Brewster Paper

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TRANSFER OF HRM PRACTICES AROUND THE WORLD1

Chris Brewster

Paper for the conference:

Human resource Management across Countries: the cultural dimension

Athens University of Economics and BusinessOctober 17, 2002

Outline

The meaning and importance of HRM

HRM in an international context

Convergence and divergence

Integration and differentiation

What is transferred; what is not

Conclusions

Abstract

This paper briefly examines the notion of HRM and its different meanings and

emphasises its importance. It argues that increasing internationalisation raises two

key, linked, issues for HR specialists. On the first of these, the question of how

different HRM is in different countries, both similarities and differences are found

and the differences are significant. On the second issue, the question of how

organisations that operate internationally can afford to manage HRM the same way

in different countries by transferring successful HRM practices from one to another,

the paper finds that there are arguments, and evidence, on both sides. What

organisations attempt to transfer, and how they do it, are crucial.

1 This paper draws substantially on Human Resource Management: a universal

concept? by Wolfgang Mayrhofer, Michael Morley and Chris Brewster in

Mayrhofer, Morley and Brewster (eds) 2003Human Resource Management in

Europe Butterworth-Heineman, London (forthcoming); and Brewster, C., (2002)

"HRM Practices in Multinational Enterprises", in Gannon, M.J. and Newman, K.,

Handbook of Cross-Cultural Management, Blackwell


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The meaning and importance of HRM

How are, and how should, people be managed? This is one of the most fundamental

questions to be posed within the field of business management. After all, effective

employee management is a major, if not the major, determinant of organisational

success. The people doing the work are the major operating cost for nearly all

organisations. And, on the other side of the equation, people are increasingly the key

source of competitive advantage or effective operation. The questions about how

people are managed, therefore, are the substance of "human resource management"

(HRM) and key to organisational success.


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HRM in an international context

Management theorists have long argued that if one could develop management

systems that could be proved to be effective, these could be implemented universally.

In other words there is a belief that there is "a right way" of managing people that can

be implemented by management consultants throughout the world.

It has been pointed out elsewhere that the development of theories of HRM in the US

tended to rely on the examples of a small number of large private sector firms; was

based on a culturally typical US independent, individualistic, "frontiersman"

mentality; suffered from a poorly thought out approach to rigorous theory; failed to

link theory to general practice (or vice versa); and relied heavily for prescription on

selected aspects of what was thought to be Japanese practice (Guest 1990; Poole

1990; Pieper 1990; Bournois 1991; Beaumont 1991; Brewster 1995; Legge 1995).

Because of the hegemony of the USA in management thinking, their visions of HRM

have tended to be the touchstone for HRM in other countries. However, the US

theories, with their implications of virtually autonomous organisations, sit

uncomfortably with the European reality. And this raises the question: Is the

American vision of HRM a universal one, that will apply anywhere in the world, or is

it a US-bounded one?

For many years, institutional theory has directed the attention of students of

organisational behaviour to the influences of social processes, beyond the

organisations boundaries. Summarising the institutional perspective, Hoffman (1999,

351) states that A firms action is seen not as a choice among an unlimited array of

possibilities determined by purely internal arrangements, but rather as a choice among

a narrowly defined set of legitimate options. Obtaining legitimacy is not simply a

matter of obeying extant legislation, it also involves abiding by the unwritten, tacit

codes peculiar to the firms setting. Thus firms are located in settings not only of

legislation but also of culture and social norms to which they have to react. In short,

culture provides meaning and purpose, rules (including legislation), and norms

(ethical standards). Each nation or region constitutes a unique or idiosyncratic

institutional setting that skews firm behaviour in particular ways. From an

institutional perspective, given that HRM is a product of the North American


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institutional setting, whether it is readily transferable to the European setting remains

a conceptual and empirical challenge.


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Convergence and divergence

The position is summed up by Clark and Mallory (1996: 11) as follows:

American notions of HRM[since they are culturally bounded] may have

little, or limited, relevance to nations which do not possess identical or similar

cultures

And there are clear differences: in Europe HRM is less dependent, companies have

less autonomy and freedom of action, trade unionism is more important, the social

partners have more influence, legal regulations are more important, and there is a

stronger tradition of employee involvement

It is also true that whilst there are differences between the way HRM is

conceptualised and practiced in the USA and Europe (Pieper, 1990; Brewster &

Bournois, 1991; Brewster & Hegewisch, 1994; Hegewisch and Brewster, 1993), there

are also substantial regional differences within Europe authors (Filella, 1991;

Brewster and Larsen, 1992, 2000; Clark and Mallory, 1996), and substantial

differences between countries even within the same region (Brewster, Mayrhofer and

Morley 2000; Brunstein 19XX ; ; Bures & Vloeberghs, 2000; Cazal and Peretti, 1992;

Clark and Pugh, 1999 Fenton-OCreevy, 2001).

