3.20 business management report
Transfer of HRM Practices
Dr Amarachi Amaugo
Senior Lecturer in HRM & OB,
Leicester Business School, DMU
HRMG 3203
1
Outline of lecture
By the end of this lecture you will be able to:
Appreciate how employment practices are embedded in distinctive national contexts
Understand the different theoretical perspectives concerning why multinationals transfer practices across borders
Evaluate the competing influences on the inclination and ability of multinationals to engage in the transfer
Explore the different conceptual models that can be used to analyse the influences on HRM practices.
The integration/differentiation paradox
MNCs are confronted with conflicting institutional pressures towards global integration and local adaptation (Kostova 1999).
All internationally operating organizations continuously balance central co-ordination and control and the need to maintain international consistency (corporate isomorphism) with the need to adapt to the local context (local isomorphism).
For MNCs therefore key questions are:
How much do they want to develop policies that will apply across the world?
How much can they develop policies that will apply across the world? And
How much do they need to tailor policies and practices to suit local conditions?
MNCs, Isomorphism and Institutional Distance
Isomorphism*
HRM of Subsidiary
US MNC
Local isomorphism
(Host-country effect )
Adaptation
Corporate isomorphism
(Country-of-origin
effect US)
Standardisation
*Isomorphism is the extent to which organizations adopt the same structures and processes as other organizations within their environment (Zucker, 1977).
Standardisation VS Localisation
Why globally standardise HRM?
To achieve consistency, transparency and alignment of a geographically fragmented workforce around common principles and objectives.
Why locally responsive HRM?
To respect local cultural values, traditions, legislation, government policies and education systems, regarding HRM and work practices.
Balancing the standardization and localization of HRM in MNEs
Source: Dowling et al., (2013)
Standardisation VS Localisation
Factors Driving Standardisation
pursue multinational or transnational corporate strategies
supported by corresponding organisational structures that are
reinforced by a shared worldwide corporate culture
Factors Driving Localisation
Support Cultural environment
more social context : more complete balance of extrinsic and intrinsic rewards
more individual or fast changing personal and social contexts : more extrinsic rewards
Institutional environment (country-of-origin host country)
Mode of operation abroad
Subsidiary role: e.g., global innovator, integrated player, implementer
Models of International HRM
Schuler, Dowling and De Cieri (1993) – Integrative framework of international HRM
identifies 3 groups of variables that impact on the nature of strategic IHRM: strategic MNE components, exogenous factors, endogenous factors
strengths: comprehensive
weaknesses: descriptive, emphasis on management employees
Taylor, Beechler and Napier (1996) typology
identifies 3 types of strategic IHRM forms: exportive, integrative and adaptive
draws heavily on resource-based theory of the firm
strengths: recognises variable role of employees in providing critical resources
weaknesses: unclear what practices are diffused and how
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Strategic HRM in multinational enterprises
Source: Schuler et al. (1993)
Model of Strategic International Human resource Management (SIHRM)
Source: Taylor et al. (1996: 965)
DETERMINANTS OF HRM PRACTICES TRANSFER within MNCS
The Country of Origin
Stage of the Internationalisation Process
Industry Characteristics, Strategy and Structure
Subsidiary Characteristics
Host Country Effect
1. The Country of Origin Effect: HRM Implications
The country of origin in which MNCs are embedded has been claimed to have implications for HRM. For example:
Several studies found US MNCs to be more ‘centralised’ and ‘formalised’, and hence ‘ethnocentric’(Hedlund, 1981, Young et al, 1995).
Thus, US MNCs act as ‘innovators’ by importing into host countries new practices, such as productivity bargaining and performance-related pay.
The same has been noted in respect of Japanese MNCs (Oliver & Wilkonson, 1994).
BY Contrast, European MNCs are claimed to be ‘polycentric’. Thus:
They tend to be ‘less centralised’ and grant their affiliates a relatively high degree of ‘autonomy’, as they place more weight on the local environment
Accordingly, performance standards, incentives and training methods are different from headquarters, and industrial relations policy-making is more decentralised (Ferner, 1994).
Reasons for Country of Origin Effect/Influence
Why do MNCs from different countries of origin apply different HRM practices?
A number of factors have been identified as contributing to the country of origin effect.
The most important of these are encompassed in two theoretical approaches the:
‘Culturalist’
‘Institutionalist’
These two approaches/perspectives have
been known as the ‘Contextual’ Approach.
Contextual Theoretical Perspectives: The Culturalist & Institutional Approaches
Culturalist Approach:
claims that corporate culture is often shaped by aspects of the national culture in which the MNC originated (e.g. Hofstede, 1980, 1991; Adler, 1991; Laurent, 1983)
Hence, the unique cultural values lead to differences in HRM practices across countries and the adoption of practices similar to those of the country of origin/parent company practices.
Institutionalist Approach:
The institutionalist or structural approach of National Business Systems (NBSs) argue that historical and economic institutional settings within which a MNC is embedded act to shape its behaviour in terms of such things as work organisation, HRM practices and modes of control, etc.
Consequently, they argue that since these institutions continue to differ across countries, so too do the strategies and practices of companies (Edwards, 1998)
2. Internationalisation Stage
Firms go through a learning process as they move towards becoming international.
