Human resource management in developing economies: a comparison of India and Thailand

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Human resource managementin developing economies:a comparison of India andThailandJohn J. Lawler , Harish C. Jain , C. S. VenkataRatnam & Vinita AtmiyanandanaPublished online: 28 Jul 2006.

To cite this article: John J. Lawler , Harish C. Jain , C. S. Venkata Ratnam & VinitaAtmiyanandana (1995): Human resource management in developing economies: acomparison of India and Thailand, The International Journal of Human ResourceManagement, 6:2, 319-346

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The International Journal of Human Resource Management 6:2 May 1995

Human resource management in developing economies: a comparison of India and Thailand

John J. Lawlev, Havish C. Jain, C. S. Venkata Ratnam and Vinita Atmiyanandana

Abstract

This paper reports the results of surveys of firms that were conducted both in India and Thailand. The surveys centred on a wide range of human resource management practices (staffing, training, compensation and evaluation). The sample consisted of both the subsidiaries of multinational corporations and locally owned companies. Statistical analysis suggests pronounced differences in employment practices between India and Thailand in some areas, while considerable similarities in other areas. The study controls for a variety of organizational factors (e.g., firm size, ownership (foreign versus domestic), union status).

Keywords

International human resource management, multinational firms, developing economies, India, Thailand

International human resource management (IHRM) has emerged over the past several years as a distinct field of study.' Yet, as Kochan, Dyer and Batt (1992) note, much of the research in this field is focused on the selection and development of employees for foreign assignments. Cross-national studies comparing HRM practices are limited, especially in the case of developing economies. A related issue is the transferability of HRM practices by multinational corporations (MNCs) to foreign subsidiaries (Cappelli and McElrath, 1992); that is, to what extent do MNCs utilize indigenous employment practices in subsidiaries versus those common in the MNC's country of origin? This paper investigates both issues by studying the similarities and differences in HRM practices, of both multinational and indigenous firms, in two developing Asian countries.

Despite recent recessionary conditions in many developed countries,

0985-5192 0 Routledge 1995

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John Lawler, Harish C. Jain, C.S. Venkata Ratnam, Vinita Atmiyanandana

economic growth continues at very substantial rates in many parts of eastern Asia. While somewhat lower than a few years ago, average real growth for countries such as South Korea, Taiwan, Thailand, Indonesia, Singapore and Malaysia ranges between 6 and 10 per cent. India and China are now also experiencing very significant rates of growth.2 Buoyant economic conditions in this part of the world might be expected to generate substantial changes in industrial relations and human resource management systems. As multinationals are playing a key role in the development process in many of these countries (particularly in Southeast Asia, China and India), we might expect to see an infusion of new HRM practices, which may or may not be emu- lated by local firms. And to the extent that HRM practices are bound to local culture, we would anticipate observing differences between culturally distinct countries.

This study analyses a wide range of HRM practices using firm-level survey data collected in both Thailand and India. A number of factors are taken into consideration, with our principal interest being differences between organizations based on location (Thailand versus India) and ownership (foreign versus domestic). By focusing on these two variables, we are able to examine the importance of forces favouring convergence of HRM practices versus those favouring diversity.

Our study compares two emerging Asian economies that share certain cultural and economic characteristics, though distinct in other ways. Both are expanding economically, though they are at somewhat different stages in the growth process. Thailand's growth rate has been high for nearly a decade, while India is just beginning to experience high growth and rapid industrialization. Consequently, we might expect differences in HRM practices linked to economic conditions, although the modern sectors of these economies are both substantial. India and Thailand share certain cultural and social influences, but here again are quite distinct in many ways. Perhaps the most significant of these differences is India's history of colonial domination, while Thailand has always maintained political independence. The 'industrializing elites' of the two countries differ: in India, the industrialization process has been largely dominated by the government, while entrepreneurial Chinese families are mostly responsible for this process in Thailand. This difference in particular would lead us to expect substantial differences between firms operating in Thailand and those operating in India. We recognize, of course, that there are limi- tations in the comparison of just these two countries and future work will be directed at incorporating additional countries from the region into this analysis.

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HRM in developing economies: India and Thailand

HRM practices in developing countries: theoretical issues

In this study, we examine a variety of HRM practices that represent major human resource management functions (staffing, training, compensation, et~.) . We distinguish among practices in terms of the extent to which they are consistent with a systematic and rationalized employment system or, in other words, a structured internal labour market. For example, reliance on formal training programmes, formal testing of job applicants, job evaluation, and performance-based pay systems all represent activities associated with highly structured systems.

The extensive internal labour market literature (Osterman, 1992) is a good starting point for analysing HRM practices in developing countries. Much of the internal labour market research and analysis deals with HRM practices in firms in highly industrialized countries. However, research on urban labour markets in developing countries highlights differences between the formal and informal sectors of such economies. Forfnal, or 'modern', sector jobs are often characterized by structures and practices similar to those associated with internal labour markets in developed countries. What is not clear is the extent to which rationalized HRM practices derive primarily from the actions of foreign companies, versus indigenous firms operating in the modern sector.

