Strategy, Structure and HRM in Multinationals: Moving Towards an Adequate Theoretical Framework

1. Strategy, Structure and HRM in Multinationals: Moving Towards an Adequate Theoretical Framework John Geary Class 3 International HRM 26th September 2013

2. Presentation outline • Orientating question(s) • Theoretical perspectives • Institutionalist perspective • Market-based perspective • Political perspective • Towards a conclusion • Some additional readings

3. Orientating question(s) Assumption: MNCs (try to) diffuse similar HR practices across their international operations • Why and how do MNCs transfer HR practices across borders? • How might we explain the ‘shape’ of MNCs’ HR and employment practices?

4. Class discussion Why and how do MNCs transfer HR practices across borders?

5. The diffusion of ‘best practices’ • Evidence points to MNCs diffusing similar ‘best practices’ to their subsidiaries abroad • Why? • Sourced from where? Their home country, US, Japan, Germany? • Or from the ‘dominant’ or hegemonic economic power – is this the source of global ‘best practice’

6. Forms of control of employment practices Various dimensions of control: • direct vs. indirect control direct control over policy determination: ‘here are our policies’ indirect control through monitoring, socialisation, etc. • personal vs. impersonal control control through interaction among people, e.g. presence of parent-country expats in key subsidiary posts, networks, meetings to share expertise control through impersonal, bureaucratic procedures, policies, etc. - monitoring of implementation/practice and benchmarking across operations  allows enforcement of standards (coercive comparisons) e.g. collection of HR/ER metrics (employee numbers, labour costs, employee attitudes, workforce diversity, etc.) may allow ‘remote control’ system in which control of policy substance is delegated to subsidiary

7. Theoretical perspectives How do we explain the ‘shape’ of MNCs’ HR and employment practices? There are a number of different theoretical perspectives: • Comparative institutionalist perspective – cross-national variations in country-of-origin and country-of-operation business systems (including IR/HR systems and traditions) influence the transfer of HR practices • Market-based perspective – the competitive advantage that is to be gained by diffusing ‘best practice’ across subsidiaries gives rise to convergence in practices • Political perspective – different actors may have different interests and access to different power resources thereby promoting or limiting the diffusion of similar practices

8. Comparative institutionalist perspective • This perspective examines the “interaction” of parent and host country institutional systems in the operation of MNCs Country-of-origin effect • Each country has distinct political and economic structures - national business systems which (might) influence MNCs’ preferences, behaviours and actions

9. Various elements • Different forms of capitalism and models of corporate governance - ‘co-ordinated’ and ‘liberal’ market economies - ‘stakeholder’ rights (employee voice) • Forms of corporate control - role of accounting vs. operational controls - degrees of ‘hierarchisation’ - authority vested in position (F), in expertise (G) • Management development - elite recruitment (Fr, J.) - specialist expertise (G.) - generalist education (Irl., UK, US) • Work organisation - AWGs (SW.), Taylorist (Fr. UK, Irl, US), more flexibility, integration of tasks, Meister (G.)

10. National institutions and culture • A popular variant of this institutionalist perspective = culturalism: actions of MNCs are attributed to taken-for-granted assumptions derived from country-of-origin values and attitudes • In itself – problematic? • But when linked with (and derived from) the ‘harder’ influence of national political and economic institutions… Outcome – MNCs are deeply embedded in their country-of-origin – export those practices with them → innovators

11. Host country effect • Each country has distinct national business systems or regimes - ‘institutionally weak or permissive’ (liberal) regimes and ‘institutionally strong or rigid’ (co-ordinated) regimes • these may permit MNCs as much room for manoeuvre as they need, or they may restrain MNCs in their management of HR

12. Various elements • Political systems • Structure of labour market • Training systems: ‘market’ (UK, It, Irl) and ‘educational’ (G, Fr) models • Trade unions’ influence and structure of collective bargaining • Presence or otherwise of a statutory provision for workers’ participation • Outcomes = legitimacy → adaptation (‘local isomorphism’)

