The Adoption of Human Resource Management Practices &Perceived

Performance of Foreign Subsidiaries

Dr Maura SheehanReader

University of BrightonEU Marie Curie Scholar, 2009-2012

UFHRD Conference Chair, Brighton, 2013m.sheehan@brighton.ac.uk

Stream 2: Full Paper

Abstract

Set within the framework of institutional theory, this paper examines the implications of the

transfer of Human Resource Management (HRM) practices, including management

development (MD), for perceived performance in subsidiaries of multinational corporations

(MNCs). It is found that the mere presence of HR practices does not fully capture the more

nuanced nature and extent of transfer and the associated relation to perceived subsidiary

performance.

A positive association is found between a greater number of HR practices (the presence of

practices) and perceived subsidiary performance. The interaction of high levels of

implementation and internalisation was very significantly associated with better perceived

subsidiary performance than the presence of more practices. Finally, analysis of the relation

between adoption typologies and perceived subsidiary performance found a positive and very

significant association between ‘active’ adoption and perceived subsidiary performance; a

positive and significant relationship for subsidiaries where adoption was in ‘assent’; and no

significant relationship where there was ‘ceremonial’ or ‘minimal’ adoption. The analysis is

based on data from multiple respondents (a HR Specialist/Manager and a line manager) in

foreign subsidiaries of UK-owned MNCs.

Keywords: Human resource management; implementation and internalisation; transfer of

HR practices; multinational corporations (MNCs); perceived subsidiary performance.

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Reviews of the human resource (HR) – performance relationship (see, for example,

Boselie, Dietz & Boon 2005; Combs, Ketchen, Hall & Liu, 2006; Guest, 2011) find an

association between a greater number of HR practices and various indicators of

organisational performance. Despite the vast number of empirical studies on the HR-

performance relationship, few studies have examined whether this relationship applies within

subsidiaries of multi-national corporations (MNCs). A notable exception, Foley, Ngo & Loi

(2010), find that the use of high performance work systems (HPWS) did indeed have a

positive association with the performance of foreign subsidiaries based in Hong Kong. There

remains, however, a dearth in the understanding of how this HR-performance relationship

operates. The process perspective tries to answer this by examining the ‘how’ question, i.e.,

how is organisational performance achieved through HR management? (Sanders & Frenkel,

2011). While this is a relatively new research area in the context of the HR-performance

literature, the importance of process– especially HR practice transfer and adoption - has

already received considerable attention in the international human resource management

literature (e.g., Collings & Dick, 2011; Kostova & Roth, 2002).

Increased globalisation, especially the ever rising flow of foreign direct investment

(FDI) into emerging economies, has been a driving force behind the emergence of the

literature which seeks to understand the extent, determinants and process of, management

practice transfers. Given the importance of human resources for sustained competitive

advantage, MNCs utilise advanced and sophisticated practices and systems. These HR

practices are viewed as valuable resources or competences that managers are likely to seek to

replicate, by transfer, throughout the organisation (Szulanski, 1996). Consistency in HR

practices can also contribute to developing a common corporate culture, enhancing equity

and procedural justice within the MNC (Kim & Mauborgne, 1993), managing external

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legitimacy of the MNC as a whole (Kostova & Zaheer, 1999), and facilitating the transfer of

employees within the MNC - essential for successful global talent management (McDonnell,

Lamare, Gunnigle & Lavelle, 2010).

There is, however, considerable evidence that shows planned transfers of practices (in

particular, their internalisation and implementation) do not always occur in ways anticipated

or desired by corporate headquarters (HQs), with transfer even varying between subsidiaries

belonging to the same MNC (Kostova & Roth, 2002). Theoretical models (e.g., Björkman &

Lervik, 2007) and empirical studies (e.g., Kostova & Roth, 2002) have explored factors that

help to explain why there are differences between MNC subsidiaries in the extent to which

they adopt HR practices that MNC headquarters attempt to transfer.

This paper brings the HR-performance and HR-transfer literatures together.

Specifically, the paper extends the extant literature by examining the potential role of

implementation and internalisation of HR practices, and their associated adoption typologies,

for the perceived performance of foreign subsidiaries of MNCs.

A multi-respondent approach is used to examine these relationships. In particular, the

analysis is based upon responses from the HR Specialist/Manager and line manager based at

a foreign subsidiary of UK-owned MNCs. Since the performance data are self-report, the

term ‘perceived performance’ is used throughout the paper. To control for potentially

significant ‘country of origin’ effects, the study focuses on UK-owned subsidiaries only. All

of the foreign subsidiaries are based within the European Union (EU) and within one region,

Central and Eastern Europe (CEE). During the last decade, and especially since the

enlargement of the European Union (EU) in May 2004, the CEE region has been a significant

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recipient of FDI flows and is an important emerging region on the global economic landscape

(OECD Statistics 2009).1 Moreover, a focus on one region within the EU enables potentially

important institutional differences to be examined whilst not introducing vast institutional

heterogeneity into the sample.

