2000 words assignment excluding reference
WEEK 3: HOME COUNTRY EFFECT
Emerging Market MNCs: Internationalisation and HRM (CMSE11380)
Dr. Keyan Lai Office: 2.13
Email: keyan.lai@ed.ac.uk
EMNCs different from AMNCs
W1- dimensions including: accelerated speed, popular entry mode of M&As, simultaneous expansion path to both developing and developed markets
W2- OLI framework
Different O- advantages, e.g. relationship with governments
Different focus on L-advantages, e.g. innovation/knowledge seeking
Recap of W1 & W2 lectures
Also known as country-of-origin effect
Elements of the behaviours of MNCs can be traced back to the characteristics of the institutional environments of the home country
Cultural theory (Hofstede, 1980): the influence of cultural values and norms on managerial practices in overseas subsidiaries
Institutional theory (Hall & Soskice, 2001; Whitley, 2001): MNCs’ behavior at the international level will be informed by the operational models and organizational routines the MNCs developed at home in response to home-country institutional arrangements
Home country effect
Comparative Institutional Analysis
To identify, classify, and explain the distinctive configuration of institutions in (home) country
How the forms, behaviours and outcomes of firms are influenced and shaped by the institutions
What are the consequence. e.g. employment, innovation
Comparative Institutional Analysis
Hall & Soskice’s (2001) VoC is an institutional framework (in contrast to the cultural approach) for understanding how nations are different
Helps us to understanding how corporate strategy and management practices are linked to the wider societal institutional context
Four institutional domains
Corporate governance & finance
Industrial relation
Education & training
Inter-firm relations
Focuses on formal institutions (as opposed to informal/soft ones, e.g. norms and customs)
Revision of VoC
| Corporate governance & finance | Capital markets, banks and other financial intermediaries, state regulation of finance sector, the state |
| Industrial relation | Labour unions, wage bargaining procedures, labour law, state, employers associations, the state |
| Education & training | Vocational and educational institutions, professional bodies, state regulation, employers associations |
| Inter-firm relations | Legal structure of contract enforcement, employers associations |
Key institutions in four domains
Neo institutionalism includes three domains: regulative, normative, cognitive
| Dimension | Whitley (1999) | Hall & Soskice (2001) | Amable (2003) | Redding (2005) | Hancke et al. (2007) |
| Civil society role | ✔ | ||||
| Education and skills formation | ✔ | ✔ | ✔ | ✔ | ✔ |
| Employment relations | ✔ | ✔ | ✔ | ✔ | ✔ |
| Financial system | ✔ | ✔ | ✔ | ✔ | ✔ |
| Interfirm networks | ✔ | ✔ | ✔ | ✔ | |
| Internal dynamics of firm | ✔ | ✔ | ✔ | ✔ | |
| Corporate governance | ✔ | ✔ | ✔ | ✔ | |
| Product markets | ✔ | ||||
| Social capital (trust) | ✔ | ✔ | |||
| Social protection | ✔ | ||||
| State role | ✔ | ✔ | ✔ | ✔ |
General management profile
Standardized, formalised, centralised in international policy making
Tend to transfer organisational forms/ management methods to overseas subsidiaries
Broader management controls through budgeting, planning, etc.
Hostile to collective worker representation
Example: USA MNCs
US business system/ institutional profile
Market competition, mass production
State as weak economic actor
Shareholder capitalism
Flexible labour market
Deep-rooted anti- unionism
Source: Ferner, A. (2000). The embeddedness of US multinational companies in the US business system: implications for HR/IR. Working paper.
Weak institutions at home, or ‘Institutional voids’
The absence/ underdevelopment of institutions that enable effective markets, e.g. governance mechanisms that prevent corruption, and protect property rights; also political instability, government interference, unpredictable regulatory changes
Institutional voids create social, regulatory, and political uncertainty.
Institutional profile of emerging markets
Also see: Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of international business studies, 38(4), 481-498.
Based on the case of Tata Motors & Hero Group
What is the key institutional element that has impacted the development these two Indian MNCs?
