The Effects of NAFTA-Driven Relocations on Organizations of the United States and Mexico

The Effects of NAFTA-Driven Relocations on Organizations of the United States and Mexico

SEAN VALENTINE

Currently. many corporations in Mexico and the United States are experiencing dramatic growth directly related to the North American Free Trade Agreement (NmA). Because many corporate activities are being shifted across borders, some companies are inclined to relocate managers frequently. These policies could be unfavorably considered by employees, therefore jeopardizing their job satisfaction. The purpose of this article is to study the use of relocation as a method for improving management performance.

The economic and social well-being of Mexico and the United States rests on foundations of prosperous organizations governed by human resource policies that promote management excellence. With the challenges of a changing workforce prompted by the North American Free Trade Agreement (NAFTA). companies must be able to buffer their management staff from dissatisfaction by training leaders to learn and adapt to new practices essential for their development and progression. Although technological innovations have enabled businesses to seize previously unattainable opportunities, increased competition has caused organizations to adopt strategic management programs that they believe will increase management effectiveness and quality. Much attention has been given to policies designed to augment management performance: policies such as Total Quality Management (TQM), Management by Objectives (MBO). and Empowerment, all involving some form of organized team-building. The importance and value of investigating such policies is paramount because they can play a major role in the career development activities for companies of NAFTA.

Strategic human resource management as it pertains to international staffing is a growing field of study, gaining attention as organizations downsize and become more streamlined (Butler, Ferris, & Napier, 1991; Delery & Doty, 1996). As corporations operate in

Sean Valentine is a doctoral student in the Department of Management and Market- ing at Louisiana Tech Uniuerstty, Ruston Correspondence reganiing this article should be sent to Sean Valentine, 127 Maple Street, Ruston, LA 71270.

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the challenging global markets covered by NAFTA. the proper place- ment of managers regarding experience, position on career track, and abilities can foster effective management skills (Mom & Abbott. 1994; Solomon, 1994). One area that draws notable strategic consideration is the transfer or relocation of management within an organization (Leonard, 1994a. 1994b; Martin, 1995). To fully understand the implication of these management policies, it is important to define the term job relocation.

Job relocation refers to work situations in which an employee simultaneously changes job and home location (Axel, 1985; Mar- tin, 1995). In the United Kingdom alone, it has been estimated that well over 250.000 employees relocate every year (Martin, 1995). For many groups of employees, relocations can occur as often as every 2 to 3 years. Organizations usually offer a relocation package that includes assistance with selecting a new home, guaranteed purchase of the employee’s current home, and reimbursement for all moving costs. In situations in which an accompanying partner has a career, job search assistance is frequently provided to ease any financial stress.

International relocation is one of the more prominent human resource issues of the 1990s. as employers expand their positions into globally competitive markets (Briscoe. 1995; Leonard, 1994a; Solomon. 1994). Considering the amount of money required to move employees to foreign countries, companies best protect these in- vestments by ensuring that the managers and their families are satisfied with their new environment (Leonard, 1994b). Providing classes in foreign languages and organizing family support groups are specific ways in which companies can lessen the burden of international moves (de Forest, 1994).

The following material highlights the implications that frequent organizational relocations have for organizations of the North Ameri- can Free Trade Area. The study analyzes several key factors, such as management performance and supervisory effectiveness, to establish a position regarding the amount of relocations that will optimize satisfaction. The conclusions should be especially helpful to corporations in North America and Mexico because of the many economic benefits associated with free trade.

Organizations, specifically those in Mexico and the United States, should adopt policies that require managers and employees to transfer frequently but relocate at a much lower rate. This policy enables managers to experience many facets of the organization and to become more effective without requiring them to frequently move their entire households to new locations. In essence, when a company is planning to move a manager, the location selected should accommo-

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date the manager's next two or three job assignments. This phi- losophy becomes even more critical when the company is planning to move the employee to a neighboring country.

When designing and implementing strategies to enhance organizations already in operation, companies should not overlook the benefits of the free trade established by the Foreign Trade Zones Act of 1934. These foreign trade zones create economic development in communities by providing firms with facilities that en- courage international negotiation and bartering (Runager, 1990: Saghafi. 1994). Many times, these foreign trade zones are located in isolated areas in the U.S. that are not considered part of customs territory. Consequently, items that are transported through these areas are not subject to taxes, tariffs, and customs until they are shipped out of the trade zone for final sale. This process enables exporters to save money if goods fail inspection or have to be repackaged (Saghafi, 1994). Material in the Appendix tracks the complex development of NAFTA between Canada, the United States, and Mexico.

