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BLB10025-3 International Human Resource Management

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Sathyadasen Jeevan [CB003210]

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01th march 2011

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Submitted in partial fulfilment for the


Degree of Bachelor of Arts (Hons) in Business Administration
Word count:2725



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According to Tayeb (1998, cited in Liu 2004:500) ³The Multinational Company (MNC) is a
powerful vehicle or the transfer of not only the capital and other production function but also
managerial and technical knowledge across nations´. According to Bartlett and Goshal et al
(1994.cited in Liu 2004:500) ³The effectiveness of human resource management (HRM) has
been seen as the key to success in MNC¶s in the 21 centaury´. The MNCs¶ always focus on
expanding its subsidiaries into new markets and exchanging best practices within it network to
improve it s competitive advantage through forward and reverse diffusion.

However transfer is not always possible. Due to difference in cultural and institutional factors of
economies. If the host country cultural and institutional factors are stronger than the host country
factors the transfer would be challenge and eventual would be rejected. According to Tayeb
(1996) ³national culture, government policies, industrial relations and regulation, power of
pressure groups, membership of regional and global agreements and institutions are examples of
external factors which have direct or indirect bearing on an organization¶s HRM´.

Even though the cultural and institutions distance is large some practices may be possible to
transfer due to factors such as dominance effect. The economic condition of the economy may
influence the transfer in major terms. For example a country like China and America the Cultural
difference is be large but transfer of IHRM practices would be possible due to the dominance
effect of America over china. However there are four stratergies MNCs¶ can adopt to transfer
IHRM practices and policies across national borders.Multi domestic. Internationalization, global
and transnational models.(Bartlet and Goshal 2000).



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V+0,$% 
I would like to thank Dr.Mahesha Samarathunga, for her continuous support and guidance in the
preparation of this study. Without her invaluable supervision, all our efforts could have been
short-sighted.

Dr Mahesha Samarathunga, Asia Pacific Institute of Technology, (Sri Lanka) helped us with
various issues during the thesis and we are grateful to her. Besides, a number of friends had
always been around to support us morally.

I owe quite a lot to our families who provided us the chance to fulfill our career objectives and
for the support throughout our studies. I would like to dedicate this study to them as an indication
of their significance in this study.

Finally, I am responsible for any errors that remain this thesis.

 



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Executive summary.

Acknowledgement

List of abbreviations

Section 1

Introduction

Section 2

Theoretical Framework

Section 3

Scenario 1

Section 4

Scenario 2

Section 5

Scenario 3

Conclusion

Reference



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List of Table

Table 1: sources of country of origin effects

Table 2: cultural distance between Japan and UK

Table 3:cultural distance between Spain and China

Table 4:Cultural distance between USA and UK

List of Figure

Figure 1:Centralized hub

Figure 2:decentralized federation

Figure 3: Intergarated Network structure



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HR-Human Resource

HRM-Human Resource Management

HQ-Head Quarter

IHRM-International Human Resource Management

MNC-Multinational Companies

NBS-National Business Systems

R & D - Research and Development

UK-United Kingdom

USA-United States of America.



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According to Tayeb (1998, cited in Liu 2004:500) ³The Multinational Company (MNC) is a
powerful vehicle or the transfer of not only the capital and other production function but also
managerial and technical knowledge across nations´. According to Bartlett and Goshal et al
(1994.cited in Liu 2004:500) ³The effectiveness of human resource management (HRM) has
been seen as the key to success in MNC¶s in the 21 centaury´.

This report would consist of the following aims and objectives to identify whether transfer of
IHRM practices and policies would be transferable and feasible in the new locations:

Aim 1 - Analyze and critical evaluate the key theories and concept that influence strategies of the
IHRM of the MNC¶s

Aim 2 - Demonstrate the problems involved in the transfer of IHRM policies.

Aim 3 - Compare and contrast MNC structure and models, and relate the model s and concept to
modern concepts to modern business problems.

Section two will initially outline the Theoretical Framework focusing on the theories and
academic work relating to this study. The third section will critically analyze and discuss the
Japanese bank setting up a subsidiary in the United Kingdom (UK).The fourth section will
critically analyze and discuss the scenario of a Spanish manufacturing location its production in
China. The fifth section will critically analyze and discuss the transfer of an American high tech
electronics firm opening a new site in Britain. Finally recommend and conclusion on the
desirability and feasibility of transfer HRM practices to their new locations would be stated.

