Human Resource Management in Multinational Corporations
Transcript of Human Resource Management in Multinational Corporations
Human Resource Management in Multinational Corporations
Standardization of HR Practices, Market Entry Modes, Organizational and
Contextual Factors
Preface
Kienbaum, one of the leading German management consult-
ing and executive search companies, and ESCP Europe, the
world's first and one of the most renowned European busi-
ness schools, have been cooperating for several years now
in the area of international human resource management.
Especially in the field of international labor markets, as well
as global compensation and benefits practices, Kienbaum
and ESCP Europe’s Chair of Human Resource Management
and Intercultural Leadership, held by Prof. Dr. Marion
Festing, have been working together successfully, which has
resulted in numerous joint publications, studies and the
CEE-Conference on Labor Markets and Compensation
Trends, first held in 2012.
Driven by the various requests made by our multinational
clients to support their international expansion strategies, we
have started this study on human resource (HR) practices in
mergers and acquisitions (M&As) versus newly established
foreign companies (greenfield investments) and their global
standardization. Both procedures are common during inter-
national expansion strategies and pose specific challenges
for the management and HR professionals of our globally
operating clients.
The aim of this study is to provide an overview of prevailing
practices and insights into how to proceed successfully in
aligning HR processes and policies after an M&A situation
compared to common approaches in greenfield investments.
Thus, HR managers and professionals could benefit from
approved practices and instruments applied in the market, in
order to adjust or to complement their own approaches and
instruments and thus master expansion strategies success-
fully and develop and establish group-wide aligned policies
and processes.
We would like to express cordially our thanks to the numer-
ous participants among our clients for their valuable input
and contributions to this inquiry, and special gratitude is ex-
tended to Prof. Dr. Marion Festing and Ihar Sahakiants for
managing and carrying out this study.
Dr. Alexander von Preen
Managing Director/Partner
Kienbaum Management Consulting GmbH
Gummersbach, October 2013
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Executive Summary
This report summarizes the results of three surveys which
were distributed by Kienbaum Management Consultants and
ESCP Europe Berlin to Kienbaum consultants and multina-
tional corporations (MNCs). The project focuses on HR prac-
tices in M&As versus newly established foreign companies
(greenfield investments) and their global standardization.
The data indicate definite differences between HR-related
work in greenfield and M&A sites.
» In foreign greenfield locations, HR efforts are concen-
trated on staffing and are highly dependent on the
overall availability of a qualified workforce.
» In M&A sites, HR practices, such as compensation
and performance measurement, directed at existing
personnel are the focus of HR managers’ attention.
» The importance of collective bargaining is higher in
M&A sites compared to greenfield investments.
» The emphasis on planned and existing personnel
structures and practices varies at different stages of
greenfield investments and M&As. This is reflected in
checklists of HR practices based on the results of the
surveys.
With respect to the standardization of HR practices within the
global operations of multinational corporations, such as staff-
ing, performance measurement, compensation and benefits,
and job evaluation, or HR systems, such as Human Re-
sources Information Systems (HRISs), the results demon-
strate the relatively widespread implementation of globally
standardized practices. The extent of such standardization
varies depending on the hierarchical levels within organiza-
tions and on relevant practices.
» A job interview is a frequently standardized selection
tool, especially for management employees below the
top management level.
» Standardized performance measurement systems are
broadly used by MNCs for all employee groups, ex-
cept for manual workers.
» Compensation systems are frequently standardized
for management employees at all hierarchical levels,
particularly with respect to the structure of pay and
the use of local market targets to determine rewards.
» About one-third of all the companies use standardized
analytical job evaluation schemes for their top man-
agers (36%) and other management employees
(37%).
» The majority of companies using global job evaluation
schemes standardize non-analytical job evaluation
(24%), while a smaller fraction of the surveyed corpo-
rations (13%) implement analytical evaluation
schemes.
Finally, survey findings with respect to the importance of
HR-related contextual and organizational factors are re-
ported.
» Trade unions were reported to have the largest im-
pact on fields such as protection against dismissal,
working time, and performance measurement.
» General pay levels in target companies and benefits
offered were indicated as the most important factors
influencing employer attractiveness for potential job
applicants.
» Particular difficulties related to the recruitment of
technical employees, especially in the fields of infor-
mation technology and production, were reported.
The results of this study are relevant for HR managers and
decision makers, who are considering expansion into a
new foreign location, and for those planning and imple-
menting global HR strategies throughout the international
operations of respective MNCs.
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Content
Figures ........................................................................................................................................................................................ 6
Tables.......................................................................................................................................................................................... 7
Abbreviations ............................................................................................................................................................................. 8
Introduction ................................................................................................................................................................................ 9
Description of the Sample ............................................................................................................................................. 11
Endnotes for the Introduction ...................................................................................................................................... 16
Chapter 1 – Differences Between HRM in Foreign Greenfield Companies and M&As ...................................................... 17
Consideration of HR-Related Factors at Different Stages of Establishing a New Company and in M&As ........... 23
Planning Phase.......................................................................................................................................................... 24
Implementation Phase ............................................................................................................................................... 26
Post-Establishment/Post-Merger Integration Phase .................................................................................................. 28
Endnotes for Chapter 1 ................................................................................................................................................. 30
Chapter 2 – Standardization of HR Practices ........................................................................................................................ 31
Human Resources Information Systems ..................................................................................................................... 31
Staffing ............................................................................................................................................................................ 32
Performance Measurement ........................................................................................................................................... 35
Compensation and Benefits ......................................................................................................................................... 37
Pay Mix ...................................................................................................................................................................... 39
Job Evaluation ............................................................................................................................................................... 45
Endnotes for Chapter 2 ................................................................................................................................................. 48
Chapter 3 – Considering Organizational and Contextual Factors ...................................................................................... 49
Employment Relations .................................................................................................................................................. 49
Accounting for Country Specifics with Respect to Staffing Activities ..................................................................... 52
Endnotes for Chapter 3 ................................................................................................................................................. 55
Final Remarks .......................................................................................................................................................................... 56
Endnotes for Final Remarks ......................................................................................................................................... 57
References ................................................................................................................................................................................ 58
Contact/Authors ....................................................................................................................................................................... 61
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Figures
Figure 1. International Presence of the Surveyed Companies ..................................................................................................... 14
Figure 2. Importance of Qualified Workforce Availability .............................................................................................................. 17
Figure 3. Relative Importance of Collective Bargaining Agreements ........................................................................................... 18
Figure 4. Relative Impact of Employee Representations ............................................................................................................. 18
Figure 5. The Importance of HR-Related Issues in Greenfield Investments ................................................................................ 20
Figure 6. The Importance of HR-Related Issues in International M&A Phases ........................................................................... 21
Figure 7. Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield Investments ............ 22
Figure 8. Relative Importance of Selected HR-Related Areas in the Implementation Phase of M&As ........................................ 23
Figure 9. Global Standardization of Methods Used for Selecting Top Management Employees ................................................. 33
Figure 10. Global Standardization of Methods Used for Selecting Other Management Employees ............................................ 34
Figure 11. Global Standardization of Methods Used for Selecting Technical and Clerical Employees ....................................... 34
Figure 12. Global Standardization of Methods Used for Selecting Manual Workers ................................................................... 35
Figure 13. Use of a Globally Standardized, Formalized Performance Measurement System ..................................................... 36
Figure 14. Use of the Performance Measurement System to Support Decisions ........................................................................ 36
Figure 15. Global Standardization of Compensation Elements for Top Management Employees .............................................. 37
Figure 16. Global Standardization of Compensation Elements for Other Management Employees ............................................ 38
Figure 17. Global Standardization of Compensation Elements for Technical and Clerical Employees ....................................... 38
Figure 18. Global Standardization of Compensation Elements for Manual Workers ................................................................... 39
Figure 19. Global Standardization of the Pay Structure ............................................................................................................... 40
