1.25 business management
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Lecture5_HRMG3203_InstitutionalApproaches.pptxExplaining Differences In Countries and HRM
Institutional Approaches
Godspower Onah
Lecturer, International HRM
Leicester Business School, DMU
HRMG 3203
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Learning Outcomes
By the end of the lecture students should be able to:
To understand the institutional basis for differences and similarities between countries in the way they manage their HRM
To explore the arguments concerning convergence and divergence in national systems of employment
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Convergence or Divergence
There has been a debate about the extent to which national patterns of employment relations and HRM practices are either:
Converging (becoming more similar), or
Diverging (moving further apart)
…especially in an era of globalisation!
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What Do You Think: Are International HRM Practices and National Employment Systems Converging or Diverging?
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3 Schools of Thought
Universalists (convergence)
Culturalists (divergence)
Institutionalists (convergence or divergence)
Rubery and Grimshaw, 2003
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3 Schools of Thought
Universalists:
Market forces and technology (Globalisation) lead to convergence
Convergence among countries at similar stages of development/industrialisation with similar factor endowments (land, climate, capital, labour force)
MNCs tend to establish similar HRM systems in each location
Convergence around ‘best practice’ HRM – High Commitment/High Performance HRM
Rubery and Grimshaw, 2003
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The Best Practice approach is also called the universalist approach
It is based on “one best way” to manage HRM in all organisations
It is based on High Commitment HRM, also called High Performance Work Systems (HPWS) which are made up of a “bundle” of HRM strategies (Pfeffer, 1998)
Universalists
Marchington and Wilkinson (2012)
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Key components of the “bundle” of Best Practice/High Commitment HRM (Pfeffer, 1998):
Employment security and internal labour markets
Selective hiring and sophisticated selection
Extensive training, learning and development
Employee involvement and participation, worker voice
Self-managed teams/team-working
High compensation contingent on performance
Performance review, appraisal and career development
Reducing status differences/harmonising terms and conditions
Work-life balance
Universalists
Marchington and Wilkinson (2012)
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3 Schools of Thought
Culturalists:
Differences in national culture may lead to divergence in national employment systems
Variations in culture may correlate with differences in comparative advantage e.g Japanese culture compatible with development of high-quality production systems
See Lecture on National Culture
Rubery and Grimshaw, 2003
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3 Schools of Thought
Institutionalists:
Societal Effects: Interlocking set of institutions lead to divergence reflecting embeddedness of societal (institutional) system.
Globalisation leads to transformation of societal system but not convergence
Dominant Country: In every era there is a dominant country/model which others try to imitate leading to convergence
Dominance followed by decline
Rubery and Grimshaw, 2003
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Institutional Pressures
A set of interacting pressures that shape IHRM:
System Effects:
Technological changes and global market structures that influence how work is organised in MNCs
Dominant Country Effects:
Pressure to imitate institutions and IHRM practices of dominant country
Dominance through international trade, capital mobility/foreign direct investments (FDI), international governance institutions (e.g., WTO, IMF)
International Transmission of political and economic ideology, tastes, fashions and consumption patterns
Power of MNCs to pressure nation states to provide attractive conditions for investing in new locations
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Let’s look closely at institutional approaches to convergence and divergence
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Defining Institutions
Narrow definition: “Key institutions are the state, the legal system and the financial system, which combined constitute the distinctive social organisation of a country and its economy. (…) allows to explain the way in which state, financial, education and IR systems, and other combine to influence organisational practices” (Edward & Rees, 2016, p. 19)
Wide definition: “A set of rules, formal or informal, that actors generally follow, whether for normative, cognitive or material reasons” (North, 1990, p. 3)
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Institutions that shape IHRM: Examples
Legal system and employment law e.g., minimum wage, working time, redundancy, worker rights, health and safety etc
Financial system e.g., maximising shareholder value, public ownership, short/long-term investors etc.
Educational and training institutions e.g., quantity and quality of vocational training and academic education etc
Family and social networks e.g., social support necessary for workers e.g., childcare, housing, entry into occupations etc
Political system e.g., democratic/authoritarian rule, freedom to organise businesses and trade unions etc.
Economic system e.g., state control, free markets, mixed economy, informal economy, neoliberalism etc.
Social institutions e.g., healthcare, pensions, unemployment support etc.