The next section reviews the relevant literature which provides the basis for the

paper’s hypotheses; the research methodology and the sample are then described; the results

are presented which is followed by a discussion; the paper concludes with a discussion of its

limitations and directions for future research.

LITERAUTURE REVIEW & HYPOTHESES

Theoretical Background

Institutional theory has been widely used to study the adoption and diffusion of

organisational practices, including HR practices, within, and across organisations (Farndale

& Paauwe, 2007; Kostova & Roth, 2002). By focussing on external environmental forces,

institutional theory helps to explain evidence of homogeneity or convergence of HR

practices, sometimes placed in a framework of universalism or ‘best practice’. According to

the ‘best practice’ perspective, particular HR practices improve the opportunities for

workplace participation, motivation and/or abilities, leading to higher work and 1The data analysed are part of a wider EU-funded study that examines the determinants of foreign direct

investment(FDI); the role and functions of human resource management; and subsidiary level performance in

three Central Eastern European Countries: Poland, Hungary and the Czech Republic. With the notable

exception of Morley, Heraty & Michailova (2009), little is known about HR in this important emerging region.

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organisational performance. Competitive isomorphism (DiMaggio & Powell, 1983) assumes a

system of economic rationality, which emphasises the pressures exerted by market

competition and the need for economic legitimacy, as drivers of similarity. Competitive

isomorphism would predict that corporate HQs of MNCs would seek to transfer ‘best

practice’ HR to their subsidiaries to benefit from associated efficiency gains. Thus, based on

the assumption that there is likely to be a high level of transferred HR practices with the

objective of increasing subsidiary efficiency, the first hypothesis posits:

Hypothesis 1: There will be a positive association between the presence of (more) HR

practices and perceived subsidiary performance.

However, competitive isomorphism,especially if set in a context of ‘best practice’, is

constrained by both its time-limited source of advantage because once a critical mass of

organisations within a given field is doing the same activities, initial competitive advantage

will dwindle, or cease. The ‘best practice’ approach is also widely criticised for being too

prescriptive (Purcell & Kinnie, 2007). Moreover, in the context of the HR-performance

debate, the best practice approach tells us little about the processes that join HR practices to

improved performance.

A less prescriptive approach is provided by the best-fit (or contingency) approach

which focuses on adapting HR practices to the prevailing political, cultural and/or economic

environment. While rooted in institutionalism, it is closely related to DiMaggio & Powell’s

(1983) second type of isomorphism: institutional isomorphism and three associated

mechanisms which may influence decision making in organisations. In the context of HR, the

first mechanism – coercive - includes the role of social organisations, who may be partners

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(e.g., trade unions and works councils), employment legislation and the government. The

mimetic mechanism refers to a firm’s benchmarking strategies and HR practices against each

other, and copying practices which are viewed to deliver desirable outcomes. Normative

mechanisms include the impact of HR professional bodies and employer associations on the

adoption of agendas, terminology, and practices of current importance.

It is essential, however, that these mechanisms are not treated as deterministic, in the

sense that organisations are viewed as passive agents in the interaction with the institutional

environment (Wailes, Ramia & Lansbury, 2003). Indeed, the literature on HR diffusion in

MNCs sees institutionalisation as a ‘contested process’ and subsidiaries of MNCs, as

‘contested space’ (Edwards, Colling & Ferner, 2007). The emerging micropolitical approach

focuses on the role that power relationships within MNCs, particularly between corporate

headquarters and local level managers, play in shaping the HR diffusion process (Edwards et

al., 2007; Ferner, Almond, Clark, Colling, Edwards, Holden & Muller-Carmen, 2004).

Managers in subsidiaries may resist the transfer of some MNC practices that disrupt the

current division of labour, or relations with other agents or stakeholders such as trade unions,

or those that do not fit with the local institutional context. Managers may use their

embeddedness with the local and/or national context to contest the implementation of

corporate HR policies.

Indeed, there is now considerable recognition of the potential for agency to exist in

the institutional theory of the firm, and its capacity to moderate and mediate the transfer of

employment practices and the process of delivery. Managers have considerable scope for

agency. In particular, they have the ability to spend more time on activities they consider

important and/or are reviewed and rewarded on, and less time on those that they find

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unimportant, and/or are not reviewed/rewarded on (Konrad, Waryszak, & Hartmann, 1997).

