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Anthony Ferner
INTRODUCTION
CHARACTERISING IHRM AS A FIELD OF STUDY
THE EVOLUTION OF HRM IN MULTINATIONALS AS A FOCUS OF
STUDY
THE SUBSTANTIVE FOCUS OF IHRM
THEMATIC AND CONCEPTUAL CONCERNS
THE ROLE OF THE FUNCTION IN MULTINATIONALS
METHODOLOGICAL APPROACHES TO THE STUDY OF IHRM
CONCLUSIONS: FUTURE DIRECTIONS IN INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
NOTES
ENTRY CITATION
INTRODUCTION
This chapter considers the management of human resources across borders within
multinational companies (MNCs). This will be referred to as international human
resource management (IHRM). The term has been used in a variety of ways in the
literature, and one of the tasks of the chapter will be to clarify the terrain to which it
refers. The chapter first assesses the meaning of IHRM and its evolution as a field of
study. Second, it summarises the conceptual, substantive and methodological
preoccupations of work in this area. Among the issues reviewed is one of the defining
questions of IHRM, the travel of policies and practices between countries: the
conditions under which such diffusion takes place, the nature of the diffusion process,
and the impact of host environments on transferred practices. Also examined is the
nature of IHRM as a management function: how it is structured, how it is evolving,
and the characteristics that distinguish it from HRM in a domestic setting. Finally, the
chapter considers areas where the understanding of IHRM is underdeveloped and
suggests some directions for the evolution of IHRM research in the future.
states, and systems for the management of firmemployee relations all suppose
distinctive institutional arrangements that cannot be deduced from differences in a
handful of cultural values dimensions.
This is not to say that cultural value differences are irrelevant, merely that by
themselves they are inadequate forms of explanation; they do not capture real
differences in the ways in which economic activity is organised in different countries,
and throw little light on processes of change and evolution within business systems.
The real question is how values and norms inform and in turn are shaped by the
evolving institutions that govern economic life as actors with real power and
distinctive interests construct institutional arrangements, modify them and are in turn
constrained and shaped by them.
From this perspective, the core of IHRM as a field may be characterised as how
MNCs manage workforces spread over multiple national-institutional domains,
often with very different ways of organising business activity. Variations between
such institutional domains are generally more significant than those found within any
single domain. This is not to say that national institutional arrangements are
homogeneous. But the national level, coordinated by the actions of an overarching
national state, is key to understanding variations in institutional context faced by
MNCs in different host environments. Many national institutional sub-systems, such
as industrial relations machineries, vocational education and training, or the legal
framework of employee or union rights, have a very direct influence on how MNCs
operate in the terrain of HRM. Other sub-systems e.g. financial markets or firm
governance structures may have more indirect (though still powerful) influence on
how employees are managed.
There is relatively little work on comparative HRM per se. Yeung and Wong (1990)
devised a matrix capturing two dimensions of variation: an emphasis on performance
versus an emphasis on individual welfare; and a reliance on internal versus a reliance
on external labour markets. However, as Schuler et al. (2002: 57) note, the utility of
the model is limited by the failure to consider the role of the state, or to incorporate
macro-level relations between employers, the state and organised labour. More
sophisticated, comparative-historical approaches (e.g. Jacoby, 2004) appear to offer a
fruitful way forward for generating an understanding of the critical variables. Jacoby's
study of the evolution of the HRM function in US and Japanese firms highlights such
factors as state intervention and regulation, the nature of corporate governance, the
degree of labour unrest and the tightness of labour markets as drivers of the HR
function's role.
The existence of institutional differences between countries would not matter if
MNCs were merely collections of quasi-autonomous national subsidiaries orientated
to their respective local markets. Increasingly, however, such a model of multinational
organisation is the exception as firms try to exploit economies of scale or of the scope
for international organisational learning by coordinating their activity across countries
(Bartlett and Ghoshal, 1998; Dicken, 2003). Such coordination may involve, for
example, the international standardisation of processes and products. This may have
profound implications for HRM: in order to provide a standardised product to
customers globally, firms may seek to standardise skills and training across countries.
