourishing service sector, which
provided the global infrastructure—finance, insurance, and transport—to permit the inter-
national flow of goods. Multinational activity had become an important element in the world
economy. It was a golden age for multinationals, with foreign direct investment (FDI—
investments in foreign units controlled by the multinational) accounting for around 9 percent
of world output.10
However, the outbreak of World War I abruptly ended the growth in international business.
Furthermore, with the loss of direct investments in Russia in the wake of the 1917 Communist
Revolution, firms began to think twice about foreign investment. In an environment of politi-
cal uncertainty and exchange controls, this caution was reinforced by the Great Depression at
the end of the 1920s, followed by the collapse of the international financial system. The adverse
conditions encouraged firms to enter cross-border cartels rather than risk foreign direct
investment. As countries rushed to support local firms they erected trade barriers, effectively
reducing international trade. It is not hard to see some parallels between the situation at that
time and the questioning of international trade and globalization today.
World War II reshaped the global economic system. While the US economy emerged from
the war in excellent shape, European competition was devastated, and the large Japanese cor-
porations (known as zaibatsu) had been dismembered. The war had stimulated technological
innovation and American corporations had every incentive to expand their activities beyond
the home market. A new era of international business had begun.
EMERGENCE OF THE MODERN MULTINATIONAL
Although Europe had a long tradition in international commerce, it was the global drive of
US firms after World War II that gave birth to the multinationals as we know them today.
American firms that had hardly ventured beyond their home markets before the war now

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INTRODUCTION 5
began to flex their muscles abroad, and by the 1960s, US companies had built an unprece-
dented lead in the world economy.
Many American firms moved abroad through acquisitions, followed by investments in
the acquired subsidiary.11 This was the approach Procter & Gamble (P&G) took, establishing
a presence in Continental Europe by acquiring an ailing French detergent plant in 1954.12
An alternative strategy was to join forces with a local partner, as in the case of Xerox, which
entered global markets through two joint ventures with an English and a Japanese firm in the
late 1950s.
American service firms followed their clients abroad, but internationalization strategies
varied. The advertising agency J. Walter Thompson had an agreement with General Motors
that it would open an office in every country where the car firm had an assembly operation or
distributor.13 In professional services, McKinsey scrambled to open its own offices in foreign
countries through the 1950s and 1960s. Others, such as Price Waterhouse and Coopers
& Lybrand,14 built their international presence through mergers with established national
practices in other countries. For some, the route was via informal federations or networks of
otherwise independent firms.
Advances in transport and communications facilitated this rapid internationalization.
Computers became key elements in companies’ control and information systems, paving the
way for later complex integration strategies. Taken together, these developments contributed
to a “spectacular shrinkage of space”,15 a process that has continued until today.
By the end of the 1980s, international competition was no longer the preserve of industrial
giants; it was affecting everybody’s business.
Deepening of globalization
Globalization surfaced as the new buzzword at the beginning of the 1990s. Economic barriers
such as national borders gradually became less constraining as governments dismantled the
barriers to trade and investment. Deregulation and privatization opened new opportunities
for international business in both developing and developed countries. The multinational
domain, long associated with the industrial company, was shifting to the service sector, which
by the mid-1990s represented over half of total world FDI. Problems of distance were also
smoothed away by the use of email and wireless mobile technology.
Globalization was further stimulated by the fall of communism in Russia and Eastern
Europe and China’s adoption of market-oriented policies. World trade was growing faster
than world output, and global FDI was increasing even faster than trade.
International business was not just growing in volume; it was also changing in form. Most
early multinationals had followed a step-by-step progression to international status;16 now
many companies were learning how to internationalize rapidly through various types of alli-
ances, including licensing agreements, R&D partnerships, and joint ventures. Cross-border
mergers and acquisitions began to grow rapidly.
Multinationals increasingly located different elements of their value-adding activities
across the world. Formerly hierarchical companies with clean-cut boundaries were giving
way to complex arrangements and configurations, often fluctuating over time. For example,
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a European pharmaceutical corporation could have international R&D partnerships with

competitors in the US, and manufacturing joint ventures with local partners in China, where it
would outsource sales of generic products to a firm strong in distribution.
Another characteristic of the emerging competitive environment was the breakdown
of historic sources of strategic advantage, leading to the search for new ways to compete.
Traditionally, the only distant resources that multinationals sought were raw materials or
cheap labor. Everything else was at home: sources of leading-edge technology and finance,
world-class suppliers, pressure-cooker competition, the most sophisticated customers, and the
best intelligence on future trends.17
Global competition was now dispersing some of these capabilities around the world. India,
for example, developed its software industry using a low-cost strategy as a means of entry but
then quickly climbed the value chain by partnering with local universities to develop skilled yet
low-cost technicians, just as Japan had done previously in the automobile industry. The impli-
cation was that multinational firms could no longer assume that all the capabilities deemed
strategic were only available at home.
The process of globalization has continued in the twenty-first century. In his influential
book The World is Flat, Thomas Friedman suggested that there is a more level competitive
playing field for individuals, groups and companies from all parts of a shrinking world.
While the process of globalization was previously driven mostly by countries and then by
corporations striving to expand their influence and integrate their activities, what Friedman
called “Globalization 3.0” was driven more by the ability of firms to collaborate and compete
internationally using the tools of the increasingly digitalized, virtual world.
The forces described by Friedman have contributed to many recent changes in the world
economy. Multinationals from high-growth emerging markets have become major global
players. China is the factory for the world;18 Huawei is one of the world’s biggest telecom
equipment firms, and Alibaba handles a larger volume of goods on its Internet platforms than
Amazon and eBay combined. India has become an incubator for new multinationals in busi-
nesses that did not even exist 25 years ago, such as IT support and business process outsourc-
ing. International acquisitions by firms like Mittal Steel, with its origins in India, and Mexico’s
CEMEX, now two of the world’s largest materials companies, transformed industries that
were previously dominated by firms from developed countries. The US and Japan no longer
dominate the lists of the world’s largest companies that feature a large number of Chinese
corporations along with Brazilian, Indian, Korean, and Taiwanese firms joining the elite.19
While globalization has led to new opportunities for international growth, companies
worldwide are experiencing difficulties in finding skilled talent. The educational systems
in many countries are ill-adapted to the needs of a rapidly changing technology-driven
economy.20 The impact of the skills gap21 is accentuated by the fact that many companies prefer
to hire experienced job-ready people rather than to recruit and develop employees internally.22
Multinationals try to address their need for human capital by seeking out locations with a suf-
ficient supply of talent. However, firms also need to partner with governments and cities as
well as educational institutions to manage a skill gap that is forecast to widen in the future with
rapid technological change.

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INTRODUCTION 7
While the increased global integration of the world economy brought many benefits, it
has also had its critics. Today, the very concept of globalization is being challenged.23 The
COVID-19 pandemic clearly showed that the high degree of international specialization and
concentration of production led to increased risks as firms—and countries—were dependent
on the smooth functioning of global supply chains.24 The risks associated with dependence on
a small number of global suppliers became particularly salient when countries scrambled to get
supplies of medical masks and then vital vaccines and microelectronic chips, while shipping
lines were clogged with delayed imports.
But the critique of globalization goes beyond the risks of global integration of production
chains: for many, globalization also means the breakdown of traditional industries and loss of
jobs in their home countries, unwanted migration, growing inequalities, and risks undermin-
ing global environmental sustainability. Under President Trump, the US increased its tariff
rates, imposing political barriers on trade with a number of countries so that the very founda-
tions of the liberal world trade and foreign investment order came under pressure. While some
US policies were reversed by President Biden, how to navigate in a world where the attitudes
and policies towards global business continuously fluctuate remains a challenge. Geopolitical
tensions such as the war between Russia and Ukraine and the accelerating US–China rivalry
are unlikely to de-escalate in the near future and possibly multiply, posing a serious risk for
economic growth globally. In many parts of the world, globalization is under attack from pop-
ulists, nationalist autocrats and extremists both to the right and left of the political spectrum.
Managing global tensions
If there is a single perspective that has shaped our understanding of the multinational corpora-
tion and its people management implications, it is the concept of the dual strategic imperatives
that emerged from research on multinational strategy about the limits of conventional tools of
control and coordination available to firms competing globally. According to this perspective,
multinationals face a central problem: responding to a variety of national demands and oppor-
tunities while maintaining a global perspective on decision making. This tension between
strong opposing forces, dubbed local responsiveness and global integration, was captured by
Sony’s “think global, act local” aphorism, subsequently adopted by many multinationals as
their guiding motto.25
Bartlett and Ghoshal developed these concepts further in their path-breaking study of nine
firms in a sample of three industries (consumer electronics, branded packaged goods, and tele-
phone switching) and three regions (North America, Europe, and Japan).26 They discovered
that these companies seemed to have followed one of three internationalization paths:
z One path emphasized responsiveness to local conditions, leading to what they called a
“multinational enterprise” and which we prefer to call multidomestic (we use the term
“multinational” in its generic sense, as a firm with operations in multiple countries).
This led to a decentralized federation of local units enjoying a high degree of strategic
autonomy. Close to their customers and with strong links to the local infrastructure,
the subsidiaries of multidomestic firms are seen almost as indigenous companies. The

