Internationalization & HRM Strategies across Subsidiaries in Multinational

Corporations from Emerging Economies A Conceptual Framework

Mohan Thite*
Department of Employment Relations and Human Resources,
Griffith Business School
Griffith University,
170 Kessels Road, Nathan, QLD 4111, Australia
Email: M.Thite@griffith.edu.au; Phone: +61 7 373 57643
Fax: +61 7 3735 7177
Adrian Wilkinson
Centre for Work, Organization and Wellbeing,
Griffith University,
170 Kessels Road, Nathan, QLD 4111, Australia
Email: Adrian.Wilkinson@griffith.edu.au; Phone: +61 7 373 56792;
Fax: +61 7 3735 7177
Dhara Shah
Department of Employment Relations and Human Resources,
Griffith Business School,
Griffith University,
170 Kessels Road, Nathan, QLD 4111, Australia
Email: d.shah@griffith.edu.au

* 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.

Key Words: New Multinationals; Emerging Economies; India; Internationalization

Strategies; Global HR Strategies.

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)

Research on MNCs has tended to be focused on those from developed countries

establishing subsidiaries either in other developed economies (e.g. U.S. to the UK) or into
developing economies (e.g. the U.S.A into Latin America). U.S. firms invested in Europe
from before 1939 but the major push came after World War Two (Ferner, Almond, Clark,
Colling, Edwards, Holden, & Muller-Camen, 2004). Japanese MNCs began to locate in
advanced economies, particularly in the 1980s. While, there has been a rich stream of
MNC research in this area, there has been relatively less research on newer industrialized
(e.g. Taiwan, India and South Korea) to the more industrialized economies (Glover &
Wilkinson, 2007, p.1438). This is a new era which is often referred to as a new
geography of investments (UNCTAD, 2004). Whilst most MNCs come from the worlds
top five economies, a growing number are from developing and newer industrialized
economies. UNCTAD categorizes developing economies into two groups - South Korea,
Taiwan and Singapore who are newer industrialized and have an established track record
as outward investors and those such as India and China that are rapidly developing.

In this paper, we widen the horizon of International HRM to include HRM

strategies and practices from emerging economies. The purpose of the paper is to explore
how HRM strategy of the MNCs in emerging economies is formed and how it operates in

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).

2. The New Multinationals

The world investment report from UNCTAD (2010) indicates that although developedcountry transnational corporations (TNCs) account for the bulk of global foreign direct
investment (FDI), developing and transition economies have emerged as significant
outward investors accounting for one quarter of global FDI outflows in 2010, the bulk of
which came from Asia. Similarly, the growth rate of the number of TNCs from

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.

The growing importance of emerging economies has lead to an upsurge of

strategy research on the topic (Wright, Filatotchev, Hoskisson, & Peng, 2005). Research
on global HRM has not paid enough attention to MNCs from emerging economies
despite of all the management domains, HRM is most sensitive to local context
(Rosenzweig & Nohria, 1994). Emerging country MNCs tend to be smaller in size with
considerably less resources and international experience than their counterparts from
developed markets. This limits their ability to transfer management practices across their
subsidiaries (Hussain & Jian, 1999; Lall, 1983; Wells, 1983)Guillen and Garcia-Canal,
2009). While there is growing recognition of and research on this contextual aspect with
respect to some relatively advanced Asian economies, such as Japan, Korea, Taiwan and
Singapore (Chang & Taylor, 1999; Chang, Mellahi, & Wilkinson, 2009b; Chang,
Wilkinson, & Mellahi, 2007; Glover & Wilkinson, 2007), the two emerging global giants,
China and India, have been much less explored (Ferner, 2009).

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).

3. Country of Origin Effect on Strategy

One of the key challenges facing the MNCs is how to balance between the need for
global integration and local adaptation. National origin of MNCs is seen as a major

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).

As stated before, there is relatively little research on the internationalization of

emerging economy firms either into other emerging economies or into developed
economies (Wright, Filatotchev, Hoskisson, & Peng, 2005, p.25). The strategy literature
on emerging economies predominantly use institutional theory followed by resourcebased theory, transaction cost theory and agency theory as conceptual perspectives
(Hoskisson, Eden, Lau, & Wright, 2000). MNCs from emerging economies enter
developed

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).