Sparrow and Hiltrop (1994) note the role of four dimensions (cultural factors,

institutional factors, differences in business structure and system, and factors related

to the roles and competences of HRM professionals), further divided into 23 factors,

resulting in distinctive national patterns of European HRM.

But having established that there are differences another key question arises: are these

differences increasing or decreasing? Is it perhaps the case that as world becomes

more global HRM becomes more similar? Or might different regions even be

becoming more distinct?

Convergence versus Divergence the Main Arguments


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More precisely, given that policies of market deregulation and state decontrol are

spreading from the US to Europe, are European firms are moving towards a North

American HRM approach to managing their personnel? Or is it the case that, owing

to the ongoing economic and political integration of European Union countries, a

convergence towards a distinctly European practice is underway? There is, of course,

a third possibility: that European firms are so locked into their respective idiosyncratic

national institutional settings that no common model is likely to emerge for the

foreseeable future.

We briefly explore the convergence and divergence arguments. As part of this

examination we consider two distinct versions of the convergence thesis, the free

market US model and the institutional European model. Although these two theses of

convergence are very different from one another there is one underlying similarity.

They all view firms' latitude in regard to selecting and developing personnel

management strategies as being shaped, governed and given impetus by a mix of

factors which may be broadly defined as either technological, economic or

institutional. The convergence versus divergence debate has been an ongoing strand

of the literature on management in general for decades and this has more recently

been reflected in HRM theorising.

Proposition 1: The Market Forces or US Convergence Model

In brief, the convergence thesis argues that differences in management systems have

arisen as a result of the geographical isolation of businesses. The consequent

development of differing beliefs and value orientations of national cultures are being

superseded by the logic of technology and markets which requires the adoption of

specific and, therefore, universally applicable management techniques (Kidger, 1991).

Kerr, Dunlop, Harbison & Myers (1960) believed that not only was the convergence

of systems of industrial relations inevitable, but that the convergence would be toward

US practices. They argued that management systems represented attempts to manage

technology as efficiently as possible. As the United States of America was the

technological leader, it followed that US management practices represented current

best-practice, which other nations would eventually seek to emulate as they sought to


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adopt US technology. Thus "patterns in other countries were viewed as derivative of,

or deviations from, the US model" (Locke, Kochan & Piore, 1995: xvi).

Characteristic of these various convergence perspectives is their functionalist mode of

thought. The practice of management is explained exclusively by reference to its

contribution to technological and economic efficiency. Thus it is a dependent

variable that evolves in response to technological and economic change, rather than

with reference to the socio-political context, so that "much of what happens to

management and labor is the same regardless of auspices" (Kerr, 1983).

More recently, the convergence thesis has received support from transaction cost

economics which also contends that at any one point of time there exists a best

solution to organising labour (Williamson, 1975, 1985). "Most transaction cost

theorists argue that there is one best organisational form for firms that have similar or

identical transaction costs" (Hollingsworth & Boyer, 1997:34). Likewise, parts of the

industrial organisation literature argue that firms tend to seek out and adopt the best

solutions to organising labour within their product markets, long term survival being

dependent on their being able to implement them (Chandler, 1962, 1977; Chandler &

Daems, 1980). Thus there is a tendency for firms to converge towards similar

structures of organisation.

Arguably, there is greater coherence in the US than elsewhere about what constitutes

good HRM: a coalescing of views around the concept of high performance work

systems. These have been characterised by the US Department of Labor (1993) as

having certain clear characteristics:

careful and extensive systems for recruitment, selection and training;

formal systems for sharing information with the individuals who work in the

organisation;

clear job design;

local level participation procedures;

monitoring of attitudes;

performance appraisals;

properly functioning grievance procedures; and


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promotion and compensation schemes that provide for the recognition and

financial rewarding of high performing members of the workforce.