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Convergence
Convergence theories assume that there are common pressures across societies to adopt a particular (‘best practice’) ER/HRM system
Original convergence thesis was developed by Kerr et al. in Industrialism and Industrial Man (1960):
Logic of Industrialism: as countries experience industrialization, the associated technological and market forces create pressures across societies to adopt a certain, American-style ER/HRM system
Convergence on American style ‘pluralist industrialism’ – relations between managers and employees would be governed by a web of rules/ER system that promoted consensus rather than conflict
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Modified Convergence
Original convergence thesis by Kerr et al was criticised:
Technological determinism (Cochrane, 1976; Berger, 1996)
American perspective (Goldthorpe, 1984)
Weak support from empirical research data (Katz and Darbishire, 2000)
Later revised by Kerr, and developed by other authors (Modified Convergence):
Convergence as a tendency among democratic industrialised societies to institutionalise their employment system around pluralist industrialism although countries may not have identical systems
Dore (1973) suggested convergence may be towards the Japanese ER model rather than an American one. He argued that countries which are ‘late comers’ to industrialisation learn from other countries experiences and were able to develop ER/HRM institutions that are well suited to industrialisation
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Varieties of Capitalism (VoC)
Several authors have argued for divergence, one of the most influential theories of divergence is the Varieties of Capitalism (VOC) approach by Hall and Soskice (2001)
VoC - a set of institutional complementarities (institutional arrangements that enhance each other’s effectiveness) that resolve coordination problems in key areas:
Industrial relations (IR)
Vocational training and education (VET)
Corporate governance
Inter-firm relations
Intra-firm relations (relations with employees)
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Varieties of Capitalism (VoC)
Divergence of institutional arrangements cluster around 2 institutional configurations:
Liberal Market Economies (LME)
Institutional complementarities encourage firms to resolve coordination problems through market mechanisms
E.g USA, UK, Australia, New Zealand, Canada
Coordinated Market Economies (CME)
Institutional complementarities encourage firms to resolve coordination problems through non-market mechanisms
E.g Germany, Austria, Scandinavian countries (Sweden, Denmark etc), Netherlands, Japan
Hall and Soskice (2001) argue that globalization does NOT produce ‘one best way’ to organise national employment systems:
Both LME and CME can produce good economic outcomes
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Varieties of Capitalism (VoC)
Also, a theory of Convergence?
Institutional complementarity – tendency of institutional arrangements to converge on either LME or CME model (Bamber et al, 2016 p.14)
| LME | CME | |
| Finance | Equity-based and short-term finance Large stock markets easy for investors to switch asses leading to pressure for short-term profitability | Credit-based and long-term finance ‘patient capital’ from banks Take longer-term view of corporate success |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Corporate governance | Shareholder and ‘Outsider’ forms of Corporate governance Prioritise outside investors (shareholders) with mostly short-term interest in firm success Importance of short-term shareholder value, mergers & acquisitions | Stakeholder and ‘Insider’ forms of Corporate governance Prioritise stakeholders with long-term interest in firm success (banks, management, employees) Board representation and corporate decision-making role of stakeholders Importance of long-term market share |
Bamber et al (2016)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Role of the state | Weak role of the state To ensure ‘free and fair’ markets, but otherwise to intervene as little as possible | Strong role of the state To establish framework by which enhances social dialogue between employer organizations and trade unions |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Industrial relations (IR) | Weak and low organisation of trade unions and employer associations (competition) adversarial relationships fluid labour markets: power to hire and fire | strong employers’ associations and trade unions collaborative relationships strong employee voice and participation rights and employment protection long-term employment strategies |
Bamber et al (2016)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Intra-firm employment relationship | ‘Hire and fire’ principles lead to low-trust relationship between employers and employees Reliance on numerical flexibility | Long-term, higher-trust relationships for core workers Reliance on functional flexibility |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Inter-firm relations (between firms) | Competitive and contract-based e.g subcontracting, tends to be based on price competition and be relatively low-trust | Collaborative, both in terms of creating institutional infrastructure (wage bargaining, training etc) and in terms of long-term, high-trust relations across the supply chains of large firms |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Vocational education and training (VET) | General education provided by