Figure 20. Use of Globally Standardized Local Market Targets to Determine Pay for Top Management Employees ................. 41
Figure 21: Use of Globally Standardized Local Market Targets to Determine Pay for Other Management Employees .............. 41
Figure 22. Use of Globally Standardized Local Market Targets to Determine Pay for Technical and Clerical Employees .......... 42
Figure 23. Use of Globally Standardized Local Market Targets to Determine Pay for Manual Workers ...................................... 42
Figure 24. Market Targets with Respect to Pay Level and Structure for Top Management Employees ...................................... 43
Figure 25. Market Targets with Respect to Pay Level and Structure for Other Management Employees ................................... 43
Figure 26. Market Targets with Respect to Pay Level and Structure for Technical and Clerical Employees ............................... 44
Figure 27. Market Targets with Respect to Pay Level and Structure for Manual Workers ........................................................... 44
Figure 28. Global Standardization of Job Evaluation Schemes for Top Management Employees .............................................. 45
Figure 29. Global Standardization of Job Evaluation Schemes for Other Management Employees ........................................... 46
Figure 30. Global Standardization of Job Evaluation Schemes for Technical and Clerical Employees ....................................... 46
Figure 31. Global Standardization of Job Evaluation Schemes for Manual Workers ................................................................... 47
Figure 32. Impact of Employee Representations on Selected Issues in the Organization ........................................................... 51
Figure 33. Impact Factors on the Success of Staffing Activities .................................................................................................. 53
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Tables
Table 1. Respondents by Location ............................................................................................................................................... 11
Table 2. Locations of Headquarters of the Surveyed Companies ................................................................................................ 12
Table 3. Annual Turnover of the Surveyed Companies ............................................................................................................... 12
Table 4. Employee Groups in the Surveyed Companies ............................................................................................................. 13
Table 5. Industry Affiliation of the Surveyed Companies .............................................................................................................. 13
Table 6. Foreign Greenfield Investments vs. International M&As Initiated by the Surveyed Companies .................................... 14
Table 7. Average Number of Months from the last Foreign Company Establishment.................................................................. 15
Table 8. Involvement of the HR Function in the Preparation of the New Foreign Site and M&A Projects ................................... 19
Table 9. Stages of Establishing a New Company (Greenfield Sites) and M&As .......................................................................... 19
Table 10. Relative Importance of HR-Related Issues in Greenfield Investments and M&As ....................................................... 20
Table 11. Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield Investments and
M&As ............................................................................................................................................................................................ 21
Table 12. HR Checklist for the Planning Phase of Greenfield Investments ................................................................................. 24
Table 13. HR Checklist for the Planning Phase of M&As ............................................................................................................. 25
Table 14. HR Checklist for the Implementation Phase of Greenfield Investments ....................................................................... 26
Table 15. HR Checklist for the Implementation Phase of M&As .................................................................................................. 27
Table 16. HR Checklist for the Post-Establishment Phase of Greenfield Investments ................................................................ 28
Table 17. HR Checklist for the Post-Merger Integration Phase of M&As ..................................................................................... 29
Table 18. Use of HRISs ................................................................................................................................................................ 31
Table 19. Global Standardization of HRISs .................................................................................................................................. 32
Table 20. Benefits and Obstacles to a Globally Standardized Staffing System ........................................................................... 32
Table 21. Proportion of the Total Number of Employees Worldwide who Are Members of a Trade Union.................................. 49
Table 22. Proportion of the Total Number of Employees in the Surveyed Hungarian Subsidiaries who Are Members of a Trade
Union ............................................................................................................................................................................................ 50
Table 23. Existence of a European Works Council ...................................................................................................................... 50
Table 24. Impact of Employee Representations, Average Scores ............................................................................................... 51
Table 25. Relative Importance of Collective Wage Agreements, by Employee Group ................................................................ 52
Table 26. Impact Factors on the Success of Staffing Activities .................................................................................................... 53
Table 27. Intensity of Problems Related to Staffing, by Employee Group ................................................................................... 54
Table 28. Intensity of Problems Related to Staffing Activities, by Functional Area ...................................................................... 54
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Abbreviations
CEE Central an Eastern Europe
ESPP Employee Stock Purchase Program
HQ Headquarters
HR Human resources
HRIS Human resources information system
HRM Human resources management
M&A Mergers and acquisitions
MNC Multinational Corporation
UK United Kingdom
USA United States of America
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Introduction
This report presents the results of a project conducted by
Kienbaum Management Consultants and ESCP Europe
Berlin. It extends the previous joint work on various aspects
of Human Resource Management (HRM) in Central and
Eastern European (CEE) countries, which included reports
on directors’ remuneration in listed public companies,1 the
labor market, and employment conditions,2 and covers more
general HR-related issues in the foreign subsidiaries of mul-
tinational corporations (MNCs).
The structural and procedural complexity of HRM in MNCs’
foreign sites represents a challenging issue. The majority of
work presented in both the academic and practitioner-
oriented literature on the topic is dominated by research on
mergers and acquisitions, including aspects such as the role
of human resources (HR) in international mergers and acqui-
sitions (M&As),3 HRM in different types of M&As,4 the con-
tribution of HRM to the success of M&As,5 the role of expat-
riates in M&As,6 the impact of M&As on top management
careers,7 and M&A-related HR problems.8
However, the overemphasis on HRM issues in M&As in the
extant literature does not diminish the importance of HR-
related topics in foreign companies established via alterna-
tive market entry or company establishment modes.9 In-
deed, choosing the right international market entry mode is
one of the most challenging tasks faced by MNCs expanding
their operations into a new foreign country. It is therefore not
surprising that the determinants of this choice have also
been extensively studied by academic researchers.10 How-
ever, only a few studies are dedicated to specifics related to
the labor force and prevalent HR systems as determinants of
the choice between greenfield investments and M&As. Some
of these studies discuss, among other things, the issue of
expatriates, who are usually more frequently employed in
foreign greenfield sites rather than acquired companies,11
which is also related to the question of “managerial con-
straints on greenfield investments” or the “human resources
endowment”12 of MNCs. Other studies investigate the im-
pacts of unionization,13 institutional and human resource
distances,14 and cultural differences on the choice of foreign
market entry mode,15 or the effect of specialized human as-
set intensiveness on the choice between M&A and allianc-
es.16
Another challenging issue specifically with respect to HR
practices is the global standardization and local customiza-
tion of respective systems.17 The standardization of HR
practices can be defined as “‘global’ HRM characterized by
highly integrated [international] IHRM strategies, principles[,]
and instruments”.18 It is argued that the extent to which HR
practices can be transferred to foreign subsidiaries or
adapted to local idiosyncrasies depends on the respective
institutional contexts as well as the nature of practices.19 In
the academic literature, the standardization and localization
of various areas of HRM in MNCs have been analyzed, in-
cluding HR development20 and training, staffing, perfor-
mance management, and compensation.21 Based on a mul-
tiple case study, it was found that German companies more
often standardize areas such as training, careers, and per-
formance management, while the standardization of staffing
practices and compensation is less common.22
Probably one of the most challenging fields for worldwide
standardization is that of compensation and benefits.23 In-
deed, an equalization of the monetary value of rewards
throughout the globe seems to be extremely difficult to im-
plement, first of all due to the large variation in cost-of-living
and income differentials among countries.24 Moreover, even
the unification of pay schemes is impeded to a large extent
by local institutional contexts, related above all to the role of
the local trade unions.25
Our project aims at contributing to the discussion on HR
practices in greenfield investments and M&As by showing
HR-related differences between these two market entry
modes as well as presenting a practical checklist for factors
that need to be considered in various stages of establishing a
new foreign company or launching an acquisition project.
The present study was also designed to deliver survey-based
data on the global standardization of HR practices such as
human resource information systems (HRIS), staffing prac-
tices, performance measurement, compensation and bene-
fits, and job evaluation. Thus, the objective of the project is
twofold: To explore the specifics of HRM in greenfield com-
panies abroad and foreign mergers and acquisitions (M&As),
on the one hand, and the standardization of HR practices, on
the other hand.
The report is structured as follows. Following the next sub-
section, which introduces the surveys and describes the re-
spective samples, we present the results of Surveys 1-3 with
respect to differences between HRM practices in foreign
greenfield companies and M&As. Information on the im-
9
portance of qualified workforce availability, collective bargain-
ing agreements, and the impact of employee representations
is based on the results of Survey 1 (Kienbaum consultants in
various foreign locations). The remaining data in the chapter
is based on the combined results of all the surveys. Further-
more, we present findings related to the standardization of
HR practices throughout MNCs’ foreign operations. These
results are based on Surveys 2-3 (headquarters and subsidi-
aries of MNCs). Finally, we describe the results of Survey 1
related to selected organizational and contextual factors in-
fluencing HR activities in MNCs.
10
Description of the Sample
This report presents the results of three different surveys,
prepared and conducted by Kienbaum Management Con-
sultants and ESCP Europe, distributed among three groups
of respondents: Kienbaum consultants (Survey 1) and the
foreign subsidiaries and corporate headquarters of MNCs
(Surveys 2-3) situated both in German and foreign locations.
Some of the questions in the surveys have been adopted
from the questionnaires used in the practitioner26 and aca-
demic27 literature.
