Professional Documents
Culture Documents
Thite Final Report 4-11
Thite Final Report 4-11
* Corresponding Author
ABSTRACT
The rapid rise of multinational Corporations (MNCs) from emerging economies has led
to greater interest and urgency in developing a better understanding of the deployment
and diffusion of managerial strategies from their perspective and without assuming the
prevailing Western ethnocentric orthodoxy. This paper develops a conceptual framework
of global HR strategies and practices in MNCs from emerging economies across their
subsidiaries in both developed and developing markets. Using data from a pilot study of
an Indian MNC, it provides insights and guidance into the motives, strategic
opportunities and constraints in cross national transfer of HR policies and practices in a
multi-polar world.
1. Introduction
In the coming decades, China and India will disrupt workforces, industries,
companies, and markets in ways that we can barely begin to imagine (Engardio,
2008: 23)
practice. First, we outline the issues relating to emerging MNCs. Second, we develop a
conceptual framework of global HR strategies and practices in MNCS from emerging
economies. This provides managerial insights and guidance into the motives, strategic
opportunities and constraints in cross national transfer of HR policies and practices. It
uses the data from the pilot study of an Indian multinational company to test the
conceptual framework and propositions. The paper concludes with a discussion of how
our findings relate to existing research and identify directions for future research.
This paper helps identify and analyze the travel of ideas (Delbridge, 1998;
Garrahan & Stewart, 1992) between the East and West, in terms of the motive and
opportunity behind cross-national transfer of HR policies and practices. Such an
understanding of corporate management thinking and practice in Asian MNCs helps
practitioners understand their own strengths and weaknesses in the new scheme of things
and assists them in strategizing accordingly as to how best to influence the top
management layers and players. This would in turn assist them to facilitate a smooth
travel of policies and practices across subsidiaries (Ferner, 2009).
developing countries and transition economies over the past 15 years has exceeded that of
TNCs from developed countries. Asia dominates the list of 100 largest developing
country TNCs. Further, the emerging economies are investing heavily in low-income host
countries, generating considerable South-South investment flows (UNCTAD, 2007). It is
anticipated that in the new world economy, the balance of power will shift to the East as
China and India continue to evolve as two of the most attractive inward as well as
outward FDI destination countries.
Previous research on MNCs had identified dual pressures for the need to conform
to home country (push force) and host country (pull force) institutional environments
when adopting HRM strategies and practices (e.g.Farley, Hoenig, & Yang, 2004; Hillman
& Wan, 2005; Rosenzweig & Nohria, 1994). We know very little on how these pressures
influence HRM strategies and practices at subsidiary level of MNCs from emerging
economies. While previous comparative research on HRM in the Asia Pacific region
(Awasthi, Chow, & Wu, 2001; Bae & Lawler, 1998; Chow, Shields, & Wu, 1999;
Hofstede, 1993, 1997; Hofstede & Bond, 1988; Ulgado, Yu, & Negandhi, 1994)) has
identified the national origin of firms including its national institutions and culture as the
key shapers of HRM practices in the region, these studies do not address how cultural and
institutional differences affect the dissemination of HRM strategies and practices by
MNCs from emerging economies operating in a developed economy (Chang, Wilkinson,
& Mellahi, 2007).
A key research question relates to exploring the issues associated with the transfer
HR practices across borders within MNCs. As Martin and Beaumont (1998) comment,
diffusion has to take into account the local cultural and institutional context and the
ability and incentive of local managers to implement best practice (see Glover &
Wilkinson, 2007).
influence in determining this balance (Ngo, Turban, Lau, & Lui, 1998, p. 632). Contrary
to Ohmaes (1990) view of a borderless world and nationless corporations, cultural and
institutional determinants in the country in which firms were located are seen to be
salient determinants arising from a firms context (Chang & Taylor, 1999; Gooderham,
Nordhaug, & Ringdal, 1999). Researchers, such as Ferner (1997) and Gamble (2003)
examined the issues dealing with how MNCs manage their foreign subsidiaries and
concluded that the main influence on the MNCs effort to have a degree of control over
their subsidiaries was their country of origin (Harzing & Sorge, 2003; Hu, 1992).