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strength of the multidomestic approach is local responsiveness, and some European

firms, such as Unilever and Philips, embodied this approach.
z A second path to internationalization was that of the “global” firm, typified by US
corporations such as Ford and Japanese enterprises such as Panasonic.27 Since the term
“global” as used by Bartlett and Ghoshal is now, just like the term “multinational”, com-
monly applied to any large firm competing worldwide, in this book we prefer to describe
these as meganational firms. Here, worldwide facilities are typically centralized in the
parent country, products are standardized, and overseas operations are considered as
delivery pipelines to access international markets. The global hub maintains tight control
over strategic decisions, resources, and information. The competitive strength of the
meganational firm comes from efficiencies of scale and cost.
z Some companies took a third route, a variant on the meganational path. Like the mega-
national, their core facilities were located at the center. But the competitive strength of
these “international” firms,28 as Bartlett and Ghoshal called them, was their ability to
transfer expertise abroad, allowing local firms more discretion in adapting products and
services. They were also capable of capturing learning from local initiatives, transferring
it back to the central R&D and marketing departments, from where it was re-exported to
other foreign units. The “international” enterprise is thus a tightly coordinated federation
of local firms, controlled by sophisticated management systems and corporate staffs. Some
American and European firms such as ITT and Ericsson fitted this pattern in the past, but
the ability to learn and transfer skills from abroad applies to most multinationals today. We
do not refer to such “international” firms in this book, though their capability is the focus
of Chapter 12 on sharing and creating knowledge.
Certain firms did well because their internationalization paths closely matched the require-
ments of their industry. Consumer products required local responsiveness, so Unilever
thrived with its multidomestic approach. The situation was different in consumer electronics,
where the centralized meganational heritage of Panasonic seemed to fit better than the more
localized approaches of Philips’ and GE’s consumer electronics businesses. And in telecom-
munications, the “international” strategy of Ericsson, leveraging its learning from abroad, led
to superior performance in comparison with the multidomestic and meganational strategies
of its competitors.
The key idea that emerged from these studies was that in all these three industries, leading
firms had to become more transnational in their orientation (see Figure 1.1)—more locally
responsive and more globally integrated and better at sharing learning between headquarters
and subsidiaries. What was driving this change? Increasing competition was shifting the
approach of these firms from either/or to both/and. The challenge for Unilever was to maintain
its local responsiveness but at the same time to increase its global efficiency by eliminating
duplication and integrating manufacturing. Conversely, the challenge for Panasonic was to
keep the economies of centralized product development and manufacturing but to become
more responsive to differentiated niches in markets around the world.

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INTRODUCTION 9
Source: Adapted from Bartlett and Ghoshal (1989).
Figure 1.1 Paths towards the transnational model
The transnational model
The defining characteristic of the transnational enterprise is its capacity to steer between the
contradictions that it confronts. As Ghoshal and Bartlett put it:
Managers in most worldwide companies recognize the need for simultaneously achieving
global efficiency, national responsiveness, and the ability to develop and exploit knowl-
edge on a worldwide basis. Some, however, regard the goal as inherently unattainable.
Perceiving irreconcilable contradictions among the three objectives, they opt to focus on
one of them, at least temporarily. The transnational company is one that overcomes these
contradictions.29
Not all firms are destined to become equally “transnational”. While most companies are forced
to contend with the dimensions of responsiveness, efficiency, and learning, these demands are
not equally salient in all industries. Transnational pressures have been strongest in industries
where firms must be close to local authorities and consumers, while at the same time harness-
ing global efficiencies in product development, marketing, and manufacturing.
Further, the strategy and management of multinational firms evolve over time. While local
responsiveness was essential for successful consumer goods in much of the twentieth century,
pressures for global efficiency increased in the twenty-first century. Unilever and its global
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competitors responded by centralizing decision making and developing new capabilities to

control the global value chain.30 In today’s VUCA31 world, having an agile organization that is
able to respond rapidly to changes in the international environment has become a prerequisite
for competitiveness in most industries.
Netflix has responded to these transnational pressures by investing in the production of
local content in different parts of the world, offering this to subscribers in other regions.
Videos are dubbed in some markets such as France, Germany and Spain, while subtitles are
used in others, notably English-speaking countries and the Nordic countries. An increasing
share of Netflix’s offering comes from films produced in countries such as South Korea, Israel,
Spain, and Brazil but distributed to English language audiences. In 2020, 97 percent of the
subscribers in the US had watched at least one foreign title,32 while the South Korean Squid
Game series, as mentioned above, became a huge hit the following year.
These transnational tensions are not limited to corporate strategy; they also appear within
the people management domain.33 For example, to what extent should people management
policies and practices be left to local units, adapted to fit the local cultural context and institu-
tional rules? If the multinational decentralizes the responsibility for people management and
adapts to the local environment, this could handicap inter-unit learning within the corpora-
tion and hamper the use of people management to facilitate global coordination,34 while also
limiting global or regional scale advantages within the HR function.
Moreover, the pressures do not apply equally to all parts of a firm. One subsidiary may be
more local in orientation, whereas another may be tightly integrated. Even within a particular
function, such as marketing, pricing may be a local matter whereas distribution may be con-
trolled from the center. Among the people management practices, performance management
systems are usually more globally standardized, whereas compensation and reward systems for
workers may be left to local discretion. Indeed, one size does not fit all.
Global developments and industry characteristics influence the strategic approach of the
firm. Yet, companies have some degree of choice. Take the case of the brewing industry, where
two neighboring firms have taken contrasting paths. Everyone has heard of the Dutch company
Heineken because of its globally marketed Heineken and Amstel brands. But how many had
heard of InBev before it acquired the US-based Anheuser-Busch with its iconic Budweiser
beer? Based in Belgium, InBev came about through a merger of Belgian and Brazilian brewers,
and in addition to Budweiser, it now owns global brands such as Stella Artois and Corona
as well as a portfolio of over 500 local and regional brews. Thus, notwithstanding industry
imperatives, different models may be equally viable if there is good execution, consistency in
implementation, and alignment between people management and competitive strategy. The
issues of alignment are particularly apparent when it comes to the use of various control and
coordination mechanisms.
The role of people management in the multinational firm
Since the onset of international economic activities, organizations have struggled with the
problems of how to control and coordinate their geographically dispersed units (see the box
titled “The difference between control and coordination”). A key challenge is how to enhance
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INTRODUCTION 11
alignment and collaboration across geographically dispersed units, and people management
is an important part of how firms can respond—traditional control mechanisms such as rules
and hierarchy simply cannot cope with the complexity of contemporary multinationals.35
THE DIFFERENCE BETWEEN CONTROL AND COORDINATION

There is often some confusion about the meaning of these two terms. In this book the
term “control” refers to visible hierarchical structures, tools and processes used to ensure
that units pursue organizational goals. The hierarchical mechanisms used to achieve
control include authority over decision-making, setting of objectives, standardized organ-
izational rules and procedures, and top-down definition of corporate values.
“Coordination” refers to lateral structures, tools and processes to facilitate alignment and
collaboration across units. The lateral mechanisms used in multinationals include mul-
tidimensional structures and organizational processes for coordinating interdependent
units, including people management and social architecture (social capital, organizational
culture and shared mindset).
During the early phases of internationalization, the focus of people management is typically on
the staffing of key positions in foreign units with expatriates from the home country of the firm
who must be persuaded to move abroad. These are individuals with the skills needed in these
distant locations who will also exercise control over foreign subsidiaries and help coordinate
activities with the rest of the enterprise.
A landmark study of the expatriation policies of four well-known multinationals showed
that there is a close link between management development policies and the firm’s capacity
for control and coordination.36 There were three motives for transferring managers abroad
in these four enterprises. The most common was to meet an immediate need for particular
skills. The second was to develop managers through challenging international experience. But
the analysis of one of the companies, the petroleum giant Shell, showed that there was a third
motive: as a mechanism for control and coordination. The managers sent abroad were steeped
in the policies and style of the organization, so they could be relied on to act appropriately in
diverse situations and to spread the organizational culture, without the necessity for headquar-
ters instruction and intervention.
Through well-planned development and staffing, Shell was able to maintain a high degree of
control and coordination while at the same time having a decentralized formal organization.
Moreover, frequent assignments abroad resulted in networks of personal relationships that
facilitated coordination and the transfer of learning, demonstrating that social networks and
shared global values can be built through appropriate people management practices, minimiz-
ing the necessity for centralized headquarters control or bureaucratic procedures.37
Thus, the lesson for multinationals is that people management is much more than just
a question of putting the right person in the right place in a foreign environment. People
management plays a crucial role in the strategic and organizational development of the mul-
tinational firm.38
The scope of people management has evolved in recent decades. Since antiquity, expatriates
were people from the home country, but this is no longer the case today. With the localization
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of many key positions, it became clear that suitable local executives would benefit from having
international experience, leading to the complex task of developing a global talent pool. Firms
with superior international people management capabilities are likely to have a competi-
tive advantage. As Floris Maljers, former co-chairman of Unilever, put it: “Limited human
resources—not unreliable or inadequate sources of capital—has become the biggest constraint
in most globalization efforts.”39
However, people management goes well beyond supplying, developing and deploying
talent. Sustainable competitive advantage rests on building layers of organizational capabilities
that support business strategy—an area where, as we argue in our book, people management
plays a critical role.
PURPOSE, STRATEGY AND CAPABILITIES
The main preoccupation in the field of strategic management since its inception has been the
question of why some firms are more successful than others. Initially the focus was on strategy
as competitive positioning based on the analysis of industry characteristics,40 and little atten-
tion was paid to the role played by organization and people. Particularly in an international
context, it soon became clear that having the right strategy is not enough; what also matters
is the capacity to execute that strategy, which is largely a question of capabilities built around
people and organization. Particularly in a complex international firm, it matters that the
strategy is rooted in an aspirational purpose that provides the corporation with a clear sense
of direction.
Purpose and strategy
Where are we going, and why are we heading there? Such fundamental questions have been
a preoccupation of management scholars since the early days of management studies, empha-
sizing how the purpose of the firm helped to provide direction, motivation, and unifying
principles for members of the organization.41
Defined as the fundamental reason for why the firm exists, the organizational purpose (or
“mission”—the two terms are often used interchangeably) provides a foundation for strategy
development in the corporation—a “north star” to guide corporate decision makers. Netflix’s
purpose is stated as “We want to entertain the world”, while IKEA strives to “Create a better
everyday life for the many people”. And perhaps our favorite in terms of being clear and aspi-
rational is LEGO’s “Inspire and develop the builders of tomorrow”. Having a purpose that is
seen as aspirational helps build collective understanding and engagement among employees.42
A shared sense of purpose can also help communicate central features of what the organi-
zation aspires to do, leading to a higher level of engagement and collaboration among both
internal and external stakeholder groups, which in turn helps drive the performance of the
corporation.43
The formulation of the purpose can inspire strategists to expand their notion of the industry
that the firm is targeting. Mars Petcare—the world leader in pet health—is one example. With