How is the home country effect manifested in these two cases?
Quick discussion
1948-1991: pre-liberalization
Indian economy was heavily regulated and relatively closed.
“by the end of the 1970’s, India had acquired a reputation as one of the most protected and heavily regulated economies in the world”
1991 onwards: post-liberalization
Opening up of the Indian economy
Liberalisation of India’s outward FDI policy that allowed Indian firms to invest abroad
Also allowed foreign MNEs to enter India
(Munjal et al 2013)
India & Indian MNCs
The development of Indian firms into MNCs is a product of home country factors; particularly, Indian government policy.
Protectionist policies and a slow pace of liberalisation provide growth opportunities to domestic firms to serve a large unsaturated domestic market
Indian firms grew domestically and diversified because of a protected home market
Indian firms actively engaged in cross border acquisitions, which were financed by the accumulation of funds arising from super-normal profits in the large, protected Indian economy.
India & Indian MNCs
Buckley, P. J., Munjal, S., Enderwick, P., & Forsans, N. (2016). Cross-border acquisitions by Indian multinationals: Asset exploitation or asset augmentation?. International Business Review. 25. 986-996
Industrialization policies
Policy essentially directed to the attraction of foreign MNCs, negative impact on the development of local capabilities; local firms stood in low-tech sectors, inward looking
Macro-economic policies
Instable, unpredictable policies, volatile conditions lead to short-term perspective.
The Brazilian cultural legacies
Portuguese colonization legacy: rigid & hierarchical organization;
The natural resources curse: the blessing hinders diversification and innovation; conservatism; risk-aversion
Brazil & Brazilian MNCs
Brazil & Brazilian MNCs
Most Brazilian MNCs are expanding in traditional sectors; not in those regarded as knowledge-intensive and technologically dynamic.
There are no technological catching-up strategies
Ownership advantages: based on manufacturing excellence, and innovative business model
Internationalization strategy: characterized by opportunistic movements associated with conservative and risk-averse decision making process
(Fleury & Fleury, 2014; Fleury, Fleury, & Borini, 2013).
Consequence of ownership nationality
The nationality of MNCs (e.g. Japanese, German) explains differences in the strategies, policies, or practices of MNCs from different countries.
Transfer of home-country practices
MNCs’ host-country management practices mirror those in their home country
Manifestations of Home country effects
Transfer of management ethos
Subsidiary practices are dissimilar to their parent’s but reflect the prevalent management philosophy at home
Competitive disadvantage
MNCs’ competitive disadvantage is associated with their country of origin
(Please read Zhu, et al 2014)
Research has identified distinctive patterns of IHRM, taken by MNCs of different nationalities (Edwards & Ferner, 2004; Ferner, Quintanilla, & Varul, 2001; Ferner, 1997).
Japanese MNCs: a highly centralised management approach; heavily rely on expatriates to manage their overseas operation.
British/ US MNCs: budget-setting, tight financial and performance control.
German MNCs: influenced by the long-termism in their home environment, have much fewer short- term performance requirements; rely less on formal financial control measures, but more on formal feedback and communications.
Home country effect
Indian MNCs tend to use more temporary/contingent labour
Home country institutions
India has stringent laws against the retrenchment of workers. Until 1980 India was one of the most regulated labour markets in the world
A strong trade union movement also creates a situation where it is almost impossible to retrench workers.
This has naturally resulted in greater reliance on temporary workers or manufacturing outsourcing
Home country effect – Indian MNCs
Gomes, E., Sahadev, S., Glaister, A. J., & Demirbag, M. (2015). A comparison of international HRM practices by Indian and European MNEs: evidence from Africa. The International Journal of Human Resource Management, 26(21), 2676-2700.
Russian MNCs adopt HRM practices of Western origin, depending on host countries.
In developing countries that were member of former Soviet Union, the IHRM approaches adopted by Russian MNCs typically reflect a feeling of superiority.
In developed countries and non- Soviet developing countries, Russian MNCs mixed global best practices and local HRM practices.