As secondary source of referencing journal article would be used. This report is focused on the
feasibility and transferability of IHRM practices to the subsidiaries of the new locations
considering the differences in the economical and social environment.



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When a MNC expands it subsidiaries to new markets and locations across borders, the subsidiary
is managed and controlled by the home county cooperate headquarter, this is well explained by
the embedded theory. The MNC is influenced by many factors and sometime the transfer is not
possible or some policies and practices may be transferred but not all policies and practices can
be transferred. The possibility of the transfer depends on the distance between the environmental
and industrial level factors of the host country.

However cross border economics flows and coordination processes depends overwhelmingly on
national state legal systems, enforcement mechanisms, and institutional arrangements to manage
risks and uncertainty sufficiently to enable strategic decision to be made. When MNCs¶
internationalize it, remains highly interdependent with national agencies¶ and institutions¶
structure and actions, since the host country host countries national business systems affect the
operations of the MNC. As a result, its effect on established systems of economic organization
and firms are greatly guided and limited by variations in these national institutions (whitley
1999, cited in Edwards and Ress,2006:52)

The MNCs¶ therefore adhere to the theories of convergence and divergence. If the cultural and
institutional distance between the two countries is large the MNCs¶ would take the divergence
approach and if it is narrow the convergence approach would be used and all IHRM policies and
practices could be transferred directly to the host country.

According to Hofstede (1991,cited in wasti ,1998:610) ³concluded that national culture had a
major impact on employees¶ work related attitudes.Infact culture explained more of the
difference that did age,sex,profession or position in the organization. Hofstede¶s four dimension
of culture, along which a comparative analysis of nations can be carried out are µpower distance¶
µuncertainty avoidance¶ µindividualism/collectivism¶ and µfemininity /masculinity¶.´

However Edward identified four main influences in the transfer of IHRM policies and practices.
In simple terms the four influence frame work explain transfer could take place even there is a



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difference in the culture and institutional factors between the home and host county. The 4
influences are µcountry of origin effect¶, µdominance effect¶, µinternational integration¶, and µhost
country effects¶.

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Country Of Origin Impact on the subsidiary


Effect
Home country In a event of convergence, most of the senior management positions will
expatriates in the be occupied by the home country national, MNCs HQ adopted this
subsidiary. technique to execute the HR practices in an effective way because, they
are influenced by the culture of the home country.( Harzing, 2004)
The way in which According to O¶sullivan (2000) cited by Harzing (2004) Britain
firms are financed executives maintain a distend relationship between shareholders in
and governed. United state of America (USA) and on the other hand maintain a close
relationship with the Germany. Due to the distance in the NBS. And as
cited by Doremus et al (1998) MNCs will have a close relationship with
financial institutions contrast to the host countries.
Concentrate key Activities which are required innovation like, Research and
activities in the home development(R&D) and training and development will be imposed by
based. the MNCs HQ on the subsidiary in maintaining the nature of the
innovation of the MNCs (Harzing, 2004)
Institutional The way in which he firm adopts in managing its international
configuration workforce, for instant the way in which trade unions are treated
(Edwards & Ferner, 2001)
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Source: group project 2011



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The host country affects refer to the cultural and institutional factors of the host country, cultural
and institutional factors of the host country affect the transfer of the MNCs.So practices are
rejected by the host country due to the variance in the host country. According to Tayeb
(1998,cited in Myloni 2004:520) ³Failure to adopt HRM practices to the host countries¶ culture
can lead to negative consequences that inhabit a subsidiary¶s performance´.

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According to smith and Meiskins (1995:255-256 Cited in Harzing2004:396) dominance effect is


³a key factor in this respect is their perceptions of the strengths and weaknesses of economic
performance across countries. Strong performance in one country gives rise to interest in the
µborrowing¶ of elements of that business system by firms in other countries´. The MNCs¶
originating from a developed country would have a dominance effect over the host countries
cultural and institutional factors, transfer would be possible even there are differences between
the home and host countries ,this is due to developing economies are in favor of practice and
policies from developed countries. However, According to Edward ( 2000, cited in Harzing
2004:398) ³Reverse transfer does not occur and that is it is shaped by the notion of dominance
effect´. Reverse transfer would be mute.

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According to Edward (2000, cited in Harzing 2004:400) International integration is the ³extent to
which MNCs are internationally integrated, defined as the generation of inter-unit linkages
across borders´. Even though MNCs operate off national borders all the subsidiaries are



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controlled by the cooperate headquarter, all polices practices are share among all the
subsidiaries.

