International Human Resource Management-MJ Version

International Human

Resource Management

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International Human

Resource Management

SAGE Publications

London l Thousand Oaks l New Delhi

second edition

edited by

Anne-Wil Harzing

Joris Van Ruysseveldt

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First published 2004

Apart from any fair dealing for the purposes of research

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Printed in Great Britain by The Cromwell Press Ltd, Trowbridge, Wiltshire

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Contents

Acknowledgements vii

Foreword by Nancy J. Adler viii

Contributor Biographies x

Abbreviations xvi

Introduction 1

PART 1 INTERNATIONALIZATION: CONTEXT, STRATEGY,

STRUCTURE AND PROCESSES 7

1 Internationalization and the international division of labour 9

Anne-Wil Harzing

2 Strategy and structure of multinational companies 33

Anne-Wil Harzing

3 International human resource management: recent developments

in theory and empirical research 65

Hugh Scullion and Jaap Paauwe

4 Human resource management in cross-border mergers and acquisitions 89

Günter K. Stahl, Vladimir Pucik, Paul Evans

and Mark E. Mendenhall

Part 2 HRM FROM A COMPARATIVE PERSPECTIVE 115

5 Cross-national differences in human resources and organization 117

Arndt Sorge

6 Culture in management: the measurement of differences 141

Laurence Romani

7 HRM in Europe 167

Christine Communal and Chris Brewster

8 HRM in East Asia 195

Ying Zhu and Malcolm Warner

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Contents

9 HRM in developing countries 221

Terence Jackson

PART 3 MANAGING AN INTERNATIONAL STAFF 249

10 Composing an international staff 251

Anne-Wil Harzing

11 Training and development of international staff 283

Ibraiz Tarique and Paula Caligiuri

12 International compensation and performance management 307

Marilyn Fenwick

13 Repatriation and knowledge management 333

Mila Lazarova and Paula Caligiuri

14 Women’s role in international management 357

Hilary Harris

PART 4 INDUSTRIAL RELATIONS: A COMPARATIVE

AND INTERNATIONAL PERSPECTIVE 387

15 The transfer of employment practices across borders in

multinational companies 389

Tony Edwards

16 Varieties of capitalism, national industrial relations systems

and transnational challenges 411

Richard Hyman

17 Industrial relations in Europe: a multi-level system in the making? 433

Keith Sisson

18 The Eurocompany and European works councils 457

Paul Marginson

Author Index 482

Subject Index 490

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Acknowledgements

So much has changed since the 1st edition. We cannot even begin to encompass

the changes which have occurred in our now ‘globalized’ world. However, the

nature of academic work has also changed considerably since the 1st edition of

this book was published in 1995. Internet access and email have transformed

our daily working lives. Internet access means having information at our

fingertips. However, it also means an increasing challenge in assessing the

relevance of all this information. The contributors of this book have done an

excellent job in sifting the wheat from the chaff. The use of email has made it

much easier to communicate with authors. While for the 1st edition, much of

our editorial work was done via fax or even personal meetings with the chapter

authors, the current edition was based on email contact alone (a lot of it!). This

has made it possible to involve authors from a far wider range of countries than

before.

Much has stayed the same as well. First, our philosophy that the book be

developed as a research-based textbook has remained constant. The book

reflects the characteristics of the transnational MNC in that we think it com-

bines the benefits of knowledge transfer (authors who are experts in their

field), integration (a coherent textbook) and local responsiveness (authors from

many different countries as well as chapters specific to Asia, Europe and Africa).

What never changes is the fact that for such an undertaking many people

deserve acknowledgements. First of all we would like to thank Arndt Sorge for

encouraging us to embark on a 2nd edition. If he had not spoken so convinc-

ingly about our duty to the field, this 2nd edition may never have materialized.

Second, we owe a big vote of thanks to our authors. Given the scale of the task

of coordinating the editing of 18 chapters from around the globe, Anne-Wil

would particularly like to acknowledge their wonderful responsiveness to the

repeated requests for text revision. Their cooperation in working within the

deadlines made the job so much easier. Anne-Wil’s research assistant, Sheila

Gowans, performed her job as proofreader with a perfect blend of commitment

and conscientiousness.

At Sage, Kiren Shoman was the first to believe in the book and convinced

the Sage board of the need for a 2nd edition. She was later joined by Keith Von

Tersch and together they made a perfect team. Seth Edwards then ensured that

the book moved through the production process smoothly, while Ben

Sherwood took care of the all important promotion of the book.

Anne-Wil Harzing

Joris Van Ruysseveldt

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Foreword by Nancy J. Adler

Which is farther, the sun at sunrise or the sun at noon? The first sage argued,

‘At sunrise, of course, the sun is closest when it is largest.’ The second sage

vehemently disagreed, ‘No, at noon, of course! The sun is closest when it’s

warmest.’ Unable to resolve the dilemma, the two sages turned to

Confucius.com for help. Feeling the sun’s fading warmth as it lowered itself

into a blazing sunset, Confucius remained silent.

Myth, misinformation, and silence have pervaded the field of international

human resource management (HRM) since its inception.

Understanding the

dynamics of people in organizations has always been challenging. However,

never prior to the twenty-first century has the intensity of globalization inter-

acted so profoundly with organizations and the people who lead them and

work in them. To understand the challenges of twenty-first century organi-

zational efficacy is to address the myriad of dilemmas facing people who con-

stantly work outside their native country with people from wider and wider

ranges of the world’s cultures.

Can we allow ourselves to continue to be guided by myth, misinformation,

and silence? No. Do we, as scholars, researchers, and executives, know how to

resolve the human dilemmas posed by extremely high levels of global inter-

action? No, not yet. Do we need to know? Yes. In International Human Resource

Management, the editors have brought together an eminent group of scholars

from around the world to report on state-of-the-art international HRM

research. Unlike Confucius, they have chosen not to remain silent in the face

of dilemmas that were heretofore unresolvable. They offer research results and

recommendations that can and should guide our scholarly and executive

appreciation of global diversity and its impact on human system functioning.

The book includes macro strategic perspectives along with micro individual-level

Nancy J. Adler is a professor of international management at McGill University, Montreal,

Canada.

Based on an ancient Chinese wisdom story as edited by Nancy J. Adler and Lew Yung-Chien

while artists in residence at the Banff Centre for the Arts, 2002.

For an in-depth discussion of the patterns of myths and errors undermining the field, see

A.W.K. Harzing’s ‘The Role of Culture in Entry Mode Studies: From Negligence to Myopia?’ in

Advances in International Management, Vol. 15, 2003, pp. 75–127; A.W.K. Harzing’s ‘Are Our

Referencing Errors Undermining our Scholarship and Credibility? The Case of Expatriate

Failure Rates,’ Journal of Organizational Behavior, Vol. 23, February, 2002, pp. 127–148; and

A.W.K Harzing’s ‘The Persistent Myth of High Expatriate Failure Rates,’ The International

Journal of Human Resource Management, May 1995, pp. 457–475.

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perspectives. It encompasses perspectives from Asia, Europe, and the Americas.

It takes in the point-of-view of management and labour. Whereas neither this

book nor any book can answer all our questions about people working globally,

International Human Resource Management goes a long way in separating myth

and misinformation from research-based fact. It fills some of the field’s silence

with perceptive dialogue. It is a book well worth reading.

Foreword

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Contributor Biographies

Chris Brewster

Professor of International Human Resource Management at Henley

Management College, UK. He had substantial experience in trade unions,

Government, specialist journals, personnel management in construction and

air transport, and consultancy, before becoming an academic. Chris has con-

sulted and taught on management programmes throughout the world and is a

frequent international conference speaker. He has conducted extensive

research in the field of international and comparative HRM; written some

dozen books and over a hundred articles. In 2002 Chris Brewster was awarded

the Georges Petitpas Memorial Award by the practitioner body, the World

Federation of Personnel Management Associations, in recognition of his out-

standing contribution to international human resource management.

Paula Caligiuri

Director of the Center for Human Resource Strategy and an Associate Professor

of Human Resource Management at Rutgers University in the United States.

She researches, publishes, and consults in the area of international human

resource management – specifically on the topics of expatriate management,

women on global assignments, and global leadership. Her research on these top-

ics has appeared in numerous journals and edited books. Dr Caligiuri is on the

editorial boards of Career Development International, Journal of Organizational

Behavior, Human Resources Planning Journal, and International Journal of Human

Resource Management and is an Associate Editor for Human Resource Management

Journal.

Christine Communal

Lecturer in International Management, Cranfield University, School of

Management, UK. Christine has the ability to enthuse people with her passion

for supporting individuals and organizations in the process of international-

ization. She has developed a unique approach to personal, managerial and

organizational development, with a strong focus on intercultural awareness.

Her early work experience was in France and Germany and encompassed vari-

ous industry sectors (petro-chemicals, mobile telephony and electricity distrib-

ution). She then moved to the UK to complete a Doctorate examining the

impact of national culture on managerial behaviour. Christine built on her

doctoral specialization to become the youngest Faculty member at Cranfield

School of Management, teaching on the MBA, Doctorate and Executive

programmes.

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Tony Edwards

Lecturer in Comparative Management at King’s College, London. His research is

in the area of employment relations in MNCs. One of the themes of this research

is the diffusion of employment practices across borders within MNCs, with a spe-

cific focus on the process of ‘reverse diffusion’ in which practices are diffused from

foreign subsidiaries back to the domestic operations of MNCs. Currently he is

working on two projects, one of which is concerned with the ‘country of origin’

effect in American MNCs in the UK, while the other is concerned with the man-

agement of employment relations following a cross-border merger or acquisition.

Paul Evans

The Shell Chaired Professor of Human Resources and Organizational

Development and Professor of Organizational Behaviour at INSEAD, where he

has led INSEAD’s activities in the field of human resource and organizational

management since the early 1980s. He is co-author of Must Success Cost So

Much?, a pioneering study on the professional and private lives of executives;

Human Resource Management in International Firms: Change, Globalization,

Innovation, and The Global Challenge: Frameworks for International Human

Resource Management. He has a degree in law from Cambridge University, an

INSEAD MBA, a Danish business diploma, and his PhD is from MIT.

Marilyn Fenwick

Senior Lecturer in the Department of Management at Monash University. She was

awarded her PhD on expatriate performance management by the University of

Melbourne. She has published journal articles and book chapters in the areas of

international human resource management and international management.

Marilyn convenes a special interest group in International HRM for the Australian

Human Resources Institute in Victoria. Her research interests concern: non-

standard and virtual international assignments; human resources development

and performance management in multinationals; strategic HRM in international

inter-organizational networks and international non-profit organizations.

Hilary Harris

Director of the Centre for Research into the Management of Expatriation

(CREME) at Cranfield School of Management. Dr Harris has had extensive

experience as an HR practitioner and has undertaken consultancy with a broad

range of organizations in the public and private sectors. Her specialist areas of

interest are International HRM, expatriate management, cross-cultural man-

agement and women in management. She teaches, consults and writes exten-

sively in these areas. Hilary was one of the lead researchers on the CIPD

flagship research programme looking at the impact of globalization on the role

of the HR professional.

Anne-Wil Harzing

Associate Professor in the Department of Management at the University of

Melbourne. Her work on HQ-subsidiary relationships, staffing policies and

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international management has been published in journals such as Journal of

International Business Studies, Strategic Management Journal, Journal of Organi-

zational Behavior and Organization Studies. She also published Managing the

Multinationals (Edward Elgar, 1999). Her current research interests include the

role of language in international business, the transfer of HRM practices across

borders, the interaction between language and culture in international

research, expatriates and knowledge transfer, and HQ-subsidiary relationships.

Richard Hyman

Professor of Industrial Relations at the London School of Economics and

Political Science (LSE) and is founding editor of the European Journal of

Industrial Relations. He has written extensively on the themes of industrial rela-

tions, collective bargaining, trade unionism, industrial conflict and labour mar-

ket policy, and is author of a dozen books as well as numerous journal articles

and book chapters. His most recent book, Understanding European Trade

Unionism: Between Market, Class and Society, was published by Sage in 2001 and

is already widely cited by scholars working in this field.

Terence Jackson

Holds a bachelors degree in Social Anthropology, a masters in Education, and

a PhD in Management Psychology. He is Director of the Centre for Cross

Cultural Management Research at ESCP-EAP European School of Management

(Oxford-Paris-Berlin-Madrid). He edits, with Dr Zeynep Aycan, the International

Journal of Cross Cultural Management (Sage Publications) and has recently pub-

lished his sixth book International HRM: A Cross Cultural Approach. He has pub-

lished numerous articles on cross-cultural management ethics, management

learning and management in developing countries in such journals as Human

Resource Management, Human Relations, Journal of Management Studies, and Asian

Pacific Journal of Management. He is currently directing a major research project

on Management and Change in Sub-Saharan Africa.

Mila Lazarova

Recently joined the International Management Department of the Faculty of

Business Administration at Simon Fraser University in Canada. Mila’s primary

research interests are in the area of international human resource management

and, more specifically, management of global assignees. Her recent research has

been focused on issues related to retention upon repatriation and the changing

notions of international careers. She has also done research on other related

topics such as cross-cultural adjustment and the expatriate experience of

female assignees. Mila has published in the Journal of International Human

Resource Management and the Journal of World Business and her work has been

presented at conferences in North America and Europe.

Paul Marginson

Professor of Industrial Relations and Director of the Industrial Relations

Research Unit at Warwick Business School, University of Warwick. He has

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researched and published extensively on the management of employment

relations in MNCs and on the Europeanization of industrial relations. Major recent

projects include studies of the agreements establishing, and the practice and

impact of, European Works Councils; the industrial relations implications of

Economic and Monetary Union; and European dimensions to sector and com-

pany collective bargaining. A book with Keith Sisson – European Integration and

Industrial Relations: Multi-level Governance in the Making – is due to be published

by Palgrave-Macmillan in 2004.

Mark E. Mendenhall

Holds the J. Burton Frierson Chair of Excellence in Business Leadership at the

University of Tennessee, Chattanooga. He is past president of the International

Division of the Academy of Management, and has authored numerous journal arti-

cles in international human resource management. His most recent book is Developing

Global Business Leaders: Policies, Processes, and Innovations (Quorum Books).

Jaap Paauwe

(PhD, Erasmus University) is Professor of Business and Organization at the

Rotterdam School of Economics, Erasmus University Rotterdam. He has writ-

ten and co-authored eleven books on human resource management and pub-

lished numerous papers on HRM, industrial relations and organizational

change. Twice (1997 and 2001) he was in charge of the editing of a special issue

on HRM and Performance for the International Journal of HRM. He is research

fellow and coordinator for the research programme on ‘Organizing for

Performance’ of the Erasmus Research Institute for Management (ERIM). Fields

of interest include human resource management, industrial relations, organi-

zational change, new organizational forms and corporate strategy.

Vladimir Pucik

Professor of International Human Resources and Strategy at IMD, Lausanne,

Switzerland. Born in Prague, he received his PhD in business administration

from Columbia University in New York and previously taught at Cornell

University and the University of Michigan. He also spent three years as a visit-

ing scholar at Keio and Hitotsubashi University in Tokyo. Dr Pucik teaches reg-

ularly on executive development programmes in Europe, the US and Asia, and

has consulted and conducted workshops for major corporations worldwide. His

major works include The Global Challenge: Frameworks for International HRM,

Accelerating International Growth and Globalizing Management: Creating and Leading

the Competitive Organization.

Laurence Romani

Research Associate at the Institute of International Business (IIB) of the

Stockholm School of Economics (Sweden). She studied social anthropology

and sociology at the Sorbonne in Paris. Her research interests are in the field of

cross-cultural management. She is currently preparing her dissertation, which

focuses on quantitative studies of culture and management. She addresses their

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issues and limitations with the endeavour of improving the current theoretical

models. Her research is inspired by an interpretative approach.

Hugh Scullion

Professor of International HRM at Strathclyde University. He previously worked

at Nottingham and Warwick Business Schools. Hugh is a Visiting Professor at

the Business Schools of Toulouse and Grenoble and also at Limerick University.

He consults with leading international firms such as Rolls Royce and Bank of

Ireland. Hugh researches on international strategy and international HRM in

European multinationals and has developed a strong network of HR directors

in Europe. He has written several books and over fifty specialist articles in

International HRM. Hugh’s latest books are International HRM: A Critical Text

(Palgrave, 2004) and Global Staffing (Routledge, 2004).

Keith Sisson

Head of Strategy Development at the UK’s Advisory, Conciliation and

Arbitration Service and Emeritus Professor of Industrial Relations in the

Warwick Business School’s Industrial Relations Research Unit (IRRU), having

previously been its Director. In recent years, he has been extensively involved

in cross-national comparative research involving projects funded by the UK’s

Economic and Science Research Council and the European Foundation for the

Improvement of Living and Working Conditions, including those on the role

of direct participation in organizational change, the impact of EMU and the

handling of restructuring. A book with Paul Marginson summarising many of

the results of this work (European Integration and Industrial Relations: Multi-level

Governance in the Making) is due to be published by Palgrave in 2004.

Günter K. Stahl

Assistant Professor of Asian Business and Comparative Management at INSEAD.

Prior to joining INSEAD, he was Assistant Professor of Leadership and Human

Resource Management at the University of Bayreuth, Germany. He also held vis-

iting positions at the Fuqua School of Business and the Wharton School of the

University of Pennsylvania. Günter has (co-) authored several books as well as

numerous journal articles in the areas of leadership and leadership development,

cross-cultural management, and international human resource management. His

current research interests also include international careers, trust within and

between organizations, and the management of mergers and acquisitions.

Arndt Sorge

Professor of Organization Studies at the Faculty of Management and

Organization, University of Groningen, The Netherlands. He has mainly

worked in international comparisons of work, organization, human resources,

technical change and industrial relations. This has implied uninterrupted expa-

triation through a succession of positions at several universities and research

institutes in Germany, his native country, The Netherlands, Britain and France.

Next to writing more specialist publications, based on field research in three

Contributor Biographies

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different societal contexts, he has also edited standard Organization volumes

in the series of the International Encyclopedia of Management and Organization,

most recently Organization (London: Thomson Learning, 2002), and he was

formerly editor-in-chief of Organization Studies.

Ibraiz Tarique

PhD Candidate at the School of Management and Labor Relations, Rutgers

University, New Jersey, USA. His research interests include human resource

management issues in cross-border alliances and training and development

issues in transnational enterprises. His teaching interests include strategic

human resource management, international human resource management,

and developing human capital. His research has been presented at the Annual

Academy of Management Meetings and at the Society of Industrial and

Organizational Psychologist Conferences and has been published in the

International Journal of Human Resource Management.

Joris Van Ruysseveldt

Associate Professor at the Open University of The Netherlands. He studied

Sociology at The Catholic University of Leuven. His dissertation (2000) focused

on collective bargaining structures in Belgium and The Netherlands. As research

manager at the Higher Institute of Labour Studies (University of Leuven), he

conducted research on topics like quality of working life, European works

councils, organizational learning and teamwork. He presently develops courses

in the field of human resource management. He has published articles and

books on industrial relations in Europe, comparative employment relations,

quality of working life and sociology of work.

Malcolm Warner

Professor and Fellow, Wolfson College and Judge Institute of Management,

University of Cambridge. He is the Editor of the International Encyclopedia of Business

and Management (London: Thomson, 6 volumes, 1996; second edition, 8 volumes,

2002) and Co-Editor of the Asia-Pacific Business Review. Professor Warner has written

and edited over 25 books and over 200 articles on management. His most recent

book, Culture and Management in Asia, is published by Routledge Curzon, 2003.

Ying Zhu

Senior Lecturer in the Department of Management, the University of

Melbourne. He graduated from International Economics Department at Peking

University and worked as an economist in the Shenzhen Special Economic

Zone in China. He completed his PhD at The University of Melbourne in 1992.

He was invited to be a visiting scholar at International Labour Organization in

Geneva in 1997. His research interests are international human resource man-

agement, industrial development and employment relations in East Asia,

including China, Japan, Korea, Taiwan and Vietnam. He has published a num-

ber of books and journal articles covering Asian economies, labour, industry

and human resource management.

Contributor Biographies

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Abbreviations

APEC Asia Pacific Economic Cooperation

CCC Chinese Culture Connection

CCP Chinese Communist Party

CCT Cross-Cultural Training

CEE Central and Eastern Europe

CFL Chinese Federation of Labour (Taiwan)

COEs Collective-owned Enterprises

CSAs Country-specific Advantages

DPEs Domestic Private Enterprises

ECB European Central Bank

EEA European Economic Area

EEC European Economic Community

EMU Economic and Monetary Union

ETUC European Trade Union Confederation

EU European Union

EWC European Works Council

FDI Foreign Direct Investment

FOEs Foreign-owned Enterprises

FSAs Firm-specific Advantages

HCN Host Country National

HQ Headquarters

HR Human Resources

HRD Human Resource Development

HRM Human Resource Management

IHRM International Human Resource Management

IR Industrial Relations

JVs Joint Ventures

KMT Kumintang (Nationalist Party in Taiwan)

LDCs Less Developed Countries

LEs Large-sized Enterprises

M&A Mergers and Acquisitions

MNCs Multinational Corporations

MOL Ministry of Labour (Japan)

NAFTA North American Free Trade Agreement

OJT on the job training

PCN Parent Country National

PRC People’s Republic of China

QCC Quality Control Circles

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SHRM Strategic Human Resource Management

SIRHM Strategic International Human Resource Management

SMEs Small- and Medium-sized Enterprises

SOEs State-owned Enterprises

TCN Third Country National

TQM Total Quality Management

UNICE Union of Industrial and Employers’ Confederations of Europe

VFTU Vietnam Federation of Trade Unions

WTO World Trade Organization

Abbreviations

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Introduction

WHAT MAKES THIS BOOK DIFFERENT?

This book provides a comprehensive, research-based, integrated and international

perspective of the consequences of internationalization for the management of

people across borders. The book’s comprehensiveness is evidenced by its wide

coverage. Although we will pay due attention to expatriate management in this

book, we will also look at the role of HRM in internationalization, the link

between strategy, structure and HRM in multinational companies (MNCs) and

the role of HRM in mergers and acquisitions. In addition, a discussion of

comparative HRM, which focuses on the extent to which HRM differs between

countries and the underlying reasons for these differences, will form a major

part of this book. Finally, the book offers a detailed treatment of the collective

aspects of the employment relation by looking at industrial relations from an

international and comparative perspective.

A second distinctive feature of this book is its solid research base. All chapters

have been specifically commissioned for this book and all authors are experts

and active researchers in their respective fields. Rather than having a final

chapter with ‘recent developments and challenges in IHRM’, we have given all

authors the clear brief to supplement classic theories and models with cutting-

edge research and developments. The chapter on cross-cultural training for

instance includes a discussion on recent development in electronic CCT and in

many chapters over two thirds of the references are less than five years old.

Although the book consists of 18 chapters written by a total of 23 authors,

it has been very carefully edited to provide an integrated perspective. Even

though the book is research-based, it is not a disparate collection of research

essays. All chapters are part of a carefully constructed framework and together

provide a coherent picture of the field of International HRM.

A fourth and final distinctive characteristic of this book is that it is truly

international, both in its outlook and in its author base. Authors use examples

Introduction.qxd 10/29/03 2:33 PM Page 1

from all over the world and their research base extends beyond the traditional

American research literature. Although many authors are currently working at

American or British universities, virtually all have extensive international

experience and their countries of origin include: the Netherlands (2 authors),

France (2 authors), Germany (2 authors), Bulgaria, Slovakia, Pakistan, Australia

and China.

WHO IS THIS BOOK FOR?

As a textbook this book will appeal to advanced undergraduate students and

Master’s students wanting a comprehensive and integrated treatment of

International HRM that includes the most recent theoretical developments. As

a research book, it provides PhD students and other researchers with a very

good introduction to the field and an extensive list of references that will allow

them to get an up-to-date overview of the area. Finally, practitioners looking

for solutions to their international HR problems might find some useful frame-

works in Parts 1 and 3, while the chapters in Parts 2 and 4 will allow them to

get a better understanding of country differences in managing people.

WHAT IS NEW IN THE 2ND EDITION?

The underlying philosophy of this book – presenting a comprehensive,

research-based, integrated and international perspective on managing people

across borders – has not changed. However, the 2nd edition has reinforced

these four characteristics in the following ways:

• Since several reviewers commented that the comparative aspect of the

1st edition left room for improvement, Part 2 of the book has been

completely revised and the current edition includes three new chapters

on comparative HRM, covering Europe, Asia and developing countries.

Two new chapters on the role of HRM in mergers and acquisitions in

Part 1 and on repatriation in Part 3 reflect the increasing importance of

these phenomena. Part 4 features a new chapter on transfer of employ-

ment practices across borders, as well as a revised treatment of the most

important aspects of industrial relations.

• The research base has been further reinforced by attracting new authors

who are experts and active researchers in their field. This means that

International Human Resource Management

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most chapters have been written from scratch, while the remaining

chapters (Chapters 1, 5 and 14) have been updated. In doing so, the

authors have focused even more strongly on theoretical models and

frameworks, cutting down on factual information that can easily be

retrieved from other sources, including other textbooks.

• The integrated perspective has been strengthened by even more careful

editing. Most authors went through three versions of their chapters and

many read chapters of other authors in order to avoid overlap and con-

flicting evidence. Links have been provided between chapters to further

clarify the overall structure of the book, and in order to help instructors,

discussion questions and suggestions for further reading are now pro-

vided with each chapter.

• The book has moved from a predominantly Dutch author base in the 1st

edition to a truly international group of authors, coming from or working

in more than ten different countries, in this edition. The book has main-

tained its distinctive European focus (especially in Part 4), but with new

chapters on Asia and developing countries and new authors from the

US, China and Australia, it has now reached out to other areas of the

world as well.

WHAT IS INCLUDED IN THIS BOOK?

This book consists of four clearly delineated parts. Each part can be studied as

an independent unit, so that readers may choose to study the parts most inter-

esting to them, if they so desire. Taken together, however, the four parts

present a consistent picture of the way in which international HRM can be

approached as a discipline.

In Part 1 (Internationalization: Context, Strategy, Structure and Processes)

we first place International HRM in a wider context. Chapter 1 touches upon

recent developments in the field of internationalization and offers various theo-

retical models which explain the existence of international trade and multi-

national companies. We also look at the social consequences of the increasing

internationalization of the global economy. Chapter 2 then discusses the

different options that MNCs have in terms of strategy and structure in some

detail and shows that these can be combined into a typology of MNCs that

stands up to empirical verification. We also provide a preview of the link between

strategy, structure and HRM, an issue that is further explored in Chapter 3. That

chapter also traces the development of IHRM as a research field and examines the

role of the corporate HR function in the international firm, global management

development and the roles and responsibilities of transnational managers.

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Finally, Chapter 4 focuses on integration processes in cross-border mergers and

acquisitions (M&A), examining the potentially critical role that cultural differences

and human resources play in the M&A process. It also systematically reviews the

key HRM challenges at different stages in the M&A process.

Part 2 (HRM from a Comparative Perspective) starts with two chapters

offering two different approaches – institutionalist and culturalist – to explain

differences in human resource management across borders. Chapter 5 intro-

duces these two approaches and explains the way in which comparative

research differs between them. The chapter then reviews the institutionalist

approach in some detail before proposing a framework – termed societal

analysis – to integrate the two approaches. Chapter 6 then focuses on the study

of cultural differences across countries that influence people in a work environ-

ment. It presents the achieved knowledge on cultural dimensions which helps

understanding and managing people from different cultural backgrounds and

reviews three major and distinctive contributions to this debate. Subsequently,

Chapters 7 to 9 discuss how HRM practices differ across countries by focusing

respectively on Europe, Asia and developing countries. All three chapters come

to the conclusion that there are no ‘one-size-fits-all best HRM practices’ and

that Anglo-American HRM models need to be adapted to be effective in other

countries. The focus in these chapters is on acquiring an analytical

understanding of cross-national differences, since any factual description of

such differences would soon be out of date.

In Part 3 (Managing an International Staff) we return to the perspective of

the MNC and discuss the issues that an international HR manager encounters

in managing people across borders. Although this part of the book has a clear

focus on the management of expatriates, many chapters explicitly broaden

their scope to include all managerial personnel. First, Chapter 10 discusses the

challenges associated with building an international workforce. It reviews

different staffing policies and the factors influencing the choice between host

country and parent country nationals as well as the underlying motives for

international transfers. It also covers recruitment and selection issues and

expatriate adjustment and failure. Chapter 11 looks at the preparation of expatriates

for their international assignments and proposes a systematic five-phase

process for designing effective cross-cultural training programmes. Chapter 12

then deals with the compensation and performance management of staff in

MNCs. It reviews the variables influencing international compensation strategy;

options for compensating staff on international transfer within MNCs; and

problems and enduring issues associated with international compensation and

integrated performance management. Chapter 13 then closes the international

transfer cycle with a look at the challenges associated with repatriation follow-

ing global assignments from both an individual and an organizational point of

view. Finally, Chapter 14 looks at the role of women in international manage-

ment, taking into account individual, organizational and socio-cultural

perspectives.

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The fourth and final part of this book (Industrial Relations: a Comparative

and International Perspective) looks at the collective aspects of the employ-

ment relationship. First, Chapter 15 links back to Chapters 2 and 3 by

discussing the transfer of HR practices – or more generally employment prac-

tices as they are called in this chapter – within MNCs. It provides explanations

for variations between MNCs in terms of the extent of transfer and a discussion

of the likely nature of the relations between different groups within MNCs in

the transfer process. Chapter 16 then draws on the recent literature on ‘varie-

ties of capitalism’ to show that national economies can be structured in many

different ways, and that these differences are associated with different indus-

trial relations systems. It also disentangles the challenges inherent in globali-

zation, and considers whether they imply convergence towards a more

market-driven model, or whether distinctive forms of social regulation are

likely to persist. In Chapter 17, we take this analysis of convergence and diver-

gence one step further by moving to the regional level of analysis and reflecting

about the prospects for the ‘Europeanization’ of industrial relations. In the

final chapter of this book – Chapter 18 – we take our analysis back to the

company level by examining the relevance of the concept of the Eurocompany

and the role of European Works Councils within European industrial relations.

Introduction

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PART 1

Internationalization: Context, Strategy,

Structure and Processes

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1 Internationalization and the International

Division of Labour

Anne-Wil Harzing

1 Introduction 9

2 Statistics on internationalization trends 10

3 Determinants of international trade 11

4 The reason for multinational companies 15

5 The comparative and competitive advantage of nations 19

6 Trends in the international division of labour 24

7 The competitive advantage of multinational companies 28

8 Summary and conclusions 30

9 Discussion questions 30

10 Further reading 31

References 31

1 INTRODUCTION

In this chapter, which will set the background for the remainder of this book,

we will discuss a number of important issues with regard to internationali-

zation and the international division of labour. We will begin in Section 2 by

offering some statistical data which demonstrate the importance not only of

international trade but also of foreign direct investment (FDI). Sections 3 and

4 will next discuss a number of theories which explain these phenomena. In

Section 5, we will explore product specialization across countries. We will do

this using Porter's analysis, which explains the competitive advantage of

CHAPTER CONTENTS

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nations. We will then go one step further to the global level, when, in Section 6,

we will look at the (new) international division of labour and the economic

and social consequences thereof. Finally, in the last section we will discuss the

sources of competitive advantage for multinationals.

2 STATISTICS ON INTERNATIONALIZATION TRENDS

International trade

The year 2001 saw the first decline in the volume of world trade since 1982,

mostly due to a decline of economic activity in the three major developed

markets (the USA, Japan and the European Union), the bursting of the global

IT bubble and the aftermath of the tragic events of September 11 (WTO, 2002).

However as Figure 1.1 indicates, historical data show that international trade

has become much more important in the last 50 years. The growth in inter-

national trade has consistently surpassed the growth in production. While the

world production in 2001 is seven times as high as in 1950, international trade

is more than 20 times as high.

It is important to note, however, that a lot of international trade could

more properly be called regional trade, covered by major regional trade agree-

ments such as NAFTA (North American Free Trade Agreement), the EU

(European Union) and APEC (Asia Pacific Economic Cooperation): 43% of the

exports within NAFTA, 65% of the exports within the EU and 68% of the

exports within APEC do not leave the region (WTO, 2002). In Section 3 we will

discuss a number of theories which explain the existence of international

trade.

Foreign direct investment

Foreign investments of multinational firms are even more important than

international trade for the growth of the world economy. In 2001 the sales of

foreign subsidiaries of multinational companies (MNCs) were nearly twice as

high as world exports, while in 1990 the two were roughly equal. Although,

just like international trade flows, FDI flows have suffered a substantial decline

in 2001, the longer term prospects remain promising, with major MNCs likely

to continue their international expansion (UNCTAD, 2002). The influence of

MNCs is reflected in the increase in the stock of foreign direct investment (FDI)

and the growth in the number of multinationals and their foreign subsidiaries.

As shown in Table 1.1, the total stock of foreign investment has reached almost

$7 trillion. More than 850,000 foreign subsidiaries of about 65,000 parent firms

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1950–63 1963–73 1973–90 1990–01

Trade

Production

contributed approximately $18.5 trillion to world sales in 2001, while the

number of employees in foreign affiliates has more than doubled in the last

decade. In Section 4 we will discuss a number of theories which explain the

existence of foreign direct investment.

3 DETERMINANTS OF INTERNATIONAL TRADE

In this section we will briefly consider a number of theories which explain why

countries trade with one another. We will therefore be emphasizing the coun-

try level. In the following section we will shift our discussion to theories focus-

ing on the multinational organization. These theories explain why

multinationals exist.

First, we will consider two ‘classic’ theories of trade, which are based on the

idea that country-specific factors (also known as location-specific factors) are

decisive for international trade. Such country-specific factors may offer

absolute or relative comparative cost advantages. A third theory explains why

international trade may arise even in the absence of such cost advantages. The

key term here is economies of scale. Later, in Section 5, we will explore Porter's

analysis, the latest in a long line of international trade theories reaching back

more than two centuries.

The International Division of Labour

FIGURE 1.1

Growth of world production and world trade (% change in volume terms) (WTO, 2002)

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TABLE 1.1

Absolute and relative comparative cost advantages

This theory takes us back to the founding father of modern economics: Adam

Smith. In his book An Inquiry into the Nature and Causes of the Wealth of Nations

(1776), Smith explains that the division of labour can lead to increased pro-

ductivity, because each person does what he or she is best at or can produce

most efficiently. This applies at every level, for example within families or

within a country as a whole. An efficient division of labour between countries

is present whenever location-specific advantages, such as the presence of

certain natural resources, make it possible for one country to produce a certain

product more cheaply than another.

It is the maxim of every prudent master of a family, never to

attempt to make at home what it will cost him more to make than

to buy. The tailor does not attempt to make his own shoes, but

buys them from the shoemaker…What is prudence in the conduct

of every private family, can scarce be folly in that of a great king-

dom. If a foreign country can supply us with a commodity

cheaper than we ourselves can make it, better buy it of them with

some part of the produce of our own industry, employed in a way

in which we have some advantage. (Adam Smith, 1776: 424–425)

There was one problem with this theory, however. What if a country has no

location-specific advantages and therefore no cost advantages? Will it still be

in a position to trade with other countries? And even if it is, would it not end

up importing far more than it exports, so that an ever increasing amount of

money would leave the country?

International Human Resource Management

Selected indicators of FDI and international production, 1982–2001

Value at current prices

(billions of dollars) Annual growth rate (%)

1986– 1991– 1996–

1982 1990 2001 1990 1995 2000

FDI inward stock 734 1874 6846 15.6 9.1 17.9

FDI outward stock 552 1721 6582 19.8 10.4 17.8

Sales of foreign affiliates 2541 5479 18517 16.9 10.5 14.5

Employment of foreign

affiliates (thousands) 17987 23858 53581 6.8 5.1 11.7

Source: adapted from UNCTAD, 2002

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David Ricardo (1772–1823) showed that even if a country had no absolute

cost advantages, it would still be able to grow more wealthy through interna-

tional trade. We can demonstrate this by using a simple model involving two

countries (A and B) and two commodities (x and y). Country A produces both

Commodity x and Commodity y against the lowest possible costs.

Country A Country B

Commodity x costs 5 12.5

Commodity y costs 20 25

The difference between Country A and Country B is larger for Commodity x,

however, than it is for Commodity y. If we consider the terms of exchange (the

number of units of Commodity x exchanged for one unit of Commodity y and

vice versa), we can construct the following table.

Country A Country B

1x =

y 1x =

1y = 4x 1y = 2x

We see that the inhabitants of Country A can profit by buying Commodity y

in Country B. In Country B they only have to pay 2x, while in their own country

they have to pay 4x. Inhabitants of Country B would do well to buy their

Commodity x in Country A. In doing so they only have to pay

y, while in

their own country it would cost them

y. We can say that Country A has a rel-

ative comparative cost advantage in producing Commodity x, while Country

B has a relative comparative cost advantage in producing Commodity y.

Inhabitants of Country A will therefore try to exchange their Commodity x for

the Commodity y of Country B. The inhabitants of Country B would be very

willing to do so because this exchange is also to their benefit. This is how inter-

national trade was born. To comply with the extra foreign demand, Country A

would have to specialize in producing Commodity x and Country B in pro-

ducing Commodity y. According to Smith and Ricardo, international trade

arose because of the existence of comparative cost advantages, whether

absolute or relative.

The Heckscher–Ohlin theorem

This brings us to the question: where do such cost differences come from? One

answer, known as the Heckscher–Ohlin (H–O) theorem, was introduced by the

Swedish economists Heckscher and Ohlin. Comparative cost differences are the

result of differences in factor endowments (labour, land and capital). Some coun-

tries, for example, have a relatively large quantity of capital and relatively small

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labour force (for example, Western nations). Other countries have relatively little

capital and a large labour force (for example, most of the developing nations).

Note that it is the relative position of these production factors with respect to one

another that counts. We would not, for example, say that Zaire has more labour

than the US (which is untrue) or that it has more labour than capital (how would

one go about measuring that?). We can, however, say that Zaire has more labour

available per quantity of capital than the United States does.

Production factors available in relatively large quantities will be inexpen-

sive, and vice versa. (For the time being we will not consider the demand con-

ditions. A country may, for example, have absolutely no demand for a domestic

good produced with scarce production factors, resulting in a low price.) In a

country that possesses a relatively large amount of capital and very little labour,

capital-intensive products will be cheap and labour-intensive products expen-

sive. The reverse will be true for a country with a relatively small amount of

capital and a large labour force. The same arguments can be offered for the

production factor ‘land’. The impact on international trade is that

commodities requiring for their production much of [abundant

factors of production] and little of [scarce factors] are exported in

exchange for goods that call for factors in the opposite propor-

tions. Thus indirectly, factors in abundant supply are exported

and factors in scant supply are imported. (Ohlin, 1933: 92)

In global terms, we can explain international trade flows rather well using this

theorem. Japan, a country with a relatively limited amount of land, imports

many of its primary products. Third World countries with a relatively large

body of (unskilled) labour export labour-intensive products such as textiles and

shoes.

There are, however, two postwar trends that have presented a considerable

challenge to the H–O theorem. Firstly, there is the fact that a large and increas-

ing share of international trade takes place between countries with similarly

large incomes. Secondly, a large and increasing share of international trade

consists of two-way trade involving similar manufactured products (known as

intra-industry trade). As a result, new theories of trade have been introduced

which reject country-specific factors to a certain extent and which turn instead

to sector- or company-specific factors that might lead to a strong competitive

position. The key term in such new theories is ‘economies of scale’.