On this model, local pressures are constraints on the global coordination of MNCs'
activities. However, as Edwards and Kuruvilla (2005) point out, local institutional
variation is also an opportunity for coordinating activity in a segmented way through
an international division of labour or global value chain (e.g. Wilkinson et al., 2001).
In segmented coordination, corporate decision-makers exploit national institutional
differences in order to configure global value chains in the most effective manner, e.g.
by locating low skill operations in countries whose labour markets are poorly
regulated and where labour costs are low.
Some writers have criticised the focus on national difference as a key explanatory
variable. Colling and Clark (2002), for example, stress the importance of sector, and
writers such as Katz and Darbishire (2000) argue that international competition leads
to increasing convergence between firms within global sectors (with similar markets,
technologies, skills requirements, and so forth), and growing divergence between
firms in different sectors within the same country. Nonetheless, the importance of
sector does not undermine a comparative institutional perspective. Sectoral
governance structures are, for instance, often nationally specific (e.g. Hollingsworth et
al. 1994), while MNCs of different nationality tend, for reasons Porter (1990) would
ascribe to competitive advantages rooted in national economies, to concentrate
activities in particular sectors. Competition in the world economy takes place on the
basis of skills, resources and competitive advantages that are located within specific
institutional configurations in different host countries. The question, therefore, is how
national-institutional factors interact with sector, and how such interaction influences
IHRM.
The substantive range of IHRM research has been rather narrow. The single most
significant focus of attention, driven by policy and practice concerns, has been the
theme of expatriates. Nearly 30 per cent of IHRM articles in the International Journal
of Human Resource Management are primarily concerned with expatriates (author's
classification). Questions concerning the selection, training, adjustment,
compensation, repatriation, and failure of expatriates continue to be the standard fare
of this strand of research. Latterly, women expatriates have provided an additional
focus (e.g. Adler, 2002). Sometimes, expatriates have been considered in the broader
context of global staffing issues (e.g. Harvey et al., 2001). A much smaller, and
theoretically more resonant, element concerns the functions performed by expatriates,
going back to the classic work of Edstrm and Galbraith (1977); more recent work
looks at the role of expatriates in knowledge diffusion (e.g. Delios and Bjrkman,
2000; Novicevic and Harvey, 2001) and in systems of corporate control (Harzing,
1999). Expatriates have also been the focus of IHRM teaching, dominating graduate
IHRM textbooks (e.g. Dowling et al., 1999; Briscoe and Schuler, 2004); discussion of
substantive HR issues such as planning, selection, remuneration, and training and
development concentrates on expatriate employees. Even the text by Scullion and
Linehan (2005), which claims to go beyond expatriates, ends up focusing strongly on
the issue. The preoccupation with this group of employees is seen by Schuler et al.
(2002) as reflecting the ethnocentric bias of North American scholars: it is consistent
with efforts by US MNCs to manage foreign operations through parent-country
nationals. In recent years, the balance of the literature has shifted somewhat to
examine what might be termed functional alternatives to expatriates international
task forces, short-term assignments, virtual teams and the like (e.g. Harvey et al.,
2005; Snell et al., 1998; Tregaskis et al., 2005).
While expatriate concerns have dominated the agenda, HR issues such as pay have
received significant attention in their own right. In pay and performance management
there has been concern with the development of culturally sensitive global
remuneration policies (e.g. Schuler and Rogovsky, 1998); Lindholm et al. (1999)
found that performance appraisal systems of European MNCs' Chinese subsidiaries
had to be significantly adapted to local culture. Liberman and Torbirn (2000) looked
at an MNC's supposedly standardised regional performance assessment programme in
eight European countries and found wide variations in implementation across
countries, from total adherence to complete absence of quantitative performance
assessment of individuals among non-managerial staff (p. 47). Much of this work
sees national difference primarily in terms of cultural values (e.g. Newman and
Nollen, 1996; Schuler and Rogovsky, 1998), but other work is more concerned with
institutional differences and their impact on MNCs' pay and performance systems
(e.g. Almond et al., 2006).