Table 1 below presents the total number of responses by lo-
cation.
Table 1
Respondents by Location
Location Survey 1 Surveys 2 – 3 Total
Austria 1 2 3 (3.8%)
Czech Republic 1 1 (1.3%)
Germany 5 48 53 (67.9%)
Hungary 1 6 7 (9.0%)
Luxemburg 1 1 (1.3%)
Netherlands 1 2 3 (3.8%)
Poland 1 1 (1.3%)
Russia 2 2 (2.6%)
Singapore 2 2 (2.6%)
Sweden 1 1 (1.3%)
Switzerland 1 1 (1.3%)
USA 2 2 (2.6%)
Not specified 1 1 (1.3%)
Total 14 (17.9%) 64 (82.1%) 78 (100%)
11
Overall, without taking into consideration the results of Sur-
vey 1, the headquarters of the majority of companies that
participated in Surveys 2 and 3 (either subsidiaries of such
MNCs or headquarters as such) were located in Germany
(39 companies), the USA (six companies), and the UK (three
companies):
Table 2
Locations of Headquarters of the Surveyed Companies
HQ Location Subsidiaries surveyed HQs surveyed Total
Austria 1 1 2
France 2 0 2
Germany 10 29 39
Hungary 0 1 1
Italy 1 0 1
Japan 1 0 1
Luxemburg 1 0 1
Netherlands 2 0 2
Norway 1 0 1
Russia 1 0 1
Sweden 1 1 2
Switzerland 1 1 2
UK 3 0 3
USA 5 1 6
Total 30 (46.9%) 34 (53.1%) 64 (100.0%)
As presented in Table 3 below, the majority of the surveyed companies had an annual turnover over 1 billion Euro.
Table 3
Annual Turnover of the Surveyed Companies
Annual turnover Percentage of companies
Over 1 billion Euro 69.1%
251-500 million Euro 7.3%
501-750 million Euro 7.3%
751-1,000 million Euro 7.3%
101-250 million Euro 5.5%
Below 100 million Euro 3.6%
N = 55
Table 4 below shows the employee structure of the surveyed
companies. The average percentage of manual workers
amounted to 51.8%, while management employees, includ-
ing top management, constituted less than 9% of the total
headcount.
12
Table 4
Employee Groups in the Surveyed Companies
Employee group Average percentage
Top management employees 2.0%
Other management employees 6.7%
Technical and clerical employees 47.1%
Manual workers 51.8%
N = 48
The majority of the surveyed companies operated in the
manufacturing, wholesale and retail trade, and transportation
and storage industries (cf. Table 5 below):
Table 5
Industry Affiliation of the Surveyed Companies
Industry Count Count in
%
Manufacturing 27 42.2%
Wholesale and retail trade; repair of motor vehicles and motorcycles 5 7.8%
Transportation and storage 5 7.8%
Electricity, gas, steam, and air conditioning supply 4 6.3%
Financial and insurance activities 4 6.3%
Agriculture, forestry, and fishing 3 4.7%
Professional, scientific, and technical activities 3 4.7%
Other service activities 3 4.7%
Information and communication 2 3.1%
Administrative and support service activities 2 3.1%
Water supply; sewerage, waste management, remediation activities 1 1.6%
Human health and social work activities 1 1.6%
Arts, entertainment, and recreation 1 1.6%
Not specified 3 4.7%
Total 64 100%
13
The surveyed companies indicated that they had sites pre-
dominantly in Western Europe (96.5%), Eastern Europe
(77.2%), North America (73.7%), Asia (70.2%), and South
America (50.9%).
Figure 1
International Presence of the Surveyed Companies
More than a third (38.6%) of all the questionnaires were
completed by the most senior HR managers in the respective
companies.
With respect to market entrance modes, the majority of the
surveyed companies preferred to establish greenfield foreign
companies rather than be engaged in an M&A project.
Table 6
Foreign Greenfield Investments vs. International M&As Initiated by the Surveyed Companies
Market entry mode One foreign site Several foreign sites Not applied
Foreign greenfield
investments 7% 75.4% 17.5%
International M&As 19.6% 44.6% 35.7%
8.8%
21.1%
31.6%
35.1%
38.6%
50.9%
70.2%
73.7%
77.2%
96.5%
Central Africa
North Africa
Middle East
Australia and Oceania
South African region
South America
Asia
North America
Eastern Europe
Western Europe
14
On average, the last foreign greenfield investment was initi-
ated less than two years ago; the last international M&A pro-
ject occurred slightly more than two years ago.
Table 7
Average Number of Months from the last Foreign Company Establishment
Market entry mode Months
Foreign greenfield investment 22
International M&As 25
15
Endnotes for the Introduction
1 Festing, M., Sahakiants, I., von Preen, A. and Smid, M. (2011) 2 Cf., for example, Festing, M. and Sahakiants, I. (2011),
Festing, M. and Sahakiants, I. (2012) 3 Antila, E.M. (2006), Budhwar, P.S., Varma, A., Katou, A.A.
and Narayan, D. (2009), Lajara, B.M., Lillo, F.G. and Sempere, V.S. (2002), Schmidt, J.A. (2001), Schuler, R.S. (2001)
4 Cascio, W.F. and Serapio Jr, M.G. (1991), Chan, K.-B., Luk, V. and Wang, G.X. (2005), Lajara, B.M., Lillo, F.G. and Sempere, V.S. (2002), Larsson, R. and Finkelstein, S. (1999), Welch, C.L., Welch, D.E. and Tahvanainen, M. (2008)
5 Birkinshaw, J., Bresman, H. and Håkanson, L. (2000), Datta, D.K. (1991), Gong, Y., Shenkar, O., Luo, Y. and Mee-Kau, N. (2005)
6 Hébert, L., Very, P. and Beamish, P.W. (2005), Kabst, R. (2004)
7 Krug, J.A. and Nigh, D. (2001) 8 Schuler, R.S., Jackson, S.E., Dowling, P.J., Welch, D.E.
and De Cieri, H. (1991), Shenkar, O. and Zeira, Y. (1987) 9 Padmanabhan, P. and Cho, K.R. (1999) 10Andersson, T., Arvidsson, N. and Svensson, R. (1992),
Brouthers, K.D. and Dikova, D. (2010), Drogendijk, R. and Slangen, A. (2006), Harzing, A.-W. (2002), Hennart, J.-F. and Park, Y.-R. (1993), Kogut, B. and Singh, H. (1988), Müller, T. (2007), Tsang, E.W.K. and Yip, P.S.L. (2007)
11 Harzing, A.-W. (2002), Tsang, E.W.K. and Yip, P.S.L. (2007)
12 Hennart, J.-F. and Park, Y.-R. (1993) 13 Kwon, Y.-C. and Konopa, L.J. (1993) 14 Estrin, S., Baghdasaryan, D. and Meyer, K.E. (2009) 15 Drogendijk, R. and Slangen, A. (2006), Kogut, B. and
Singh, H. (1988) 16 Yin, X. and Shanley, M. (2008) 17Lu, Y. and Bjorkman, I. (1997), Pudelko, M. and Harzing,
A.-W. (2007) 18 Dickmann, M. and Muller-Camen, M. (2006, p. 582) 19 Parry, E., Dickmann, M. and Morley, M. (2008) 20 Tregaskis, O., Heraty, N. and Morley, M. (2001) 21 Dickmann, M. and Muller-Camen, M. (2006) 22 Ibid. 23 Festing, M., Eidems, J. and Royer, S. (2007) 24 Gross, S.E. and Wingerup, P.L. (1999) 25 Fenton-O'Creevy, M., Gooderham, P. and Nordhaug, O.
(2008) 26Armutat, S., Döring, H., Festing, M., Frühe, C., Nell, E. and
Werner, W. (2007) 27 CRANET. (2006)
16
Chapter 1 – Differences Between HRM in Foreign Greenfield Companies and M&As
One of the most important aspects of foreign investment de-
cisions is choosing the market entry mode, including answer-
ing the question as to whether a new company should be es-
tablished (greenfield investment), or whether M&As dealing
with an already existing foreign company should be preferred
instead. While there are several other major factors influenc-
ing such a decision (including access to existing markets,
products, contracts, and expertise), this study addresses the
human resource aspects related to two basic equity country
entry modes—foreign mergers and acquisitions (M&A) ver-
sus greenfield investments (start-ups). The focus of the
above two entry modes is based on the assumption that,
contrary to non-equity entry modes such as licensing or ex-
ports through agents, the management of human resources
in these companies is one of the most crucial issues faced
by respective MNCs. In this respect, we also do not specifi-
cally consider so-called ‘brownfield’ investments, in which
foreign investors purchase an existing company but conduct
an all-encompassing restructuring of the acquired firm, which
can, for instance, include replacing equipment and the labor
force.1 Here, this type of investment falls either under green-
field investments (in the case of a completely newly estab-
lished company on the premises of an acquired firm) or
M&As (in the case of the partial use of the acquired compa-
ny’s resources).