SaghaA(l994) delineated three main reasons that justify NAFI'A's existence: (a) to capitalize on the geographic closeness of the three countries: (b) to augment the innovation and competitiveness of Canada, the United States, and Mexico: and (c) to facilitate trade and subsequent prosperity because Canada and Mexico depend heavily on the United States for the well-being of their economies. NAFTA also redefines competitive advantage among the different economic regions, allowing countries to optimize their production functions to increase relative growth and expansion (Dooley, 199 1 : Moran & Abbott, 1994).

THE IMPACT OF MAQUILADORAS

After NAFI'A was initiated, many companies began shifting some operations across borders to take advantage of economic opportunities. Maqui ladoras . manufacturing firms located in Mexico, have been extremely popular modes of economic cooperation between Mexico and U.S. companies (SaghaA, 1994). Maqui ladora programs consist of assembly plants that use temporarily imported raw ma- terials to manufacture products that will then be shipped back to the United States for Anal sale or assembly (Groff & McCray. 1991). Duties are based on the value that is added by the program and are assessed when the items are exported out of Mexico. Under the umbrella of NAFTA. the Mexican government plans to reduce un- employment, to improve the balance of payments, and to infuse foreign capital and technology in Mexico by directly using the


maquiladora programs. I t seems that these goals are very realistic because the number of maquiladora plants has grown by nearly 3000% since the 1960s (Saghafi, 1994).

Currently, the United States owns and manages 68% of the maquiladorasin Mexico (Saghafl, 1994; Szekely &Vera, 1991). One of the personnel advantages of operating these maquiladora plants is that U.S. companies can strategically place them along the US.- Mexican border, thereby allowing employees and managers to conduct business in Mexico while residing in the United States (Saghafi. 1994). However, some personnel disadvantages include the emi- nent problems of relocating managers, employees, and new hires to these areas. Also, the maquiladoras are partially responsible for the wage and compensation pressures that plague the border regions. Company plants and maquiladoras located in border towns must attract workers who have many jobs to choose from.

THE IMPACT OF RELOCATIONS

Job transfers and relocations are becoming quite common in the modern-day organization because they are seen as a solution to a variety of problems. A survey of Fortune 500 companies conducted by Coldwell Banker Relocation Services and Yankelovich Partners has found that relocation of corporate executives has been on the rise since 1993 (“Corporate Relocation Is,” 1994). Each year in the United States, nearly 500.000 employees are relocated by their employers (Fisher & Shaw. 1994). With the slow decrease is sex- ism, women increasingly are the one’s relocating their families to take advantage of job prospects. The Employee Relocation Council reports that women currently account for 15% of transfers, up from just 5% in 1980 (Cohen. 1994). The percentage of trailing spouses who are male has now risen to 5.7% in the last several years (Schonfeld, 1994).

Initiating corporate transfers or relocations can be a very complex and painful process. Companies need to make provisions for entire families while managing the shrinking dollar. When looking at the situation realistically, companies relocate employees because the change makes good business sense (Flynn. 1995). In light of this assumption, relocation in the 1990s has become a partner- ship effort between employees and their companies. With some effort and cooperation between the relocation candidate and the company, and some patience from both sides, the relocating process can be much less painful and costly (Flynn, 1995).

The task that more human resource professionals have become responsible for is corporate relocation. To become proficient at this

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function, these logisticians need to become educated in the formal policies within the company. Although cost should be a major focus, satisfying the supervisor should be given the highest priority because overall quality in management could be effected (MacDonald, 1994).

Corporate job relocation is a delicate subject that sometimes causes employee anxiety. Many companies that transfer employees report employee reluctance to relocate, although both employer and employees often conclude that the professional reasons for the relocation outweigh the personal reasons for not relocating (“Fifty-Seven Ways.” 1990). It is also apparent that each year many employees are dissatisfied with the moves they undertake (Flynn. 1995). Many human resource professionals report an increasing reluctance for company-initiated moves because of the potential disruption to the family or changes in the standard of living. According to one bank president, “The people we are hiring today have a good idea of what they want to accomplish as individuals. They have geographic preferences, job preferences, and many outside activities that occupy their time” (Axel, 1985, p. 38).

A decision that must be considered by most businesses seeking to grow internationally is the question of how to place managers abroad. Some companies simply delegate these foreign duties to nationals, thereby avoiding complicated and costly job relocations (Toll, 1994). According to one survey of 50 Fortune 500 companies, 90% of the time businesses select employees for their technical knowledge and expertise for overseas assignments. About 20 to 25% of all overseas placements are unsuccessful, and the survey showed that 60% of them failed because of family difficulties. Attri- tion due to these stressful and unpopular job assignments can indeed cause companies to lose money and manpower (Solomon, 1994).

