Week 2 - Diffusion & integration of HR practices in MNCs

Question 1

What are the internal environments of MNC subsidiaries?

Answer 1

• strategic importance of subsidiary (profitable subsidiary, subsidiary pushing R&D, geo-political factors)
• position in the value chain (production or consumption end)
• local managers’ sources of power (hold the key to important information)

Question 2

What are the external environments of MNC subsidiaries?

Answer 2

home and host country institutions

• formal and informal (can mediate the impact of formal insitutions with research, harder to mediate informal)
• shape HR practices

international norms and regulations

Question 3

Identify the key features of the host-country environment

Answer 3

Labour market regulations: how flexible are they?

Industrial relations systems: collective bargaining

Production systems and work organisation

Education, training and careers: need to identify differences between countries (e.g. on-the-job or formal training)

Social stratification and living standards

Welfare systems: pensions, health care, social security

Family and gender systems: comes under social stratification

Question 4

Outline the host-country impact on HRM subsidiary practice using examples

Answer 4

PAY PRACTICES
- e.g. US MNCs have greater difficulty implementing PRP in Germany when compared to the UK

WORK ORGANISATION
- e.g. Japanese companies in the UK: UK environment not receptive to novel practices due to lack of skills

COLLECTIVE REPRESENTATION
- e.g. US MNCs: strategies of trade union resistance and avoidance in Germany, Spain and Italy (more consultative and collective) when compared to the UK

Question 5

Draw the diagram illustrating the organsational and institutional influences on MNCs and their subsidiaries

Answer 5

Look at lecture notes

Question 6

Why do MNCs transfer practices?

Answer 6

MARKET FORCES
- MNCs transfer practices in order to enhance their efficiency: typical feature of a transnational firm

CULTURAL INFLUENCES (top down, bottom up dynamics)
- transfer of practices is shaped by the culture of both home and host country

POLITICAL INFLUENCES
- individuals or groups of actors engage in the transfer in order to advance their positions (climb up the career ladder)

Question 7

What does the four influences framework show?

Answer 7

Four key influences on the nature and form of the transfer of practices across borders

Question 8

What are the four key influences in the framework and where do they come from?

Answer 8

1) Country of origin effect
2) Dominance effect
3) International integration
4) Host country effect

They stem from the combination of:

• the differences between national business systems
• the growing internationalisation of economic activity

Question 9

What is the country of origin effect?

Answer 9

• the influence of the home country over an MNC
• transfer of home country standards over host country operations
• the country from which the MNC originates creates a distinctive national effect on management style in general and on employment practice in particular
• UN World Investment Report (2009): the links with the home country remain strong in the 100 biggest MNCs in the world (ranked by foreign assets)

Question 10

What are some examples of the country of origin effect?

Answer 10

• the CEO of the vast majority of MNCs is a citizen of the home country
• management boards are disproportionately filled by home country national (can safeguard home country interests)
• issues of finance, governance and key decision making are shaped by country of origin)
• R&D tends to be very home country focused (issues of espionage)

Question 11

What is the evidence behind the country of origin effect?

Answer 11

AMERICAN MNCs: a clear orientation towards shareholder interest and trade union hostility

GERMAN MNCs: a more ‘consultative’ management style

JAPANESE MNCs: salience of team-working and functional flexibility when compared to American MNCs which favour PRP

Question 12

What is the dominance effect?

Answer 12

• countries in dominant positions, at a given time, evolve methods of organising production or the division of labour which invite emulation and interest
• well-tested systems and practices emulated by MNCs

e. g. US in post-war era, Japan in the 80s and early 90s and US again from the late 90s
- transfer of practices is shaped by competitive forces at the international level and does not necessarily flow from the country of origin

Question 13

What are some examples of the dominance effect?

Answer 13

• actors can utilise the notion of dominance in order to advance their own positions within a firm
  e. g. managers in American operations of European MNCs may use their knowledge and familiarity with the current dominant business system to develop an international role within the firm

Question 14

What is the international integration effect?

Answer 14

• it refers to the development of inter-unit linkages across borders
• it has been facilitated by increasing deregulation, convergence in consumer tastes and improvements in communications and transportation
• comparable operations are linked together under global divisions or regional blocks
• moved away from country based structures

Question 15

What are some examples of the international integration effect?

Answer 15

IBM operations: matrix structure of both global divisions and regional blocks
- the bigger the company, the greater the need for regionalisation

European integration: has resulted in the creation of distanct European aspect of HRM (though remember the convergence-divergence debate)

Question 16

What are the host country effects?

Answer 16

1) Resistance: sometimes more informal than formal
- institutional and cultural features of national business systems constrain the scope for transfer
- actors in host countries can block transfer when they see it as challenging their cultures and interests

2) Adaptation: adding in better features, hybrid form of HRM
3) Lack of ‘receptiveness’: systems do not align, rather than actual resistance

Question 17

What are some examples of the host country effect?

Answer 17

1) Resistance to US MNC ‘forced distribution’ in appraisals and subsequent pay freezes and dismissals
2) Introduction of PRP to Germany by US HQ but negotiation of base pay collectively
3) Japanese HQ failure to implement job rotation across a wide range of tasks in Brazil due to lack of skills

Question 18

What are the key messages?

Answer 18

Overlapping explanations for MNC transfer of practices:

• market, cultural and political
• 4 influences framework
• will national business systems ultimately converge as a result of MNC transfer of practices?
• MNC transfer may lead to change but no final convergence