Should the academic study of International HRM have country or company as the main unit of analysis?

Justify your answer with reference to International and Comparative dimensions of HRM.

Introduction:

Internationalization is not a new term and it has probably been used for centuries in various Political, Social,
Government circuits etc. However, its popularity in the context of business has really occurred during the last
three decades with the evolution of communication and transport technologies, the growing economic markets
across the national borders, the constantly increasing pressure of competition, improved mobility of people
and necessity for knowledge and market access (Griffin and Pustay, 1998, in Özbilgin, 2004).

The communication and transportation technologies have probably played an important role in ‘opening’
national borders and in that way enabling a vast majority of businesses to spread their activities outside of
their Home country arena. In those new environmental conditions many academics have seen Multinational
Companies (MNC’s) as a logic step in the development of international capitalism. The consequences were
that many MNC’s have managed to achieve unprecedented economic and political success although this
journey of becoming a successful international player proved to be quite difficult to realize as they have had to
operate between divergent National, Regional and Political economic context.
“The challenges of the international context have encouraged international companies to develop new ways
of doing business or to transfer their established practices between their home and host countries. While
some companies have adopted ethnocentric approaches, choosing to transfer their home-country practices to
their international operations, others have diversified or localized their business practices to the specific
conditions of the host countries (Adler 1991). At the operational level these strategic choices are translated
into choices for functional areas in business, including human resource management.”
(Özbilgin, 2004).

MNC’s dominate today many Industrial Sectors (e.g. car, electronics, oil etc) and are increasingly coming to
dominate Service Sectors in particular telecommunications and financial services. According to 2003 figures
from the United Nations Conference on Trade and Development there were 65000 MNC’s that were
employing 54 million people Worldwide in direct or indirect way. That is an increase of app 30 million from
1990 (Dowling and Welch, 2004, in Edwards and Rees, 2006). So, the growth of MNC’s is seen as one of the
driving forces of the process of internationalization.
(Edwards and Rees, 2006)

It was suggested that this growth of internationalization has led to a more strategic role for HRM and therefore
that the need for a systematic approach to studying International HRM has been increasingly recognized. The
Human Resource Management is now seen as a core factor in achieving an efficient and at the same time an
effective Multinational company. One significant indicator and evidence of this is the rapidly growing body of
research on the IHRM strategy and practices of MNC’s in North America (Brewster and Harris, 1999) as well
as in Europe with the aim to remove the obstacles for the international trade within EU (Brewster and Scullion,
1997, in Harzing and Ruysseveldt, 2004).

The main reason for the growth of interest in IHRM as outlined by Scullion:
- The pressure of global competition has led to increased mobility of human resource
- The effective management of HR is being recognised as a major factor in success or failure in
international business.
- Shortages of international management talents
- The rapid growth of SME internationalisation
- With the move from traditional hierarchical organizational structures towards the network MNC
organization; there is growing evidence that HR is playing a more significant role including also strategy
implementation and control of MNC’s
(Harzing and Ruysseveldt, 2004)

Although there is lack of consensus on demarcation of the scope and academic study of IHRM, here we will
analyse and examine whether the academic study of IHRM should have Country or Company as the main
unit of analysis by considering two dimensions of HRM i.e. International and Comparative.

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Analysis:

As indicated above, for the purpose of this analysis it is useful to consider HRM as having two approaches
and influences: Comparative and International.

The Comparative HRM approach stresses the way in which different national cultures influence HRM
practices. It suggests that HRM practices present within the particular Society reflect National, Cultural or
Local conditions that all firms have to conform to. In this sense Comparative analysis is rather conservative as
emphasising continuities within Societies and differences between Societies rather than change within and
across Societies.

Comparative perspective on HRM identifies different approaches to the analysis of HRM i.e.
i) Cultural and ii) Institutional.

i) The first set of explanations comes from a cultural perspective -> national styles, values, moral… etc are
stable and very difficult to change as cultural heritage or “rules of the game” are seen as comfortable, familiar
and therefore efficient for the society over the centuries. So, from it follows that each society is unique,
organizations within those societies are unique operating on culturally specific codes and therefore the style of
management are also unique (Hofstede, 1980, in Smith, 2007). However, the cultural approach raises certain
concern as most societies are multi-cultural, multi-religious, influenced by other societies, everything changes
so it does each society and culture also ignores divisions between classes in the same society. So, a cultural
explanation does not provide a complete explanation of the differences between HRM in different nations.

ii) On other hand institutional factors can be seen as the main explanation of national differences. National
rules guide organizations, managers and employees within organizations to conform to national ways of doing
things. Therefore organizations cannot be immune from the institutional context which they are influenced by
and the difference between countries and their political, social and legal institutions create differences in their
strategies and therefore they are likely to show the difference in their respective HRM. The difference in ruling
parties, employment legislation, education, labour market, trade union etc has a direct effect on HRM within
employing organizations. However, even though the influence of the national element is so obvious it is
equally obvious the existence of diversities within national context itself which casts certain doubts and
reservations on this approach. We also cannot ignore external influences which in many cases lead to
knowledge being shared between different countries which lead towards adaptation, modification and even
standardization of certain processes within firms.