Economies of scale

We have not yet mentioned an important assumption underlying the classic

trade theories: yield remains constant regardless of the scale of production.

In other words, the average cost per product will remain the same. In actual

practice, however, we see economies of scale in many branches of industry – as

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the scale of production increases, the average cost per product decreases. These

economies of scale might appear in production, in R&D, in purchasing, in

marketing or in distribution. A very simple case of economies of scale are the dis-

counts offered on quantity purchases (which are in turn based on the supplier’s

economies of scale). Economies of scale in production may be the result of a

division of labour and specialization or of cost-cutting measures (for example,

robots in auto manufacturing) which only become profitable at a certain

minimum production level. After all, it would hardly pay to set up a robot

assembly line if you are only going to produce three cars.

In addition to these economies of scale, which are known as internal

economies of scale (in other words, within one company), there are also external

economies of scale. These are closely related to the size of an industry and not to

the size of the individual company. A concentration of companies in a particular

region, for example semiconductor manufacturers in Silicon Valley in California,

may give rise to a good infrastructure, a specialist labour force and a network of

suppliers (see also Porter’s analysis in Section 5). This means that individual com-

panies within this industry can achieve economies of scale, despite the fact that

large companies produce no more efficiently in the sector than small companies.

How do such economies of scale affect international trade? We noted previ-

ously that international trade depends on absolute or relative comparative cost

advantages, which are the result of differences in factor endowments. According

to the classic theories of trade, countries with comparable factor proportions will

not trade with one another because they will not be able to gain absolute or

relative comparative cost advantages. However, when economies of scale are

applied, a system in which one country produces one product and a second

country produces another can nevertheless offer advantages. Because production

can take place on a larger scale, the average costs of both products will drop. Both

countries can therefore gain through specialization and international trade.

How can we predict which country will produce which product if neither

country can gain a cost advantage? The answer is: we can’t. It is frequently a

combination of serendipitous factors which leads to a certain industry setting

up first in a certain country. Through internal and/or external economies of

scale, this country will be able to build up such an advantage that it becomes

very difficult for anyone else to catch up.

4 THE REASON FOR MULTINATIONAL COMPANIES

The theories discussed in the previous section explain how international trade –

the conveying of goods across borders – arises and what constitutes it. A second

assumption – the first being constant returns to scale (see Section 3) – which

the classic theories make, is that the production factors present in a particular

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country will move about within the country itself, but not across the national

borders. According to the H–O theorem, international trade will gradually

eliminate differences between production factor rewards in the various coun-

tries. In this way, exporting labour-intensive goods to a country with a rela-

tively small labour force may have the same effect as actually relocating labour

as a production factor to this country.

In reality, however, production factors do move across borders. Cash capital

and to a lesser extent labour are becoming increasingly mobile. A large proportion

of the international flow of cash is motivated by a desire to simply invest money

to get a return on investment, just as one would do by putting money in a sav-

ings account. British investors, for example, may purchase shares on the stock

market in a Japanese company in order to gain an income from their investment

(dividends and/or gains made by stock fluctuations), either in the short term or in

the long term. However, a portion of this cash flow consists of Foreign Direct

Investment (FDI). These are investments made in foreign countries with the

explicit goal of maintaining control over the investment. By making use of FDI, a

company may, for example, be able to set up production facilities in a foreign

country, thereby joining the ranks of multinational companies.

The question, however, is why a company would choose direct investment

when it can simply export the goods produced in its own country and import

the raw materials or semi-manufactures required, or even license the relevant

know-how. Initially the answer to this question consisted of partial explana-

tions. Firstly, companies in highly protectionist countries made use of direct

investment to get around import restrictions and tariff walls. Secondly, FDI

made it possible for companies whose production relied heavily on certain raw

materials to secure the supply of such materials. A third explanation was that

the high cost of transport made exporting more expensive than establishing

foreign production facilities. Sometimes FDI can also be viewed as a strategic

market tactic. For example, American companies may invest in the Japanese

market simply to make life so difficult there for Japanese firms that they in turn

no longer have the resources left to enter the American market. None of these

arguments, however, offered a systematic explanation for the rise of the multi-

national in general. In the following sections we will discuss two theories that

do offer such an explanation: Vernon’s product life cycle theory and Dunning’s

eclectic theory of direct investment.

Product life cycle

Vernon’s product life cycle (PLC) theory (Vernon, 1995) takes its name from

the product life cycle familiar to students of marketing theory. In the first

phase, the introductory or start-up phase, the new product is introduced. It is

innovative, it has not yet been standardized and it is relatively expensive.

Because the product will evolve further throughout this phase, the producer

and the consumer must be in direct contact. Production and sales can only take

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place in the country where the product is being developed, for example in the

United States (in principle the PLC theory pertains to high-tech products

which, at the time this theory was introduced – the 1950s – came largely from

the US). In the expansion phase, the product becomes more standardized and

the price falls a bit. Turnover increases sharply and production costs begin to

drop. To extend this phase, a company will attempt to export its product.

Because the price is still rather steep, exports will largely go to countries which

have a similar income level, for example Europe.

At the end of the expansion phase and the beginning of the maturity

phase, the company will begin to manufacture the product in Europe.

Turnover there will have increased to such an extent that it pays to set up

foreign production, particularly in view of import tariffs and transport costs. By

this time however, the product will have become so standardized that

European companies will be jumping on the bandwagon. By setting up its own

subsidiaries in Europe then, the American company is applying a defensive

strategy designed to protect its market position.

In the end the production process will be completely standardized, making

economies of scale and mass production possible. The quality (level of skill) of

the workforce in the production process becomes less important than how

much it costs. Production will therefore increasingly take place in labour-

abundant countries. This refers to elements of the classic theories of trade.

The product life cycle model made an important contribution to explain-

ing the enormous scope of direct investment by American companies in the

1950s and 1960s (see Chapter 2). However, the model fails to answer two

important questions. Firstly, why does one company in a country become a

multinational while another does not? Secondly, why would a company

choose to maintain control of the production process by setting up sub-

sidiaries? It would be much simpler to license the know-how required to man-

ufacture the product to a foreign company. Both of these questions are

answered by Dunning’s eclectic theory, which also incorporates the location-

specific advantages proposed in the classic theories of trade.

Dunning’s eclectic theory

Dunning’s eclectic theory (Dunning & McQueen, 1982), also called the trans-

action cost theory of international production, is able to explain why firms pro-

duce abroad, how they are able to compete successfully with domestic firms and

where they are going to produce. In doing so, the theory selectively combines

elements of various other theories (hence the name ‘eclectic’). According to

Dunning, a company that wishes to set up production in a foreign country and

operate as a multinational must simultaneously meet three conditions: it must

have ownership advantages, location advantages and internalization advantages.

Ownership advantages, also known as firm-specific advantages, are specific

advantages in the production of a good or service which are unique to a particular

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company. The range of advantages, which can be both tangible and intangible, can

be very wide. According to Rugman (1987) they can be summarized as follows:

• proprietary technology due to research and development activities;

• managerial, marketing, or other skills specific to the organizational function of

the firm;

• product differentiation, trademarks, or brand names;

• large size, reflecting scale economies;

• large capital requirements for plants of the minimum efficient size.

The presence of ownership advantages, however, in no way fully explains the

existence of the multinational company. For example, if a company gains an

ownership advantage over other companies for a certain foreign market, it

could simply export its products to that market. That is why the second con-

dition must also be present: location advantages.

Location advantages include all of the factors which we discussed with

respect to the classic theories of trade and which we will discuss in Section 5

with respect to Porter’s analysis, ranging from an abundance of fertile land and

cheap labour to a liberal capital market and a sound infrastructure. To that we

can also add the favourable investment conditions offered by some countries in

order to attract foreign investors. These may be in the form of subsidies, tax

exemptions, or cheap housing. The benefits for the firm come from the combi-

nation of ownership advantages and location advantages. However, even if this

is the case, it will not necessarily lead to FDI and, therefore, to the establishment

of a multinational company. After all, the company can also sell its ownership

advantages or license them out to another company in the foreign market. That

is why the third condition must be met: internalization advantages.

A company possesses internalization advantages if it is more profitable to

exploit its ownership advantages itself in another country than to sell or

license them. There are countless arguments in favour of internalization. To a

large extent these arguments have their origin in Coase’s and Williamson’s

transaction cost approach (1937 and 1975 respectively). In the first place, if the

ownership advantage is a combination of highly specific company factors, it

might be difficult to sell or license it. And even if it were possible, the advan-

tages and the contract for these advantages would be so complex that setting

up and exploiting them would be extremely costly. This applies to a lesser

degree if the advantage being sold is a specific, easily isolated invention. The

problem in this situation, however, is that it would be difficult for the

buyer/licensee to get a good idea of what he is purchasing or acquiring a licence

for. After all, if the licensor releases too much information before concluding

the contract, he will have very little left to sell or license. Finally, the company

may be afraid that by licensing certain company-specific knowledge, this

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knowledge will either leak out, making further licences difficult, or be used in

such a way that it damages the good name of the licensor. In each case there

are internalization advantages, so that a company will decide to carry out the

relevant activity itself in the foreign country.

Like rival theories, Dunning's approach is not seen as the be-all and end-

all explanation for the existence of multinationals. It does, however, succeed in

bringing together, in an elegant manner, what were until then a number of

relatively separate schools of thought.

By now we have discussed a number of reasons for international trade and

FDI. However, we cannot as yet explain why a particular nation is able to

achieve international success in a particular industry. In other words: why are

certain products successful in one country while other products are produced

in another country?

As we mentioned earlier, the theory of absolute and relative comparative

cost advantages (Section 3) offers a reasonable explanation for general trends

in international trade flows. Usually, however, these advantages cannot explain

why a certain country imports or exports specific industrial goods. As we will

discover in Section 7, economies of scale (Section 3) are an important source of

competitive advantage in many sectors of industry. We have already seen, how-

ever, that this theory does not really answer the question as to which country

will produce which product. The product life cycle theory (Section 4) has cer-

tainly made an important contribution to explaining the distribution of some

high-tech products, but it raises almost as many questions as it answers. Why

is it that one particular country leads the rest in a new industry? Why are some

industries seemingly immune to the loss of competitive advantage suggested

by Vernon? And why is it that in many sectors of industry, innovation is now

seen as an on-going process and not a one-off event, after which an invention

quickly becomes standardized and production is taken over by low-wage coun-

tries? Finally, Dunning’s eclectic theory (Section 4) provides us with a very

interesting and more or less comprehensive explanation of the existence of

multinational companies. It does not, however, explain why some countries

gain particular ownership advantages while others do not.

5 THE COMPARATIVE AND COMPETITIVE

ADVANTAGE OF NATIONS

Criteria for a theory of national comparative

and competitive advantage

In this section we will discuss Porter's analysis, in which he attempts to

provide an explicit answer to the questions listed above. Porter maintains that

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a theory of national comparative and competitive advantage must meet the

following criteria:

• It must explain why firms from some nations choose better strategies than those

from other nations for competing in particular industries.

• It must explain why a nation is home base for successful global competitors in

a particular industry that engages in both trade and FDI.

• It must explain why a firm in a particular nation realizes competitive advantage

in all its forms, not only the limited types of factor-based advantage included in

the traditional theory of comparative advantage as discussed above.

• It must recognize that competition is dynamic and evolving, rather than taking

a static view focusing on cost efficiency due to factor or scale advantages.

Technological change should be seen as an integral part of the theory.

• It must allow a central place for improvement and innovation in methods and

technology and should be able to explain the role of the nation in the innova-

tion process. Why do some nations invest more in research, physical capital,

and human resources than others?

• It must make the behaviour of firms an integral part of the theory as

traditional trade theory is too general to be of much relevance for

managers. (Porter, 1990: 19–21)

Porter naturally attempts to satisfy these conditions in his own analysis. After

conducting a four-year study involving ten countries (Denmark, Germany,

Italy, Japan, Korea, Singapore, Sweden, Switzerland, the UK and the US), he was

convinced that national competitive advantage depends on four determinants,

represented as a diamond (Porter's diamond, see Figure 1.2). (The complete

model also includes the factors government and chance, which make their

influence felt through the four determinants.)

The four determinants of national comparative

and competitive advantage

We will discuss these four determinants below, paying particular attention to

factor conditions and to firm strategy and structure, which have the greatest

bearing on this book.

Factor conditions

The first determinant, factor conditions, shows traces of the classic inter-

national trade theories proposed by Smith, Ricardo and Heckscher/Ohlin.

However, whereas these theories concentrated on the traditional production

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factors such as land and, specifically, labour and capital, Porter goes much

further. He agrees with them with respect to labour (which he calls human

resources), land (physical resources) and capital (capital resources), but in his

view these categories are much broader than the classic theories would suggest.

For example, while Ricardo principally saw labour as a large, undefined mass of

cheap workers, Porter emphasizes quality as well as quantity and divides human

resources ‘into a myriad of categories, such as toolmakers, electrical engineers

with PhDs, applications programmers, and so on’. Physical resources also cover

the location of a country with respect to its customers and suppliers, while

capital resources can be divided into ‘unsecured debt, secured debt, “junk”

bonds, equity and venture capital’. In addition to these ‘traditional’ production

factors, Porter also identifies knowledge resources and infrastructure as factors

which can be decisive for the competitive advantage of a country. He sees

knowledge resources as ‘the nation’s stock of scientific, technical and market

knowledge bearing on goods and services’, while infrastructure includes trans-

port and communications systems, the housing stock and cultural institutions.

The differences described in Parts 2 and 4 of this book with respect to education,

training, skills, industrial relations and motivation can all be seen as factor con-

ditions which influence a country’s competitive advantage.

Demand conditions

The second determinant consists of demand conditions. Traditional trade

theories tended to neglect the demand side. According to Porter, demand in

the home market can be highly important for a country’s national competitive

The International Division of Labour

Related and

supporting

industries

Firm strategy,

structure, and

rivalry

Factor

endowments

Demand

conditions

Porter’s diamond (adapted from Porter, 1990)

FIGURE 1.2

3122 Ch-01.qxd 10/29/03 4:09 PM Page 21

advantage. In addition to the size of the demand (which can lead to economies

of scale), the quality of the demand is equally significant. For example, if con-

sumers in a company's own country are the most progressive and demanding

in the world, then it will have to do its very best to deliver product quality,

innovation and service. In this way, the company and/or the country gains a

competitive advantage on the world market.

Related and supporting industries

The third determinant, related and supporting industries, exercises a similar

type of influence. The presence of related and supporting industries which can

compete at international level will force a company to meet the same high

international standard.

Firm strategy, structure and rivalry

The fourth broad determinant of national competitive advantage is firm strat-

egy, structure and rivalry. The goals and strategies of firms can differ sharply

between nations. There are also huge differences in the way firms in the same

industry are organized in different countries, as we will see in the second part

of this book. According to Porter, a good match between these choices and the

sources of competitive advantage in a particular industry will result in

national competitive advantage. If for instance the computer industry

demands flexible, non-bureaucratic organizational structures, and firms in a

particular country tend to favour this kind of organizational structure, they

will – all other things being equal – have a good chance of succeeding in this

industry.

The important question then is: why do firms in particular countries

favour particular strategies and structures? The answer is that there are many

national characteristics that influence the ways in which firms are organized

and managed. According to Porter, some of the most important aspects are

attitudes towards authority, norms of interpersonal interaction,

labour–management relationships, social norms of individual or group

behaviour, and professional standards. Porter places special emphasis on

labour–management relationships because he believes they are central to

the ability of firms to improve and innovate. All these aspects in turn find

their basis in a nation’s educational system, its social and religious history,

its family structures, and many other often intangible but unique national

characteristics.

Finally, domestic rivalry is also a very important factor, in that companies

force one another to lower their prices, improve quality and introduce a con-

stant stream of innovations, all of which also benefits the international com-

petitive position of the country in which they operate.

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Societal effect

We see many of these same factors in social science research as well. In the

first place, a number of them, such as attitudes towards authority, are con-

sidered part of a country’s national culture. We will return to this topic in

Chapter 6. In addition, authors such as Streeck, Maurice, Sorge, Warner and

Lane have pointed out national differences in the area of organizational

structuring, differentiation and integration mechanisms, qualifications and

industrial relations. Such factors influence one another, and although this

reciprocal effect can be found in every society, it is highly specific to the

society in which it is taking place. This approach, which is known as the

societal effect theory, will be discussed in Chapter 5 of this book. For now,

however, bear in mind that the authors mentioned above suggest that

through a particular constellation of factors, certain countries will be suc-

cessful in certain industrial sectors. We will borrow an example from Lane by

way of illustration:

The strengths of German manufacturing enterprises are widely seen to

emanate from two core institutional complexes – the system of vocational

education and training and the system of industrial relations. The first not

only creates high levels of technical skill throughout the industrial enterprise

but also engenders a homogeneity of skills at all levels of the hierarchy, as

well as fostering certain orientations to the work task and the work commu-

nity. These characteristics, in turn, structure organizational relations, influ-

ence communication and cooperation along both horizontal and vertical lines

and encourage labour deployment in accordance with the principle of

responsible autonomy. The craft ethos permeates the whole of the organi-

zation and creates a common focus and identity for management and

production workers, although not necessarily a community of interest. The

cooperative works culture, fostered by the training system, is further rein-

forced by the system of industrial relations, particularly by the work council.

The autonomy and responsibility encouraged by the organization of work is

paralleled and enhanced by the participative industrial relations style, flowing

from the system of co-determination. (Lane, 1989: 398)

Japan as an example of Porter’s analysis

Porter uses his analysis to explain why certain countries are successful in cer-

tain industries. For example, Japan’s prominent position in consumer elec-

tronics, electronic components and computing equipment, office machines,

motorcycles, ships and sewing machines can be attributed in the first place to

the country’s rapid and continual upgrading of human resources, in which in-

company training predominates. Research focuses on applications and process

optimization rather than basic technological innovation, resulting in high-quality

products which are nevertheless competitively priced. Demand conditions

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have also favoured competitive advantage in these industries. In the 1950s and

1960s, while Japan’s home market was growing rapidly in sectors such as

sewing machines, ships and motorcycles, these same markets had begun to

level off in other countries. As a result, Japanese firms invested aggressively in

large, efficient facilities with the latest technology. US and European competi-

tors, on the other hand, simply added on to existing, less efficient older plants.

The result was higher productivity for Japanese firms. The rapid growth of

Japan’s industrial economy also aided supporting industries such as robotics,

copiers and semiconductors. Even more important than the size of the home

demand is the pressure from demanding and sophisticated buyers. Japanese

consumers insist on quality and superior service and will readily switch brands

if a quality difference is noticeable. Needless to say, this forces firms to contin-

ually upgrade their products. As to the third determinant, Japan has a strong

position in semiconductors, machine tools and robotics, which are essential

supporting industries to many other sectors. Regarding the fourth determinant,

firm strategy, structure and domestic rivalry, the strategy of Japanese firms is

geared largely towards standardization and mass production combined with

high quality. This approach has made it the leader in industries such as con-

sumer electronics and office machines. The commitment of both workers and

managers to their firm, and the firm’s investment in upgrading skills and

norms of cooperation have led to an unusual rate of success in industries in

which a cumulative learning effect is essential (consumer electronics, semi-

conductors, office machines). Finally, in almost every industry in which Japan

is internationally competitive, there are several and often a dozen or more

competitors; in shipbuilding and semiconductors there are as many as 33 and

34 respectively. (Porter, 1990: 384–421)

Now that we have provided a tool for answering why certain products are

produced in some nations and not in others, we will extend our analysis

further. In the next section we will take a look at the international division of

labour.

6 TRENDS IN THE INTERNATIONAL DIVISION OF LABOUR

The logical consequence of the theories discussed above is that a country

would do well to concentrate on the production of those goods and services in

which it has a competitive advantage. It can then export these goods and

import goods and services to those industries where it is less productive. In this

way, international competition helps to upgrade productivity over time. The

process implies, however, that market positions in some segments and indus-

tries must necessarily fall by the wayside if a national economy is to progress.

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This is certainly true in a macro-economic sense, but on a micro-level it may

mean the loss of thousands of jobs in less productive industries, causing seri-

ous personal anxiety and social problems. No wonder then that many govern-

ments have tried to maintain such industries by means of subsidies, protective

tariffs or other forms of intervention. But in these days of trade liberalization,

globalization of the world economy and economic integration in many regions

of the world, such policies are increasingly difficult to sustain. The world is

moving towards a new international division of labour, a process in which

multinational companies are playing a leading role. In this section we will take

a look at the economic and social consequences of this development.

Reich’s new world order

In his book The Work of Nations. Preparing Ourselves for 21st-century Capitalism,

Reich (1991) prophesies a new world order. The most important objectives for

companies, including multinationals, are to satisfy the market demand and to

make profits. They can potentially save money by moving production

processes elsewhere. This matters very little to the companies themselves, but

it does have an impact on the social structure and prosperity of the individual

countries involved. Those countries that have nothing to offer in international

competition are doomed to lose out badly. First World countries that do not

have a supply of cheap labour will have to concentrate on the production of

other, more specialized products with a high knowledge and capital content.

This will result in an increasing demand for highly educated and creative

people. A problematic social consequence is that Western nations will be con-

fronted with a large surplus of unskilled production workers who cannot

compete against low-cost labour in (ex-)Second and Third World countries. A

proper education for all citizens (and not only the top 25%) is therefore an

absolute prerequisite for future prosperity in any country.

Professional categories in the new world order

Reich distinguishes three professional categories which in global terms cover

three-quarters of the labour force (the remaining part mainly consists of

employees working in agriculture and in the public sector):

1 Routine production services. The traditional example in this category is

the employee who works on the assembly line performing short-cycle, repeti-

tive tasks. However, according to Reich this category also includes the ‘routine

supervisory jobs performed by low- and mid-level managers – foremen, line

managers, clerical supervisors, and section chiefs – involving repetitive checks

on subordinates' work and the enforcement of standard operating procedures’.

It has often been said that in the present and future information age, this type

of work will become far less important. Cynics, however, remind us that many

information-processing jobs fit perfectly into this category. The raw material of

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the industrial era has simply been replaced by the raw data of the information

age. Entering and processing such data is essentially just as routine and mono-

tonous a task as working on an assembly line in an automobile plant. These

routine production services are not associated with a particular country; they

can be performed anywhere and everywhere. Wage costs are therefore the only

criterion for deciding where to locate them.

2 In-person services. Like the previous category, this one also covers basi-

cally simple and repetitive tasks requiring relatively little training. Examples of

jobs in this category are: salespeople, hair stylists, waiters and waitresses, clean-

ing staff and receptionists. The major difference between this category and rou-

tine production work is that in-person servers provide their services directly to

the consumer and that their work must therefore be performed at the location

where the consumer is present. Consequently, they have nothing to fear from

lower wage costs in other countries. They are, however, under greater threat

from the increasing computerization of the many jobs they perform. Consider,

for example, the cash dispensers which have become an indispensable part of

life for so many people. And as many of these jobs require no special training,

in-person servers are finding themselves competing more and more with

unemployed routine production workers. Finally, this category of employee

depends very heavily on the affluence of its customers. If a country is unable

to attract enough economic activity, then it will not have the financial

resources to cover in-person services.

3 Symbolic-analytic services. The most important feature of the jobs in this

group is they require skills in problem-solving and problem-identification.

Some examples are research scientists, engineers, consultants and managers,

but also architects, musicians, film producers and journalists. These occupa-

tions are highly specialized; by definition they entail a proper education. Most

of them require a university degree or higher vocational training. This group of

employees will benefit the most from prosperity, simply because they bring

added value to the production process. Like the work performed by a

routine production worker, the activities of symbolic analysts are not bound to

a particular location. By using the available communication and information

technology, companies can avail themselves of their services anywhere in the

world. And since the definitive criterion here is not wages but special skills,

these activities are not automatically carried out in low-wage countries.

The number of people who can actually benefit from the new opportuni-

ties is therefore quite limited. The future seems particularly bleak for unskilled

labourers in Western countries, simply because they will be unable to make a

clear-cut contribution – either in the form of specific skills or in the form of low

wages – to the global production process. They simply cannot compete against

the wage levels of employees in poor countries who perform exactly the same

type of work. Even dismantling the social security system – which some regard

as the main culprit behind the high cost of labour in Europe – offers no real

alternative. After all, wages and terms and conditions of employment will

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never be cut so drastically that they can compete with low-wage countries.

Because a large section of the population in the West remains underqualified

(there are, by the way, huge differences between countries: the UK, for example,

is much worse off in this respect than Germany), we will ultimately be dealing

with increasingly greater differences in income and, possibly, the rise of a social

underclass.

Scenarios for the future

In this connection, Reich has sketched three scenarios for the future. He calls

the first zero-sum nationalism. The assumption is that there are only two out-

comes possible in economic warfare: either we win or they win, so we had

better make sure that we win. Countries therefore close their eyes to globalization

and try to protect and improve their own position. Government subsidies for

deteriorating industries and a renewed interest in protectionism are the hall-

marks of this scenario. Obviously it will be the routine production workers and

in-person service workers and their representatives (for example trade unions)

who will be particularly keen on this option. This course of action will, how-

ever, be of very little benefit to companies and investors, meaning that in the

long term this scenario will simply not be sustainable.

The second scenario is cosmopolitanism, in which the ideal of free trade is

championed. This is not a zero-sum game: the world as a whole can improve

through free trade. By making products where they can be made most cheaply,

we all benefit in the end. The major advocates of this scenario will often be

symbolic analysts. After all, they have nothing to lose in such a world order; in

fact, they will be the big winners. According to Reich, this is the attitude that

will most likely determine the future.

Neither of the scenarios described above is ideal, but according to Reich there

is yet another option: positive economic nationalism. The crux of this idea is that

‘each nation’s citizens take primary responsibility for enhancing the capacities of

their countrymen for full and productive lives, but also work with other nationals

to ensure that these improvements do not come at others’ expense’. Nationalism

as seen by the zero-sum nationalists and individualism as advocated by the cos-

mopolitans are traded in for globalism. This scenario combines a pious belief in the

benefits of free trade with arguments for some form of government intervention.

Governments should invest in education and infrastructure, and they should even

subsidize companies that offer high value-added production in their own country,

regardless of the nationality of the company owners. To prevent a situation in

which countries bid against one another to attract certain companies, they should

instead negotiate with one another on the appropriate subsidy levels and targets.

The result, according to Reich, would be a sort of GATT for FDI establishing guide-

lines for the way in which countries are allowed to grant such subsidies. Countries

with a large unskilled labour force, for example, would be allowed to offer bigger

subsidies than countries which already possess high-tech facilities and expertise.

Ultimately more people would be able to share in the prosperity.

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7 THE COMPETITIVE ADVANTAGE OF MULTINATIONAL

COMPANIES

After discussing the competitive advantage of nations and its impact on the

international division of labour, we will now return to the level of the com-

pany. What can we say about the competitive advantage of multinationals?

According to Ghoshal (1987), there are three fundamental ways of building

global competitive advantage: to exploit differences in input and output mar-

kets in different countries; to exploit economies of scale; and to exploit

economies of scope.

Differences in input and output markets

Porter’s analysis, discussed in Section 5, is highly relevant when considering

the first source of competitive advantage, i.e. differences in input market.

Multinational companies have a unique advantage in that they can transfer

activities from one country to another. A multinational company must have a

clear home base for each product line, and that home base should be located

in the country with the most favourable diamond.

Nestlé has shifted the world headquarters for its confectionery

business to Britain. That is because Nestlé believes that in this

business the British home base is a more dynamic one because

of the advertising agencies, marketing environment, and a very

high per capita consumption of confectionery products in the

UK…In pasta, Nestlé‚ has made its Italian company, Buitoni, the

world centre of their pasta operations. (Porter, 1991)

According to Porter, companies will make increasing use of this mode of opera-

tion. It is almost impossible to coordinate facilities for production, R&D,

marketing and product development when they are distributed among equivalent

subsidiaries in different countries. A company with a clear home base in a

dynamic location will be able to innovate faster than a company which is

trying to coordinate its dispersed activities. To use a popular term, companies

are creating ‘centres of excellence’ for each activity. It is important to realize that

this concept upsets the traditional notion of having one headquarters and many

dependent subsidiaries. The company becomes a kind of network with different

centres for different activities. We will see in later chapters that this approach is

particularly compatible with what is called the transnational company.

But national differences do not exist in input markets alone; they are

important in output markets as well. For one thing, consumer tastes and pre-

ferences may differ from one country to the next. Each country is likely to have

a unique distribution system, unique technical requirements and unique

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government regulations. And even a simple difference such as climate can

influence the sort of product a company will be able to sell. For example, cer-

tain materials might be sensitive to large temperature swings. A firm can turn

these differences into a competitive advantage by tailoring its products to fit

the unique requirements of different national markets. This is known as a strat-

egy of national differentiation, and multidomestic companies (see later

chapters) know how to apply this strategy to their advantage.

Economies of scale

A second source of competitive advantage is economies of scale (see Section 3).

A firm can achieve scale economies by doing nothing more than expand the

volume of its output. In scale-sensitive industries, a firm may even be forced to

do this to retain its competitive viability. Otherwise, competitors will undercut

its market prices by building up their own cost advantages. The nice thing about

scale economies is that they can also lead to what is called the experience or

learning effect. By producing the same product a large number of times, the pro-

ducer will probably invent ways to make the production process more efficient.

As the scale of production increases, this will lead to progressive cost reductions.

While the concept of scale economies is not unique to multinational com-

panies, the sheer size of such concerns often makes it easier to exploit them.

Economies of scope

The last source of competitive advantage is economies of scope, also called syn-

ergy effects. The basic notion here is that it can be less expensive to produce

two (or more) products within the same firm than to produce them separately.

Ghoshal distinguishes three important sources of economies of scope.

• The first is that the corporation must be diversified, that is produce

several different products, and share not only production equipment but also

cash or brand names across different companies and markets. Flexible manu-

facturing systems using robots to produce different items are an example of the

first; cross-subsidization of markets and exploitation of a global brand name are

examples of the second and third.

• A second important source of economies of scope is shared external relations.

This applies to customers, suppliers, distributors, governments and other insti-

tutions. It is often easier to sell new products through existing distribution

channels to existing customers.

• Finally, shared knowledge is the third important component of economies of

scope. The fact that NEC can share R&D in computers and communications

makes it possible for the company to create new products which give it a compe-

titive advantage over competitors who are technologically strong in only one of

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these areas. Again, the concept of economies of scope is not unique to multinational

concerns, but they are more likely to have a diversified portfolio of companies,

thereby increasing the opportunity to apply economies of scope.

In the next chapter, we will discuss how MNCs with different strategic goals use

these three sources of competitive advantage.

8 SUMMARY AND CONCLUSIONS

This chapter has set the background for the remainder of this book. In the first

section of the chapter, we used statistical material to demonstrate that both

international trade and FDI have increased sharply in the past few decades. In

the subsequent sections we discussed a number of theories which might help

to explain why international trade and foreign direct investment, or multi-

nationals, exist. We then tried to discover why certain products are produced in

certain countries and described current changes in the international division of

labour. This led us to two important conclusions. First: the competitiveness of

nations is determined by many more factors than simply (an over-abundance

of) labour, land and capital. And second: increasing globalization has had a

tremendous impact on the competitive position of various countries and may

lead to far-reaching social changes. Finally, in the last section we dealt with the

sources of competitive advantage for multinationals.

This chapter started its analysis at the level of the country, proceeded to

the multinational level, returned to the country level, progressed yet another

step to the global level and finally returned to the multinational. For the time

being we will remain at this level; the next three chapters will discuss the strat-

egy and structure of MNCs, recent developments in International HRM and the

role of HRM in mergers and acquisitions.

9 DISCUSSION QUESTIONS

1 Porter’s diamond analyses the competitive advantage of nations. Show how his

analysis about the role of location in international competition can be useful for

multinational companies in two distinct ways.

2 What do you think of the future scenarios mentioned by Reich? Which scenario

seems most likely to you, and why? Would your answer differ for different

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industrial sectors or countries? How does Reich’s work relate to the current

debates about the disadvantages of globalization?

3 Find a recent example of an MNC either establishing or closing down a sub-

sidiary in a particular country. Can you explain this decision based on either

Porter’s diamond or Reich’s prediction of a new world order?

10 FURTHER READING

•

Dunning, J.H. (2000) ‘The Eclectic Paradigm as an Envelope for Economic and Business

Theories of MNE Acitivity’,

International Business Review

, vol. 9, pp. 163–190.

This paper provides an update of Dunning’s thinking with regard to the eclectic paradigm, tak-

ing into account four significant developments in the 1980s and 1990s: maturation of the

knowledge-based economy, integration of economic and financial activity, liberalization of markets

and the emergence of several new countries as important players on the global stage.

•

Porter, M.E. (1990)

The Competitive Advantage of Nations

, London and Basingstoke:

Macmillan Press.

After his influential work on competitive advantage and competitive strategy, this book moves

Porter’s analysis to the country level. Although, like Dunning’s eclectic theory, Porter’s analysis

is by no means completely novel, it shares with Dunning’s theory the advantage of integrating

previous work and some new insights into a comprehensive and coherent framework. The dia-

mond framework has joined Porter’s five-forces and value-chain frameworks as one of the key

analytical tools in analysing competitive advantage. In particular Porter’s concept of ‘clusters’,

or groups of interconnected firms, suppliers, related industries and institutions that arise in par-

ticular locations, has been highly influential in setting public policy.

•

UNCTAD:

World Investment Report.

UNCTAD’s annual world investment reports are a treasure trove of statistical information on

FDI. In addition, each annual report offers a detailed analysis of a specialized topic in inter-

national business. The past years have for instance seen reports on the role of MNCs in promot-

ing export competitiveness (2002), linkages between foreign affiliates of MNCs and local

companies in developing countries (2001), cross-border mergers and acquisitions (2000) and

the impact of FDI on economic development (1999).

REFERENCES

Coase, R.H. (1937) ‘The Nature of the Firm’,

Economica

, November, pp. 386–405.

Dunning, J.H. and McQueen, J. (1982) ‘The Eclectic Theory of the Multinational Enterprise and

the International Hotel Industry’, in A.M. Rugman (ed.)

New Theories of Multinational

Enterprise

, London: Routledge. pp. 79–106.

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3122 Ch-01.qxd 10/29/03 4:09 PM Page 31

Ghoshal, S. (1987) ‘Global Strategy: An Organizing Framework’,

Strategic Management

Journal

, vol. 8, pp. 425–440.

Lane, C. (1989)

Management and Labour in Europe. The Industrial Enterprise in Germany,

Britain and France

, Aldershot: Gower.

Ohlin, B. (1933)

Interregional and International Trade

, Cambridge, MA: Harvard University

Press.

Porter, M.E. (1990)

The Competitive Advantage of Nations

, London and Basingstoke:

Macmillan Press.

Porter, M.E. (1991) ‘A Conversation with Michael Porter. International Competitive Strategy

from a European Perspective’,

European Management Journal

, vol. 9, no. 4, pp. 355–360.

Reich, R.B. (1991)

The Work of Nations. Preparing Ourselves for 21st-Century Capitalism

New York: Alfred A. Knopf.

Rugman, A.M. (1987)

International Business: Firm and Environment

, New York: McGraw-Hill.

Smith, A. (1776)

An Inquiry into the Nature and Causes of the Wealth of Nations

New York: Modern Library Edition, 1937.

UNCTAD (2002)

The World Investment Report 2002: TNCs and Export Competitiveness

New York: United Nations.

Vernon, R.G. (1995) ‘International Investment and International Trade in the Product Cycle’, in:

Buckley, P.J. and Ghauri, P.N.,

The Internationalization of the Firm

, London: Dryden Press,

pp. 5–15.

Williamson, O.E. (1975)

Markets and Hierarchies. Analysis and Antitrust Implications

New York: The Free Press.

WTO (2002)

International Trade Statistics 2002

, Geneva: World Trade Organization.

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2 Strategy and Structure of Multinational

Companies

Anne-Wil Harzing

1 Introduction 33

2 Differences between domestic and multinational firms 34

3 Sources of competitive advantages and strategic objectives 36

4 Structuring multinational companies 41

5 An empirical test of typologies of multinational companies 51

6 Human resource management in MNCs 58

7 Summary and conclusions 61

8 Discussion questions 61

9 Further reading 62

References 62

Note 64

1 INTRODUCTION

The main topic of this book is international and comparative human resource

management. We cannot, however, look at these topics in isolation. In the pre-

vious chapter we explained the reasons for internationalization and discussed

the (future) international division of labour. Human resources were shown to

play an important role in several of the theories relating to internationali-

zation. Although we did pay some attention to the multinational firm, the

most important level of analysis was the country or region. In this chapter we

CHAPTER CONTENTS

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will focus on the strategy and structure of multinational firms, where human

resource management is both an input and an output factor.

In Section 3 we will combine the sources of competitive advantage for

MNCs as discussed in Chapter 1 with three different strategic objectives and

define four different types of competitive strategy. These strategies will subse-

quently be linked to the transaction cost theory of international production

which was also discussed in Chapter 1. Section 4 then reviews both classical

and more recent approaches to structuring MNCs and discusses Bartlett and

Ghoshal’s typology of MNCs in some detail. Subsequently, Section 5 provides

an empirical test and extension of this popular typology. In Section 6, we then

link MNC strategy and structure to HRM. In the next section, however, we will

first distinguish what are considered to be the key differences between domes-

tic and multinational firms.

2 DIFFERENCES BETWEEN DOMESTIC AND

MULTINATIONAL FIRMS

Multiculturalism and geographic dispersion

Adler (1983) tried to identify the major differences between domestic and

multinational firms by asking a selected group of experts in this field. Two fac-

tors were considered to be of primary importance in differentiating between

domestic and multinational firms: multiculturalism and geographic dispersion.

Multiculturalism is defined as ‘the presence of people from two or more cul-

tural backgrounds within an organization’. Geographic dispersion is defined as

‘the location of various subunits of the parent firm in different countries’.

According to Adler the combination of both multiculturalism and geographic

dispersion is of fundamental importance. So far, most international business stud-

ies have focused on the consequences of geographic dispersion and tended to give

little attention to the consequences of multiculturalism. Most comparative man-

agement studies reversed the emphasis. They tended to focus on cultural differ-

ences, while more or less neglecting the geographic dispersion aspect of

multinational firms. To get a complete picture of multinational firms, both per-

spectives are equally important. As the subjects in this chapter fall mainly in the

realm of international business, multiculturalism will occupy only a modest role.

Other chapters in this book, however, will compensate for this shortfall.

Complexity

Multiculturalism and geographic dispersion lead to greater complexity. When

asked to describe this complexity more concretely by completing the statement:

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‘In comparison with domestic organizations, complexity is greater in multinational

organizations because of…’ the experts predominantly agreed with the follow-

ing (the figure in parenthesis represents the percentage of experts that agreed

with the statement):

• the need for multinational corporations to be more sensitive to government,

labour, and public opinion concerns (91.7%) and regulations (62.5%);

• home-country philosophies and practices that are inapplicable in foreign locales

(83.3%);

• the impossibility of implementing uniform personnel practices (83.3%) and per-

formance standards (70.8%) (Adler, 1983: 15).

These different factors will be dealt with extensively in this and subsequent

chapters.