There are a variety of theoretical perspectives on the determinants and evolving character of internal labour markets (Osterman, 1992; Soeters and Schwan, 1990). These include arguments based on economic analysis and market forces (i.e., internal labour market structures reduce uncertainty and compensate for market failures), internal organizational processes (traditions, customs, intergroup conflict) and external forces, including culture influences. Economic analysis generally minimizes the role played by non-market factors in generating differences in HRM practices across firms. The reasoning is that firms will seek the most efficient internal labour market practices and that these will, at least over time, diffuse among organizations. There is, though, considerable empirical evidence to suggest that non-market factors shape long-term differences in HRM practices (Pfeffer and Cohen, 1984; Cohen and Pfeffer, 1986; Jackson, Schuler and Rivero, 1989).

The research on internal labour markets is complemented by cross- national research on employment practices. The convergence hypothesis (Kerr et al., 1960) holds that employment practices characteristic of the most advanced economies should ultimately become the dominant model internationally. In contrast, Kochan and Dyer (1992)

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noted various studies that suggest that cultural differences across countries and regions clearly seem to contribute to variations in employment practices. Employment practices are known to differ across countries, even within regions of the world, as between Japan and Korea (Steers, Shin and Ungson, 1989) or Japan and China (Yeung and Wong, 1990). Of course, differing economic conditions may warrant alternative means of recruiting, selecting, training and compensating workers. However, after allowing for dissimilar economic conditions, cultural factors may also promote differences in HRM practices (Nath, 1988). Yet there are those who argue that convergence forces are now more prevalent than ever, thanks to global- ization (Kidger, 1991).

Before exploring theoretical issues related to possible similarities and differences in HRM practices in Thailand and India, we need to address a fundamental question: is the human resource management concept really relevant in the context of developing countries? Both Thailand and India remain largely agrarian economies in the sense that the vast majority of workers in both countries work in the agricultural sector. Substantial numbers also work in the informal sectors of the Indian and Thai economies, in such positions as street vendors, domestic servants and day labourers. Yet Thailand and India employ large numbers of workers in formal, or modern, sector jobs. These include both production workers and managerial and professional employees. In fact, around 30 per cent of the adult labour forces in both Thailand and India are engaged in industrial, rather than agricultural, work (World Bank, 1994). And India has what is, in absolute numbers, the largest middle class of any country in the world. Thus, the types of positions for which modern personnel and human resource management jobs would be appropriate abound in these and other developing countries in Asia. Earlier work clearly indicates such techniques are utilized in many organizations, though the extent is unclear (Lawler, Zaidi and Atmiyanandana, 1989; Jain, 1968). Our purpose here is to assess the extent of utilization.

In our analysis of the HRM practices of firms situated in Thailand and India, we consider two significant sources of cultural variation. First of all, HRM practices in Thailand might be expected to differ from those in India to the extent that these countries are culturally distinct. Yet merely to hypothesize that Thai and Indian HRM practices differ is not a very strong test of a cultural diversity argument. Rather, any hypothesized relationships must be linked to distinct aspects of Thai and Indian culture. In the following section, we discuss Indian and Thai cultural similarities and differences, relating these to possible variations in HRM practices.

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Direct foreign investment has played a major role in promoting economic growth in many of Asia's most ra?idly expanding economies. Consequently, a second source of cultural variation may be linked to the involvement of MNCs in the Thai and Indian economies. The strategies of multinational firms in relation to subsidiaries are complex and diverse. Consequently, there may or may not be a transfer of culturally influenced HRM practices from the parent ,firm's home country to its subsidiaries. As Cappelli and McElrath (1992) discuss, the tendency of MNCs to transfer parent-firm HRM practices to subsidiaries may vary by firm, by the country of origin of the parent firm and by the country in which the subsidiary is located. In addition, the transfer of HRM practices from parent firms may vary over time, especially as the parent firm's global involvement changes (Heenan and Perlmutter, 1979; Milliman and Von Glinow, 1990).

If firms act in an ethnocentric fashion, then we would expect substantial differences among firms that reflect HRM practices in the parent firm's country of origin (Heenan and Perlmutter, 1979). However, large-scale multinational firms may be expected to act from more of a global - or geocentric - than purely ethnocentric perspective. Geo- centric organizations endeavour to balance the need for global inte- gration with responsiveness to local conditions impacting on subsidiaries. HRM practices in subsidiaries of geocentric firms are determined by a combination of the MNC's global culture (which is not likely to be dominated by home-country culture) and, to a lesser extent, conditions (including cultural forces) in the subsidiary's host country. But, even so, approaches to management in subsidiaries of MNCs could differ considerably from those of indigenous firms. We would anticipate that MNCs would favour relatively rationalized and structured employment methods.