Supporting this view, Harzing and Sorge (2003) state that although multinationals are
highly internationalized, their organizational coordination and control practices at the
international level tend to be explained by their country of origin.
There is empirical evidence that suggests that almost all MNCs have a trace of
their country of origin within them. It could be subconscious choices which are
influenced by the cultural and institutional characteristics of the country of origin of the
MNC or it could be transferred through the people who work in the organization
(Harzing & Sorge, 2003). U.S. multinationals have been typically contrasted with
Japanese multinationals in respect of their styles of HRM employed in their subsidiaries
(Ferner, 1997). Japanese multinationals have the characteristic of being strong but with
informal centralization and are highly reliant on establishing international networks
(Bartlett & Ghoshal, 1992). U.S. multinationals appear to have elaborate systems of
control and standardized worldwide systems in place (Ferner, 1997). Moreover, whether
the country is high or low on cultural context will also determine the impact of their
country of origin on the IHRM practices. This work draws on the work of Hall (1976)
and his distinction between situations where things are less explicit where the context
exerts more influence (high context) and those that are much more explicit where the
context is less of an influence (low context). Western countries are seen as generally low
on cultural context whereas Eastern countries are mainly seen as high on cultural context
(Hofstede, 1984). The interplay between national and organizational culture is a
significant factor in the success of global mergers, acquisitions and alliances (Thite,
2004).
economies
for
exploration
and
other
emerging
economies
for
exploitation(Wright, Filatotchev, Hoskisson, & Peng, 2005). While in the past Japan
and Korea internationalized through greenfield expansion, founding their own
subsidiaries that mitigated cultural clashes, China and India are expanding mainly
through acquisitions in Western countries (Hofstede, 2007). Moreover, their
internationalization is very rapid and different from that of the conventional Western
MNCs and erstwhile developing country MNCs (Matthews & Zander, 2007). They also
tend to use exporting and FDI as combined and simultaneous strategy, rather than being
distant alternatives (Contractor, Kumar, & Kundu, 2007).
Although in absolute terms the MNCs from emerging economies are not very
large, they are gaining importance and many companies are now globally diversified.
The key advantages for these MNCs are access to the most dynamic growth markets in
the world with a vast pool of low cost resources like production workers, engineers and
natural resources (Engardio, Arndt, & Geri, 2006). Besides being small, most of the
emerging market MNCs are in their early stage of internationalization with limited
international experience (Contractor, Kumar, & Kundu, 2007). Correspondingly within
the MNCs from the emerging economies, organizational culture, decision making and
control on subsidiaries can be noticeably different as compared to their counterparts in
developed markets due to national culture and economic differences (Hofstede, 2007).
4. Conceptual Framework
This paper deals with strategic international human resource management (SIHRM) that
explicitly links HRM with the strategic management processes of the MNCs in emerging
economies and emphasizes coordination or congruence among the various HRM
practices. It focuses on SIHRM orientation, i.e., the general philosophy or approach
taken by top management of the MNC in the design of its overall IHRM system,
particularly the HRM systems to be used in its overseas affiliates (Taylor, Beechler, &
Napier, 1996, p.966).
10
it requires higher levels of control and coordination (Taylor, Beechler, & Napier, 1996).
With regard to external influencing factors, the MNCs from emerging economies face a
double hurdle of liability of foreignness and liability of country of origin with
perceived poor global image of their home country (Chang & Taylor, 1999; Chang,
Mellahi, & Wilkinson, 2009a; Engardio, Arndt, & Geri, 2006; Ferner, 1997; Ferner,
Almond, & Colling, 2005; Smith & Meiskins, 1995). These constraints are further
accentuated by liabilities of smallness and newness (Contractor, Kumar, & Kundu, 2007).