It would appear that, whilst there have been many other attempts to develop such lists

(see eg Storey 1992a; 1995), and they all differ to some extent, few US experts in

HRM would find very much to argue with in this list. Researchers and practitioners in

other countries, however, find such a list contrary to experience and even to what they

would conceive of as good practice. Thus, they might argue for sharing information

with representative bodies such as trade unions or works councils, for flexible work

boundaries, for group reward systems, etc. And they might argue that attitude

monitoring, appraisal systems etc are culturally inappropriate.

Many US multinationals and others, however, take the view that the US list contains

necessarily superior practices. The US is the worlds most successful economy and

therefore its organisational practices should be followed by every organisation that

wishes to be as successful. Competitive market forces will ensure that those

organisations that do not follow this model will lose out to those who do.

The model assumes that anything (laws, trade unions) which restricts management is

bad and must be opposed. For example Friedman, Hatch & Walker (1998:25) of

Arthur Andersen state:

Managers must be free to manage. Our experience all over the world shows

that the systems used for developing human capital can make a critical

difference in the survival of and success of companies. Technology and

markets are changing so fast that companies need to be in a state of change

and readiness, and they need the freedom and flexibility to change in every

area from recruitment to compliance. They must invest in their human capital -

but the nature of their investment must be driven by market and company

strategy, not government policy. (or presumably the views of their employees

or the trade unions).

Proposition 2: The Institutional or European Convergence Model


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Whereas the market forces model regards developments in the US as a precursor of

universal developments, it has been contended that within Europe there are powerful

non-market, institutional, factors of precisely the kind that the American

commentators warn us against. Not only do these make the central features of US

HRM inappropriate to European organisations, they are arguably generating a

specifically European model of convergence in HRM (Brewster, 1995a). Let us

briefly recap the nature of these factors.

In Europe organisations are constrained at a national level, by culture and legislation

and at the organisational level by trade union involvement and consultative

arrangements. Beyond this, the countries of the European area have agreed to accept

common standards and legislation in significant areas of social conduct, including

those of employment: for the countries in the European Union this legislation over-

rides national legislation. The legislative restrictions on employment contracts in

European countries are much more extensive than are similar legal requirements in

the USA.

It is clear that, in general, European countries are more heavily unionised than the

United States, and indeed most other countries. Trade union membership and

influence varies considerably by country, of course, but is always significant. Indeed

in many European countries the law requires union recognition for collective

bargaining. In most European countries many of the union functions in such areas as

pay bargaining, for example, are exercised at industrial or national level, - outside the

direct involvement of managers within individual organisations - as well as at

establishment level. Thus in Europe, unlike in the US, firms are likely to deal with

well-founded trade union structures.

It is worth noting that studies of HRM in the US have tended to take place in the non-

union sector (Beaumont 1991). In fact a constant assumption in research programmes

in the US has been the link between HRM practices and non-unionism (see, e.g.

Kochan et al 1984; Kochan et al 1986). "In the US a number of.... academics have

argued that HRM [the concept and the practice] is anti-union and anti-collective

bargaining" (Beaumont 1991a, p.300).


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We have also indicated that state involvement in HRM in Europe is not restricted to

the legislative role. Compared to the USA the state in Europe has a higher

involvement in underlying social security provision. Equally it has a more directly

interventionist role in the economy, provides far more personnel and industrial

relations services and is a more substantial employer in its own right by virtue of a

more extensive government-owned sector.

Finally, we would also point to developments at the level of the European Union or

the European Economic Area which impact upon all organisations in Europe. In a

historically unique experiment, European Union countries have agreed to subordinate

national legislative decision-making to European level legislation. These

developments have indirect effects upon the way people are managed and direct

effects through the EU's adoption of a distinct social sphere of activity. In particular it

would appear that the European Community Social Charter and its associated Social

Action Programme is having an increasing legislative influence on HRM.

Given these circumstances, it is unsurprising that there have been calls for specifically

European approaches (Thurley and Wirdenius 1991; Brewster and Bournois 1991).

Proposition 3: Divergence in Europe

Opposed to this institutionalist thesis of convergence in European HRM are a number

of approaches which emphasise the existence of broad, relatively inert, distinctions

between the various national contexts of personnel management within Europe which

make convergence to a European model of HRM problematic.

Attempts have also been made to identify country groupings within Europe. Due,

Madsen & Jensen (1991) distinguish between, on the one hand, countries such as the

UK Ireland and the Nordic countries in which the state has a limited role in industrial

relations. On the other hand there are the Roman-Germanic countries, such as France,

Spain, Germany, Italy, Belgium, Greece and the Netherlands in which the state

functions as an actor with a central role in industrial relations. A particular feature of

Roman-Germanic countries is their "comprehensive labour market legislation

governing various areas, such as length of the working day (and) rest periods" (Due,


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Madsen & Jensen, 1991:90). In other words, unlike either the Anglo-Irish or the

Nordic systems, the latitude for firm-level decision making in Roman-Germanic

countries in regard to employment issues is relatively low.