Potential benefits of multiculturalism and

geographic dispersion

Multiculturalism and geographic dispersion can be accompanied by both

advantages and disadvantages. Regarding multiculturalism, the panel of

experts made a distinction between current and future benefits. According to

the panel the most important future benefits of multiculturalism would be:

• increasing creativity and innovation (83.3%);

• demonstrating more sensitivity in dealing with foreign customers (75%);

• being able to get the best personnel from everywhere (i.e. not being ‘stuck’ with

just local talent (66.7%);

• taking a global perspective (e.g. the MNC choosing the best opportunities glob-

ally) (62.5%);

• creating a ‘superorganizational culture’, using the best of all cultures (based on

the need for a unifying, transcending culture) (62.4%);

• greater flexibility within the organization both to adapt to a wider range of envi-

ronments and to change within those environments (62.5%) (Adler, 1983: 21).

When the future benefits were compared with the benefits that were currently

realized, the only major decrease in importance was that financial risks could

be spread over a wider range of economies (−41.6%) and that more successful

product-development and marketing strategies could be created in terms of

both locally tailored and worldwide products (−25%). A general conclusion

might therefore be that current benefits are related more to the functional areas

of marketing and finance, while potential future benefits are related more to

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human resource management. In the next chapters we will see that human

resource management is of fundamental importance in realizing an efficient

and effective multinational company. In the remainder of this chapter, we will

discuss the strategy and structure of multinational companies.

3 SOURCES OF COMPETITIVE ADVANTAGE AND

STRATEGIC OBJECTIVES

In the previous chapter we discussed how Ghoshal (1987) identified three

fundamental ways of building global competitive advantage for multinational

companies. In later work these means for achieving worldwide competitiveness

were linked to the different ends in terms of strategic objectives. In this section

we will discuss the three major strategic objectives of multinational companies

and will show how MNCs following different competitive strategies use differ-

ent combinations of means and ends. In a final subsection, we will discuss

work by Rugman and Verbeke that links the transactions cost theory of inter-

national production as discussed in Chapter 1 to the competitive strategies

identified by Bartlett and Ghoshal.

Strategic objectives

Bartlett and Ghoshal (2000) discuss three different strategic objectives for

multinational companies. They argue that multinational companies need to

meet the challenges of global efficiency, multinational flexibility and world-

wide learning. It is important to realize that global efficiency can be enhanced

both by increasing revenues and by lowering costs. Global integration of acti-

vities allows firms to realize economies of scale and scope and hence leads to

lower cost. Most authors have focused on this part of global efficiency.

However, firms can also increase their revenues by differentiating their prod-

ucts to respond to national differences in tastes, industry structures, distribu-

tion systems and government regulations (Bartlett and Ghoshal, 2000: 242).

Multinational flexibility is defined as ‘the ability of a company to manage

the risks and exploit the opportunities that arise from the diversity and volatil-

ity of the global environment’ (Bartlett and Ghoshal, 2000: 243). Bartlett and

Ghoshal identify four sources of diversity and volatility that can offer both

risks and opportunities:

• macro-economic factors, such as wars, interest and wage rates, exchange rates;

• policy actions of national governments, such as expropriation and changes in

exchange rates;

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• responses of competitors in the host market;

• resources, including natural, financial and human resources.

The very presence of multinational companies in diverse national

environments creates opportunities for worldwide learning. MNCs are exposed

to a wide range of different stimuli and this allows them to develop the diverse

resources and capabilities that give them the ability to innovate and exploit

these innovations worldwide (Bartlett and Ghoshal, 2000: 246). It is important

though that the MNC creates the mechanisms and systems to facilitate learn-

ing. The existence of diversity alone does not guarantee learning.

Linking means and ends: four different strategies

for multinational companies

Table 2.1 combines the sources of competitive advantage we discussed in

Chapter 1 with the strategic objectives summarized above. Bartlett and

Ghoshal (2000) distinguish four different strategic approaches that focus on

different combinations of the sources of competitive advantage (the means)

and strategic objectives (the ends).

Companies that follow a multidomestic

strategy will give prime importance

to one of the means – national differences – to achieve the different strategic

objectives. Global efficiency is realized mainly by increasing revenues, which

these companies achieve through differentiating their products and services to

respond to differences in consumers’ tastes and preferences and government

regulations. Through this responsiveness to national differences they also real-

ize the opportunities associated with multinational flexibility. Although com-

panies following this strategy do learn from local differences, most of this

learning remains within country borders: subsidiaries identify local needs, but

also use their own local resources to meet these needs. Bartlett and Ghoshal call

this local-for-local innovation.

Companies that follow an international strategy focus primarily on one of

the ends – worldwide learning – and use the three different means available to

achieve this end. However, as Bartlett and Ghoshal indicate, most companies

following this approach limited it primarily to exploitation and transfer of

technologies developed at home to less-advanced overseas markets. They were

in fact following Vernon’s product life cycle theory as discussed in Chapter 1.

The drawback of this strategy is that although it is very efficient at transferring

knowledge across borders, it does not do a very good job in achieving either

global efficiency or flexibility.

For companies that follow a global strategy, meeting the objective of global

efficiency takes pride of place and all means are used to achieve this objective.

With regard to the means of national differences, however, global companies

focus on exploiting differences in factor costs, by locating production in low

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The means and ends of creating worldwide advantage

Sources of competitive advantage

Strategic National Scale economies Scope economies

objectives differences

Global efficiency Exploiting Expanding and Sharing of

differences in exploiting investments and

factor costs (wages, potential scale costs across markets

cost of capital) economies in each and businesses

and national activity

preferences

Multinational Managing risks Balancing scale Portfolio

flexibility and opportunities with strategic and diversification of

arising from operational risk and creation of

national flexibility options and side

differences bets

Worldwide Learning from Benefiting from Shared learning

learning societal differences experience – cost across

in organizational reduction and organizational

and managerial innovation components in

processes and different products,

systems markets or

businesses

Source: adapted from Bartlett and Ghoshal, 2000: 251

cost countries. This contrasts with multidomestic companies who, as we have

seen above, focus on differences in national preferences. The concentration

and centralization of production and R&D activities associated with a global

strategy limits flexibility and leaves companies following this strategy vulnera-

ble to political and currency risks. It also limits their ability to learn from

foreign markets.

Companies following a transnational strategy acknowledge that all of these

different combinations of means and ends have their own merits and might be

very suitable in specific industries. However, they realize that in today’s com-

petitive environment in many industries it might be necessary to achieve all

three strategic objectives at the same time (see also Section 4). And in contrast

to companies following a multidomestic strategy, companies following this

strategy use all the means available to achieve this end. However, as we will see

in Section 4, this is not an easy task and requires a very different organizational

structure.

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TABLE 2.1

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Confusion of terms

In this chapter and in the rest of this book we consistently use the terms

multidomestic, international, global and transnational to describe

industries, strategies and structures. In terms of strategy, there are a number

of other terms in use: country-centred, simple global and complex global

(Porter, 1986) and nationally responsive, worldwide integration and multi-

focal (Prahalad and Doz, 1987). Although the specific emphasis sometimes

differs, generally speaking these terms can be compared to our terms:

multidomestic, global and transnational respectively. In the marketing litera-

ture the term global is often used to describe characteristics of what we

would call a transnational environment, industry, strategy or structure,

while in the international economics literature, the term transnational cor-

poration is used simply as an alternative to the generic term multinational

corporation. The best advice we can give is to compare characteristics and

not labels.

Competitive strategies and ownership, location

and internalization advantages

Rugman and Verbeke (1992) link the transaction cost theory of international

production, as discussed in the previous chapter, to the competitive strategies

distinguished by Bartlett and Ghoshal. Their analysis is rather complex.

However, it is probably the first attempt which successfully managed to incor-

porate both the economic perspective on multinationals as discussed in

Chapter 1 and the managerial perspective we take in the remainder of this

book. Rugman and Verbeke’s analysis takes as its starting point the position

that foreign direct investment has been chosen as a more efficient mode of

entry than export, licensing or a joint venture. In terms of Dunning’s eclectic

theory: there are advantages to internalization.

Rugman and Verbeke then go on to distinguish two types of ownership-

specific advantages – which they call firm-specific advantages (FSAs) – namely

location-bound firm-specific advantages and non-location-bound firm-specific

advantages. The benefits of location-bound firm-specific advantages depend on

their being used in one particular location (or a set of locations). They cannot

easily be transferred and cannot be used in other locations without significant

adaptation. An example would be a firm’s expertise in dealing with the idio-

syncrasies of the Japanese distribution system. Transferring this specific exper-

tise to other locations would be useless. Non-location-bound firm-specific

advantages do not depend on their being used in one particular location. They

can be used on a global scale, because transferring them to other locations can

be done at low cost and without substantial adaptation. Best known in this

respect is proprietary technology resulting from research and development

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FIGURE 2.1

activities, but specific marketing skills and managerial capabilities can also

form non-location-bound firm-specific advantages.

With regard to location advantages – or country-specific advantages (CSAs)

as Rugman and Verbeke call them – they distinguish two sources: home and

host country and two ways of using them: ‘static’ and ‘leveraged’. Home coun-

try country-specific advantages, for example a highly skilled technical work-

force, may be used in a ‘static’ way, that is to support current firm-specific

advantages. However, they can also be used in a ‘leveraged’ way, that is to

develop new firm-specific advantages, for instance a new type of technology.

The same goes for host country country-specific advantages. For examples of

home and host country country-specific advantages we refer to Chapter 1.

In Figure 2.1 Rugman and Verbeke distinguish the two types of firm-specfic

advantages discussed above, location-bound and non-location-bound, and

three different combinations of country-specific advantages:

• home country country-specific advantages, used in a leveraged way;

• host country country-specific advantages, used in a static way;

• a combination of home and host country country-specific advantages, used in

either a static or a leveraged way.

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Home country CSAs

(leveraged)

Host country CSAs

(static)

Home and host country

CSAs (dual)

Non-location-

bound

Location-

bound

Types of FSAs

Use of CSAs

Global

International

Multidomestic

Transnational

Sources of international competitive advantage and competitive strategies

(adapted from Rugman and Verbeke, 1992: 764)

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The four types of competitive strategies distinguished by Bartlett and Ghoshal

(1989, 2000) have been situated in this figure. The type of strategy that is

captured best by the original theory on multinational firms (Dunning’s eclectic

theory) is the international company. The original framework assumes that

firm-specific advantages are non-location bound, that is that they can be used

anywhere in the world. The actual choice for the optimum location for sub-

sidiaries in this type of company is based on static host country country-

specific advantages (such as a cheap labour force). The product life cycle theory

described in Chapter 1 also describes the characteristics of this type of strategy.

In the case of a multidomestic strategy, differences between countries with

regard to customer preferences, market conditions and government regulation

force companies to develop location-bound firm-specific advantages. These

location-bound firm-specific advantages will often complement the country-

specific advantages of the countries involved, such as the local marketing infra-

structure or protected government markets.

A global strategy would obviously be based on non-location-bound firm-

specific advantages that can be exploited on a global scale. Home country

country-specific advantages are more important than host country country-

specific advantages, because production operations are often concentrated in

the home country.

The transnational strategy is based on a combination of location-bound

and non-location-bound firm-specific advantages. Location-bound firm-specific

advantages would be necessary in countries with a need for national respon-

siveness. Non-location-bound firm-specific advantages would permit global

exploitation. With regard to country-specific advantages, the transnational

strategy draws on advantages from both home and host countries. And in con-

trast to the situation in international and multidomestic strategies, host coun-

try country-specific advantages can also be used in a leveraged way. In Chapter 1

we already referred to the fact that the transnational company would choose the

country with the most favourable domestic diamond to locate its home base for

each particular Strategic Business Unit (SBU). Porter’s emphasis on innovation

and the constant upgrading of competitive advantages is highly compatible

with the leveraged use of country-specific advantages.

4 STRUCTURING MULTINATIONAL COMPANIES

Although the choice of a company’s competitive strategy is a very important

decision, a successful implementation of this strategy depends to a large extent

on the structure and processes of the company in question. This section there-

fore looks at the structuring of MNCs. We will first discuss the early studies

with regard to MNC structure, focusing on Stopford and Wells’s now classic

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stages model. However, we will see that these early studies have now been

replaced by a more integrated approach which recognizes that organizational

processes are as important as organizational structure. In line with our discus-

sion in Section 3, we will focus on Bartlett and Ghoshal’s four models of MNCs

as a key representative of this new approach. In a final subsection, we’ll discuss

what has become the most influential model in the international management

literature: the integration–responsive grid.

Strategy and structure: the early studies

Early studies on the structure of MNCs were usually based on the work of

Chandler (1962) who proclaimed a deterministic relationship between strategy

and structure. Chandler distinguished four growth strategies: expansion of

volume, geographic dispersion, vertical integration, and product diversifi-

cation. These strategies called for different structures, hence his adage ‘struc-

ture follows strategy’. Stopford and Wells’s (1972) classic study investigated this

relationship in an international context. In an empirical investigation of 187

large American multinational companies, they identified two strategic vari-

ables that were able to ‘predict’ organizational structure: foreign product diver-

sity and percentage of foreign sales. A model was constructed (see Figure 2.2)

that showed how MNCs adopt different organizational structures at different

stages of international expansion.

When firms start to internationalize and both their foreign sales and for-

eign product diversity are limited, the preferred organizational structure is usu-

ally an international division. The domestic organizational structure is left

untouched and all international activities are simply concentrated in one inter-

national division. This might be an advantage if international presence is still

very limited. It does not require a complete overhaul of the organization and

the structure is simple and understandable. In addition, it creates a central pool

of international experience and expertise. The international division structure

does create a number of problems, however. First, it tends to underplay the

importance of international activities, since the international division is only

one of the many divisions of the company. It also underestimates the diversity

that might be inherent in international operations: the head of the inter-

national division is assumed to represent the interest of all countries in which

the company operates. In addition, the isolation of domestic and international

activities may create duplication of efforts and limits the transfer of knowledge

in the company. Because of the structural separation, there is a complete lack

of coordination between domestic and foreign operations, which might hinder

both the company’s effectiveness and efficiency.

Therefore, once companies expand their international operations, they

usually choose one of two worldwide structures: the area division structure or

the product division structure. The choice is again dependent on the two

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variables identified by Stopford and Wells. For companies that increase their

foreign sales without significantly increasing product diversity, the most likely

choice is a worldwide area division. In this type of structure, the world is

divided into separate areas, which might be either a country or a group of

countries, depending on the size of the market. In this case, the country in

which the headquarters is located is simply one of the areas. Each area division

usually operates in a rather autonomous way and oversees its own production,

R&D, marketing, etc. This approach might work well if the company has a nar-

row product line (low level of foreign product diversity), which needs to be

adapted to different local tastes and values. Local responsiveness is usually a

key competitive advantage of these structures. Even more so than for the inter-

national division structure, however, this type of structure suffers from a lack

of coordination. Activities will be duplicated and because each unit functions

independently, essential information and experience may not be transferred

Strategy and Structure of Multinational Companies

Global matrix

(or ‘grid’)

International division

Area division

Worldwide product

division

Alternate paths of

development

Foreign sales as a percentage of total sales

Foreign product diversity

FIGURE 2.2

Stopford and Wells’s international structural stages model (adapted from

Stopford and Wells, 1972)

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from one unit to another. Area structures are therefore usually complemented

with staff specialists for specific product categories. These staff specialists facili-

tate information transfer and strive to limit duplication.

Companies that are reasonably diversified (high level of foreign product

diversity) usually adopt a worldwide product structure. In this type of structure,

divisions are created for each major product or product group. Again divisions

are relatively independent and autonomous and are responsible for their own

value-creating activities (production, R&D, marketing, etc.). A major advantage

of this approach is that it improves efficiency, because activities can be easily

coordinated and rationalized within the product group. Transfer of core com-

petences and knowledge is also much easier than in the area division structure.

This structure works well for industries in which cost-efficiency and coordi-

nation are of paramount importance. In contrast to the area structure, however,

this structure makes attention to local differences far more difficult, sometimes

resulting in a lack of local responsiveness.

According to Stopford and Wells, yet another structure may be necessary if

the company enters a subsequent stage, one in which both foreign sales and

product diversity are high. They see the global matrix as the ideal structure for

this stage of international development. This structure should combine the

advantages of the area and product structure: local responsiveness and global

efficiency. In the matrix structure, responsibility for a particular product is

shared by both product and area managers. Many managers will have to report

to two bosses: one in the product division and one in the area division. The

advantage of the matrix is that it should enable a company to balance product

and area requirements and achieve both efficiency and responsiveness. The

reality is often different. Many matrix structures are associated with conflict,

bureaucracy and slowness of decision-making. Because of shared decision-

making, it is difficult to assign individual responsibility and the result may be

chaos, lack of direction and inflexibility. Both in academic literature and in

practice, attention has therefore shifted from matrix structures to matrix cul-

tures and in general to the ‘softer’ aspects of the organization, such as people,

processes and control mechanisms.

The soft side of the organization

In this chapter, we are concentrating on theories and developments related

to multinational organizations. In general management literature, however,

we also see a move away from the focus on structural variables and a ten-

dency to bring ‘the soft side of the organization’ into the picture, combined

with an emphasis on flexibility. Mintzberg, for instance, sees the adhocracy

(one of his organizational configurations, the others being the simple struc-

ture, the divisionalized form, the machine bureaucracy and the professional

bureaucracy) as the organization of the future (Mintzberg, 1983: 275). The

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adhocracy is a highly organic organization, flexible and decentralized to cope

with dynamic and complex environments, with mutual adjustment as a rather

informal coordination mechanism. Mintzberg indicates that diversified

markets formerly led multinationals to using the divisionalized form, grouping

their major divisions either by area or by product line. However, ‘those multi-

national firms with interdependencies among their different product lines,

and facing increasing complexity as well as dynamism in their environment

will feel drawn toward the divisionalised adhocracy hybrid.’ (Mintzberg,

1983: 269). More than 40 years ago Burns and Stalker (1961) had already

identified the organic organization – with characteristics such as continual

adjustment, lateral communication and commitment – as opposed to the

mechanic organization. And finally, in Peters and Waterman’s best-seller In

Search of Excellence (1982) the ‘soft’ aspects of organizing – skills, shared

values, style (of management) and staff – are at least as important as the

formal aspects of structure, strategy and systems.

Strategy and structure: recent developments

In the previous section we discussed the early approaches to the structuring of

MNCs, based on Stopford and Wells’s seminal work. We also indicated that

nowadays more sophisticated approaches have developed. These approaches

take a more integrated approach by looking at the interaction between environ-

ment, strategy, structure and processes. Table 2.2 summarizes these ideas. It is

based on the environment–strategy–structure paradigm, which suggests that

superior company performance comes from a good fit between strategy and

environmental demands, and between organizational structure (and processes)

and strategy.

A prime example of this more integrated type of approach described above,

is Bartlett and Ghoshal’s (1989, 2000) typology of international firms that

includes a discussion of the changing international and industry environment

as well as the company’s strategy, structure and processes. Bartlett and Ghoshal

distinguish four types of MNCs: multidomestic, international, global and

transnational.

Multidomestic organizational model

The period between the two world wars was characterized by a rise in nation-

alistic feelings. Countries became more and more protectionist and erected

high tariff barriers. There were large national differences in consumer prefe-

rences and communication and logistical barriers remained high. These cir-

cumstances favoured national companies. For multinational companies, the

strategy of centralized production in order to capture economies of scale, com-

bined with exports to various countries, was made impossible by high tariff

and logistical barriers. In order to be able to compete with national companies,

multinational firms had to set up a larger number of foreign manufacturing

Strategy and Structure of Multinational Companies

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subsidiaries. Differences in consumer preferences and high communication

barriers led to a decentralization of decision-making, so that the foreign sub-

sidiaries were relatively independent of their headquarters. Even now, many

industries have multidomestic characteristics. A prime example of a multi-

domestic industry is the branded packaged products industry (e.g. food and

laundry detergents). Companies in these industries preferably follow a

multidomestic strategy, which gives primary importance to national respon-

siveness. Products or services are differentiated to meet differing local

demands. Responsiveness to the differences that distinguished national

markets led multidomestic companies to decentralize organizational assets and

decision-making. This resulted in a configuration that can be described as a

decentralized federation. The decentralized federation is organized by area,

that is by geographical region. This kind of structure – which is comparable to

the area division structure of Stopford and Wells – was particularly compatible

with the management norms of the mainly European companies that sought

international presence in this particular era. Family ownership had been the

dominant tradition and therefore organizational processes were built on per-

sonal relationships and informal contacts rather than formal structures and

systems. Operational decisions were simply delegated to trusted parent com-

pany nationals who were assigned abroad. The main approach to controlling

and coordinating foreign subsidiaries was a rather informal one: direct personal

contact between headquarters and subsidiary managers. Some simple financial

control systems often supplemented this informal coordination.

International organizational model

The post-war years were characterized by a worldwide boom in demand.

Consumers were making up for the years of scarcity and soberness. The United

States was in a predominant economic position during this period. Most

European companies were preoccupied with the reconstruction of their domes-

tic operations, while American companies were almost untouched by the war.

International Human Resource Management

Environment, strategy, structure, systems and processes in MNCs

Environment: Environment: Strategy Structure Systems and

Historical Industry processes

Changes in Pattern of Company’s Company’s Company’s

international international strategic organizational control

environment competition response structure mechanisms

Source: adapted from Martinez and Jarillo, 1989

TABLE 2.2

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US companies developed new technologies and products. They were almost

forced into the international market by spontaneous export orders and oppor-

tunities for licensing. Later they started making their products in manufactur-

ing facilities in Western Europe and in developing countries. The adjective

‘international’ refers to the international product life cycle, which describes the

internationalization process in this type of industry. The critical success factor

in these industries is the ability to transfer knowledge (particularly technology)

to units abroad. It involves sequential diffusion of innovations that were origi-

nally developed in the home market. A classic example of an international

industry is telecommunications switching. In the international organizational

structure, transfer of knowledge and expertise to countries that were less

advanced in technology or market development is the essential task. Local sub-

sidiaries do still have some freedom to adopt new products or strategies, but

coordination and control by headquarters is more important than in the

multidomestic type. Subsidiaries are dependent on the parent company for

new products, processes or ideas. A coordinated federation, often structured by

function, is the name for the structural configuration of this organizational

model. The managerial culture of these companies provided a good fit with this

structure. This culture was based on professional management, which implied

a certain willingness to delegate responsibility. At the same time, however,

these companies used sophisticated management systems and specialist corpo-

rate staff to retain overall control.

Global organizational model

In the 1960s and 1970s the successive reductions in tariff barriers began to

have their full impact. This was accompanied by declining international trans-

port costs and communication barriers. Furthermore, new electronic technolo-

gies increased the minimum efficient scale in many industries. Finally,

consumer preferences became more homogeneous because of increased inter-

national travel and communication. All these developments made centralized

and relatively standardized production with exports to various countries profi-

table again. In a global industry, standardized consumer needs and scale effi-

ciencies make centralization and integration profitable. In this kind of

industry, a firm’s competitive position in one country is significantly influ-

enced by its position in other countries, and rivals compete against each other

on a truly worldwide basis. A classic example of a global industry is consumer

electronics. The preferred strategy in these industries is one that gives primary

importance to efficiency. Global companies integrate and rationalize their pro-

duction to produce standardized products in a very cost-efficient manner. This

is the strategy traditionally followed by Japanese MNCs, which mainly inter-

nationalized in the 1970s. In a global organizational configuration, assets,

resources and responsibilities are centralized. The role of subsidiaries is often

limited to sales and service. Compared with subsidiaries in multidomestic or

international organizations, they have much less freedom of action. The structural

Strategy and Structure of Multinational Companies

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configuration of this organization is called a centralized hub – comparable to

Stopford and Wells’s product-division structure. This configuration was parti-

cularly compatible with the managerial norms and processes in Japanese com-

panies. Centralized decision-making and control allowed these companies to

retain their complex management system requiring intensive communication

and personal commitment.

Transnational organizational model

By the late 1970s, there was a rising concern on the part of host countries about

the impact of MNCs on their balance of trade, national employment levels,

and on the international competitiveness of their economies. Consequently,

they gradually started to exercise their sovereign powers. Trade barriers were

erected again to limit exports and foreign direct investments were regulated by

industrial policies. In addition, other forces counteracted the previous globali-

zation process. Flexible manufacturing reduced the minimum efficient scale

by employing robotics and CAD/CAM technologies. The use of software

became important in a growing number of industries (from telecommuni-

cations to computers and consumer electronics). This development facilitated

responding to consumers who were again asking for products tailored to their

local needs. The problem is that we do not see a complete reversal to the

multidomestic era again. The worldwide innovation of the international era and

the global efficiency of the global era remain important competitive factors

and companies should pay attention to global efficiency, national responsive-

ness and worldwide learning at the same time. In order to be able to do this,

their strategy must be very flexible. The strategy (literally) is to have no set

strategy, but to let each strategic decision depend on specific developments.

Strategy becomes unclear and it may dissolve into a set of incremental deci-

sions with a pattern that may only make sense after the fact. Issues are shaped,

defined, attended to and resolved one at a time in a ‘muddling through’

process. A transnational strategy would be a deliberately planned strategy to

have an ‘adaptive’ (Mintzberg, 1988a), ‘incremental’ (Quinn, 1988), ‘muddling

through’ (Lindblom, 1987) or ‘emergent’ (Mintzberg, 1988b) strategy. The type

of organization structure that fits a transnational strategy is very flexible.

Bartlett and Ghoshal refer to an integrated network structure that links major

sub-units of the company together. Assets, resources and capabilities are nei-

ther centralized nor completely decentralized. Expertise is spread throughout

the organization and subsidiaries can serve as a strategic centre for a particular

product–market combination. To use a popular term, companies are creating

‘centres of excellence’ for each activity. It is important to realize that this con-

cept upsets the traditional notion of having one headquarters and many

dependent subsidiaries. The company becomes a kind of network with differ-

ent centres for different activities. Each centre can have a strategic role for a

particular area. The main characteristics of these four organizational models are

summarized in Figure 2.3.

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The integration–responsiveness framework

In a recent discussion about the international management research commu-

nity Bartlett and Ghoshal (2002: 7) identify the integration-responsiveness

(I–R) framework (see Figure 2.4) as the ‘almost universally adopted lens for

viewing both the strategic content and the organizational processes that

defined the operations of the MNC’. Its origins are generally seen to lie in the

doctoral dissertations of C.K. Prahalad and Yves Doz in the mid-1970s,

although the influence of the contingency framework of Lawrence and Lorsch

(1967) is universally acknowledged. Rugman (2002) indicates that the frame-

work might even have earlier roots in Fayerweather’s (1960, 1969) textbooks

that present a model of ‘unification vs. fragmentation’. Regardless of its exact

origins, however, the integration–responsiveness framework remains an excel-

lent tool to diagnose the conflicting demands on MNCs, both in terms of strategy

Strategy and Structure of Multinational Companies

Mainly knowledge flows

(technology products,

processes, systems)

Transnational: Integrated network

International: Coordinated federation

Mainly financial flows

(capital out; dividends back)

Distributed specialized

resources and capabilities

Formal system controls;

(planning, budgetting)

Tight, simple controls;

(key strategic decisions made centrally)

Complex process of coordination and

cooperation in an environment of

shared decision-making

Large flows of components, products,

resources, people and information among

interdependent units

Multidomestic: Decentralized federation

Loose, simple controls;

(strategic decisions decentralised)

Global: Centralized hub

Mainly flow of goods

FIGURE 2.3

Characteristics of the four organizational models (adapted from Bartlett and

Ghoshal, 2000: 508, 514)

3122 Ch-02.qxd 10/29/03 3:44 PM Page 49

and in terms of organization structure. The vertical axis represents the level of

global integration, and hence of central coordination by headquarters; the hori-

zontal axis represents the extent of national responsiveness or differentiation,

and consequently of the desired influence of subsidiaries in strategic and oper-

ational decisions. For a detailed discussion of the framework we refer to

Prahalad and Doz (1987). The four organizational models presented by Bartlett

and Ghoshal can be positioned on the I–R grid as portraying different levels of

integration and responsiveness.

Although this framework is very convenient to summarize the different

organizational models, there are some additional issues that should be empha-

sized. First, the place of the transnational in the upper right-hand corner does

not mean that it is always high on both integration and responsiveness. The

transnational approach is to decide whether to emphasize integration or

responsiveness for each particular situation. The accent can be different for

each business, function, task or country. Figure 2.5 shows the varying needs for

global integration and national responsiveness in Unilever’s business strategies,

functional strategies and tasks. Second, the aspect of worldwide learning and

innovation, dominant for international companies and also very important for

transnational companies, is not adequately captured in the framework. This is

not surprising because the constructors of the framework did not distinguish

international companies. This makes it difficult to position the international

International Human Resource Management

Responsiveness

high

low

high

Integration

Global

Transnational

Multidomestic

International

FIGURE 2.4

The integration–responsiveness framework

3122 Ch-02.qxd 10/29/03 3:44 PM Page 50

organizational model in the framework. Some authors (Sundaram and Black,

1992) simply equate it with the transnational configuration, while other

authors (Ghoshal and Nohria, 1993; Welge, 1996) place it in the lower left

corner. As we indicated above, an international strategy assumes some concern

with both integration and responsiveness. We therefore argue that the actual

position would lie in between, leaning somewhat more to the lower left corner.

5 AN EMPIRICAL TEST OF TYPOLOGIES OF

MULTINATIONAL COMPANIES

Bartlett and Ghoshal’s typology, as described in the previous section, is proba-

bly the most popular typology of MNCs in both academic and professional

circles. However it was based on an in-depth study of just nine multinational

companies in three different industries and includes few specifics about struc-

tural elements and the use of different control mechanisms. This section there-

fore describes the results of a large-scale empirical test and extension of their

typology in over 100 MNCs from nine different countries (USA, Japan,

Germany, France, UK, Sweden, Switzerland, Finland and the Netherlands),

operating in eight different industries: consumer electronics, computers, auto-

mobile, petroleum, food & beverages, pharmaceuticals, chemicals and paper.

Strategy and Structure of Multinational Companies

FIGURE 2.5

Integration and differentiation needs at Unilever (adapted from Bartlett and

Ghosal, 1989: 97)

Businesses

Functions

Tasks

high

low

high

low

high low

high

Need for national differentiation and responsiveness

Need for

global

coordination

and

integration

Chemicals Research

Detergents

Product

policy

Personal

products

Packaged

foods

Marketing

Product

development

Manufacturing

Sales

Advertising

Pricing

Distribution

Promotion

3122 Ch-02.qxd 10/29/03 3:44 PM Page 51

Subsidiaries in 22 different countries were included in the study (for a more

detailed description of the results see Harzing, 1999, 2000).

Based on Bartlett and Ghoshal’s typology, ideal profiles of three different

types of MNCs were constructed: multidomestic, global and transnational. The

international model was not included since previous studies had shown that

this differed little from the other models. Following Bartlett and Ghoshal, the

strategic orientation of global firms was defined as building global efficiency,

while the main strategic thrust of multidomestic firms was defined as respond-

ing to national differences. Transnational companies would have to cope with

both strategic demands at the same time. Competition was expected to take

place at a global level for both global and transnational companies, while

multidomestic firms would be more oriented towards domestic competition,

since national product markets are too different to make competition at a

global level possible. These four aspects of competitive strategy were used as

input for a cluster analysis. As predicted, three clear clusters emerged. A first

group, which was labelled multidomestic, combined a high score on national

responsiveness with a high score on domestic competition and scored lowest

on both global competition and global efficiency. The second group – termed

global – had an opposite profile, high global and low domestic competition, a

low level of national responsiveness and a high level of global efficiency. Firms

in the transnational cluster combined a focus on national responsiveness and

global efficiency with a high level of global and a low level of domestic

competition. Subsequently, we compared these three clusters of MNCs on a

large number of characteristics related to organization design, interdepen-

dence, local responsiveness and the level and type of control. Table 2.3 gives a

summary of the characteristics that were found to be significantly different

between the three models.

Typology elements

Organizational design

The organizational structure of the global company is centralized and globally

scaled and the main role of subsidiaries is to implement parent company strate-

gies, that is: act as pipelines of products and strategies. The multidomestic firm

is characterized by a decentralized and loosely coupled organizational struc-

ture. With regard to strategy, the transnational has characteristics of both

multidomestic and global firms. In organizational design terms, the transnational

shows some unique features as well: it functions as an integrated and inter-

dependent network, subsidiaries can have strategic roles and act as centres of

excellence and we find a large flow of products, people and information

between subsidiaries. In global companies, flows transfer mostly from head-

quarters to subsidiaries, while multidomestic companies are characterized by a

lower overall flow of products, people and information.

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Interdependence

Interdependence indicates the extent to which various units of a MNC are

dependent on each other and hence gives an impression of the level of inte-

gration within the MNC as a whole. It is therefore an important element of

MNC structure. We distinguish three different levels of interdependence. First

independence, that is the subsidiary is not or hardly dependent on headquar-

ters or other subsidiaries and is operating very much as a stand-alone company.

Second dependence, that is the subsidiary is mainly dependent on head-

quarters. Finally, interdependence: the subsidiary, headquarters and other

Strategy and Structure of Multinational Companies

Typologies of multinational companies

Organizational Strategy Multidomestic Global Transnational

Organizational design &

subsidiary role

• Decentralized federation High Low Low

• Network structure Low Low High

• Inter-subsidiary flows Low Low High

• HQ’s pipeline Low High Low/medium

• Centres of excellence Low Low High

Interdependence

• Total level of interdependence Low High High

• Level of HQ dependence Low High Medium

(dependence)

• Level of subsidiary dependence Low Low High

(interdependence)

Local responsiveness

• Local production High Low Medium

• Local R&D High Low Medium

• Product modification High Low High

• Adaptation of marketing High Low/ High

Medium

Level and type of control

• Total level of control Low High Medium

• Level of personal centralized Low High Low

control

• Level of bureaucratic formalized Low High Medium

control

• Level of output control Medium Medium Medium

• Level of control by Medium Medium High

socialization and networks

TABLE 2.3

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subsidiaries form part of an interdependent network, they are all dependent on

each other.

The majority of subsidiaries in multidomestic companies are relatively

independent from both headquarters and subsidiaries. Since this relationship

may seem almost tautological with our description of a decentralized organi-

zation, interdependence was measured in a very objective way: the percentage

of intra-company sales and purchases in relation to total sales and purchases.

Subsidiaries in multidomestic companies buy/sell a low proportion of their

purchases/sales from/to both headquarters and other subsidiaries. In global

companies many subsidiaries have a sales function only, simply transferring

products from headquarters to the local market. Therefore the level of inter-

dependence between individual subsidiaries and headquarters is greater than the

level of interdependence between different subsidiaries. Thus in subsidiaries of

global companies dependence is more important than interdependence. In

transnational companies, we also see a relatively high level of intra-company

sales and purchases. However, since strategic functions such as production may

be assumed by specialized subsidiaries, the level of interdependence between

different subsidiaries is higher than the level of interdependence between indi-

vidual subsidiaries and headquarters. In other words, in subsidiaries of trans-

national companies interdependence is more important than dependence.

Local responsiveness

Local responsiveness is defined as the extent to which subsidiaries respond to

local differences in customer preferences. There are several ways in which

responsiveness to local differences can be conceptualized. First of all, products

can be actively adapted to differences in local tastes and preferences. Since

being locally responsive is a key strategic requirement for both multidomestic

companies and transnational companies, a relatively large proportion of prod-

ucts that are sold by their subsidiaries are adapted or modified to the local

market. In many industries that are traditionally characterized as multidomestic,

such as for instance the food industry (Bartlett and Ghoshal, 1989; Kobrin,

1994; Porter, 1986; Rall, 1989), adaptation of products is also easier and less

costly than for global products such as computers. As the key strategic require-

ment for global companies is to manufacture standardized products in a cost-

efficient way, their subsidiaries do not sell a high proportion of products

modified for the local market.

In a more limited sense, local responsiveness might involve adaptation of

marketing to local circumstances to make products more appealing to a variety

of customers. Because both multidomestic companies and transnational com-

panies place a high emphasis on local responsiveness, for products sold by sub-

sidiaries of these companies a high percentage of marketing is consciously

adapted to local circumstances. In subsidiaries of global companies, which try

to sell relatively standardized products worldwide, a lower extent of marketing

adaptation takes place. However, since adaptation of marketing is a rather easy

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3122 Ch-02.qxd 10/29/03 3:44 PM Page 54

and not too expensive way to be responsive to local markets, the difference for

this measure is lower than for product modification.

Although local production and local R&D are not absolutely essential for a

company to be locally responsive, a local presence in this respect does make it

easier. Having production and R&D close to the end customer makes it easier

to pick up and perform the adaptations that are required to successfully sell the

product in a country. Global companies are less likely to locate these parts of

the value chain close to the customer, since they will feel less need to access

this type of market information. Products sold by subsidiaries of both multi-

domestic and transnational companies therefore have a higher local produc-

tion and R&D content than products sold by subsidiaries of global companies.

However, since transnational companies also have to respond to the demand

for cost efficiency by focusing on economies of scale, they are not as prone as

multidomestic companies to duplicate value chain activities. Subsidiaries of

transnational companies are therefore less likely to perform local production

and R&D and hence products sold by subsidiaries of transnational companies

have a lower local production and R&D content than products sold by sub-

sidiaries of multidomestic companies.

Control mechanisms

Control mechanisms can be defined as the instruments that are used to make

sure that all units of the organization strive towards common organizational

goals. Numerous control mechanisms have been identified. However, an exten-

sive literature review (Harzing, 1999), resulted in a synthesis of four major

types of control mechanisms, as summarized in Table 2.4.

Personal centralized control. This control mechanism denotes the idea of

some kind of hierarchy, of decisions being taken at the top level of the organi-

zation and personal surveillance of their execution. The terms used by various

authors to describe this control mechanism are: centralization, hierarchy and a

direct personal kind of control.

Bureaucratic formalized control. The control mechanisms in this category are

impersonal (also called bureaucratic) and indirect. They aim at pre-specifying,

mostly in a written form, the behaviour that is expected from employees. In

this way, control can be impersonal because employees can and should refer to

the ‘manual’ instead of directly being told what to do. The terms used by var-

ious authors to describe this type of control are: bureaucratic control, formali-

zation, rules, regulations, paper system and programmes.

Output control. The main characteristic of this category is that it focuses on

the outputs realized instead of on behaviour (as the other three control mecha-

nisms do). These outputs are usually generated by the use of reporting or

monitoring systems and can take any form from rather general aggregated

financial data to detailed figures regarding sales, production levels, productiv-

ity, investments, etc. Thus, the key element that distinguishes this control

mechanism from the two previous ones is that instead of particular courses of

Strategy and Structure of Multinational Companies

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action, certain goals/results/outputs are specified and monitored by reporting

systems. The terms used by various authors to describe this type of control are:

result control, plans, output control, goal setting.

Control by socialization and networks. Compared to the other categories this

control mechanism is rather informal, subtle and sophisticated. We can distin-

guish three main sub-categories in this broad category. The first is socialization,

which can be defined as ensuring that employees share organizational values

and goals, that is, are socialized into a common organization culture. Another

frequently used term is, cultural control. The second, informal, lateral or hori-

zontal exchange of information uses non-hierarchical communication as a con-

trol mechanism. Terms often used are: mutual adjustment, direct (managerial)

contact, informal communication and coordination by feedback. The third,

formalized lateral or cross-departmental relations, has the same objectives as the

second, increasing the amount of (non-hierarchical) information processing,

with the difference that in this case the relationships are (temporarily) formal-

ized within the organizational structure. Examples are task forces, cross-

functional teams, integrative departments.