Penalties and career setbacks for refusing corporate relocations do not seem to be as severe as they were many years ago, although many managers claim that refusals have negatively impaired career progression (Axel, 1985). Most personnel directors have ar- ticulated that turning down a move does remove opportunities that may never be available again. Many times, a compromise can be reached between employee and organization regarding where he or she will be moved. This in turn reduces the number of relocations that are turned down (Axel, 1985).

Much of the anxiety about relocating does not result from bad experiences with prior moves. Research suggests that expected attributes of the new location have the greatest effect on relocation attitudes. After the move, role ambiguity, degree of advancement, community satisfaction, and job satisfaction were the strongest predictors of post-move attitude and difficulty (Fisher & Shaw. 1994).


Aside from emotional unrest, there are practical reasons why companies should avoid job relocation policies that require frequent international moves. According to the 1993 Relocation Trends Survey by the Relocation Council of Washington, DC, the average cost for moving an employee who owns a home is about $45,000 (Leonard, 1994b). According to the 1993 Survey and Analysis of Employee Relocation Policies and Costs, organizations spent $36,500, an increase of 3% over the 1990 figure of $35.352. for each home-owning employee who was expatriated. Furthermore, moving a typical family to western Europe usually costs a company 3 to 4 times the executive's base salary. This money can bring tremendous benefits, yet 30% of the time those who are transferred return early, fail to perform well in their overseas assignments, or leave the company less than 2 years after their assignments have been com- pleted (Zetlin, 1994). These statistics dictate that companies will have to adopt programs that facilitate career progression while promoting retention within the corporate ladder.

Another area that causes an increase in relocation costs is the use of support services to assist the moving process. A Runzheimer International survey of 286 relocation managers throughout Nor th American corporations indicated that most companies lack suffi- cient resources to support most of the diverse assistance needs of their relocated employees and their families (Transferees Can't Always," 1994). Most companies that transfer employees use outside vendors known as 'relocation service providers" who manage all or a portion of the transfers and their associated problems (Lay- ton, 1994). Many employers have found the benefits of such relocation assistance hard to identify, and many times employees believe that they are being pressured to drop prices on their homes to expedite the move. In addition, these services are very expensive, and it is inaccurate for companies to assume that the lowest bid- der is the provider that should be used.

Overall, the number of Americans being sent abroad to run U.S. companies has been steadily declining, and the reasons vary. The overriding justiAcation for this dramatic decline is cost, but language barriers and differences in business cultures are also very important reasons why companies should think twice before sending employees abroad ("Common hpatriate," 1994). Although most senior management would like to expand the relative experience of their subordinate leaders, many companies are dropping expatriate programs in favor of using foreign nationals. According to a survey conducted by Drake Beam Morin. there is no longer a strong necessity to expatriate US. managers because there are more qualified foreign nationals in vir - tually every country in which the US. operates (Ettorre, 1994).

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Again, the rising costs as well as the increased level of anxiety related to corporate relocation have many corporations questioning the necessity for such action. Upper management within large, multinational corporations are trying alternative forms of career tracking such as cross-training and rotational job responsibilities to protect management from unnecessary moves. With proper analysis of organizational goals coupled with awareness of employee needs, companies can establish more accommodating human resource policies.

IMPLICATIONS FOR EMPLOYMENT COUNSELORS

As North American and Mexican corporations are faced with the rising costs of relocation as well as the possibility for employee inertia and unrest, many top administrators are questioning the benefits of policies that use frequent transfers to develop career potential. The obvious result has been a decline in corporate transfers that require employees to relocate their households. Because many multinational companies have large divisions and plants, managers can make several moves within one location to further professional development.

From the research of many prominent business scholars (Fisher & Shaw. 1994; Huber & Schuler, 1993; MacDonald, 1994; Solomon, 1994; Toll, 1994). there seems to be a slight negative correlation between the effectiveness of management and the existence of ex- tensive corporate relocation requirements: however, this is not to say that all relocations have negative ramifications. The negative relationship is typically demonstrated when flrms require managers tofrequently change jobs for the sake of career enhancement or corporate expansion. Many times, departments claim to suffer from the frequent loss of managers who bring much needed experience from previous positions. Other executives comment that field operations frequently lack continuity of management direction and credibility when managers lacking rapport are thrown together in unfamiliar settings. The combined anxiety of frequently relocating a household and managing in new organizational climates can cause a significant decline in the performance of an executive (MacDonald, 1994). Family and financial pressures as well as new work commit- ments clearly tax some employees beyond what they consider to be fair.

