When MNC has the decreased integrative mechanisms and the increased autonomy and flexibility for its foreign subsidiaries, the conflicts between the headquarters and the subsidiaries are less likely to occur. The situation allows the local HR managers to develop unique HRM policies and practices in their subsidiaries or to combine the local HRM practices with those of the headquarters.
On the other hand, when MNC emphasizes global integration in HRM aiming to get global efficiencies and uniformity, the centralized approach would lead to the local HR managers lamenting their diminished decision-making autonomy and resources wasted in complying with company-wide planning and control mechanisms.
There is some research which reveals that the integrative mechanisms seldom contribute to the effectiveness of a MNC’s subsidiary, even in the case of low demand for local responsiveness (Brock and Siscovick 2007). However, I suggest that the local HR managers should have greater control over defining their roles and responsibilities within not only the local subsidiary but also the entire organization of the MNC. In terms of the national HRM in different parts of the world, some empirical studies suggest that there are considerable signs of convergence towards accepted best practices and that differences in HR practices are gradually declining (Mendenhall and Oddou 2000).
In terms of the Japanese HRM trend, their traditional HR practices has been changed dramatically and are partially moving from the organization-oriented to the market-oriented systems that is found in the U.S. (Jacoby 2005) Furthermore, the modern global IT and communication technology make it possible for people to share their knowledge, use all their resources, and engage in collaborative innovation across the borders. Talented people within MNCs expect to develop their careers in any places where it create most value for them. The local HR managers should not hinder their career opportunities by persisting to protect the local subsidiary’s vested interest. As global HR professionals, the local HR managers should contribute more to some functions within MNC: deploying the talented people to where they are needed regardless of geographical location, disseminating knowledge and innovation, and identifying and developing talent on a global basis.
On the other hand, the local HR managers should also carefully examine the local needs in their diversified workforces. Even in Japan, some people say that there are no longer differences between the Western and non-Western culture. The others say that there are still disparities of thinking patters and values between them. Both arguments may be right because the evolution of national institution is influenced by national heritage (Jacoby 2005) and therefore exhibit same symptom but different causes and path.
To minimize any conflicts within the organization, the local HR managers should contribute more as an integral “interpreter” partner in the global integration strategy for both the local employees and the headquarters. In order to execute this role, the local HR managers are required to fully understand of the purpose and context of the headquarters’ global business strategy and to carefully examine the national HRM in both the home and host country, which is coming from the local attributes formed by the fusion of historical, legislative, cultural, and social factors.
Moreover, in the corporate headquarters, even when it emphasizes global integration strategy, by involving the local HR managers to the policy-making process, the standardized global policy becomes generated through a more cooperative process and is less likely to be resisted by subsidiaries as a central power.
Vacillation between Integration and Differentiation
In terms of the MNC’s business strategy, the firm’s international strategy (global integration versus local differentiation) and accompanying decision-making structure (centralized versus decentralized decision-making) often become the major conflict within the MNC’s strategic planning, as well as within HRM’s support of those plans. Typically, tensions emerge between the parent company and its subsidiaries, stemming from the need for local responsiveness at the subsidiaries and global integration imperatives at the corporate headquarters (Bartlett and Ghoshal 1998; Briscoe et al. 2009; Ferner 2004; Ghoshal and Nohria 1993; Tayeb 2005).
The international HRM literature classifies a MNC’s approach to managing their subsidiaries in one of four categories: ethnocentric, polycentric, regiocentric, and geocentric (Dowling et al.1999, 70-75). These terms are based on the model developed by Perlmutter (1969), which is linked with the stage of a firm’s internationalization and the level of local resources and capabilities.
• Ethnocentric: Subsidiaries are managed by expatriates from the home country. The policies and practices of headquarters are the default standard with which all subsidiaries need to comply.
• Polycentric: Subsidiaries are managed by local nationals and have some decision-making autonomy. The policies and practices are adapted to local conditions.
• Regiocentric: Reflects the geographic strategy and structure of the MNCs, career mobility for local nationals move outside their countries but only within the region.
• Geocentric: Superiority is not equated with nationality. The policies and practices are created by a worldwide integrated approach.