Headquarters in multidomestic MNCs, in which subsidiaries are relatively

independent, operate as stand-alone companies and are very responsive to the

local market, exercising a lower level of control over their subsidiaries than

headquarters in global or transnational MNCs. If any control is exercised over

subsidiaries in multidomestic companies, headquarters chooses one of the

more indirect ways of control: output control or control by socialization and

networks.

Since subsidiaries in global and transnational companies show a higher

level of interdependence, they also show a higher level of total control. They

do differ in their preferred control mechanisms, though. Personal centralized

control is rather high for global companies as they are characterized by a

International Human Resource Management

Classification of control mechanisms on two dimensions

Impersonal/bureaucratic/

technocratic

Personal/cultural (founded on

(founded on social interaction) instrumental artefacts)

Direct/explicit Category 1: Personal Category 2: Bureaucratic

centralized control formalized control

Indirect/implicit Category 4: Control by Category 3: Output control

socialization and networks

TABLE 2.4

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centralized hub structure in which headquarters takes the most important

decisions. In the integrated network type of structure that characterizes the

transnational, subsidiaries can have a more strategic role, which makes cen-

tralization of decision-making less feasible. Bureaucratic control is high for

global companies as well. Since global companies try to sell standardized prod-

ucts, a high level of standardization is a logical choice. Transnationals are much

more differentiated and have to act in very flexible ways. This makes stan-

dardization and formal procedures less feasible. Output control, operational-

ized in our study as financial reporting and planning and budgeting systems,

is used by all MNCs to some extent, while the complexity and uncertainty of

the transnational environment has led many transnational firms to adopt what

Martinez and Jarillo call ‘more informal and subtle coordination mechanisms’

in the form of control by socialization and networks.

In summary: three ideal-type multinational companies

In summary, our empirical study was able to clearly distinguish three types of

MNCs which differed systematically on a number of important characteristics.

Global companies operate in industries with rather standardized consumer

needs that make the realization of economies of scale very important. Many

industries have turned global during the last decades, but the consumer elec-

tronics, computer and automobile industries remain prime examples. Since

price competition is very important, the dominant strategic requirement is effi-

ciency, and these companies therefore integrate and rationalize their produc-

tion to produce standardized products in a very cost-efficient manner.

Subsidiaries in global companies typically fulfil a ‘pipeline’ role for headquar-

ters. They are usually very dependent on headquarters for their sales and pur-

chases and are not expected to respond actively to the local market demands

in terms of – for example – product adaptation. A relatively low percentage of

subsidiaries have ‘strategic’ functions such as production or R&D. The total

level of control exercised by headquarters over these subsidiaries is rather high,

mainly caused by a high level of the two direct control mechanisms: personal

centralized control and bureaucratic formalized control. The global configura-

tion is most typical of German and Japanese MNCs.

Multidomestic companies are the complete reverse of global companies.

Products or services are differentiated to meet differing local demands, and

policies are differentiated to conform to differing governmental and market

demands. Local demand is determined by cultural, social and political differ-

ences between countries. The food and beverages industry is a classical example

of a multidomestic type of industry, but many firms in the paper industry also

score high on multidomestic characteristics. The multidomestic firm is

characterized by a decentralized and loosely coupled organizational structure.

Subsidiaries operate relatively independently from headquarters: they buy/sell

Strategy and Structure of Multinational Companies

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a very low proportion of their input/output from/to headquarters. They are

responsive to the local market, and adapt both products and marketing to local

circumstances. This is made easier by the fact that products are often produced

locally, which is reflected in a relatively high percentage of subsidiaries that

have a production function. Not surprisingly, the total level of control exer-

cised by headquarters over these subsidiaries is rather low, especially the two

direct control mechanisms: personal centralized control and bureaucratic for-

malized control, which are used to a very low extent. The multidomestic con-

figuration is most typical of French and British and to a lesser extent Finnish

and Swedish MNCs.

In a sense, a transnational company combines characteristics of both global

and multidomestic companies, in that it tries to respond simultaneously to the

sometimes conflicting strategic needs of global efficiency and national respon-

siveness. In addition, the transfer of knowledge is very important for these

companies. Expertise is spread throughout the organization, and subsidiaries

can serve as a strategic centre for a particular product–market combination.

Although we cannot yet identify ‘typical’ transnational industries, the phar-

maceutical industry comes close and many MNCs in the food industry are also

moving towards a more transnational type of company. Subsidiaries in this type of

company are more dependent on other subsidiaries for their in- and outputs

than on headquarters, which confirms the network type of organizational

structure which is said to be typical of transnational companies. Subsidiaries

are usually very responsive to the local market, and are more likely to have a

strategic role such as production or R&D. The level of control exercised over

subsidiaries in transnational companies is nearly as high as for global compa-

nies. This is mainly due, however, to a high level of control by socialization

and networks. The transnational configuration is most typical of American,

Dutch and Swiss MNCs.

6 HUMAN RESOURCE MANAGEMENT IN MNCS

Now that we have discussed the strategy and structure of MNCs in some detail,

it is time to link this discussion with the main focus of this book: human

resource management. We will look at recent developments in IHRM theory in

more detail in the next chapter. However, there are two aspects of HRM in

MNCs that we would like to briefly introduce here. First, we will look at the

link between international mindsets on the one hand and MNC strategy, struc-

ture and HRM on the other, focusing on Perlmutter’s (1969) seminal study.

Secondly, we will links these mindsets to the notion of transfer of HRM prac-

tices within MNCs, a subject which will be discussed in much more detail in

Chapter 15.

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Perlmutter’s international states of mind

Perlmutter (1969) distinguished three states of mind or attitudes of international

executives: ethnocentric (or home-country oriented), polycentric (or

host-country oriented) and geocentric (or world-oriented). Table 2.5 summa-

rizes the implications of these three types of headquarters orientation. These

attitudes should be regarded as ideal types. Every firm will probably have some

degree of ethnocentrism, polycentrism and geocentrism, but usually one can

distinguish a dominant state of mind. The ethnocentric attitude implies that

management style, knowledge, evaluation criteria, and managers from the

home country are thought to be superior to those of the host country. A logi-

cal consequence is that only parent-country nationals are considered to be suit-

able for top management positions, both at headquarters and in the

subsidiaries. The polycentric attitude takes a completely different point of view.

It explicitly recognizes differences between countries and believes that local

nationals are in the best position to understand and deal with these country-

specific factors. A local manager, however, will never be offered a position at

headquarters, because parent-country nationals are considered to be more suit-

able for these positions. Geocentrism is world oriented. A geocentric company

draws from a worldwide pool of managers. Managers can be appointed at head-

quarters or subsidiaries regardless of their nationality.

The three different attitudes are easily linked to Bartlett and Ghoshal’s

organizational models as discussed in previous sections. Global (and to a lesser

extent international) companies will tend to be characterized by an ethno-

centric attitude, multidomestic companies by a polycentric attitude, while the

geocentric attitude will be most typical of transnational companies.

In later literature Perlmutter’s headquarters orientations became equated

with international HRM strategies, especially staffing policies, and it has

become common practice to talk about ethnocentric, polycentric and geocen-

tric staffing policies (see also Chapter 10). However, Perlmutter’s model should

not be seen as a prescriptive model as it certainly does not guide a HRM prac-

titioner in making specific choices about task design, training programmes,

compensation packages, etc. In the next chapter and in Part 3 of this book, we

will look at these various aspects of International HRM in more detail.

The transfer of HRM practices across borders

One of the central questions in MNC literature is the extent to which sub-

sidiaries adapt their practices to local circumstances and behave as local firms

(local isomorphism) versus the extent to which their practices resemble those

of their parent company (internal consistency). Since the HR function deals

with human resources and hence is confronted with differences in culture and

local regulations to a larger extent than for instance the finance or production

Strategy and Structure of Multinational Companies

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function, it will tend to be more localized than most other functional areas.

However, MNCs do differ in the extent to which they transfer their HR prac-

tices to their overseas subsidiaries. Taylor et al. (1996) distinguish three orien-

tations that reflect the general philosophy underlying the MNC’s international

HRM system: adaptive, exportive and integrative. MNCs with an adaptive ori-

entation design HRM systems for their subsidiaries that are reflective of the

local environment (high local isomorphism, low internal consistency). This is

consistent with Perlmutter’s polycentric orientation. An exportive orientation

leads MNCs to transfer their parent company HRM system to their subsidiaries

(low local isomorphism, high internal consistency) and is consistent with

Perlmutter’s ethnocentric approach. Finally, an integrative approach combines

internal consistency with allowance for some local isomorphism and attempts

International Human Resource Management

Three types of HQ orientation

Headquarters orientation

Organization Ethnocentric Polycentric Geocentric

design

Complexity of Complex in home Varied and Increasingly

organization country, simple in independent complex and

subsidiaries interdependent

Authority, High in Relatively low in Aim for a

decision-making headquarters headquarters collaborative

approach between

headquarters and

subsidiaries

Communication, High volume to Little to and from Both ways and

information subsidiaries (orders, headquarters; little between

flow commands, advice) between subsidiaries; heads

subsidiaries of subsidiaries part

of management

team

Identification Nationality of Nationality of host Truly international

owner country company but

identifying with

national interests

Perpetuation Recruit and Develop people of Develop best people

(recruiting, develop people of local nationality everywhere in the

staffing, home country for for key positions in world for key

development) key positions their own country positions

everywhere in the everywhere in the

world world

Source: adapted from Perlmutter, 1969: 12

TABLE 2.5

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to use the ‘best practices’ which can originate from both the parent company

and the subsidiaries. It is of course linked to Perlmutter’s geocentric approach.

Although this is a convenient typology, few MNCs will neatly fit any of

these three ideal types. The extent of transfer will depend on the restrictiveness

of employment regulations in the host environment, the level of cultural and

institutional differences between home and host country and the role and

function of individual subsidiaries. MNCs can follow an exportive approach for

some subsidiaries and an adapative or integrated approach for others.

Moreover, different HRM practices might be subject to different levels of local

adaptation. Rosenzweig and Nohria (1994) for instance found that the extent

of annual paid time off, which is usually determined by local legislation, was

far more likely to resemble local practices than the extent to which bonuses are

used in executive compensation or the extent of participation in executive

decision-making, both of which tended to show a higher level of internal con-

sistency (see Myloni, 2002 and Myloni, Harzing and Mirza, 2003 for a more

extensive discussion).

We refer to Chapter 15 for a further analysis of the reasons for transfer of

HR practices, or more generally employment practices as they are called in that

chapter; explanations for variations between MNCs in the extent of transfer; an

answer to the question, ‘In which countries within MNCs are practices that are

transferred likely to originate?’; and a discussion of the likely nature of the rela-

tions between different groups within MNCs in the transfer process.

7 SUMMARY AND CONCLUSIONS

This chapter provided the second and final background chapter for the remain-

der of this book. We started with a general discussion of the key differences

between domestic and international companies. We then discussed the different

options that MNCs have in terms of strategy and structure in some detail and

showed that these can be combined into a typology of MNCs that stands up to

empirical verification. We also provided a preview of the link between strategy,

structure and HRM, an issue that will be further explored in the next chapter.

8 DISCUSSION QUESTIONS

1 Describe the major types of multinational organizational structures according to

the Stopford and Wells stages model. What are their respective advantages and

disadvantages?

Strategy and Structure of Multinational Companies

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2 Describe the key characteristics of multidomestic, international, global and

transnational companies. Would you agree that it would be best for most com-

panies to follow the transnational model?

3 Take a multinational company of your choice and describe its organizational

model. Do you feel this model is effective, given the company’s product/market?

4 How can you link Perlmutter’s international orientations and Taylor

et al.’s IHRM orientations to Bartlett and Ghoshal’s MNC models? What are the

limitations of these models?

9 FURTHER READING

••

Bartlett, C.A., Ghoshal, S. (1989)

Managing across Borders. The Transnational

Solution

, Boston, MA: Harvard Business School Press.

The now classic book that introduced the concept of the transnational company and the focus

on systems and processes as opposed to formal structures.

••

Harzing, A.W.K. (1999)

Managing the Multinationals: An International Study of

Control Mechanisms in Multinational Companies

, Cheltenham: Edward Elgar.

This book describes a large-scale empirical study into the strategy, structure and control mech-

anisms of 289 subsidiaries of MNCs headquartered in nine different countries.

••

Nohria, N., Ghoshal, S. (1997)

The Differentiated Network: Organizing Multinational

Corporations for Value Creation

, San Francisco: Jossey-Bass.

This book gives an excellent summary and integration of Nohria and Ghoshal’s body of work

on MNC structure since the mid-1980s.

REFERENCES

Adler, N.J. (1983) ‘Cross-Cultural Management: Issues to be Faced’,

International Studies of

Management and Organization

, vol. 13, 1–2, pp. 7–45.

Bartlett, C.A., Ghoshal, S. (1989)

Managing across Borders. The Transnational Solution

Boston, MA: Harvard Business School Press.

Bartlett, C.A., Ghoshal, S. (2000)

Transnational Management: Text, Cases and Readings in

Cross-Border Management

, 3rd edition, Boston: Irwin McGraw Hill.

Bartlett, C.A., Ghoshal, S. (2002) ‘The Transnational and Beyond: Reflections and Perspectives

at the Millennium,’ in: Cheng, J.L.C., Hitt, M.A.,

Managing Transnational Firms: Resources,

Market Entry and Strategic Alliances

, Advances in International Management, Volume 14,

Amsterdam: JAI Press, pp. 3–36.

International Human Resource Management

3122 Ch-02.qxd 10/29/03 3:44 PM Page 62

Burns, T., Stalker, G.M. (1961)

The Management of Innovation

, London: Tavistock Publications.

Chandler, A.D. (1962)

Strategy and Structure: Chapters in the History of the Industrial

Enterprise

, Cambridge, MA: MIT Press.

Fayerweather, J. (1960)

Management of International Operations: Text and Cases

, New York:

McGraw-Hill.

Fayerweather, J. (1969)

International Business Management: A Conceptual Framework

, New

York: McGraw-Hill.

Ghoshal, S. (1987) ‘Global Strategy: An Organizing Framework’,

Strategic Management

Journal

, vol. 8, pp. 425–440.

Ghoshal, S., Nohria, N. (1993) ‘Horses for Courses: Organizational Forms for Multinational

Corporations,’

Sloan Management Review

(Winter), pp. 23–35.

Harzing, A.W.K. (1999)

Managing the Multinationals: An International Study of Control

Mechanisms

, Cheltenham: Edward Elgar.

Harzing, A.W.K. (2000) ‘An Empirical Test and Extension of the Bartlett and Ghoshal Typology

of Multinational Companies’,

Journal of International Business Studies

, vol. 31, no. 1, pp.

101–120.

Kobrin, S.J. (1994) ‘Is there a Relationship between a Geocentric Mind-Set and Multinational

Strategy?’,

Journal of International Business Studies

, vol. 25, no. 3, pp. 493–511.

Lawrence, J.W., Lorsch, P.R. (1967)

Organization and Environment

, Cambridge, MA: Harvard

University Press.

Lindblom, C.E. (1987) ‘The Science of Muddling Through’, in: Pugh, D.S.,

Organization Theory:

Selected Readings

, Harmondsworth: Penguin Books, pp. 238–255.

Martinez, J.I., Jarillo, J.C. (1989) ‘The Evolution of Research on Coordination Mechanisms in

Multinational Corporations,’

Journal of International Business Studies

, vol. 20, no. 3, pp.

489–514.

Mintzberg, H. (1983)

Structures in Fives: Designing Effective Organizations

, Englewood Cliffs,

NJ: Prentice-Hall.

Mintzberg, H. (1988a) ‘Opening up the Definition of Strategy’, in: Quinn, J.B., Mintzberg, H.,

James, R.M.,

The Strategy Process

, Englewood Cliffs, NJ: Prentice-Hall, pp. 13–20.

Mintzberg, H. (1988b) ‘Strategy-Making in Three Modes’, in: Quinn, J.B., Mintzberg, H., James,

R.M.,

The Strategy Process

, Englewood Cliffs, NJ: Prentice-Hall, pp. 82–88.

Myloni, B. (2002) ‘The Transfer of Human Resource Management Practices within Multinational

Companies in Greece – A Comparative Analysis of Human Resource Management

Practices in Subsidiaries of European and US Multinationals and Greek Companies’,

Unpublished PhD thesis, University of Bradford School of Management.

Myloni, B., Harzing, A.W.K, Mirza, H.M. (2003) ‘Organizational Factors and their Effect on the

Transfer of Human Resource Management Practices from Parent Companies to their

Overseas Affiliates: European and US Headquarters and their Greek Subsidiaries’, paper

presented at the 3rd Annual Conference of the European Academy of Management, April

3–5, 2003, Milan, Italy.

Perlmutter, H.V. (1969) ‘The Tortuous Evolution of the Multinational Company’,

Columbia

Journal of World Business

, Jan./Feb., pp. 9–18.

Peters, T.J., Waterman, R.H. (1982)

In Search of Excellence: Lessons from America’s Best-Run

Companies

, New York: Harper and Row.

Strategy and Structure of Multinational Companies

3122 Ch-02.qxd 10/29/03 3:44 PM Page 63

Porter, M.E. (1986) ‘Competition in Global Industries: A Conceptual Framework’, in: Porter,

M.E.,

Competition in Global Industries

, Boston, MA: Harvard Business School Press, pp.

15–56.

Prahalad, C.K., Doz, Y.L. (1987)

The Multinational Mission

, New York: The Free Press.

Quinn, J.B. (1988) ‘Strategic Change: “Logical Incrementalism’’’, in: Quinn, J.B., Mintzberg, H.,

James, R.M.,

The Strategy Process

, Englewood Cliffs, NJ: Prentice-Hall, pp. 94–103.

Rall, W. (1989) ‘Organization für den Weltmarkt’,

Zeitschrift für Betriebswirtschaft

, vol. 59 no. 10,

pp. 1074–1089.

Rosenzweig, P.M., Nohria, N. (1994) ‘Influences on Human Resource Management Practices

in Multinational Corporations’,

Journal of International Business Studies

, vol. 25, no. 2,

pp. 229–251.

Rugman, A.M. (2002) ‘The Influence of “Managing across Borders”’ on the Field of International

Management, in: Cheng, J.L.C., Hitt, M.A.,

Managing Transnational Firms: Resources,

Market Entry and Strategic Alliances

, Advances in International Management, Volume 14,

Amsterdam: JAI Press, pp. 37–56.

Rugman, A.M., Verbeke, A. (1992) ‘A Note on the Transnational Solution and the Transaction

Cost Theory of Multinational Strategic Management’,

Journal of International Business

Studies

, vol. 23, no. 4, pp. 761–771.

Stopford, J.M., Wells, L.T. (1972)

Managing the Multinational Enterprise. Organization of the

Firm and Ownership of the Subsidiaries

, New York: Basic Books.

Sundaram, A.K., Black, J.S. (1992) ‘The Environment and Internal Organization of Multinational

Enterprises’,

Academy of Management Review

, vol. 17, no. 4, pp. 729–757.

Taylor, S., Beechler, S., Napier, N. (1996) ‘Toward an Integrative Model of Strategic

International Human Resource Management’,

Academy of Management Review

, vol. 21,

no. 4 (Oct.), pp. 959–985.

Welge, M.K. (1996) ‘Strukturen für weltweit tätige Unternehmungen’, in Corsten, H., Reiss, M.,

Handbuch Unternehmungsführung. Konzepte-Instrumente-Schnittstellen

, Wiesbaden:

Gabler, pp. 661–671.

NOTE

1 Because we prefer to use the term multinational as a general term describing

companies operating in more than one country, we have consistently substi-

tuted for Bartlett and Ghoshal’s term multinational the comparable term

multidomestic.

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3122 Ch-02.qxd 10/29/03 3:44 PM Page 64

3 International Human Resource

Management: Recent Developments in

Theory and Empirical Research

Hugh Scullion and Jaap Paauwe

1 Introduction 65

2 Strategy and international HRM 67

3 The role of the corporate HR function in the international firm 74

4 Global management development 77

5 Roles and responsibilities of transnational managers 79

6 Conclusion 82

7 Discussion questions 83

8 Further reading 83

References 84

1 INTRODUCTION

Nearly two decades ago, international human resource management (IHRM)

was described as a field in the infancy stage of development (Laurent, 1986).

The majority of research on multinational companies focused on highly visible

activities such as international production and international marketing

(Ondrack, 1985) and IHRM was one of the least studied areas in international

business (Scullion, 1995). Also, the bulk of research in this field had been

conducted by US researchers from an American rather than an international

CHAPTER CONTENTS

3122 Ch-03.qxd 10/29/03 6:08 PM Page 65

perspective (Boyacigiller and Adler, 1991). A further critique suggested that the

IHRM literature suffered from the conceptual and normative limitations

characteristic of much domestic personnel management research, and was not

very useful in identifying the actual HR practices of MNCs (Kochan et al., 1992).

Pucik (1992) argued that the rapid pace of globalization has led to a more strate-

gic role for HRM as well as leading to changes in the content of HRM, and sug-

gested that the need for a systematic approach to studying international HRM is

increasingly being recognized. There has been a rapid development of the field of

international HRM over the past decade (Black et al., 1999; Dowling et al., 1999),

including the development of more sophisticated theoretical work in the area.

One significant indicator of the growing importance of IHRM is the rapidly grow-

ing body of research on the IHRM strategies and practices of MNCs taking place

outside North America (Brewster and Harris, 1999).

The main reasons for the growth of interest in international HRM over the

last decade have been outlined by Scullion (2001):

The rapid growth of internationalization and global competition has

increased the number and significance of MNCs in recent years

(D’Aveni, 1995; Segal-Horn and Faulkner, 1999) and resulted in the

increased mobility of human resources (Brewster and Scullion, 1997).

2 The effective management of human resources is increasingly being rec-

ognized as a major determinant of success or failure in international

business (Black et al., 1999) and it has been argued that the success of

global business depends most importantly on the quality of manage-

ment in the MNC (Stroh and Caligiuri, 1998).

3 Underperformance or failure in international assignments continues to

be costly, both in human and financial terms, and research suggests that

the indirect costs of poor performance in international assignments

such as damage to foreign customer relations may be particularly costly

(Dowling et al., 1999).

4 The implementation of global strategies is frequently constrained by

shortages of international management talent (Caligiuri and Cascio,

1998), which constrain corporate efforts to expand abroad (Scullion,

1992).

5 International HRM issues are becoming increasingly important in a

wider range of organizations partly due to the rapid growth of small and

medium sized enterprise (SME) internationalization in recent years

(Mulhern, 1995; Scullion, 1999). Research suggests that theories of

internationalization that have been developed from research in larger

MNCs do not adequately explain the approaches used in smaller firms

(Forster, 1999; Monks and Scullion, 2001).

6 The movement away from more traditional hierarchical organizational

structures towards the network MNC organization has been facilitated

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by the development of networks of personal relationships and horizontal

communication channels (Bartlett and Ghoshal, 1990; Forsgren, 1989,

1990), and it has been argued that HR plays a more significant role in

network organizations (Marschan et al., 1997).

7 Finally, there is growing evidence that HR strategy plays a more signifi-

cant role in implementation and control in the international firm

(Scullion and Starkey, 2000). It has been suggested that in a rapidly glob-

alizing environment, many MNCs have less difficulty determining

which strategies to pursue than how to implement them and it has been

argued that the success of any global or transnational strategy has less

to do with structural innovations than with developing often radically

different organizational cultures (Bartlett and Ghoshal, 1998).

This chapter aims to critically assess some important theoretical and empirical

developments in the area of international HRM research which have emerged

over the last decade. In contrast to Part 3 of the book, which deals with the

more operational dimensions of expatriate management, this chapter will

focus on the more strategic aspects of international HRM. There are six sections

in the chapter. Following this introduction which outlines the reasons for the

growing importance of IHRM, Section 2 examines the links between strategy

and international HRM and reviews some important models of strategic

international HRM. Section 3 examines the role of the corporate HR function

in the international firm. The fourth section examines issues in global manage-

ment development and Section 5 examines the roles and responsibilities of

transnational managers in relation to Bartlett and Ghoshal’s transnational

organization. Section 6 concludes and summarizes the chapter.

2 STRATEGY AND INTERNATIONAL HRM

While the majority of international HRM research continues to focus on aspects

of expatriation (Kochan et al., 1992), there is a growing literature which seeks to

contribute to a better understanding of the relationship between international

strategy and HRM (Welch, 1994; De Cieri and Dowling, 1999; Schuler et al.,

1993; Dowling et al., 1999; Kobrin, 1994; Hendry, 1994). It has been argued that

the fundamental strategic problem for top managers in international firms is

balancing the economic need for integration with the pressures for local respon-

siveness (Bartlett and Ghoshal, 1989, 1998; Doz and Prahalad, 1986), while

recent research suggests that at the international level the firm’s strategic choices

impose constraints or limits on the range of international HRM options (De Cieri

and Dowling, 1999). The argument is that there should be distinct differences in

International HRM

3122 Ch-03.qxd 10/29/03 6:08 PM Page 67

international HRM policy and practice in multidomestic and transnational or

globally integrated firms (Kobrin, 1992). Other researchers link international

HRM staffing policy and practice to strategy (Edstrom and Galbraith, 1977;

Scullion, 1996) while yet others suggest linkages between the product life cycle

stage/international strategy and HRM policy and practice (Adler and Ghadar,

1990; Milliman et al., 1991). Increasingly the central issue for MNCs is not to

identify the best IHRM policy per se but rather to find the best fit for the firm’s

strategy, structure and HRM approach. While global strategy is a significant deter-

minant of IHRM policy and practice, it has been argued that international

human resources are a strategic resource, which should affect strategy formula-

tion as well as its implementation (Harvey, 1997). In this section we will exam-

ine two classic models of strategic international human resource management:

Adler and Ghadar’s phases of internationalization and the De Cieri and Dowling

integrative framework of strategic HRM in MNCs.

Adler and Ghadar’s phases of internationalization

Adler and Ghadar’s model (1990) is based on Vernon’s life cycle theory (1966).

Vernon distinguishes three phases in the international product life cycle. The

first phase (‘high tech’) focuses on the product, research and development

(R&D) playing an important role as a functional area. The second phase

(‘growth and internationalization’) concentrates on developing and penetrating

markets, not only at home but also abroad. The focus therefore shifts from R&D

to marketing and management control. In the third and final phase (‘maturity’),

intense efforts are made to lower prices by implementing cost control measures.

According to Adler and Ghadar (1990: 239), the average length of the prod-

uct life cycle shortly after the Second World War was 15–20 years. Nowadays this

is 3–5 years; for some products it is as short as 5 months. An important impli-

cation is that the various areas of emphasis in Vernon’s life cycle must increas-

ingly be dealt with simultaneously. Adler and Ghadar saw this as sufficient

reason to suggest a fourth phase (incidentally following in the footsteps of

Prahalad and Doz and Bartlett and Ghoshal as discussed in Chapter 2), in which

the company must achieve differentiation (as a way to develop and penetrate

markets) and integration (as a way to achieve cost control). Having introduced

a fourth phase, the authors then proceed to develop a model in which cultural

aspects and human resource management form the main focus of attention. In

short, they link Vernon’s phases, which concentrate largely on strategic and

structural issues, to culture and human resource management.

The influence of culture

According to Adler and Ghadar (1990), the impact of the cultural background

of a country or region differs from one phase to the next. They identify these

phases as:

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3122 Ch-03.qxd 10/29/03 6:08 PM Page 68

• domestic: focus on home market and export;

• international: focus on local responsiveness and transfer of learning;

• multinational: focus on global strategy, low cost and price competition;

• global: focus on both local responsiveness and global integration.

(Please note that Adler and Ghadar use the same terms as Bartlett and Ghoshal,

but attach them to different phases, which could be confusing.)

The cultural component hardly plays a role in the first phase (domestic).

Management operates from an ethnocentric perspective and can afford to

ignore the influence of foreign cultures. The attitude towards foreign buyers –

which is a somewhat arrogant one – is the following: ‘We allow you to buy our

product’ (Adler and Ghadar, 1990: 242). By contrast, in the second phase

(international) the cultural differences of each foreign market are highly

important when entering into external relations. From the polycentric per-

spective, product design, marketing and production will concentrate on find-

ing a good match between the product and the preferences and style of the

relevant foreign market segment. That is why production is often transferred to

the relevant country and/or region.

During the third phase (multinational) the product must be globalized to

such an extent that competition with other ‘global players’ emphasizes a lower

cost price as a way of keeping up with price competition. This has less to do

with emphasizing cultural sensitivity than with the exploitation of cost advan-

tages arising from price differences between production factors in each coun-

try and/or region, and with the exploitation of economies of scale. It is,

however, important that a certain internal sensitivity or awareness develops of

the various cultural differences (cultural diversity) within the global concern.

Finally there is the fourth phase (global). In addition to cost advantages and

low prices on the world markets, the products and services must at the same time

meet standards of high quality. This quality is expressed in the adaptation of the

product to the tastes, preferences and/or specifications of the individual markets

and market niches. Adler and Ghadar (1990: 243) describe this as follows:

Successful corporations understand their potential clients’

needs, quickly translate them into products and services, pro-

duce those products and services on a least-possible-cost basis,

and deliver them back to the client in a culturally appropriate and

timely fashion.

Cultural sensitivity becomes crucial, not only internally but externally as well.

Figure 3.1 illustrates the relative importance of the cultural component and

the direction of the interaction between organization and environment in the

various phases.

International HRM

3122 Ch-03.qxd 10/29/03 6:08 PM Page 69

Phase I Phase II Phase III Phase IV

Location of cross-cultural interaction (Adler and Ghadar, 1990: 244)

FIGURE 3.1

Phases and areas of focus in HRM

Starting from the idea of a link between the phases of internationalization, the

(market) environment and the influence of culture, Adler and Ghadar go on to

sketch the appropriate HRM policies/instruments and the skills required of the

managers involved for the various different phases. Table 3.1 illustrates their

theory. For clarity’s sake, we have added the terms used by Bartlett and Ghoshal

to the table.

Phase I. In this phase we can scarcely speak of international human

resource management in any real sense. There may be incidental brief visits to

foreign agents/sales offices or a short assignment on a project basis, in which

product and technical competence of the manager in question are the most

important factors.

Phase II. International human resource management becomes manifest

in this phase as managers are assigned to posts in foreign markets to provide

general management, technical expertise and financial control. The various

markets require a differentiated approach and adaptation of the product and

business methods to local circumstances. In addition to technical competence,

then, selection criteria such as language skills, cross-cultural adaptability and

sensitivity are also important. Since understanding of local circumstances is a

requirement, host-country nationals are frequently recruited for management

positions in the area of sales, marketing and personnel.

Phase III. As it is highly important that integration and cost advantages are

exploited world wide, the selection in this phase focuses on recruiting the best

managers for international positions, regardless of their country of origin.

Developing a management corps in which all the members share the same

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3122 Ch-03.qxd 10/29/03 6:08 PM Page 70

Globalization and human resource management

Phase I Phase II Phase III Phase IV

Domestic International Multinational Global

Primary Product/service Market Price Strategy

orientation

Strategy Domestic Multidomestic Multinational Global

Worldwide Allow foreign Increase market Source, produce Gain global,

strategy clients to buy internationally and market strategic,

products/service transfer internationally competitive

technology advantage

abroad

Staffing

Expatriates None- (few) Many Some Many

Why sent Junket To sell, control Control Coordination

or transfer and integration

technology

Who sent OK performers, Very good High-potential

sales people performers managers and

top executives

Purpose Reward Project ‘To Project and Career and

get job done’ career organizational

development development

Career impact Negative Bad for domes- Important for Essential for

tic career global career executive suite

Professional Somewhat Extremely Less difficult Professionally

re-entry difficult difficult easy

Training and None Limited Longer Continuous

development (one week) throughout

(language career

and cross-

cultural

management)

For whom No one Expatriates Expatriates Managers

Performance Corporate Subsidiary Corporate Global strategic

appraisal bottom line bottom line bottom line positioning

Motivation Money Money and Challenge and Challenge

assumption motivates adventure opportunity opportunity,

advancement

Rewarding Extra money Extra money Less generous, Less generous,

to compensate to compensate global packages global packages

for foreign for foreign

hardships hardships

Career Domestic Domestic Token Global

‘fast track’ international

Executive Home country Home country Home country; Multinational

passport token foreigners

Necessary Technical and Plus cultural Plus recognizing Plus cross-

skills managerial adaptation cultural cultural

differences interaction,

influence

and synergy

Bartlett/ Domestic Multidomestic/ Global Transnational

Ghoshal International

Source: Adler and Ghadar, 1990: 246

TABLE 3.1

3122 Ch-03.qxd 10/29/03 6:08 PM Page 71

organizational values and norms is one of human resource management’s most

important tasks. After all, this will contribute to achieving the goal of integra-

tion, regardless of the fact that the company is operating in different geo-

graphical markets and its managers come from different countries.

Management development, careers counselling and periodic transfer to a dif-

ferent assignment (every 3–5 years) are the spearheads of phase III human

resource management.

Phase IV. A major issue for international HRM in this phase is how the

company is to satisfy the requirements of global integration and national

responsiveness. We can find traces of both phase II and phase III here. The large

measure of cultural diversity becomes manifest both in the markets to be

covered and in the organization itself. The real art is to view this cultural diversity

as an opportunity rather than as a problem, which has to be solved. One exam-

ple is to increase creativity and flexibility by being able to maintain a variety

of perspectives, an important approach for solving problems and encouraging

innovation. International HRM focuses on offering promising managers the

opportunity to grow so that an environment for continuous learning will be

created throughout the entire organization. The degree to which such human

resource management can be given concrete expression determines the success

or failure of the (phase IV) corporation (Adler and Ghadar, 1990: 245–254).

De Cieri and Dowling model

Schuler et al. (1993) presented an integrative framework of strategic inter-

national HRM which highlighted the fact that for MNCs there is a fundamental

tension between the needs for global co-ordination (integration) and local

responsiveness (differentiation) utilizing the work of Prahalad and Doz (1987)

and Bartlett and Ghoshal (1989). In addition to the strategic MNC compo-

nents, the framework showed endogenous factors (e.g. MNC structure, MNC

strategy, international entry mode) and exogenous factors (e.g. industry char-

acteristics, country-regional characteristics, inter-organizational relationships).

De Cieri and Dowling (1999) draw on developments in theory and research

since the Schuler et al. (1993) study to develop a revised framework (see Figure 3.2).

Their recent review of international HRM research trends identifies a relatively

new research area, ‘Strategic International Human Resource Management’

(SIHRM). It considers the HRM issues and activities that result from, and

impact on, the strategic activities and international concerns of multinationals

(De Cieri and Dowling, 1999).

In their revised framework De Cieri and Dowling (1999) highlight the fact

that IHRM activities in MNCs are influenced by both endogeneous and exoge-

nous factors. As shown in Figure 3.2, MNCs operate in the context of world-

wide conditions, including the exogenous contexts of industry, nation, region

and inter-organizational networks and alliances. An example is the removal of

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3122 Ch-03.qxd 10/29/03 6:08 PM Page 72

internal trade barriers and integration of national barriers in the EU which

have led to a new range of inter-organizational relationships. Exogenous

factors exert direct influence on endogenous factors, Strategic Human Resource

Management (SHRM) strategy and practices as well as on multinational con-

cerns and goals.

As indicated in Figure 3.2, endogenous factors are shown in the order of

most ‘tangible’ to most ‘intangible’. Multinational structure refers to both the

structure of international operations and to intra-organizational networks and

mechanisms of co-ordination. The life cycle stage of the firm and the industry

in which it operates are important influences for SHRM in multinationals as are

international entry modes and levels of firm strategy. The most intangible

endogeneous factors are experience in international business and headquar-

ters’ international orientation. Following developments in the literature and

the integration of resource-based perspectives (e.g. Taylor et al., 1996), the

model suggests that there are reciprocal relationships between endogeneous

factors, SHRM and multinational concerns and goals as indicated in Figure 3.2.

Effective SHRM is expected to assist the firm to achieve its goals and objectives.

This position is supported by the emerging body of SHRM literature that exam-

ines the relationships between endogeneous characteristics, SHRM strategy and

International HRM

Exogenous factors

Industry characteristics

Country-regional characteristics

Inter-organizational networks

Endogenous factors

MNC structure

− Structure of international operations

− Intra-organizational networks

− Mechanisms of co-ordination

Organizational & industry life cycle

International entry mode

MNC strategy

− Corporate-level strategy

− Business-level strategy

Experience in managing international

operations

Headquarters international orientation

Strategic HRM

HR function strategy

HR practices

MNC concerns and goals

Competitiveness

Efficiency

Balance of global

integration and local

responsiveness

Flexibility

Integrative framework of strategic HRM in multinational enterprises

(De Cieri and Dowling, 1999)

FIGURE 3.2

3122 Ch-03.qxd 10/29/03 6:08 PM Page 73

practices and competitive advantage or firm performance (Becker and Gerhart,

1996; Paauwe and Richardson, 1997). However, while some research has sug-

gested that MNCs will gain by utilizing and integrating appropriate SHRM

strategy and practices to enhance firm performance,(e.g. Kobrin, 1994) there

remain inconclusive evidence and important questions about the nature of this

relationship (Caligiuri and Stroh, 1995; Harzing, 1999).

The revised framework developed by De Cieri and Dowling seeks to assist

in the cross-fertilization of ideas to further develop theory and empirical

research in strategic HRM in multinational firms. One of the main strengths of

the framework is that it is based on an expanded multidisciplinary base draw-

ing on new theoretical developments in HRM, strategic management (includ-

ing institutional theory and the resource-based view of the firm: Paauwe and

Boselie, 2002) in international business. As a result it has been argued that

theory building in IHRM has advanced to a second phase (Dowling et al.,

1999). Amidst all these strategic issues we encounter the corporate HR function,

which is the topic of our next section.

3 THE ROLE OF THE CORPORATE HR FUNCTION IN THE

INTERNATIONAL FIRM

Despite the considerable research on the roles and functions of the corporate

headquarters (Goold and Campbell, 1987), little attention has been paid to the

role of the corporate HR function, particularly in the context of the inter-

national firm. Earlier research on the issue of board level representation by per-

sonnel directors in the UK and Europe indicated a relatively weak position of

personnel directors in the corporate office (Winkler, 1974). British evidence

suggested that HR involvement in strategic decisions is patchy and mostly con-

cerned with implementation rather than formulation of strategy (Marginson

et al., 1988, 1993). However, a survey of European companies reported that

around half of HR managers across Europe felt they were proactively engaged

in the development of corporate strategy and that considerable variation

existed across Europe on this issue (Brewster, 1994). Some US studies suggest a

more influential role for top HR executives (Tsui and Gomez-Mejia, 1988) while

others highlight the limited influence of HR managers on corporate strategy

(Lengnick-Hall and Lengnick-Hall, 1988; Swiercz and Spencer, 1992). Similarly

while some US studies suggest that the HR function remains low in influence

relative to other major functions (Kochan et al., 1992), it has also been argued

that the status of HR managers has increased due to the perception that HR’s

contribution to business performance has increased (Ferris et al., 1991). Few,

however, would argue with the view of Hunt and Boxall (1998: 770) ‘While

there is some divergence of opinion, the dominant view in the international

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literature is that HR specialists, senior or otherwise, are not typically key players

in the development of corporate strategy’.