India and Thailand: a comparison

In order to develop specific hypotheses as to differences in HRM practices between India and Thailand, we must first explore relevant cultural and economic characteristics of these two countries. This discussion is also important to help formulate hypotheses regarding similarities and differences between foreign-owned and indigenous firms.

India

After decades of protectionism, India has recently opened its doors to international investment in a fairly big way. Following the election of

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a new prime minister in 1991, considerable incentives have been given to attract foreign investment. For instance, a requirement that foreign companies limit their investment to a maximum of 49 per cent of Indian subsidiaries has been removed. Foreign firms can, in some cir- cumstances, own up to 100 per cent of an Indian company. Moreover, currency exchange controls have been removed. Consequently, there has been a sharp increase in joint ventures involving foreign multinational companies. Although the growth rate is now high in India, per capita income remains very low (about $400 per year). Low wages have been an important factor in attracting foreign investors to India. Despite growing foreign investment, much of the Indian economy continues to be dominated by state-owned enterprises.

A great deal has been written on the nature of industrial relations and human resource management practices in India. Nair and Schuler (1993) provide a synthesis of various arguments and perspectives, focusing specifically on cultural factors. With its immense population and ethnic diversity, generalizations regarding 'Indian culture' and its relationship to HRM practices are naturally risky. However, there are at least some aspects of Indian social life and customs that are fairly broadly based. Nair and Schuler have suggested that the most significant influences include the hierarchical nature of Hinduism (as reflected in the caste system), family structure and the legacy of British rule. Close family relations promote social networking as a method for obtaining work and securing promotions and raises. As in many other Asian countries, age matters greatly, so seniority would be anticipated to play an important role in decisions relating to job opportunities and compensation. The class-based nature of Indian society may be expected to generate organizational structures and employment systems that are well defined hierarchically.

The British colonial system created bureaucratic practices that per- sisted after independence and would be anticipated to introduce many elements of a relatively rationalized and systematic human resource management system. As Nair and Schuler further note, a formalized personnel function has been common in Indian organizations for decades. Other factors generating more structured practices include extensive government ownership (i.e., state enterprises) and a relatively large number of laws regulating HRM practices (including pro- visions for a variety of mandatory benefits, pension schemes and state controlled health insurance for many employees; see Saiyadain [I9881 ). Jain (1968) also discusses forces at work in the post-war era to promote rationalization of HRM practices. Other authors address- ing similar issues include Jain, Jain and Ratnam (1992) and Shetty (1970).

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Thailand

Unlike India, Thailand, never colonized, has generally had military- backed governments since the 1930s (though its current government is democratically elected). Per capita income in Thailand is approaching $2000 per year, nearly five times the Indian level. Although much smaller than India, Thailand has a population of nearly sixty million. Economic growth has meant that Thailand's labour supply is no longer as abundant relative to demand as it once was. Thanks to labour surpluses, Thailand initially underwent significant growth with little wage inflation. More recently, significant shortages have arisen in many of the more skilled and highly trained occupations. This has meant firms must act more aggressively in the labour market to attract and maintain the best employees.

Although there are elements of culture common to both Thailand and India, the differences between these two countries are quite pronounced in many respects. Thailand is primarily a Buddhist country, though Thai culture has been strongly influenced by India, especially given Buddhism's Indian origins. The Thai language contains numer- ous Sanskrit words and the Thai alphabet is derived from Sanskrit. Classical Thai literature, art and music all have Indian roots.

Traditionally, Thai society has been highly stratified, with distinct class groupings and little mobility across class lines. The class system is, to some extent, supported by Buddhism. As Buddhists generally believe in reincarnation, one's current situation in life is seen to be a consequence of actions taken in one's last life. This tends to rational- ize class distinctions. While those in lower classes may subordinate themselves to those in the upper classes, the more privileged none the less have an obligation to treat social inferiors in kindly and fair man- ner. The class system is reflected in the organization and management of family-owned enterprises in Thailand. In such organizations, there is little need for highly formalized personnel management systems, as the external social system largely defines patterns of interaction, rights and obligations. Nepotism and social networking have been closely linked to the reliance on external class distinctions as a means of establishing and maintaining control within traditional Thai organizations. However, the pressures of modernization have inevitably weak- ened the class system. A relatively small, educated Clite is increasingly being displaced by an educated and aflluent middle class. Entre- preneurial opportunities abound, even for many in the lower classes.

Many of the largest and most powerful organizations in Thailand are family enterprises. As elsewhere in Southeast Asia, most of these firms are owned by entrepreneurial Chinese families. The 'Chinese

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management system' relies heavily on family connections and inter- family networks, not only for internal co-ordination of the enterprise, but also for developing and maintaining external relationships. In the larger firms, world-wide family connections serve as a foundation for building international trading companies. The system is perhaps best characterized by the expression 'management by entourage' (Isarang- kun Na Ayuthaya and Taira, 1977).