The following recommendations can help employment counselors of the NAFTA career track managers in a more positive and productive manner:

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Personnel leaders of companies with extensions in Mexico should create policies and practices that will challenge corporate leaders as well as compensate them fairly, thereby developing desirable management skills and attributes. This will cause a decrease in overall relocations desired by keeping managers stimulated in a challenging job while decreasing turnover cause by job burnout and complacency.

If counselors must relocate managers to locations within their NAFTA counterparts, managers should be given the opportunity for several promotions before they have to move again. Because most corporations influenced by NAFI'A have multiple departments with many levels of management, managers should be able to ac- cept two or three job assignments beyond the original position and choose the length of their assignment.

Training should be a priority for all career counselors-especially those who deal in international relocation. Companies should offer training classes that educate managers in cultural differences, business practices, and work ethics (Butler et al., 1991; Moran & Abbott. 1994). Training should also include language classes, which would help communication with foreign national employees.

As indicated by Ettorre (1994). companies have the opportunity to hire qualified foreign nationals, thereby eliminating many of the cultural and language differences. These managers could very well be hired directly from the line hierarchy. Personnel administrators could also transfer managers already working in the location to offset pressure on domestically based managers. This decision-making process, which involves either selecting foreign nationals or relocating currently employed managers to fill personnel needs, can be expressed graphically as shown in Figure 1.

Partially due to the maquiladoras scattered across the Mexican border, their paternalistic tendencies, and their concern for wage rates, many of the Mexican workers are now being offered an increasing number of benefits such as attendance bonuses, savings funds, and cafeteria subsidies (de Forest, 1994). Also, many of the border cities that house major corporations as well as maquiladoras are becoming crowded with job hunters who have many more choices and opportunities than were previously available. For these reasons, if employment counselors elect to hire foreign nationals rather than transfer American managers and workers, they must be ready to compensate them fairly. Some analysts think that certain in- dustry minimum wage requirements must be enforced. Others believe that certain fringe benefits such as vacation bonuses and compli- mentary supermarket vouchers are the best way to satisfy workers. The important message that must be emphasized is that

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I- Foreign National I (no move required)

FIGURE 1

I

I I I

Career Development I Policy I

I I I

\

Staffing Determinants of Management Performance/Quality

\ / Management / \ > PerformancelQuality

Sources: Fisher and Shaw (1994), Solomon (1994), Toll (1994), MacDonald (1994), Ettorre (1994), Zetlin (1994), and Flynn (1995).

[I---,--. - L r - - - -

I Career Development I Practice

employment counselors must clearly communicate these benefits to the employees.

Relocate Manager

With corporate expansion across the US.-Mexican border as well as the new emphasis on maquiladora programs and their associated pressures on fair compensation, employment counselors of NAFTA should create policies that promote positive work environ- ments for corporate managers and employees. With the increase of relocation costs, many of these human resource (HR) professionals are looking for talent already employed at company sites. Conse- quently, corporate transfers should mostly be in the form of same- site job moves rather than relocations. If management favors relocation as a career development tool, personnel administrators should transfer employees to locations that are close to their current position. This policy would ease domestic conflict thereby increasing employee satisfaction in the workplace. If HR leaders turn to local talent, they must be ready to generously compensate them to rival other hiring firms. Having excellent staffing policies that consider the preferences of managers and employees will enable U S . and Mexican companies to take full advantage of the many benefits associated with free trade.


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APPENDIX

The Groundwork of NAFTA

1985

1987

1988

1989

1990

1992

1993

1994

United States and Mexico sign a bilateral agreement that lays NAFTA groundwork.

United States and Mexico sign a "framework agreement" that liberalizes trade of steel, textiles, and some alcoholic beverages.

Newly elected President Salinas de Gortari launches his "economic modernization drive," which loosens foreign trade regulations and privatizes state-owned firms.

United States and Canada dissolve trade barriers in a landmark agreement. The Foreign Trade Area goes fully into effect.

Canada, Mexico, and the United States agree to create a free trade agreement.

United States, Canada, and Mexico sign the NAFTA agreement.

Positive vote in U.S. Congress.

NAFTA implemented-creates a market of 380 million people and $7000 billion in gross domestic product.

Note. Adapted from Saghafi (1994) and Moran and Abbott (1994).


Documents

The Effects of NAFTA-Driven Relocations on Organizations of the United States and Mexico