In the mid-1980s one study, based on case study evidence, concluded that

the corporate personnel department was being downgraded largely due to the

trend towards decentralization (Purcell, 1985) whereas a larger study by Sisson

and Scullion (1985) indicated that the tendency for corporate personnel

departments to be downgraded was far from universal and demonstrated con-

siderable variation in the size and activities of corporate personnel depart-

ments. However, case study research by Paauwe (1996) on internationally

operating Dutch companies highlighted the fact that the corporate HR func-

tion was itself being downsized and some HR functions such as recruitment

were increasingly being outsourced. Purcell and Ahlstrand (1994) argued that

the overall shift to decentralization of activities has meant that corporate HR

managers were playing more of a monitoring and control function and the

raison d’ être of the corporate HR function was called into question.

Many studies of the corporate HR role largely ignored the links between

the growing internationalization of the companies and the new corporate HR

roles (e.g Purcell and Ahlstrand, 1994). In the UK context this is particularly

surprising for two main reasons: First, British capital is more globally oriented

than that of any other major advanced economy (Marginson, 1994). Second,

since the early 1990s there has been a significant increase in the pace of inter-

nationalization of UK companies (Dicken, 1998). However, a recent empirical

study examined the role of the corporate HR function specifically in the inter-

national firm and identified an emerging agenda for corporate HR, which

focuses on senior management development and developing a cadre of inter-

national managers. This was conceptualized as a strategic concern with develop-

ing the core competences of the organization (Scullion and Starkey, 2000).

They identified three distinctive groups of companies: centralized HR compa-

nies, decentralized HR companies and transition HR companies.

Centralized HR companies

This group comprised ten centralized HR companies (six global companies and

four international financial service companies) all of which had large corporate

HR departments which exercised centralized control over the careers and

mobility of senior management positions world-wide. Group-wide appraisal

and job evaluation and rewards system for senior managers which increasingly

aligned rewards with longer term global business strategy (Tilghman, 1994;

Pennings, 1993; Bradley et al., 1998) further reinforced centralized control in

the global firms. International assignments were increasingly linked to the

organizational and career development process; the management development

function role of the corporate HR function became increasingly important

not just for parent country nationals (PCNs), but also for developing high

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potential local managers and third country nationals (TCNs) (Scullion and

Starkey, 2000). In particular, the practice of impatriation, i.e. developing host

country nationals (HCNs) and TCNs through developmental transfers to cor-

porate HQ (Harvey et al., 1999a) was increasingly important in global firms,

reflecting the growing importance placed on the identification and develop-

ment of high potential staff worldwide (Stroh and Caligiuri, 1998). Scullion

and Starkey (2000) argue that in the global firms the greater degree of central

support for international management development reflected an increasingly

strategic role for the corporate HR function.

Decentralized HR Companies

The second group comprised 16 companies including 5 service MNCs and 11

manufacturing MNCs. These companies tended to have a smaller number of

corporate HR executives (often only one or two) who undertook a more lim-

ited range of activities than their counterparts in the first group. However, a

key finding of the research was that two-thirds of the decentralized companies

reported an increased influence of corporate HR over the management of top

management and senior expatriates in the previous five years. However, the

co-ordination of international transfers of managers in the highly decentralized

businesses was more problematic due to greater tensions between the short

term needs of the operating companies and the long term strategic manage-

ment development needs of the business. Scullion and Starkey (2000) highlight

the increasing use of informal and subtle management processes by corporate

HR to introduce a degree of corporate integration into the decentralized firm.

Similarly, central control over expatriates had been established relatively

recently in a number of the firms, reflecting a shift away from the highly

decentralized approach which was common in the late 1980s (Storey et al.,

1997) and highlighting the need for co-ordination and integration associated

with globalization.

Transition HR companies

The final group comprised four well established, highly international compa-

nies, all of which had a relatively small group of corporate HR executives.

Management development and the management of the careers and mobility of

expatriates and senior managers were under stronger centralized control than

in the decentralized companies. The centre could use subtle and informal

methods, which achieved a higher degree of central control than that sug-

gested by the formal structures without compromising the internal consistency

of their decentralized control system. The findings of recent research which

suggests that re-centralization may be a new trend (Arkin, 1999) is supported

by the empirical work of Scullion and Starkey (2000), who suggest that the

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influence of the corporate HR function over the management of senior

expatriates and the development of high potential managers in the subsidiary

companies had grown considerably in these companies, reflecting the switch

towards a less decentralized approach in the mid-1990s.

In summary, this discussion suggests that the role of the corporate HR

function varies considerably in different types of international firms and needs

to be understood in relation to the integration–differentiation dilemma

(Prahalad and Doz, 1987). Many MNCs operate with a global and centralized

HRM strategy for top managers and high potential HCNs and a polycentric/

decentralized approach for other staff. In this dual system corporate HR man-

ages a core of senior staff and key personnel while the rest of lower level man-

agement and staff are managed at the subsidiary level (Scullion, 2002). Firms

which are able to achieve this balance constitute a new organizational form:

the transnational, a more refined variant of the global firm (Bartlett and

Ghoshal, 1989). This topic will be examined in Section 5. However, before

doing so we will face one of the main challenges of the corporate HR function:

how to develop global managers.

4 GLOBAL MANAGEMENT DEVELOPMENT

Shortages of ‘international managers’ are becoming an increasing problem for

many international firms and often constrain the implementation of global

strategies (Gregerson et al., 1998). This section will discuss some of the major

challenges and constraints faced by international firms who seek to develop an

adequate pool of global managers. It will highlight the strategic importance of

these constraints in relation to the implementation of global strategies. In this

context, we consider issues regarding the internationalization of local man-

agers, the under-representation of women in international management, and

constraints on the supply of international managers due to repatriation prob-

lems and barriers to international mobility.

Despite the shortages of international managers, failure to effectively

recruit, retain and develop HCN managers remains a major problem for many

international firms (Black and Gregerson, 1999). Many MNCs have focused

most of their management development efforts on their PCN managers and

have tended to neglect the development of their HCN managers (Scullion,

1994). However, researchers have identified a number of important lessons for

MNCs which do seek to develop HCN managers. First is the need to avoid the

mistake of simply exporting parent country training and development pro-

grammes to other countries (Dowling et al., 1999; see also Chapter 11). Second,

the management development programmes needs to be linked to the strategic sit-

uation in each country as well as the overall strategy of the firm (Scullion and

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Brewster, 2001). Third, and most important, is the need to utilize much further

the practice of impatriation – which has been defined as the selective process

of transferring HCNs and/or TCNs into the domestic organization of the MNC

on a permanent or semi-permanent basis. Harvey et al. (1999b) argue that this

type of international transfer exposes host country nationals to the headquar-

ters’ corporate culture and facilitates both the development of a corporate per-

spective and global teams.

As global competition intensifies, competition for global leaders to man-

age overseas operations will steadily intensify and MNCs must develop new

ways to identify, attract and retain international executive talent (Gregerson

et al., 1998). The creativity and resourcefulness of finding an ample number of

qualified managers who can manage across cultures effectively becomes a key

strategic international HRM challenge. Yet the evidence suggests that the number

of female global assignees is disproportionately low in relation to the overall

size of the qualified labour pool (Linehan and Scullion, 2001a; see also Chapter 14).

Recent research has confirmed that while organizations may be prepared to

promote women through their domestic management hierarchy, few women

are given opportunities to expand their career horizons through access to

international careers (Caligiuri and Tung, 1999; Linehan, 1999). The lack of

willingness to recruit and develop women as international managers is worry-

ing as recent research conducted on the outcome of women’s global assign-

ments has indicated that female expatriates are generally successful in their

global assignments (Caliguiri et al., 1999; Linehan and Scullion, 2001b) and

that important formal and informal barriers remain to increasing women’s

participation in international management (Mayrhofer and Scullion, 2002).

The third area, which impacts on the supply of international managers, is

the failure by many companies to adequately address repatriation problems. The

repatriation of managers has been identified as a major IHRM problem for multi-

national companies in Europe and North America (Black and Gregerson, 1999;

Harvey, 1989; Linehan and Scullion, 2002a; see also Chapter 13). For many

European MNCs this problem was becoming more acute in recent years because

expansion of foreign operations had often taken place at the same time as the

rationalization of domestic operations, thereby reducing the opportunities for

repatriates (Scullion, 1992; Forster, 1999). There is growing recognition that

where companies are seen to deal unsympathetically with the problems faced by

expatriates on re-entry, especially concerns about losing out on opportunities at

home, managers will be more reluctant to accept the offer of international

assignments (Scullion, 1994). Research in North America indicates that retention

of expatriate managers is a growing problem for many MNCs (Black et al., 1999),

yet few firms have developed formal repatriation policies and programmes (Stroh

et al., 1998). Recent research suggests the need for MNCs to develop a more

strategic approach to repatriation and expatriate career planning; however in

practice many firms continue to adopt an ad hoc ‘sink or swim’ attitude towards

both employees and their families and many expatriate managers continue to

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experience the repatriation process as falling far short of expectations (Stroh

et al., 1998; Linehan and Scullion, 2002b; see also Chapter 13).

A further constraint on the ability of MNCs to implement their inter-

nationalization strategies are the growing barriers to international mobility. The

number of expatriates MNCs are sending on international assignments is

increasing steadily and will increase further in the future; however the avail-

ability of people who are willing to accept global assignments is not increasing

at the same rate (Caligiuri and Cascio, 1998) and research shows that finding

enough of the right people with the requisite skills for global assignments is

one of the greatest IHRM concerns of MNCs (Stroh and Caligiuri, 1998). Recent

studies have indicated that international mobility is becoming more problem-

atic in many firms due to several factors, including uncertainties associated

with re-entry; the growing unwillingness to disrupt the education of children,

the growing importance of quality of life considerations and, finally, continued

uncertainty regarding international terrorism and political unrest (Scullion,

2001). Dual career problems and disruption to children’s education are seen as

major barriers to future international mobility in many different countries

(Harvey, 1998). Increasingly international mobility is limited by the dual career

factor, which poses restrictions on the career development plans of multi-

nationals. Second, there is some evidence to suggest that families are less willing

to disrupt personal and social lives than was the case in the past (Forster, 2000).

ROLES AND RESPONSIBILITIES OF

TRANSNATIONAL MANAGERS

In this and the previous chapters we discussed how the changing international

environment forced most companies to develop multidimensional and hetero-

geneous strategies and structures. Bartlett and Ghoshal (2000) refer to the

transnational as the ultimate organizational form for operating successfully in

an international context. This development poses considerable challenges for

the managers who have to carry out these strategies and construct these struc-

tures. In this section we will discuss the roles and responsibilities of trans-

national managers. Given the heterogeneity and multidimensionality of the

transnational organization, it is virtually impossible for one person to possess

all the skills necessary to be an effective transnational manager in each and

every part of the company. The roles and responsibilities of transnational man-

agers will be different for different parts of the organization. We will therefore

distinguish three different management forms: global business management,

worldwide functional management and geographic subsidiary management

(based on Bartlett and Ghoshal, 2000). In a final subsection we will also discuss

the necessary capabilities for top management.

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Global business management

Effective global business management complies with the demands of global

efficiency and competitiveness. Capturing scale and scope economies and

co-ordinating and integrating activities across national and functional barriers are

the fundamental tasks of the global business manager. In order to perform these

tasks a global business manager has three core roles and responsibilities: as world-

wide business strategist, architect of a worldwide asset and resource configuration,

and cross-border co-ordinator and controller. In his/her role as worldwide business

strategist, the global business manager tries to reconcile the different perspectives

of geographic, functional and business management in order to provide an inte-

grated competitive strategy for his/her particular business. As architect of an asset

and resource configuration he/she subsequently co-ordinates the distribution of

key assets and resources to support the competitive strategy chosen. In this role,

however, he/she also has to take the other perspectives into account and will fur-

thermore be guided by the company’s administrative heritage (see Chapter 2) of

existing assets and resources. This distribution of assets and resources leads to a flow

of materials, components and finished products that has to be co-ordinated by the

global business manager in his/her role as cross-border co-ordinator. As transna-

tional companies mostly rely on distributed sourcing this is a very complex task.

Worldwide functional management

Effective worldwide functional management responds to the challenge of

developing and diffusing innovations on a worldwide basis. Knowledge is

transferred by links between functional experts around the world. Most world-

wide functional managers play three basic roles: as worldwide scanner of

specialized information and knowledge, cross-pollinator of ‘best practices’ and

champion of transnational innovation. As worldwide intelligence scanner the

worldwide functional manager scans the whole world for opportunities and

threats, which may be in the form of a technological breakthrough or an

emerging consumer trend. Functional managers are linked by informal net-

works, so that information is transmitted rapidly. In a transnational company

subsidiaries can be an important source of capabilities, expertise and innova-

tions, which can be transferred to other parts of the organization. It is the

worldwide functional manager in his/her role as cross-pollinator of ‘best practices’

who spots these opportunities and transfers them in a way that breaks down

the ‘not invented here’ syndrome. Transnational innovations are the focus of

this role as champion of transnational innovation. The first form of trans-

national innovation, which is called ‘locally leveraged’, follows from the ‘best-

practices’ approach – local innovations that have applications everywhere. A

more sophisticated form of transnational innovation is termed ‘globally linked’

innovation. ‘This type of innovation fully exploits the company’s access to

worldwide information and expertise by linking and leveraging intelligence

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sources with internal centres of excellence wherever they may be located’

(Bartlett and Ghoshal, 2000: 710).

Geographic subsidiary management

Effective geographic subsidiary management involves first and foremost multina-

tional responsiveness, responding to the needs of national customers and satisfy-

ing the demands of host country governments. However, it also demands the

defence of a company’s position against global competitors and the leveraging of

local resources and capabilities. The geographic subsidiary manager’s very com-

plex task can be divided into three main roles: as bicultural interpreter, national

defender and advocate, and frontline implementer of corporate strategy. In the

first role, bicultural interpreter, the geographic subsidiary (or country) manager

must not only understand the demands of the local customers, competitors and

government, but also interpret this information and communicate it effectively to

managers at headquarters who might not understand its importance. The coun-

try manager must also act in the opposite direction, interpreting the company’s

overall goals, strategies and values in such a way that they become meaningful to

local employees and do not compromise local cultural norms. As a national

defender and advocate, the country manager should try to counterbalance exces-

sive centralizing pressures from global business managers and make sure that the

interests of the local subsidiary are taken into consideration. The country man-

ager’s role as a frontline implementer of corporate strategy is an especially difficult

one. He or she is pressured by local governments, unions and customers on the

one hand and constrained by a global strategy that often leaves little room for

manoeuvre on the other. This manager’s actions ‘must be sensitive enough to

respect the limits of the diverse local constituencies, pragmatic enough to achieve

the expected corporate outcome, and creative enough to balance the diverse inter-

nal and external demands and constraints’ (Bartlett and Ghoshal, 2000: 713).

Top-level corporate management

Top-level corporate management has to take all the transnational challenges

(efficiency, learning and responsiveness) into account. This means not only

creating different management groups and giving them specific roles and

responsibilities, but also continuously striving to maintain the ‘organizational

legitimacy’ of each group. Balancing and integrating diverse and often con-

flicting interests is the key challenge for top-level corporate management. In

doing so, there are three basic roles to fulfil: those of providing direction and

purpose, leveraging corporate performance and ensuring continual renewal. A

multidimensional and heterogeneous company runs the risk of falling apart if

there is no common vision or shared set of values to lead it towards common

goals. It is the task of top-level corporate management in its role as provider of

direction and purpose to create this common vision. This is, however, a rather

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long term strategy. Top management’s role of leveraging corporate performance

makes sure that the company survives in the short run. To do so, top manage-

ment balances the different co–ordination devices (formalization, centralization

and socialization) to achieve the mix that maximizes corporate performance. A

focus both on the long term mission and on short-term performance, however,

can lead to a loss of flexibility if taken to the extreme. Therefore, the third role

of top management is to ensure continual renewal. Goals and values have to be

adaptive; they are continually questioned and challenged to achieve the flexi-

bility that is vital in a transnational environment.

CONCLUSION

In Section 1 we argued that international HRM has moved beyond the infancy

stage of development and outlined a number of key reasons for the emergence

and growing significance of international HRM. In Section 2 we examined the

links between strategy and international HRM and reviewed some influential

models of international HRM outlining progress towards developing theoreti-

cal models of IHRM (De Cieri and Dowling, 1999). The trend over recent years

has been to extend the linkage of HRM with business strategy from the domes-

tic into the international arena and we argue that international HRM must be

linked to the strategic evolution of the firm. The international HRM models

suggest that MNCs will gain competitive advantage by using strategic HRM

practices to support business objectives; however, we noted the need for more

empirical research in this area (Harzing, 1999). In Section 3 we examined the

role of the corporate HR function in the international firm and highlighted the

fact that the role and activities of the HR function at the centre varies in dif-

ferent types of international firm. This analysis suggests that international

HRM strategy should vary considerably in different types of international firms

and needs to be understood in relation to the tensions between integration and

differentiation (Pralahad and Doz, 1987). In Section 4 we identified global

management development as a critical area for international human resource

management. The challenge of internationalizing local managers was identi-

fied as a key issue, and we also considered the various constraints on the sup-

ply of international managers which are leading to shortages of international

managers and constraining the internationalization strategies of firms. Finally,

Section 5 considered what we term the main challenge for international HRM –

developing truly transnational managers. The roles and responsibilities of

transnational managers were identified and shown to vary for different parts of

the organization. Using the work of Bartlett and Ghoshal (2000) we distin-

guished three different management forms: global business management,

worldwide functional management and geographic subsidiary management. In

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summary, this chapter has suggested that international HRM must increasingly

be linked to the international strategy of the firm and that developing global

leaders is a first priority in the management of international human resources

in the global firm. The next chapter will investigate the role of human resources

in (international) mergers and acquisitions, which have become an increasingly

popular strategy for achieving corporate growth and diversification.

7 DISCUSSION QUESTIONS

1 Discuss the reasons for the rapid growth in significance of international HRM

over the last decade.

2 Examine the changing role of the corporate human resource function in inter-

national firms.

3 Discuss the major human resource management problems facing international

firms regarding the supply of international managers.

4 Discuss the main challenges associated with the development of transnational

managers.

8 FURTHER READING

•

De Cieri, H. and P.J. Dowling (1999) ‘ Strategic human resource management in multi-

national enterprises: theoretical and empirical developments’, in P.M. Wright et al.

(eds)

Research in Personnel and Human Resources Management

, Stamford, CT: JAI

Press, pp. 305–327.

A comprehensive and critical review of recent models of strategic HRM in the international firm.

A new framework of strategic HRM is presented.

•

Scullion, H. and C. Brewster, (2001) ‘Managing expatriates: messages from Europe’,

Journal of World Business

, 36(4), pp. 346–365.

A good review of expatriation in the European context. The changing pattern of expatriation in

Europe is examined and the implications for organizations and expatriates are considered.

•

Scullion, H. and K. Starkey (2000) ‘ The changing role of the corporate human

resource function in the international firm

’, International Journal of Human Resource

Management

, 11(6), pp.1061–1081.

A significant article which examines the strategic human resource challenges and issues

facing the corporate human resource function in different types of international firm.

International HRM

3122 Ch-03.qxd 10/29/03 6:08 PM Page 83

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4 Human Resource Management in

Cross-Border Mergers and Acquisitions

Günter K. Stahl, Vladimir Pucik, Paul Evans,

Mark E. Mendenhall

1 Introduction 89

2 Cultural differences and cross-border merger and acquisition 90

performance

3 What does integration mean? 92

4 Managing

Cross-border integration: the HRM implications 97

5 Conclusion and implications for merger and acquisiton practice 107

6 Discussion questions 109

7 Further reading 110

References 110

1 INTRODUCTION

Mergers and acquisitions (M&A) have become an increasingly popular strategy for

achieving corporate growth and diversification. The total value of worldwide deals

involving US firms increased more than tenfold between 1991 and 2000, from

about US$140 billion to over US$1,700 billion. A similar growth of M&A could be

observed in Europe and other parts of the world (M&A Almanac, 2001). Even if this

unprecedented wave of M&A is subsiding as the global economy cools off, more

deals can be expected in the long run (Evans, Pucik and Barsoux, 2002).

In spite of their popularity and strategic importance, the performance of

most M&A has been disappointing. Research findings indicate that, irrespective

CHAPTER CONTENTS

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of the performance measures utilized, the time period covered, and whether

the study has been conducted by academics or a consulting firm, more than

half of M&A are not successful (Hall and Norburn, 1987; Hunt, 1990; KPMG,

1999; Porter, 1987). For example, a study of 107 of the largest cross-border

M&A completed between 1996 and 1998 found that 83% were not successful

in producing any business benefit in terms of shareholder value (KPMG, 1999).

At the same time, many companies (such as BP, or GE) have been very good in

managing acquisitions, and for every troubled mega-deal there may be many

small acquisitions which are substantially more successful.

M&A failures are often due to problems in integrating the different cultures

and workforces of the combining firms (Marks and Mirvis, 2001; Schweiger and

Walsh, 1990; Shrivastava, 1986). Sociocultural integration of different organiza-

tional cultures, HR systems, managerial viewpoints, and other aspects of organi-

zational life can lead to sharp inter-organizational conflict (Buono and Bowditch,

1989; Cartwright and Cooper, 1996; Stahl and Sitkin, 2001). In a survey of more

than 200 chief executives of European companies conducted by Booz, Allen and

Hamilton (cited in Cartwright and Cooper, 1996: 28), respondents ranked the

ability to integrate culturally as more important to merger success than financial

or strategic factors. Problems are often exacerbated when M&A occur between

companies based in different countries. It has been argued that different political

and legal systems, culture and language barriers, and other differences between

countries can be major obstacles to achieving integration benefits (Malekzadeh

and Nahavandi, 1998; Olie, 1990; Very and Schweiger, 2001).

Despite anecdotal evidence suggesting that cross-border M&A are riskier than

domestic ones, the empirical evidence is mixed. As we will see, the findings sug-

gest that the probability of success of cross-border M&A is not necessarily lower

than that of domestic transactions, though they may be more difficult to manage.

This chapter begins with a review of prior research dealing with integration

processes in cross-border M&A, examining the potentially critical role that cul-

tural differences play in the M&A process. The second part of the chapter

focuses on how the meaning of cultural integration depends on the strategic

logic behind the merger or acquisition. The third part discusses the key HRM

challenges at different stages in the M&A process. The chapter concludes with

a discussion of the implications for M&A research and practice.

2 CULTURAL DIFFERENCES AND CROSS-BORDER

MERGER AND ACQUISITION PERFORMANCE

It has often been argued that cross-border M&A are less successful than domes-

tic transactions. For example, a survey of top managers in large European

acquirers showed that 61% of them believed that cross-border acquisitions are

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riskier than domestic ones (Angwin and Savill, 1997). The logic is that cultural

and communication barriers can be major obstacles to achieving integration

benefits. The ‘cultural distance hypothesis’, in its most general form, suggests

that the difficulties, costs, or risks associated with cross-cultural contact

increase with growing cultural differences between two individuals, groups, or

organizations (Hofstede, 1980; Kogut and Singh, 1988).

Consistent with the cultural distance hypothesis, extant theory on M&A

integration indicates that the organizational and/or national cultures of merging

firms have to be similar, or at least complementary, in order to integrate success-

fully (see the models of Cartwright and Cooper, 1993; Nahavandi and Malekzadeh,

1988; Sales and Mirvis, 1984). For example, Cartwright and Cooper’s cultural

fit model proposes that, in mergers of equals, the corporate cultures of the

combining firms should be similar or adjoining types because both organiza-

tions have to adapt to the other culture and create a kind of ‘third culture’.

International M&A seem to be particularly difficult to integrate because they

require ‘double layered acculturation’ (Barkema, Bell and Pennings, 1996),

whereby not only different corporate cultures, but different national cultures

also have to be combined.

However, contrary to accepted wisdom, cross-border M&A are not neces-

sarily less successful than domestic transactions (for reviews, see Schweiger and

Goulet, 2000; Stahl, 2001). One source of evidence comes from studies that

examined the impact of cultural distance on M&A performance. While some

studies found that cultural differences had a negative effect on M&A perfor-

mance (e.g., Chatterjee et al., 1992; Datta, 1991; Weber, 1996), others found a

positive effect (e.g., Larsson and Risberg, 1998; Morosini, Shane and Singh,

1998; Very, Lubatkin and Calori, 1996). For example, Larsson and Risberg

(1998) found higher degrees of acculturation (defined as the development of

jointly shared meanings fostering cooperation between the combining firms),

lower levels of employee resistance, and a higher extent of synergy realization

in cross-border M&A. Acculturation and synergy realization were particularly

high in cross-border M&A that were also characterized by strong organizational

culture differences, that is, M&A characterized by dual culture clash – a finding

that directly contradicts the cultural distance hypothesis. Larsson and Risberg

(1998) argue that, in contrast to domestic M&A, where organizational cultural

differences tend to be neglected, the presence of more obvious national cul-

tural differences may have increased the awareness of the significance of

cultural factors in the integration process. They conclude that ‘cross-border

M&A may not only be “cursed” with additional culture clashes but also be

“blessed” with a higher propensity for culturally aware selection and integra-

tion management’ (p. 40).

Other authors have offered additional explanations of why cultural differ-

ences in M&A can, under some circumstances, be an asset rather than a liabil-

ity. Morosini et al. (1998), in a study of cross-border acquisitions, found that

national cultural distance enhanced post-acquisition performance by providing

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access to the target’s and/or the acquirer’s diverse set of routines and repertoires

embedded in national culture. Very et al. (1996), in a study of acculturative

stress in European cross-border M&A, found that cultural differences elicited

perceptions of attraction rather than stress, depending on the nationalities of

the buying and acquiring firms. Consistent with the findings of Morosini et al.

(1998) and Larsson and Risberg (1998), they concluded that the cultural prob-

lems associated with integrating M&A may be more amplified in domestic,

rather than cross-national settings. ‘Acculturative stress is a complex phenom-

enon, sometimes influenced by cultural differences, but not necessarily in the

expected direction’ (p. 103).

Thus, the cultural distance hypothesis provides too simplified a view of the

cultural processes involved in integrating merging firms. Whether cultural differ-

ences have a positive or negative impact on M&A performance will probably

depend on the nature and extent of the cultural differences, the interventions

chosen to manage these differences, and the integration approach taken. This

conclusion is also supported by studies that found evidence that the success rate

of cross-border M&A may be higher than for domestic transactions (Bleeke et al.,

1993; Bühner, 1991; KPMG, 1999). According to Evans et al. (2002), the main rea-

son is that cross-border acquirers buy companies in familiar businesses to which

they can add value. They also execute multiple acquisitions, not one-of-a-kind

deals, learning from mistakes and accumulating experience, putting in place

processes that enable them to execute cross-border deals more and more effec-

tively. Further, cross-border acquirers tend to pay greater attention to the ‘softer’,

less tangible but critical cultural issues and HR aspects of M&A management.

Finally, Evans et al. (2002) have observed that cross-border M&A promote some

convergence in HRM policies and practices towards accepted ‘best practice’, such

as performance-related compensation and team-based work organization.

In summary, there is evidence that cross-border M&A, under some cir-

cumstances at least, can be more successful than domestic combinations, and

that the inherent cultural differences in cross-border M&A can be an asset

rather than a liability. Consistent with a ‘process perspective’ on acquisitions

(Haspeslagh and Jemison, 1991; Hunt, 1990; Jemison and Sitkin, 1986), the

literature review suggests that M&A outcomes depend heavily on the strategic

logic behind the merger and the management of the integration process, as dis-

cussed in the next two sections.

3 WHAT DOES INTEGRATION MEAN?

The concept of ‘integration’ has different meanings in a merger or acquisition,

and a fundamental issue is to understand what is the strategic logic behind a

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specific merger. Most companies use the term ‘integration’ to describe the

post-merger activities designed to bind the acquiring and acquired companies,

just as the vast majority of so-called mergers are in fact acquisitions. But what

happens is actually assimilation, a process that is fundamentally different from

true integration.

The logic of assimilation is simple: make the acquired company just like

the purchaser. However, companies are sensitive to public perceptions of being

a foreign bully, and they are often hesitant to proclaim their objective of assim-

ilating the acquired firm, fearing that it may compromise the deal. This often

creates confusion and mistrust that will make the assimilation process more

difficult. In contrast, GE Capital, the financial services arm of General Electric,

offers blunt advice to the management of firms that were acquired around the

world: ‘If you do not want to change, don’t put yourself for sale.’ GE makes it

very clear to the acquired company that it now has to play by GE’s rules, and

it provides a framework in which to do so.

In the case of true integration, the emphasis is on capturing hidden syner-

gies by swapping and leveraging capabilities. At times, the companies may

decide to establish a new identity as with Novartis, which was formed through

the merger of Ciba-Geigy and Sandoz in 1996 to create a global life sciences

giant. Both approaches to M&A implementation have their merits. The choice

of either assimilation or integration depends on the strategic intent behind the

acquisition and the desired cultural characteristics in the new organization.

Choosing an approach that does not match with the strategy or the desired cul-

tural outcome can significantly reduce the value created by the acquisition.

A useful way of formulating the acquisition logic, as shown in Figure 4.1,

is to focus on the cultural ‘end-state’ and the path to reach this (Marks and

Mirvis, 1998). What kind of culture is desired for the new entity, and how

much change will be required within both acquiring and acquired companies

in order to get there?

When no cultural change in the acquired company is desired, then it can

be considered as a stand-alone acquisition. When a large amount of change in

the acquired company is expected but with relatively little change for the

acquirer, then absorption is the most likely path. An expectation of major cul-

tural change in both entities results in a cultural transformation, while the selec-

tive combination of the most appealing features of the two cultures is often

described as a ‘best-of-both’ acquisition. In rare cases, the culture of the acquirer

is blended into that of the acquired firm in a reverse merger.

Stand-alone acquisitions

When a deal is announced, it often contains a reference saying that the

acquired company will preserve its independence and cultural autonomy. This

often occurs when one of the rationales behind the merger is to get hold of

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talented management or other soft skills (such as speed of product development)

and retain them, or when conformance to the acquiring company rules and sys-

tems could be detrimental to the acquired company’s competitive advantage.

The key to success here is to protect the boundary of the new subsidiary

from unwarranted and disruptive intrusions from the parent, though this can

be hard to ensure. Even with the best of intentions, there can be a form of

creeping assimilation as the acquiring company encourages the acquired one

to begin to work in the same way and to develop systems and processes which

match those of the parent organization.

Because of operational pressures, most stand-alone acquisitions do not last.

While the acquired company may appear independent to the outside world,

some functions at least are merged with the rest of the organization. Or else

‘stand-alone’ is a temporary phenomenon, until other aspects of the strategy

are realized, such as further acquisitions. If the potential for strategic integra-

tion is not addressed, the two organizations can over time begin to work

International Human Resource Management

Low

High

Degree of change in acquiring company

Absorption

Acquired company

conforms to acquirer—

Cultural assimilation

Transformation

Both companies find

new ways of operating—

Cultural transformation

Best of both

Additive from both

sides—

Cultural integration

Preservation

Acquired company

retains its

independence—

Cultural autonomy

Reverse merger

Unusual case of

acquired company

dictating terms—

Cultural assimilation

High

Degree of

change in

acquired

company

Strategies for Post-Merger Outcomes (Marks, M.L. and Mirvis, P.H., 1998).

Wiley & Sons Inc.

FIGURE 4.1

3122 Ch-04.qxd 10/29/03 3:45 PM Page 94

against each other, competing with each other in the same markets and for the

same customers, operating without coordination and respect for the good of

the company that they, in fact, constitute.

Absorption acquisitions

This kind of acquisition is fairly straightforward, and it is probably most com-

mon when there are differences in size and sophistication between the two

partners involved in the deal. The acquired company conforms to the acquirer’s

way of working, with a focus on full cultural assimilation. Such deals are parti-

cularly common when the acquired company is performing poorly, or when

the market conditions force consolidation.

Most of the synergies may be related to cost cutting, most likely on the side

of the acquired company, although some may come from improvements in sys-

tems and processes brought in by the acquiring firm. The key to success is to

choose the target well, to move fast so as to eliminate uncertainty, and to cap-

ture the available synergies.

The terms, absorption or assimilation, carry a pejorative meaning in the

minds of many; and at times assimilation may be an ugly process that gener-

ates poor results. However, if managed well, it can be of benefit to the employ-

ees of the acquired firm. This is especially true when these employees are afraid

of losing their jobs and see the dominant company as being a savior; unhappy

with the management culture of their company, and see the acquiring com-

pany as having a more enlightened culture; or see a variety of positive out-

comes in being associated with the acquisition (better benefits, better pay,

more prestige, etc.). Cisco, for example, buys companies for their technology

and R&D talent and then assimilates them into the Cisco culture, but it

attempts to retain most of the employees, including top management. Here,

the emphasis is on finding targets that will match Cisco’s way of managing the

business, increasing the likelihood of cultural compatibility.

Reverse merger

This is the mirror opposite of assimilation, although it does not happen very

often. Usually the organization that buys hopes to gain capabilities from the

one it bought. The acquired company becomes a business unit that absorbs the

parallel unit in the acquiring firm. When Nokia, for instance, bought a high

tech firm in California for its R&D knowledge, it gave the new unit global

responsibilities, which meant that part of the business in Finland now reports

to California.

Sometimes, the reverse merger is unintended. A few years ago, a French

metal product company acquired its smaller British competitor. Today, to the

surprise of many, the management style and systems of the new company

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resemble the culture of the acquired firm. What happened? When the two

companies merged, it was easier for everyone to adopt the explicit and trans-

parent systems of the British firm which are more suitable for cross-border busi-

ness, than to emulate the more ambiguous and subtle rules embedded in the

French organization. If the practices of the company that has been acquired are

more clear and transparent, it is quite possible that they will prevail.

Best of both

The intriguing option is the ‘best of both’, often described as a ‘merger of

equals’. This holds out the promise of no pain since in theory it takes the best

practices from both sides and integrates them. There are, however, very few

examples of such mergers that have succeeded since it is very difficult to do.

The strength of a culture comes from the internal consistency of the practices,

which may not be there when the ‘best’ parts are put together. Another danger

in the ‘best of both’ integration process is that it may become too political and

time consuming. Who decides what is ‘best’?

The process of making the decisions can be very complex. If both compa-

nies declare that the merger is one of equals, does that mean that top manage-

ment is split 50/50, even if in terms of excellence the real split is 80/20? The

controversy surrounding the Daimler/Chrysler merger is a visible example of

this frequent dilemma. Without strong mutual respect for the knowledge and

skills of each company, this kind of strategy will not work.

The key to success is the fairness of the process. The test of the ‘best of

both’ approach may be the ability to retain the people who do not get the top

jobs. Having similar cultures helps. The AstraZeneca and Exxon/Mobil mergers

have proceeded relatively smoothly because the similarities were more pro-

nounced than the differences. The new groups have been relatively successful

at identifying the best practices from each side, as well as having a balance of

top management from the two firms.

Transformation

In contrast with ‘best of both’ acquisitions that take the existing cultures as

they are, both companies in a transformation merger are hoping to use the

merger to break sharply with the past. Merger or acquisition can be the catalyst

for trying to do things differently, to reinvent oneself. This can involve the way

in which the company is run, what business it is in, or both. When Novartis

was created by the merger of two Swiss-based pharmaceutical firms, the pro-

posed management style for the new company reflected the desired transfor-

mation: ‘We will listen more than Sandoz, but decide more than Ciba.’

This kind of merger is obviously the most complex and most difficult to

implement. It requires full commitment, with focus and strong leadership at

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the top so as to avoid getting trapped in endless debates while the ongoing

business suffers (Percy Barnevik’s transformation of Asea and Brown Boveri is

one positive cross-border example).

Finally, a complicating factor in international acquisitions is that there will

often be parts of the organization where a particular approach to the merger

makes sense and others where it does not. There are few M&A that fit neatly into

the assimilation, integration or other categories. For some countries or regions,

or for some parts of the business, a full assimilation may be the best approach; in

other parts of the firm, a reverse merger could be a more appropriate strategy.

4 MANAGING CROSS-BORDER INTEGRATION:

THE HRM IMPLICATIONS

There is no shortage of evidence that attention to people and cultural issues is

one of the most critical elements in making the cross-border acquisition strat-

egy work. In a recent McKinsey study of international M&A, the four top

ranked factors identified by responding firms as contributing to acquisitions

success are all people related: retention of key talent (identified by 76% of

responding firms); effective communication (71%); executive retention (67%);

cultural integration (51%) (Kay and Shelton, 2000).

A similar conclusion can be drawn from the Conference Board study

(Conference Board, 1997). At the top of the list of HR concerns in mergers and

acquisitions is the retention of critical talent, identified as a very important or

important factor by 86% of the respondents. Second on the list is ‘blending cul-

ture’, listed by 83% of the respondents, closely followed by retention of key exec-

utives (82%). Differences in approaches to compensation/benefits were ranked

fourth (73%). Perhaps surprisingly, impact on the workforce size (37%), down-

sizing (35%), and redeployment of employees (25%) are at the bottom of the list.

Finally, in another recent survey sponsored by KPMG, the three ‘keys to

success’ were selecting the management team, resolving cultural issues, and

communication (KPMG, 1999). For example, companies that prioritized the

selection of the management team in the planning stage were 26% more likely

to execute a successful acquisition. An early focus on identifying and resolving

the organizational culture issues had a similar impact on success.

In fact, it is hard to find an acquisition where people issues do not matter.

When the objective is to establish a new geographic presence, then managing

cross-cultural, language, and communication issues tops the list of priorities.

When the aim is to acquire new technology or to buy market share or compe-

tencies, retaining key technical staff or account managers is the principal

challenge. When the objective of the deal is consolidation, dealing effectively

with redundancies at all levels is the dominant concern.

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Based on these observations, it may be seen as natural that the HR function

should play a significant role in all phases of the acquisition. The acquisition

process is typically divided into stages – the initial planning stage, including due

diligence; the closing of the deal; and the post-merger integration stage. Yet while

human resource management issues tend to get attention during the last – imple-

mentation – phase, the overall influence that HR has during the whole acqui-

sition process is patchy, even though many of the problems of merger

integration stem from failure to consider these issues early on. In addition,

many companies have neither the resources nor the know-how to give this HR

area the priority it merits (KPMG, 1999, p. 15).

As suggested earlier, one of the reasons why cross-border mergers may be

successful, despite their complexity, is that the people and integration chal-

lenges are more obvious, leading management to pay close attention to them at

all stages in the acquisition process. There are instances where such cultural dif-

ferences lead the management of the acquiring company to be excessively cau-

tious. When Japan’s Bridgestone purchased US-based Firestone, it refrained from

making significant changes in the organization, even though the acquired com-

pany was losing money. Bridgestone did not want to be seen as ‘ugly Japanese’

taking over a venerable local institution. In reality, many local middle managers

were looking forward to the takeover, expecting that their new owners would

tackle both the unions and the entrenched old-style top management – but

when nothing happened, they left in droves. Faced with growing losses, Tokyo

finally moved in several years later to ‘clean up the mess’. But it was too late,

the company was too thin on talent by then. Firestone never fully recovered,

and today the once powerful brand is on the verge of extinction.

We focus here on the following cultural and people issues that seem to be

particularly critical to the success or failure of M&A (see Evans et al., 2002, for

an extended discussion of the issues in this section):

• Assessing culture

• Undertaking a human capital audit and selecting the management team

• Effective communication

• Retaining talent

• Creating the new culture

• Managing the transition

Assessing culture in the due diligence phase

The purpose of cultural assessment is to evaluate factors that may influence

the organizational fit, to understand the future cultural dynamics as the two

organizations merge, and to prepare a plan of how the cultural issues should be

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addressed if the deal goes forward. Before a valid cultural integration strategy

can be developed on the part of the acquiring company, or between the two

merger partners, a clear understanding of the nature of both companies’ cul-

tures must be fleshed out. This crucial step is often neglected – and sometimes

totally ignored – in most M&A planning processes.