Hollingsworth & Boyer (1997) focus on a different dimension, that of the presence or

absence of communitarian infrastructures that manifest themselves in the form of

strong social bonds, trust, reciprocity and co-operation among economic actors and

which they regard as being "essential for successful flexible systems of production"

(1997:27). They distinguish between social contexts characterised by self-interest and

those in which "obligation and compliance with social rules are the guiding principles

shaping human actions" (Hollingsworth & Boyer, 1997:8).2 It is their contention that

because of the pervasive market mentality that limits trust and co-operation between

workers and managers within firms, as well as between firms and their suppliers, the

UK (and likewise the USA) does not have the social environment necessary for a

successful flexible social system of production. In contrast, German and

Scandinavian firms are embedded in an environment in which the market mentality is

less pronounced with trusting relationships and communitarian obligations more

prevalent thereby making flexible production systems a viable alternative. Finally,

Hollingworth & Boyer distinguish France as an environment that, while not having a

market mentality, is nevertheless deficient in communitarian infrastructures. Instead,

the public authorities play a dirigeste role in the economy, enabling France to partially

mimic flexible systems of production. "But for flexible forms of production to

become widespread, firms must be embedded in a social environment very different

from that which exists in most of France" (Hollingsworth & Boyer, 1997:27). That is

an environment in which employer-employee conflict is endemic and there is an

absence of "a spirit of generous co-operation" (Maurice, Sellier & Silvestre, 1986:86).

Other authors have found different groupings. Filella (1991), looking at the early data

used in this book in relation to pay systems, identified a Latin model. Brewster and

Larsen (1992), using the same data, found a Latin, a Central European and a Nordic

model or, later, a Northern European model (Brewster and Larsen 2000).

2 See also Maurice, Sellier & Sivestre (1986) and their analysis of work systems in

France and Germany.


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Perhaps there are no absolute answers here: each country is full of differences in the

way that different organisations conduct HRM; each country has a different

conception of HRM; each geographical grouping can be distinguished from its

neighbours; and Europe can be shown to be unlike the USA. The fact of dis-similarity

leaves open the question, though, of convergence or divergence.

Of course, the convergers" recognise that in practice there are many variations in

management approaches around the world. However, they argue that, in the long

term, any variations in the adoption of management systems at the firm level are

ascribable to the industrial sector in which the firm is located, its strategy, its available

resources and its degree of exposure to international competition. Moreover, they

claim, these factors are of diminishing salience. Indeed, once they have been taken

account of, a clear trend toward the adoption of common management systems should

be apparent.

Proponents of the divergence thesis argue, in direct contrast, that personnel

management systems, far from being economically or technologically derived,

epitomise national institutional contexts which do not respond readily to the

imperatives of technology or the market. According to this institutionalist perspective,

organisational choice is limited by institutional pressures, including the state,

regulatory structures, interest groups, public opinion and norms (Di Maggio &

Powell, 1983; Meyer & Rowan, 1983; Oliver, 1991). Moreover, many of these

pressures are so accepted, so taken-for-granted "as to be invisible to the actors they

influence" (Oliver, 1991:148). One observable effect of differing institutional contexts

is that "the same equipment is frequently operated quite differently in the same sectors

in different countries, even when firms are competing in the same market"

(Hollingsworth & Boyer, 1997:20). As a consequence, Kerr (1983:28), in a

retrospective analysis of his work with Dunlop, Harbison & Myers, concedes that that

they had been wrong to suggest that industrialism would "overwhelmingly impose its

own cultural patterns on pre-existing cultures. Kerr now argues that industrialism

does conquer and it does impose, but less rapidly and less totally than we implied."


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Divergence theorists, however, refuse to subscribe even to this thesis of partial and

delayed convergence. They argue, on the contrary, that national, and in some cases

regional, institutional contexts are slow to change, partly because they derive from

deep seated beliefs and value systems and partly because major re-distributions of

power are involved. More importantly, they argue that change is path dependent. In

other words, even when change does occur this can only be understood in relation to

the specific social context in which it occurs (Maurice, Sellier & Sivestre, 1986;

Poole, 1986). Performance criteria or goals are thus, at any point in time, socially

rather than economically or technologically selected so that they first and foremost

reflect idiosyncratic principles of local rationality. Convergence of management

systems can therefore only take place if supranational institutions are able to

superimpose their influence across national contexts. Increasingly, it is being argued

that that is what is taking place in the case of the European Union (Brewster, 1994).