However, in the real world, these orientations never appear in a pure form because the environmental contingencies facing the firm influence its corporate strategic approaches.
One of the traditional theoretical frameworks, the global integration/local responsiveness matrix popularized by Bartlett and Ghoshal (1998), illustrates the linkages between environment and strategy. Each MNC’s subsidiary must be responsive to local customers, governments, and regulatory agencies for its ongoing institutional legitimacy and economic success. On the other hand, MNCs are also forced to integrate the subsidiaries’ activities globally because of having multinational customers, global competitors and suppliers, the needs of knowledge sharing, and pressure to achieve economic efficiency and reducing redundancy. According to Ghoshal and Nohria (1993, 27), the environmental conditions faced by MNCs are classified into four types (Figure2),
and Bartlett and Ghoshal (1998) suggest the three international corporate-level strategies: global, multi-domestic, and transnational as shown in Figure 3.
In the matrix, for example, Bartlett and Ghoshal examine that pharmaceutical and medical device industry exists in a transnational environment where they simultaneously face strong demands for both global integration and local responsiveness. For the global pharmaceutical and medical device makers, besides economies of scale in manufacturing, clinical trials and marketing, they need to integrate their internal knowledge and resources to discover new products and sustain diverse portfolios of research projects across borders. On the other hand, the companies have to be responsive to a myriad of local and country-level regulation, each of which has posed its own unique requirements for new product approval.
These academic frameworks help understand what factors determine the role of the headquarters and the subsidiaries in the MNC’s organizational strategies. Moreover, other than the external factors and the local capability of MNC, some forces, such as the strategic importance of the local market, corporate leadership style, organizational history, and local culture, have great impact on shaping the configuration of a company’s assets, responsibility distribution, and management style (Bartlett and Ghoshal 1998). The strategic importance of subsidiaries with the growing markets provides the local subsidiaries with strong bargaining power. Additionally, some studies have shown that MNCs of different national origins exhibit distinctive patterns of centralized control and subsidiary autonomy in their management; they also find that the U.S. MNCs are more centralized than those of other nationalities (Ferner 2004). According to the research about foreign subsidiaries in Japan, because the American MNCs maintain strong centrally-run systems and manage subsidiaries on tight reins from headquarters, some of the Japanese HR managers complain about the centralized organizational structures in their firms. Furthermore, the managers argue that since the collapse of the bubble economy and the shrinking Japanese market, global standard systems of American firms have strongly penetrated into Japan (Shibata and Doyle 2006).
The international HRM literature classifies a MNC’s approach to managing their subsidiaries in one of four categories: ethnocentric, polycentric, regiocentric, and geocentric (Dowling et al.1999, 70-75). These terms are based on the model developed by Perlmutter (1969), which is linked with the stage of a firm’s internationalization and the level of local resources and capabilities.
• Ethnocentric: Subsidiaries are managed by expatriates from the home country. The policies and practices of headquarters are the default standard with which all subsidiaries need to comply.
• Polycentric: Subsidiaries are managed by local nationals and have some decision-making autonomy. The policies and practices are adapted to local conditions.
• Regiocentric: Reflects the geographic strategy and structure of the MNCs, career mobility for local nationals move outside their countries but only within the region.
• Geocentric: Superiority is not equated with nationality. The policies and practices are created by a worldwide integrated approach.
However, in the real world, these orientations never appear in a pure form because the environmental contingencies facing the firm influence its corporate strategic approaches.
One of the traditional theoretical frameworks, the global integration/local responsiveness matrix popularized by Bartlett and Ghoshal (1998), illustrates the linkages between environment and strategy. Each MNC’s subsidiary must be responsive to local customers, governments, and regulatory agencies for its ongoing institutional legitimacy and economic success. On the other hand, MNCs are also forced to integrate the subsidiaries’ activities globally because of having multinational customers, global competitors and suppliers, the needs of knowledge sharing, and pressure to achieve economic efficiency and reducing redundancy. According to Ghoshal and Nohria (1993, 27), the environmental conditions faced by MNCs are classified into four types (Figure2),
 |
| Figure 2 |
and Bartlett and Ghoshal (1998) suggest the three international corporate-level strategies: global, multi-domestic, and transnational as shown in Figure 3.