One common mistake that is often made in the cultural due diligence

process is that measures used to delineate the culture are superficial in nature

(such as the number of levels in the organizational structure, the type of

employee benefit programs, level of detail in policy manuals) and do not ade-

quately plumb its depths (Mendenhall, Caligiuri and Tarique, 2001).

Metaphorically, cultural understanding has often been likened to an ice-

berg (Black et al., 1999; Schein, 1987). The tip of the iceberg, visible to the

observer, does not reflect the way in which it is connected to a much larger

mass beneath the ocean’s surface. Similarly, the external manifestation of cul-

tural dynamics – artifacts and behaviors – do not reflect the behind the scenes

dynamics that create them and sustain them. Nor is the meaning that the arti-

facts and behavior have for the members of the culture easily comprehended

by the naïve observer. Thus, fleshing out an understanding of the external

terrain of organizational structures, amount of work done by teams, human

resource policies, etc., does not give a true understanding of the entire culture

of the company. Unless the cultural due diligence team strives to understand

the normative structure that creates micro-level behavior and artifact manifes-

tation, and the core values that in turn create the normative structure, and the

foundational assumptions regarding elementary issues around the very exis-

tence of the organization itself, any cultural integration strategy will be flawed.

Superficial cultural analysis may isolate behavioral predispositions of the com-

pany, but it does not answer the question of ‘why’ the behavior occurs and

continues to occur. Understanding why a company operates the way it does

makes all the difference in creating useful post-merger cultural integration

strategies.

Evans et al. (2002) suggest that cultural due diligence teams must focus

their efforts on data collection that would extract ‘deep knowledge’ of the cul-

ture. Cultural due diligence teams need to ask questions, and find answers to

questions such as (p. 270):

• What are their core beliefs about what it takes to win?

• What drives their business strategy? Tradition or innovation?

• Is the company short-term or long-term in its outlook and execution of initiatives?

• How much risk is the company used to accepting?

• Is the company result-oriented or process-oriented?

• How is power distributed throughout the company?

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• How are decisions made: consultation, consensus, or authority?

• How is information viewed and managed?

• What is the typology of a valued employee?

Questions of this nature require the due diligence team to probe into the

normative structure, core values and assumptions, and the core philosophy of

the company itself in order to understand the company from a holistic cultural

perspective.

In addition, the culture of a company does not exist in a vacuum. It is embed-

ded in an industry, regional, professional, and national culture as well (Schneider

and Barsoux, 1997). In order to comprehend a company culture, one must be able

to understand the cultural strands that reach out and attach themselves to values,

assumptions, norms, and philosophies in the environment in which it exists.

Thus, the cultural due diligence team must assess the wider context in which the

company exists as well as the company itself. The national cultural frameworks

discussed in Chapter 6 could be a useful starting point in this respect.

Finally, the due diligence team must not only pay attention to the target’s

or potential partner’s culture, but to the culture of the company that it repre-

sents as well. Cultural assessment is not just a question of assessing the other

company’s culture; it is also a matter of both having a clear culture oneself and

understanding it. The ‘know thyself’ adage applies as much to companies as it

does to people. Only after an executive team has a clear, sophisticated under-

standing of both their own culture and that of the target/partner, can cultural

integration planning be conducted.

Undertaking a human capital audit and

selecting the management team

There are two dimensions to the human capital audit. One dimension is preven-

tive, focused on liabilities such as pension plan obligations, outstanding griev-

ances, and employee litigation. It also includes comparing the compensation

policies, benefits, and labor contracts of both firms. The other dimension is

focused on talent identification, and in the long run it is probably more critical to

the success of the acquisition. A number of facets on this are important – ensur-

ing that the target company has the talent necessary to execute the acquisition

strategy, identifying which individuals are pivotal to sustaining the value of the

deal, and assessing any potential weaknesses in the management cadre. It is also

important to understand the motivation and incentive structure, and to high-

light any differences that may impact retention. Finally, understanding the struc-

ture of the organization means not just reporting lines but clarifying who is who.

Here are some examples of questions to consider (Chaudhuri and Tabrizi,

1999; Evans et al., 2002):

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• What unique skills do the employees have?

• How does the target’s talent compare to the quality of our own?

• What is the background of the management team?

• What will happen if some of the management team leave?

• What is the compensation philosophy?

• How much pay is at risk at various levels of the firm?

• What are the reporting relationships?

• How are decisions made?

Getting access to talent data may take some effort, and many companies ignore

the talent question in the early stages of the M&A process. They do not take

the time to define the type of skills embedded in people who are critical to the

success of the deal, relying instead on financial performance data as a proxy.

However, without early assessment, companies may acquire targets with

weaker than expected skills or talent that has a high likelihood of departure. A

consequence is delays after the merger announcement in deciding on the struc-

ture and management team in the acquired company, which fuels post-merger

anxiety and confusion, leading the most valuable contributors to leave.

At the same time, the audit may also uncover significant weaknesses that may

call for replacement candidates (external local hires or expatriates) to be ready to

step in immediately after closing the deal. Without advance planning, this may

not be possible. And with each replacement there is a potential termination,

which again has to be carefully prepared, based on local rules and practice.

Effective communication

Communication is always a vital part of any process of change, but it is critical

in cross-border acquisitions where cultural differences may intensify tensions

due to misunderstanding and distance. Furthermore, in the design of the com-

munication process there are two additional objectives that are particularly

important in acquisitions. On the one hand, an aim of communication is to

alleviate the anxiety and stress that accompany every acquisition, and on the

other hand it provides feedback to top management about the progress of the

integration process and any potential roadblocks.

While some M&A are public knowledge during their pre-merger/acquisi-

tion phases, many are not, and their public announcement triggers shock and

anxiety in the workforces of the companies involved. Even if the deal is known

to be in the works, rumor mills of possible layoffs, reassignments, etc., drain

energy and productivity. Feelings of superiority, victory, or power may be gen-

erated among employees of the acquiring or dominant partner; conversely, feelings

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of fear, betrayal, and anger are not uncommon among employees in the

acquired or less dominant company.

In the first 100 days of a merger, Mirvis and Marks (1994) argue that the

following must occur in order to counter the ‘merger syndrome’ in employees.

First, employees must come to see that it is perfectly normal to feel a wide vari-

ety of emotions because of the merger or acquisition. They should be trained

in developing coping skills to deal with the stress that comes with such massive

organizational change. Second, information must be transparent, and freely com-

municated to employees. When executives sit on decisions and announce

them abruptly ‘as needed’ it simply fuels the problem discussed above: height-

ened levels of stress and anxiety. It also fuels an emergent distrust of manage-

ment’s motives, ethics, and decision-making effectiveness on the part of

employees (Stahl and Sitkin, 2001). Information can be shared in a wide vari-

ety of forums: lunch gatherings, company intra-nets, e-mails, etc. Third, senior

management must communicate a vision throughout the company, one that is pos-

itive and guides the employees from both previous companies towards a new

and better future. Combined with symbolic acts that show a positive regard for

all employees, infusing the new culture with a positive image of the new com-

pany as it moves ahead is a critical aspect of initial post-merger management.

Finally, it is critical to involve people at all levels from the previously separate com-

panies with each other in some kind of role quickly; that is, the formation of

teams to share knowledge, break down stereotypes, in training workshops, etc.

has the effect of dissipating the power of ethnocentric ‘us vs. them’ factions.

Developing systems that allow for interaction amongst people from the two

companies, in settings that are positive, is an important process to undertake

quickly after a merger or acquisition is announced.

Retaining talent

Many acquired businesses lose key employees soon after the acquisition, and

this is a major contributing factor to the failure of acquisitions. Research evi-

dence from US acquisitions indicates that the probability of executives leaving

increases significantly when their firm is acquired by a foreign multinational

(Krug and Hegarty, 1997). When insufficient attention is paid to retaining tal-

ent, and especially if staff cuts are expected, employees will leave – head-

hunters inevitably move in and the best will exit first since they have other

choices. Retention of talent is particularly important for firms where the value

of the deal lies in the acquisition of intangible assets – the knowledge and skills

of the people inside the acquired firm – as with many such deals in the high

technology sector where companies use acquisitions to plug holes in their R&D

portfolio or to rapidly build up new capabilities (Chaudhuri and Tabrizi, 1999).

This means knowing exactly who are the talented people and why they are

essential to the new organization, including those lower down in the acquired

firm, though getting this information as part of the human capital audit may

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not be a simple task – local managers may be protective of their people, there

may be cultural differences in what performance means, and many companies

do not know who their high performers are. Whenever possible, multiple

sources of assessment should be used – feedback from direct superiors, peers

and subordinates; past performance reviews; personal interviews; and formal

skill assessments.

Effective and open communication is a first element for success in retain-

ing talent, while financial incentives are also important (stock options, reten-

tion bonuses or other incentives given to employees who stay through the

integration or until a specific merger-related project is completed). But to retain

long-term talent, financial incentives cannot substitute for a one-on-one relation-

ship with executives of the acquiring firm. Senior management involvement is

critical to successful retention. High-potential employees in most companies

are used to senior-level attention. Without the same treatment from the acquir-

ing company, they question their future and will be more likely to depart.

Distance may be an obstacle to be overcome, but it cannot be used as an

excuse. When BP-Amoco acquired Arco, another international oil major, it

quickly organized Key Talent Workshops – two-day events to network senior BP

executives with Arco’s high-potential employees.

Talent retention efforts should not stop with the completion of the first

100 days of integration. Junior employees may find the initial impact of the

acquisition to be quite positive, offering them opportunities for responsibility

and higher pay (especially if their seniors leave en masse). But many of them

depart later because they are not integrated into the leadership development of

the new parent company (Krug and Hegarty, 2001).

Creating the new culture

Creation of a new culture is difficult unless there is some explicit management

philosophy with values and norms that guide practice and behavior. To create

the new culture of ABB after the cross-border merger of Asea and Brown Boveri

in the late 1980s, the then CEO Percy Barnevik spent three months with the

new senior management team defining a policy bible to guide the intended

new organization. This was a manual of ‘soft’ principles such as speed in deci-

sion making (‘better to be quick and roughly right than slow and completely

right’) and for conflict management (‘you can only kick a conflict upstairs once

for arbitration’), as well as ‘hard’ practices such as the Abacus measurement

system that would apply across all units of the newly merged enterprise.

Companies with strong and successful cultures such as GE and BP impose

their culture on the companies they acquire, as BP did when it bought Amoco.

Indeed they see their success as originating from their culture and the practices

built on it. Therefore GE will bring to an acquired company its meaning of

performance commitment anchored in stretch goals, the underlying business

planning process, and the way it goes about managing people. On the other

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hand, as illustrated by Evans et al. (2002), acquiring a ‘culture’ may be part of

the reason behind an acquisition, such as in one takeover of an Anglo-Saxon

competitor by a French multinational that is the global leader in its industry.

Top management in the French corporation had known for some time that its

own culture had to change, but it was unable to do so organically. The most

attractive feature of acquiring its competitor was not the expanded market

share but the opportunity to accelerate change in the mother company. Senior

management recognized that the whole integration process would have to be

managed with this aim in mind.

In the process of culture building or cultural assimilation after an acquisi-

tion, values and norms have to be translated into action. One model of change

implementation argues that it is a four-step process (Beer, Eisenstat and Spector,

1990). It starts with establishing the new roles and responsibilities after the

restructuring, ensuring that skilled champions of the desired culture are in

place to drive the culture change process. The second step is coaching and train-

ing, helping people to develop the desired competencies and behaviors.

Meanwhile, the third step is being prepared, focusing on recruitment, succession

planning, and rewards. People who do not respond well to the coaching will be

replaced, and those who respond very well will be given broader responsibili-

ties. The fourth and last step in the implementation and culture change process

is the fine-tuning and formalization of the new system into a coherent, consistent,

and transparent whole.

The quality of coaching is particularly important for the effectiveness of

culture change. Take AXA as an example, another French company that in the

space of a decade has grown via acquisitions from being a local player in the

French insurance industry to becoming a top global financial services institu-

tion. Just like BP and GE, it makes no pretensions that its acquisitions are merg-

ers, acting quickly to AXA-ize the cultures of the firms it acquires. Managers

from companies brought into AXA commented that one of the most helpful

tools for them to assimilate quickly into the company is its 360° feedback

process. The AXA values are encoded in this instrument, and to accelerate the

process of cultural integration, all managers and professionals in the acquired

company go through feedback workshops. It makes the desired culture and

values concrete, identifying personal needs for improvement and leading to

follow-up coaching in the AXA way.

Managing the transition

Integration manager and transition teams

The post-merger integration is always a delicate and complicated process. Who

should be responsible for making it happen? After closing, the due diligence

team with its deep knowledge of the acquired company disbands or goes on to

another deal. Meanwhile, the new management team is not yet fully in place.

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To avoid the vacuum, companies are increasingly turning to dedicated integration

managers supported by transition teams.

The role of the integration manager is to guide the integration process,

making sure that timelines are followed and that key decisions are taken

according to the agreed schedule. The first task is to spell out the logic of the

new business model and translate this into operational targets. This is impor-

tant in international acquisitions where ‘big picture’ statements from the cor-

porate center may not mean much in a different national and business context.

They should also champion norms and behaviors consistent with new stan-

dards, communicate key messages across the new organization, and identify

new value-adding opportunities (Ashkenas, et al., 1998; Ashkenas and Francis,

2000).

An important aspect of the job is helping the acquired company to under-

stand how the new owner operates and what it can offer in terms of capabili-

ties. The integration manager can help the new company take advantage of the

owner’s existing capabilities and resources, forge social connections, and help

with essential but intangible aspects such as interpreting a new language and

way of doing things. Acquired companies typically do not know how things

work in the corporation that now owns them, and the integration manager

can also help the parent to understand the acquired business and what it can

contribute.

A major source of frustration in many of the deals is not so much what the

parent wants the newly acquired unit to do, but what it wants to know.

Therefore, another role for the integration manager is that of an information

‘gatekeeper’ between the two sides, protecting the acquired business from the

eager embrace of an owner who unintentionally could undermine what makes

the business work. When Nokia acquires small high tech venture companies,

one of the rules is that all requests for information from the parent go to the

integration manager. He or she will decide if and how the unit should comply

with the request.

In most acquisitions, the integration manager is supported by integration

teams and task forces. These teams should have a clear mandate, with targets

and accountability for a specific area where integration is required. Since many

of these teams are expected to start work on the first day after the acquisition

is closed, the identification of potential members should ideally be an outcome

of the due diligence process. HR professionals are often key members of the

team because many of the team’s activities will have implications for human

resource policies and practices.

Who else should be appointed to the transition team? It may be attractive

to leverage functional and business unit managers by adding this transition

project role to their responsibilities. However, the mixing of line responsibility

with transition task force roles often means that neither is done well. Customers

do not like to wait until the transition team reaches consensus. On the other

hand, integration teams should not be staffed by second-tier managers or by

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‘losers’ in the race for line business jobs – they would not have the credibility

to get the job done. So probably the best staffing approach is to appoint ‘up-

and-coming’ managers, leaving the daily business under the original leadership

until the new organization can be put in place.

Transition teams are most effective when members come from both the

acquired and acquiring companies and by facilitating personnel exchange,

members of one transition team can help to develop a better understanding of

each other’s capabilities. People who are suited for a transition team usually

have a mix of functional and interpersonal competencies (including cross-

cultural skills), backed up by strong analytical skills. Having an ability to accept

responsibility without full authority and being effective in mobilizing

resources across organizational boundaries are two competencies that are espe-

cially important, and consequently such roles are good development opportu-

nities for those with high potential.

The effective transition team serves as a role model for how the new

organization should act. It disseminates the shared vision and makes sure that

practices are appropriately aligned with the vision. However, too many task

forces and teams slow things down, creating coordination problems, conflict,

and confusion. The integration projects should focus on those with high

potential savings at low risk, leaving those with greater risk or lower benefits

until later. In the process of transition, prioritization is critical.

Moving with speed

Evans et al. (2002) observe that most companies with experience in acquisi-

tions recommend moving fast. Creeping changes, uncertainty, and anxiety

that last for months are debilitating and immediately start to drain value from

an acquisition (Ashkenas et al., 1998). While this may seem counterintuitive to

some, ‘a problem jeopardizing the success of many acquisitions has been a ten-

dency to restructure slowly, motivated by the best of intentions. While time

and resources are being spent on giving people time to adjust and not upset-

ting the old culture, competitors come along and take away the business’

(Evans et al., 2002, p. 278).

The desire to move fast may come from the firm that has been bought up.

A survey of European acquisitions of US high-technology firms in the Silicon

Valley reported that speed in integration was one of the key drivers of success-

ful post-merger integration – but also one of the most problematic (Inkpen

et al., 2000). The understanding of what is ‘quick’ or ‘fast’ among most of the

European acquirers (usually large, established companies with entrenched rou-

tines and procedures) was very different from the norms of the Valley. This cre-

ated confusion, frustration, and ultimately the loss of market opportunities.

Research also shows differences in the speed of the integration process

according to the national origins of the acquiring firm. Japanese and Northern

European acquirers tend to move cautiously, conscious of the potential cultural

conflicts (Child et al., 2001). This works well if the approach is one of preservation,

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but it may exacerbate the stress of the transition when expected decisions are

not forthcoming.

Another aspect associated with speed is the need for management to

demonstrate to the employees that the merger/acquisition is showing signs of

success quickly, and to communicate the accomplishments to the whole orga-

nization. One of the fundamental principles of successful change is that of cel-

ebrating small wins (Kotter, 1996; Kouzes and Posner, 1987). This has the

salutary effect of reinforcing in the minds of people that the decision to merge

was a good one, diminishing the influence of those who are critical of the

merger, and increasing morale in the new organization.

The optimal speed depends on the strategic intent behind the acquisition

and the desired end-state for the culture of the new organization. Absorption

or transformation strategies generally require more urgency than those ori-

ented to preservation. When the objective of the acquisition is to acquire

knowledge and intellectual capital, the pace of change must be especially care-

fully calibrated to minimize the risk of alienating talent.

Obviously, speed can be increased proportionately to the degree to which

a comprehensive integration plan has been formulated in the pre-merger

phase. The old adage ‘speed kills’ is still true if decisions are being made with-

out a context of a carefully crafted plan. Alternatively, a slow pace due to the

lack of a credible plan also has a negative impact, as it reinforces in the minds

of many subordinates that no one amongst the executives knows what they are

doing, that no progress is being made, and that the entire merger or acquisi-

tion was a folly to begin with. This argues, of course, that good preparation

during the pre-merger/acquisition phase is vital if the post-merger phase is to

be successful.

5 CONCLUSION AND IMPLICATIONS FOR MERGER

AND ACQUISITION PRACTICE

In M&A special emphasis is usually placed on the strategic and financial goals

of the transaction while the psychological, social, and cultural implications do

not receive much attention. The purpose of this chapter has been to delineate

the dynamics of people issues and cultural processes inherent in M&A, and to

discuss their implications for the management, in particular the human

resource management, of M&A.

Whether a merger or an acquisition fails or succeeds depends primarily on

the management of the post-combination integration process (Haspeslagh and

Jemison, 1991; Jemison and Sitkin, 1986). While the conditioning factors in a

M&A, such as buyer strategy, prior acquisition experience, or initial cultural fit

between the combining organizations, form the upper limit on the degree of

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success that a M&A can achieve, the management of the post-combination

integration process will probably determine the degree to which that potential

is realized (Pablo et al., 1996). The research evidence presented in this chapter

indicates that, if adequately managed, the inherent cultural differences in

cross-border M&A can be an asset rather than a liability.

What constitutes ‘adequate’ management in a particular M&A depends on

the strategic logic behind the deal and the integration approach taken. Each of

the various integration approaches discussed in this chapter has different man-

agerial implications. For example, in absorption acquisitions, one of the key

managerial challenges is to ease the transition from separate to joint operations

and to allay target firm members’ fears through clear communication, whereas

preservation acquisitions require arm’s-length status and managers must be

willing to protect the target’s autonomy and learn from the target firm. In gen-

eral, attention to cultural and people issues is most critical to M&A which

require high degrees of integration (Haspeslagh and Jemison, 1991; Stahl and

Sitkin, 2001).

Although most M&A failures are linked to problems in post-combination

integration, our discussion of the key HRM challenges in M&A suggests that

cultural and people issues have to be considered at an early stage in the M&A

process – as early as during the evaluation and selection of a suitable target and

the planning of the post-combination integration phase. In the due diligence

process, the assessment of the organization structure, corporate culture, and

HR system in the company to be acquired is just as important as financial

analysis and strategic fit considerations. Undertaking a human capital audit to

ensure that the target company has the talent necessary to execute the acqui-

sition strategy, identifying which individuals are key to sustaining the value of

the deal, and assessing any potential weaknesses in the management cadre are

essential to the long-term success of the acquisition (Evans et al., 2002).

No matter how well the M&A has been prepared, one can neither antici-

pate nor avoid all problems in the post-combination integration phase. In this

chapter, we have identified various paths for executives to follow in their

efforts to better manage the challenges of post-merger integration. Most of the

critical management tasks are in the area of human resource management and

organization development, including various aspects such as enhancing the

quality and quantity of communication, choosing the right management

team, retaining key executives and leadership talent, facilitating the cultural

integration process, and managing the transition process. The interventions

suggested to deal with these key HRM challenges can go a long way toward

reducing dysfunctional culture clashes in cross-border M&A, and increasing

the chances for successful integration.

The cultural and human resource management implications of M&A dis-

cussed in this chapter provide a rich field for further research. Although the

psychological, social, and cultural issues involved in integrating merging or

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acquired firms have received considerable research attention in recent years

(for reviews see Cartwright and Cooper, 1996; Evans et al., 2002; Schweiger and

Goulet, 2000; Stahl and Sitkin, 2001), several important issues related to the

post-combination integration process have been left unexplored. For example,

few systematic attempts have been made to examine, either conceptually or

empirically, the role that processes related to trust building, employee sense

making, and leadership may play in the M&A process. Other aspects of the

post-combination integration process, such as the consequences of cultural fit

or misfit, have received more research attention, but empirical findings are

mixed. Clearly, our current understanding of the sociocultural dynamics in

cross-border M&A is limited.

One reason – and challenge – is that research in this complex area needs

to be interdisciplinary or broad in its disciplinary orientation – linking the

strategic, cross-cultural, and human resource management perspectives. Each

of these perspectives has something to contribute, but none can contribute

significantly independent of the others. For example, as has been discussed

earlier in this chapter, frameworks that focus exclusively on the cultural issues

involved in integrating merging or acquired firms, such as the ‘cultural dis-

tance’ hypothesis, cannot explain why some cross-border M&A succeed and

others fail. Whether cultural differences have a positive or negative impact on

M&A performance is likely to depend on a variety of factors, including the

nature of the cultural differences, the interventions chosen to manage these

differences, and the strategic intent behind the M&A. Interdisciplinary

research is needed to find out how these dimensions interactively influence

M&A performance and to provide fresh insights into the sociocultural

processes and human resource management issues involved in cross-border

M&A.

This chapter concludes the first part of this book. In Part 2, we will discuss

national differences in HRM policies in Europe, Asia and developing countries,

as well as two theoretical models that account for these differences.

6 DISCUSSION QUESTIONS

1 What are the various post-merger/-acquisition strategies that one can pursue

and what are the factors to consider in determining the appropriate strategy?

2 What are the cultural and people issues HR should focus on to ensure the suc-

cess of a merger or an acquisition?

3 What is the role of the integration manager and the transition team? What pro-

fessional and personal qualities should these incumbents possess?

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7 FURTHER READING

•

Cartwright, S. and Cooper, C.L. (1996).

Managing mergers, acquisitions, and strategic

alliances

Integrating people and cultures

(2nd ed.). Oxford: Butterworth and

Heinemann.

Written by two psychologists, this is one of the best books on the cultural and human resource

management aspects of M&A. It covers a wide range of M&A issues such as cultural compatibility,

partner selection, integration approaches, and sources of employee stress following M&A.

•

Child, J., Faulkner, D. and Pitkethly, R. (2001).

The management of international acquisitions

Oxford: Oxford University Press.

Excellent summary of the M&A issues, targeted both towards academics and managers based on

research on acquisition by foreign companies in the UK. Three areas explored in detail are a review of

key management challenges, which post-acquisition practices lead to better performance, and whether

national management style can survive an international acquisition.

•

Haspeslagh, P.C. and Jemison, D.B. (1991).

Managing acquisitions: Creating value through

corporate renewal

. New York: The Free Press.

Written for academics as well as executives, this book introduces a well-known model of the post-

acquisition integration process. Although the primary focus is on the business aspects of determining

M&A value drivers, the book is highly relevant to those interested in the human resource management

aspects of M&A. Perhaps the most influential book on M&A management.

•

Marks, M.L. and Mirvis, P.H. (1998).

Joining forces: Making one plus one equal three in

mergers, acquisitions, and alliances

. San Francisco: Jossey-Bass.

Popular and useful book on human resource management aspects of M&A. Targeted more towards

practitioners than academics (both authors have extensive consulting experience), this book contains

numerous mini-cases and best practice examples.

•

Morosini, P. (1998).

Managing cultural differences: Effective strategy and execution across

cultures in global corporate alliances

. New York: Pergamon.

Well-written book on mergers, acquisitions, and alliances. It describes the results of a study conducted

to test the link between national cultural distance and cross-border acquisition performance. The study

results demonstrate how ‘execution orientation’ – a combination of strategic vision, leadership, com-

munication, and overall execution, is at the heart of successful M&A management.

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PART 2

HRM From a Comparative Perspective

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5 Cross-National Differences in Human

Resources and Organization

Arndt Sorge

1 Introduction 117

2 An organization theory foundation of cross-national comparison 118

3 An institutionalist interpretation of organizational structures and HRM 123

4 Societal analysis beyond the institutionalism–culturalism split 131

5 Globalization, European integration and institutional differentiation 136

6 Discussion questions 138

7 Further reading 138

References 139

1 INTRODUCTION

Cross-national comparative research on organization and human resources

usually follows one of two major approaches: institutionalist or culturalist. In

Section 2 we explain in which way comparative research differs between these

two approaches. At the same time, we point out that these two different

strands are complementary rather than opposed. In the third section we

describe and explain differences between organization and human resource

structures in different countries, with an emphasis on more institutionalist

comparisons. The more culturalist comparisons are left for the next chapter.

The institutionalist treatment starts with differences observed within enter-

prises before moving over to wider, more ‘macro’ differences characterizing

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societal business systems. To integrate culturalist and institutionalist approaches,

a framework called societal analysis is then proposed in the fourth section. In

the last section, we discuss consequences of this framework within the more

recent discussion of trends such as globalization and European integration.

2 AN ORGANIZATION THEORY FOUNDATION

OF CROSS-NATIONAL COMPARISON

Although it may sound a bit heretical compared to the organization and

management literature, which is usually obsessed with effectiveness, organi-

zational life is very much governed by factors that have very little to do with

organizational goals, or which may distort organizational goals. They affect orga-

nizational and human resource structures and processes either directly, or via the

modification of organizational goals or other contextual properties. Let us focus

on one set of influences here, which is due to the simple but important fact that

organizations are embedded in larger and wider societal collectivities. They may

even be embedded in more than one collectivity, particularly when they are

multinational companies, notably when these follow a transnational strategy

(see Chapter 2). It is easy to imagine what these factors are: work and leisure

rhythms (national or regional holidays), accounting systems, technical standards

and norms, education and training systems, systems of conducting industrial

relations between employers or management and employees and even organiza-

tional practices themselves are to a large extent shaped by laws, collective agree-

ments, other formalized norms, or strongly rooted habits and preferences.

Two major entries into cross-national differences

What is the best way of pinpointing, locating and explaining such influences?

We can tackle the problem in two ways: we can either assume that differences

are located in the psyche of people, in the way they think and in the values

and preferences to which they adhere; or, we can focus on normative or

strongly rooted customs as constructs which are situated above the purely indi-

vidual level. The first option leads to a culturalist approach to researching and

explaining differences in organizations and human resources; they are rooted

in strong values and beliefs – a practice is sustained because people find it

repulsive, unethical or unappealing to do otherwise. The second option leads

to an institutionalist approach; people comply with norms because a wider

formal system of laws, agreements, standards and codes exists. Sometimes

people are coerced, directly or subtly, to follow such standards, sometimes they

are not.

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Integrating culturalism and institutionalism

Can these distinct approaches be separated from each other? Not really, if we

look closely at them. Pacifists with a sense of humor used to say: Think what

would happen if a war were to break out and nobody went. Putting the issue

of pacifism or belligerence aside, this leads us to the following claim:

Collectively instituted traditions depend on legitimacy (people complying

because of ethical or utilitarian reasons), and they may evolve as a function of

this. Vice versa, people adjust their values and preferences to a collective frame-

work of norms. From a more academically rigorous perspective, Giddens (1986:

ch. 4) has made the point that individual behavior and social structure are

reciprocally constituted; it is impossible to imagine a normative custom, insti-

tuted to be more or less binding, as not being kept in place by acting

individuals. Likewise, individuals do not make behavioral choices without

regard for norms. Even if they make a habit of breaking them, this tends to be

for specific reasons, a reaction more or less typical of each individual in a spe-

cific situation. Indeed, this very challenging of existing norms and values may

in itself become institutionalized as an accepted tradition of dissidence.

The comparative researcher interested in theory complex enough to inte-

grate culturalist and institutionalist approaches into one conceptual body (like

the present author) will persevere with this argument. Such an approach will

then consider the construction of actors (people with values, preferences,

knowledge) and the construction of social and societal systems as reciprocally

related, to such an extent that they cannot be separated one from the other.

This is what constitutes ‘societal analysis’. Let us unravel it step by step and

continue, for the time being, along a more restricted and less sophisticated

track of reasoning. Let us decouple culturalist approaches (focused on the mind

of the individual as the place where differences reside) from institutionalist

approaches (focused on wider norms and standards supported or enforced by

institutional machineries). In this chapter we will focus mainly on institutional

approaches. In the next chapter, the culturalist approach will get the attention

it deserves. But do remember that when we are getting down to the nitty-gritty

of explaining why organizational and HRM practices differ in a specific

instance, it is fatuous to consider such approaches as competitors. Meaningful

differences require a combination of both.

Consider a simple example. Why is it that in all kinds of comparisons,

Germany always comes out (without presuming that this would be different

from Austria or Switzerland) as a society in which vocational education and

training is more than anywhere else provided in apprenticeship-type education

and training arrangements, linking training at work and at college in a gener-

ally ordained and sanctioned way? The institutionalists say that this is because

employers’ associations have always been singularly strong, and linked with

government, so that this fundamental pattern is enshrined as a public institu-

tion. Some of them will observe that a training focus on skills from the bottom

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up allowed German companies to follow a strategy of ‘differentiated quality

production’, combining rational industrial manufacture with quality and cus-

tomization of products and services. The trade unions then joined the band-

wagon, seeing that this produced lots of skilled workers, and this gave them a

more secure membership clientele than a system bringing forth greater numbers

of less skilled workers and white collar staff. On the other hand, the culturalists

will say that German culture places high esteem on well-trained specialists with

transferable skills, as indispensable elements in a ‘well-oiled machine’, which

can even go on working smoothly when managers and engineers neglect its

maintenance. From this perspective, it is the combination of the Hofstedian

dimensions of ‘Uncertainty Avoidance’ (doing things systematically to prevent

accidents, defects and confusion) ‘low Power Distance’ (technicians and engineers

respecting workers’ experience and having shared it as far as possible) and

‘Masculinity’ (work, getting stuck into it and comradeship as central interests

in life) that explains this phenomenon. Chapter 6 discusses the position of

Germany in the mapping of Hofstede’s work-related values.

Is it culture or institutions that determine what goes on? First, do not look

at any explanation as being deterministic. The conflict between institutional-

ism and culturalism, and related claims that one of them or the other is at the

root of things, is nothing but an academic job creation program. Second, link

differentiated theoretical perspectives. Only this will lead to a satisfactory

analysis. Happily, this is where the theoretically sophisticated scholar and the

down-to-earth management or business student or practitioner meet.

A brief primer on culturalism

For the moment, though, let us separate the institutionalist and culturalist

approaches for the purpose of discussion, but do keep their eventual unification in

mind. First, what does it imply to focus on the actor? Actors are human individu-

als or a whole collection of individuals. They can be defined either by common

characteristics (quasi-groups) or by integrated social interaction. Individual and col-

lective actors typically feature what may be called a ‘programming of the mind’

(including everything from articulate or tacit knowledge to emotions, gut reac-

tions, moral standards and rules-of-thumb). All these characteristics arise from

socialization processes which are similar for members of the same group.

Individuals may react in different ways to these processes, but even when they do,

they share a common perspective which provides guidelines for acceptable

responses. There are various possible commonalities that can be imagined: early

childhood socialization may have a distinctive pattern in a society; education and

school experiences differ from one country to the next; working careers are also dif-

ferent, exerting a socializing influence on the human mind even though they are

not necessarily labeled as education or training. In every example, a socialization

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process of a specific form and with a specific content contributes to the formation

of an individual identity that is typified by the way the individual mind works. This

approach is found in exemplary fashion in the work of Hofstede (1980; 2001),

which will be covered in greater detail in the next chapter.

This approach is called culturalist because culture is taken to represent a

specific programming of the mind. According to Hofstede, the effect of culture

extends from the level of the individual mind to characteristics of organization

systems and other structures. Individual mental programming has an influence

on the selection of system characteristics; it makes the individual choose

between alternative system characteristics, in conformity with his/her own

values and preferences. Such system characteristics will, in turn, stabilize or

reinforce a specific programming of the individual mind. A universal manage-

ment principle, for instance Management by Objectives, will be adapted to

existing mental programs and related system characteristics, thereby acquiring

a specific application – or even non-application – within the actor-and-systems

constellation of the society in which it resides.

Further examples can be mentioned and have been demonstrated by

Hofstede. Whether it be in the case of delegation or centralization of authority,

individual versus group work, number of levels in the hierarchy of authority,

the strength of the position of superiors, methods of motivation to work, com-

munication patterns or other organizational practices, in each situation a plau-

sible link between mental programs and system characteristics can be

demonstrated by cross-national comparisons. But note that mental programs

are definitely open to change. Hofstede has documented instances of what he

called value changes in great detail. The evolution of mental programs appears

to escape rational control by whichever actor. But this does not mean that

actors behave without rational reflection. They are shown to confront obsta-

cles, restrictions and opportunities; in so doing, they adapt the selection of

system characteristics to match mental programs. The social theorist Max

Weber called this value rationality: consciously weighing and selecting courses

of action according to compatibility with values.

Now Hofstede would be the last to claim that mental programs defy adapta-

tion to other influences as these change. Yet the conceptual focus is on the actor,

the preferred research method is one of value surveys targeting individuals, and

this has slanted the approach somewhat towards methodological individualism.

It is continuously on the look-out for individual mental programs to match

system characteristics, explaining systemic characteristics by social values.

The empirical justification of the

opposite: institutionalism

The opposite point of view would be that the mental program does not always

matter, but system characteristics do, and when they are reasonably stable and

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compelling, they can be addressed as institutions. Whether these would or

would not have given rise to the adaptation of mental programs is a secondary

consideration. The main point is that different rules of the game make indi-

viduals move in different directions, even if their mental programming is the

same. It may well be that different rules provoke the adaptation of individual

mental programs through a process of learning about context-specific factors

associated with success (such as physical well-being, social recognition, profes-

sional and social advances, and personal development).

Faced, for example, with organizational outcomes in Japan, compared with

other societies, such an approach would play down the role of Japanese culture

to the extent that this refers to individual mental programs and general sociali-

zation processes. Proponents would argue that the specificity of Japanese prac-

tices resides in a different construction of professional careers, labor markets

(lifelong employment), payment systems, industrial relations, etc. They would

argue that, if Europeans and Americans were to be transplanted into a Japanese

type context, they would reproduce or generate the same organizational

patterns. The outcome would have to be traced back to the institutionalized

rules of the game. Such proponents would also point to instances where

Japanese-type management and organization practices have been transplanted

successfully to other countries.

This institutionalist approach is very much in evidence in industrial socio-

logy or more narrowly sociological cross-national comparisons. It is forever on

the look-out for system characteristics to explain organizational outcomes,

whether mental programs are adapted in due course or not. The evidence in

favor of institutionalism is by no means weaker than that in favor of cultural-

ism. In their study comparing attitudes and social rules in similar US and

Japanese enterprises, Lincoln and Kalleberg (1990) came to the conclusion – sur-

prising to many but methodologically well substantiated – that work commit-

ment is not greater in Japanese workers, if measured as an individual mental

program. Differences in organizational commitment in practice are explained

by different rules of the game, rather than by ascertainable individual mental

programs. The authors do show how enterprises have to some extent adapted

towards congruence with cultural predilections, as they call it; but the main

factor is the design of system characteristics, and the role of culture is considered

to be indirect and additive. This should warn us against assuming that culture

is the fundamental determinant of international differences in management,

organization and human resources. Too many textbooks commit that fault.

But the gap between culturalism and institutionalism can be bridged in the

manner indicated by Crozier and Friedberg (1977) and Giddens (1986),

through what the latter called structuration theory. This is an erudite explana-

tion of how actors and systems constitute each other reciprocally. They are

simply two sides of the same coin. To examine an actor means discovering

systems (s)he has in mind and takes for granted; to examine a system means to

discover the precise meaning that actors give it.

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3 AN INSTITUTIONALIST INTERPRETATION OF

ORGANIZATIONAL STRUCTURES AND HRM

Let us consider the institutionalist empirical fundamental concept that

emerges from cross-national comparisons, and let us begin by the organization

of production units. First, only those comparisons are pertinent here which

highlight differences that cannot be attributed to different goals, contexts,

environments or strategies of enterprises. Our interest is focused on differences

that cannot be attributed to common explanatory variables in organization

theory, such as technology, firm size, products made, innovation rates, vari-

ability of products made, ownership, etc. Intriguing differences are those which

arise despite similarities in the factors just mentioned. In which ways do actors

and systems differ, even when the organizations are of the same size and make

the same product, with the same technology, for similar types of clients?

Primary and secondary production processes compared

The following emerged when the administrative structures of manufacturing

sites that are similar regarding size, technology etc. were compared in three

countries – France, the UK and Germany. Table 5.1 summarizes a number of

quantitative measures describing the shape of organizations. The data were first

published by Maurice et al. (1980), reformulated by Lane (1989: 51), and refor-

mulated again by the present author. Interestingly enough, although the mate-

rial is far from recent, subsequent comparative studies controlling for size,

technology, strategy and other task environment or contextual properties, have

not changed the picture (Maurice and Sorge, 2000). Whilst organizational

change has of course occurred, differences between countries have proven

rather robust.

Most of the variables are expressed as percentages, ratios or index values.

The differences between the countries were usually in the order of 10–20 per-

centage points, which is quite a lot, bearing in mind that we are dealing with

organizations that do basically the same thing. German sites came across as

having laterally ‘lean’ and structurally simple designs, the hierarchy being strong

but flat. There was a tendency to restrict the growth of any component that is

separate from direct production and the line of authority. French organizations

tended to have tall hierarchies with large numbers of people in managerial,

supervisory, administrative and specialist positions. British firms tended to have

medium-sized components on most counts, except that they had the smallest

numbers of people specifically classified as having line authority.