Other individual aspects of HRM have less often been the subject of attention, though
there is work on management development (e.g. Evans et al., 1989; Butler et al.,
2006); training (e.g. McPherson and Roche, 1997); recruitment (e.g. Gump, 2006);
and workforce diversity or equal opportunity policy (Cole and Deskins, 1988; Ferner
et al., 2005; McGauran, 2001). In the 1960s and 1970s, there was considerable debate,
largely in IR rather than in the personnel management literature, concerning MNCs'
impactonnational IR systems, particularly collective bargaining and workforce
representation (e.g. Kujawa, 1979; Roberts, 1972). Considerable attention was paid to
the implications of MNCs' strategic advantages for union power (e.g. ILO, 1976).
decision-making (cf. Budhwar and Debrah, 2003). Such work emphasises the need for
fit between IHRM strategy and the internal and external environments of the MNC.
An example of a prescriptive model based on a strategic contingency approach is that
of Bird and Beechler (1995), in their study of Japanese subsidiaries in the USA. They
classify the external environment according to the degree to which competition is
local or global. Competitive strategies can be based on cost leadership or product
differentiation. They argue, for example, that cost leaders with high international
integration should adopt a utiliser HRM strategy, in which HR resources are
deployed throughout the firm as efficiently as possible, with a lean workforce.
However, this strategy is less effective where the firm has to adapt to local markets.
Among the most widely cited models is that of Dowling and de Cieri (1999; see also
Schuler et al., 1993). They outline a series of exogenous factors, such as industry
characteristics and national culture, and of endogenous factors, such as
organisational life cycle, structure, strategy and entry mode. These shape the strategic
role of IHRM in determining which HR functions should be devolved and which
centralised, the level of resources devoted to IHRM, and the overall HRM approach.
While such models usefully draw attention to the range of factors impinging on
IHRM, they may be criticised for a rather abstract and static approach, the
proliferation of contextual variables, and the concern with the management of senior
and international managers rather than the workforce as a whole. They also tend to be
prescriptive in nature, and the evidential basis for their prescriptions is not always
clear.
including from subsidiary to headquarters. Edwards (1998; Edwards et al., 2005) has
argued that such reverse diffusion depends on a variety of conditions internal and
external to the firm, such as the degree of international integration of the MNC and
the power relations between its constituent parts.
An innovative approach to transfer is taken by Schmitt and Sadowski (2003), who
examine transfer by US and UK MNCs to their subsidiaries in Germany in terms of a
model of fiscal federalism borrowed from public policy debates. Transfer takes place
where net benefits of transferring policy to the subsidiary outweigh net costs of
transfer. The costs of centrally diffusing policy include costs of monitoring,
overcoming resistance in the subsidiary, and infringing local custom and practice, if
not legal regulation. The costs of decentralisation include the loss of economies of
scale, equity issues arising from treating similar groups of employees differently in
different countries, and a loss of control and influence over the subsidiary. Schmitt
and Sadowski (2003) suggest that in the areas of collective bargaining and employee
representation, the German system imposes costs of centralization for MNCs that
outweigh costs of decentralization; MNCs therefore adapt to local practice.
The approach provides a flexible and powerful overall model that can accommodate
factors such as institutional differences as well as power relations within the MNC
(see below). However, it is limited in that it assumes that transfer is an either-or
process. In fact, there is considerable research showing that HR practices may be
transferred in a modified form, or undergo translation to the new context (cf.
Czarniawska and Joerges, 1996). As mentioned above, Lindholm et al. (1999) found
evidence that nominally standardised performance appraisal systems functioned
distinctively in Chinese subsidiaries. Similarly, examining innovative working
practices in the car industry, Scarbrough and Terry (1998) reported an adaptation
model of transfer in which the practice is adapted creatively to local circumstances
through the interactions of local unions and management. More radically, Boyer et al.
