IHRM in Subsidiary Operations: Balancing Standardization and Adaptation

1. Chapter 8 HRM in the Host Country Context IBUS 618 Dr. Yang

2. Chapter Objectives • Discussion of international HRM issues generally tends to be biased in the direction of expatriate management, particularly that of parent-country nationals, partly owing to their strategic importance. In this chapter, we attempt to redress the balance by examining IHRM issues in subsidiary operations. • To balance the need for consistency and the need for adaptation (Cont.) IBUS 618 Dr. Yang

3. Chapter Objectives (cont.) • We cover the following aspects: • Factors that influence standardization and adaptation of work practices and the role of HR, including • Host-country culture and workplace environment • Mode of operation • Firm size, maturity and international experience, and • Subsidiary mandate. • Retaining, developing, and retrenching local staff • HR implications of language standardization: HCN selection, training and promotion on the basis of language skills. • Monitoring HR practices used by foreign subcontractors. IBUS 618 Dr. Yang

4. Subsidiary Issues • Approach to subsidiary management is a function of: • The nature of the relationship between the units and ‘parent’, e.g. • Long- or short-term • The role of the subsidiary in the broader context • The level of equity involved, e.g. • Mode of operation • Factors within host-country environments that facilitate or constrain the transfer of global management practices and business processes, e.g. • Government regulations • Social norms IBUS 618 Dr. Yang

5. Three Cultures Interact to Influence Standardization and Adaptation • National culture of the parent company • National culture of the subsidiary unit • Corporate culture as a potential unifier • Standardization can be achieved through • Staffing procedure and standards • Training and development programs • Staff rotation • Rewards and promotion • Corporate code of conduct IBUS 618 Dr. Yang

6. Standardization of Work Practices • Depends on • Receptivity of local workforce to adhere to corporate norms of behavior • Effectiveness of expatriates as agents of socialization • Whether localization is timely (not just prompted by cost considerations) • Appropriateness to the local environment IBUS 618 Dr. Yang

7. Factors Influencing Standardization • Host-country culture and workplace environment • Mode of operation involved • Size and maturity of the firm • Relative importance of the subsidiary IBUS 618 Dr. Yang

8. Host-country Culture • Work behavior is culturally determined • Contained in role definition and expectations • Whether corporate culture would supersede or supplant other ‘cultures’ is a subject of much debate • Often, what is meant by corporate culture translates into universal work practices – standardization of work practices • Common practices rather than common values IBUS 618 Dr. Yang

9. The Linkage between Culture and Behavior IBUS 618 Dr. Yang

10. Mode of Operation • Choice of mode of operation is important in determining standardization of work practices. • Ownership and control are important factors: • Acquisition may constrain ability to transfer technical knowledge, management know-how, systems, and HR practices • Wholly owned subsidiaries provide greater opportunities for transferring work practices than in IJV • Management contracts provide skills, expertise and training to HCNs, without carrying equity or risks associated with FDI, and may have HC government support. IBUS 618 Dr. Yang

11. Factors Influencing Standardization of Work Practices IBUS 618 Dr. Yang

12. Work Standardization • The size of the firm, maturity, and international experience are important firm level factors. • Motorola in China is a case in point: • Large size • Wealth of international experience • Centralized IHR programs • Management could draw on these aspects when entering China IBUS 618 Dr. Yang

13. Subsidiary Mandate • The position a subsidiary holds within the global ‘family’ is an important aspect when discussing the transfer of work practices. • GE’s Center of Excellence in Hungary • Transferring knowledge and competence is difficult as subsidiary initiatives are often not seen as relevant due to “corporate immune system”. • Subsidiaries’ roles and positions alter over time. • Staff movements can assist: • Face-to-face communication helps build trust and networks • Project teams as a control and socializing mechanism IBUS 618 Dr. Yang

14. Global or Local Work Practices? • Not a case of “either-or”, but more of a constraint for both. • While the recruiting practices used in different countries are inching toward global convergence, national cultures continue to affect the hiring practices. • The best IHRM practices ought to be the ones best adapted to cultural and national differences. • More western HR practices being introduced to China • Japanese firms such as Nissan and Honda train HCNs in US, UK and other European subsidiaries. • Movements in France against capitalist cultural invasion. IBUS 618 Dr. Yang