 |
| Figure 3 |
In the matrix, for example, Bartlett and Ghoshal examine that pharmaceutical and medical device industry exists in a transnational environment where they simultaneously face strong demands for both global integration and local responsiveness. For the global pharmaceutical and medical device makers, besides economies of scale in manufacturing, clinical trials and marketing, they need to integrate their internal knowledge and resources to discover new products and sustain diverse portfolios of research projects across borders. On the other hand, the companies have to be responsive to a myriad of local and country-level regulation, each of which has posed its own unique requirements for new product approval.
These academic frameworks help understand what factors determine the role of the headquarters and the subsidiaries in the MNC’s organizational strategies. Moreover, other than the external factors and the local capability of MNC, some forces, such as the strategic importance of the local market, corporate leadership style, organizational history, and local culture, have great impact on shaping the configuration of a company’s assets, responsibility distribution, and management style (Bartlett and Ghoshal 1998). The strategic importance of subsidiaries with the growing markets provides the local subsidiaries with strong bargaining power. Additionally, some studies have shown that MNCs of different national origins exhibit distinctive patterns of centralized control and subsidiary autonomy in their management; they also find that the U.S. MNCs are more centralized than those of other nationalities (Ferner 2004). According to the research about foreign subsidiaries in Japan, because the American MNCs maintain strong centrally-run systems and manage subsidiaries on tight reins from headquarters, some of the Japanese HR managers complain about the centralized organizational structures in their firms. Furthermore, the managers argue that since the collapse of the bubble economy and the shrinking Japanese market, global standard systems of American firms have strongly penetrated into Japan (Shibata and Doyle 2006).
Subsidiary’s Perspective
Although a subsidiary’s perspective in international HRM has received little research attention (Briscoe et al. 2009), the subsidiaries should not be treated as passive recipients of the headquarters instructions. Local people can always find a way to avoid policies and procedures which act contrary to their deeply-held values or legal and other social institutions. Local HR professionals make efforts to convey the employees’ voices to the headquarters as a “mediator” and modify the policies so that they are relatively tension-free or compatible with the local conditions.
In general, compared to the headquarters, subsidiaries are in a better position to judge the local political and legal situations and to make appropriate decisions (Tayeb 2005). Moreover, the local HR function as an “interpreter” involves the integration of corporate philosophy and organizational culture into the local operations. Particularly, for subsidiaries operating in countries where their language is different from that of the headquarters, the role of the interpreter is incredibly important. Language, however, tends to be overlooked in the international business management literature (Welch et al. 2005).
In practice, the interpretation of corporate policies by subsidiaries may mislead, which could result in dilution or distortion of the headquarters’ true intention. For example, as seen in Medtronic, when the worldwide performance appraisal systems were applied to employees in foreign subsidiaries, the local HR professionals strived to interpret the performance criteria set by the headquarters into their local language while reading between the lines, because mistranslation of the terms used in the performance criteria could create potential risks leading to rating errors. In various situations, the local HR professionals are required to understand more about the context of the corporate strategies, including HRM, from both the headquarters’ and the subsidiary’s perspectives, than the headquarters’ HR.
In general, compared to the headquarters, subsidiaries are in a better position to judge the local political and legal situations and to make appropriate decisions (Tayeb 2005). Moreover, the local HR function as an “interpreter” involves the integration of corporate philosophy and organizational culture into the local operations. Particularly, for subsidiaries operating in countries where their language is different from that of the headquarters, the role of the interpreter is incredibly important. Language, however, tends to be overlooked in the international business management literature (Welch et al. 2005).
In practice, the interpretation of corporate policies by subsidiaries may mislead, which could result in dilution or distortion of the headquarters’ true intention. For example, as seen in Medtronic, when the worldwide performance appraisal systems were applied to employees in foreign subsidiaries, the local HR professionals strived to interpret the performance criteria set by the headquarters into their local language while reading between the lines, because mistranslation of the terms used in the performance criteria could create potential risks leading to rating errors. In various situations, the local HR professionals are required to understand more about the context of the corporate strategies, including HRM, from both the headquarters’ and the subsidiary’s perspectives, than the headquarters’ HR.