According to Taylor et al. (1996), there is a growing consensus that a key

differentiator between the corporate winners and losers in the 21 st century will be the
effectiveness of the human organization and it is particularly critical in the emerging
markets (Strategic Direction, 2007). In the context of IHRM, Ngo, Turban, Lau and Liu
(1998) found strong support for the hypothesis that country of origin influences the firms
HRM practices. Taylor et al.s (1996) model of IHRM considers that the transfer of HRM
policies and practices can go in any direction, not just from home to host countries.
Similarly, American and European HRM systems influence and are influenced by East
Asian HRM systems (Chew & Zhu, 2002). Empirical studies on the diffusion of HRM
practices by MNCs across their subsidiaries indicate that they predominantly adopt
hybrid methods, combining both push force for control from headquarters and pull factors
for conformity to host country, to suit the markets they are serving (Rose & Kumar,
2007). Global, national and internal pressures play a role in influencing HR strategic
recipes and delivery mechanisms (Brewster, Sparrow, & Harris, 2005). Edwards &
Rothbard (2000) contrast different approaches to the transfer of employment practices in
MNCs and argue for an integrated approach that focuses on interrelationships between
markets and institutions on the one hand and the material interests of actors on the other.

4.1. Influencing factors:

Research shows that control and coordination mechanisms and diffusion of management
practices in an MNC are subject to several external and internal influencing factors (see
Figure 1). If the degree of integration between the headquarters and the subsidiary is high

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.

4.2. Control of subsidiaries in developed markets:

MNCs exercise a degree of control over their subsidiaries to ensure their resources and
efforts are directed towards attaining the main objectives of the MNC (Chang & Taylor,

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.

Unlike developed country MNCs engaging in forward diffusion of superior

home country practices into developing country subsidiaries, emerging economy MNCs
utilize the knowledge gained in operating in developed markets to transfer best practices
across the entire organization (Zhang, Tsui, Song, Li, & Jia, 2008). They are expected to
adopt an adaptive or polycentric approach to management in developed country
subsidiaries (Edwards & Rothbard, 2000; Kaye & Taylor, 1997). In terms of HR strategy,
this could mean low internal consistency with the rest of the firm and high external
consistency with the external environment. Accordingly, HR practices may include
hiring host country managers with local knowledge and transfer of practices both
ways, depending on which is seen as working better.

12

Proposition 2: MNCs from emerging economies adopt a predominantly

adaptive or polycentric approach to manage their subsidiaries in developed
markets.

4.3. Control of subsidiaries in emerging markets:

Due to the paucity of empirical literature in this area, we hypothesize that MNCs from
emerging economies entering other emerging markets may follow their counterparts in
developed markets by adopting an ethnocentric approach. They attempt wholesale
transfer of the parent firms HRM systems to their subsidiaries, especially with regard to
their core competencies (Pudelko & Harzing, 2007), to achieve high internal consistency.
The other reason identified is the limited availability of management and technical skills
in some countries (Delios & Bjorkman, 2000; Scullion, 1994). Some authors have noted
that MNCs are more likely to adopt an adaptive or polycentric approach in developed
countries than lesser-developed countries due to the greater availability of managerial
skills in developed countries (Bazeley & Richards, 2000; Richards, 2001; Shen, 2006).

Proposition 3: MNCs from emerging economies adopt predominantly an

exportive or ethnocentric approach to managing their subsidiaries in other
emerging markets.

Figure-1 presents a diagrammatic representation of the conceptual framework.

Insert Figure 1 about here
In order to provide an initial test of the conceptual framework, the authors have begun
collecting data from a number of Indian MNCs by interviewing senior managers in their
13

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

6. Pilot Study of an Indian Multinational

As part of a larger research project that focuses on Indian multinationals as
representatives of emerging economy MNCs, the authors conducted a pilot study of a
large Indian IT multinational company, referred to here as Alpha Services. Alpha Services
is one of the top five Indian consulting and IT services companies with a turnover of
about US$ 2.5 billion from its operations in over 44 countries that employ around 45,000
professionals. It operates in three business segments, namely, IT services, Business
Process Outsourcing (BPO), and software products. Alpha serves a wide range of
industry segments,

including manufacturing,

banking and finance,

insurance,

telecommunications, infrastructure, healthcare, retail and transportation. It is publicly

listed on the Mumbai and New York Stock Exchange. Its vision is to be one of the five
most valuable global integrated IT services and BPO companies in the next few years.
Alpha Services has development centers in India, North America, Europe, the Middle
East and the Asia Pacific region and serves over 570 global companies. Its overseas
revenue mainly comes from North America (59%), Europe (21%) and the Asia Pacific
region (20%). The company has been consciously trying to reduce its dependence on any
one particular region and has been aggressively diversifying to other regions. It has fullfledged development centers in India, U.S.A, Germany, China and Malaysia. It has 100%
subsidiaries in China, Egypt, Mexico and Belgium. Its recent overseas acquisitions
include some niche IT services companies in the U.S.A and UK.