In family enterprises, management practices, including HRM practices, are heavily rooted in traditional values and social practices, rather than contemporary management theory. There is often little in the way of a formal HRM function within these firms, outside of a payroll office. Lawler, Zaidi and Atmiyanandana (1989) found professional HR managers to be a rarity in family enterprises; HR planning and the systematic analysis of employment issues were virtually absent in such organizations. Management control of employees is exerted largely through a hierarchical system that reflects the traditional class system in Thailand. Those in lower positions defer to higher level managers more out of a sense of duty than as a result of rules and regulations.

As most family enterprises in Thailand are owned by those of Chinese descent, it is also relevant to consider the role of Confucian values in shaping management practices in these organizations. Such an approach reflects a renewed interest among many Asian academics in understanding the relationship between Confucian tradition and contemporary Chinese life. Confucianism as management ideology (Chen, 1991) demands the loyalty of those lower in the organizational hierarchy to those at the top. In return for their loyalty, subordinates can expect that organizational leaders will watch out for their welfare. This is, of course, a rather simplified rendering of Confucian ideology. In addition, Confucian values are often moderated or supplanted by country-specific value systems. But almost all of these national value systems, which presumably influence management practices, stress harmony, conformity, hierarchy and the avoidance of direct conflict. This would certainly be so in the case of Buddhism in Thailand (Siengthai and Vadhanasindhu, 1991) and applies to other Southeast Asian nations as well (Widyahartono, 1991; Soriana, 1991).

Lawler et al. (1989) found HRM practices in family enterprises to be ad hoc and limited. Recruitment and selection into these firms seemed to involve heavy reliance on social networks, personal contacts and 'mee sen' (literally, 'to have strings' to pull). Compensation depended on seniority and social status. For example, Isarangkun Na Ayuthaya and Taira (1977) note the case of two janitors in a family enterprise who, while doing precisely the same work, received substan-

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tially different salaries. The lower paid worker came from 'upcountry' (i.e., outside Bangkok) and had fewer contacts and social credentials than the higher paid worker. Formal training programmes were generally lacking and there was little use of such techniques as job analysis, job evaluation or performance evaluation.

Thailand's rapid economic growth over the past decade has resulted in significant changes in traditional organizational forms. As family enterprises have increased in size and scope, it has often been difficult to staff all top level positions with family members. Moreover, capital requirements for expansion have necessitated issuing stock to the public. The emerging sector of publicly traded firms has increasingly sought professional managers. Lawler et al. (1989) characterized publicly held Thai corporations as pursuing human resource strategies that represent a hybrid of Western rationalism and the traditionalism of the family enterprise.

Hypotheses and control variables

The observations we have made regarding HRM practices in Thailand and India suggest the following hypotheses:

1 Thai HRM practices will be less rationalized than those in India. 2 The HRM practices of foreign firms will be more structured than

those of indigenous firms.

Our analysis also includes certain control variables. Based on prior research, there is reason to believe that these factors, which may be related in some way to our principal explanatory variables, may also impact on HRM practices. However, the theoretical rationale is not a principal concern here and we do not formulate strong hypotheses regarding these variables. The control variables in this study include government ownership, unionization, organizational size and industrial sector.

An important phenomenon in the region is the move to privatize state-owned enterprises. This is particularly the case in Thailand, where a wide variety of state enterprises either have already been privatized or are slated to be privatized. Proponents of privatization see this as enhancing the effectiveness of such companies, which are often insulated from competitive pressures. Yet unionists and other worker advocates fear that privatization will result in a dismantling of HRM practices favourable to workers. Privatization of state enterprises is not a significant issue in India. The public sector has long been dominant and, during the 1980s, grew at a rate faster than the private

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sector (Verma, 1992). However, continued growth in India fuelled by private investment may alter employment patterns, resulting in a greater proportion of workers employed in the private sector. In general, we would anticipate bureaucratic state enterprises to be more structured, resulting in more rationalized and systematic HRM practices than in the private sector.

Unions in Thailand are relatively weak, though they seem concen- trated to some extent in the modern sector of the Thai economy (Brown and Frenkel, 1993). Thai unions have seemingly become more active and militant as the economy has grown, so may play a more vital role in coming years. The labour movement is much stronger in India, at least in the non-agricultural sector.

Research concerning the impact of unions on HRM practices in developing countries is rather limited. To the extent that unions are effective, we would anticipate that they would lead to more systematic and rationalized HRM practices, as has been the experience in the United States. Since unions in these countries are relatively weak, their effects may be limited to only certain dimensions of the employment relationship. In some areas, they may result in a reduction in internal labour market structure. For example, unions may seek greater emphasis on seniority rather than performance-based pay.