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INTRODUCTION 13
the broad purpose “A better world for pets”, US-based Mars has expanded through acquisi-
tions in North America and Europe beyond the traditional pet food market into veterinary
services. After 75 years of focusing on producing and selling goods, Mars is today increasingly
a service company, with veterinary pet care as the largest and fastest-growing division.44
A purpose statement can also be used to highlight the role of the corporation in society.
For many years, this aspect was pushed aside by the paradigm of shareholder capitalism that
equated purpose to profit or maximizing shareholder value.45 While this stimulated global
growth and prosperity, it also led to undesirable economic, environmental, and societal
outcomes, such as wealth inequality, climate change, and depletion of planetary resources, as
well as financial crises and accounting scandals, resulting in declining confidence and trust in
business leaders and organizations. This led to strong calls for change and for corporations to
recognize that they have multiple stakeholders whose concerns they need to address.46 This is
discussed at greater length in Chapter 14.
Today, it is common for firms to have purpose statements that refer to the (positive) role
that the corporation plays in society. In our book we incorporate this aspect of organizational
purpose in our definition of the term: “an aspirational reason for being which inspires and
provides a call to action for an organization and its partners and stakeholders and provides
benefit to local and global society”.47 While it may be easy to formulate purpose statements
in line with this definition, they are unlikely to have much impact unless they are seen as
authentic—there needs to be close alignment between the purpose and the actions of the firm
and its leadership.48 Hence, a purpose like “Patagonia is in business to save our home planet”
requires this outdoor equipment firm to show that it actually works to achieve its lofty purpose
on a continuous basis. Patagonia uses 100 percent organic cotton, donates 10 percent of its
revenues to environmental charities, and discourages consumers from buying their products
unless they really need them.
However, regardless of the motivational power of a clear purpose for the firm, and how
this purpose is translated into a strategy for products and services for different markets, the
corporation is not going to be successful unless it has the required organizational capabilities
to execute that strategy—which then has important implications for people management.
Organizational capabilities
The capacity to repeatedly execute a productive task, called an “organizational capability”, has
increasingly been viewed as the most important sustainable source of competitive advantage
for enterprises (see the box titled “The resource-based view of the firm and its capabilities”).49
THE RESOURCE-BASED VIEW OF THE FIRM AND ITS CAPABILITIES

The resource-based view provides a useful perspective on strategic management, turning
the spotlight on the firm’s internal resources as a source of competitive advantage.50
These are special types of resources, firm-specific and embedded in the organization;
such resources might be financial, legal, human, organizational, informational and rela-
tional. Today, this view of a firm’s internal resources as the source of its organizational
capabilities is widely accepted in the field of strategic and international management. In
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contrast to a prior approach that focused on external considerations—such as industry

structure—this view puts people and how they interact at the center of the debate about
why some firms are more successful than others.
For organizational capabilities to contribute to the competitive advantage of the firm, they
must satisfy four criteria51—often subsumed under an acronym of VRIN:
• They must create Value for the customer—doing something that does not add value,
however well done, cannot be a source of competitive advantage.
• The capability has to be Rare—if competitors have a similar capability, it cannot be
a source of competitive advantage.
• The capability has to be difficult to duplicate (Inimitable)—otherwise it will quickly
be replicated by competitors.
• The capability should be Non-substitutable—not be able to be replaced by any other
strategically equivalent capability.
When closely linked to its business model and strategy, the firm’s pool of human resources
can thus constitute the basis for long-term competitive advantage.52
In short, organizational capabilities refer to the firm’s ability to combine and leverage its
resources to bring about a desired end. Amazon’s same-day delivery of customer orders in
key markets is an example of such a capability, as is IKEA’s ability to provide a well-designed
quality product at a low price to customers around the world.53 As we will amply illustrate
throughout the book, the capability perspective is the key to understanding the contribution of
people management to competitive advantage—especially in the context of the multinational
firm.54
Capabilities vary in their contribution to a company’s performance. In most cases, a firm
must put in place a range of capabilities to create value, although usually there are only a few
that satisfy the VRIN criteria that underpin the company’s competitive advantage. Building
and maintaining these differentiating capabilities must be at the core of the company’s business
strategy—Toyota’s continuous improvement process applied across its plants on all conti-
nents, or Starbucks’ skill in attracting customers around the world with its distinctive concept
of ambiance.55
However, certain capabilities, even if they do not satisfy the VRIN criteria, may be essential
just to participate in a business; we call them enabling capabilities.56 For example, in the phar-
maceutical industry, conducting R&D in strict compliance with regulatory rules is an enabling
capability, while doing it faster and more cheaply than competitors may deliver differentiation.
Without enabling capabilities in place, pursuing differentiation is only a dream. See the box
titled “Capability journey at Danaher”, describing how Danaher—perhaps the most successful
industrial conglomerate in the US over the last thirty years—grew worldwide by transforming
an enabling capability into a source of differentiation.

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INTRODUCTION 15
CAPABILITY JOURNEY AT DANAHER: FROM RUST BELT TO GLOBAL

LEADER57
Under a succession of insider CEOs, Danaher has been transformed from a small
“rust-belt” business into a diversified global science and technology firm with 70 000
employees and a market value of $200 billion. It has delivered an annual return of more
than 20 percent to shareholders with a strategy of acquiring and then continuously
improving B2B businesses in the diagnostics, environmental solutions, and life science
sectors. The key to this stellar record is the nurturing of a set of capabilities known as the
Danaher Business System (DBS).
The source of value creation at Danaher has been a rigorous application of kaizen58
(continuous improvement), one of the company’s core values. With kaizen at the core,
the company deploys DBS, the extensive set of processes and organizational practices to
drive strategic objectives in every business, embedded in the activities of people at every
level from the factory floor to top management.
Danaher’s capability journey started in the 1980s by working with Toyota-trained
Japanese consultants to implement principles of the Toyota Production System (TPS) to
regain competitiveness in one of its struggling acquisitions. Following the initial success,
Danaher applied the TPS principles to other businesses, and even more importantly,
extended them beyond production and integrating them into all aspects of DBS: from
core business processes and R&D to people management practices such as training and
leadership development. Hence, the firm created a set of process tools used by everyone
and everywhere for more than twenty years—and continuously revised and upgraded
them based on unfolding experience.
Capabilities also differ in terms of the complexity of their underlying organizational processes
and routines. Some capabilities contain mainly stand-alone activities and routines within spe-
cific functions or segments of a value chain—these are functional capabilities. They may be val-
uable and essential (such as a manufacturing plant’s ability to deliver with 100 percent quality
all the time); some may be hard to imitate because of IP barriers or reliance on tacit knowledge,
but they are straightforward since there are few interdependencies with other parts of the firm.
In contrast, other capabilities—coordinating capabilities— are essentially a bundle of prac-
tices involving interactions across intra-organizational boundaries. Functional resources and
routines need to be aligned across different parts of the organization (sometimes even includ-
ing third parties) to deliver competitive products or services to customers (such as the interface
between central R&D and local operations). Coordination capabilities are more complex, thus
usually more difficult to imitate.
Starting from the enabling functional capability of TPS/kaizen (a generic tool of manufac-
turing management which, in principle, everyone can use), Danaher has developed a coordi-
nation capability by extending kaizen tools across multiple businesses in a variety of industries
(more difficult to do, but still possible to copy). At the same time, Danaher created its own
differentiating tool (DBS) by refining and extending TPS to other organizational processes and
functions. Finally, it implemented DBS, now comprising over 60 distinct but aligned elements,
across cultures and businesses worldwide.59 So far, no other company that implemented TPS,
including Toyota, was able to pull this off in the same holistic manner.
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From an organizational perspective, functional capabilities are embedded in the resources

and activities within a particular function, department, or unit. In contrast, coordination capa-
bilities are essentially “horizontal”—relying on the firm’s ability to coordinate activities and
resources across intra- and inter-organizational boundaries. Both sets of capabilities require
close alignment with people management.
The box titled “Competing through capabilities at Netflix” examines the case of Netflix from
a capability perspective. Netflix started as distributor of entertainment content directly to the
consumers, first on DVDs, then through streaming. Building on this functional capability
(which other big players quickly jumped to copy), the company moved abroad, but with local
content as well as local delivery—not just a Cinderella in French—yet another functional
capability. However, what differentiates Netflix, providing its competitive advantage, is its
capability to distribute local content globally, leveraging deep insight into customer prefer-
ences worldwide.
COMPETING THROUGH CAPABILITIES AT NETFLIX

Enabling functional capability: The company was a pioneer first in streaming services and
then in producing proprietary content, its early differentiating capabilities. Today, the
Netflix Original Content is still the foundation of company’s market presence, though
streaming no longer differentiates, as traditional content producers like Disney and a host
of players from Amazon to Hulu to HBO Max are replicating Netflix’s business model.
Enabling coordination capability: The company has been a leader in producing original
content in a growing number of markets worldwide, applying its tested formula for
attracting creative and entrepreneurial local talent eager to explore new opportunities.
While building local presence is essential for maintaining growth, the company must
recognize that well-funded competitors are following its path.
Differentiating functional capability: The capability to capture, analyze, and act on vast
amounts of customer data has always been an essential pillar of Netflix’s competitiveness.
The company has now reached a unique position worldwide to be able to leverage its
analytical power to gain customer insights and capture scale economies, enhancing its
differentiation from competitors.
Differentiating coordination capability: Armed with insights into customer preferences

across major markets, Netflix uses this knowledge to create content that appeals to a wide
range of customer segments. Netflix cross-sells locally produced content to audiences
outside of the market of origin. Each cross-selling initiative generates additional valuable
customer insights.
Our analysis of organizational capabilities at Netflix and Danaher is summarized in Figure 1.2.