As Guillen and GarciaCanal (2009) note, they also need to deal with the liability and
competitive disadvantage that stems from being latecomers lacking the resources and
capabilities of established MNCs from the most advanced countries. Furthermore, the
degree and level of integration between headquarters and subsidiaries will also influence
the multinationals. Similarly, with regard to internal influencing factors, the strategic
framework of the MNC, organizational culture, leadership, decision making and
delegation of authority can be considerably different in MNCs from emerging economies
than their counterparts in developed markets due to national cultural, economic and
political differences (Hofstede, 2007).
Proposition1: MNCs from emerging economies adopt control and coordination
mechanisms because of the double hurdle they face of liability of foreignness
and liability of country of origin.
11
1999). Control refers to the processes by which an MNC ensures that their subsidiaries
operate in a particular way as determined by the headquarters in order to achieve
organizational goals (Chang & Taylor, 1999). According to Harzing and Sorge (2003),
corporate control comprises of all the mechanisms instituted to tie the operations and
decisions within and across components into a larger whole and establish coherence of
meaning and purpose within the larger enterprise (p.190). We adopt the Harzings
(1999) typology that suggests two dimensional classification between direct (personal &
impersonal) and indirect (personal & impersonal) control. Complementary to the above
typology is Taylor et al.s (1996) classification of adaptive or polycentric approach vs.
exportive or ethnocentric approach to management control of subsidiaries.
12
headquarters and subsidiaries in both developed and developing markets. As the data
collection is still underway, we report the findings from a pilot study conducted at one
Indian MNC. Before reporting these findings, we provide a brief overview of Indian
MNCs as representatives of emerging economy MNCs so as to provide some context for
our work.
5. Indian Multinationals
Between 2004 and 2007, Indias outward flow of FDI rose sharply from $2 billion to $14
billion (UNCTAD, 2008). As a result, in 2008, seven Indian multinationals featured in
Global Fortune 500 and twenty in Boston Consulting Groups BCG 100 new Global
Challengers (Sirkin, Hemerling, & Bhattacharya, 2008, p.23). The services sector
constituted 38% of Indian FDI stock in 2006 mainly in IT, communications and software.
Indian multinationals are largely private owned and cover a wide range of sectors in
energy-related areas (mainly oil and gas), IT services, pharmaceuticals, engineering
goods and natural-resource-based manufacturing firms (Ramamurti & Singh, 2009).
The Indian firms are showing a clear preference for overseas acquisition as an
entry strategy largely in North America and Europe. Over 70% of them prefer complete
control over their overseas ventures, mainly to protect their firm specific advantages and
also due to the relaxation of government policy restriction on Indian equity participation
(Pradhan, 2007). The Indian multinationals seem to represent a new breed of
multinationals that build their competitive advantage in novel ways; multinational
corporations that derive their advantage from service rather than technological
14
innovations and manufacturing MNCs that straddle a low-cost and medium technology
position (Jonsson, 2008, p.6).
Pradhan (2007) believes that the motivators for Indian firms to expand overseas,
particularly into the developed markets include the need to acquire new technologies, raw
materials, skills and expertise and also to leverage on their trade-supporting infrastructure
overseas. This supports Proposition 2, discussed before, that MNCs from emerging
economies choose an adaptive or polycentric approach to manage their subsidiaries in
developed markets.
With respect to their entry into other developing markets, the approach has been
mixed. This is more to do with shifting investment patterns and markets than managerial
choice. Prior to the liberalization of the Indian economy in 1991, a small group of largesized family owned Indian firms invested mostly in neighboring developing countries,
opting for greenfield investments in joint ventures (Thite & Dasgupta, 2011). In line with
Proposition 3, this was predominantly an exportive or ethnocentric approach that
involved wholesale transfer of parent firms systems, policies and personnel. Since then,
the very nature of Indian outward FDI has undergone fundamental changes and is now
characterized by a large number of professionally run firms in the services sector
investing mostly in developed countries. The implications of the same will be discussed
in the pilot study described below.