Since MNCs face multiculturalism Bartlet and Goshal introduced four approaches and structures
the MNCs can adopt to transfer their IHRM policies, µMulti-domestic¶, µGlobal¶, µinternational¶
and µtransnational¶, strategy .And the structure used in on each strategy is known as
µDecentralized federation¶, µa centralized hub¶, µa co-ordinated federation¶, µan integrated
network¶, structure. (Bartlet and Goshal, 2000).In the argument of local adaptation vs. global
integration .However perlmutter categories into four strategies which are Ethnocentric,
polycentric, Geocentric, Regiocentric strategies.



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Critically analyze and discuss the transfer of a Japanese bank setting up a subsidiary in the UK.

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The social norms, Gender equality, and working pattern between Japan and UK are large. This
means the cultural distance between Japan and UK is large.

As stated above in section one.Hofstede has analyzed and graded these cultural distance
according to, four cultural distances in accordance to the individual countries, Japan and UK.
Which are well explained bellow.

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Values 54 35

Analysis High Low

The power distance in Japan is high and UK is considerably low so the gap between the managerial
level and lower level staff is less and when the Japanese bank operates in UK these practices may
not be accepted, these practices will have to change according to the UK culture.

#"$"+$$+ #

Values 46 89

Analysis moderate High

Asians are more collective and work on a team based structure and prefer working in groups when
the Japanese bank operates in UK, UK individuals prefer working Individually.

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Values 95 66



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Analysis masculine Feminine and masculine

The Asian culture is more toward male domination ,the female participation is less in the
managerial position .

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Values 92 35

Analysis High Low

The measures taken to avoid possible future risks and to dominate possible future competition the
Japanese companies take into account risks that are possible in future and the act to it now.
"'$23+$ !"$ "+' ,5"*""

Source: Authors work.

The above diagram shows a high cultural distance between Japan and UK, since the company
culture is similar and linked to the national culture.

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The Japanese economy was widely perceived to be dominant power (Hazing and Rusysseyeldt,
2004:397).Therefore the Japanese MNCs has the ability to transfer IHRM practices and policies
to UK even there are differences in the cultural factors of UK. Forward diffusion would take
place in the scenario, the reverse diffusion would be muted. No transfer would take place from
UK to Japan.

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A national business system (NBS) perspective incorporate both cultural an d institutional


influences on HRM(ferner & Quintanilla,1998,cited in Elkassrawy n.d)Thus difference in the
NBS encourages instinct HR stratergies,structure and practices that distinguish companies
originated from different national context(.Dickman 1999).The institution factors consist of



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legal, political and educational system of the home and host country. The institutional distance
between Japan and UK is large. Japan is a developing country and UK is a developed country the
NBS of the countries are different.

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According to Huang (2000,cited in Elkassrawy n.d) ³Japanese companies rely on µlife time
employment¶ so it is very seldom to hire outside for high level position as they rely more on their
senior employee. Therefore, it gas been widely claimed that Japanese have strong commitment to
internal promotion and job filling´. Therefore more expatriates would be in the host country
subsidiaries .this shows are more of a country of origin effect. Hover ever these practices may be
rejected by the UK HRM practices since UK HRM practices differ from Japanese individual
HRM practices. Recruitment and selection is mainly done on the individual qualification and
skills acquired by the individual.



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Industry Banking

Organizational structure A centralized hub

Strategy The global form

 Subsidiary


Subsidiary
Subsidiary


 HQ
 Subsidiary
Subsidiary


 Subsidiary

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Source: Authors work.

The Japanese MNC is operates on a structure of a centralized hub and the corporate headquarter
controls and creates HRM policies and practices in each and every individual subsidiary. (bartlet
and Goshal 2000).Therefore the convergence approach is taken to transfer IHRM practices and
policies to the subsidiaries. However this structure would not be accepted by the UK company



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level factors and transfer would not be possible. The possible solutions would be discussed in
recommendations below.

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As analyzed on this report the social and economic difference between Japan and UK is high. As
seen by hofstede the distance between the senior level and lower level of the organization is lager
this sort of hierarchy would not work in UK since UK cultural practices are different so a
different approach would have to be taken to the organizational model in the set up of the
Japanese Subsidiary Bank in the UK.

The employees in UK prefer working individually that the Asian way of working in groups
therefore when aims and objectives are formulated. It will have to be focused on individual
achievements and goals will have to be formulated to individual targets.

The Japanese rely more on senior level employees and the high post will be awarded to the
employees who are there in the business or a long period of time. However this will not suit the
UK culture because the individuals are chosen according to the qualification and skill of the
individual itself to suit the task.