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INTRODUCTION 17
Figure 1.2 Organizational capabilities at Danaher and Netflix
Organizational capabilities and people management
The Netflix and Danaher examples illustrate how organizational capabilities help to drive
strategy and sustain firm performance. In turn, their people management practices are aligned
to play important roles in building differentiating functional and coordination capabilities.
Underpinning Netflix’s organizational capabilities is its unique culture and way to manage
creative and ambitious people. The company is well-known for its high-performance culture
of freedom and responsibility built on a strong foundation of specific people management
practices: hiring and retaining only highly talented people paid top of market salaries; encour-
aging candid feedback and a high degree of transparency; and keeping the number of corpo-
rate policies and decision-making approvals to a minimum. A strong global brand, together
with a differentiated employee value proposition, has translated into a powerful employer
brand that helps the firm attract individuals who can thrive in its culture, continue to enhance
its capabilities, and implement its global growth strategy.
While the strategic logic of Danaher’s people management is similar to that of Netflix—
designed to support its organizational capabilities—the actual practices could hardly be more
different. Performance expectations are high, but there is no “keeper test” suggesting that an
employee should be let go if a more effective person is available. Instead, the emphasis is on
long-term career development closely linked to DBS. The first communication with prospec-
tive employees provides a road map for how they can progress by learning and applying DBS—
from three months of training for all new operators to a six-year-long leadership development
program for MBAs aspiring to become general managers. Training and development never
stop as DBS continues to evolve. Yet, an important similarity between these two very different
firms is that people management is a key to building differentiating capabilities.
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In this book, we introduce examples from around the world of successful companies that
are able to outperform their competitors in part because of how they manage people. While
they may deploy very different people management practices, these companies are clear about
which functional and coordination organizational capabilities are needed to drive their busi-
ness model and build differentiation from competitors, and they make sure that their people
management practices are tightly aligned with their business model.
Implementing a robust people strategy that supports the desired organizational capabilities
requires leaders to think ahead about some important questions:
z What are the essentials of the purpose, strategy and business model?
z What enabling and differentiating capabilities support the business model?
z What processes and behaviors will be required to drive these capabilities?
z What people strategies will promote these outcomes?
One simple rule is clear: as demonstrated by Danaher and Netflix, you cannot build differenti-
ating capabilities with generic people management practices.
THE PEOPLE MANAGEMENT WHEEL
Purpose, strategy and organizational capabilities provide the center point for people manage-
ment activities in any business organization, shown at the core of the metaphorical “People
Management Wheel”, presented in Figure 1.3, to capture the dynamic and interdependent
relationships between the different elements of HRM in multinational corporations. These
three core elements should be reflected in the underlying people management principles and
Figure 1.3 The people management wheel

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INTRODUCTION 19
then guide the development of distinct people management practices, leading in turn to a set
of desired organizational outcomes.
We now turn to explore the guiding principles that largely determine the approach to people
management within the firm.
Setting the guiding principles
Based on our discussion of organizational capabilities, we propose that the following guiding
principles underlie people management in multinational corporations:
z Alignment;
z Differentiation;
z Balancing dualities;
z Shared responsibility.
The first two principles are complementary, but they also generate tensions as they may push
the organization in opposite directions. Tackling such inevitable tensions and balancing
emerging dualities is part of the responsibility for people management shared by the HR func-
tion, managers and, in some areas, by employees.
The importance of alignment

The principle of alignment (consistency) refers to the way in which the firm’s people manage-
ment practices fit with each other and with the features of the work organization, such as the
extent to which work is organized around teams rather than individuals. Crucially, the prac-
tices should strengthen the organizational capabilities supporting the company strategy. For
example, if a firm such as Danaher invests a great deal of money in skill development, it should
emphasize employee retention through feedback, competitive compensation, and career man-
agement; otherwise, those valuable employees may be poached by competitors. It should also
empower these employees to contribute to the organization and reward them for initiative.60
Alignment is important for organizational performance. Let’s return to Netflix to illustrate
how important alignment is for organizational performance. Netflix has a consistent approach
to people management, linked to its values of Freedom and Responsibility—employees are
given considerable freedom, but they are carefully selected; they are paid superior salaries but
they also face pressure to perform at a superior level. The people management elements at
Netflix are well aligned and, crucially, they are lived up to throughout the corporation. The
corporate culture and management philosophy of the firm help to ensure the consistency
across practices. People within and even outside the firm are well aware of what the company
focuses on and what is expected from its employees.
The importance of alignment for companies such as Netflix is supported by academic
research. If the messages picked up by employees through the people practices of the organiza-
tion are clear, aligned and consistent over time, the firm can expect to see a positive effect on
employee attitudes and behavior.61 Conversely, when staff experience practices as inconsistent,
owing to poor design, conflicting management priorities or poor implementation, perfor-
mance suffers.62
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However, doing what Netflix has done is not easy. Many firms talk about freedom and
individual responsibility—where Netflix stands out from others is the “walk-the-talk” consist-
ency between words and actions. Other firms may say that employee freedom and personal
responsibility for results are central to their way of operating, but what many employees expe-
rience is that they are punished for taken the wrong decision while individuals with “modest
performance” fail to be held accountable.
The challenges of achieving a good fit between talk and reality are particularly difficult in
multinational corporations with operations in different cultures and institutional contexts.
While the firm may espouse a worldwide people management philosophy and policies, actual
practices may differ across countries. Local managers sometime bluntly ignore the global
standards—“Great idea, but unfortunately it does not apply here”—and the result is inconsist-
ency in the deployment of HRM across the organization.
If practices and policies are constantly changing, there will be confusion and frustration
among employees, damaging trust and collaboration.63 At the same time, lack of flexibility
on policies and practices can severely damage the organization. There is a risk of taking con-
sistency too far. Companies that only focus on optimizing a well-integrated set of consistent
people management practices run the danger of creating an inflexible system that may be
costly and difficult to adapt when competitive conditions change, a point that we will return
to later.
Pursuing differentiation
While there are good reasons for emphasizing internal HRM consistency, the principle of
alignment must go hand in hand with the principle of differentiation. While differentiation in
people management practices due to geographic location has received most attention in the
international people management literature, there are at least three complementary perspec-
tives on differentiation that need to be considered:
z Differentiation across employee groups;

z Differentiation across subunits (geographies and/or business lines);
z Differentiation from other firms, both multinational and local.64
First, not all employee groups are equally important for the success of the organization.65 Firms
that apply the same people management practices across all employee groups run the risk of
underinvesting in the talent that is crucial for long-term success while overinvesting in people
who are easier to replace or not as important for value creation. And practices that are appro-
priate and desirable for one part of the workforce may not be optimal for another.
The arguments for differentiating people management practices according to employee
groups are compelling and in line with what we see in most corporations. At the same time, as
illustrated by growing concerns about the widening gap between top management compensa-
tion and the pay of an average employee, or about the equity consequences of the gig economy,
differentiation also comes with a darker side.
Differentiation across subunits is especially important for multinational firms. In fact, the
need to adapt people management to the local culture and institutional environment has been
at the very core of the academic field of International HRM since its inception. Firms that have
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INTRODUCTION 21
operated successfully for long periods of time in their home markets sometimes adopt a uni-
versalist approach to people management when they expand abroad. They find out the hard
way that some degree of local differentiation is necessary—which can, in turn, compromise the
consistency of people management practices and necessitate a careful rethink of the company’s
management approach. For example, Netflix had to rethink its emphasis on frank and candid
feedback as it expanded internationally.66
On the other hand, having people management practices that are distinctively different can
help to recruit and retain local talent who are attracted by the unique features of the multina-
tional. The hallmark of cross-cultural understanding is being able to go beyond rudimentary
stereotypes, knowing where one has to conform to the environment and where one can be
different. Understanding where to push and where to give in to cultural and institutional
considerations—in short, how to balance the two—is part of the global know-how at the core
of people management in international firms.
This brings us to a potent third aspect of differentiation, focusing on the distinctiveness of
the firm’s approach to people management—one that goes against the widespread tendency to
model “best practice”. Competitive advantage rarely comes from copying others; it invariably
comes from being different. One source of differentiation is how the firm’s unique combina-
tion of people management practices makes it stand out from other organizations, often in
subtle and invisible ways that are embedded in its culture.
Recruitment, development, and performance management are three people management
processes with great potential for creating differentiation. For example, attracting and retain-
ing the right people involves marketing the firm as an employer. Unless the firm stands out
from its competitors in the labor market, it is unlikely to appeal to potential employees with
the required skills and attitudes. Netflix is a good example of such a company.
Differentiation implies paying careful attention to recruiting the right people for the firm, as
do firms that have developed distinctive competitive capabilities. Toyota’s meticulous assess-
ment of all job candidates from hourly workers to senior executives is legendary.67 And Google
is well known for the attention that it pays to recruit people that fulfill its stringent selection
criteria.68
There are potential clashes between the needs for differentiation and alignment, particularly
within the multinational firm, which takes us to the third guiding principle of multinational
HRM: balancing dualities.
Balancing dualities
Paying attention to balance—deciding how far to focus on one particular goal, issue, or prin-
ciple at the expense of another—is one of the key messages of this book. In the case of people
management, there are no simple answers to the questions of how, and how far, to adapt
practices abroad. We need to recognize that differentiation and global consistency are a duality
in constant tension. While differentiation across locations can help the multinational fit better
with the various environments in which it operates, too much adaptation of people manage-
ment practices to each country or region is likely to lead to a loss of integration, evidenced by
global inefficiencies, lack of learning across units, and problems of control and coordination.