Two additional control variables used here are organizational size and industrial sector. Jackson et al. (1989) argue that organizational differences between manufacturing and service sector firms may be systematically related to HRM practices (for a variety of reasons). However, their empirical analysis found only limited differences. Organizational size has been used in a variety of studies dealing with organization structure. It is generally anticipated that larger organizations tend to be more rationally structured and controlled, so we might anticipate that the larger the organization, the more rationalized and structured HRM practices are likely to be. Jackson et al. (1989) found some support for this argument, though the size variable in their analysis of HRM practices had a rather weak effect.

Research methods

The data used in this study were collected by means of a survey of a random sample of large-scale, modern-sector organizations in India and Thailand. The same instrument was used in both countries and data were collected by the authors from senior-level industrial relations and human resource managers in each firm in the sample. A total of sixty-eight firms were surveyed in Thailand and 105 firms in

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India. The firms represented a wide variety of industries and varied in size from a few hundred to tens of thousands of employees.

Respondents to the survey were asked a series of questions relating to HRM practices. For each item, the respondent was asked the extent to which the company typically relied upon the method. In most cases, the response scale was a semantic' differential that ranged from little use to extensive use. HRM practices examined here fall into the following general categories: staffing practices (recruiting methods, internal allocation of labour, human resource planning), compensation practices (pay setting methods and pay criteria), training practices (use of formal methods, both for managers/professionaIs and lower echelon workers) and employee evaluation methods (use of written performance evaluations and techniques such as MBO). In certain instances, the items are differentiated between 'white collar' (professional and managerial) workers and 'blue collar' workers. The responses to each question were scored on a scale of one to five, with higher values indicating greater use of or dependence on the HRM method in question.

Analysis of the data involved specification of a logit model. Conventional regression analysis would be inappropriate, given the ordinal and truncated nature of the response scales. Consequently, each of the scales was bifurcated: values at the upper end of scale were collapsed into one value (indicating significant reliance on the method in question) and those at the lower end were collapsed into another value (indicating moderate to little reliance on the method). Each of these recoded variables served as a dependent variable in binomial logit analysis. Descriptive statistics for these variables, bro- ken down by each country, are presented in Table 1.

Each logit equation was estimated using the following independent variables: a) a dummy variable scored 1 if the firm was located in Thailand and 0 if the firm was located in India; b) a dummy variable scored 1 if the firm was a subsidiary of MNC, 0 if not; c) a dummy variable scored 1 if the firm was unionized, 0 if not; d) a dummy variable scored 1 if the firm was a state enterprise, 0 if not; e) a dummy variable scored 1 if the organization was a manufacturing firm, 0 if not, and f) the logarithm of the number of employees in the firm. Descriptive statistics for the independent variables appear in Table 2.

Results and discussion

Parameter estimates for individual logit equations (one for each of the variables listed in Table 1) are reported in the Appendix. To facilitate

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Table I Dependent variables

Variables Coding scheme A verage value Thailand India (n = 68) (n = 105)

Staffing practices College recruiting (white-collar)

I =extensive use O=little or no use

Ability tests (white-collar)


Personal interviews (white-collar)

1 =extensive use O=little or no use

Internal referrals or recommendations (white-collar)

1 =extensive use O=little o r no use

External referrals or 1 =extensive use O=little or no use recommendations

(white-collar)

Previous work record (white-collar)


Educational background (white-collar)


Employment agencies (blue-collar)

l =extensive use O=little or no use

Personal interviews (blue-collar)

l =extensive use l=little or no use

Ability tests (blue-collar)

I =extensive use I=little or no use

Internal referrals or recommendations (blue-collar)

l =extensive use O=little or no use

External referrals or recommendations (blue-collar)


Previous work record (blue-collar)


Educational background (blue-collar)


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HRM in developing ecomomies: India and Thailand

Variables Coding scheme Average value Thailand India (n = 68) (n = 105)

Succession planning 1 =used O=not used

Written job descriptions

1 =used O=not used

Compensation practices Formal job evaluation

I =used O=not used

Seniority as pay criterion

1 =very important O=unimportant

Performance as pay criterion

Profit sharing

I =very important O=unimportant

I =used O=not used

Evaluation practices Written performance evaluations

MBO system

1 =used O=not used

I =used O=not used

Training practices On-the-job training (white-collar)


Internal training by staff (white-collar)


Internal training by consultant (white-collar)


External training (white-collar)


On-the-job training (blue-collar)


Internal training by staff (blue-collar)


Internal training by consultant (blue-collar)


External training (blue-collar)


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Table 2 Independent variables

Variables Coding scheme Average value

Country 0 = India .39 1 = Thailand

Unionized firm 0 = No .55 1 = Yes

Logarithm of number of employees

Multinational firm 0 = No 1 = Yes

State enterprise 0 = No 1 = Yes

Manufacturing firm 0 = No .46 1 = Yes

discussion, these results are summarized in Table 3. The overall significance level for each equation is reported, along with the signs of the parameter estimates for the variable indicating if the firm is located in Thailand and if it is the subsidiary of a multinational firm. These parameters are used in evaluating our two principal hypotheses. As indicated in Table 3, most of the logit equations were statistically significant (as inferred from the change in the logarithm of the likelihood ratio). However, the parameters relating to the key hypotheses were not always statistically significant nor of the anticipated sign. We consider the various groups of dependent variables in turn.