The relationship between HR managers/specialists and line managers in MNCs is a complex

one because both are ultimately agents of HQs. Not only is there scope for individual

agency, scope also exists for ‘inter-agency’ conflict (e.g., between HR, IT, marketing, and

line managers) - especially in the periphery and, even more so, when the periphery operates

in an institutional environment that is different from, or unfamiliar to, the principles based in

the core (Regner, 2003).

Thus, while the pressures of distinct institutional frameworks may exert strong forces

for the transfer of practices and processes, the indeterminacy generated by the inter-play of

the micropolitical environment of foreign subsidiaries, the potential scope for considerable

agency and inter-agency conflict - are likely to influence the implementation and

internalisation of transferred HR practices - which is likely to result in a divergence between

intended practices and the reality of the processes associated with their delivery.

The HRM-Performance Relationship and links to Practice Transfer and Adoption

The link between HRM and firm performance has been a dominate theme within

much of the HRM literature since the mid-1990s and while the HRM-performance

relationship has been examined in many different national contexts, few studies have

examined the relationship between HRM and performance within subsidiaries of MNCs (see

Foley et al., 2010 for a notable exception). However, a simple count of HR practices (often

estimated by an index) is likely to be a highly inadequate way to explore the relationship

between HRM and subsidiary performance. As noted by Purcell & Hutchinson (2007: 3): “It

is often observed that there is a gap between what is formally required in HR policy and what

is actually delivered...” This potential gap between the rhetoric and reality of HR is of

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particular relevance in the context of MNCs, given complex issues associated with transfer,

already discussed. Thus, while a particular HR practice may formally be recorded as ‘in

place’ by corporate HQs and even by the subsidiary, if it is not implemented, or only

minimally so, then its’ association with performance may be negligible. In addition, if a

practice is not implemented, it is unlikely to be internalised. Thus, it will be important to

examine whether there is a relationship between each of the two types of transfer and

perceived subsidiary performance.

Indeed, the concepts of implementation and internalisation are central to

understanding the process of transfer. Implementation is the empirically observable

behaviours constituting the enactment of the transferred practice (Kostova & Roth, 2002). For

example, if the transferred HR practice was 360 degree feedback, one would observe it being

operationalised which would be reflected in associated behaviours and actions of all

employees to whom the practice was intended by HQs to apply (e.g., all managerial

employees). Importantly, the concept reflects the extent to which HQs prescriptions, arising

from desired efficiency, coordination and/or legitimacy in the MNC as a whole, are enacted

by subsidiaries. Internalisation reflects the degree to which externally imposed rules become

internalised in the recipient unit. Specifically, the transferred practice, e.g., variable pay, is

taken for granted and accepted by employees. If internalisation has taken place employees see

the value of using the practice and are committed to sustaining its delivery (Kostova, 1999).

In other words, the mere presence of HR practices does not necessarily mean that they have

been implemented and/or internalised - both of which are likely to be key processes that will

affect the strength of the HR-performance relationship. Thus, hypothesis 2 posits that:

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Hypothesis 2(a): The implementation of practices will have a greater association with

perceived subsidiary performance than the presence of (more) practices; and

Hypothesis 2(b): The internalisation of practices will have a greater association with

perceived subsidiary performance than the presence of (more) practices; and

Hypothesis 2(c): There will be a positive interaction between higher implementation

and internalisation and perceived subsidiary performance.

The analysis of the interaction between the types of HR transfers can be extended by

examining adoption typologies. Kostova & Roth’s (2002) adoption typologies which

reflected the interaction between implementation and internalisation are used in this analysis

(see Figure 1).

Insert Figure 1 around here

Where there is minimal implementation and internalisation the adoption is ‘minimal’; where

implementation is high but internalisation is low then there is likely to only be ‘ceremonial’

adoption; where there is low implementation but high internalisation, the adoption of the

practice is likely to be in ‘assent’; and where there is both a high level of implementation and

internalisation there will be ‘active’ adoption. The adoption typology present in a subsidiary

reflects a key process of HR delivery and is also likely to influence the ‘strength’ of the HR

system (Bowen & Ostroff, 2004).

It is expected that where there is ‘active’ HR transfer - the full benefits of HR

practices should be realised which is likely to be positively associated with performance. In

contrast, where transfer is ‘minimal’, the benefits associated with HR practices are likely to

be low and the costs associated with minimally adopted practices may actually result in a

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negative association with performance. While ‘ceremonial’ and transfer that is in ‘assent’

indicate that HR practices have not been fully transferred, which is likely to mean that

practices are not utilised to their full potential, these two typologies may reflect the forces of

institutional dualities and some compromise between local and global tensions (e.g., Collings

& Dick, 2011). Such types of transfer may be appropriate, at least in the interim, especially if

they help to minimise any perceptions of coerciveness among subsidiary employees.