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The tension between differentiation and consistency has traditionally been resolved
through structural choices.69 Corporations build their basic structure—traditionally differ-
entiating either by geography (regional or national units) if there are many countries but few
product lines, or by business (product line units) if there are many different product lines—
with integration within these structures. However, the situation of today’s large multinational
is more complex. It faces multiple pressures for differentiation—by geography, business,
customer or global account, technology and global project lines—as well as strong needs for
integration that cannot be provided by structure, leading to increasing needs for coordination.
Organizations need what has been recently called “structured flexibility”.70
There is another notable tension that features across this book. In a world of rapid change,
firms have to leverage their existing resources to make profits today while at the same time
developing new capabilities that will be the source of their profits tomorrow. Leverage (called
exploitation by academics) involves concern for efficiency, execution, production, and
short-term success, but excessive focus on this leads to what has been called “the failure of
success”. Resource development (or exploration) involves innovation, learning, risk-taking,
experimentation, and focus on long-term success.71 However, an excessive focus on develop-
ment is risky, compromising the survival of the firm. The multinational firm not only faces the
local–global dilemma, but it also faces this exploitation–exploration dilemma.
To be effective, an organization must possess attributes that are simultaneously contra-
dictory, even mutually exclusive. We refer to such opposites as dualities, while others call
them paradoxes.72 They are not either/or choices, the appropriateness of which depends on
a particular context, but dualities that must be reconciled or dynamically balanced. Some of the
many dualities facing international firms are shown in Table 1.1. We will discuss the important
duality of short term and long term underlying sustainability (e.g. stakeholder returns versus
“save the planet”) in Chapter 14.
Table 1.1 Some of the dualities facing international firms

Alignment–Differentiation
• Decentralization–centralization
• Unit performance–corporate integration
• Individual accountability–team responsibility
Exploitation–Exploration
• Short term–long term
• Change–continuity
• Taking risks–avoiding failures
Loose–Tight Organization
• Opportunistic–planned
• Entrepreneurship–control/accountability
• Flexibility–efficiency
Strategic Choices
• Low cost–high value-added
• Speed of responsiveness–care in implementation
• Competition–partnership
One important insight of duality or paradox theory is that any positive quality taken too far
becomes negative or pathological.73 Instead Vladimir
of tryingPucik,
to maximize something, an organization
Ingmar Björkman, Paul Evans, and Günter Stahl -
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INTRODUCTION 23
should try to ensure that it maintains at least a minimal level of attention toward a desirable
attribute.
Opposing forces—such as differentiation and integration, external and internal orientation,
hierarchy and network, short term and long term, planning and opportunity, and change and
continuity—can never be reconciled once and for all. They create tensions that must be antic-
ipated and managed;74 organizations have to become more “ambidextrous”. Indeed, research
suggests that ambidextrous organizations are more likely to ensure and display superior
market value.75
The challenges of managing dualities are of crucial relevance to people management. All
organizations maintain corporate control through hierarchy, budgets, rules, and centrally
managed processes and procedures. But as international firms get more complex and our envi-
ronment becomes volatile, more rules and more bosses at the center simply will not work; this
will kill entrepreneurship and drive away good people. To address this tension, control tools
need to be complemented with more subtle mechanisms of horizontal coordination,76 such as
the use of lateral steering groups and cross-border teams, leadership development and perfor-
mance management practices as well as building social networks and shared values across the
international organization. These coordination tools are, to a large degree, the application of
people management.
Shared responsibility
This book is about how multinational corporations can deal with the challenges of global
operations and improve their performance through the way they manage their employees. But
who is responsible for people management in multinationals?
The specialized HR function can obviously be expected to shoulder some of the responsi-
bility. However, a central message in this book is that leaders and managers at all levels must
accept that people management is an integral and key part of their responsibilities that they
cannot simply delegate to the HR function. In addition, employees themselves also carry
responsibility for their own development and employability.
Executives and leaders are ultimately responsible for the successful implementation of the
strategy of the firm, including people management and how it supports the intended capabil-
ities of the firm. They also need to provide visible support to the people policies of the firm.
In the words of Henrik Ehrnrooth, the CEO of the Finnish global elevator company KONE:
“The area directors and I have to show how important HR issues are. When we do business
reviews of individual countries … we also go through their leadership and talent review plan—
everybody knows this is on the agenda and how important it is.”
However, while there has been a general trend toward devolvement of people management
to the line,77 this is not without challenges. Line managers typically do not have the skills,
interest and time to handle all aspects of people management effectively. They often have the
short-term performance of their units foremost in mind rather than longer-term people and
organizational development. Therefore, the specialized HR function continues to play crucial
roles.

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We can distinguish between the three roles of the HR function:78
z Contributing to business decisions;

z Providing HR expertise;
z Delivering HR services.
These roles correspond to the way in which many multinationals organize their HR function.
For instance, Unilever has structured its HR functional activities into business partner roles,
expertise teams, and HR services (with Accenture doing much of this service work within the
scope of a long-term outsourcing agreement). P&G initially organized all basic HR tasks into
three regional service centers, and later outsourced them to IBM, HP and other providers,
retaining responsibility for development of HR practices and business support.
The business decision support role describes the activities of HR professionals who work
directly with line and top managers on business, organizational, and people management chal-
lenges. Those occupying this “business partner” role typically report to the head of the business
unit, with an indirect (dotted line) relationship to the corporate HR department. In contrast to
the specialized expert knowledge of the HR professionals responsible for process and content
development, the business decision support role requires broader generalist competence as
well as intimate knowledge of the business.
A key part of the role is to contribute to strategy discussions by highlighting the people
aspects of strategy implementation and capability development. HR professionals need to have
a seat at the table when these discussions take place—which is not always the case. Senior HR
business partners also work with top management on strategically important issues related to
organizational design, talent management, performance management, diversity and inclusion,
change management, and acquisitions—issues we discuss later in this book. Yet not all this
work is strategic. An indispensable part of the role is dealing with more mundane operational
HR tasks such as preparing talent reviews and assisting line managers in, for example, facing
up to underperforming staff and resolving employee concerns.
The key outcomes of the HR expertise role are people management practices that help
the firm maintain and enhance the organizational capabilities needed to execute its business
strategy. Professional knowledge of state-of-the-art HRM is vital for this role although blind
pursuit of the latest best practice is not. People management decisions should be based on
a thorough analysis of what is needed to support the organizational capabilities of the firm
rather than on trends.
Given the constant pressure to do more with less, organizing people management processes
and content development is a challenging undertaking for any firm. The traditional solution is
to have functional experts at headquarters with a global responsibility for tasks such as talent
and performance management. Unfortunately, not all these experts have the necessary deep
international experience and the awareness of how their home country lens can bias their per-
ceptions. Another solution is to decentralize responsibility for developing policies, processes,
and tools to a center for global expertise located in a regional unit or a subsidiary that has
capabilities in the area in question.
The key task in the HR service delivery role is for core people management processes
such as training, recruiting and expatriation to be carried out at low cost and with a desired
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INTRODUCTION 25
service level. Many firms have either built HR service centers or outsourced elements of HR,
while e-HR solutions shift much of the transactional HR work to employees themselves using
self-help tools. There is a tendency for local managers to want to have control over their own
people management practices, and outsourcing has been a way in which firms have not only
cut costs but also standardized and simplified practices across the world.
Today’s business environment requires firms to have a capacity for rapid change, and this
applies also to the HR function. As business and organizations change, the people manage-
ment practices need to change as well.79
Designing people management practices
With the guiding principles in mind, the next step is to put them in action. Every firm has to
cope with a number of basic and vitally important people management tasks, such as getting
the right people into the right place at the right time.
We will here provide a brief introduction to these practices and highlight some of the key
challenges that firms must confront, leaving a more detailed discussion of the specific people
management practices to Chapters 6–10.80
Recruitment and selection

With worldwide skill shortages, companies across the world face the challenge of attracting
new employees with the desired skills and competencies. Without an appealing and differenti-
ated employee value proposition, including a set of people management practices that poten-
tial job applicants will find attractive, it is difficult for the firm to succeed in the competition
for talent that characterizes labor markets in both good and bad times.81
How can global firms build a strong employer brand in different parts of the world? The
importance of brands has long been recognized in global marketing, and contemporary people
management thinking about employer branding has been influenced by insights from the
field of marketing.82 Paying exceptional salaries, having a “no rules” culture, and having an
opportunity to work together with other driven, high-performing employees help explain why
Netflix became the top-ranked employer among tech professionals in 2020.83
The most suitable people must be selected on the basis of their fit with the specific vacancy,
their future growth potential, and the capability needs of the organization. Companies use
a variety of selection and assessment methods to review external and internal candidates, but
with differences in their applicability across cultures and legal contexts.
Another issue for multinationals is whether to develop their own talent or recruit from the
labor market, or perhaps either to “borrow” people from the outside or to outsource certain
activities. Such choices are intimately related to the strategy and the capabilities that the firm
is building for the future; like other companies, when Danaher acquires a firm, a rapid but
thorough selection process (who will stay, and who will leave) is a key part of any post-merger
integration.