13. Class discussion To what extent do such influences determine MNC behaviour?

14. Limits of the institutionalist perspective • Static • Structural determinism • Assumption that transfer is one way (could be both, what of reverse diffusion?) • Market constraints and transfer of ‘best practice’ • Flux – politics, power and contest • Parties may have different interests and access to varying power resources

15. Market-based perspective • Firms face severe competitive pressures  sharing or enforcement of ‘best practice’ international competitive advantage • Coercive comparisons and benchmarking • Premise: BP is readily identifiable and transferable across sites; what of competing logics, preferences and rationalities which may vary by nationality of management?  Political perspective

16. Political perspective • The MNC as a ‘contested terrain’ (Edwards and Belanger 2009) • Transfer of ‘best practices’ - influenced by political processes be it ‘forward intra-organisational’, ‘horizontal network’ or ‘reverse intra-organisational’ diffusion • Transmission of best practice = the exercise of power across national boundaries. Ferner and Edwards (1995) identify various channels - overt use of power by HQ - bargaining process - access to resources (e.g. ABB) - systems of formal management control: rules, regulations and procedures with recourse to sanctions (e.g. IBM) - culture - the new ‘corporate glue’, operating on the basis of a set of internationalised values and understandings and not on the basis of formal external rules

17. How likely are national subsidiaries to ‘consent’ to such control? Various influences: • ‘Strength’ of host country’s IR/LM institutional regime • Dependence of host country on inward investment • Dependence of MNC on host country resources • Degree of integration of production/service delivery • Perceived legitimacy and ‘value’ of imported ‘best practices’  Thus, the shape of MNCs’ HR practices might also be understood in the context of the wider macro-political setting (size of MNC, nature of the industry, distribution of assets and employment, and the degree of the dependency of the host country

18. Towards a conclusion? • Each of the theoretical perspectives - on their own - has limitations • A focus on institutional forms and/or market-based explanations under-estimates the importance of political processes • There is a ‘range of indeterminacy’ • To rely on political explanations risks over-stating the room for manoeuvre that MNCs may have (this will certainly vary from country to country) • To explain why actors do or do not possess power resources will require an analysis of the institutional context and market circumstances of firms  Need for a theoretically integrated approach so as to understand how MNCs behave

19. Supplementary readings Interaction between country-of-origin and country-of-operation effects - see Geary, J. and Roche, W. (2001) ‘Multinationals and Human Resource Practices in Ireland: a Rejection of the ‘‘New Conformance Thesis’’, International Journal of Human Resource Management, 12(1). 109-27 Micro-political processes - see Edwards P and Bélanger J (2009) The Multinational Firm as a Contested Terrain. In: Collinson S, Morgan G (eds) Images of the Multinational Firm. Oxford: Wiley, 193-216. Ferner et al. 2004 The dynamics of central control and subsidiary autonomy in the management of HR: case study evidence form US MNCs in the UK, in Organisation Studies 25, 3: 363-391; Ferner A, Edwards T and Tempel A (2012) Power, Institutions, and the Cross-national Transfer of Employment Practices in Multinationals. Human Relations 65(2): 163-187. Morgan G (2011) Reflections on the Macro-politics of Micro-politics. In: Dörrenbächer C and Geppert M (eds) Politics and Power in the Multinational Corporation. Cambridge: Cambridge University Press. Transfer of ‘BP’ overseas – see Almond P and Ferner A (2006) American Multinationals in Europe: managing employment relations across national borders. Oxford: Oxford University Press. Pudelko, M., & Harzing Anne-Wil, K. 2007. Country-of-Origin, Localization or Dominance Effects? An empirical investigation of HRM practices in foreign subsidiaries. Human Resource Management, 46(4): 535-559. Pudelko, M., & Harzing, A.-W., K. 2008. The Golden Triangle for MNCs: Standardization Towards Headquarters Practices, Standardization Towards Global Best Practices and Localization Organizational Dynamics, 37(4): 394-404. Coercive comparisons – see Coller 1996 Managing flexibility in the Food industry: A cross-national comparative study in European MNCs, European Journal of Industrial Relations, 2, 2:153-172