The NBS of China and UK are totally different and the Japanese Bank will have to totally adopt
the NBS in UK. Also the structure the Japanese Bank uses to connect to its subsidiaries does not
suit the UK .The Japanese Bank uses a one best way approach to transfer it IHRM policies so
therefore it does not consider differences in the host country, so therefore the transfer would be
rejected. The Japanese MNC could adopt a multi-domestic strategy which would make this
transfer a success.

There are many problems and differences between the two countries, so therefore there are
number of problem in the transfer in the transfer of IHRM practices and policies from the
Japanese headquarter to the UK subsidiary. This transfer would be possible f the Japanese MNC
re-strategizes its total structure and policies. However, this report does not recommend this
transfer to be feasible.



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Critically analyze and discuss the scenario of a Spanish manufacturing location its production in
China

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The cultural distance between Spain and china is large. This is due the difference is social and
economic conditions of the two countries.

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Values 57 80

Analysis moderate high

The power distance in Spain is moderate and china is high, this indicates that there is slight
similarity in the power distance between the two countries.

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Values 51 20

Analysis moderate Low

Asians are more collective so therefore individualism is low in China and moderate in Spain due to
its European nature.

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Values 42 66

Analysis Masculine and feminine masculine

China is more towards masculinity and all the top decision making managerial positions are being
held by the male employees; however is Spain there is a mix of both genders.



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Values 86 40

Analysis High moderate

Spain is more concerned on future risks, so the management decisions are based on future unlike
the chine¶s culture.

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Source: Authors work.

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China has a dominance effect. Chinese companies are highly culture rooted to its national
culture. The companies in china has a Chinese way of doing this, any external different practice
would be rejected by the Chinese culture. So therefore China is dominate over Spain so much
transfer of practice and policies from Spain would not be possible.

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The institutional difference between Spain and China is large. China is a developing country and
Spain is a developed country. Most of the institutional practices such as the legal framework and
the political system is different from one another.

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According to moriones (2002) ³Training directly geared to the job is by far the most frequent
form of training given in Spanish firms, since it takes up almost half the total training time.´
Spanish firm mostly concentrate on training and development of the employees. The cooperate
headquarter would tend to transfer theses practice to the subsidiaries also. Training and
development would be transfer in the Spain manufacturing.



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The Spanish manufacturing plant depends on more of the internal labourmaket, which are feature
in many firms; allow these to map out carriers for their workers. They do this by providing a
series of entry points at which to take on workers, usually on the lower rungs of the
organizational ladder. Later using a process of promotion to fill posts at the higher level.
(moriones 2002)The Chinese also do have a similar way of recruitment and selection techniques.
So therefore transfer of recruitment and selection practices to the Chinese subsidiaries would not
be a problem and the transfer would be accepted in China.

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Industry Manufacturing

Organizational structure A decentralized federation

Strategy Multi-domestic form

Subsidiary

Subsidiary Subsidiary

HQ
Subsidiary
Subsidiary

Subsidiary

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Source: Authors work.



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However the structure of the Spanish manufacturing firm shows decentralized federations , there
are loss operational controls by the corporate headquarter and the subsidiaries act as individual
firms in the host countries. There is less transfer taking place from the Home to Host country
subsidiary and the divergence approach of taken.

+" 

However the social and economical distance between Spain and China is large, Hofestedes¶
model shows a power distance exists in both the countries at a moderate level. China is more
toward masculinity, most of the senior level managerial positions would be granted to the male
gender, this would a problem when the Spanish manufacturing plant is established in China
because the Spanish operate equally so when a female is in a higher rank and when orders down
the line the male lower level male employee in china would have unwilling attitude.

Chinese employees are not used to work individually according to the Spanish system of
individualism. When tasks are assigned in the Chinese subsidiary, it will have to be formulated
according to group achievements.

The institutional factors as widely different between Spain and china. The Spanish manufactory
will have to hire or outsource the legal setup of the company since the factors vary from Spain.
However the Chinese companies are deeply culture rooted to it NBS so external influences for
outside MNCs¶ such as the Spanish MNC entering the Chinese market would be heavily
challenged.

So basically there are small differences between the social and economical factors between Spain
and China. However these Variances could be overcomes by the use of a deviance approach. So
this report recommends this transfer to be feasible.



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+ 8
+"!4
Critically analyze and discuss the transfer of an American high tech electronics firm opening a
new site in Britain

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The cultural distance between USA and UK is narrow. There is less differences between the
home and host social and economical factors.