15. Retaining Local Staff • The paradox – “the expense of cheap labor” • Poaching of key subsidiary staff • Access to skilled labor as important as unit cost – such as corporate outsourcing • Attraction of India and China for the IT industries • The amount and quality of training is an important consideration • Technical • Language • Decision-making • Management IBUS 618 Dr. Yang

16. Developing Staff • Investing in human capital • Providing training and career development can assist in retaining good local staff • Improved benefits, work and living conditions, and fair management practices are important factors: • A fair environment and good management practices play an important role in countries such as China • Job-hopping behavior in Singapore, Russia, and China IBUS 618 Dr. Yang

17. Retrenching Staff • The reverse of the employment ‘coin’ • Strategic decisions regarding foreign operations have HR implications, including retrenchment • Not confined to subsidiary operations but may affect home base – e.g., transferring call centres from UK and US to India • Labor law may constrain retrenchment, e.g. • India • Germany IBUS 618 Dr. Yang

18. Language Standardization • Adopting a common corporate language puts pressure on employees to become competent in the corporate language • Assists informal communication and network building • Affects • Promotion • Ability to attend corporate programs and meetings • Availability for international assignments IBUS 618 Dr. Yang

19. HR Implications of Language Standardization IBUS 618 Dr. Yang

20. Shadow Structure of KONE Based on Language IBUS 618 Dr. Yang

21. Monitoring Host Country Subcontractors • Outsourcing activities to host-country subcontracting firms requires some monitoring of HR practices • Further contracting is likely to occur. • Vocal groups have accused multinationals of condoning work practices that would not be permitted in their home countries, regarding: • Child labor • Minimum pay • Work hours • Work conditions and safety • Environmental issues IBUS 618 Dr. Yang

22. HR’s Role • Drawing up and reviewing code of conduct • Conducting a cost-benefit analysis to justify an expatriate as a monitor • Championing local operators as monitors • Being a member of the team who conducts periodic “checking” visits • Overseeing external monitors and auditors where used • Checking that rewards and performance systems take into consideration compliance to code of conduct • Being knowledgeable about and sensitive to local law and regulations IBUS 618 Dr. Yang

23. Chapter Summary This chapter has focused on issues relating to HRM and work practices in the host-country context. We chose four main areas to examine: • The standardization versus adaptation debate as it relates to subsidiary operations. We identified four inter-related factors that influence the multinational’s ability to impose or transfer its preferred work and HR practices: • The host-country culture and workplace environment. We looked at the interplay between values, attitudes and work behavior and the role of corporate culture in assisting work outcomes. (cont.) IBUS 618 Dr. Yang

24. Chapter Summary(cont.) • Mode of operation. Managerial discretion to introduce its own practices is higher in wholly owned subsidiary operations than in IJVs. Acquisitions may be constrained by the inherited workforce. We also looked at management contracts as a mode of operation that may influence standardization of work practices in foreign operations. • Firm size, maturity and level of international experience. Firms such as Motorola can draw upon experience and resources to an extent not possible for smaller and less-experienced international players. • Subsidiary mandate. The position of the subsidiary in the intra-organizational network and level of interdependence between units for resources can assist in the transfer of ‘best practice’. (cont.) IBUS 618 Dr. Yang

25. Chapter Summary(cont.) • Retaining, developing and retrenching local staff, aspects such as: • The paradox of cheap labor • Skill level of the local workforce and training • Poaching of staff and job-hopping. • Our examples are drawn from Chinese and Indian situations, but these issues are not confined to these two countries. • We have also looked at the impact of strategic decisions on subsidiary operations – such as plant closures and rationalization – that result in employee retrenchments at the subsidiary and in the home-country operations. (cont.) IBUS 618 Dr. Yang

26. Chapter Summary (cont.) • The HR implications of language standardization. The decision to use a corporate language – usually English – has implications for subsidiary staff in areas such as: • Selection for positions • Attendance at company training programs, and • Promotion (cont.) IBUS 618 Dr. Yang

27. Chapter Summary (cont.) • Monitoring the HR practices used by international subcontractors: • This discussion opened up a somewhat contentious issue for multinationals, regarding fair labor and code of conduct. • Multinationals are expected to monitor the work practices employed by international subcontractors. • Mechanisms used to monitor adherence by these firms to multinationals’ code of conduct include using internal agents, such as expatriates or visits by headquarters or regional staff, external agents such as local buyers and auditors. IBUS 618 Dr. Yang