Nevertheless, the presence of these two typologies is likely to weaken the HR-performance

relationship. Based on this analysis, hypothesis 3 examines the relationship between HR

adoption typology and perceived subsidiary performance:

Hypothesis 3(a): High levels of both implementation and internalisation (an ‘active’

transfer typology) will have the most positive and significant association with

perceived subsidiary performance compared to other transfer typologies; and 3(b):

Low levels of implementation and internalisation (a ‘minimal’ transfer typology) are

not expected to be significantly associated with perceived subsidiary performance and

the relationship may indeed be negative. No a priori assumptions are made for the

typologies of‘in assent’ or ‘ceremonial adoption’.

Thus, while competitive isomorphism suggests that there is likely to be a high number of HR

practices transferred to MNC’s subsidiaries, with the objective of enhancing efficiency,

institutional isomorphism - especially if active agency and inter-agency conflict is present -

suggests that the process of HR delivery is likely to differ from how the practices were

intended to be delivered by HQs. Any difference between transfer and the process of

delivery is likely to affect any HR-performance relationship that may be found.

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METHODS

Research Framework

Given the potential for a divergence of perspectives, especially about perceptions of

HR transfer, input was from two respondents - the HR Specialist/Manager and a line manager

- within the foreign subsidiary of the sample organisations. The use of a multi-respondent

approach helps to address the well-documented evidence of low reliability of single-rater

responses (Gerhart, Wright, McMahan & Snell, 2000; Guest & Conway, 2011). Moreover, the

use of multi-respondents should help to ensure that any common method variance bias –

especially in relation to perceived subsidiary performance - will be reduced (see Wall,

Michie, Patterson, Wood, Sheehan, Clegg & West, 2004).

In order to explore the relationships outlined above, it was important to generate a

sample size that could be statistically and econometrically interrogated. The method used to

collect such data was a large-scale telephone survey conducted by a professional survey

company.The interviews ranged in duration from 30-50 minutes. All of the data were

collected between 2009 and 2010. The method required translating the survey instrument into

multiple languages (specifically, Czech, Hungarian and Polish). The translation effort was

guided by two key objectives: achieving construct equivalence and word equivalence.

Construct equivalence refers to preserving the exact meaning of the question asked, and at the

same time, adapting the questions to the particular language and culture (Cascio, 2012;

Mullen, 1995).

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The following procedures were used to try to achieve these objectives: (1) initial

translation of the survey from UK English to the local language by a bilingual and native

speaker of the local language; (2) reverse translation of the survey from the local language to

UK English; (3) comparisons of the originals with the double-reverse-translated English by

subject-expert native speakers; (4) resolution of discrepancies by the translators and

development of revised instruments; and (5) extensive piloting of the telephone survey

conducted by native speakers with HR Specialists/Manager and line managers - in the

presence of the principal researcher - which resulted in further revisions of the instruments

and the ordering of several of the questions.

Population & Survey Sample Characteristics

The population was provided by the Dun and Bradstreet’s (D&B) Global Reference

Solution (GRS) database.The GRS database is the most comprehensive and detailed source

for information on complex organisations, specifically MNCs (see Henriques, 2009 for

detail). The sample was drawn from the GRS database using the following criteria: 1. the

‘global ultimate parent company’ was in the UK (the UK ownership criteria was used to

eliminate potential ‘country of origin’ effects); 2. employed at least 200 people overall (this

criteria was used so that the data could be compared with other such surveys – e.g., Cranet –

which also uses this size criteria); 3. and it had a subsidiary in at least one of the three study

countries (i.e., Czech Republic, Hungary and Poland).

Three-hundred and seventy-eight organisations met the selection criteria. The analysis

presented in this paper is based on data for the organisation’s foreign subsidiaries only.

Completed ‘matched’ interviews were achieved in 163 foreign subsidiaries (representing a

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response rate of 43.1% and 326 completed interviews among these respondents). Sixty-two

of the study subsidiaries were based in Poland; 53 in the Czech Republic; 48 in Hungary. A

minimum quota of 40 responses per country was set. A two stage Heckman test was used to

test for response bias. The results were not statistically significant.2

Measures

HR practices. Following a thorough review of the literature and pilot interviews, HR

practices were measured using 42 items that divided into eight groups covering: recruitment

and selection; training and development, in particular management development; appraisal;

compensation and financial flexibility; job design; two-way communication; employment

security and the internal labour market; and quality/involvement. The emphasis was placed

on what the literature would identify as ‘high performance’ or ‘high commitment’ as opposed

to traditional practices (Guest & Conway, 2011). Data on all 42 HR practices were collected

only from the HR managers. In order to measure the HR system as a whole, and consistent

with common practice, a mean score across the practices is used as the indicator of the

presence of HR (see Becker & Huselid, 1998; Guest & Conway, 2011). As the number of

items in each of the eight areas of HR differed, the scores were standardised to ensure that

equal weighting was given to each.