Staffing practices

In the case of the recruiting and selection techniques analysed, we have differentiated between managerial and professional workers ('white collar') and production workers ('blue collar'). The only staffing practices which have not been so distinguished are succession planning and written job descriptions (although the former is a tech- nique linked primarily to white-collar occupations). Most of the staffing practices equations were found to be statistically significant, the exceptions being personal interviews, internal referrals3 and external referral^,^ all in the case of white-collar employees.

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Table 3 Summary of logit results

Variables Significance level of Direction of effect overall equation

Located in Multinational Thailand firm

- -

StafJing practices

College recruiting (white-collar)

Ability tests (white-collar)

Personal interview (white-collar)

Internal referrals or recommendations (white-collar)

External referrals or recommendations (white-collar)

Previous work record (white-collar)

Educational background (white-collar)

Employment agencies (blue-collar)


Personal interview (blue-collar)

Internal referrals or recommendations (blue-collar)

External referrals or recommendations (blue-collar)

Previous work record (blue-collar)

negative

negative

ns

ns

negative

negative

negative

positive

positive

positive

positive

negative

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Table 3 cont.


Located in Multinational Thailand $rm

Educational background (blue-collar)

Succession planning

Written job descriptions

Compensation practices Formal job evaluation

Seniority as pay criterion


Profit sharing

Evaluation practices Written performance evaluations

MBO system

Training practices On-the-job training (white-collar)

Internal training by staff (white-collar)



On-the-job training (blue-collar)

Internal training by staff (blue-collar)

negative

negative

ns

ns

ns

ns

positive

ns

negative

negative

ns

ns

positive

positive

ns

ns

negative

negative

positive

ns

n s

ns

ns

ns

ns

ns

negative

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Located in Multinational Thailand firm

Internal training by ns ns ns consultant (blue-collar)

External training .10 positive ns (blue-collar)

Hypothesis 1 anticipates that we should see greater reliance on more structured and rational employment methods in India than in Thailand. The expected sign for the country variable (indicating the firm is located in Thailand) is thus unequivocally negative for several, though not all, of the recruitment and selection methods examined here. The use of college recruiting (for white-collar employees), employment agencies (for blue-collar employees), ability tests (for both groups), educational background (for both groups) and the analysis of an applicant's previous employment record (for both groups) would be consistent with more structured and formal internal labour markets. In the case of white-collar workers, the first hypothesis is supported in all instances. For white-collar workers, the equations for college recruiting, testing, reliance on work record and educational attainment are all statistically significant and the coefficients for the country variable are negative and significant, indicating greater reliance on these methods in India than in Thailand. In the case of blue-collar workers, the relationships support Hypothesis 1 in three of four cases. The relevant equations (employment agencies, ability tests, work record, educational attainment) are all significant and the country coefficients are negative and significant, except in the case of ability tests.

The expected sign for the country variable is more ambiguous in the case of the three other recruitment and selection methods studied: personal interviews, internal' references and external references. While all of these techniques may be consistent with a very formal and structured approach to recruiting and selecting employees, such methods are also likely to be found in organizations that function on a more informal basis (as in the case of family enterprises). Internal and external references, for example, may be a reflection of the firm's reliance on influential people and the 'string pulling' process at work.

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Similarly, personal interviews may be conducted as part of a structured system of identifying and selecting employees, in which information is elicited to discern the fit between job candidates and the requirements of the job. Alternatively, personal interviews might serve as a means of utilizing influence and expressing social credentials, regardless of specific job competencies.

In our study, we did not find any significant relationships for these factors in the case of white-collar employees, though all three were significant in the case of blue-collar employees. The sign of the country variable is also significant and positive in all three cases (interviews, internal referrals, external referrals), suggesting these practices are more commonly utilized in Thailand than in India. This might suggest firms in Thailand are relying more heavily on these methods as part of broader strategies aimed at identifying competent workers in areas where there are critical shortages. But we think this is not the case for these factors - especially internal and external referrals - given some anecdotal evidence. Several of our respondents in Thailand suggested that reliance on referrals and recommendations primarily reflected personal influence efforts and 'string pulling', not- ing that many firms are trying to reduce their use of such methods, which often serve as the principal or only means of recruiting employees in more traditional family enterprises.

The remaining two staffing methods studied are succession planning and the use of detailed, written job descriptions. The equations for both methods are statistically significant, though the country variable is significant only in the case of succession planning. Again, in line with Hypothesis 1, we would anticipate a negative country effect, which is the case (i.e., there is greater reliance on the method in India than in Thailand).