First of all, the results from Survey 1, distributed among
Kienbaum consultants, showed that the overall availability of
a qualified workforce in general is more important during
greenfield investments than during M&As (cf. Figure 2). This
fact can be explained by the takeover of the acquired com-
pany’s personnel within an M&A process, including a quali-
fied workforce.
Figure 2
Importance of Qualified Workforce Availability
On the other hand, the Kienbaum respondents indicated that
collective bargaining in M&As plays a more important role on
average than in greenfield investments. About 28% of all re-
spondents indicated that collective bargaining agreements
are highly or rather highly important in M&As compared to
21% of responses, which attributed a rather high importance
to such agreements in the case of newly established (green-
field) foreign companies (cf. Figure 3).
71%
21%
21%
50%
7%
29%
Greenfield investments
M&As
High importance Rather high importance Medium importance
17
Figure 3
Relative Importance of Collective Bargaining Agreements
However, a similar percentage of respondents ascribed low
or rather low importance to collective bargaining agreements
in both M&As and greenfield investments, for instance in
countries such as Singapore and Russia.
Similarly, the impact of employee representations was esti-
mated as being higher in M&As than in foreign greenfield in-
vestments (cf. Figure 4), one of the reasons for which could
be the necessity to deal with legacies with respect to collec-
tive bargaining left from the previous owner of the company,
especially in the case of former state-owned enterprises with
high unionization rates.
Figure 4
Relative Impact of Employee Representations
The surveyed companies indicated that in the cases of both
foreign greenfield investments and international M&As, there
was only a moderate involvement of the HR function in the
preparation process (cf. table 8 below) and more attention
14%
21%
14%
50%
43%
7%
7%
21%
21%
Greenfield investments
M&As
High importance
Rather high importance
Medium importance
Rather low importance
Low importance
8%
21%
33%
29%
8%
21%
33%
29%
17%
Greenfield investments
M&As
High impact
Rather high impact
Medium impact
Rather low impact
Low impact
18
was paid to HR-related issues in foreign greenfield invest-
ments than to M&As. This could be explained by the higher
involvement of the surveyed companies in foreign greenfield
investments (Table 6), on the one hand, and on the higher
emphasis on staffing in such companies, on the other.
Table 8
Involvement of the HR Function in the Preparation of the New Foreign Site and M&A Projects
Market entry mode Not at all Hardly Partially To a large
extent
To a very
large extent
Greenfield investments 6.0% 14.0% 38.0% 32.0% 10.0%
M&As 8.1% 29.7% 43.2% 13.5% 5.4%
For the following analysis, in order to ensure the comparabil-
ity of results with respect to different stages of both market
entry modes analyzed, we differentiated between the follow-
ing three major phases of foreign greenfield investments and
international M&As: Planning, implementation, and post-
establishment/post-merger integration phases (cf. Table 9).
Table 9
Stages of Establishing a New Company (Greenfield Sites) and M&As
Description of the respective phases Greenfield sites Mergers and Acquisi-
tions
Planning of the transaction by answering the questions
“whether, when, and how”2 the project is to be carried out, in-
cluding the analysis of the current economic context and op-
erational and legal planning.
Planning Planning
Greenfield investments: Legal procedures related to the regis-
tration of the site; employee recruitment, selection, and staff-
ing; site development.
M&As: Preliminary agreements; due diligence process; negoti-
ations with the parties; signing the contract.
Implementation Implementation (including
due diligence)
Greenfield investments: The newly established company is ful-
ly operational.
M&As: At this stage, a combination (integration) of different
management and operational systems into one entity takes
place, including HR and cultural integration.
Post-establishment Post-merger integration
19
On the one hand, both our Kienbaum and company re-
spondents indicated an overall higher importance of HR-
related issues in the last two stages of M&As compared to
establishing new foreign companies, whereas the post-
merger integration phase was reported to be of the highest
importance of all (cf. Table 10). On the other hand, HR-
related issues at the planning stage were reported to be im-
portant in foreign greenfield investments, which partially ex-
plains the fact that HR functions in the surveyed companies
were more often engaged in preparing greenfield invest-
ments (cf. Table 8).
Table 10
Relative Importance of HR-Related Issues in Greenfield Investments and M&As
Stages Greenfield investments M&A
Planning 2.0 2.1
Implementation 1.8 1.7
Post-establishment/post-merger integration 2.1 1.4
1 – high importance; 5 – low importance
However, a direct comparison of answers presented in Fig-
ures 5 and 6 shows that a greater percentage of respondents
ascribed a high importance of HR-related issues to all three
stages of M&As compared to greenfield investments abroad.
Figure 5
The Importance of HR-Related Issues in Greenfield Investments
34%
39%
26%
41%
42%
39%
18%
16%
31%
7%
2%
2%
2%
Planning phase
Implementation phase
Post-establishment phase
High Rather high Medium Rather low Low
20
Figure 6
The Importance of HR-Related Issues in International M&A Phases
While there is a very large discrepancy between the per-
ceived importance of HR-related issues in the last stage of
greenfield investments and M&As, it is the implementation
phase which probably has the largest differences in objec-
tives and processes between the two respective market entry
modes. These differences are first of all related to more ex-
tensive staffing activities in greenfield investments as op-
posed to M&As. Thus, in order to identify the major HR-
related differences, we asked our respondents to evaluate
the importance of areas such as staffing, executive search-
es, compensation, training, job evaluation, outplacement,
and performance management in the implementation phase
of greenfield investments and M&As.
On average, both the Kienbaum and company respondents
indicated that staffing and executive searches were more
important during the implementation phase of greenfield in-
vestments, while compensation, outplacement, performance
management, and job evaluation were more important in the
implementation phase of M&As. According to the experts
surveyed, training is equally (moderately) important in the
implementation phases of greenfield investments and M&As.
Table 11
Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield In-vestments and M&As
HR-related area Greenfield investments M&A
Staffing in general 1.6 2.7
Executive search 2.0 2.4
Compensation 2.2 2.1
Training 3.1 3.1
Performance management 3.1 2.4
Job evaluation 3.3 2.9
Outplacement 4.2 3.0
1 – high importance; 5 – low importance
35%
43%
69%
35%
47%
21%
16%
8%
10%
12%
2%
2% Planning phase
Implementation phase (incl. due diligence)
Post-merger integration phase
High Rather high Medium Rather low Low
21
However, a detailed comparison of the data showed that
about 8% of respondents estimated the importance of train-
ing in greenfield investments as high compared to around
4% of the surveyed companies in the case of M&As (cf. Fig-
ures 7 and 8).
Figure 7
Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield In-vestments
Interesting in this respect is also the fact that while there is a
very large perceived discrepancy in the importance of gen-
eral staffing during the implementation phase of greenfield
investments and M&As, the importance of executive search-
es is estimated as almost equally as high in both market en-
try modes, which can be explained by an often high turnover
of management employees in acquired companies within the
first few years after the acquisition, as reported in the litera-
ture.3
57%
37%
23%
8%
9%
10%
34%
33%
42%
23%
17%
10%
28%
3%
22%
28%
26%
29%
15%
25%
7%
8%
5%
34%
24%
16%
18%
2%
8%
21%
59%
18%
Staffing in general
Executive search
Compensation
Training
Job evaluation
Outplacement
Performance management
High Rather high Medium Rather low Low
22
Figure 8
Relative Importance of Selected HR-Related Areas in the Implementation Phase of M&As
In several cases, additional HR practices were addressed by
Kienbaum respondents as being very important in the im-
plementation phase of M&As, namely HR diagnostics and
HR M&A project management. In the same phase of green-
field investments, the development of a merger roadmap and
team development were indicated as important HR-related
practices.
Consideration of HR-Related Factors at Different Stages of Establishing a New Company and in M&As
Given the HR-related differences in various stages of foreign
greenfield investments and M&As, companies starting their
operation in a new location abroad face multiple challenges
with respect to different aspects of HR management in for-
eign sites. Based on the responses of the participants in our
surveys, we present several checklists comprising the factors
which need to be considered in different phases of establish-
ing a new foreign company and in M&As. In the respective
survey questions, we asked about the relative importance of
each of the factors, which then allowed us to present the re-
sults in the form of rankings, whereby the most important fac-
tors are presented at the top of the list and the least im-
portant at the bottom of the list.