That is, there is an argument for an institutionally driven convergence of HRM

practices taking place within Europe.

In summary, and in broad terms, therefore, we may observe that in addition to the

divergence thesis there are two distinct versions of the convergence thesis. On the one

hand there is the traditional version of the convergence thesis that contends that

convergence of HRM practices is driven by market and technological forces making

changes in the USA a harbinger of trends elsewhere. On the other hand there is a

newer, institutional, version that argues that institutionally driven convergence is

taking place within the context of the EU. There is an ongoing debate between these

two viewpoints (Brewster 1999). We now examine these two models in more detail,

prior to presenting the divergence thesis applied specifically to the European context.


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Integration and differentiation

This paper follows authorities such as Schuler et al (1993); Punnett and Ricks (1992);

Ghoshal (1987); and Galbraith (1987) in focusing on the tension between

differentiation and integration, sometimes referred to as the 'global vs local' dilemma

as a defining characteristic of the international perspective on HRM. This

understanding may need to be developed beyond this somewhat simplistic dichotomy

(see below), but it encapsulates a number of key questions for all organizations

operating internationally:

What freedom does an international organization have in regard to imposing its

own approaches to HRM on its operations throughout the world?

How can an international organization aware of the need to be sympathetic to

local cultures still ensure that it gains optimum value from its internationalism?

What is the relationship between the strength of organizational culture and

national cultures?

This section explores the somewhat simplistic nature of the dichotomy between

differentiation and integration, explores the antecedents of decisions which tend to

one or other end of the spectrum and then applies the concept to IHRM.

Current approaches to IHRM may tend towards different ends of the differentiation/

integration spectrum but few commentators, and even fewer practitioners, would

argue that the issue is anything other than central to IHRM. Easy answers do not exist:

the consultants advice to "think global and act local" is a meaningless mantra when it

is applied to practice. The issue still has to be teased out both theoretically and

empirically. In all cases, sensitivity to which aspects of business practices in any

particular country are emic (i.e. culture-specific aspects of concepts or behaviour) and

etic (i.e. culture common aspects) is regarded as essential to a strategic choice of HR

levers. The question of the balance of emphasis between the national cultures and the

organizational culture remains.

Of course, presenting this choice as a dichotomy, whilst of analytical value, may not

capture all the possibilities. Many international organizations are now divisionalized,


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with each division operating as a business unit and quite possibly following different

strategies from those followed by other divisions within the same organization.

Writers such as Hedlund 1986, Bennis 1992, Ghoshal and Bartlett 1990, and Lorange

and Roos 1992 have highlighted the growth of complex dependency networks,

federalization, global strategic alliances and loose coupled linkages, all of which

confirm the variety of possibilities.

The dichotomy between integration and differentiation may therefore be too

simplistic. Organizations may need to operate simultaneously at both ends of the

spectrum. Evans and colleagues have termed this phenomenon duality. The notion

of "dualities" has been argued as being at the core of complex organizations,

particularly applied to building an international competence (Evans and Doz 1992;

Evans and Genadry 1999). Elsewhere these dualities have been termed dilemmas

(Hampden-Turner 1990) or dialectics (Mitroff and Linstone 1993). Evans and his

colleagues argue that HRM is a critically important tool for building dualistic

properties into the firm. In terms of HRM, the key mechanism through which this can

happen is layering, which involves building new capabilities and qualities into the

organizations culture while reinforcing its past cultural strengths. An additional

perspective would address the issues of building on the local cultures whilst

generating and exploiting the economies of scale and compound learning that can

arise from international integration. Organizations that are deeply layered often

operate more informally than can be seen from an examination of rules, hierarchies or

management processes. Layering often occurs through the long-term development of

key managers and professionals who are recruited for careers rather than short term

jobs and therefore the HRM functions of recruitment and selection, development,

retention and reward management are vital regulators of this process.

Furthermore, however complex a view of the differentiation/integration dichotomy is

taken, the debate is not necessarily resolved for any organization on a consistent basis.