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Performance management
Performance management is a process that links the business objectives and strategies of the
firm to unit, team, and individual goals and actions, with periodic performance appraisals and
rewards. It has three successive phases: setting goals and objectives; evaluating and reviewing
performance as well as providing feedback; and linking this to reward and development out-
comes. Implementing this process creates many challenges for any multinational firm.
Effective goal setting depends on healthy two-way communication between superior and
subordinate,84 though hierarchic and gender differences can make this difficult, varying from
one culture to another, as does corporate status (e.g., expatriate vs. local). Similarly, the way in
which one provides feedback on performance and developmental needs varies across different
cultural regions.
Praise may be generally well accepted around the world, though even here there are cultural
features, such as the dangers of singling out an individual in a collectivist culture. But multi-
national firms find dealing with low performance to be consistently difficult. “Maintaining
face” is a sensitive issue in some Eastern cultures, while in others legal constraints circumscribe
employers’ discretion in dealing with performance issues.
Performance management puts into stark relief the perennial tensions of global integration
versus local adaptation. This is particularly important for multinationals like Netflix where
the performance management system is one of the core tools to drive its differentiating
capabilities.
While the logic of the performance management process remains central to how most
multinational firms operate, the underlying management practices continue to evolve. The
desire to support more agile behaviors has led firms worldwide to introduce new, “agile” per-
formance management practices. Goals have to be adapted rapidly when conditions change
and continuous feedback becomes the prescribed norm. Agile firms scrap end-of-the-year
bonuses, since they are not aligned with continuous 360-degree feedback.
Talent review and development

Talent reviews are at the heart of the people development process, linking competitiveness
and business strategy to behavioral development. But this requires close partnership between
line management and the HR function, led and modeled by senior leadership. Moreover,
while the performance management system of the firm provides input to the talent reviews in
different parts of the international organization, talent assessments and discussions should be
forward-looking, reflecting the capabilities to be reinforced or built, and the competencies that
the firm will need in the future.
Developing leadership skills is a high priority for the multinational firm, but what is good
leadership and how can a multinational with many distant operations identify local people
with the required potential, given the demands of cross-boundary coordination? There are
two main difficulties: first, different cultures have difference views about what constitutes good
leadership; and second, the skills needed at senior levels are different from those at lower levels.
People develop most by taking on and learning from challenges. This is particularly true for
leadership development, implying demanding assignments, working outside one’s domain of
functional and geographic expertise. Most new or promoted employees do not immediately
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INTRODUCTION 27
have the skills needed for their jobs, so these must be developed on-the-job, facilitated
by coaching, mentoring, and formal training—the latter are part of what we call a people
risk-management strategy to avoid the costly mistakes of taking on big challenges.
While developing leadership skills is important, multinationals also need to make sure that
employees have the full range of competencies needed to successfully implement their strate-
gies. The digitalization of work taking place in virtually all industries has made upskilling vital
to ensure that employees have the necessary digital competencies. If not, they will be unable
to implement the transformations necessary to compete with more digitally savvy rivals. As
illustrated in the People Management Wheel, corporations should place strategy, and the
capabilities needed to carry it out, at the core of their learning and development efforts.
Diversity and inclusion

In contrast to the first edition of our book twenty years ago where we framed our call for diver-
sity as an aspiration, today diversity has become an essential requirement of doing business.
Diversity comes with its own sets of issues and concerns but accepting and embracing diversity
is essential to the legitimacy of a firm to operate—not something to consider only if it is a legal
requirement or justified with a “business case”.
The notion that diversity is an asset to be promoted or even celebrated has almost become
a truism, particularly because it is vital for innovation, managing risks, and high perfor-
mance.85 Cross-border teams are put together to provide diversity of perspectives, so selecting
people to work on teams requires paying attention to multiple dimensions of diversity, like
nationality, functional affiliation, experience, and gender. And most would today agree that
it is important to strive for diversity when appointing new members of senior management.
However, the benefits of diversity do not come automatically since international teams may
struggle to overcome the challenges posed by their diverse composition.86 Harnessing organ-
izational diversity is often difficult,87 and global organizations struggle to turn diversity and
inclusion into everyday practice.
Organizations that are proactive on diversity have, therefore, shifted attention away from
a focus on managing demographic diversity to fostering a truly inclusive culture in a diverse
workforce.88 As Josefine van Zanten, former Chief Diversity & Inclusion Officer at Shell, put
it: “Diversity is a given in today’s world, inclusion is a managerial choice.”89 Inclusion requires
action to change deep-seated habits and often unconscious biases, cultivating an environment
where people feel safe, where their differences are valued, and their voices are heard.
Focusing on organizational outcomes
People management practices, guided by underlying principles, ultimately help drive the
desired organizational outcomes of human resource management—the final element in the
People Management Wheel framework outlined in Figure 1.3. We have identified three inter-
woven critical outcomes:
z Social integration;
z Competitiveness;
z Sustainability.
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The first outcome focuses on the social foundations of a successful global organization; the
second outcome on its long-term business performance; and the third outcome, increasingly
recognized as essential, is focused on the extent to which business success is reached in a sus-
tainable manner.
Social integration
Every corporation is a social entity, built around relationships and shared values that are
reflected in its distinctive culture. Social integration refers to the attachments that link people
to the organization—a high degree of engagement of both employees and external stakehold-
ers is a characteristic of well-performing multinational corporations. In this book we focus on
how multinationals can achieve and harness social integration through its people management
practices.
In spite of the pervasiveness of digitalization and the growing role of virtual working, the
social ties between people remain the basis for attachment and engagement. In Chapter 5 we
will discuss the different ways in which people management practices influence social net-
works in the firm. One simple example: a key outcome of leadership development programs
with participants from different countries and regions is that participants get to know each
other, so in future they can work in (virtual) teams or coordinate effectively.
Academics and practicing managers agree that culture is an important feature of the organ-
ization: the values, beliefs and behavioral norms shared by employees. A strong culture facili-
tates interaction as people know what to expect from each other, and it also serves as a tool for
control and coordination as it aligns actions and facilitates coordination across units. People
management shapes the organizational culture in a variety of ways. The personal characteris-
tics of people who are hired, the socialization of new individuals, and the transfer of employees
across units are examples of practices that shape the culture of the firm.
The engagement of different stakeholders is essential for the success of any organization,
including multinationals. As discussed throughout the book, the multinational needs to
understand the interests of stakeholders across different cultural and institutional contexts
and learn how to engage them. We will use the term employee engagement broadly to cover
work-related motivation, exploring related concepts such as organizational commitment and
organizational identification. While we focus on management practices related to one crucial
stakeholder group—the employees—we will also discuss the relationship between the multina-
tional and a variety of its external stakeholders.
Competitiveness
The ability of the firm to maintain its competitiveness over time is the second organizational
outcome of the People Management Wheel. The exact impact of people management on firm
performance is at the center of a hot debate that has been raging for many years.90 Much of this
debate has focused on the choice of people management practices, though as our discussion
of organizational capabilities earlier in this chapter suggests, it is difficult to separate HRM
from its business context. There may not be a single best way of managing people (see Netflix
vs. Danaher). What is important for competitiveness and organizational performance is to