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Values 40 35

Analysis Moderate Moderate

The power distance in USA and UK is more or less similar.

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Values 91 89

Analysis High High

Individualism in both countries are the same .Employee like to work on an individual basis.

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Values 62 66

Analysis Moderate Moderate

participation of female employees are moderate in both the countries, there is no domination in the
economy by one gender



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Values 46 35

Analysis Moderate Moderate

The uncertainty avoidance measures taken in both the countries are more or less similar.

"'$73$ !"$ "+' , V"

Source: Authors work.

Therefore however the above table shows a narrow and almost no cultural and institutional
distance between USA and UK.

"+))+ ' , V"-

America is dominating country with a dominating culture. The American culture is a way such;
Americans are fond of dominating markets all around the globe and transferring and dominating
practice and policies to all its subsidiaries on the other hand other economies are in favor of the
transfer of these practices and policies due to it dominating cultural itself. Other countries tend to
learn from these practices and policies created by America. However the American culture is not
a one way learning stratergy, policies and practices are also transferred from other countries to
the MNC headquarters in America. The culture is in such, the thirst for new ways and creation of
new strategies and practices are always welcomed.

   "$ "+' , V"-

However the US and UK culture and institutional distance in the electronic market is small, its
more or less similar except for the fact that the American legal system is a very highly complex
structure than UK.But most of the factors explained by Hofstede is similar .So therefore the one
best way approach would be used in the process of transfer of IHMR practices.



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Recruitment is totally based on the individual qualification and the individual skill. The
recruitment practices of both the countries are similar. The same techniques are used to recruit
employees to the firm. Promotions are based on the individual performance of the employee.
The hierarchy of the organization is low in both the countries there is less power distance too.

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Industry high tech electronics firm

Organizational structure An integrated network

Strategy Transnational firm


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Source: Google images(2011)

Since the American culture is fond of transfer in practices and policies, it takes the deviance
approach to transfer it practices and policies across national borders,Practises which are not
possible to transfer directly would be reformulated according to match the host country NBS and
then transfer back. On the other hand reverse diffusion would take place as well. As explained on
the above diagram ,the American firm uses an integrated network structure to connect and
transfer it practices and policies to it subsidiaries .This system is unique since this system will
consist of a regional headquarter as well.

+" 

The cultural distance between USA and UK is more likely narrow. There is less power distance
in USA and UK more or less similar in both the economies. Employees prefer to work on an
individual basis. Participation of female employees are moderate in both the countries, there is
no domination in the economy by one gender. America is dominating country with a dominating
culture so more transfer would take place from USA to UK but this would not be a problem due
to the indifference in the culture. However the US and UK culture and institutional distance in
the electronic market is small. Recruitment is totally based on the individual qualification and the
individual skill so there is no problem when this practice is transfer to UK because the
recruitment policy in UK is similar. The American MNC uses a transnational strategy and an
integrated network structure to transfer the IHRM practices and policies from host to host, this is
a good structure to transfer across -borders since it takes into account host country cultural and
institutional variances.

So basically there is no problem in the transfer in the transfer of IHRM practices and policies
from the American MNC to the UK subsidiary so, this report recomends this transfer to be
feasible.

 



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+$
The objectives of this report was to identify and advice the client of the three scenarios which is
well analyzed and provided with a clear and critical recommendation on whether the transfer
would be desirable and feasible of transferring IHRM practices and policies to its new
subsidiaries in locations. The author of this report has critically identified the significant cultural
and institutional difference between the home and host countries according to each and every
three scenarios.

The report identifies the scenario one to be unsuccessful in transfer if IHRM practices from
home to host. Scenario one due to the direct approach taken by the Japanese MNC.The transfer
would not be possible due to the high differentiation in the cultural and institutional factors of the
home and host country.

The second scenario however consisted of few mismatches between Spain and china but
however due the multi-domestic structure and the divergence approach taken by the Spanish
manufacturing plant the transfer would be Successful.

The third scenario has no problem with the transfer taking place between America and UK since
the there is no difference in culture, but however there is a slight difference in institutional factor
which would nut influence the transfer of IHRM practices and policies.

So therefore it conclusion the three scenarios have been critically analyzed and recommendations
are provided on each and every individual scenario on the desirability and feasibility of the
transfer of IHRM practices and policies from home to home country.



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)!+
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edition, Boston: Harvard Business School Press.

Child, J. (1994) Management in China during the Age of Reform, Cambridge: Cambridge
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