There may well be differences between functions with, for example, R & D being

centralized or carried out in an International division whilst selling is localized

(Forsgren and Pahlberg 1992). Several researchers (Rosenzweig and Nohria 1994;

Kobayashi 1982; De Maggio and Powell 1983) argue that although this tension

between the pressures for internal consistency and local isomorphism affects all the


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organization's functions, it is in HRM that there will be the greatest tendency to

adhere closely to local practices.

These are more than academic concerns. For the organization, the many factors which

influence the choice of 'global vs local' HR practices and policies means that there are

a myriad ways in which dysfunctional or ineffective decisions can be taken; and

perhaps a recognition that, in this immensely complex area, there may be no "right

solutions". Rather, the organization may find an ongoing need to pay careful attention

to organizational policies, and to be prepared continually to review them.

Thus, following Porter (1986), we would expect sectoral differences. There will, for

example, be variation between the operations of a private employment agencies

tightly connected with local markets even when they are part of a global chain, and

the internationally operating pharmaceutical industry. We would expect differences

between the way retail banking and merchant banking operate in terms of their

affinity to local practice. Where proximity to the market is a critical factor, there will

be a pressure towards local autonomy (Dunning 1993). A related issue concerns the

nature of the industry, with greater local isomorphism in a multi-domestic industry as

opposed to a global industry (Porter 1986; Prahalad and Doz 1987; Bartlet and

Ghoshal 1989).

A second factor in determining the extent of internal consistency or local

isomorphism is the strength of the flow of resources such as capital, information and

people between the parent and the affiliate. Conglomerates, where the different

businesses are in effect unconnected, are unlikely to have common management

systems (Marginson et al 1993). By contrast, where there are continual and critical

transfers between headquarters and the subsidiaries or, in cross-border manufacturing,

between the subsidiaries, then the need to maintain consistency becomes dominant.

A third factor concerns the degree to which an affiliate is embedded in the local

environment. This refers to its method of founding and its age, as well as its size, its

dependence on local inputs and the degree of influence exerted on it from local

institutions. Many organizations have operations that have been long established in a

foreign country, are tied in to local networks of suppliers and outlets and are linked


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with local government. Locals there are often surprised to discover that they are not

locally owned. It is unsurprising that in such circumstances, internationalisation by

acquisition often involves the acquiring company being limited in the degree to which

it can impose common systems (Edwards et al 1993; Newman and Nollen 1998).

Integration of HRM on greenfield sites of international organizations tends to be

greater (Brooke and Remmers 1970; Hamill 1983; Bartlett and Ghoshal 1989).

Other factors, help to determine the extent of differentiation, including the parent

organizations orientation to control (Dunning 1993). Different organizations prefer

different degrees of central control. There is also a country of origin factor in play

here: some countries have a preference for uncertainty avoidance which is reflected in

the organizations based in and originating from those countries (Hofstede 1984). For

example, Japanese companies and US companies are more likely than others to have

close control from headquarters over their foreign operations (Bomers and Peterson

1977; Hamill 1983).

A linked factor relates to the differences between home and host country. These

differences may be either institutional or cultural. The power of local educational,

financial, legal, labour market and political systems remains extensive, so that policies

which ignore these issues would be futile (Whitley 1992). Thus, certain kinds of

operation may well be substantially influenced by local legislation or other local

regulations (Rozenzweig and Nohria 1994). The stronger the institutional framework,

the less options the global company may have to impose their own approaches

(Milkman 1992; Gooderham et al 1999). These approaches may also be shaped by

strong local conventions, or by local cultures. Where these are clear and unequivocal,

then the room for manoeuvre of the MNE is obviously restricted. The fact that the

anti-union US company Toys-R-Us was forced to recognise trade unions before it

could open in Sweden is a good example. Where the local cultures are less clear, more

tolerant, or simply unfocused, then the MNE has more scope to import practices if it

so wishes.

A further factor relates to the characteristics of the parent, including such elements as

the home country culture and the degree of cultural distance from the local culture.

Arguably, a high degree of distance between cultures might lead to more attempts to


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impose internal consistency as headquarters feels less comfortable with the

possibilities of unknown approaches.

Evans and Lorange (1989) argue that in geocentric or global companies corporate

culture is especially important. The social control mechanisms provided by corporate

culture attempt to override, or to compensate for, the peculiarities of national culture.

In this sense, the corporate culture is the glue that holds the organization together.