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INTRODUCTION 29
have a coherent set of people management practices that promote the development of relevant
organizational capabilities.
One of the challenges is how to prepare the organization for a VUCA world. All industries
go through cycles of growth and decline, created by fluctuations in supply and demand for
their products or services. And there will be global crises that few are able to foresee, like the
9/11 attacks or the 2020 pandemic. In a turbulent environment, sustainable performance
depends on being able to cope with economic cycles and unprecedented disruptions.
Many multinational corporations have introduced agile practices to help them adapt and be
more innovative. Organizations have become flatter and decision-making more decentralized,
project teams have become an ever more important feature of how work is organized, and
there have been experiments with new ways to manage performance on a continuous basis.
The leadership style called for in the new, more agile organizations involves coaching rather
than top-down decision-making. And firms are investing in the upskilling of their workforces,
including collaborative, digital and other technical skills to support the capabilities needed to
sustain performance and growth.91
Paradoxically, the most difficult time to invest in people and organizational development
is during times of growth, when managers are scrambling to take advantage of opportunities
and are too impatient to invest in long-term global processes. The best time to make these
investments is during lean periods—as long as the firm has accumulated sufficient resources
in anticipation of a downturn. Indeed, a good metaphor for understanding long-term devel-
opment of multinational organizations is steering—navigating smoothly between good and
harsh times, between global integration and local responsiveness, between short term and long
term.
Egil Myklebust, who headed Norsk Hydro for ten years, understood this well at a time when
this major Norway-based international company focused on cyclical industries such as ferti-
lizers, metals, and oil. Myklebust had experienced many ups and downs, and he told us that
his role was to cut off the tops and bottom of the cycles. “In the boom times, when everyone
is scrambling to launch projects and to hire people, my role is to push for caution and make
sure there is ultra-sound justification. Otherwise, hasty actions will worsen the downturn that
surely lies ahead. And when people are taking the axe in the pits of the downturn, I have to
push people to be bold and optimistic; otherwise we won’t be in a position to take advantage
of the good times ahead.”92
Sustainability
As companies worldwide are facing increased pressure from national governments, NGOs,
consumers, and the general public to contribute to economic and societal progress in a globally
sustainable way, the third central outcome is the firm’s demonstrated contribution to sus-
tainability—the ability of the organization to meet the needs of the present without compro-
mising the ability of future generations to meet their needs—with a focus on environmental
and social sustainability, as well as the firm’s underlying governance.
The recognition is growing that multinational companies can be a force for good—
increasingly understood in terms of the 17 Sustainable Development Goals (SDGs) established
by the UN93—and that engagement in corporate sustainability is not only the right thing to
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do but ultimately makes good business sense. This is well exemplified by Paul Polman, the
ex-CEO of Unilever: “What we firmly believe is that if we focus our company on improving
the lives of the world’s citizens and come up with genuine sustainable solutions, we are more
in synch with consumers and society and ultimately this will result in good shareholder
returns.”94
Many multinationals have already taken actions to align their activities with the needs of
stakeholders inside and outside the organization, as demonstrated by the growing number
of private–public partnerships, the emergence of dedicated sustainability departments in
many companies, and the proliferation of voluntary self-regulatory codes like the UN Global
Compact. As we explore in Chapter 14, companies such as Danone, Novo Nordisk, and
Patagonia have gone even further and adopted “profit-with-purpose” business models,95 with
the explicit goal of tackling some of the critical societal challenges of our time.
At the same time, multinational companies are faced with increased stakeholder activism
and public scrutiny. Numerous instances of human rights abuses in global supply chains and
other exploitative practices and the waves of corporate scandals have eroded public faith in
the activities of global firms.96 This comes at a time when seismic changes in the international
political landscape, the rise of anti-globalization sentiments around the globe, and other geo-
political crises pose new challenges for companies, particularly those operating across national
borders.97
People management has a potentially vital role to play in addressing these challenges, for
example, by creating employee engagement with the firm’s sustainability activities, creating
performance management and incentive systems aligned with an emphasis on social and
environmental sustainability, designing workplace-based practices that help the firm reduce
harmful environmental practices, and offering company-sponsored volunteerism and leader-
ship development programs aimed at promoting citizenship and sustainable development.98
Corporate sustainability, in turn, can help to create a strong and positive employer brand to
attract and retain talent.99 Multinationals that do not live by their principles and pay attention
to their social and ecological performance will eventually lose their “license to operate”.
OUTLINE OF THIS BOOK
Having set the stage here, the next two chapters review the globalization strategies of local
responsiveness and global integration in depth. In Chapter 2, we explore what local respon-
siveness means for people management by looking at the multidomestic firm, with a particular
emphasis on how these multinational corporations adapt to the local cultural and institutional
context. Chapter 3 focuses on the strategy of global integration through the lens of the megana-
tional enterprise, framing the subsequent discussion of control and coordination mechanisms.
We then look at the different methods of coordination. Structural coordination mecha-
nisms examined in Chapter 4 include multidimensional structures, cross-boundary teams,
and cross-boundary roles and steering groups. In Chapter 5 we discuss the social coordination
mechanisms of social capital (relationships), shared values, and global mindset.

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INTRODUCTION 31
The next five chapters (Chapters 6–10) deal with key processes in international HRM: talent
acquisition, performance management (including compensation), leadership development,
teamwork and diversity, and international mobility.
The next three chapters examine complex people management challenges in global firms:
facilitating change through people management (Chapter 11), knowledge and innovation
management (Chapter 12), and cross-border merger and acquisition integration (Chapter 13).
The final chapter (Chapter 14) addresses how people management can contribute to the
sustainability, social responsibility and ethical leadership of multinational corporations.
The focus of this book is explicitly on people management in large complex multinational
firms rather than small or medium-sized enterprises, although many issues that we will
cover are of direct relevance for a broad spectrum of firms and other kinds of organizations.
Throughout this book, we will be taking a broad general management perspective on people
management. We will present examples of challenges, successes as well as failures, from
firms drawn from all regions of the world, including Google and Netflix from the US, Toyota
from Japan, Haier from China, European multinationals like ABB and IKEA, and companies
without clear nationalities such as ArcelorMittal and Schlumberger. Each chapter starts with
a short case, highlighting the challenges that we will discuss.
TAKEAWAYS
1. As illustrated in the People Management Wheel, the purpose, strategy and intended organ-
izational capabilities should be at the center of the development of people management
practices in multinational corporations.
2. To add long-term value, people management has to support the development of organiza-
tional capabilities that differentiate a multinational firm from its competitors. Differentiated
coordination capabilities are complex and therefore usually more difficult for other firms
to imitate.
3. Control and coordination of dispersed operations has always been a key challenge for mul-
tinational firms; people management (HRM) is central to how companies have addressed
this challenge.
4. Multinational firms are pushed to be both responsive to local needs and globally
integrated—a hallmark of “transnational” organizations. People management can help
firms align local responsiveness with a high degree of global integration.
5. Three important guiding principles of people management focus on the alignment of
different people management practices; differentiation among employee groups, between
locations, and from other competitors; and balancing dualities such as local responsiveness
and local efficiency, and resource leverage and resource development.
6. People management issues are the joint responsibility of executives, managers and superi-
ors; the HR function; and employees themselves.
7. Every international firm has to cope with a number of core people management activities:
recruiting and selecting, managing and rewarding performance, identifying and retaining
talent, developing people, employee mobility, and diversity and inclusion. The key people

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management task of getting the right people into the right place at the right time must not
be neglected.
8. People management plays a key role in achieving social integration in the multinational:
building social relationships among employees, developing a strong organizational culture,
and engaging both employees and external stakeholders with the organization.
9. Applying a coherent set of people management practices that promote development of
organizational capabilities contributes to the competitiveness of the multinational—in
terms of agility, growth and financial performance.
10. People management issues are also central to how multinational companies can be a force
for good by contributing to sustainability in the social, environmental and economic
domains.
NOTES
1. Hastings and Meyer (2020).
2. Brennan (2018). How Netflix expanded to 190 countries in 7 years. https://hbr.org/2018/10/how-netflix
-expanded-to-190-countries-in-7-years.
3. Brennan (2018). How Netflix expanded to 190 countries in 7 years. https://hbr.org/2018/10/how-netflix
-expanded-to-190-countries-in-7-years.
4. For instance, while frank feedback was acceptable in the Dutch culture, the generosity of severance pay to
“adequate performers” was strictly regulated by Dutch law (Hastings and Meyer, 2020).
5. Moore and Lewis (1999).
6. Carlos and Nicholas (1988). On the other side of the world, southern Chinese clans spread their hold across
Southeast Asia in the fourteenth and fifteenth centuries.
7. In academic terms, this is known as “agency problems” and concerns the extent to which self-interested
agents will represent their principal’s interest in situations where the principal lacks information about what
the agent is doing. According to agency theory, principals can invest in collecting information about what
the agent is doing or design incentive systems such that the agent is rewarded when pursuing the principal’s
interests.
8. The trading companies’ ability to manage their international operations notwithstanding, they have also
been heavily criticized for colonialization, exploitation (including the use of slave labor), slave trade, use of
violence, and environmental destruction—see for example Shorto (2013) for a description of the Dutch East
India Company.
9. Jones (1996).
10. FDI refers to investments in units abroad over which the corporation has control, thus excluding purely
financial (portfolio) investments. Even by the early 1990s, FDI had only rallied to around 8.5 percent of world
output (Jones, G., 1996). In 2020, the stock of outward FDI was 45.4 percent of global GDP (https://data.oecd
.org/fdi/fdi-stocks.htm).
11. Chandler (1990).
12. Schisgall (1981).
13. Jones (1996, p. 173).
14. Price Waterhouse and Coopers & Lybrand later merged to form PricewaterhouseCoopers (PwC).
15. Vernon (1977).