Headquarters’ Perspective
As a business grows from national to international size, the HRM function must take on a new and broader perspective. Whenever a company expands overseas with any functions such as sales, production, or full operations, or by any forms of cross-border alliances, the HRM activities must adapt to a more complex environment. Peter J. Dowling et al. (1999, 4) argue that the complexity of international HRM can be attributed to six factors that differentiate international from domestic HRM. The international HRM includes:
• More HR functions and activities, for instance, the management of international assignees and assistance with international relocation.
• The need for a broader perspective, including knowledge about employment laws and regulations in countries where international assignees work.
• More involvement in employees’ personal lives, as the company relocates employees and their families from country to country.
• Managing a much wider range of employees who require different staffing, compensations, and benefit programs.
• More risk exposure, including political risks and uncertainties, early repatriation of foreign assignees due to internal politics and foreign affairs.
However, these characteristics of international HRM seem to come more from headquarters’ perspective; they are typically the headquarters’ HRM responsibilities. The focus is from the center to the subsidiaries, dictating and overseeing HR practices in all foreign operations and administering the movement of employees between locations.
• More HR functions and activities, for instance, the management of international assignees and assistance with international relocation.
• The need for a broader perspective, including knowledge about employment laws and regulations in countries where international assignees work.
• More involvement in employees’ personal lives, as the company relocates employees and their families from country to country.
• Managing a much wider range of employees who require different staffing, compensations, and benefit programs.
• More risk exposure, including political risks and uncertainties, early repatriation of foreign assignees due to internal politics and foreign affairs.
However, these characteristics of international HRM seem to come more from headquarters’ perspective; they are typically the headquarters’ HRM responsibilities. The focus is from the center to the subsidiaries, dictating and overseeing HR practices in all foreign operations and administering the movement of employees between locations.
The Positioning of HR within an Organization
U.S and Japanese companies have taken different approaches to HRM. In general, Japanese companies have been relatively organization-oriented, meaning that there is low turnover due to lifetime employment, extensive in-house training, and internal considerations such as equity and seniority on wages and allocation. By contrast, in the United States, employment practices tend to be more market-oriented with shorter job durations and pay and allocation based external criteria and individual performance and contribution (Jacoby 2005).
These differences between U.S and Japanese companies are reflected in their positioning of HR department within their organizations. The headquarters HR department in a Japanese company occupies a central position within the organization because its decision-making role includes the rotation of managers around the company and the identification of employees for senior positions. The HR function is centralized to the headquarters HR department. On the company board, the HR executive representing employee concerns can greatly influence corporate strategic decision-making. Typically in Japan, the candidates considered for top executive positions have had some job experiences in the HR department. In the United States, on the other hand, the market emphasis has meant a shift of HRM decision from central HR to business units or line managers (Jacoby 2005). Senior HR executive traditionally stood toward the bottom of the managerial hierarchy and had less influence on business decisions and strategies. Even today, according to a survey , U.S. HR leaders in global companies believe that they have less influence within their executive teams than their European counterparts.
The disparity of this HR positioning between U.S. and Japan could affect the relationship between U.S. headquarters and Japanese affiliates. For instance, when an American company expands its business to a Japanese market, the firm employs a local HR manager to deal with local HR practices. If the local HR manager has experience working in a headquarters HR department in a Japanese company, the manager may expect high level of discretion and decision-making in executing its tasks from the U.S. headquarters.
These differences between U.S and Japanese companies are reflected in their positioning of HR department within their organizations. The headquarters HR department in a Japanese company occupies a central position within the organization because its decision-making role includes the rotation of managers around the company and the identification of employees for senior positions. The HR function is centralized to the headquarters HR department. On the company board, the HR executive representing employee concerns can greatly influence corporate strategic decision-making. Typically in Japan, the candidates considered for top executive positions have had some job experiences in the HR department. In the United States, on the other hand, the market emphasis has meant a shift of HRM decision from central HR to business units or line managers (Jacoby 2005). Senior HR executive traditionally stood toward the bottom of the managerial hierarchy and had less influence on business decisions and strategies. Even today, according to a survey , U.S. HR leaders in global companies believe that they have less influence within their executive teams than their European counterparts.