Our results, then, for the analysis on staffing practices are generally consistent with theoretical expectation in the case of cross-national differences. There appear to be pronounced differences in reliance on a variety of HRM practices between Thailand and India, with greater reliance on more formal and structured methods in India. In contrast, there is really no support for Hypothesis 2, which suggested greater reliance on more formal and structured methods in subsidiaries of multinational firms. The variable indicating the MNC status of the firm is insignificant in all cases, except written job descriptions (where the sign runs counter to expectation). Thus, while there are pronounced differences seemingly related to cultural forces between India and Thailand, there is considerable convergence within countries when foreign and domestic firms are compared.

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Compensation practices

We examine four different compensation practices in organizations: the use of formal job evaluation methods, reliance on seniority as a pay criterion, reliance on job performance as a pay criterion and use of profit-sharing systems. Job evaluation, performance-based pay and profit sharing are all consistent with more structured and rationalized employment systems. Consequently, Hypothesis 1 would suggest a negative sign for the country variable, while Hypothesis 2 indicates a positive sign for the MNC variable. The overall job evaluation equation is not significant; although the performance pay and profit sharing equations are significant, none of the signs of the variables is as anticipated.

We take seniority as a pay criterion to be associated with less structured and rationalized employment systems, thus anticipating the country variable to have a positive sign (indicating greater importance in Thailand) and the MNC variable to be negative. Again, although the equation is significant, the country effect is insignificant and the MNC effect is not of the posited sign.

Evaluation practices

We examine only two employee evaluation methods: the use of formal, written evaluations and the use of a management-by-objectives (MBO) system. Both methods are consistent with more formalized and rationalized employment systems, thus by Hypothesis 1 we would anticipate negative coefficients in the case of the country variable and positive coefficients in the case of the MNC variable. The written performance evaluation equation is statistically significant, though neither of the principal variables is statistically significant; the overall MBO equation is not statistically significant.

Training practices

We also differentiate between white-collar and blue-collar employees in regard to training practices. We examine four different training methods for each group: on-the-job training (OJT), internal training5 conducted by the firm's own staff, internal training conducted by outside consultants and external training6 The latter three methods seem consistent with a more structured and rationalized employment system; thus, as before, we would expect the country variable to be negative (by Hypothesis 1) and the MNC variable to be positive (by Hypothesis 2). Expectations regarding the OJT variable are less

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certain. The use of OJT may be part of a sophisticated, broader strat- egy that emphasizes multiple training methods; alternatively, OJT may be a kind of default method of training which is not in any way thought out. Consequently, we have no specific predictions with respect to the OJT variable.

Our empirical findings here are somewhat mixed. Both of the OJT equations are significant, as are the country effects. The country coef- ficient for white-collar workers is negative, indicating greater reliance on this method in India. Although the overall equations for the other three training practices are all statistically significant, the only one in which the country variable is significant is external training. Moreover, the sign is positive, which runs counter to Hypothesis 1 . The results are somewhat similar in the case of blue-collar workers, except the OJT variable is positive, indicating greater reliance on this method in Thailand than in India.

Training in most Asian countries, as elsewhere in the world, is often seen as costly and risky. Firms do not receive immediate returns on the time employees spend in training; moreover, the employee may leave the firm before any payback is received. Yet, as economies begin to develop, growing labour shortages generate higher wages, so these countries may lose their comparative advantage to lower-wage countries. Sustaining economic growth demands upgrading of worker skills. Although public training programmes may be important in this process, we can anticipate that business firms themselves must neces- sarily play an ever-increasing role in the skill formation process (Lawler, 1993).

We infer that such a process may be at work in the case of Thailand. Labour shortages are growing in a number of key sectors, so that firms cannot so readily acquire workers with desired skills in the external market. This creates incentives for firms to invest in human resource development activities. Conversely, labour surpluses remain extensive in India, where investment is still largely in low- skilled, low value-added sectors. This suggests that firms in Thailand may be setting the stage for further growth utilizing more sophisticated technologies. Yet firms in Thailand do not seem to be utilizing a variety of formal training methods to a greater extent than in India; they rely mostly on training provided by outside vendors, which presumably do more by way of developing gencral skills than either OJT or internal training programmes. In the case of white-collar workers, there appears to be a trade-off between OJT and formal training, as, other things being equal, firms in Thailand are less apt to use OJT and more apt to use external training than firms in India. However, in the case of blue-collar workers, both OJT and external training are

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more important in Thailand than in India, so that OJT appears to complement external training activities.

Contrary to expectation, the MNC effect was not statistically significant in any of the equations, except for internal training by consultants for blue-collar workers (where it was positive, as anticipated). This finding is also noteworthy, because it suggests that locally owned firms are as involved in employee development efforts as are multinationals.