Many of the processes which contribute to the development of this global corporate

culture are HRM processes: corporate wide training programmes, international

transfer of employees, networking through both formal and informal meetings etc

(Evans et al 1989; Edstrom and Galbraith 1977). Doz and Prahalad (1986) argued that

what they call "subtle management processes" can assist in the maintenance of

internal consistency: internal communication, corporate trouble shooting, corporate

jamborees, and opportunities for global networking, have the effect of encouraging a

global orientation.

Others, however, are more cautious. Laurent (1986), viewed the ability of even a

strong corporate culture to overcome national cultures as "illusionary". His research

among respondents from different European countries in one company found that the

national cultures remained powerful. Within the organization there are subcultures

and countercultures, there is abuse of rhetoric, and in the international organization,

the power of the national cultures of the host territories. There will often be

significant tensions where the corporate culture and the national cultures meet.


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What is transferred; what is not

So what, in practice, is being learned, and transferred from one state to another within

Europe? The presentation will provide evidence of developments in HRM policies

and practices across Europe, whether they are moving together, and how

organizations are dealing with these issues.


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Conclusions

The point has already been made that different management functions may have

different degrees of differentiation within one MNE, with HRM generally being one

of the most differentiated. Furthermore, within HRM some practices (pay, conditions,

holidays, retirement arrangements, participation and consultation) will be more

constrained, and issues such as management development, less constrained.

Rosenzweig and Nohria (1994) see the order in which six key practices will most

closely resemble local practices as: (1) Time Off; (2) Benefits, (3) Gender

Composition, (4) Training, (5) Executive Bonus and (6) Participation.

Many international organizations struggle with the issue of which elements of their

human resource policies and practices can be centralized and which decentralized.

This is linked to the ongoing debate in the literature about the extent to which MNEs

bring new HRM practices into a country, in comparison to the extent to which they

adapt their own practices to those of the local environment. Arguably, ethnocentric

organizations are more likely to be HRM innovators in the foreign locations

(Marginson et al 1993) while polycentric organisations are more likely to adapt to the

local environment (Evans and Lorange 1989; Marginson 1994). In practice, of course,

there is always an interplay between the two and both factors apply to some degree;

the question is one of degree. There is now considerable evidence that in HRM,

MNEs will bring in new practices but are in general likely to conform to national

practice (see, eg: De Maggio and Powell 1983; Maurice, Sellier & Silvestre, 1986;

Due, Madsen & Jensen, 1991; Rosenzweig and Nohria 1994; Hollingsworth & Boyer,

1997; Cleveland et al 1999;.Brewster, Morley and Mayrhofer 2000).

In this context, a key question underlying human resource practices in multinational

enterprises is identifying what should be decided for the organization as a whole and

what should be decided locally. At the extremes the arguments are clear: pay levels

for locally recruited and employed staff are determined locally; management

development systems for those selected as future organizational leaders should be

world-wide.


21/36

Relevant pay rates within the local community will be unknown to specialists at the

headquarters of the organization. They can only make such decisions by drawing on

and then second-guessing the local specialists a dysfunctional waste of resources.

Paying people the same salaries wherever they work makes little sense in a world

where living standards vary considerably between countries, though international

intergovernmental organizations such as the United Nations are close to that position.

Other MNEs may have levels of pay which vary considerably, but nonetheless

develop world-wide policies, for example that the top quartile always include a

performance related salary element, etc).

On the other hand, the organization needs to retain the right to promote and encourage

its best and brightest, beyond the local unit if necessary, wherever they are found. An

organizational objective, common to many MNEs, of drawing on the very best talent

available irrespective of country of origin, requires that the management development

systems have some cross-border coherence. Identifying the best people in each

country will be of maximum benefit if there is some way of comparing these

individuals across countries. Here, too, reality is not as simple as this statement

implies. For example, one very successful international bank, Citicorp, has a uniform

system throughout the world. This company argues that this facilitates identification

of the best wherever they are in the world: and its results would seem to suggest that

they are good at it. Another, equally successful international bank, and a direct

competitor, Hong Kong and Shanghai Banking Corporation, has different systems in

different regions and countries, and compares leading individuals after they have been

identified by these different systems. This company argues that the different cultural

environments in which it operates mean that imposing a world-wide system would

mean missing people who may not be brought forward by a uniform, and therefore

probably culturally biased, system. And this company too has good people coming

through at the senior levels.

Between these extremes there is much uncertainty and significant problems arise. A

few examples will suffice to highlight the problems. Should there be a local

performance assessment system, so that performance can be related to the local pay

scales and take account of local cultures; or should the performance assessment

system be international, so that it can identify likely future leaders wherever they are


22/36

found in the organization? And, should the organization communicate with its

employees individually or through trade union or representative structures?