Such differences went hand in hand with striking contrasts in labor con-

trol, management control, payment systems, industrial relations, work careers,

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HRM policy, competence requirements for jobs and vocational education and

training. German organizations put the emphasis on extensive vocational

training for most of the employees and positions, continuous development of

vertically differentiated qualifications (further education courses building on

more basic ones and occupational practice), and stability and autonomy of

people in their jobs, within a fairly tight and coherent overall scheme. French

organizations emphasized learning by hierarchical advancement, qualification

and career distinctions, upward mobility and restriction of autonomy, all

within a complex and centralized scheme. British organizations were more

loosely coupled amalgamations of components, each with its own identity and

displaying a number of status, career and qualification differences between

them, but held together by generalist management.

Similar and related differences have tended to crop up time and again,

whenever organizations in similar situations were compared in the three coun-

tries (Lane, 1989). These attest to sizeable contrasts in the way European coun-

tries train people, organize units, pay employees, set up work careers and labor

markets, and so on, although the nature of the task in hand is fairly similar.

Such comparisons also showed that people working in organizations had dif-

ferent ideas about what kind of arrangement was ‘natural’, self-evident or ideal.

Germans seemed to appreciate professional autonomy in a well-oiled, produc-

tive machine. British employees appeared to strive for individual and group

prerogatives, and the possibility of negotiated compromise between different

interests. The French invariably seemed to go for detailed and complex

schemes that permitted sizeable inequalities while allowing extensive upward

mobility and fixed individual rights while buttressing the exercise of authority.

Such differences are even more striking when European and Asian organi-

zational and HRM policies and practices are compared. A case in point is the

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Overall view of administrative structures of production plants in the UK, Germany and France

Low Medium High

Tallness of hierarchy D UK F

Functional differentiation D UK F

Share of white-collar employees D UK F

Supervisory span of control D UK F

Administrative and commercial personnel/workers D UK F

Authority positions/workers UK D F

Authority positions/white-collar workers UK F D

D, Germany; F, France; UK, United Kingdom.

TABLE 5.1

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classic study by Dore (1973) on highly similar British and Japanese electrical

engineering enterprises. The major conclusion of this study was confirmed

time and again by subsequent research. All of this shows that there are a

multitude of ways to achieve the same industrial, or service production, task.

The multiplicity is rooted in institutions of vocational and general education

and training, standard organizing practice, industrial relations, labor markets,

social stratification and mobility, occupational profiles, relations between men

and women. Structures and people’s expectations differ a great deal from one

country to another. What is more, differences along such lines are systemati-

cally interrelated. This is institutionalism in a nutshell: stable and interrelated

patterns prevail over time; any educational or training arrangement will be

interdependent with a corresponding organizing, industrial relations, occupa-

tional structure, social stratification etc. arrangement. They tend to come

together.

Structural interrelationships as foci of institutionalism

Let us now discuss a number of findings in the light of institutional theory, to

continue the analysis of Table 5.1. We tried to sum up the institutional inter-

relationships of France, Germany and the United Kingdom in a set of three

law-like statements focusing on the interdependence of the organizational and

the human resources dimension (Maurice et al., 1980: 80ff.). These focus on

in-plant organization and human resources structures:

1 The higher the practical professionalization of workers, technical employees

and supervisors and managers, the less technical and authoritative tasks are

split off from shop-floor roles and organized into differentiated jobs, and the

less such activities are differentiated internally in the white-collar area. This

relationship explains how different measures for job specialization,

organizational differentiation and professionalization in the three

countries are obtained. France exhibits the greatest amount of speciali-

zation and differentiation, and the smallest amount of practical pro-

fessionalization; Germany has the smallest amount of specialization

and differentiation, and the greatest amount of practical professionali-

zation; the UK is somewhere in between. The professional autonomy

of shop-floor production workers is most highly developed in

Germany, and production management is therefore more technical

than command-centered.

2 The larger the discrepancy in training and competence between production

and maintenance components of the shop-floor, the greater the separation

between production and maintenance activities and careers. This combined

organizational and human resources effect is strongest in the UK. This

society has brought forth a characteristic difference between the

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autonomous maintenance craftsman and the production worker as a

more restricted and less responsible worker. This effect lays the basis for

functional, human resources and career differentiation ‘higher up’ in

the pyramid of the enterprise, between line and staff personnel, job

categories and careers. Hence:

3 The greater the human resources and career differences between managers and

technical experts, the greater the differences between line management and

specialist functions. This ‘lateral’ differentiation is very strong in the

United Kingdom, intermediate in France and smallest in Germany. As a

result, managerial authority is most isolated from technical responsibil-

ity in the UK, whereas the two are most intimately linked in Germany.

The British manager is more of a pure, or general, manager, whereas the

German manager is more of a technical (or commercial, or administrative)

leader. Leadership implies joint involvement in similar tasks, whereas

management means a separation of operative and managerial tasks.

Differences between societies, as summarized in the three hypotheses above,

are re-created even in the midst of technical and economic change. Post-1977,

all three countries introduced computer numerically controlled (CNC)

machine-tools in factories on an increasing scale. This made it easier to com-

bine automation with productive flexibility, and to let shop-floor workers share

in work planning and programming tasks, more than under previous forms of

automated metal-cutting. Yet the precise impact of such new machines

depended less on the potential of the technology itself and more on the con-

tinuation of previously existing characteristics of the various dimensions.

German companies accordingly exploited the potential for ‘shop-floor pro-

gramming’ of machine tools more purposefully than British companies (Sorge

and Warner, 1986), and French companies continued earlier patterns of hier-

archically more differentiated human resource generation, work organization

and internal labor markets (Maurice et al., 1986). This illustrates the non-

identical reproduction of actor/systems constellations put forward. There were

changes, to be sure. French companies adopted a policy of recruiting and train-

ing a higher caliber of metal worker, but they were taken on in addition to

workers with less training, so that the received hierarchical differentiation

patterns were preserved. Similarly, although British companies invested more

in skilling direct production workers, the investment mainly targeted more

restricted ‘company skills’ rather than the broader apprenticeship skills linked

to maintenance craftsman status.

Institutionalism and technological innovation

The relevance of such institutions in the midst of dynamic change has also

been shown. A case in point is the differential evolution of the French and the

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German machine-tools industries. Actor-systems constellations better prepared

German industry for developing and manufacturing universal, flexible CNC

machines and control systems, giving them a better position in the machine-

tool market and leading to better outcomes in terms of market share and

employment. The French machine-tool industry entered a severe crisis and

shed employment on a larger scale after a series of redundancies, bankruptcies

and take-overs by competitors from abroad. Interestingly, the French manu-

facturers that survived or did better were those which produced more single-

purpose CNC machines. French industry had already possessed more

manufacturers of single-purpose machines, whereas German industry had pre-

viously been stronger in universal machines.

In Germany, success was attained through the manufacture of universal

machines, while France achieved it by manufacturing single-purpose machines

of a more specialized kind. And this was valid both for the period preceding

and for the period after the rise of CNC as a major metal-cutting innovation.

All this attests to the reproduction of institutional patterns, even when the up-

and-coming innovation is basically the same everywhere, and even when a

large number of technical, industry structure, human resource and organiza-

tional changes are in evidence. The simple fact is that such changes are not

quite the same in every society, even when they are technical. International

state-of-the-art technology, management practice or other novelties are

adapted and internalized into the existing institutional patterns. They there-

fore exhibit change to the same extent as continuity (see Maurice et al., 1988).

The importance of institutionalized settings has also been documented for

the patterns which specifically apply to R&D departments in the electronics

industry. Multi-specialization in Japan favors applied market and production

research and development. Conversely, the fragmentation of organizations and

careers and the generalist approach to engineering in France favors a high cali-

ber of basic research and development which is more decoupled from produc-

tion implications and marketing concepts. Hence, the internationalization of

competition and the advent of a similar basic technology may imply that enter-

prises in different countries develop different strengths and weaknesses, focus

on different market segments and localize different functions in different coun-

tries. Although there is ‘institutional learning’, whereby firms in one society try

to emulate ‘best practice’ from another country, this does not mean that the

practices they arrive at remain the same. Even when firms and societies do learn

from each other, internationally, they will usually achieve comparable perfor-

mance outcomes in ways which are institutionally different. This is illustrated

by the contrast in the institutionalized methods employed by the Japanese and

German firms to ‘mechatronize’. In the Japanese case, the internal labor market

and interprofessional job chains are central; in Germany, professionalized

multi-specialization and an inter-firm labor market remain important.

What kinds of outcomes firms achieve, how successful they are in which

market segment or activity, can then be explained by the society in which they

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are embedded. The same point was made for the evolution of the automobile

industry in the major manufacturing countries. There has been a further

segmentation of market segments; and which kinds of manufacturers did well

in which kinds of segments is explained by the societal setting which they

already inhabited. Of particular importance, again, are the above-mentioned

dimensions of organization, human resources, labor market and industrial

structures (Streeck, 1992: ch. 6).

Broadening institutionalism across levels

in the socio-economic order

The examples show how we can extend an analysis initially focused on the

more ‘micro’ setting of relations within plants and within enterprises to take

account of more ‘macro’ settings. To recapitulate how this works, let us take a

simple example from the intra-European differences mentioned above, in Table 5.1.

French job and managerial hierarchies are more finely graded than German

ones; this goes with a more detailed subdivision of labor and therefore

narrower job content; this is the corollary of lesser job enrichment by apprentice-

ship training; the greater gap between vocational education at school or college

and the world of work gives rise to the necessity to develop practical compe-

tence gradually, and this is done precisely by slotting people into more specific

jobs when they come from school or college; hierarchies are accordingly flatter

and heavier at the bottom in Germany, whereas they are taller and heavier

around the middle range in France. This set-up in France also means that

upward socio-occupational mobility is higher throughout France. This is

clearly inevitable if we think through the differences already identified: where

the point of gravity is higher in the hierarchy, there is greater space for

climbers! We can see that a detailed comparison along a multitude of dimen-

sions then makes specific results ‘fall into place’. They do this because differ-

ences across different dimensions ‘hang together’, i.e. they cohere. On this

basis, we can more or less predict what happens if, say, Germany were to reduce

the practical orientation of occupational training and its embeddedness in or

close to work settings; it would move closer to a French institutional profile –

if nothing changes in France.

In research, such differences have been attributed to government law, col-

lective agreements, custom and practice, financial incentives and restrictions,

ideologies, symbols, preferences and social values. In the case of the chemical

production units discussed above (Maurice et al., 1980), it emerged that they

themselves had already investigated the extent to which their structures dif-

fered and could be assimilated. The managers of the sites had been baffled by

the number of differences that were impossible to overcome. They had also

concluded that there was no real need to assimilate structures and practices,

since they were able to achieve comparable performances in strikingly different

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ways. Let us see how the ‘macro’ end of institutionalism can be formulated, as

an attempt to systematize institutional differences between socio-economic

settings.

Conceptually most comprehensive are the typologies provided by Richard

Whitley (2002) who follows an institutionalist approach to map differences

between societies. Everything hinges on the term business systems, and a business

system is that collection of institutions in an economy and society that serve to

shape economic transactions, cooperation and control inside and between busi-

ness organizations, including associations, trade unions, governmental agencies

and other non-enterprise organizations. The primary characteristics of business

systems are shown in Table 5.2, following Whitley (2002: 179).

Business systems are therefore not only characterized by typical ways of

organizing and generating human resources in enterprises. They include

market structures, property and industrial relations, at lower and higher levels

of aggregation. In this respect, the business system literature overlaps with the

‘varieties of capitalism’ literature, and it is notably important for human

resources through the link with industrial relations (cf. Chapter 16). The busi-

ness systems concept allows us to extend comparisons to levels above and

beyond the primary cores of organizations, into governance and industrial,

political and wider social structures. The following typology puts forward link-

ages between different institutional dimensions.

• Fragmented business systems are dominated by small owner controlled firms

engaged in adversarial competition. Short-term results orientation abounds,

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Characteristics of business systems

A Ownership relations

1 Primary means of owner control (direct, alliance and market contracting)

2 Extent of ownership integration of production chains

3 Extent of ownership integration across sectors

B Non-ownership coordination

1 Extent of alliance coordination of production chains

2 Extent of collaboration between competitors

3 Extent of alliance coordination across sectors

C Employment relations and work management

1 Employer–employee interdependence

2 Delegation to, and trust of, employees (Taylorism, task performance

discretion, task organization discretion)

Source: Whitley, 2002: 179

TABLE 5.2

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and along with this a pronounced flexibility to convert the firm from one

product or service to another. The exemplary instance is Hong Kong.

• Coordinated industrial district business systems exhibit greater links

between competing firms and/or in the industrial chain, and across sec-

tors. Economic coordination is more geared to long-term perspectives,

and cooperation, commitment and flexibility are emphasized in the

sphere of work relations and management. But economic coordination

is not necessarily achieved via trade unions. Examples are Italian indus-

trial districts or other regional districts in European countries.

• Compartmentalized business systems feature large enterprises which integrate

activities between sectors and in the industrial chain, also through share-

holdings, but there is little cooperation between firms, and in both com-

modity and labor markets, more adversarial competition or confrontation

abounds. Owner control is exercised at arm’s length, through financial mar-

kets and shareholding. Firms are islands of authoritative control in a sea of

market competition. This mainly occurs in Anglophone economies and

societies, i.e. countries which have been part, colonies or dependent territo-

ries of the UK and populated more extensively by European immigrants.

• State organized business systems may be more or less socialist, but they

are in both cases dependent on state coordination and support, to

integrate across and within production chains and arrange corporate

governance. Where state organization occurs in a capitalist order, it

may even entrench family ownership of firms, through the support it

extends. Prominent examples are France in Europe and Korea in Asia.

• Collaborative business systems depend on substantial associative coordina-

tion (through industrial, employer and employee association and quasi-

government of the economic order by semi-private organizations such as

chambers). In such societies, credit financing of enterprises, alliances of

share ownership rather than dispersed ownership, long-term interests,

and generation of relative trust between actors of different types tend to

reinforce each other. Prominent examples are to be found in Western

Continental Europe, in both German-speaking countries and Scandinavia.

• Highly coordinated business systems have alliance forms of owner control

and, in addition, extensive alliances between large companies, which

usually are conglomerates, and a differentiated chain of suppliers.

Employer–employee interdependence is high, and a great part of the

workforce is integrated into the enterprise in a more stable way. Japan is

the model example for this.

Such a typology leads to further explanations of interaction between the

dimensions of business systems (see Whitley 2002 and other literature quoted

therein, by the same author and others). Our comparison of France and Germany

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can be extended in business system terms. In France, more of a state organized

business system, corporate governance and social relations in the enterprise

were to a greater extent influenced by templates taken from the public sector

into the rest of the economy. Hence, vocational education and training became

public domains. Corporatist economic governance in Germany, however, in a

collaborative business system, resulted in the establishment of basic vocational

education and training as both a private enterprise and public education mat-

ter, governed by employers and trade unions in conjunction with the govern-

ment and executed within enterprises according to generally applicable

schemes.

In order to properly analyse and explain any given country’s profiles, the

types presented usually have to be combined. Societies are usually mixtures of

differently weighted types applying to a greater or lesser extent in specific sec-

tors or regions. It is not the only typology that we have, either. Just as Hofstede’s

culture dimensions have competitors presented by other scholars, so are there

other typologies of business systems. In organization studies, however,

Whitley’s is the most frequently used and most differentiated one. We have to

realize however that such typologies are very crude. They explain in what way

Korea is different from Japan, or France from Germany, or many societies from

Britain and the USA. But countries and business systems change over time, and

there are more specific differences, say between Sweden and Germany, France

and Belgium, or Singapore and Hong Kong, which the interested observer or

practitioner will find hard to derive from such a typological scheme.

In the last instance, any such typology, or map of cultural dimensions for

that matter, is a bit like a Swiss knife: a fairly universal and supposedly all-

purpose tool, which allows you to do many essential (cutting, filing, screwing

etc.) jobs in an elementary way. It fails on more demanding jobs, but it does

point the way to more specific tools and you are best advised not to leave home

without it. There are no limits to refining business system typologies. Their

value lies in forcing us to state linkages between different institutional domains

which have the effect of tying dynamics in one institutional domain to those

in others. That institutions in different domains evolve in their inter-

relationships is fairly indisputable. But how this happens is still a rather tricky

issue.

4 SOCIETAL ANALYSIS BEYOND THE

INSTITUTIONALISM–CULTURALISM SPLIT

After discussing examples of the institutionalist approach in some detail, this

section presents a simplified summary of societal analysis as a way of integrating

institutionalism with culturalism. It is proposed that this framework will be

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useful when tackling more demanding problems of comparing and explaining

organizational and HRM practices between countries, as well as between

different subsidiaries of MNCs. The classic example of the approach can be found

in Maurice, Sellier and Silvestre (1982), which analysed a Franco-German com-

parison reported in greater detail by the same authors in 1977. This compari-

son focused on four dimensions of the wider social, economic and political

spheres of society:

• organization of work and of the enterprise;

• human resources, education, training and socialization;

• industrial and sectoral structures, and relations between such industries and

sectors;

• labor markets, as the sum total of events and arrangements which constitute

the exchange of labor power for an equivalent, such as intrinsic satisfaction,

social affiliation or (last but not least) money.

As we can see, Whitley presented a different set of salient dimensions, which

is more detailed on aspects pertaining to coordination of economic activities

beyond and above firms, and the structure of interests within and behind this

coordination. But no set of dimensions should be taken as set in stone. The

main thing is to start with a refined set of functions which can be separated

analytically. The more comprehensive and detailed this set is, the better.

Central tenets of societal analysis

The intention is not to define a rigid decomposition of society and the econ-

omy into subsystems. The precise structure of the subdivision is not central; it

has been derived in a fairly pragmatic way. The important thing is to grasp the

relationships between arrangements across any classification scheme. This

means that it is important to explore the societal aspect of any social, economic

and political phenomenon we are concerned with. This definition of society

does not set society apart from the economy, or the polity, or what have you.

Societal analysis is concerned with lateral, reciprocal, relations between any of

the aforementioned dimensions. In a nutshell, this means that what happens

in a specific sphere, be it technology, social stratification, labor markets, enter-

prise organization etc., has to be explained with reference to a set of cross-

relations with as many other spheres or dimensions as possible. This is also

what Whitley proposed in his typology. In addition to such functional cross-

relations between different functional spheres of human life in society, there

are two other types of cross-relations: between actors and systems; and between

actor-systems’ constellations at different points in time. Let us look at each of

these three cross-relations in more detail.

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Reciprocal interdependence between dimensions

The first central tenet of the approach is that characteristics of any of the four

dimensions mentioned above are related to specific, parallel characteristics of

every other dimension. This means that specific patterns of work organization

and enterprise structures are linked with specific patterns of human resource

generation, of industrial and sectoral structures, and of industrial relations.

What happens in one dimension has implications for what happens in the

others. If a society, for instance, shows a tendency to deepen the hierarchical

differentiation of enterprises, there will be a related differentiation with regard

to human resources and in industrial relations structures, and it will also be

related to the importance of concentrated industries in that society. The impli-

cation is that such characteristics are specific to a society, and the identity of

the society is constituted through stable couplings of characteristics across the

dimensions mentioned.

This is the more static aspect of the approach, or the ‘comparative statics’

as Whitley would call them, meaning that any feature and change on one

dimension will be linked with those features and changes on other dimensions

that the typology and its inherent statements about association predicts. Such

comparative statics summarize features and associations that are relatively

stable over time. If work is organized in a particular way, this will be interdepen-

dent with related human resources, industrial-sectoral and industrial relations

patterns. Note that it is not a one-way determination or causality which is

implied, but rather a reciprocal interdependence between dimensions of social, eco-

nomic and political life. It has been suggested that, for instance, vocational

education and training patterns ‘explain’ organizational characteristics. But

this is not the way the approach should be understood. Its proponents insist

on interdependence rather than dependence.

Complementarity of opposites

The second basic tenet deals with the actor–systems interdependency men-

tioned above: actors reproduce characteristics on any dimension of society, and

the interrelations between such dimensions. This happens because structural

properties and rules of the game, that is, the ‘systems’ properties, tend to load

the individual ‘choices’ that actors make in a specific way. It also happens

because the actors learn to see particular ‘choices’ as generally favorable, and

develop a specific ‘programming of the mind’. The emphasis is on the inter-

active relationship between systems characteristics and mental programming.

As we can see, this establishes a link with culture. We now see institutions

created, modified or held in place through the mental programming of actors;

and we also see the latter as emerging through the confrontation of actors with

fairly stable and robust patterns.

Note that the interactive relationship between actors and systems may be

marked by both correspondence and opposition: faced with hierarchical organi-

zation patterns, the actors may learn to internalize corresponding assumptions

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and find them legitimate. But they may also develop a dislike for them, and

attempt to evade them while trying at the same time to comply with them.

This means that expressed value preferences and manifest behaviors may con-

verge and diverge. Under this tenet, the emphasis is on the complementarity, or

mutual affinity, of opposites. Here, we see dialectical theory-building at work.

This is something that business system theorists such as Whitley do not favor.

But it is inevitable once we appreciate the role of human actors.

Dialectics in actor–systems relations

The example of Japanese workers given by Lincoln and Kalleberg (1990), and

mentioned above, illustrates the point about complementary opposites: the

Japanese do not view the company more favorably than the Americans, but

the social rules of the game load their behavioral ‘choices’ towards manifest

company loyalty, even if they hate it. Similarly, surveys tend to show that

German workers in no way attribute greater importance to the work ethic,

work discipline and the centrality of work in life; the reverse is usually true.

Yet it is a well-known cliché that Germans work hard and maintain work dis-

cipline. Is this all nonsense? Germans work comparatively few hours per year,

on average, and have fewer working years per lifetime than workers in most

other countries; this would make us believe that at least part of the cliché is

nonsense. On the other hand, company studies do show work discipline in

operation. However, its persistence is due to the construction of social rela-

tions in the workplace and the employment sphere, which is also reflected in

the ‘mental map’ of the individual of legitimate and advantageous expecta-

tions, forms of behavior and outcomes. The simple fact is that Germans tend

to hate work and yet comply with the ground rules of the workplace because

they appear legitimate. This may culminate in a love–hate relationship as a

common phenomenon. Anyone who has seen Germans work will find the

interpretation entirely plausible.

Not the mental maps of individuals, nor their values, nor the system

characteristics to which they attach themselves, nor the relations between

them can ever be free of conflict or contradictions. Conflicts and contradic-

tions, between values and between institutional arrangements, and between

values and institutions, exemplify the necessity to use a dialectical perspec-

tive. Social systems at every level are simultaneously closed, naturally evolv-

ing and open. Similarly, complete societies are even more strongly marked by

closure, natural evolution and openness, all at the same time. A dialectical

perspective emphasizes that openness goes with conflict. Together, these

account for the ever-present tendency to change and modify in ways that go

beyond the relatively stable patterns put forward in the first two tenets of

societal analysis. This transcendence (meaning going beyond the present

state and characteristics of a system) has an uncomfortable habit of blurring

unequivocal statements about stable linkages, such as expressed in Whitley’s

types and the earlier statements about relations between organization,

human resources and other factors.

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Non-identical reproduction of comparative characteristics

Once we have acknowledged the dialectic tension between culture and

institutions, actors and systems, we go beyond the ‘comparative statics’ inherent

in business system thinking. This brings us to the third tenet, which is concerned

with the dynamics inherent in business systems. Comparative statics presume

an equilibrium which systemic arrangements strive towards. Dynamics however

imply disequilibrium, i.e. the unsettling and decoupling of associations inher-

ent to business system types. In such a dynamic perspective, a new equilibrium

emerges. But dynamics do not boil down to everything changing in a haphaz-

ard, totally unpredictable fashion. Next to change there is always continuity,

and the two are ingeniously intertwined. Continuity means that previous char-

acteristics are reproduced in novel forms. This leads us to define the reproduction

of characteristics on every dimension mentioned, and their interrelations, as

non-identical. Let us take a simple example. Until the mid-1960s, the prevalence

of greater numbers of skilled workers in German factories went hand in hand

with much more restrictive access to selective secondary education; more young

people went into apprenticeships, rather than going to selective secondary

schools. In France, access to selective general education was more generous, but

fewer people went into apprenticeships or vocational education.

The example may be taken to imply that, if selective secondary education

in Germany is expanded, this will mean greater convergence with French

patterns, and a concomitant reduction of apprenticeship as a major socializing

arrangement. That would have been change, but comparatively static change

and not dynamic change. But things do not only work in a comparatively

static way, which is evidenced by the fact that what happened in Germany was

different. What Germany got was an increase in secondary education before

apprenticeship, such that growing numbers of ex-grammar school and

secondary modern or secondary technical school (Realschule) graduates took up

apprenticeships. The change was that the sharpness of the ‘choice’ between

selective education and apprenticeship training had been reduced, but earlier

patterns had been reasserted, since apprenticeship continued to be an attrac-

tive education and training choice. Change and continuity are thus united in

the non-identical reproduction of previous patterns. And this is what we tend

to find in other instances of change in other settings too.

Let us consider parallel developments in France. It has greatly increased

the status and quantity of vocational education, but mainly by upgrading voca-

tional schools and diplomas. It has made vocational education more attractive

by giving it baccalauréat (exam and diploma to certify successful termination of

selective secondary education) status, and other measures. But training by

apprenticeship has continued to dwindle. Thus, France has also changed

significantly. But it has asserted the particularity of its own education and

training arrangements in a way which is parallel to Germany and nevertheless

different.

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Note that convergence between France and Germany is tricky. Of course,

there was technical and educational upgrading in both countries. And yes, the

time pupils or trainees spent at school or college to undergo education or train-

ing increased. Furthermore, there was an emphasis on obtaining more versatile

human resources in both countries. But institutionally, the new education and

training regimes are still rather different. On this count, convergence did not

occur. From this outcome, we learn something very important: novel educa-

tion and training arrangements, and conceivably just about any other new

arrangement, are distinctive for their creative combination of old and new

patterns. This is evolutionary dialectics within dynamic change; the novelty of a

new arrangement lies in the re-combination of received patterns with new ele-

ments. This insight can be generalized and leads to the notion that full ‘con-

vergence’ hardly ever takes place; since any change tends to consist of

non-identical reproduction, convergence can only be partial and will be

balanced by divergent developments.

5 GLOBALIZATION, EUROPEAN INTEGRATION

AND INSTITUTIONAL DIFFERENTIATION

More recently, globalization has been widely discussed. The issue is where, in

which respect and to what extent convergence of everything mentioned in this

chapter (values, institutions, markets, strategies) is occurring or will occur. It is

impossible to deal with the topic reasonably competently and in detail in the

final section of this chapter. However, let us suggest what might happen on the

basis of societal analysis. It argues, as the end of the last section showed, that

internationalization and universal technical change lead to different outcomes

in each society. Any convergence will be balanced by divergence.

Convergence and divergence combined

This is what emerges from a societal analysis of actors and systems embedded

in contexts which are invariably local, in addition to international. But there

is another aspect regarding changes in whole populations of organizations,

rather than changes in the behavior of existing organizations and other exist-

ing actors. Internationalization of economic exchange also entails an intensifi-

cation of the international division of labor. Countries have come to specialize

in sectors, industries, or their segments, or in product-market combinations.

When they do, the implication is that the properties of business systems may

become more locally specific, rather than following a more international

model. Consider the example of different evolutions in the French and

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German machine-tools industries described earlier, as a case in point: the two

national industries have come to specialize in different types of machines, and

hence the organization and human resource patterns they have come to

acquire must be expected to differ more in the current environment than in

the more distant past.

How the division of labor between countries develops can only be

explained by reference to societal characteristics that are relatively stable, even

in the midst of change. This change triggers development of societal specificity,

rather than bringing about convergence between societies. That is also the clear

message which the approach offers to all those who think that European inte-

gration will reduce the differences between separate European countries. Such

a message suggests that societal analysis will continue to be relevant to any

exploration of the newly emerging sectoral, industrial and functional profiles

of different countries.

The approach even forces us to examine the possibility that societies will

grow increasingly different in their industrial and activity portfolio, because

the institutionalized constructions of their various systems already differed and

triggered specialization in the international division of labor. Therefore, insti-

tutional and cultural divergence is likely to be associated with growing speciali-

zation in the international division of labor. But to the extent that societies do

not specialize in different ways and firms try to achieve similar goals, it is more

a balance of convergence and divergence that would prevail, as explained

above; the international learning which takes place precludes direct one-to-one

transfer of practice. Local actors with specific mental repertoires and local insti-

tutions will always exert pressure in the selection, absorption and implemen-

tation of practices, in the direction of non-identical reproduction, which

means a balance of convergence and divergence.

A caution against taking new hype at face value

In contrast to this scenario, there are always statements which claim that now

things will be changing, because we are getting: automation/microelectronics/

biotechnology/fifth generation computers/artificial intelligence/shareholder

value orientation/globally integrated enterprises (delete where inapplicable).

Therefore, what we knew about differences between countries previously does

not apply any more and is superseded by a new and more universal scheme of

things. We must not be fooled by such statements. We have seen an unending

flow of innovation, technical, managerial or other, and every time any partic-

ular instance of innovation could be examined empirically in a methodologi-

cally controlled comparison, guess what the result was! It could usually be

summarized as a variant on this theme: the innovation became, in the course

of its diffusion and application in different societies, internalized into the

working of existing institutional mechanisms and subjected to the impact of

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actors’ values and other predispositions. And if people had absorbed societal

analysis properly, they would have known how to form realistic expectations

about how and why divergence or convergence were occurring. In conclusion

the following didactic statement is intended to encourage reflection and

analysis on the concepts developed in this chapter:

The extent to which any novel practice or protocol (technical, social, economic or

political) is diffused and applied in a societal (institutional and cultural) context in

which it did not originate, is a function of its mutual adaptation with regard to prac-

tices that predate its introduction.

This chapter has focused on institutionalist approaches to explain differ-

ences in HRM practices across countries. In the next chapter, we will focus on

culturalist approaches that attempt to do the same.

6 DISCUSSION QUESTIONS

1 Go back to Chapter 2 and recall combinations of global integration and local

responsiveness in multinationals. Discuss how multinationals pursuing different

internationalization strategies will or should deal with nationally diverse institu-

tions of organizing and building human resources.

2 A company asks you to provide consultancy on essential points to bear in mind

when trying to establish subsidiaries in the different business systems put for-

ward by Whitley. Make a checklist and provide recommendations.

3 Discuss the following statement: To maximize value for shareholders, it pays to

impose cutting-edge technology, organization and HRM practices in a uniform

way across all subsidiaries in different countries.

7 FURTHER READING

••

Hickson, D.J. and Pugh, D.S. (2001)

Management worldwide: Distinctive styles amid

globalization

. London: Penguin.

An accessible introduction to management and organization in many major countries, their

cultural and institutional particularities; also contains useful further references to country

monographs and comparisons.

••

Crouch, C. and Streeck, W. (eds.) (1997)

Political economy of modern capitalism

London, Thousand Oaks and New Delhi: Sage.

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This book provides recent, clear and authoritative accounts of varieties of capitalism or

business systems in major European countries and the USA. It is most specific on corporate

governance, industrial relations and national policies.

••

Maurice, M., and Sorge, A. (eds.) (2000)

Embedding organization

. Amsterdam: John

Benjamins.

The most up-to-date statement and critique of societal analysis, as a synthesis of culturalist

and institutionalist approaches, applied to various themes and countries. Recommended to

students seeking theoretical finesse.

••

Warner, M. (ed.) (2002)

International encyclopedia of business and management

8 volumes. London: Thomson Learning.

A major encyclopedia available in good libraries, with many entries on management in a great

number of countries, comparative entries such as those on Business Systems and

International Management fields.

••

Whitley, R. (ed.) (2002)

Competing capitalisms: Institutions and economies,

2 volumes. Cheltenham, UK and Northampton, MA: Edward Elgar.

This is the most complete, recent and authoritative collection of articles explaining how and why

business systems vary, and what the implications are. It is highly recommended for intellectu-

ally keen students.

REFERENCES

Crouch, C. and Streeck, W. (eds.) (1997)

Political economy of modern capitalism

. London,

Thousand Oaks and New Delhi: Sage.

Crozier, M. and Friedberg, E. (1977)

L’acteur et le système

. Paris: Editions du Seuil.

Dore, R. (1973)

British factory – Japanese factory: The origins of national diversity in industrial

relations

. London: Allen and Unwin.

Giddens, A. (1986)

The constitution of society

. Berkeley and Los Angeles: University of

California Press.

Hofstede, G. (1980)

Culture’s consequences

. Thousand Oaks, London and New Delhi: Sage.

Hofstede, G. (2001)

Culture’s consequences

. 2nd edition. Thousand Oaks, London and New

Delhi: Sage.

Lane, C. (1989)

Management and labour in Europe: the industrial enterprise in Germany,

Britain and France.

Aldershot: Gower.

Lincoln, J., and Kalleberg, A. (1990)

Culture, control and commitment: a study of work organi-

zation and work attitudes in the United States and Japan

. Cambridge: Cambridge University

Press.

Maurice, M. and Sorge, A. (eds) (2000)

Embedding organization

. Amsterdam: John Benjamins.

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Maurice, M., Sorge, A and Warner, M. (1980) ‘Societal differences in organizing manufacturing

units. A comparison of France, Great Britain and West Germany’.

Organization Studies

, 1

(1): 59–86.

Maurice, M., Sellier, F. and Silvestre, J.J. (1982)

Politique d’éducation et organisation indus-

trielle en France et en Allemagne. Essai d’analyse sociétale

. Paris: Presses Universitaires

de France.

Maurice, M., Eyraud, F., d’Iribarne, A. and Rychener, F. (1986)

Des entreprises en mutation

dans la crise: Apprentissages des technologies flexibles et émergence de nouveaux

acteurs

. Research report, Aix-en-Provence: Laboratoire d’économie et de sociologie du tra-

vail.

Maurice, M., Mannari, H., Takeo, Y. and Inoki, T. (1988)

Des entreprises françaises et japon-

aises face à la mécatronique. Acteurs et organisation de la dynamique industrielle

Research report, Aix-en-Provence: Laboratoire d’économie et de sociologie du travail.

Sorge, A. and Warner, M. (1986)

Comparative factory organisation. An Anglo German compar-

ison of management and manpower in manufacturing.

Aldershot: Gower.

Streeck, W. (1992)

Social institutions and economic performance. Studies of industrial relations

in advanced capitalist economies

. London, Newbury Park and New Delhi: Sage.

Whitley, R. (2002) ‘Business systems’, in A. Sorge (ed.),

Organization

. London: Thomson

Learning. pp.179–196.

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6 Culture in Management: the

Measurement of Differences

Laurence Romani

1 Introduction 141

2 Hofstede 144

3 Trompenaars and Hampden-Turner 150

4 Lane, DiStefano and Maznevski’s adaptation of Kluckhohn

and Strodtbeck 156

5 Summary 161

6 Conclusion 161

7 Discussion questions 163

8 Further readings 164

References 164

1 INTRODUCTION

In international management, the study of differences across countries has been

conducted from two complementary perspectives: cultural and institutional

theories. Both consider that diverging management practices are contingent on

the environment of the organization. While institutional theories have focused

on the institutional environment (e.g., labor laws, regulations), cultural theories

have investigated the role played by culture. The last chapter looked at institu-

tional theories, this chapter will focus on cultural theories.

CHAPTER CONTENTS

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Cultural theories generally adopt a definition of national culture inspired

by the everyday language: culture is the way of life of a group of people. There

are obvious differences between cultures (such as in dress, behavior and inter-

personal interactions) but also implicit differences (such as in values, assump-

tions about how things should be). These different degrees of explicitness are

often called ‘levels’ of culture. The superficial levels group easily observable

differences. The deepest level consists of the most implicit aspects such as

assumptions or expectations. Cultural theory studies rest on the hypothesis

that implicit differences in national cultural values or assumptions (the deep-

est levels of culture) are related to diverging managerial beliefs and actions

(Child, 2002). They provide tools in the form of cultural dimensions to under-

stand that employees’ cultural backgrounds may vary, and how they do vary.

These cultural dimensions are but one of the aspects influencing managerial

beliefs and behaviors. Other aspects include the type of political system in

which individuals were raised (for example a democracy or a dictatorship),

their religion, their education, their family’s values and their own life experi-

ences. Focusing on cultural dimensions provides the means for evaluating the

shared experiences of people who belong to that society. From this shared

experience they have acquired similar ways of knowing, thinking, as well

as values and assumptions regarding for example, how a manager should

behave.

This chapter focuses firstly on the study of cultural differences across coun-

tries that influence people in a work environment. It aims at presenting the

contemporary thinking about cultural dimensions which aid the understand-

ing and management of people from diverse cultural backgrounds. It will do so

by introducing both the current debate within the management literature on

the nature of culture and by discussing how cultural differences across coun-

tries are identified and their consequences for management.

The three studies reviewed in this chapter offer an example of significant

contributions to the positivist debate on the nature of culture. Hofstede presents

values as the core of culture; Trompenaars argues that meanings are the essen-

tial part of culture and Lane, DiStefano and Maznevski, claim that a culture is

best understood if we look at its value orientations. The distinctions between

values, meanings and value orientations will be progressively presented.

The second issue in the debate on culture’s influence on management

deals with the identification of cultural differences. Comparing cultures is a way

to make cultural differences emerge. This chapter reviews quantitative studies

that have chosen this comparative approach. Comparing cultures is a complex

task which first requires the identification of a number of universal dimensions

that are common to all cultures. Once these dimensions have been identified,

a comparison will be made of different cultures and how they vary on these

dimensions.

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Cultural differences

Cultural differences are significant differences which have been identified

across countries based on observed cultural dimensions. Quantitative studies

have involved questionnaires, responses for which are analysed at a country

level producing a national sample, which is analysed against and compared

with the other national samples. As would be expected, given the infinite

variety of the human condition, there are always variations within each

national sample. The resultant score of each country on each dimension is

expressed as the mean of the sample population.

Cultural dimensions display significant differences at the country level: the inter-

nal variations within each national sample (for example, differences between

generations, or between genders or professions) have been found to be not as

significant as the differences between the national samples themselves.

How to interpret country differences? If the USA scores high on indi-

vidualism, it would be a mistake to conclude that all North Americans are

individualists. It means that in this country, compared to other(s), an indi-

vidualist way of thinking can be expected and/or is accepted in the sur-

veyed population. However it needs to be noted that country scores do

not determine an individual’s actions; rather they may provide an indica-

tion to a foreign observer as to the possible behavior which may be

encountered.

This chapter focuses on the presentation of the definitions, the measure-

ments and examples of cultural dimensions that have been identified in three

significant cross-national comparative management studies. The conclusion dis-

cusses and summarizes the findings in this rapidly expanding field of research.

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143

Country A

Country B

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2 HOFSTEDE

Geert Hofstede’s Culture’s Consequences (1980, 2001) explores the differences ‘in

thinking and social action’ at the country level between members of 50 nations

and three regions. Hofstede originally used IBM employees’ answers to a com-

pany attitude survey conducted twice, around 1968 and 1972. The survey

generated more than 116,000 questionnaires, with the number of respondents

used in the analysis being approximately 30,000 in 1969 and 41,000 in 1973.

Hofstede identified and validated four cultural dimensions from respondents’

patterned answers. For each dimension, he presented possible origins as well as

predictors and consequences for management behavior.