20%
33%
20%
4%
8%
18%
22%
22%
53%
25%
24%
18%
45%
32%
24%
22%
38%
39%
27%
22%
7%
16%
4%
25%
22%
22%
10%
4%
4%
8%
6%
16%
4%
Staffing in general
Executive search
Compensation
Training
Job evaluation
Outplacement
Performance management
High Rather high Medium Rather low Low
23
Planning Phase
In the planning phase of establishing a new company, gen-
eral workforce availability in the respective countries and re-
gions and the planned staff structure at respective enterpris-
es were reported to be of primary importance.
Table 12
HR Checklist for the Planning Phase of Greenfield Investments
Importance
score Factors
1.25 Workforce availability, in general
1.34 Planned staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.39 Employee relations, in general
1.51 Social contribution regulations, in general
1.53 Planned pay agreements
1.66 Planned operating and working time regulations
1.75 Global company culture
1.80 Collective wage bargaining regulations, in general
1.81 Planned individual agreements
1.86 Planned collective agreements (e.g., company-level agreements)
2.10 Planned regulations relating to the company pension plan and other company-level social benefits
2.26 Planned cooperation with trade unions and works councils
1 – important; 3 – not important
In the case of M&As, existing staff structures and agree-
ments with respect to the target company, and not the gen-
eral HR-related situation, should be considered in the first
place, according to the Kienbaum and company respondents
in our surveys.
24
Table 13
HR Checklist for the Planning Phase of M&As
Importance
score Factors
1.31 Existing staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.41 Existing pay agreements
1.47 Existing collective agreements (e.g., company-level agreements)
1.49 Existing operating and working time regulations
1.51 Existing individual agreements
1.53 Existing regulations relating to the company pension plan and other company-level social benefits
1.53 Local company culture
1.65 Employee relations, in general
1.67 Workforce availability, in general
1.73 Social contribution regulations, in general
1.76 Working environment
1.80 Collective wage bargaining regulations, in general
2.04 Existence of trade unions
2.06 Trade union membership rate
1 – important; 3 – not important
25
Implementation Phase
In the implementation phase of establishing a new foreign
company, planned personnel structures, general workforce
availability, and planned pay agreements were stated to play
the most important role.
Table 14
HR Checklist for the Implementation Phase of Greenfield Investments
Importance
score Factors
1.28 Planned staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.28 Workforce availability, in general
1.44 Planned pay agreements
1.45 Employee relations, in general
1.47 Planned individual agreements
1.47 Planned operating and working time regulations
1.51 Social contribution regulations, in general
1.7 Collective wage bargaining regulations, in general
1.72 Global company culture
1.75 Planned collective agreements (e.g., company-level agreements)
1.84 Planned regulations relating to the company pension plan and other company-level social benefits
2.11 Planned cooperation with trade unions and works councils
1 – important; 3 – not important
In the implementation (including due diligence) phase of in-
ternational M&As, existing staff structure, individual (includ-
ing pay) agreements, as well as existing operating and work-
ing time regulations are the focus of attention. On the other
hand, the issue of general workforce availability in the local
country plays a far less important role than in foreign green-
field investments.
26
Table 15
HR Checklist for the Implementation Phase of M&As
Importance
score Factors
1.35 Existing staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.43 Existing individual agreements
1.43 Existing pay agreements
1.43 Existing operating and working time regulations
1.47 Existing regulations relating to the company pension plan and other company-level social benefits
1.51 Employee relations, in general
1.51 Existing collective agreements (e.g., company-level agreements)
1.53 Local company culture
1.58 Working environment
1.59 Social contribution regulations, in general
1.63 Collective wage bargaining regulations, in general
1.67 Workforce availability, in general
2.08 Trade union membership rate
2.10 Existence of trade unions
1 – important; 3 – not important
27
Post-Establishment/Post-Merger Integration Phase
In this phase of greenfield investments, the most relevant
factors that should be considered during the post-
establishment phase are very similar to those considered
during the post-merger integration phase of M&As. These
are mainly factors related to the existing situation in the focus
company.
Table 16
HR Checklist for the Post-Establishment Phase of Greenfield Investments
Importance
score Factors
1.35 Existing staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.36 Existing pay agreements
1.4 Existing operating and working time regulations
1.41 Employee relations, in general
1.41 Existing individual agreements
1.43 Workforce availability, in general
1.46 Working environment
1.51 Local company culture
1.60 Social contribution regulations, in general
1.63 Existing collective agreements (e.g., company-level agreements)
1.70 Existing regulations relating to the company pension plan and other company-level social benefits
1.72 Collective wage bargaining regulations, in general
2.25 Existence of trade unions
2.25 Trade union membership rate
1 – important; 3 – not important
Nevertheless, also in this phase, general workforce availabil-
ity in the host country is perceived by the respondents in our
surveys as playing a less important role in M&As than in
greenfield investments, which means that in acquired com-
panies during the post-merger integration, the HR function
still profits from the personnel structures of the acquired en-
terprise and is less concerned with the condition of the ex-
ternal market than is the case in newly established foreign
companies.
28
Table 17
HR Checklist for the Post-Merger Integration Phase of M&As
Importance
score Factors
1.31 Existing staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)
1.35 Existing operating and working time regulations
1.37 Existing pay agreements
1.39 Existing individual agreements
1.43 Employee relations, in general
1.46 Existing regulations relating to the company pension plan and other company-level social benefits
1.47 Social contribution regulations, in general
1.49 Existing collective agreements (e.g., company-level agreements)
1.51 Local company culture
1.55 Working environment
1.59 Collective wage bargaining regulations, in general
1.67 Workforce availability, in general
2.12 Existence of trade unions
2.14 Trade union membership rate
1 – important; 3 – not important
29
Endnotes for Chapter 1
1 Meyer, K.E. and Estrin, S. (2001) 2 Picot, G. (2002) 3 Krug, J.A. and Nigh, D. (2001), Walsh, J.P. (1988), Walsh,
J.P. (1989)
30
Chapter 2 – Standardization of HR Practices
This chapter presents a summary of the results of Surveys 2
and 3 (headquarters and subsidiaries of MNCs) on the global
standardization of selected HR practices, including HRISs,
staffing, performance measurement, compensation and be-
nefits, and job evaluation. The main objective of this part of
the report is to identify practices that are most frequently
standardized throughout the worldwide operations of the sur-
veyed companies, rather than to answer the question why or
under which conditions such standardization takes place.
Thus, in this section we do not differentiate between different
market entry modes but focus instead on HR systems and
processes.
Human Resources Information Systems
The overwhelming majority of the surveyed companies used a HRIS (cf. Table 18 below).
Table 18
Use of HRISs
Answer Options Response Percentage
Yes 81.3%
No 15.6%
To some extent (payroll accounting only) 1.6%
Other (is being currently implemented) 1.6%
N = 64
However, although the global implementation of HRISs is
considered to be an efficient tool for controlling the foreign
operations of MNCs1, only 44.4% of the surveyed companies
reported that their HRIS was standardized globally. The re-
maining companies either do not have such a standardized
system (44.4%), have only a partially standardized HRIS
(5.6%), or are implementing such a system at the moment
(5.6%).
31
Table 19
Global Standardization of HRISs
Answer Options Response Percentage
Yes 44.4%
No 44.4%
Is being implemented 5.6%
Yes, but only in part 5.6%
N = 54
Staffing
Globally standardized staffing systems offer numerous ad-
vantages to MNCs. However, their implementation is also
hampered by a number of obstacles, related mostly to coun-
try-specific differences associated with HR.2 Table 20 below
summarizes some of these benefits and obstacles.
Table 20
Benefits and Obstacles to a Globally Standardized Staffing System
Benefits Obstacles
» Global database of qualified talent
» Quick identification of candidates to meet the
needs of a specific location
» Provision of a consistent message about the
company to candidates worldwide
» Quality of all hires is ensured
» Better understanding of country/regional needs
by all HR
» Global succession planning is enabled
» Global HR personnel have access to the latest
versions of products/tools
» Shared vision of HR globally
» Comparisons of staffing results across locations
» Global database as an internal benchmark of
achievement in different parts of the world
» Legal requirements across countries
» Educational systems across countries
» Economic conditions across countries
» Ability to acquire and use technology
» Labor market variations
» Availability of translated tools
» Role of HR in hiring varies across regions
» Familiarity with a tool or practice varies
» Limited local resources for implementation
Source: Adapted from Wiechmann, Ryan, & Hemingway (2003, p. 82).