Taking performance appraisal first, we have enough knowledge of the effects of

culture to know that there is no easy answer to this question. The US-style

performance appraisal process assumes that employees will work jointly with their

boss to set targets, to assess their own performance, to comment on the extent to

which their boss has helped them with achieving their targets or made things more

difficult for them. It also assumes that they will do much of this through a face-to-face

interview. It is not likely that such performance appraisal systems will operate in the

same way in many Eastern societies, where open responses to seniors are discouraged,

where challenging the boss's expectations of what is possible would be seen as

insubordination, where admitting faults amounts to a loss of face and where, for

example, the idea of criticizing the boss's work in front of that boss would be seen as

some sort of organizational suicide.

The organization will seek to ensure the objectives which appraisal are seen as

meeting: encouraging improved performance, assessing career options and identifying

training needs. But how to do this? The more the organization attempts to enforce a

world-wide system, the more likely it is that managers will bend the system to their

local requirements. Often this will involve exaggerated or incomplete reports or even

reporting back on interviews that never in fact took place. Hence, what appears to be

exactly comparable data may be very misleading. The more the organization is

responsive to these cultural issues the less likely it is to have information which it can

use to assess people across national boundaries.

The question of communication channels is complicated by national institutions. In

Europe, for example, employers are required to recognize trade unions for collective

bargaining in different circumstances in different countries: when certain thresholds

(usually the existence of one or a certain number of union members among

employees) are reached; when employees request it; or, exceptionally, when unions

win ballots. In many European countries employers are required to establish and pay

for employee representation committees which may have extensive powers, including,

for example, the right to review appointments or to be consulted prior to major


23/36

investment decisions. Of course, national laws and institutions are a reflection of and

a support to national cultural values.

MNEs, therefore, have a series of decisions to make. Will they deal with the trade

unions? Will they refuse to? Will they check the legislation carefully and do the

minimum necessary to comply with the legislation? Or will they embrace the law and

the purposes behind it on the grounds that such behaviour will show them as a good

citizen and that other MNEs in that country have been successful whilst adopting the

local employment systems in full? Or will they allow individual countries (and, by

extension, individual country management teams) to make their own decisions? What,

in short, is to be the balance between the central organizational control and local

country autonomy?

The dualities identified by Evans and Doz (1992) and Evans and Genadry (1999) are a

reflection of the complications involved in managing HRM generally and the extra

level of complexity added by internationalism. The key paradox noted in this chapter,

between the need for the organization to have HRM policies responsive to local

national cultural demands and simultaneously to have the benefits of

internationalization and economies of scale through leveraging organization-wide

knowledge transfer, is a classic example of this complexity. There are unlikely to be

exact or final answers to the questions raised by IHRM. However, the resolution of

the paradox may lie in the learning process. The knowledge transfer perspective is

useful in highlighting the fact that an advantage enjoyed by MNEs is their ability to

learn from the range of ways of handling human resources available from the different

cultures in which they operate. There are few organizations that would claim they

have resolved the problems of ensuring that the messages concerningHRM have been

comprehensively transferred from headquarters to the subsidiary countries, and even

fewer that would claim that the two-way learning process is effective. In sum, there is

much to be done before we can ensure that the dual requirements of differentiation

and integration are well understood and can be managed effectively in international

human resource management, so that knowledge transfer can be leveraged effectively.


24/36

***********************************************************

Table 2 provides one indication of the role of the state in the Rhineland model.

Whereas public spending as a percentage of GDP in the EU averages at nearly 50%,it is only 32% in the USA.

Table 2. Public spending as a percentage of nominal GDP (1997)

Country Percentage of GDP

_______________________________________

Sweden 62

Finland 54

France 54

Italy 51Netherlands 49

EU total 48

Germany 48

Spain 42

UK 40

US 32

______________________________________

Source: OECD Economic Outlook, 1998.


25/36

Table 3. Union Density and Coverage.

1994 Union Density Rate 1994 Bargaining Coverage

_________________________________________________________

Austria 43 98Belgium 53 90

Denmark 76 90

Finland 81 95

Germany 30 92

Italy 39 82

Netherlands 26 81

Portugal 32 50

Spain 22 66

Sweden 91 93

UK 36 47

US 16 18___________________________________________________________

Source: OECD 1995.


26/36

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