(1998) argue, on the basis of a study of work organisation in the automotive industry,
that transfer inevitably involves creative hybridisation, whereby an original practice
undergoes dynamic modification in order to work within a new institutional setting.
Kostova's work has thrown useful light on such modification processes. Working from
a new institutionalist perspective she distinguishes the implementation of a
transferred practice from its internalisation. The latter refers to the full assimilation
of the practice to the recipient employees' cognitive and normative frame so
freference (see also Saka's (2002) study of the internalisation of new working
practices in Japanese subsidiaries in the UK).
Underpinning concepts of HR hybridisation and similar notions are often implicit
perspectives on power. In reaction to the models of the corporation implicit in much
of the international business literature, writers have been concerned to characterise the
MNC as the site of intense micropolitics (e.g. Ferner and Edwards, 1995; Geppert
and Williams, 2006; Kristensen and Zeitlin, 2005). A key argument here is that
subsidiary actors are often able to derive power resources from their knowledge of
and embeddedness within the local institutional culture. Actors may influence whether
imported policies are adopted wholesale, paid lip service to, adapted, hybridised, or
even resisted and rejected by the subsidiary. It should be noted that local actors can
use their power resources to facilitate policy adoption rather than to block it. Local
knowledge allows MNCs to explore the gaps in the institutional context in order to
evade constraints; for example, MNCs operating in the highly regulated German IR
context have been observed to shift from one bargaining unit to another in order to
win more pay flexibility (e.g. Almond et al., 2006). As Bloom et al. (2003: 1363)
observe in relation to international compensation policies, Managers in our focal
organizations acted as pragmatic experimentalists: they conformed when necessary [to
local constraints], resisted when feasible and crafted strategic responses whenever
possible. The transfer of HR policies is seen, in short, as an essentially political
process.
The implications of the foregoing arguments for practice within MNCs are profound:
implementation involves far more than the propagation of a standard international
policy. One question concerns the mechanisms for ensuring the transfer and
implementation of policy. A commonly observed mechanism is the supplementation
of formal policy with person-based transfer, relying on the presence of expatriate
managers to disseminate practice and to oversee and monitor compliance. Another
mechanism involves the cooption of subsidiary managers into the policy-formulation
process, so that they feel they have a stake in the ensuing policy (e.g. Tregaskis et al.,
2005). Finally, MNC headquarters generally have sources of power at their disposal
with which to invite or compel compliance. International benchmarking and coercive
comparisons, with their explicit or implicit threat of sanctions, have been widely used
to propagate standard working practices in the face of local resistance (e.g. Coller,
1996; Mueller and Purcell, 1992). Moreover, personal rewards and promotion
opportunities of senior local managers are in the hands of higher-level decisionmakers.
markets such as the EU and NAFTA; and the importance of matrix forms, usually
combining business-division and geographical structures (Marginson et al., 1995).
Evidence suggests that the mode of organising the HR function varies considerably
between MNCs of different national origin (Edwards et al., 2007; Ferner and Varul,
2000; Wchter et al., 2006). A large-scale representative survey of MNCs in the UK
(Edwards et al., 2007) found that the degree of centralisation of HR policy-making,
the extent of higher-level scrutiny of subsidiary HR metrics, and the use of
technologies of IHRM such as global electronic information management systems
for HR (HRIS), all varied. For example, though subsidiaries generally have a
relatively high degree of discretion over the formulation of their HR policies,
subsidiaries of American MNCs have systematically less discretion on a range of HR
issues than firms of other nationalities. They are far more likely than others to have
international HRIS, suggesting that the availability of the technology may be a factor
in centralised control.
There appear to be a number of trends in how the function is evolving. First, the locus
of HR capability above subsidiary level is changing with the increasing use of
regional- and business-based international organisational structures. Second, more
fluid, informal mechanisms of HR coordination appear to be growing in importance.