The International HRM approach primarily examines the HR policies within MNC’s i.e. what is common to
MNC’s in regards to the management of people as HRM puts people at the centre of the firm as a
knowledgeable and renewable resource capable of delivering competitive advantages to the firm in business
environments where competition is more intense and innovation oriented.

International perspective on HRM also identifies different approaches to the MNC and HRM:
1) The Business Strategy and Economic approach &
The growth of MNC’s has had significant implications on International HRM and a main agenda for IHRM is to
get an answer whether MNC’s seek to standardise practices and adopt common strategies to coordinate and
control functional areas of business including HR as you would expect considering the fact that there are
common things between MNC’s irrespective of their country of origin and therefore stresses the importance of
the firm as the unit of analysis.

2) The Industrial Relations and Organisation Studies approach

On other hand there are views that MNC’s are national firms with international operations and therefore reflect
home country practise especially where we have strong states and strong firms (British MNC’s, Japanese
MNC’s, German MNC’s etc) or a combination of Home, Host or Hybrid practices. Further to this, while we can
probably agree that technology and products can be free from the national element, on other hand all people
are marked by their history, beliefs, work ethic etc and therefore IHRM practices simply reflect country of origin
practice in quite a significant way.
(Smith, 2007)

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Bartlett and Ghoshal research of successful enterprises on the international market is today probably the most
used approach in explaining and presenting different types of internationalization and its connection to or
dependence on business strategy and organisation structure as well as their interaction with environmental
factor and the implications these have on IHRM.

It is worth pointing out that the view that HRM depends on its connection to business strategy is mainly Anglo-
American view while for instance Japan represents organization centric view of HRM (i.e. its connection to firm
strategy where careers are embedded in the firm for long period) and then the Chinese case where state
plays powerful role and therefore HRM depends on its connections to state strategy.

So, through the process of internationalization Bartlett and Ghoshal have identified three Strategic Objectives
that MNC’s have to consider in order to build and sustain competitive advantages for MNC’s (i.e. Differences
in input and output markets – the existing national differences to be used for MNC’s advantages; Economies
of scale – the scale of production increases by increasing the volume of firms output & Economies of scope –
less expensive to produce more products within the same firm, as defined by Ghoshal 1987):
- MNC’s operate in different national locations and they need to consider Multinational Flexibility that will
enable them to be responsive to the local demands.
- They also need to consider Global Efficiency i.e. cheapest and fastest coordination of MNC’s in order to
enhance revenues and at the same time lower costs.
- The last one is to spread knowledge under pressure for MNC’s to respond to rapidly involving markets –
so the last pressure is for Worldwide Learning.

These are the Key Influences on Strategy and Structure on MNC’s and Key Forces on HRM Practices within
MNC’s.

The changing international environment and these competing pressures on international scene, Bartlett and
Ghoshal took into consideration and they suggest that these forces have pushed companies to develop
different business or competitive strategies and organisational structures in order for MNC’s to be ready to
meet those demands:
Multi-domestic strategy => this business strategy can achieve Global Efficiency objectives mainly by
increasing revenues by responding to differences in local preferences and government regulations. MNC is a
decentralised federation where Country of Origin effect is not present. The impact of this strategy on HRM is
the nation-specific HRM policies implies and therefore no IHRM as such.
International strategy => it can achieve Worldwide Learning objectives and it is associated with Vernon’s
(1966) PLC model. MNC is co-ordinated federation with the main task of transferring Home country
knowledge and expertise to its subsidiaries. The impact on HRM is that IHRM now becomes more explicit but
only as key points of contact between Home and subsidiary HRM.
Global strategy => it can achieve Global Efficiency objectives by locating production in low cost labour
countries and for instance keeping R&D at Home country. MNC is a centralised unit with standardise
production approach with aim in achieving cost efficiency and therefore it limits MNC’s flexibility. IHRM
becomes highly critical as it reflects Home country policies and practices and it depends heavily on home
expatriates. One of the main concerns of Host countries is that their operations become dispensable during
the economic downturn.
Transnational Strategy => it recognises that in today’s climate it might be necessary to pursue all three
Strategic Objectives in order to build a strong and successful MNC and therefore be able to respond to both
global efficiency and national responsiveness strategic demands.
So, MNC while developing global rules under pressure to meet the needs for internal consistency within them,
at the same time if necessary they can also ignore global rules when local rules favour their interest (Dahan,
Doh & Guay, 2007, in Smith, 2007). MNC represents an integrated network structure comprised of
subsidiaries, each with a strategic role for a certain area, usually called “centres of excellence”. The key
impact on HRM is for development of International executives and personal mobility in order to hold the firm
structure together. This also includes the transfer and exchange of knowledge. So, the concern of Host
countries from Global approach disappears as each sub-unit will be given a specialist and critical role in the
firm.