32
Our study focuses on the global standardization of employee
selection methods, which represent—as shown in the previ-
ous chapter of this report—a key HR practice not only in the
implementation phase of greenfield investments, but also
during the same phase—mostly with respect to the executive
search—of M&As. We asked our respondents about using
the following standardized tools to select employees in their
locations worldwide: Job interviews, assessments centers,
and qualifying tests.
Overall, the majority of respondents stated that they did not
standardize employee selection methods, especially with re-
spect to manual workers. Throughout all the employee
groups, less than half of all the companies implemented
standard HR tools worldwide.
While slightly below 40% of all companies standardized job
interviews to select top management employees, less than a
quarter of all the respondents indicated that they used
standard assessment centers or qualifying tests for this em-
ployee group (cf. Figure 9 below).
Figure 9
Global Standardization of Methods Used for Selecting Top Management Employees
Several respondents reported a partial standardization of
their selection practices, e.g., for the first and second man-
agement levels. In respect to management employees below
the top management level, our respondents stated a higher
level of global standardization for selection methods.
39%
21%
24%
59%
53%
56%
2%
26%
21%
Job interviews
Assessment center
Qualifying tests
Yes No Non-existent
33
Figure 10
Global Standardization of Methods Used for Selecting Other Management Employees
Again, the respondents indicated the partial standardization
of employee selection, e.g., for the highest management le-
vels, as well as with respect to standardized employee selec-
tion tools such as an employee interview guide.
With respect to the global standardization of selection me-
thods for technical and clerical employees, standardized job
interviews were implemented in almost 41% of the surveyed
companies, which even exceeds the respective percentage
in relation to top management. However, the global use of
standardized assessment centers and qualifying tests was
stated as being rather modest (15% and 16%, respectively),
possibly due to high costs related to the implementation of
assessment centers—especially in international settings—
and varying institutional contexts in foreign locations.3
Figure 11
Global Standardization of Methods Used for Selecting Technical and Clerical Employees
44%
33%
29%
55%
46%
51%
2%
21%
21%
Job interviews
Assessment center
Qualifying tests
Yes No Non-existent
41%
15%
16%
59%
64%
65%
21%
19%
Job interviews
Assessment center
Qualifying tests
Yes No Non-existent
34
In the case of manual workers, all the selection methods
were predominantly reported to have not been standardized
throughout the operations of respective MNCs, job interviews
being the only method quite often standardized worldwide.
Figure 12
Global Standardization of Methods Used for Selecting Manual Workers
Performance Measurement
Performance measurement is a key component of perfor-
mance management systems in organizations. The im-
portance of efficient HR performance management systems
in MNCs is well documented in the academic literature.4
The overwhelming majority of the respondents indicated that
they used globally standardized performance measurement
systems for top-level and other management employees.
More than half of all the respondents stated that such a sys-
tem was implemented for technical and clerical employees.
With respect to manual workers, a global performance
measurement system was implemented in about a quarter of
all surveyed companies. The latter fact could be explained by
the rather strong influence of employee representatives in
this area, whereby organizational practices related to the
management of manual workers are especially susceptible to
the impact of collective bargaining agreements (see section
“Considering organizational and contextual factors”).
24%
3%
3%
63%
48%
63%
13%
48%
33%
Job interviews
Assessment center
Qualifying tests
Yes No Non-existent
35
Figure 13
Use of a Globally Standardized, Formalized Performance Measurement System
The globally standardized performance management sys-
tems implemented by the surveyed companies were reported
to be used to support decisions in various fields, including
headcount and career planning, advanced training programs,
and compensation and benefits. For top management em-
ployees these systems were used mostly for determining re-
wards. For the remaining employee groups, performance
measurement was implemented predominantly as a tool to
support decisions related to training.
Figure 14
Use of the Performance Measurement System to Support Decisions
71%
75%
52%
26%
29%
25%
48%
74%
Top-levelmanagementemployees
Other managementemployees
Technical andclerical employees
Manual workers
Yes No
0% 20% 40% 60% 80% 100%
Top-level management employees
Other management employees
Technical and clerical employees
Manual workers
Compensation and benefits Advanced training programs Career planning Headcount planning
36
Moreover, our respondents indicated that they used formal-
ized performance measurement systems for target setting,
succession planning for key staff, and talent management.
Compensation and Benefits
Given the caveats related to the global standardization of
reward systems in MNCs,5 we asked our respondents not
only to state the compensation elements standardized
worldwide, but also the extent of such standardization with
respect to the pay structure and local market targets. A con-
sideration of the above factors is necessary, due to various
assumptions underlying the notion of global standardization
which—given substantial differences with respect to econo-
mic conditions across the world6—predominantly extend be-
yond absolute pay levels. For instance, it might appear sur-
prising that base pay was stated to be the most frequently
standardized pay form (cf. Figure 15 below). However, the
notion of globally standardizing base pay does not necessari-
ly mean setting similar pay levels across the globe but refers
rather to the standardization of the pay setting procedure (in-
cluding total market targets described below).
Figure 15
Global Standardization of Compensation Elements for Top Management Employees
More than 60% of the surveyed companies standardize base
pay and individual bonuses for top management employees.
Company pension plans as well as benefits and perquisites
for top managers are also quite often standardized in the
surveyed companies. Conversely, employee stock purchase
programs (ESPP) and stock options were reported to be the
least frequently standardized compensation schemes for this
employee group, and almost half of all companies do not im-
plement such compensation plans for their directors at all.
However, in about 50% of the remaining companies such
schemes are standardized around the globe.
The patterns of the global standardization of pay elements
for other management employees presented in Figure 16 be-
low are very similar to those for top managers (cf. Figure 15).
However, with respect to all compensation elements, less
companies standardize compensation elements for this em-
ployee group.
63%
60%
38%
27%
26%
54%
45%
37%
37%
38%
25%
26%
41%
52%
3%
25%
48%
48%
5%
3%
Base pay
Individual bonuses
Group bonuses
Employee stockpurchase programs
Stock options
Company pensionplans
Benefits andperquisites
Yes No Non-existent
37
It is interesting that—unlike in the case of top management
employees—base pay was reported to be globally standard-
ized by a fewer number of companies than was the case with
respect to individual bonuses.
Figure 16
Global Standardization of Compensation Elements for Other Management Employees
Compensation elements provided to technical and clerical employees are reported to be far less standardized worldwide than
those for managers.
Figure 17
Global Standardization of Compensation Elements for Technical and Clerical Employees
57%
59%
35%
23%
20%
48%
44%
43%
38%
45%
26%
26%
42%
51%
3%
20%
51%
54%
10%
5%
Base pay
Individual bonuses
Group bonuses
Employee stockpurchase programs
Stock options
Company pensionplans
Benefits andperquisites
Yes No Non-existent
48%
39%
23%
15%
5%
38%
39%
52%
58%
58%
32%
36%
56%
58%
3%
18%
53%
59%
7%
3%
Base pay
Individual bonuses
Group bonuses
Employee stockpurchase programs
Stock options
Company pensionplans
Benefits andperquisites
Yes No Non-existent
38
As expected, the lowest level of the global standardization of
all compensation elements was reported for manual workers
(cf. Figure 18 below). The reason for this could lie in the ne-
cessity to comply with local collective bargaining agree-
ments, which in some cases will not allow for standardizing
pay even with respect to local market targets. Nonetheless, a
fairly large percentage of the surveyed companies standard-
ized compensation elements such as base pay, company
pension plans, and benefits (each time over 25% of re-
spondents). However, individual bonuses, which were re-
ported to be among the most frequently standardized for the
remaining employee groups (cf. Figures 15–17), are far less
frequently standardized for manual employees.
Figure 18
Global Standardization of Compensation Elements for Manual Workers
Pay Mix
According to recent survey data,7 the overwhelming majority
of US-American and Western European MNCs implement
global compensation strategies, above all, with respect to the
pay structures (i.e., pay mix or shares of pay elements as a
percentage) in relation to local market targets.
In our survey we asked our respondents to state if they
standardized pay structures across their international opera-
tions, in what cases local market targets were used (e.g.,
with respect to the absolute levels of total direct cash or with
respect to specific compensation elements as a percentage
of base pay), and which local market targets (e.g., mean or
median values) were used to determine local pay.