The disparity of this HR positioning between U.S. and Japan could affect the relationship between U.S. headquarters and Japanese affiliates. For instance, when an American company expands its business to a Japanese market, the firm employs a local HR manager to deal with local HR practices. If the local HR manager has experience working in a headquarters HR department in a Japanese company, the manager may expect high level of discretion and decision-making in executing its tasks from the U.S. headquarters.
HRM in the United States
One feature of American national cultural characteristics is individualism ((Hofstede 1984; Tayeb 2005). Americans are independent, ambitious and individualistic, and believe that individuals can shape and control their own destinies. People pursue mainly their own interests. The primary commitment and loyalty of the individuals are not displayed to the company or any larger grouping of which they may be a member.
The individualistic nature of the society encourages promotion on the basis of performance as opposed to status, hierarchy, or gender. The emphasis on individualism includes freedom to pursue one’s career progression by moving from one company to another in the pursuit of success. Because of this employee’s freedom, companies feel free to hire and fire people at will. Traditionally, as a result of implementing the concept of scientific management by Frederic W. Taylor, jobs are clearly defined, and specialization is encouraged in American workplaces (SHRM 2008).
Moreover, Americans prefer participative management. Superiors are usually approachable, and subordinates willingly question authority. Americans live more easily with uncertainty than many other nations, and facilitate participation in decision-making and risk taking. Coupled with individualism, tolerance for uncertainty (Hofstede 1984) supports the American business culture, which is underpinned by entrepreneurial spirit, great creativity, and innovativeness.
Moreover, Americans prefer participative management. Superiors are usually approachable, and subordinates willingly question authority. Americans live more easily with uncertainty than many other nations, and facilitate participation in decision-making and risk taking. Coupled with individualism, tolerance for uncertainty (Hofstede 1984) supports the American business culture, which is underpinned by entrepreneurial spirit, great creativity, and innovativeness.
HRM in Japan
apan, unlike the United States, has a homogenous culture and foreign immigrants account for a very small percentage of its population. The Japanese society is characterized by a strong sense of group and community (Hofstede 1984). People’s loyalty to the group to which they belong supersedes their personal interests, in particular for the company where a person works. The society has vertical stratification by institution, professionals, or academic background.
Also, Japanese companies operate a rigidly hierarchical system. Status is clearly signaled in several of ways, for example, the extent to which one bows when meeting others, sitting arrangements at a meeting, and the terms one uses to address people of different ages and professions. The Japanese language itself signals the relative status among speakers. The emphasis on endurance and harmony in the collectivist society (Hofstede 1984) encourage team work and a consensus style of management at workplace.
For much of the postwar era, employment in large firms was based on the so-called “three pillars”- lifetime employment, seniority-based pay, and company-based unions (Jacoby 2005). Although these traditional characteristics are undergoing dramatic changes, some of them still remain. For example, job rotation between various functions within an organization is also a feature of Japanese HRM. Unlike American companies, most of the large Japanese firms do not like to recruit in order to fill specialized job-slots. The companies have a regular intake of new graduates every year and train them in-house and by job rotation to foster them as a generalist, “all-round player.” For this reason, most of the Japanese companies do not implement position management systems, hence, there are no job descriptions for each position; the quantity of work and the level of responsibility for an employee are very flexible and rely on the employee’s skills and knowledge.
Also, Japanese companies operate a rigidly hierarchical system. Status is clearly signaled in several of ways, for example, the extent to which one bows when meeting others, sitting arrangements at a meeting, and the terms one uses to address people of different ages and professions. The Japanese language itself signals the relative status among speakers. The emphasis on endurance and harmony in the collectivist society (Hofstede 1984) encourage team work and a consensus style of management at workplace.