Home country effect – Russian MNCs
“Our US operations form a business division, while our Latvian, Ukrainian, and Kazakh operations are business units. The latter are therefore one level lower [in the organizational hierarchy]. The subsidiaries’ budgets, levels of responsibility, and freedom depend on their status. ”
(Andreeva, et al 2014)
Based on your knowledge/ experience, discuss and identify: one HRM practice that could be problematic when it is transferred from EMNCs’ home country to the UK.
What would you do to tackle this if you were the HR manager?
Quick discussion
Home country effect manifested as competitive disadvantage; in other words, EMNCs’ competitive disadvantages derived from home country institutional environment. e.g. managerial weakness
A key mechanism through which home country effect plays out is the mind-set of managers (rather than formally established corporate control instruments, as in the case of AMNCs)
A unique challenge for EMNCs
A case study of Chinese MNCs (Zhu, Zhu, De Cieri, 2014)
Trade unions in China are an appendage of the party- state or a state organ.
Lack a capacity to represent workers’ interests in opposition to enterprise management; instead, serve business interests.
Have sided with government and employers, maintaining industrial harmony even during disputes
Labor relations management at the workplace level in China can be characterized as managerial unilateralism within a formalistic collective framework.
Industrial relations in China
Chinese MNCs’ failure to evaluate labor relations risks and to handle overseas labor relations.
Chinese managers’ lack of knowledge about the nature of labor relations in other countries and how to manage it.
The absence of specialized organizations that can provide quality advice on overseas labor relations in China.
Headquarters’ weakness in supporting and coordinating labor relations in subsidiaries.
Home country effect
“To be frank, I have little knowledge about overseas labor relations. Really very little. We have not come across labor relations problems. Overseas trade unions—I have learned about them largely through TV. Judging from media reports, it seems that trade unions have transformed into an irrational monster. ...
The only thing I can say is that I cannot understand overseas trade unions. ”
Our environment is different from that faced by foreign firms. Those firms grow up in that environment and they are very familiar with union conflicts…. I was not warned about how deeply trade unions might seek to participate in the business operation. The concepts of dialoguing with trade unions, pre- paring for the dialogue, and devising dialogue mechanisms, all these were unknown to me.
Employer association (EA)
Strong preference of non-membership of EA in host country
Chinese managers attribute little value to EA
Chinese manager lack of awareness and interest in EA’s role in labour disputes
(Zhu & Jack, 2017)
Home country effect – Chinese MNCs
EA in China
EA in China are controlled and supported by the state
The China Enterprise Confederation (CEC) is the formerly monopolistic employers’ representative organisation
It functions like a ‘state-owned management consultancy bureau’, rather than a representative of employers
A very weak actor in China’s industrial relation system
“I knew that there existed an employer association. But I did not investigate it and we did not join it ... I felt that EAs were sort of like a club. They (people) often gathered together to communicate. ... We did not participate ... because we at that time did not feel that there was such a need. At that time, we did not know how important and useful the EAs were and thus we did not consider the membership. “
“By nature, membership means to pay money. I do not know what benefit membership can bring us ... In fact, it did not occur to me that there existed local employer associations.”
EMNCs, the most distrusted?
“A company’s headquarters location matters deeply when it comes to trust… companies headquartered in BRIC countries remain among the most distrusted of businesses. Brazil, China, Russia, India and Mexico all recorded trust levels well below 50 percent (38 percent, 36 percent, 35 percent, 34 percent, and 31 percent, respectively), a stark contrast to countries such as Sweden, Canada, Germany and Switzerland that registered as high as 76 percent. The trust challenge is particularly acute for developing country-based multinational companies seeking to do business in a developed country. ”
(The 2015 Edelman Trust Barometer, cited by Marano et al, 2017)
The behaviors of MNCs are deeply institutionally embedded, thus Comparative Institutional Analysis as good analytical tool
Home country effect may take different forms, but competitive disadvantages associated with country of origin is particularly prominent in the case of EMNCs
Next two weeks, we follow this line of inquiry
The role of state
The legitimacy problem
In Summary