Figure 19 shows that the surveyed companies predominantly
standardized pay structures for top-level and other manage-
ment employees, which is consistent with the current litera-
ture on global rewards.8
38%
21%
22%
14%
2%
32%
27%
62%
73%
68%
31%
33%
60%
65%
6%
10%
55%
65%
8%
8%
Base pay
Individual bonuses
Group bonuses
Employee stockpurchase programs
Stock options
Company pensionplans
Benefits andperquisites
Yes No Non-existent
39
Figure 19
Global Standardization of the Pay Structure
Here, the standardization of pay systems has various forms
such as, for instance, standardized pay structures within
broad bands. One company reported that the standardization
of compensation systems was implemented only for em-
ployees not covered by collective agreements.
Figures 20–23 below present respective responses based on
valid answers, i.e., only in case the respective compensation
elements were implemented by the firms studied.
In response to the question on the existence of standardized
local market targets with respect to the level and structure of
pay, a large percentage of the surveyed companies indicated
that they used local market benchmarks to determine the pay
mix for top management employees, in particular with re-
spect to short-term variable pay (e.g., piece-rate, bonuses)
and long-term variable pay (e.g., profit sharing, stock op-
tions, etc.) as percentages of base pay. Nevertheless, over a
third of all surveyed companies indicated that they used local
market targets to determine absolute compensation levels of
total direct cash (including base pay and short- and long-
term incentive plans) and base pay for their executives. In
such a case, local market targets were used more frequently
to determine total direct cash than base salary.
70%
56%
28%
12%
30%
44%
72%
88%
Top-level managementemployees
Other managementemployees
Technical and clericalemployees
Manual workers
Yes No
40
Figure 20
Use of Globally Standardized Local Market Targets to Determine Pay for Top Management Em-ployees
The respondents additionally indicated that they implement-
ed only to some extent standardized compensation systems
or used broad bands for each hierarchical level.
In the case of management employees other than execu-
tives, an increased reliance on local market targets to deter-
mine absolute pay levels was reported by the surveyed com-
panies. On the other hand, fewer companies used local mar-
ket targets to set pay structures for this employee group
compared to top managers.
Figure 21
Use of Globally Standardized Local Market Targets to Determine Pay for Other Management Em-ployees
37%
34%
51%
48%
63%
66%
49%
52%
Absolute level of total directcash
Absolute level of base pay
Short-term variable pay as apercentage of base pay
Long-term variable pay as apercentage of base pay
Yes No
41%
38%
45%
45%
59%
62%
55%
55%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as apercentage of base pay
Long-term variable pay as apercentage of base pay
Yes No
41
With respect to non-management employees, local market
targets were used far less frequently to determine pay than
for those holding management positions (cf. Figures 22 and
23 below).
Figure 22
Use of Globally Standardized Local Market Targets to Determine Pay for Technical and Clerical Employees
Figure 23
Use of Globally Standardized Local Market Targets to Determine Pay for Manual Workers
34%
29%
28%
26%
66%
71%
72%
74%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as apercentage of base pay
Long-term variable pay as apercentage of base pay
Yes No
27%
27%
21%
17%
73%
73%
79%
83%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as apercentage of base pay
Long-term variable pay as apercentage of base pay
Yes No
42
Replying to the answer on the particular market targets with
respect to pay level and structure, the overwhelming majority
of respondents stated that they referred to the median levels
and percentages within the compensation mix to define pay
for all employee groups (cf. Figures 24–27).
Figure 24
Market Targets with Respect to Pay Level and Structure for Top Management Employees
Figure 25
Market Targets with Respect to Pay Level and Structure for Other Management Employees
20%
17%
14%
17%
68%
69%
71%
58%
9%
11%
6%
17%
4%
4%
8%
8%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as a percentage ofbase pay
Long-term variable pay as a percentage ofbase pay
Mean Median Above the median Below the median
18%
17%
16%
14%
69%
68%
67%
63%
9%
11%
8%
14%
4%
4%
8%
9%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as a percentage ofbase pay
Long-term variable pay as a percentage ofbase pay
Mean Median Above the median Below the median
43
Figure 26
Market Targets with Respect to Pay Level and Structure for Technical and Clerical Employees
Figure 27
Market Targets with Respect to Pay Level and Structure for Manual Workers
23%
24%
22%
18%
63%
62%
64%
58%
12%
12%
13%
21%
2%
2%
3%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as a percentage ofbase pay
Long-term variable pay as a percentage ofbase pay
Mean Median Above the median Below the median
26%
24%
18%
27%
63%
62%
63%
58%
7%
10%
8%
15%
5%
5%
11%
Absolute level of total direct cash
Absolute level of base pay
Short-term variable pay as a percentage ofbase pay
Long-term variable pay as a percentage ofbase pay
Mean Median Above the median Below the median
44
Job Evaluation
Recent studies have underscored the importance of global
job evaluation systems for the operations of MNCs.9 Given
the variety of job evaluation methods, we asked our re-
spondents (from Surveys 2 and 3) not only to indicate if the
job evaluation systems were standardized worldwide, but al-
so whether they implemented an analytical (based on an
identification and assessment of separate key elements of
each job) or a non-analytical (e.g., job rankings or job classi-
fications) global job evaluation for various employee groups.
In more than 40% of cases, the respondents indicated that
they used global job evaluation schemes for management
employees of all hierarchical levels, analytical job evaluation
being the most frequently standardized method.
Figure 28
Global Standardization of Job Evaluation Schemes for Top Management Employees
Interesting in this respect is that about one quarter of com-
panies did not implement any job evaluation schemes at all.
However, this is consistent with research conducted in single
countries. For instance, a survey of companies in the UK
showed that over 40% of the surveyed companies either had
never operated formal job evaluation or had abandoned such
a system.10
47%
31%
36%
29%
36%
34%
24%
33%
30%
Job evaluation in general,including:
Non-analytical job evaluation
Analytical job evaluation
Yes No Non-existent
45
Figure 29
Global Standardization of Job Evaluation Schemes for Other Management Employees
With respect to technical and clerical employees, the overall
implementation of global job evaluation schemes is slightly
below 40%. About the same percentage of the surveyed
companies (26% and 25%) reported that they used standard-
ized analytical and non-analytical job evaluation systems.
Furthermore, our respondents indicated that they referred to
company-level and industry-wide collective bargaining
agreements for both clerical and technical employees (if ap-
plicable) and manual workers.
Figure 30
Global Standardization of Job Evaluation Schemes for Technical and Clerical Employees
48%
30%
37%
29%
33%
34%
24%
37%
29%
Job evaluation in general,including:
Non-analytical job evaluation
Analytical job evaluation
Yes No Non-existent
39%
26%
25%
42%
50%
49%
19%
24%
25%
Job evaluation in general,including:
Non-analytical job evaluation
Analytical job evaluation
Yes No Non-existent
46
Over 30% of the surveyed companies reported that they
used global job evaluation schemes for manual workers. As
expected, a rather low percentage of respondents indicated
that they used standardized analytical job evaluation sys-
tems, which is consistent with the academic research on the
use of job evaluation, whereby companies tend to use non-
analytical schemes for manual workers, due to the existence
of well-defined skill and job classifications, or not to use job
evaluations for this employee group at all.11 There are also
indications of the often negative attitudes of worker represen-
tations towards job evaluation in general.12
Figure 31
Global Standardization of Job Evaluation Schemes for Manual Workers
33%
24%
13%
45%
49%
52%
22%
27%
35%
Job evaluation in general,including:
Non-analytical job evaluation
Analytical job evaluation
Yes No Non-existent
47
Endnotes for Chapter 2
1 Hannon, J., Jelf, G. and Brandes, D. (1996), Pucik, V. and Katz, J.H. (1986).
2 Wiechmann, D., Ryan, A.M. and Hemingway, M. (2003). 3 Delmestri, G. and Walgenbach, P. (2009). 4 Cascio, W.F. (2006), Cascio, W.F. (2011). 5 Dickmann, M. and Muller-Camen, M. (2006). 6 Mattson, R. and Turetsky, D. (2008). 7 Coleman, P. (2008). 8 Gross, S.E. and Wingerup, P.L. (1999). 9 Cf., for instance, Ganesan, S. (2011). 10 Armstrong, M. and Baron, A. (1995). 11 Ibid. 12 Ibid, Ghobadian, A. (1990).
48
Chapter 3 – Considering Organizational and Contextual Factors
The impact of organizational and contextual factors on HR-
related activities has already been described in the earlier
subsections of this report dealing with the consideration of
respective determinants in different stages of greenfield
investments and M&As, including such factors as the im-
portance of qualified workforce availability, the relative
importance of collective bargaining agreements, and em-
ployee representations. This section continues in this vein
to describe the employment relations contexts of the sur-
veyed companies as well as country-specific factors which
have an impact on the success of staffing activities.