The degree of a MNC’s internationalisation and related international experience of its managers influence international human resource policies and practices, as well as the structures and control mechanisms used within multinationals.
E.g. In the early stages of internationalisation firms use standardised systems and procedures and tend to adopt an ethnocentric staffing policy to achieve a high level of centralised control, and use a unified set of HR practices everywhere.
By contrast, mature firms tend to be less centralised and are polycentric or moving to geocentric staffing policies. They also tend to have a more diverse set of HR practices to accommodate local or regional demands.
3. Industry Characteristics & Strategy & Structure
The industry sector influences the type of international strategy adopted by the MNCs.
Two main industry types: Multi-domestic and Global industries (Porter, 1986).
This leads to two generic international strategies:
Multi-domestic Strategy
Global Strategy
Multi-domestic Strategy
Global Strategy
Subsidiary Characteristics
The mode of establishment and the location of the subsidiary (Greenfield vs brownfield; DCs vs LDCs)
The economic performance of the subsidiary
(the weaker the financial performance of the subsidiary and/or the higher the dependence on the parent for financial resources entails less degree of autonomy and higher involvement of parent Co) relations)
The age and size of the subsidiary
(More control over smaller and younger subsidiaries)
The subsidiary’s strategic role
[defined in terms of the amount and direction of the resource flow between the subsidiary and the rest of the corporation (Gupta & Govindarajan, 1991)]
4. Subsidiary’s Strategic Role
Global innovator
(high outflow of resources & low inflow)
Integrated player
(high outflow & high inflow)
Implementer:
(low outflow & high inflow)
Local innovator
(low outflow & low inflow)
5. Host Country Cultural and Institutional Effects
The host country’s legal, cultural, social, labour market conditions, economic and political environment have an impact on MNCs’ approach to the management of labour by either encouraging or impeding certain HR issues.
The greater the Cultural Distance between the home and host country, the harder it will be for the MNC to transfer home country philosophies and practices (Ferner, 1997).
Certain issues are more susceptible to the influence of the host country than others (Rosenwieg & Nohria, 1994). These include:
bargaining levels, union recognition, forms of workplace representation, employee participation, working hours.
Other policy issues are less regulated, such as:
compensation systems, management development, work organisation, employee communications and hence more susceptible to country of origin influence (Ferner, 1997; Edwards, 1998).
The openness of Host country
A transfer of a business system depends on the openness of the dominant institutions of the host countries.
Transfer is easy in the subsidiaries which are ‘open’ in the sense that the NBS poses minor legal, institutional and cultural constraints to the implementation of new structures and practices (Whitley, 1992).
In contrast, the ‘closed’ NBS are highly regulated and distinctive. For example, Germany, Spain, China.
5. Examples of Host Country Effects
US and European MNCs operating in LDCs often failed to diffuse their practices because they lacked appreciation of culture-specific attitudes to work, rewards, authority and management-labour relations.
Performance-related pay is more acceptable in Anglo-Saxon business culture, than in France, Germany or Italy.
Japanese MNCs were successful in transferring some practices such as single-union agreements and Zero-rate reject to their subsidiaries, they failed to transfer other practices successfully, such as quality circles and just-in-time, especially in the West.
5. Examples of Host Country Effects
A host government can dictate hiring procedures, as in the case of Malaysia in the 1970s when the government made it mandatory for foreign firms to provide additional employment for indigenous Malays. Similarly, Saudi Arabia and Philippines enacted indigenous employment quotas of 75% and 95% respectively.
Trade unions, and political sensitivity in particular in LDCs may force government to enforce more restrictions on MNCs.
Can you think of more specific examples that illustrate the cultural and institutional influences of the host country on MNCs’ HRM policies and practices?
Summary
A number of factors influence the transfer of HRM practices across borders.
These factors include: home country effect, host country effect, industry sector and relevant strategy and structure, stage in the internationalisation process, subsidiary characteristics, and dominance effect.
The interaction between these factors determine the degree to which a MNC is willing and able to transfer HRM practices across borders.
Reading
DiMaggio , P.J. and Powell . W.(1983). Iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2): 147-160.
Edwards, T. (2015). ‘The transfer of employment practices across borders in multinational companies’, in Harzing, A.W., and Pinnington, A.H., (Eds.), International Human Resource Management’, (4th edition), London: Sage, pp. 80-105.
Edwards, T. and Rees, C. (2011). International Human Resource Management: Globalization, National Systems and Multinational Corporations (2nd ed.). London: Pearson Education.
Edwards, T. and Ferner, A. (2002). The rewarded ‘American Challenge’: a review of employment practice in US multinationals. International Relations Journal. 33(2)
Ferner, A and Quintanilla, J. (1998). Multinationals, national business systems and HRM: the enduring influence of national identity or a process of 'Anglo-Saxonization’. The International Journal of Human Resource Management. 9(4).
Schuler, R. S., Dowling, P. J. and De Cieri, H. (1993]) An integrative framework of strategic international human resource management. Journal of Management 19(2), 419–459.
Taylor, S., Beechler, S. and Napier, N. (1996]) Toward an integrative model of strategic international human resource management. Academy of Management Review 21(4), 959–985.