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INTRODUCTION 33
16. Vernon (1966); Stopford and Wells (1972); Johanson and Vahlne (1977).
17. Such clusters of critical factors helped particular nations to develop a competitive advantage in certain
fields—such as German firms in chemicals or luxury cars, Swiss firms in pharmaceuticals, and US firms in
personal computers, software, and movies.
18. At the same time, Chinese outward FDI also increased dramatically. In 2014, Chinese outward FDI
was second only to that of the US (World Investment Report 2015, available at http://unctad.org/en/
PublicationsLibrary/wir2015_en.pdf).
19. See http://fortune.com/global500/.
20. Statistics suggest that Finland and the Nordic countries, the Netherlands, along with the USA, Australia
and New Zealand, and Singapore with Malaysia are best at matching people supply and demand, while
bottom-quartile countries with big skill gaps include Brazil in particular, along with much of Latin America,
Hungary, Slovakia and Turkey, as well as Egypt and other African countries (Lanvin and Evans, 2017).
21. Among the many reports documenting and assessing this skills gap are the reports of OECD (2013) and
World Economic Forum (2020). Statistics from Oxford Economics (2012) suggested that there is no gap at
an aggregate global level.
22. Cappelli (2008a).
23. Witt (2019) discusses the possible effects of a process of de-globalization on international business.
24. Nohria (2020) (available at https://hbr.org/2020/01/what-organizations-need-to-survive-a-pandemic); Rice
(2020) (available at https://hbr.org/2020/02/prepare-your-supply-chain-for-coronavirus).
25. Bartlett and Ghoshal (1989). To this we can add Hedlund’s (1986) related concept of heterarchy and Prahalad
and Doz’s (1987) studies on the multi-focal organization, all of which have origins in Perlmutter’s (1969)
geocentric organization. See Westney (2014) for an overview of research on the organization of multinational
corporations.
26. Bartlett and Ghoshal (1989).
27. The original company name of Panasonic was Matsushita Electric Works.
28. Since the term is generic, we use “international” when referring to Bartlett and Ghoshal’s (1989) use of the
term.
29. Ghoshal and Bartlett (1998, p. 65).
30. Mees-Buss et al. (2019). Mees-Buss et al. (2019) coined the term “neo-global corporation” to describe key
“post transnational” characteristics of Unilever.
31. VUCA, short for volatility, uncertainty, complexity, and ambiguity.
32. See https://www.post-gazette.com/ae/tv-radio/2021/09/24/Netflix-s-foreign-language-shows-booming
-streaming-service/stories/202109240140.
33. Rosenzweig and Nohria (1994); Björkman and Lu (2001); Stavrou et al. (2021).
34. Coordination within the multinational is discussed in Chapter 4.
35. Martinez and Jarillo (1989); Stendahl et al. (2021).
36. Edström and Galbraith (1977).
37. The study by Edström and Galbraith (1977) also lent substance to earlier research by Perlmutter (1969),
suggesting that multinationals vary in the “states of mind” regarding their international operations.
38. Michael Porter (1985), who laid much of the foundations for the field of strategic management, noted that
“horizontal strategies”—what was to be more widely known as global integration—are the most important
contribution for people management.
39. Cited by Bartlett and Ghoshal (1992).

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40. Porter (1980).

41. Barnard (1938). For an overview, see Van Ingen et al. (2021). See also Hollensbe et al. (2014) for an influential
editorial on the subject.
42. Van Ingen et al. (2021).
43. Ellsworth (2002).
44. Malnight et al. (2019).
45. Friedman (1970).
47. Keller (2015, p. 1).
49. The importance of organizational capabilities for the competitiveness of the multinational was stressed
already by Bartlett and Ghoshal (1989).
50. Barney (1991).
51. Barney (1991).
52. Boxall and Purcell (2016).
53. Grant (1996). For a more contemporary perspective on organizational capabilities, see Teece (2014).
54. The organizational literature is rich with different perspectives with respect to capabilities. For example, in
the field of strategy, the term “dynamic capabilities” describes the firm’s ability to create new organizational
capabilities in response to changes in the environment (Teece et al., 1997; see Zollo and Winter, 2002, for an
alternative interpretation).
55. Starbucks’ recent struggles highlight the importance of employee motivation and commitment for maintain-
ing differentiation capabilities.
56. Enabling capabilities are sometimes referred to in the literature as ordinary capabilities.
57. Collis and Anand (2021).
58. Kaizen is an approach to creating continuous improvement in the organization. Typically, it is based on
cooperation and commitment and stands in contrast to approaches that use radical or top-down changes to
achieve transformation.
59. By 2020, more than 60 percent of Danaher’s $19+ billion revenue was generated abroad, and 11 out of 25
Danaher-owned companies were run from outside the US.
60. See Boxall and Purcell (2016) for a presentation and discussion of the “ability, motivation, and opportunity”
(AMO) model.
61. Bowen and Ostroff (2004) conceptualize HRM as a signaling system. When people management practices
send distinct and consistent messages, employees are motivated to understand and adopt attitudes and
behaviors consistent with the strategy and goals of the firm.
62. Bacon (1999).
63. Bacon (1999).
64. There may also be some differentiation across business lines. This fourth aspect of differentiation is particu-
larly relevant when business units differ in the organizational capabilities they use to compete.
65. Lepak and Snell (1999).
66. How Netflix adapted candid feedback is discussed in chapter 10 of Hastings and Meyer (2020).
67. Liker and Hoseus (2008).
68. Bock (2015).

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INTRODUCTION 35
69. This refers to the classic principles of differentiation and integration in organizational design. See Lawrence
and Lorsch (1967), Galbraith (1977), and many other works in this domain.
70. Smith and Besharov (2019).
71. March (1991).
72. Evans and Doz (1989); Smith and Lewis (2011); Smith et al. (2017); Miron-Spektor et al. (2018).
73. Historians have been well aware of these swings. Indeed Arnold Toynbee’s monumental A Study of History
is built on the insight that the decline of civilizations occurs when a society pursues its success formula to
excess (Toynbee, 1946). One of the earliest articles on duality theory, on the theme of organizational seesaws,
emphasized this point (Hedberg et al., 1976).
74. Evans and Génadry (1998) argue that it is tension between the opposites that should be the dependent varia-
ble in organizational research.
75. Birkinshaw and Gupta (2013).
76. We discuss different tools to control multinationals in Chapter 3.
77. Perry and Kulik (2008).
78. Readers may be familiar with David Ulrich’s seminal so-called Four Box Framework (Ulrich, 1997), with
two operational and two strategic roles. Ulrich suggests that there are two operational HR roles: that of the
“administrative expert” and that of the “employee champion”. Ulrich and Brockbank (2005) identified five
roles for the HR function: employee advocate, human capital developer, functional expert, strategic partner,
and HR leader.
79. Cappelli and Tavis (2018) describe some of the ways in which HR has become more agile.
80. We should point out that with our focus on managers and knowledge workers in multinational firms, we
address the important area of labor and industrial relations only briefly in the context of institutional differ-
ences among countries.
81. The consulting firm McKinsey coined the “talent war” expression to capture the reality in many industries
(Chambers et al., 1998).
82. Sparrow et al. (2004).
83. See https://hired.com/blog/highlights/2020-brand-health-report/.
84. Lawler (2003a).
85. McKinsey & Company reported again in 2020 that “The business case for [gender, ethnic and cultural] diver-
sity is stronger than ever. For diverse companies, the likelihood of outperforming industry peers on profita-
bility has increased over time, while the penalties are getting steeper for lack of diversity.” (Dixon-Fyle et al.,
2020, https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion
-matters).
86. Stahl and Maznevski (2021).
87. Jonsen et al. (2020); Leicht‐Deobald et al. (2021).
88. Jonsen et al. (2020); McKay and Avery (2015).
89. Van Zanten, J.: “Diversity and inclusion”. Presentation held at the Academy of International Business (AIB)
Conference 2020, JIBS Decade Award Session.
90. Jiang et al. (2012); Wood and Ogbonnaya (2018).
91. Cappelli and Tavis (2018).
92. Today, the name of the company is Hydro and only the metals industry business has been retained.
93. See https://sdgs.un.org/goals.

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94. Jo Confino, “Unilever’s Paul Polman: Challenging the corporate status quo”. The Guardian, 24 April 2012
(available at www.theguardian.com/sustainable-business/paul-polman-unilever-sustainable-living-plan).
95. “Société à Mission” in France.
96. Liran and Dolan (2016); Wettstein et al. (2018).
97. Horak et al. (2019); Inglehart and Norris (2016).
98. Mirvis (2012); Cohen et al. (2012).
99. Cohen et al. (2012).

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1

Introduction to The Global

DEFYING BORDERS: WHAT’S NEW?

International business is not a recent phenomenon, neither is international people manage-

International operations in the pre-industrial era

The impact of industrialization

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Prelude to the modern era

EMERGENCE OF THE MODERN MULTINATIONAL

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

a European pharmaceutical corporation could have international R&D partnerships with

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Managing global tensions

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

strength of the multidomestic approach is local responsiveness, and some European

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Source: Adapted from Bartlett and Ghoshal (1989).

Figure 1.1 Paths towards the transnational model

The transnational model

competitors responded by centralizing decision making and developing new capabilities to

The role of people management in the multinational firm

THE DIFFERENCE BETWEEN CONTROL AND COORDINATION

PURPOSE, STRATEGY AND CAPABILITIES

Purpose and strategy

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

THE RESOURCE-BASED VIEW OF THE FIRM AND ITS CAPABILITIES

contrast to a prior approach that focused on external considerations—such as industry

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

CAPABILITY JOURNEY AT DANAHER: FROM RUST BELT TO GLOBAL

From an organizational perspective, functional capabilities are embedded in the resources

COMPETING THROUGH CAPABILITIES AT NETFLIX

Differentiating coordination capability: Armed with insights into customer preferences

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Figure 1.2 Organizational capabilities at Danaher and Netflix

Organizational capabilities and people management

THE PEOPLE MANAGEMENT WHEEL

Figure 1.3 The people management wheel

Setting the guiding principles

The importance of alignment

z Differentiation across employee groups;

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Table 1.1 Some of the dualities facing international firms

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

We can distinguish between the three roles of the HR function:78

z Contributing to business decisions;

Designing people management practices

Recruitment and selection

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Talent review and development

Diversity and inclusion

Focusing on organizational outcomes

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

OUTLINE OF THIS BOOK

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

40. Porter (1980).

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

Vladimir Pucik, Ingmar Björkman, Paul Evans, and Günter Stahl -

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