For much of the postwar era, employment in large firms was based on the so-called “three pillars”- lifetime employment, seniority-based pay, and company-based unions (Jacoby 2005). Although these traditional characteristics are undergoing dramatic changes, some of them still remain. For example, job rotation between various functions within an organization is also a feature of Japanese HRM. Unlike American companies, most of the large Japanese firms do not like to recruit in order to fill specialized job-slots. The companies have a regular intake of new graduates every year and train them in-house and by job rotation to foster them as a generalist, “all-round player.” For this reason, most of the Japanese companies do not implement position management systems, hence, there are no job descriptions for each position; the quantity of work and the level of responsibility for an employee are very flexible and rely on the employee’s skills and knowledge.
National HRM and Its Formative Factors
An important point to consider is that the scope of HRM includes management-employee relationship, leadership style, motivation management, command-and-control systems, and organizational structure. Furthermore, because HRM activities affect all employees in the organization, HRM greatly impacts employees’ productivity and job satisfaction. According to Tayeb (2005), these aspects of HRM are very much susceptible to local socio-cultural influences, thus, HRM is especially significant for MNCs.
HRM takes place within the internal organizational environment and the external national context in which the company operates. Moreover, in terms of the soft HRM model, humans as a resource have emotions, interests, and personal briefs, and perform their best if these are reasonably cared for. If people on the earth have common values, and there is a universalistic one best way of management, tensions between the headquarters and subsidiaries in MNCs would not happen.
In contextual theory, Budhwar and Debrah (2001, 505) showed six contextual factors determining national HRM policies and practice: national culture, institutions, business environment dynamics, industrial sector, firm’s contingent variables, and corporate strategies and policies. Each factor is not simply independent, but they are associated with national cultural attitudes and values.
Although culture is a very vague concept which has aroused controversy among scholars about its precise meaning, the definition of culture by Tayeb (2005, 21) makes it clear, that it is “historically evolved values, attitudes and meaning which are learned and shared by the members of a given community, and which influence their material and non-material way of life.”
The HRM activities involving all employees are based on the decisions which are made by the people. For example, even when a technically sophisticated and well-designed performance appraisal system is implemented, organizational culture, leadership credibility, employee relations, and levels of trust could affect people’s decision-making in the appraisal processes. Tayeb (2005) points out that the behaviors and values that play key roles in decision-making situations are determined by several cultural attitudes: power and authority relationships, coping with uncertainty and risk-taking, interpersonal trust, loyalty and commitment, motivation resources, control and discipline, co-ordination and integration, communication, consultation and participation.
HRM takes place within the internal organizational environment and the external national context in which the company operates. Moreover, in terms of the soft HRM model, humans as a resource have emotions, interests, and personal briefs, and perform their best if these are reasonably cared for. If people on the earth have common values, and there is a universalistic one best way of management, tensions between the headquarters and subsidiaries in MNCs would not happen.
In contextual theory, Budhwar and Debrah (2001, 505) showed six contextual factors determining national HRM policies and practice: national culture, institutions, business environment dynamics, industrial sector, firm’s contingent variables, and corporate strategies and policies. Each factor is not simply independent, but they are associated with national cultural attitudes and values.
Although culture is a very vague concept which has aroused controversy among scholars about its precise meaning, the definition of culture by Tayeb (2005, 21) makes it clear, that it is “historically evolved values, attitudes and meaning which are learned and shared by the members of a given community, and which influence their material and non-material way of life.”
“(Culture is) historically evolved
values, attitudes and meaning
which are learned and shared by
the members of a given community,
and which influence their material
and non-material way of life.”
values, attitudes and meaning
which are learned and shared by
the members of a given community,
and which influence their material
and non-material way of life.”
The HRM activities involving all employees are based on the decisions which are made by the people. For example, even when a technically sophisticated and well-designed performance appraisal system is implemented, organizational culture, leadership credibility, employee relations, and levels of trust could affect people’s decision-making in the appraisal processes. Tayeb (2005) points out that the behaviors and values that play key roles in decision-making situations are determined by several cultural attitudes: power and authority relationships, coping with uncertainty and risk-taking, interpersonal trust, loyalty and commitment, motivation resources, control and discipline, co-ordination and integration, communication, consultation and participation.
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