Implementation. Refers to the empirically observable behaviours constituting the

enactment of the transferred practice (Kostova & Roth, 2002). It reflects the adoption of

2The full database contains a matched sample whereby the UK HR Director and two HR managers/specialists

and two line managers in the organisation’s UK and foreign subsidiaries completed interviews (5 respondents

per organisation). This paper only utilises the foreign subsidiary data. The contact with the headquarters in the

UK greatly facilitated access to the overseas subsidiaries.

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formal rules and/or practices. For each of the eight HR practices listed above, respondents

were provided a five-point scale which asked whether the practice was implemented ‘not at

all, in practice’ (1) to ‘always used, in practice’ (5). Factor analysis confirmed one clear factor

(alpha 0.82 for HR Specialists/Managers and 0.78 for line managers). For the subsequent

analysis, the mean scores on these scales are used.

Internalisation. Refers to the subsidiary’s overall commitment to the HR practice.

Internalisation involves attaching symbolic meaning and value to the practice in question.

Drawing upon Kostova & Roth’s definition of internalisation (2002: 217), for each of the

eight HR practices listed above, respondents were asked whether they ‘viewed the practice as

valuable for the subsidiary and were committed to the practice’ with responses ranging from

‘not at all’ (1) to ‘very much so’ (5). Factor analysis confirmed one factor (alpha 0.79 for HR

Specialists/Managers and 0.75 for line managers). For the subsequent analysis, the mean

scores on these scales are used.

Control measures. A number of standard control variables which have been found to be

significant in previous analysis of the HR-performance relationship were included.These

control variables included size (the number of employees in the subsidiary); sector (1 =

services, 0 = manufacturing); age; capital intensity (total assets/total employment, past 3

years [obtained from D&B database or corporate HQ]); sales growth (average change in

annual sales turnover, past 3 years [obtained from D&B database or corporate HQ]); the

proportion employees who were trade union members (i.e., 1 = 0%; 2 = 1-25%; 3 = 26-50%;

4= 51-75%; and 5 = 76 – 100%); and country where the subsidiary is located (0 = Poland; 1 =

Hungary; 2 = Czech Republic). Poland is the omitted category in the estimations.

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Perceived subsidiary performance. (Dependent Variable): To derive a quantifiable

measure of perceived subsidiary performance for each subsidiary, an index modified from

Delaney & Huselid (1996) was utilised. The index used includes eight items: 1. the firm’s

quality of products/services; 2. success at developing new products/services (innovation); 3

and 4. the efficiency of factors of production ((a) labour and (b) capital); 5 and 6.

customer/client (a) satisfaction and (b) retention; 7. relative financial performance; and 8.

whether overall subsidiary performance has exceeded forecasts/expectations. Respondents

were asked to rate their organisation’s outcomes over the past 3 years compared with their

main competitors in their sector. Factor analysis confirmed one factor (alpha 0.83 for HR

Specialists/Managers and 0.80 for line managers). For the subsequent analysis, the mean

scores on these scales are used.

Data Analysis

Aggregation of individual ratings in the estimations, where applicable, is justified

using standard thresholds for the interclass correlation analysis (ICC) 1 and (ICC) 2 measures

of greater than 0.20 (Judge & Bono, 2000) and 0.70 respectively (George & Bettenhausen,

1990).The data were subjected to a series of hierarchical regression analyses to the

hypotheses.

Aiken & West’s (1991) recommendations for testing interaction were followed.

Specifically, the interaction term was created by multiplying the mean-centred values of the

two variables (implementation*internalisation). Mean-centering reduces multi-collinearity

between the interaction term and its components (Aiken & West, 1991).

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The final hypothesis concerns the relationship between the typologies of adoption

(whether ‘active’; ‘assent’; ‘ceremonial’; or ‘minimal’) and their association to perceived

subsidiary performance, controlling for the number of HR practices in place. To examine

these relations, the subsidiaries were classified by standardising the implementation and

internalisation measures and then K-means clustering was used to determine group

identification (see also, Kostova & Roth, 2002). Based on these clusters, each subsidiary was

assigned an adoption typology. The omitted category in the estimations is ‘minimal’ adoption.

RESULTS

Insert Table 1 around here

The means, standard deviations and inter-correlations are given in Table 1. The inter-

correlations are positive and significant for the key study variables – the relationship between

perceived subsidiary performance and the number of HR practices present (p<0.05);

implementation (p<0.001); and internalisation (p<0.10) of HR practices.