15
including manufacturing,
insurance,
16
the heart of Alphas organizational structure lie the Customer Facing Units (CFUs),
consisting of Vertical Business Units (VBUs) and Regional Business Units (RBUs). The
CFUs are charged with the entire spectrum of customer relationship management and in
the process are supported by Horizontal Competency Units (HCUs) that provide the
backing of appropriate resources.
The same performance metrics are supposed to be applied to every employee and
position at every location. The metrics assess the performance of each employee on
specified built measures, such as people, process and product against specific outcome
measures, namely better, larger, faster, cheaper and steadier (repeatable). These metrics
mirror the ones followed at its key U.S.-based client which is world renowned for its
management systems. According to the Global Head of HR, metrics are the most
common communication tool at Alpha. The company claims to take its metrics driven
18
In the interviews with managers in its subsidiaries, it was apparent that the
organization had a decentralized approach. The heads of every business unit managed and
took decisions regarding their business units with only major decisions taken at the
headquarters. When asked about the influence of national culture or country of origin on
the companys growth and thinking, all the HR managers and business heads interviewed
at the headquarters asserted that it did not have any influence on the organizational
culture or the way they operate, but as pointedly noted by a senior manager at the
Australian subsidiary considering that almost 85% of the workforce is Indian, there will
surely be the subtle influence of Indian culture.
19
For example, Alphas global HR Head believes that with over 45,000 employees
spread over 40 countries, the company has reached a critical mass to scale the next level
20
in becoming a truly global company. The desire of Alpha to localize its workforce is
reinforced by the statement from Alphas Head of HR in China that Alpha wants to be a
Chinese company in China but provide the same global experience to clients, no matter
where the operations are carried out. As a policy, Alpha strives to staff locally at least
20% of all positions in all of its overseas operations, 50% of entry level positions and
90% in its non-English speaking geographies, such as China, where possible.
Accordingly, today nearly 98% of Alphas workforce in China is staffed locally while in
Australia it is nearly 50%. But the senior management positions, from country head to
project managers, at both these subsidiaries are still overwhelmingly staffed by
expatriates from its Indian headquarters.
From the interviews it was recognized that the recruitment and selection process,
career management and performance management were similar across the global
operations with the flexibility to accommodate local laws and HR trends and practices.
The Business Head in the Australian subsidiary stated that when I started 5 years ago,
Alpha being an Indian company, the policies and procedures were very strongly suited to
the Indian environment. Now the company has more adapted to Australia but not fully
suited to the Australian environment as an Australian company. This sentiment was
echoed by the Global Head of HR who agreed that subsidiaries in developed markets
needed more flexibility in determining the remuneration structure of managerial staff to
attract and retain talent.
21
The main talent management issue or challenge identified was brand value or
recognition of the company across the world, which was one of the major concerns
identified by the HR managers. While the company was pleased with its employer brand
in China where Indian IT companies are held in high esteem for their quality standards
and offshoring business process efficiency, the Australian managers generally believed
that the global image of the company needed to be strengthened as a high quality services
provider. This highlights the constraints that the MNCs from emerging economies face of
the liability of foreignness and liability of country of origin, as pointed out before.
7. Managerial Relevance
Our pilot study of an Indian MNC offers some interesting insights into the way MNCs
from emerging economies strategize and manage their operations in different parts of the
world. While Western MNCs have traditionally taken their domestic strengths outward
to the rest of the world, the Indian MNCs in the services sector have typically grown first
in the developed markets by leveraging on their skills and domain expertise and have
pioneered the art of global offshoring services delivery model using a combination of
onshore, offshore and near-shore locational strategies. Most of their overseas growth has
occurred in the last decade and in a very short span of time, they have spread their global
network, mainly via setting up 100% subsidiaries or acquisitions. Despite attempts to
localize their workforce in different geographies, their global management team is still
predominantly Indian but increasingly their systems and to some extent their management
mindset are becoming global.