Conclusions

Our study has examined a wide range of HRM practices in companies operating in Thailand and India. The companies examined were limited to modern sector organizations in which HRM techniques are apt to be most relevant. We anticipated cross-national differences based on economic and cultural grounds. An alternative argument could have been that large-scale organizations, as a result of international competitive pressures, might pursue similar HRM practices through- out the world, or certainly within broad geographical regions. Our analysis provides support for a divergence argument, though to only a limited extent. But there are a number of HRM practices for which we failed to observe differences between India and Thailand. How- ever, within a country, a convergence position would seem to have more merit. That is, the multinational subsidiary indicator was statistically significant in only a few cases and, given the large number of HRM practices examined, we might well expect at least a few significant coefficients by chance alone.

Although HRM practices may differ between Thailand and India, it does not, then, seem that multinational firms within each country utilized dramatically different policies than local companies. Of course, we are talking about large-scale local companies that are likely to employ experienced and sophisticated managers, many of whom have probably worked for MNCs at some point in their careers. What is not clear from this analysis is whether within-country convergence is the result of MNC subsidiaries adopting local practices or local firms adopting MNC practices. But if the latter was the case, then it seems likely we would not see such pronounced cross-country differences. So the evidence, such as it is, is more suggestive of polycentric adapta- tion.

What policy implications follow from our work? The study is descriptive of current practices in Thailand and India, but the approach taken is limited in its ability to generate strong implications

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John hwler , Harish C. Jain, C.S. Venkata Ratnam, Vinita Atmiyanandana

for organizational practice in that we do not evaluate the impact of different HRM practices on indicators of organizational performance. We simply did not have access to data that would have allowed us to test which practices are justified in terms of organizational effectiveness. However, if we assume that patterns observed in the data reflect what firms have learned to be 'best practices' in these settings, then some policy implications follow.

The study indicates that multinational firms must be prepared to be highly adaptive in certain HR areas, most notably with respect to staffing practices and, to a lesser extent, training practices. These are areas in which we observed important intercountry differences, but no differences between indigenous firms and multinationals. This suggests (but does not conclusively establish) that local practices dominate in this area and that they have been generally adopted by MNCs. The use of host country nationals, well-schooled in local practices, in key HRM positions is clearly warranted. Moreover, multinationals may need to utilize the HRM competencies of joint-venture partners exten- sively in establishing employment systems. However, there are areas in which multinationals may be able to be implement policies that differ from local practices, as in the case of job evaluation and seniority pay. Of course, any policy implications drawn from this study are limited by the fact that this study deals only with two countries. Further research expanding the set of countries considered would be necessary to draw implications for practice extending beyond India and Thailand.

John J. Lawler University of Illinois

USA Harish C. Jain

McMaster University C.S. Venkata Ratnam

International Institute of Management New Delhi

India Vinita Atmiyanandana

Illinois USA

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Appendix: logit results

INDEPENDENT VARIABLES Firm located in

Thailand Unionized Log of number of

employees Multinational firm State enterprise Manufacturer CONSTANT 2 x Change in log of

likelihood ratio

INDEPENDENT VARIABLES

Firm located in Thailand

Unionized Log of number of


likelihood ratio

College recruiting (white-collar)

Infernal referrals

(white-collar)

Ability tests Personal interview (white-collar) (white-collar)

External referrals

(white-collar)

Previous work record

(white-collar)

Parameter estimates are followed by standard errors. " Significant at .O1 level.

Significant at .05 level. " Significant at .10 level.

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John Lawler, Harish C. Jain, C.S. Venkata Ratnam, Vinita Atrniyanandana


Educational background

(white-collar)

Employment agencies

(blue-collar) Personal interview

(blue collar) Firm located in



likelihood ratio




likelihood ratio


Internal referrals (blue-collar)

External referrals (blue-collar)


Previous work record

(blue-collar)

Educational background (blue-collar}

Succession planning




likelihood ratio

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likelihood ratio

Written job Job Seniority as pay descriptions evaluation criterion



Profit-sharing system

Written performance evaluations




likelihood ratio


MBO On-thejob training

(white-collar)

Internal training by s t a g

(white-collar) Firm located in



likelihood ratio

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likelihood ratio





likelihood ratio


Internal training by staff

(blue-collar)


Internal training by consultant (blue-collar)

On-the-job training

(blue-collar)

External training (blue-collar)

Notes

1 The authors acknowledge the research assistance of Jeanne Norris (McMaster University) and Chang-ruey Ay (University of Illinois). Partial financial support for this project came from the McMaster Arts Research Board and the University of Illinois Office of International Programs and Studies.

2 See Far Eastern Economic Review, 25 March 1993: 72-3. 3 Internal referrals are those that originate from among those employed within

the firm. 4 External referrals are those that originate from individuals not directly associ-

ated with the firm. 5 'Internal training' refers here to classes conducted within the firm exclusively

for employees of the firm. 6 'External training' refers to classes conducted outside the firm, by outside con-

sultants or organizations, in which employees of other firms may also partici- pate.

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Human resource management in developing economies: a comparison of India and Thailand

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