There are positive and significant relationships found between perceived subsidiary

performance and half of the control variables: firm size (positive at p<0.10); capital intensity

(positive at p<0.05); sales growth (positive at p<0.05); and Hungary (negative at p<0.05),

reflecting, at least in part, the country’s deep recession and related IMF bail-out during the

survey period.

Insert Table 2 around here

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Estimation of hypothesis 1 (Model 2, Table 2) finds a positive and significant

relationship between a greater number of HR practices – the presence of practices - and

positive subsidiary performance is found (at the p<0.05 level). Thus, hypothesis 1 is not

rejected.

Hypotheses 2(a) and 2(b) propose that the implementation and internalisation of HR

practices will be more strongly associated with perceived performance than the presence of

the practices. Considering the effects indicated by changes in R-square, greater

implementation and internalisation of HR practices, is indeed more strongly associated with

perceived subsidiary performance than the presence of HR practices only (Model 2 compared

to Model 3, Table 2). The results for implementation (hypothesis 2(a)) are very significant

(p<0.001); while the results for internalisation (hypothesis 2(b)) are significant but only at the

p<0.10 level. The interaction of higher implementation and internalisation is found to be very

significantly associated with performance (p<0.001) (Model 4, Table 2). Changes in the R-

square and F-statistics between the non-interacted and interacted models are also significant.

These findings, therefore, provide strong support for hypothesis 2(c) that these two HR

transfer processes, when taken together, have an important influence on perceived subsidiary

performance and have a stronger association with perceived performance outcomes than the

presence of HR practices, or the presence of one transfer process only.

Insert Table 3 around here

The final hypotheses examines whether there is an association between HR adoption

typologies and perceived subsidiary performance. In these estimations, the number of HR

practices is treated as a control variable, so that the effects of the typologies can be isolated.

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‘Active’ adoption is positively and very significantly associated with perceived subsidiary

performance (p<0.001) (hypothesis 3(a)). The association between a typology of in ‘assent’ is

positive and significant (at the p<0.05 level). In subsidiaries where transfer was ‘ceremonial’,

the relationship with perceived subsidiary performance was positive but not significant. The

results presented in Table 3 use ‘minimal’ HR as the omitted category to provide insight into

how higher implementation and internalisation are associated with perceived performance.

However, separate regression results were run entering ‘minimal’ into the regression and the

results were consistently negative but not significant.3 This supports hypothesis 3(b) which

proposed that the association with perceived performance in subsidiaries where the transfer of

HR practices was minimal was unlikely to be statistically significant and may be negative.

DISCUSSION

Set within the framework of institutional theory, this paper brought together two

strands of HR discourse: the HR-performance and HR-transfer literatures. It also contributes

to each of these literatures individually. While the HR-performance relationship has been

tested in many national contexts, there is little evidence of whether the relationship is found

in organisations’ subsidiaries, specifically the overseas subsidiaries of MNCs. Thus, the

context of this study – a focus on foreign subsidiaries - has considerable value. A limitation

of the HR-performance literature is a lack of understanding of how the relationship operates,

in practice. Researchers have been filling this gap by focussing on how HR processes – e.g.,

the effectiveness of HR systems (Guest & Conway, 2011); the ‘strength’ of the HR systems

(Bowen & Ostroff, 2004); line manager’s role in the delivery of HR (Björkman, Ehrnrooth,

Smale & John, 2011; Maxwell & Watson, 2007) – mediate the HR-performance relationship.

Guest & Conway (2011) show that the process of delivery – that is whether HR is effectively 3 These estimates are available from the author upon request.

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delivered – has a stronger impact on performance than the presence of HR practices alone. In

contrast to the HR-performance literature, the HR transfer and practice adoption literature by

the nature of its very remit, examines HR processes – the extent to which intended HR

practices are implemented and internalised in foreign subsidiaries. This paper drew upon the

HR processes inherent in this literature and applied it to an investigation of how

implementation, internalisation, and their associated adoption typologies may affect any HR-

performance relationship found.

The mean number of HR practices in the sample subsidiaries was 26.4; and 15.5% of

subsidiaries reported that 90% or more of all possible practices examined (42) were present;

whereas only 8.3% had less than 10% of the practices present. These findings suggest that

transfer of HR practices to this sample of foreign subsidiaries was high. This is consistent

with competitive isomorphism and is likely to reflect, at least from the perspective of

corporate HQs, the transfer of ‘best practice’ HR into their foreign subsidiaries. The positive

association found between a greater presence of HR practices and perceived subsidiary

performance suggests that there are indeed efficiencies associated with the transfer of ‘best

practice’ (hypothesis 1).