Between late 2007 and early 2009, we conducted in-depth, semi-structured

interviews with 19 senior managers of the company at three locations its headquarters

16

in India, subsidiary office in Melbourne, Australia (representing a developed market) and

in Shanghai, China (representing a developing market). The interviewees included 5
human resource (HR) managers and 3 business heads at the headquarters; 5 business
account managers managing key clients in Australia and the HR Head of the Asia Pacific
region based in Singapore and the country head, HR head and 3 business managers in
China. All the interviews were conducted face to face except for two telephone
interviews. The choice of locations provided a three dimensional perspective of the
companys global operations from the stand point of headquarters where strategy is
formally formulated and reviewed and subsidiaries in both developed and developing
markets where it is intended to be implemented.

The interview protocol consisted of a semi-structured questionnaire to probe

various aspects of a companys internationalization strategies, control and coordination
mechanisms and staffing practices including talent attraction and retention strategies and
corporate culture. In most cases, the questionnaire was circulated prior to the interviews
to enable the interviewees to prepare in advance. Each interview typically lasted an hour
and was taped and later transcribed. The results from the thematic analysis of the
interview data from this study are described below.

6.1. Organizational Structure & Systems:

At the apex of this organization lies the Leadership Council, consisting of around 45 top
leaders from business and support functions. It is charged with the responsibility to
formulate, implement and review strategic policies and priorities on a regular basis. At
17

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 approach to leadership at Alpha is exemplified by the motto every Alphaite

(employee) is a leader. Alpha believes that it is in the business of building and
developing leaders faster than the competition. Its organizational structure and systems
are supposed to be underpinned by its philosophy of enabling leadership with its core
concepts of full life cycle business (FLCB) and full life cycle leaders (FLCL). Alpha is
said to espouse a philosophy of encouraging employees to think like CEOs whereby
every employee is encouraged to consider himself/herself as the chief executive officer
(CEO) of the particular task that they perform and the people whom it affects as their
investors in the business.

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

business approach beyond organizational boundaries by involving customers and

suppliers as part of its eco-system.
According to corporate managers, Alpha is also keen to ensure that every key
stakeholder in the company, including managers, employees, customers and suppliers, get
the same One Alpha Experience (organizational culture), codified in a manual,
throughout its global operations. Its corporate leadership center is geared to groom
present and future leaders in the organizations corporate values. The centers mission is
to spread the organizational culture to every unit. Senior managers from all over the
world are given weeklong induction training at the companys headquarters in India to
attend a focused leadership immersion program spearheaded by the top management
team.

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

6.2. International Business Strategies:

Alpha has been seen as an ambitious and entrepreneurial organization throughout its
history. For example, Alpha understood in the late 1990s that it needed to move beyond
the established developed markets in the U.S.A and Europe and enter other emerging
markets, such as the Middle East and China where it was an early entrant along with
other Indian IT firms. Similarly, in mid-1990s, when enterprise resource planning (ERP)
was identified as a potential high growth area in the IT industry, Alpha decided to enter
this emerging field to exploit the opportunities ahead of its competitors. This paved the
way for the global leadership position that Alpha is said to enjoy today in ERP
implementation, particularly, in the telecommunications sector. As the Head of Alphas
China operations proudly pronounced it is a perfect storm- entrepreneurship, vision and
excellent domain tradition that have made Alpha what it is today.

6.3. Global Staffing & HR Systems:

Most of the Indian IT companies have operated in international markets, particularly in
the developed world from their inception. In terms of strategic and operational policy
making, they have remained largely local that is as an Indian company (as reflected in
the composition of their top management pool and managerial staffing). Alpha is no
exception to this trend but there has been a conscious effort to change this mindset over
the years according to the managers interviewed.

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).

Increasing investment by emerging economies in developed as well as emerging

markets, particularly via mergers and acquisitions means that there is a greater need for
management practitioners to understand the ways in which MNCs from emerging

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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Figure 1: Diffusion of Global HR Strategies & Practices across

Subsidiaries in a Multinational Corporation from an Emerging
Economy

External Influencing Factors

Internal Influencing Factors

Global HR Strategies & Practices

1. Home Country Factors

(Economic strength; global image;
national culture )

Direct

Indirect

2. Host Country Factors

(Perceived relative strength of
home & host country mgt.
practices; Environmental factors
(openness of business systems,
legal framework, institutions )

Personal

Impersonal

Attract

3. Industry-specific Factors

Personal

Develop

Impersonal

Retain

(Degree of product integration;

level of integration between
headquarters & subsidiaries )

Domestic
Operations

Subsidiaries
in developed
countries

Subsidiaries
in
developing
countries

Adaptive

Exportive

1.Strategic framework (business,

corporate, international, cooperative)
2.Organizational culture/ leadership
3.Importance of subsidiaries to
MNCs bottom line & strategy
4.Mode of subsidiary set-up
(Greenfield, M&A )
5.Headquarters diffusion capacity
6.Subsidiaries absorptive capacity
7.Subsidiaries resource dependency
on the headquarters
8.Availability, ability & choice of
expatriate managers

Hypotheses
31