Employment Relations
About half of the respondents (45%) stated that the worldwide unionization rate of their employees does not exceed 10%.
Table 21
Proportion of the Total Number of Employees Worldwide who Are Members of a Trade Union
Answer Options Response Percentage
0% 17.5%
1%-10% 27.5%
11%-25% 22.5%
26%-50% 15.0%
51%-75% 12.5%
76%-99% 5.0%
100% 0.0%
N = 40
In this respect, it is especially important to consider differ-
ences in trade union coverage among the countries. For
instance, in the majority of the Hungarian subsidiaries
analyzed, the proportion of unionized employees was equal
to or below 10% of the total payroll (cf. Table 22 below).
49
Table 22
Proportion of the Total Number of Employees in the Surveyed Hungarian Subsidiaries who Are Members of a Trade Union
Answer Options Response Percentage
0% 28.6%
1%-10% 42.9%
11%-25% 14.3%
26%-50% 0.0%
51%-75% 0.0%
76%-99% 0.0%
100% 0.0%
I don’t know 14.3%
More than 40% of the surveyed companies had a European works council.
Table 23
Existence of a European Works Council
Answer Options Response Percentage
Yes 42.1%
No 57.9%
The respondents indicated that employee representations
had a rather high impact on decisions in fields such as
protection against dismissal, working time, and perfor-
mance measurement, followed by base pay. The weakest
impact was reported with respect to share-based pay,
which is normally provided for management employees and
is thus not covered by basic collective bargaining agree-
ments.
50
Table 24
Impact of Employee Representations, Average Scores
Selected organizational issues Average score
Protection against dismissal 2.2
Working time 2.4
Performance measurement 2.9
Base pay 3.0
Training 3.1
Benefits 3.2
Variable pay 3.3
Company pension plans 3.4
Share-based pay 4.4
1 – strong impact; 5 – weak impact
Figure 32
Impact of Employee Representations on Selected Issues in the Organization
37%
22%
3%
12%
10%
6%
14%
12%
15%
30%
43%
26%
17%
17%
4%
7%
10%
27%
18%
22%
41%
41%
25%
4%
37%
38%
31%
7%
5%
19%
17%
27%
10%
14%
21%
10%
8%
8%
10%
14%
20%
76%
28%
19%
17%
Protection against dismissal
Working time
Training
Base pay
Variable pay
Share-based pay
Company pension plans
Benefits
Performance measurement
strong rather strong moderate rather weak weak
51
Overall, according to the Kienbaum partners surveyed,
manual workers were stated to be the most affected em-
ployee group, with top management being the employee
group least affected by collective bargaining agreements.
In general, this answer pattern was consistent across all
the countries, apart from Singapore, where collective wage
agreements were reported to have no importance for all
employee groups.
Table 25
Relative Importance of Collective Wage Agreements, by Employee Group
Employee groups Score
Manual workers 2.7
Clerical employees 3.1
Technical employees 3.3
Other management 4.1
Top management 4.4
1 – high importance; 5 – low importance
Accounting for Country Specifics with Respect to Staffing Activities
This section of our report presents the results of Survey 1
with respect to factors influencing the success of staffing
activities, on the one hand, and difficulties related to the
recruitment of specific employee groups, on the other.
There is a consensus in the academic literature that em-
ployer attractiveness depends on the organizational attrib-
utes of the company.1 Our respondents reported that the
most important factor influencing the success of staffing
activities is the general pay level in the firm, followed by
factors such as benefits offered and working conditions.
52
Table 26
Impact Factors on the Success of Staffing Activities
Impact factor Score
General pay level in the company 1.8
Benefits offered by the company 1.9
Working conditions in the company 2.1
Affiliation with a foreign corporation 2.2
Industry affiliation 2.4
Company size 2.4
Legal form 3.6
1 – high importance; 5 – low importance
The high importance of pay, benefits, and working condi-
tions was reported mainly in Germany and Austria. Affiliation
of a target company with a foreign corporation was stated to
be especially important in Russia, Singapore, and the Neth-
erlands. In the Czech Republic, industry affiliation was
stated as the most important factor in increasing the attrac-
tiveness of a job opening.
Figure 33
Impact Factors on the Success of Staffing Activities
Overall, difficulties hiring technical employees were report-
ed (cf. Table 27), and the issue of a lack of technical em-
ployees seems to be especially important in countries such
as Austria, Germany, Russia, and Singapore.
14%
29%
7%
43%
29%
21%
43%
14%
29%
50%
43%
43%
64%
36%
14%
36%
36%
7%
21%
14%
7%
71%
7%
7%
7%
7%
Industry affiliation
Legal form
Affiliation with a foreign corporation
Company size
General pay level in the company
Working conditions in the company
Benefits offered by the company
High impact
Rather high impact
Medium impact
Rather low impact
53
Table 27
Intensity of Problems Related to Staffing, by Employee Group
Employee groups Score
Technical employees 1.5
Other management 2.2
Top management 2.4
Manual workers 2.8
Clerical employees 3.2
1 – high intensity; 5 – low intensity
With respect to problems related to the recruitment of
employees from certain functional areas, it is more difficult
to recruit employees in the fields of information technolo-
gies (mainly in the Czech Republic and Germany) and
production (cf. Table 28 below). Specialists in the latter
functional field were reported to be especially rare in Rus-
sia, the country which—as stated above—also experiences
major problems recruiting technical employees.
Table 28
Intensity of Problems Related to Staffing Activities, by Functional Area
Functional area Score
IT 2.2
Production 2.3
Logistics 2.6
Sales 2.6
Purchasing 2.7
Finance 3.0
HR 3.0
Storage 3.3
Marketing 3.4
1 – high intensity; 5 – low intensity
54
Final Remarks
The results of the present study indicate that, overall, there
are significant differences with respect to human resource
management in greenfield investments and M&As. On the
one hand, companies initiating foreign M&A projects may
profit from existing HR structures and know-how and rely
on the existing personnel resources in acquired companies.
On the other hand, local institutional arrangements, above
all, with respect to employment relations can also make the
initial operation and redesign of operations more difficult,
which is consistent with the extant academic research on
market entry strategies.1
With respect to the global implementation of HR practices,
our results present a snapshot of practices, the degree of
worldwide standardization of which varies considerably for
different employee groups. Even in relation to practices
such as compensation, which is highly dependent on local
idiosyncrasies, there is a wide range of globally standard-
ized pay determination methods based on local market
targets.
Descriptions of the perceived influence of contextual fac-
tors on HR activities show additional determinants, which
may facilitate or inhibit the implementation of efficient HR
practices, namely employment relations contexts and
qualified workforce availability.
This report does not aim at analyzing why companies
decided to choose one of the two major market entry
modes. The majority of the surveyed companies were large
organizations with a wide presence across the globe,
which—relying on the academic literature on the topic2—
can explain the reported prevalence of greenfield invest-
ments over M&As carried out by companies. An investiga-
tion of the HR-related determinants of market entry mode
choice may constitute a challenging new project.
We hope that this report will serve as a useful practical
guide for HR managers and decision-makers planning new
foreign operations.
56
Endnotes for Final Remarks
1Brouthers, K.D. and Dikova, D. (2010), Estrin, S., Baghdasaryan, D. and Meyer, K.E. (2009).
2 Cf., for instance, Harzing, A.-W. (2002).
57
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Contact
Dr. Alexander v. Preen
Geschäftsführung und Partner
Kienbaum Management Consultants GmbH
Ahlefelder Straße 47
51645 Gummersbach
Fon: +49 2261 703-602
www.kienbaum.de
Dr. Hans-Georg Blang
Mitglied der Geschäftsleitung und Partner
Kienbaum Management Consultants GmbH
Beethovenstraße 12–16
60325 Frankfurt/Main
Fon: +49 69 963644-69
www.kienbaum.de
Authors
Prof. Dr. Marion Festing
Rektorin und Inhaberin des Lehrstuhls für
Personalmanagement und Interkulturelle Führung
ESCP Europe Wirtschaftshochschule Berlin
Heubnerweg 8-10
14059 Berlin
Fon: +49 30 32 007-153
www.escpeurope.de/pif
Dr. Ihar Sahakiants
Wissenschaftlicher Mitarbeiter
Lehrstuhl für Personalmanagement und Interkulturelle
Führung
ESCP Europe Wirtschaftshochschule Berlin
Heubnerweg 8-10
14059 Berlin
Fon: +49 30 32 007-120
www.escpeurope.de/pif
61