Low implementation and internalisation suggests that while a practice may be present,

it may have little impact in practice, and thus have a minimal association with performance.

The results presented in Table 2 clearly illustrate the risks in considering the presence of HR

practices without taking into account the process of delivery – whether the practice was

implemented and internalised. The results for the relationship between implementation and

perceived subsidiary are particularly significant, which is consistent with Björkman &

Lervik’s (2007) theoretical assertion that implementation is the ‘first’ stage of transfer – a

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necessary but not sufficient condition – for subsequent and more institutionally embedded –

stages of transfer, including internalisation (and integration).

While the relationship between internalisation and perceived subsidiary performance

was only significant at the p<0.10 level (lower than the p<0.05 level for the number of

practices and perceived performance), when implementation and interaction were interacted,

the significance level of the interacted coefficient was very high (p < 0.001) and the overall

explanatory power of the model increased significantly. This suggests that there are very

positive synergies for perceived performance associated with transferred HR practices that

are implemented and internalised within foreign subsidiaries. There is, therefore, evidence to

support hypotheses 2(a); (b); and (c).

Developing the framework further, adoption transfer typologies were then examined.

The percentage of subsidiaries in each of the typologies was as follows: ‘active’ (23.2%);

‘minimal’ (12.2%); ‘assent’ (30.2%); ‘ceremonial’ (34.4%). The finding that in 76.8% of

subsidiaries, the transfer of HR practices was not as HQ is likely to have intended (i.e., the

transfer was not ‘active’), does question the extent of realised competitive isomorphism

associated with transfer. Does this matter for perceived performance, especially where

ceremonial adoption may, given specific institutional contexts, be appropriate and may even

reflect a tacit ‘understanding’ from corporate HQs?

The results suggest that the type of HR transfer has significant implications for

perceived subsidiary performance (hypotheses 3(a) and 3(b)). Positive and significant

relationships were found between perceived subsidiary performance and transfer that was

20

‘active’ (p<0.001) and in ‘assent’ (p<0.05). No significance was found where transfer

was‘ceremonial’ and a negative was found where transfer was‘minimal’.

The estimations also show a decline in the significance of the presence of HR

practices for perceived performance when treated as a control variable and the process of

delivery – categorised by HR adoption typology – is estimated (Table 3). Thus, while the

presence of HR practices make a necessary contribution to perceived performance, it

certainly does not appear to be a sufficient contributor to the relationship. This study suggests

that the sufficiency of HR to perceived performance requires implementation and

internalisation of HR practices. In other words, the complex processes associated with the

delivery of HR in foreign subsidiaries is an essential link in the HR-performance relationship.

CONCLUSION

These findings resonate with Truss’ (2001) study of the dynamics of the HRM-

performance relationship in Hewlett-Packard which highlighted the importance of context

and the role of agency. In terms of the time that it can take for organisational initiatives to

become embedded, the significant moderating role of culture, structure, administrative

heritage and the role of each individual manager as an agent, who can choose to focus his or

her attention in varying ways, was emphasised. Truss concluded her analysis by emphasising:

“Problems of implementation and interpretation occur alongside people’s sometime

unpredictable responses and actions” (2001: 1146).

This study also contributes to the growing literature which acknowledges the pivotal

role of understanding processes associated with the delivery of HR and how processes are

21

likely to interact with, and mediate, the HR-performance relationship. While it is found that a

greater number of HR practices have a positive association with perceived performance - the

extent to which practices are implemented and internalised by employees in subsidiaries - has

an even greater impact on subsidiary performance than just the presence of HR practices.

Research Implications and Limitations

While this paper makes important contributions to both the HR-performance and

practice transfer literatures, it is, of course not without its limitations which provide rich

material for future research. While analysis of quantitative data provides important insights

into patterns found between the variables examined, it cannot provide insight into the

complex institutionally specific factors that have generated the relationships found. Case

study work will be used to explore these processes, especially issues pertaining to the role of

national context, the influence of corporate HQs, and the role of the subsidiary within the

overall MNC’s network of subsidiaries.

The potential significant role of divergence in perceptions about transfer between HR

Specialists/Managers and line managers and the implications of divergence between these

key agents was not examined - rather their perceptions were aggregated and averaged to

temper the potential for common methods variance bias. This critical issue will be examined

in future analysis.

While access to MNCs and especially access to multiple responses from within these

organisations is increasingly challenging for researchers, it will be important to examine how

processes associated with the delivery of HR and any associated implications for subsidiary

performance applies to other regions of the world. This will be especially important where

22

cultural and institutional divergence between corporate HQs and foreign subsidiaries is larger

than that examined here – which was set within the EU.