This can be related to the rise in the integrated network model of MNCs in which
expertise is disseminated throughout the firm's operations rather than being
monopolised by headquarters. As a result, the identification and diffusion of
knowledge and practice in the HR field has become of increasing importance for
competitive advantage (e.g. Taylor, 2006). Third, new technologies have enabled a
variety of developments that are used to drive cost efficiencies and enhance central
oversight of HR across global operations (Sparrowetal., 2004: chapter 4). These
include HRIS based on standard software programmes allowing MNCs to monitor
and deploy personnel for competitive advantage (Hannon et al., 1996). A related
development is increasing use of corporate intranets to deliver global HR services to
internal customers (e.g. Ruta, 2005).
Technology has also driven the taylori-sation of HRM operations at regional or
global level by allowing the separation of routine, repetitive and procedural work
from the more strategic work of HR executives. Routine work may be delegated to
HR shared service centres, often working remotely through call centre operations
serving a range of subsidiary operations in different countries. A significant
proportion of MNCs up to half of large MNCs appear to make use of such
international HR service centres (Edwards et al., 2007). An example is IBM's location
of its international shared services centre, including HR activity, in Budapest in the
early 2000s. Moreover, such off-shoring of HR activities has sometimes been
accompanied by outsourcing as specialist BPO (business process outsourcing) firms
take over responsibility for off-shored HR and other business functions (e.g.
Hoffmann, 2005). This evolution reflects the challenge involved in maintaining
specialist shared service centre skills, and the high technological infrastructure costs
incurred (Kidman, 2005). However, such emerging trends have not yet been subject to
sustained academic analysis.
potential for development. For example, Lane and Probert (2006) have investigated
the national differentiation of labour management and the structuring of skills within
global supply chains in the clothing industry (see also Bair and Ramsay, 2003;
Frenkel, 2001). With the continuing evolution of forms of cross-national production
networks, such research seems likely to become of increasing importance.
Finally, methodologically, there are a number of challenges. First, good, detailed
longitudinal studies are rare. In a field evolving so rapidly and dynamically as IHRM,
such studies of key cases are needed to map the evolution, and to trace the linkages
between contextual driving forces and IHRM processes and practices. Case studies
remain a key method of accessing the subtle and complex processes underlying the
management of IHRM. There are particular problems in researching categories of
cases of considerable practical and theoretical interest for example, low road firms
whose IHRM is premised on low-skill and low-cost strategies. Second, surveys have
been the dominant method in the field, but there are considerable difficulties in
identifying robust populations from which to draw reliable representative samples.
Moreover, surveys have tended not to generate large comparative datasets, allowing
the systematic analysis of the IHRM practices of MNCs in different sorts of host
environments. Third, the variety of methods deployed in the field of IHRM has been
relatively restricted. A range of innovative methods might prove fruitful. For example,
formal network analysis (e.g. Gould, 2003) might be used to track career moves of
international managers, power and influence flows within the international HR
function, or cross-national learning networks. Such methods could well reach aspects
of IHRM unobservable through more conventional means. Finally, the range of
geographies covered by research has been limited, and could usefully be expanded.
More sophisticated understanding of the institutional dynamics of a wider range of
MNC hosts is required, both among developed and developing countries. The latter
are also increasingly the source of emerging MNCs that merit study in their own right.
NOTES
1 It should be noted that the broader study of IHRM goes beyond the multinational
companies with which this chapter is primarily concerned: it includes, for example,
bodies such as the United Nations, or international charities.
2 The establishment of the European Journal of Industrial Relations in 1995 provided
another outlet for such work.
3 An exception, currently in progress, is work by a consortium of researchers in the
UK, Canada, Ireland, Spain, Mexico and Australia using a common core instrument to
research HR in populations of MNCs in the respective countries (Edwards et al.,
2007; Murray et al., 2006).
Further Readings
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