Further to this, as a result of a large scale empirical test of more than 100 MNC’s in 9 countries based on
Bartlett and Ghoshal typology gave us three ideal types of MNC’s (Harzing, 2000): Global, Multidomestic &
Transnational Companies. Bartlett and Ghoshal see Transnational organisations as supreme structure for
building a strong and operationally successful MNC in an international context.
(Harzing and Ruysseveldt, 2004)

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However, today’s reality is that very few MNC’s will neatly fit any of these three ideal types. There are national
differences between MNC’s and the implication of it is that while they are facing common international
organisational challenges they will not imply the same or ‘best’ strategy based on their business objectives as
they are influenced by the country of origin factor. This also applies for MNC’s within the same Industrial
Sector and within the same National economy where we can see how MNC’s pursue different strategic
objectives, for instance Japanese car MNC’s in UK – Toyota/Nissan unionised and Honda non-unionised
approach (Elger and Smith, 2005).
The case study of Swedish MNC Swedco actually suggests as MNC becomes more mature the influence of
the country of origin may erode as in the Swedco’s case where the senior management perceived the UK
management performance and development practices as being highly desirable. (Harzing and Ruysseveldt,
2004).
Further to this, within Transnational companies there are multiple interest groups each one is looking at their
own interests and priorities where strategies emerges as a result of compromise between them. Therefore we
cannot ignore the importance of firm’s politics in MNC’s as highlighted through the case study of the ABB
transnational company (Bartlett and Ghoshal, 1998, in Edwards and Rees, 2006).

Case study:

My current company Damovo UK Ltd used to be part of Ericsson Enterprises performing the role of a
subsidiary that focused on direct sales and services in the UK market. There were in total 19 subsidiaries
across the Globe each one focusing on its local market demands. Ericsson Enterprises strategy was Global
strategy aiming to achieve Global efficiency objectives for a long time. The business was performing extremely
well for more than two decades. However, during the economic downturn in 2000 all subsidiaries were sold
together through acquisition to Apax Partners. The new company Damovo Group Ltd was formed with HQ in
UK/Scotland even though there was no ‘real’ Home Country as Ericsson Enterprises with this sale started an
indirect business strategy in this sector. The new owner tried to restructure Damovo group (based in 19
different National arenas across 4 Continents) in order to make a truly Transnational company. That approach
failed soon after it started, in a couple of years. The Global Team, (comprising mainly the resources from UK)
which operational cost reached app £20 million per annum was dismissed including the ‘Global HR’ team
which again was mainly formed by the resources from UK. Since then quite a few subsidiaries were sold and
the remainder of the Damovo group, 10 countries across 2 Continents, has now adopted a Multi-domestic
strategy as the dominant approach with the aim to achieve Global Efficiency objectives and at present
Damovo Group Ltd is performing quite well. Now I can understand why Damovo Group Ltd failed in its original
attempt as well as why the new/latter approach worked exceptionally well, so far. In the former approach it
would appear that the Senior Global Management team completely ignored the Host Country effect in its
subsidiaries, their strong Culture effect and no emphasis was given to the knowledge transfer and
development of international executives (i.e. they were primarily employed from UK). In the latter approach all
these factors were taken into consideration including the vary nature of Damovo Group Ltd i.e. each country
being mainly and heavily specialised in its own local market demands and conditions for over two decades.

Conclusion:

From the above it becomes evident that IHRM currently experiences various challenges and dilemmas, for
example:
There are divergent and convergent forces within IHRM so does IHRM argue in favour of a unique MNC form
and standardized HR practices or country of origin concept of MNC and HR practices that reflect home
country practice?
Further to this, does it argue in favour of standardised or nationally different versions of IHRM with American
and Japanese HR practices being perceived as ‘best practise’ and therefore influencing all MNC’s in the
transfer of those practices?

Although one thing is certain in the IHRM approach i.e. the HRM strategy is made within the firm but for a
better understanding of the nature of IHRM in MNC’s it would appear that we need to study IHRM in context of
firms, industry and their environment in ever so changing economic and business conditions (Jackson and
Schuler, 1995). So, the academic study of IHRM may need to use multiple levels of analysis when studying
IHRM such as Firm, Industry, Institutional, Cultural, Political, Economic, Subsidiary as well as Individual as
they all have important implications when studying the influences on HRM strategy in the MNC’s. Therefore
any study in contextual isolation will most likely fail to enhance our knowledge on this matter (Adler, and
Ghadar, 1990, in Schuler, Budhwar and Florkowski, 2004).

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References:

• Harzing A-W. and Ruysseveldt V.J.(2004) International Human Resource Management. London: Sage.
Part 1, Chapter 15.
• Edwards T. and Rees C. (2006) International Human Resource Management. London: Prentice Hall.
Chapters 1, 2, 3, 4 & 5.
• Özbilgin M (2004) International Human Resource Management. London and New York: Palgrave.
Chapters 1, 2 & 10.
• Smith C. (2007). International Human Resource Management. London: University of London Press.
Chapters 1, 2, 3, 4 & 5
• Schuler R.S., Budhwar P. and Florkowski G. (2004) International Journal of Management
Reviews. Available: http://ssrn.com/abstract=309017 (Accessed: 2009, February 23).

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