22
With regard to Proposition 1, our case study illustrates that Indian MNCs do face
multiple hurdles in furthering their internationalization strategies. For example, despite
their growing global reputation, Indian IT companies still have problems recruiting talent
at higher levels due to poor perception of their employer brand. Despite its desire to
localize its management team in Australia, Alpha seems to be unable to attract the best
local talent and therefore, forced to send expats from India. Accordingly, its corporate
control and coordination mechanisms are influenced by the multiple hurdles that it faces
as an MNC from an emerging economy.
Similarly, with regard to proposition 2, alphas adoption of performance metrics
from its key U.S. client and making it a central part of its performance management
system is a clear sign of an adaptive approach in managing subsidiaries in developed
markets. At the same time, Alpha, along with other top Indian IT companies, has
pioneered the art of global offshoring business process and the global services delivery
model indicating a two way exchange of best practices. However, Alphas management of
its subsidiary in China does not reflect exportive or ethnocentric approach to managing
subsidiaries in developing markets, as stated in proposition 3. Alphas managers seem to
indicate that unlike the U.S. and UK markets, they are unfamiliar with the cultural and
business environment in China and therefore, would prefer to leave it to the locals to
manage the China operations with only broad corporate oversight.
8. Conclusion
Despite the increasing trend towards the globalization of trade and commerce and crossnational convergence arising from it, significant differences remain in the way in which
23
different countries organize business activities and more specifically, the management of
employees (Brewster, Sparrow, & Harris, 2005; Ferner, 1997). The cultural values
framework pioneered by Hofstede (1980) demonstrates the limitations of universalistic
models of IHRM that emphasize one-best-way. Even though some have contested the
emphasis placed on national culture in international management at the cost of
organizational differences (Ericksen & Dyer, 2005; Gerhart & Fang, 2005), the
importance of country of origin is a consistent theme in the research in this area (Harzing
& Sorge, 2003).
Our conceptual framework adopts a broad approach by examining the key factors,
such as cultural differences, institutional differences, organizational differences and the
interplay between them (Schuler, Budhwar, & Florkowski, 2002). Any study on MNCs
from emerging markets also needs to take into account sectoral variables (Colling &
Clark, 2002) in different industry segments, such as IT services and manufacturing. For
example, Indian MNCs in the service sector tend to gain the positive benefits of
internationalization sooner than manufacturing companies (Contractor, Kumar, &
Kundu, 2007, p.401). Our research framework adds value to IHRM research by giving
equal weight to both the subsidiary level and to corporate headquarters within a firm
(Ferner, 2009).
24
economies strategize and act in diffusing and coordinating management practices. For too
long, international HR management literature and practice have been embedded in
Western thinking and concepts with little cross-pollination (Wright, Snell, & Dyer, 2005,
p.876) and an over emphasis on expatriate management, reflecting the ethnocentric bias
of North American scholars (Schuler, Budhwar, & Florkowski, 2002). It is clear that the
universal or U.S. model does not have applicability to the emerging MNCs. If the East
becomes, in popular jargon, the new West we need to develop newer models to aid the
understanding of how Asian MNCs, particularly from China and India, are going to
exercise corporate control in an increasingly multi-polar world (Pudelko & Harzing,
2007, p.553).
In the 21st century knowledge economy where services and creative industries
dominate the economic landscape that is tilting more towards developing and transition
economies, the theories and practices applicable to Western MNCs that monopolized the
20th century industrial economy are slowly but steadily giving way to new economic and
management paradigms. Accordingly, reexamining the management approaches and
practices of MNCs from newer industrialized and developing economies such as India is
likely to remain a key research issue for the next decade, given the speed of economic
development and the increasing influence and numbers employed by such companies.
Acknowledgements: This study was funded by a grant from the SHRM Foundation,
U.S.A. However, the interpretations, conclusions and recommendations are those of the
authors and do not necessarily represent the views of the SHRM Foundation.
25
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28
29
30
Direct
Indirect
Personal
Impersonal
Attract
3. Industry-specific Factors
Personal
Develop
Impersonal
Retain
Domestic
Operations
Subsidiaries
in developed
countries
Subsidiaries
in
developing
countries
Adaptive
Exportive
Hypotheses
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