state. Vocational training systems unstable, as large firms prefer to develop their own systems rather than contribute to sectoral/occupational systems Focus on acquisition of general skills | Firms pool resources into highly developed vocational training systems, usually at sectoral level (except japan) collaborative training schemes extensive sector-specific, specialised and vocational training and skills |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| HRM | Attempts to increase cooperation from employers historically made difficult by conflictive industrial relations, more recently by low levels of employment security creating difficulties in obtaining commitment Individualization of HR (individualized pay and career development, decline of trade unions) | More collectively oriented HRM (higher levels of collective employee involvement, greater prevalence of autonomous teams, less individualized pay) |
Almond (2011); Almond and Maria Gonzalez (2006)
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Varieties of Capitalism (VoC)
| LME | CME | |
| Wage determination | Decentralised Workplace or firm level | More centralised (sectoral or national levels) |
| Trade Union Organisation | Primarily occupational | Primarily sectoral (except Japan) |
| Areas of competitive strength | Sectors involving radical innovation (IT, science) | Sectors involving incremental innovation (engineering) |
Almond (2011); Almond and Maria Gonzalez (2006)
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Criticisms of VoC
Hall and Soskice (2001) acknowledge that at least 6 European countries (France, Italy, Spain, Portugal, Greece, Turkey) do not fit either LME or CME category and raise the prospect of a Mediterranean VoC
Not enough variety in Varieties of Capitalism (Allen, 2004)
Differences exist between countries in the same category e.g Germany and Japan (LME) (Jackson, 2001; Streeck and Yamamura, 2001,2003)
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Criticisms of VoC
Differences exist within countries e.g., dualisation in Germany, public vs private sector, core vs periphery workers (strategic segmentation) etc (Bamber et al., 2016); and VoC tends to focus on manufacturing sector overlooking differences in service sector and SMEs (Thelen, 2014)
Institutional complementarity: deterministic (employment system ‘locked-in’ by a few institutions) and very little scope for change (Crouch, 2005; Howell, 2003)
Focus on national institutions and ignores international factors (other than competitive pressures associated with globalization) (Rhodes et al., 2007)
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Alternatives to VoC
VoC extended by:
Schmidt (2002; 2012) added a 3rd VoC: State-Influenced Market Economies (SMEs) France, Italy, and Spain
Rhodes et al (2007) added a 4th VoC to include Central and Eastern European countries
Wailes (2007) added Asian market economies (Japan, South Korea)
Amable (2003) identifies 5 systems:
Market-based model (Anglo-Saxon - LME)
Continental European model (e.g. Germany, Austria, Belgium - CME)
Social-democratic model (Nordic: e.g. Sweden, Denmark)
Mediterranean model (e.g. Italy, Spain, Greece)
Asian Capitalism model (e.g. Japan, Korea)
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Alternatives to VoC
6 National Business Systems (Whitley,1999)
and 7th (segmented business system found in Africa) added by Woods and Fryas (2006)
Ebbinghaus (1999): 4 European Socio-Economic Models; in comparison to Japan and US
Anglo-Saxon, Nordic, Centre, Southern
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Convergence and Divergence too simplistic? You are expected to provide a more sophisticated argument
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Moving Beyond Mere Convergence-Divergence
Directional Convergence: HRM practices in 2 countries get more similar in trends (development tendency in the same direction) but not in final outcome e.g similar trend in decline in trade union membership (convergence) but differences in proportion of this decline growing larger (divergence)
Final Convergence: HRM practices in 2 countries get more similar in final outcome e.g different rates of increases in youth employment (divergence) lead to similar final stable youth employment rate (convergence)
Stasis: No change over time in the proportion of organisations using an HRM practice and a state of stability thus exists
Divergence: Changes in use of HRM practice in 2 countries heading in different directions – one increasing and the other decreasing
Mayrhofer et al (2004); Brewster et al, (2016) p.10
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Convergence in international employment systems?
Converge around minimum standards?
Converge at the bottom? - Race to the bottom of labour standards?
Converge at the top? - Race to the top of labour standards?
Divergence?
Different countries have different standards… Race to the bottom?
Moving Beyond Mere Convergence-Divergence
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Moving Beyond Mere Convergence-Divergence
Hybridisation: mix and match home and host country (Almond, 2011)
‘Dominance effect’: mixed best practice–Japanese production and American management (‘lean management’)
Complex cross-border mergers and joint-ventures, i.e. MNC ownership with varying pressures
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Conclusion
What Do You Think: Are International HRM Practices and National Employment Systems Converging or Diverging?
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