Labor Dilemma in a Joint Venture

Application Case 4-1
Solving the Labor Dilemma in a Joint

Venture in Japan
John has found himself with a critical labor shortage, and he doesn't know exactly how to solve his
problem. John is the founder, president, and CEO of a small manufacturing firm, Johnsco
Electronics. The company has approximately 300 employees in its home state of Tennessee. Recently,
it was approached by a major Japanese automobile manufacturing company about a possible joint
venture in which Johnsco could retain majority ownership. The opportunity seemed attractive, so
John agreed to build and operate a plant outside of Tokyo. The plant is expected to employ around

500 workers to fabricate and assemble computer components for new automobiles.
John had recently discovered the extremely high cost of maintaining a significant number of expatriate
managers in a city with a cost of living as high as Tokyo. Thus, he had agreed to the joint venture
expecting to use mostly his host country nationals for the new facility. Unfortunately, John is having
problems staffing many of the essential positions. First, he was not aware that equal employment opportunity
laws would apply to his international operation. Since John supplies the federal government with
certain military components, his hiring practices are scrutinized to see whether minorities and women
are appropriately represented in his workforce. Only recently did John discover that few if any Japanese
women ever move into managerial positions in Japan. He's confused about how to balance his obligations
under United States law, local customs in Tokyo, and the high cost of using expatriates.

John was led to believe that there would be a large supply of inexpensive labor throughout Asia.
He had heard that multinational organizations acquire very inexpensive labor by relying heavily on
women to staff labor-intensive production jobs. Culturally, he'd heard, these people defer to authority
and are willing to work long, tedious hours. Once again, however, he discovered that Japan has
strict policies prohibiting foreign labor. In fact, nearly 15,000 undocumented aliens were arrested in
Tokyo each year while attempting to find work.

The Japanese liaison to Johnsco has told John that Japan's workforce is aging even more rapidly than
the workforce in the United States. Historically, Japanese companies have been dominated by seniority
systems that encourage older workers to remain with a single firm until retirement. There are also fewer
young, semiskilled workers, because of the ever-increasing percentages of Japanese children who attend
college. For example, over half of the more than 4 million Japanese blue-collar workers in constructionrelated
fields are older than 50. John is confused about the implications of these facts for his ability to
staff the Tokyo operation; he wonders about problems with his company-sponsored retirement programs.
And, to add one last problem, John's American plant is almost entirely unionized. The union steward
expects two things: (1) any good promotional opportunities created by the international joint venture
must give union members the first right of accepting a transfer; and (2) host country nationals who are
hired in Japan should be covered by the same union contract as the workers in the United States.

John's enthusiasm over the opportunity to work closely with one of the most powerful automobile
makers in the world has diminished. But the agreement is signed, and John now wonders how
he can ever get the Tokyo operation off the ground, let alone make a profit, without violating local
customs or American laws.

Please answer the following questions:

1. What are the major components of a compensation system in a global organization? Why is it important for global organizations to understand the compensation practices of other global organizations in different countries? Given these compensation practices, how does an organization develop an appropriate strategy?
2. What should a global organization consider when deciding which benefits to offer? What should be the main objectives for a global organization with regards to its compensation and benefits package? Given the considerations and objectives, how would an organization develop an appropriate compensation and benefits package?
3. What metrics should be in place to evaluate expatriate manager performance? How do these metrics differ from those used to evaluate a host country manager? What are the pros and cons associated with these metrics? How would an organization select an appropriate metric?