Finally, the analysis has important implications for HR practitioners – where

attempted HR transfer is only minimally or ceremonially adopted, the efficiencies associated

with HR transfer are negligible, and in the case of the former, may even have negative

implications for performance. It is therefore important that when HR practice transfer is

attempted – and practitioners, of course, need to be very cognisant of the potential of

perceived coerciveness and cultural inappropriateness, and in such cases it is likely that such

transfer will not be attempted - but where transfer proceeds, the findings from this study

suggest that in order for transfer to have a positive influence on performance, it must occur in

tandem with policies to ensure higher levels of implementation and internalisation.

23

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FIGURE 1

Adoption Typologiesa

Level of implementation of HR

Practices

Level of

internalisationof HR

Practices

High Low

Low Ceremonial Minimal

High Active Assent

a :Based on Kostova and Roth (2002)

.

31

TABLE 1

Means, standard deviations and correlations for study variablesa

Mean S.D. V1 V2 V3 V4 V5 V6 V7 V8 V9 V10

V1 Ln (Age) 2.103 0.66

V2 Ln (Size) 2.252 0.54 0.073

V3 Services 0.314 0.467 0.078 0.065

V4 Ln (Capital Intensity) 2.586 1.006 0.132 0.227** -0.023

V5 Ln (Sales growth) 0.695 0.654 0.066 0.218*** -0.055 0.152*

V6 Trade Union Density 1.150 0.257 0.055 0.102 -0.054 0.025 -0.026

V7 Country (Poland

omitted)

V8 HR practices 0.264 4.133 0.145 0.223** -0.032 0.142 0.140* 0.025 0.089

V9 Implementation 3.266 0.591 0.156 -0.067 -0.024 0.089 0.158* 0.021 0.026 0.215**

V10 Internalisation 3.117 0.612 0.137 -0.126 -0.020 0.071 0.143* 0.019 0.012 0.199* 0.588***

V11 Perceived subsidiary

Performance

3.185 0.793 0.142 0.181* -0.049 0.218** 0.316** 0.114 -0.213** 0.203** 0.229*** 0.182*

a: * significant at 10%; ** significant at 5%; *** significant at 1%. Based on matched sample of HR manager and a line manager (total possible

responses for multiple-respondent variables = 326 (163*2)). Variables 1-5 were obtained from the D&B Global Reference Solution database; N

for V6 = 163, based on responses from the HR manager; N for V7-V10 ranges between 302 and 326 depending on missing values.

32

TABLE 2

Regression results examining associations between the presence of HR practices,

implementation, internalisation and perceived subsidiary performancea

Variables Model 1 Model 2

(H 1)

Model 3

(H 2a and 2b)

Model 4

(H 2c)

Step 1: ControlVariables

Ln (Age)

Ln (Size)

Services

Ln (Capital intensity)

Ln (Sales growth)

Trade Union Density

Country (reference category:

Poland)

Czech Republic

Hungary

0.106

0.152*

-0.052

0.211**

0.218**

-0.057

-0.132

-0.203*

0.109

0.150*

-0.051

0.213**

0.219**

-0.053

-0.130

-0.205*

0.111

0.151*

-0.054

0.216**

0.220**

-0.055

-0.133

-0.207*

0.114

0.153*

-0.056

0.212**

0.223**

-0.051

-0.135

-0.210*

Step 2:

Number of HR Practices 0.208** 0.202** 0.192*

Step 3:

Implementation

Internalisation

0.387***

0.146*

0.378***

0.151*

Step 4: Interaction terms

Implementation * Internalisation 0.285***

Model R2

Adjusted R2Model F∆R2N(subsidiaries)

0.1180.1094.116*

-162

0.2860.2356.113**

0.126**160

0.4060.39211.272***

0.157***158

0.6910.65616.271***

0.264***158

a: * significant at 10%; ** significant at 5%; *** significant at 1%.

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TABLE 3

Regression results examining associations between HR transfer typologies and

perceived subsidiary performance

Variables Model 1 Model 2

(H 3)

Step 1: ControlVariables

Ln (Age)

Ln (Size)

Services

Ln (Capital intensity)

Ln (Sales growth)

Trade Union Density

Country (reference category: Poland)

Czech Republic

Hungary

Number of HR Practices

0.113

0.155*

-0.054

0.215**

0.222**

-0.058

-0.139

-0.213**

0.220**

0.111

0.152*

-0.050

0.217**

0.223**

-0.058

-0.138

-0.214**

0.189*

Step 2: Adoption Typologies

Active

Assent

Ceremonial

0.427***

0.226**

0.109

Model R2

Adjusted R2Model F∆R2N(subsidiaries)

0.2860.235

6.113**-160

0.6020.585

15.031***0.350***158

a: * significant at 10%; ** significant at 5%; *** significant at 1%.

34