Hofstede’s cultural dimensions

Hofstede’s first two dimensions echo the theories of ‘Power Distance’ (Mulder,

1977) and ‘Uncertainty Avoidance’ (Cyert and March, 1963). The third and

fourth dimensions are ‘Individualism versus Collectivism’ and ‘Masculinity versus

Femininity’. The fifth dimension, ‘Long-term versus Short-term Orientation’ was

subsequently developed from research conducted by Michael Bond to accom-

modate non-Western (Confucian) orientations and has been adopted from the

Chinese Culture Connection (1987) study. For each dimension, Hofstede con-

structed an index that enabled countries to be mapped according to their scores

(see Table 6.1 and Figures 6.1 and 6.2).

In the management context, the first dimension Power Distance refers to

the relationship between supervisors and subordinates. It reflects ‘the extent to

which the less powerful members of organizations expect and accept that

power is distributed unequally’. In organizations, an illustration of a high

Power Distance score is generally represented as a highly vertical hierarchical

pyramid. Subordinates are often told what to do and do not feel entitled to dis-

cuss their superiors’ decisions. High Power Distance also means that the higher

a person is in the hierarchy, the more difficult this person is to approach.

Barriers can be in the form of persons such as secretaries who serve as ‘gate-

keepers’ preventing access to the manager, or symbols such as the executive

dining room which is separate from the staff cafeteria. Low Power Distance

would be found in organizations with a flatter hierarchical pyramid.

Subordinates and superiors are in a more collaborative relationship and hier-

archy tends to be perceived as a distinction of task rather than of persons.

Uncertainty Avoidance. From the IBM employees’ responses, Hofstede found

that some questions provided an indicator of employees’ (in)tolerance of ambi-

guity. Hofstede defined this dimension as ‘the extent to which the members of

a culture feel threatened by uncertain or unknown situations’. He argued that

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TABLE 6.1

a high Uncertainty Avoidance is expressed for example, by a company’s need

for regulations which endeavour to minimize uncertainties in the behavior of

its employees. Company rules are seen as something that ‘should not be

broken, even when the employee thinks it is in the company’s best interest’. In

such an environment, work stress is often high. Conversely in a low

Uncertainty Avoidance work environment, work stress is lower as employees

seem to be less affected by uncertainty such as security of employment.

Individualism versus Collectivism. IBM respondents were asked to grade how

important work goals were for choosing an ideal job. In some countries, pre-

ferred work goals stress employees’ independence from the organization (like

‘freedom’ in the job, ‘work from which you can get a personal sense of accom-

plishment’) while in other countries, preferred work goals stress dependence

on the organization (e.g. ‘good physical working conditions: good ventilation

and lighting, adequate work space, etc.). Independence from the organization

was interpreted as an indicator of respondents’ individualism and they

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145

Abbreviations for the countries and regions studied by Hofstede

ARA Arab-speaking ECA Ecuador JPN Japan SPA Spain

countries

(Egypt, Iraq, FIN Finland KOR South Korea SWE Sweden

Kuwait, FRA France MAL Malaysia SWI Switzerland

Lebanon, Libya, GBR Great

Saudi Arabia) Britain MEX Mexico TAI Taiwan

ARG Argentina GER Germany F.R. NET Netherlands THA Thailand

AUL Australia GRE Greece NOR Norway TUR Turkey

AUT Austria GUA Guatemala NZL New Zealand URU Uruguay

BEL Belgium HOK Hong Kong PAK Pakistan USA United

States

BRA Brazil IDO Indonesia PAN Panama VEN Venezuela

CAN Canada IND India PER Peru WAF West Africa

CHL Chile IRA Iran PHI Philippines (Ghana,

COL Colombia IRE Ireland POR Portugal Nigeria,

(rep. of) Sierra

COS Costa Rica ISR Israel SAF South Africa Leone)

DEN Denmark ITA Italy SAL Salvador YUG Yugoslavia

EAF East Africa JAM Jamaica SIN Singapore

(Ethiopia,

Kenya,

Tanzania,

Zambia)

Source: Hofstede, 2001

3122 Ch-06.qxd 10/29/03 3:46 PM Page 145

preferred to be managed as individuals with acknowledgement of their

individual achievements. In contrast, respondents who chose work goals

dependent on the organization were seen as expressing collectivist characteris-

tics – a preference for being managed as a member of an in-group (the organi-

zation). Illustrations of Individualism in the workplace can be found in

employees’ preference to be able to work independently and to praise indivi-

dual decision-making. Collectivism can be seen in the preference for collective

organization of work and responsibility.

Masculinity versus Femininity. The second type of preferences emerging from

the analysis of work goals echoes gender preferences across countries. Males

tended to express preferences for assertiveness (‘high earnings’, ‘recognition

when doing a good job’, ‘challenging work to do’) whereas females tended to

express preferences for the interpersonal aspect of work (‘working with people

who cooperate well with one another’, ‘having a good working relationship

with your manager’). These differences relate to gender role patterns present

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FIGURE 6.1

COS

PAK

TAI

COL

IDO

VEN

ECA

GUA

PAN

Large Power Distance

Collectivistic

Large Power Distance

Individualistic

WAF

YUG

MEX

PHI

HOK

SIN

SAL

THA

CHL

KOR

PER

EAF

POR

GRE

MAL

TUR

BRA

ARA

IND

IRA

JPN

SPA

URU

JAM

ARG

SAF

ITA

NET

BEL

FRA

GBR

USA

AUL

Power Distance Index

20 30 40 50 60 70 80 90 100 110

CAN

NZL

DEN

IRE

NOR

FIN

GER

SWI

SWE

AUT

ISR

Small Power Distance

Collectivistic

Small Power Distance

Individualistic

Individualism Index

104

112

The position of 50 countries and three regions on the Power Distance and

Individualism–Collectivism dimensions

Source: Hofstede, 2001: 217

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in many societies. Consequently, Hofstede labels this dimension Masculinity

versus Femininity. This dimension expresses values such as assertiveness of the

person (Masculinity) and care and attention to the social surroundings

(Femininity). A masculine environment is generally presented as a place where

career success is an important motivation. Feminine environments are seen as

valuing the wellbeing and satisfaction of employees and tending to foster intu-

itive and consensus-oriented styles of management.

Long-term versus Short-term Orientation. A fifth dimension of national cul-

ture appeared in another study designed to counterbalance the potential

Western bias of the IBM questionnaire. In 1987 with the project Chinese

Culture Connection (CCC), Michael Bond developed a questionnaire repre-

senting ‘fundamental and basic values for Chinese people’. This questionnaire

was administered to students in 23 Asian and non-Asian countries. The statis-

tical analysis displayed four dimensions. The correlation between Bond’s and

Hofstede’s dimensions was substantial. One dimension, however, appeared

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147

FIGURE 6.2

Masculinity Index

Individualistic

Feminine

Individualistic

Masculine

Collectivistic

Feminine

Collectivistic

Masculine

10 20 30 40 50 60 70 80 90 95

Individualism Index

100

JAM

JPN

MEX

COL

EQA

PHI

HOK

MAL

SIN

PAK

IDO

PER

TAI

SAL

WAF

EAF

THA

KOR

GUA

PAN

VEN

GRE

ARA

BRA

TUR

IRA

URU

YUG

CHL

POR

COS

ARG

IND

ISR

SPA

SAP

GER

IRE

ITA

SWI

AUT

AUL

GBR

USA

NZL

CAN

FRA

BEL

DEN

NET

NOR

SWE

FIN

The position of 50 countries and three regions on the Masculinity–Femininity

and Individualism–Collectivism dimensions

Source: Hofstede, 2001: 294

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unique to the CCC study: the construct of Confucian Dynamism. Hofstede’s

interpretation of the two poles of this dimension is the unique importance

given to values ‘fostering virtues oriented toward future rewards’ (e.g., ‘persis-

tence, perseverance’) as opposed to values ‘fostering virtues related to the pre-

sent and past’ (e.g., ‘stability’, ‘respect for tradition’). Hofstede adopted this

cultural dimension as ‘Long-term versus Short-term Orientation’. Illustrations of

this cultural dimension are to be found, for example, in the management focus

or strategic choices of an organization. In a Long-term Orientation environ-

ment, building up a strong position in a market might be seen as preferable to

quick, short-term and temporary results. Such a management would persevere

in implementing a strategic plan over an extended time-frame A company’s

strategy might be to persevere in spite of initially slow results. Business in a

Short-term Oriented environment puts stronger pressure on organizations and

employees to perform well quickly. In addition, employees tend to be judged

and rewarded on the basis of their immediate achievements and not necessar-

ily on the basis of their long-term management.

Contribution to cross-cultural management

Undoubtedly Hofstede’s contribution to management is the fact that he could

identify cultural dimensions with hard data, make comparisons across coun-

tries and show culture’s consequences in managerial behaviors. Previously, cul-

ture was seen as vague and intangible, a soft dimension that couldn’t be

quantified nor measured. Hofstede influenced the way culture is perceived in

management: composed of recognizable dimensions, centered on values and

relatively stable over time.

Hofstede shows that national cultures contain at least five universal dimen-

sions. These dimensions are said to be universal because they appear to be

fundamental problems with which all societies have to cope. Power Distance

deals with human inequality, Uncertainty Avoidance with the level of stress

caused by an unknown future, Individualism versus Collectivism deals with

individuals’ relationships with primary groups, Masculinity versus Femininity

relates to emotional role differentiation, and finally, Long-Term versus Short-

Term Orientation deals with people’s choice of focus for their actions.

Cultural dimensions rest on value systems that are said to affect ‘human

thinking’. Culture is consequently presented as consisting of values, organized

into systems (dimensions). Hofstede’s definition of culture presents ‘traditional

(i.e. historically derived and selected) ideas and especially their attached values’

as ‘the essential core of culture’ (Kroeber and Kluckhohn, 1952: 181). Individuals

raised in a society have acquired components of the national culture and its

implicit values to which they are exposed from early childhood. Culture is

learned partly unconsciously; cultural values are deep-rooted. This is what

Hofstede calls the ‘mental programming’ that influences people’s thinking and

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action. He argues that this mental programming is at the source of differences

in management practices across countries.

Hofstede presents possible sources for each of the dimensions and

expresses his belief that ‘there must be mechanisms in societies that permit the

maintenance of stability in culture patterns across many generations’. He sug-

gests the following mechanisms. First, value systems have been influenced by

physical and social factors (e.g. climate, demography). These value systems are

then expressed as societal norms that help develop and maintain institutions

(e.g. family, social groups, religion). ‘The institutions, once established, rein-

force the societal norms and the conditions that led to their establishment. In

a relatively closed society, such a system will hardly change at all.’

Values, norms and behaviors

Cultural differences can be encountered at different levels: values, norms and

behavior. Behavior is relatively explicit, but the norm(s) or the value(s) on

which it rests are implicit.

Values are beliefs about what is desirable. These beliefs influence indi-

viduals’ decisions and behaviors. For example, a person values cooperation.

She has a belief that cooperation is a preferable alternative to competition.

Her belief might influence her behavior. She may try and create a collabora-

tive atmosphere at work or she may be involved in team work.

Norms express what is usually considered to be appropriate in a society.

They indicate to individuals what they must or should do. Norms link indivi-

duals to behavior and are implicitly justified by a value. For example, a norm

can be ‘children should be polite to their parents’. The norm expresses the

expected behavior (the set of politeness rules) of a group of persons (children)

to another group (their parents). The norm rests on the implicit value that

respect (displayed by politeness) to older generations is appropriate (adapted

from Triandis, 1972: 15).

Behavior is any form of human action. Values and behaviors are related.

However, the relationship between them is far more complex than causality.

If a person presents equality as an important value in her life, this does not

mean that all her actions will follow this value. One can expect nevertheless

a certain degree of consistency between individuals’ values and desired

actions.

Hofstede’s 1980 work has been abundantly reviewed and has received a

good deal of scrutiny. The critiques of Søndergaard (1994), and Boyacigiller

et al. (2002) encapsulate the most frequently raised criticisms. First, con-

cerns have been raised regarding Hofstede’s methodology (the use of a

survey questionnaire, the original IBM sample and a mismatch that can be

perceived between some dimensions and their measurement). A second

theme is the choice of nation to study culture (not respecting multicultural

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150

nations). A third one is the obsolescence of the data (collected between 1967

and 1973). Hofstede invited researchers to try and measure cultural dimen-

sions that would be theoretically and statistically independent from the

ones he developed. Candidates did try. The following sections will present

alternatives developed by various management researchers to Hofstede’s

model and their attempts to measure new (or complementary) dimensions

of culture.

3 TROMPENAARS AND HAMPDEN-TURNER

Like Hofstede, Trompenaars (1997) also proposed comparing countries using

cultural dimensions. He considers that each culture has to deal with several

‘universal problems’ and proposes three ‘problems’: social interactions, pas-

sage of time and relationship to the environment, that unveil seven dimen-

sions of culture (see Table 6.2). These cultural dimensions describe the

characteristics that each culture provides as answers to the three fundamen-

tal problems. Measurement of the cultural dimensions is based on the

responses of managers from multinational and international corporations

(circa 30,000 from 55 countries). For each dimension, Trompenaars and

Hampden-Turner give examples and expected consequences for management

and organization.

TABLE 6.2

Fundamental dimensions of culture from Trompenaars and Hampden-Turner

Fundamental problems Resulting dimensions of culture

Social interactions Neutral versus Affective

Individualism versus Communitarianism

Universalism versus Particularism

Achievement versus Ascription

Specificity versus Diffuseness

Passage of time Time orientation (past-present-future,

sequential and synchronic)

Relationship to the environment Inner versus Outer Directedness

Source: Trompenaars and Hampden-Turner, 1997: 8–10.

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Trompenaars’ cultural dimensions

Five of Trompenaars’ dimensions are an adaptation of the work of Parsons and

Shils (1951). The additional dimensions are based on research done by anthro-

pologists and psychologists on individuals’ perceptions of time (Hall, 1959) and

perceptions of the control they exercise on their environment (Rotter, 1966).

The dimension Neutral versus Affective is centered on the expression – or

not – of feelings in certain situations. Trompenaars measures this dimension

with questions such as ‘How would you behave if you felt upset about some-

thing at work? Would you express your feelings openly?’ Responses differenti-

ate respondents in each country. The resulting cultural dimension enables us

to recognize that in a certain country, emotions tend to be displayed together

with rational arguments. This might be confusing to people coming from a cul-

ture where people are not expected to express emotion but to provide rational

arguments with respect to work issues.

Individualism versus Communitarianism resembles Hofstede’s dimension on

employees’ independence from or dependence on their organization.

Trompenaars and Hampden-Turner however define the Individualism–

Communitarianism perspective of an individual’s primary orientation either to

the self or to common goals and objectives. The questions that were used to

measure this dimension (see Table 6.3) focus on the employees’ work environ-

ment and illustrate the impact of this dimension on the organization of work

and employees’ responsibility.

Universalism versus Particularism illustrates individuals’ attitudes towards

universal principles (e.g. telling the truth, following a rule). People can either

consider that principles apply whatever the situation, or that the specificity of

each situation determines whether one should apply them or not. Questions

used in the measurement (see Table 6.4) help understanding this dimension

and the alternative behaviors. The mini case study we discuss later in this chap-

ter (‘Annika faces divergent cultural meanings’) provides an illustration.

Achievement versus Ascription. Social status (e.g. being a manager) can be based

either on achievement (what people have accomplished by their own efforts) or

ascription (who they are). In a work environment oriented toward individuals’

achievement, employees tend to be judged on their performances. Successful

managers might reach top positions more quickly than in an ascription-oriented

environment. They are also expected to keep performing well in order to main-

tain their position. In an ascription-oriented environment, the managers’ back-

ground and former experience are the key factors which determine promotion.

Their educational background, for example the school they graduated from,

might be taken into consideration even after many years of work experience.

Specificity versus Diffuseness is centered on an individual’s separation of pri-

vate and public spaces. In specific cultures, people tend to compartmentalize

their life into different ‘protected’ spheres. Being good friends at work does not

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mean that colleagues will get to know each other’s family. The authority derived

from an individual’s position within an organization will not transfer outside

the workplace – for example, were a manager to meet their subordinate socially,

on the golf course for example, they would acknowledge the subordinate’s supe-

rior skill as a golfer and seek their advice in improving their golf game. However,

in a diffuse environment the various spheres of life (work, family, leisure, etc.)

are more integrated. The workplace status of the manager flows through to all

other areas of activity and the hierarchy/power base is maintained.

The dimension Sequential versus Synchronic time is composed of two

themes: ability to perform in a certain time frame and time orientation. In The

Silent Language, Hall (1959) introduces the terms monochronic (one time) and

polychronic (several times). Monochrony is a perception that time is linear,

sequential and definite whereas polychrony is a perception that time is multi-

ple, synchronic and diffuse. Illustrations can be found in an individual’s behav-

ior, whether they have the ability to do several things at the same time

(polychronic) or the ability to differentiate activities into sequences (mono-

chronic). Trompenaars (1993) develops these themes regarding their implica-

tion for action made sequentially or synchronically in an organization (for

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Sample items from Trompenaars and Hampden-Turner’s measurement of

Individualism- Communitarianism

Individualism Communitarianism

Which kind of work is Everybody is allowed Everybody works together

found more frequently to work individually and you do not get

in your organization? and individual credit individual credit.

can be received.

A defect is The person causing the Because he or she happens

discovered in one of defect by negligence is to work in a team, the

the installations. It was the one responsible. responsibility should be

caused by negligence of carried by the group.

one of the members of a

team. Responsibility for

this mistake can be carried

in various ways. Which

one of these two ways of

taking responsibility do

you think is usually the

case in your society?

Source: Trompenaars & Hampden-Turner, 1997: 55–57.

TABLE 6.3

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TABLE 6.4

Sample items from Trompenaars and Hampden-Turner’s measurement of Universalism

versus Particularism

Universalism Particularism

You are riding in a car

driven by a close friend.

He hits a pedestrian. You

know he was going at

least 35 miles per hour

in an area of the city

where the maximum

allowed speed is 20 miles

per hour. There are no

witnesses. His lawyer says

that if you testify under

oath that he was only

driving 20 miles per hour

it may save him from

serious consequences.

What right has your He has some right/no My friend has some

friend to expect you to right as a friend to right/a definite right as a

protect him? expect me to testify to friend to expect me to

the lower figure. testify on the lower figure.

What do you think you Not testify that he was Testify that he was going

would do in view of the going 20 miles an hour. 20 miles an hour.

obligations of a sworn

witness and the

obligation to your

friend?

You have just come

from a secret meeting of

the board of directors of

a company. You have a

close friend who will be

ruined unless she can

get out of the market

before the board’s

decision becomes

known. You happen to

be having a dinner at

the friend’s home this

evening.

What right does your She has some right/no She has some right/a

friend have to expect right as a friend to definite right as a friend to

you to tip her off? expect me to tip her off. expect me to tip her off.

Would you tip her off No Yes

in view of your

obligations to the

company and your

obligation to your

friend?

Source: Adapted from Trompenaars, 1993: 35–39.

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example the tendency for simultaneous management of multiple projects as

opposed to focus on one project for a given period).

The second theme presents the differences that appear between countries

as indicated by respondents’ varying prioritization of the past, present and

future. Consequences regarding management are generally perceived as a

reference to the past in a society where there is a strong past-oriented tendency;

and vice versa. For example, in a past-oriented environment, the preceding

year’s sales might be a stronger criterion than expected market growth for

determining new sales objectives. This dimension presents similarities with

Hofstede’s Long-term versus Short-term Orientation. Short-term Orientation

resembles Trompenaars’ present orientation and Long-term Orientation

Trompenaars’ future oriented environment.

Inner versus Outer Directedness. This dimension reflects the belief either

that individuals can control and influence their environment or that they have

limited ability to do so. Consequences for management are reflected for exam-

ple in strategic choices that will either tend to plan and provoke changes or try

to take best advantage of the situation. In Trompenaars’ analysis (Smith,

Trompenaars and Dugan, 1995), Inner Directedness displays beliefs in plan-

ning (thinking), beliefs that personal efforts matter and that luck will influence

the outcome. Outer Directedness presents beliefs that personal relationships

(networks) as well as political conditions matter for success, beliefs that politi-

cal conditions do too, and finally that luck will be decisive. Consequences for

business life might be seen in employees’ strategies for success. In an inner-

directed environment, employees would concentrate on making plans and

working hard to achieve a goal, whereas in an outer-directed environment,

employees might make a greater use of their personal network and the possi-

bilities it contains for achieving their goals. Table 6.5 expands on beliefs asso-

ciated with Inner and Outer Directedness.

A different understanding of culture

Trompenaars’ research has developed through the years into one of the largest

databases (along with Hofstede’s) available for the study of cross-cultural man-

agement. Trompenaars and Hampden-Turner collected responses from some of

the former USSR republics or Eastern European countries that Hofstede’s data-

base did not include.

Trompenaars’ study confirms it is possible to compare culture on the basis

of dimensions. It supplements Hofstede’s research by extending the number of

cultural answers to the fundamental problem ‘social interactions’ and adds a

dimension dealing with individuals’ attitudes to the environment (Inner

Versus Outer Directedness). In addition, Trompenaars and Hampden-Turner’s

research further develops the concept of culture with a focus on meanings.

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Trompenaars considers that cultures are made of shared meanings which

influence management practices. Trompenaars and Hofstede hold different

conceptions of what the essence of culture is. Hofstede adopts his definition of

culture from social sciences theories of the 1950s: ‘ideas and especially their

attached values’ are ‘the essential core of culture’. Trompenaars, in line

with contemporary theories, positions meanings in the core of culture. He

argues that culture is about making sense, not just a shared way of living or

working together. People make sense of their world with meanings, i.e. how

they interpret what is around them. Consequently, human interpretations are

the core of culture. The different interpretations of norms and values distin-

guish cultures. The following mini case gives an illustration of cultural differ-

ences in meanings.

Considering meanings as the core of culture can reveal different cultural

differences than those identified by the study of values across cultures. Indeed,

if a value survey shows that two national cultures give similar importance to

the same values, it doesn’t necessarily mean that these cultures display simi-

lar individual behaviors, since the interpretation of values can be very different

in practice.

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Sample items from Trompenaars and Hampden-Turner’s measurement of Inner versus

Outer Directedness

Inner directedness Outer directedness

Select the statement It is worthwhile trying Nature should take its

that you believe to control important course and we just have to

most reflects reality. natural forces, like the accept it the way it comes

weather. and do the best we can.

What statement do Trusting to fate never Without the right breaks

you agree with? turned out well. one cannot be an

effective leader.

There is no such thing Getting a good job.

as luck. depends on being in the

right place at the rig

time.

Sources: Trompenaars, 1993: 126; Trompenaars and Hampden-Turner, 1997: 142;

Hampden-Turner and Trompenaars, 2000: 238–239.

TABLE 6.5

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Annika faces divergent cultural meanings

In a Swedish organization, Annika, one of the managers of the international

trainee programme, is organizing the meeting aimed at clarifying decision-

making procedures for the recruitment of new trainees for Sweden. In the

meeting room, participants are from three different hierarchical levels and

many nationalities. Everyone is entitled to give her/his opinion and everyone

does. Very quickly, it seems that three groups form. Most of the Swedish

participants don’t wish to ‘formalize’ things. Many North American participants

are neither against nor in favor but discuss the necessity to write down

‘rules’. The southern Europeans present in the room tend to be in favor of

rules. They claim the necessity to clarify the recruitment process that many of

them see as unclear. The end of the meeting approaches and no consensus

has been reached. The meeting ends with a lot of frustration; the southern

Europeans accusing the Swedes of keeping things secret and political, the

Swedes upset at the way southern Europeans want to impose strict rules and

control on everyone.

In this case, the Swedes expressed their wish to keep things flexible by

avoiding the formalization that follows the establishment of rules. The North

Americans insisted on the need to call for rules, for the same reasons: ‘Once

you have rules, you are supposed to follow them.’ The southern Europeans

defended the idea of establishing rules in order to have a clear statement on

what people are ‘ideally’ supposed to do: ‘The rules are a clear departure

point for the interpretation of what to do. If we don’t have a clear statement

to start with, everything is too vague.’ Consequently, participants´ shared

meanings regarding the term ‘rules’ were very different, ranging from: rules

are something you have to follow (to the letter), to a rule is a statement that

you are supposed to interpret according to the situation.

4 LANE, DISTEFANO AND MAZNEVSKI’S ADAPTATION

OF KLUCKHOHN AND STRODTBECK

Kluckhohn and Strodtbeck’s ‘Values Project’ (1961) provides a presentation of

cultural variations within the ‘Cultural orientations framework’. Their project

compares the responses of different communities in the American Southwest

to five universal ‘problems’: relationship of humans to nature, to time, to other

humans, belief about basic human nature and perceived natural mode of

acting. Like Hofstede, Kluckhohn and Strodtbeck gave priority to the study of

values. They differ however on the extent to which they use cultural dimen-

sions that contain more variations.

Kluckhohn and Strodtbeck’s study has been adapted and discussed

for cross-cultural management by Lane, DiStefano and later together with

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Maznevski (1988–2000). Table 6.6 displays the adapted value orientations.

Maznevski and DiStefano (1995) developed a questionnaire to measure varia-

tions of the first five cultural orientations. The questionnaire was tested in

Canada, Hong Kong, Mexico, the Netherlands, Taiwan and the USA.

Respondents were practicing business people or business students with work-

ing experience. Using the questionnaire, it was possible to determine what

respondents’ strongest preference, second preference and third preference for a

variation were. These preferences are presented with potential implications for

international management and provided new insights into current interna-

tional management issues (Maznevski et al., 2002).

Value orientations

The selection of items used to measure five of the six orientations (Table 6.7)

presents beliefs associated with each variation. Maznevski and her co-authors

define the variations of Activity as doing, being and thinking. In a doing mode,

people tend to think that individuals ought to work actively and continually

to achieve tangible outcomes. People might be judged on what they have

achieved. In contrast, a being-oriented society praises spontaneity. In the

thinking variation, people ought to be reflective, ‘to think through carefully

and thoroughly’ before acting. Illustrations of these modes of activity might be

seen for example in some environments where companies value hard work and

sacrifice, while in other business environments companies value quality of

work conditions and the wellbeing of their employees.

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Value orientations and their range of variation, from Lane, DiStefano and Maznevski

Orientation or issue Variations

Activity Doing Being Thinking/

Controlling

Relationship Individual Group Hierarchical

Human Nature Good Evil Changeable

Environment Mastery Harmony Subjugation

(Relation to

nature and to

life and work,

in general)

Time Orientation Past Present Future

Space Public Private Mixed

Source: Adapted from Lane, DiStefano and Maznevski, 2000: 48.

TABLE 6.6

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Sample items from Maznevski and DiStefano’s measurement of Value Orientations

Activity

Doing • People should work hard and sacrifice enjoyment to

accomplish important things.

Being • Decisions should be based more on how people affected

will feel about them, rather than on immediate

practical concerns.

Thinking • Decisions should be made based on analysis, not intuition

or emotional feelings.

Relationship

Individualism • People are expected to give priority to their needs

over those of others.

Collectivism • The interests of the group take priority over the interests

of any individual within the group.

Hierarchy • People at higher levels should make significant decisions

for people below them.

Human nature

Good • People only do bad things when they have no other choice.

Evil • It is hard for people to be good.

Changeability • Whether people are good or bad depends on their

environment and experiences.

Environment

Mastery • People can fix almost any problem they face if they use

the right methods.

Harmony • Good performance comes from a perfect fit between the

organization and its environment.

Subjugation • People should realize they do not have control over

events in their lives.

Time

Past • People should take into account the past when making

decisions about the future.

Present • People should maintain a focus on today and the near

future.

Future • People should always look ahead rather than worry

about today or yesterday.

Source: Maznevski and DiStefano 2000 version of the Cultural Perspective Questionnaire

TABLE 6.7

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The variations of Relationship are individualism, collectivism and hierarchy.

The core of this variation is the feeling of responsibility. Individuals feel ‘respon-

sibility to and for themselves and their immediate family’ in the individual

variation. In collectivism, the main responsibility expands to a larger group such

as an extended family or colleagues. These two variations present similarities

with Hofstede’s Individualism versus Collectivism (with employees’ dependence

on or independence from the organization being the core of the dimension) and

Trompenaars’ Individualism versus Communitarianism (based on primacy given to

individual versus collective goals). The third variation is hierarchy, where people of

higher status have responsibility for those of lower status. Consequently, for

example, in business negotiations, instead of negotiations being carried out

directly between employees of the same hierarchical level, supervisors are first

mobilized to represent their subordinates and start the process. This variation of

‘hierarchy’ presents similarities with Hofstede’s dimension of Power Distance.

The Human Nature orientation has three variations: good, evil and change-

able. In some societies, there is a shared belief that humans are generally good;

bad actions are the result of constraining circumstances. Management practices

might reflect this general belief with trusting behavior expected between supe-

riors and subordinates. The belief that humans are evil is shared in other

societies in which trust among people builds on knowledge and experience.

Consequences regarding management might be seen in managerial intensive

supervision and monitoring. Finally, a third belief is that people’s basic nature

is changeable, consequently management might invest in employees’ training

in order to develop people into the job, rather than looking for a person who

already has the right profile (with the assumption that it will remain so).

The variations of the Environment orientation are mastery, harmony and

subjugation. In mastery-oriented societies, people tend to believe that people

can control and master their environment. Resulting managerial practices

might be seen in the tendency to plan and make the business environment fit

into the plans. In harmony-oriented societies, people are concerned about ‘the

balance of forces in the world around them’. In China for example, a Feng shui

(‘wind water’) expert may advise on the physical orientation of offices so that

they are in harmony with nature and favorable to business. Mastery and har-

mony variations present similarities with Trompenaars’ Inner versus Outer

Directedness. A third variation, subjugation, is the belief that humans are

neither stronger than nor independent from natural and supernatural forces

surrounding them. Business conditions might be seen as difficult to influence.

Consequently, the behavior of trying to plan and transform a business envi-

ronment is not as strong as in mastery-oriented societies.

Maznevski and her co-authors define the variations of the Time orientation

as past, present and future. In the first orientation the past serves as an ‘impor-

tant criterion by which to make decisions’. In the present variation, decisions

rest on present or immediate needs. In future-oriented societies, decisions are

made regarding long-term future goals. Illustrations of the Time orientation

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might be seen in corporate strategic plans, built either on what has been

achieved, what is needed now, or future long-term objectives. These variations

echo Trompenaars’ study of the importance given to past, present or future, as

well as Hofstede’s Long-term versus Short-term Orientation.

The Space orientation varies between public, private and mixed space. This

orientation evolves around the sense of ‘ownership’ of space by which people

are surrounded. In the public orientation, space is seen as available for every-

one’s use. In a work environment, this might be displayed by preference for an

open office layout. The opposite variation values privacy. The sense of owner-

ship of the space surrounding individuals is high. Offices tend to have closed

doors and superiors might prefer to have bigger rooms. The mixed variation is

a combination of the public and private perceptions. Clearly this orientation

to space would influence communication, and information flows will be freer

and more rapid in open office configurations.

Going beyond paradoxes

Lane, DiStefano and Maznevski’s study differs from other studies of cultural

values in at least two ways. The value orientations proposed by Lane, DiStefano

and Maznevski (2000) are not bipolar, but offer three options (see Table 6.6).

Unlike the cultural dimensions developed by Hofstede and Trompenaars, the

orientations suggest that alternatives are not mutually exclusive. Trompenaars

had, for example, numerous items in his questionnaire that were forced

choices between two alternatives, each one representing one pole of a dimen-

sion. For example, Hofstede measured Individualism by the high level of

importance given to certain work goals and deduced that the low importance

given to the same work goals must be the opposite: Collectivism. The common

feature shared by Hofstede and Trompenaars is that they developed bipolar

dimensions, maybe forcing respondents to adopt either a ‘Western’ (or maybe

American/North European) or ‘Other’ points of view. Maznevski and DiStefano’s

questionnaire contrasts on that feature.

Considering only the dominant values or the dominant behavior in a

society leads to what Osland and Bird call a cultural paradox which they define

as ‘situations that exhibit an apparently contradictory nature’ (2000: 65).

Simply stated, this phenomenon acknowledges the fact that, given the com-

plexity of the human response to any given situation, ‘it is difficult to make

useful generalizations since so many exceptions and qualifications to the

stereotypes, on both a cultural and individual level, come to mind’ (ibid.).

Consequently, a great deal of people’s behavior in each country cannot be

explained by dominant values or most broadly shared perceptions because of

the multiplicity of variables influencing each specific situation. The instrument

developed by Maznevski and DiStefano however can show a rank of preference.

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For example, in the USA, respondents’ preferred mode of activity is ‘doing’ on

the same level as ‘thinking’, and ‘being’ comes third by quite a significant

margin. In Taiwan, however, ‘thinking’ comes first with a stronger preference

over ‘doing’, and ‘being’ has a very low rating (Maznevski et al., 1997). The

instrument provides a rank of preferences for each orientation. It enables us to

go beyond a bipolar-based cultural response.

5 SUMMARY

About twenty cultural dimensions have been developed with cross-national com-

parative management research. Similarities between the dimensions enable us to

regroup some of them into categories. Table 6.8 summarizes the fundamental

cultural issues and their resulting cultural dimensions presented in this chapter.

The review of cross-national comparative research shows us that compar-

isons of nations rest on three major themes. First, country-level analyses are used

to study culture. Second, cultural values or meanings provide tangible and mea-

surable cultural dimensions with a limited set of variations. Finally, culture rests

on values or meanings that influence individuals’ behavior and consequently

management practices. These three themes are representative of quantitative

comparative studies in cross-cultural management and are the fundamentals of

the thinking of that strand of research.

6 CONCLUSION

Cultural dimensions give an indication of culture’s consequences, but what is

the actual influence of culture on people’s behavior? It is exercised in inter-

action with other factors, for example employees’ education, their functional

background, the nature of the work they do (very defined task or not, short or

long-term project, etc.). How can we possibly know what is cultural, what is

related to the type of work and what is related to the personalities of the

employees? Cross-cultural management does not aim at identifying purely cul-

tural behavior, it gives an indication of the possible variations in individuals’

cultural background. This knowledge is helpful because it is about implicit

aspects of work. The other aspects are more explicit and consequently may be

easier to identify.

Management in today’s corporations seems to be challenged by the

cultural diversity of their employees. However, is knowledge of the cultural

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Cultural issues and resulting cultural dimensions (major theme of the dimension)

Cultural Issues

or Fundamental Problems Cultural Dimensions

Differentiation Hierarchical (responsibility)

between social Power Distance (inequality

groups acceptance)

Achievement/Ascription

(status allocation)

Masculinity/Femininity

(individual assertiveness or care

for social)

Specific/Diffuseness (scope of

personal involvement)

Relationships Preserve/rule the Universalism/Particularism (scope of

with people ‘social fabric’ norms and standards)

Neutral/Affective (expression

of emotions)

Individuals’ Individualism/Collectivism

relationship to (autonomy)

social groups Individualism/Communitarianism

(prime orientation for goals

and objectives)

Collectivism/Individualism

(responsibility)

Relationships Inner Directedness/Outer

with the Directedness (believed control)

environment Subjugation/Harmony/Mastery

(from acceptance to control)

Time orientation Sequential and Synchronic

(nature of time)

Past/Present/Future (importance

of a time horizon)

Long-term/Short-term Orientation

(preferred focus)

Human nature Evil/Changeable/Good

Natural mode of Doing/Being/Thinking

activity

Level of stress Uncertainty Avoidance

in a society in

the face of an

unknown future

Sources: Hofstede, 2001; Trompenaars and Hampden-Turner, 1997; Maznevski et al., 2002

TABLE 6.8

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background of employees valuable in terms of managing their interactions?

How does knowledge on ‘Time orientation’ help in managing a team com-

posed of people with distinct orientations? Cross-cultural management

research knowledge is valuable because it enables us to raise implicit cultural

differences to a conscious level. Knowing about the various cultural dimen-

sions helps us to recognize cultural aspects of a situation. Once explicit, the cul-

tural differences can be investigated, talked about and understood. Situations

can be solved.

How did Annika come to a solution?

During the meeting, everyone was using the word ‘rule’ and making sense

of it. Annika’s management style favors consensus, so she decided to con-

tinue the conversation separately with each group, come to a solution and

propose that solution in a second meeting. Only during the individual talks

did she realize that everyone was interpreting the word ‘rule’ differently.

These differences reminded her of a cultural dimension (Universalism versus

Particularism). She managed to make all participants clarify how they see

rules: from a strict constraint to something to be interpreted. She was thus

able to go beyond the first discussion (and the resulting frustration) that was

only on the need to have rules or not. During her second talks with the par-

ticipants, she actually discussed what rules meant for them, asking questions

such as: ‘How do you usually react to a rule? Please give me an example out-

side work’. Then, she came back to the discussion on recruitment rules and

invited people to say why they were in favor of or against rules. It appeared

that everyone wanted to keep recruitment procedures flexible. She came to

a solution by establishing ‘guiding principles’ for recruiting new trainees.

They were well accepted a week later in the management meeting.

Both institutional and cultural dimensions as discussed in the first two chapters

of this section have an important impact on HRM practices in different coun-

tries. In the next three chapters we will look in some detail at how HRM is prac-

ticed in three major areas of the world: Europe, Asia and developing countries.

7 DISCUSSION QUESTIONS

1 Discuss the various conceptions of culture reviewed in this chapter

2 What is the relationship of culture to human resource management?

3 Discuss the three frameworks and their related cultural dimensions presented in

this chapter.

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4 What are the differences between looking at (dominant) values, meanings or

value orientation in the study of cultural differences?

5 What benefit does cross-cultural knowledge give to a manager?

8 FURTHER READINGS

•

Hofstede, Geert (2001),

Culture’s Consequences: Comparing Values, Behaviors,

Institutions, and Organizations across Nations

(Second Edition), Thousand Oaks,

CA: Sage Publications.

This study is a classic treatise on the investigation of culture and management. In this (acade-

mic) book Hofstede presents the methodology he used to develop each cultural dimension. He

provides many illustrations and refers to numerous studies that have used his work. This is THE

reference for the quantitative study of culture’s influence on managerial behavior.

•

Hampden-Turner, Charles and Alfons Trompenaars (2000),

Building Cross-Cultural

Competence: How to create wealth from conflicting values

. Chichester: John Wiley

and Sons.

Hampden-Turner and Trompenaars’ managerial book not only develops various cultural dimen-

sions but also illustrates them with examples and consequences for working life. The authors

provide tools for dealing with cultural differences. They enable the reconciling of the dilemmas

expressed in each cultural dimension (e.g. Individualism or Communitarianism).

•

Lane, Henry W., Joseph J. DiStefano and Martha L. Maznevski, (2000),

International

Management Behavior:Text, Readings and Cases

. Oxford: Blackwell.

The researchers who adapted Kluckhohn and Strodtbeck’s cultural framework for management

edited this textbook. They provide numerous relevant illustrations of the influence of culture on

management with a combination of accessible theoretical chapters, readings on specific issues

written by a specialist on that question, and case studies.

•

D’Iribarne, Philippe (forthcoming) Honor, Contract and Consensus.

D’Iribarne presents a rich case study of a company using the same technology in three differ-

ent countries (France, the Netherlands and the USA). The author shows how local interpreta-

tions cause employees’ work to differ in each country. He offers socio-historical (cultural)

explanations for the differences between countries in the interpretation and development of

work conditions. Comprehensively illustrated with examples and quotations, the book is an

insightful study of diverging work behaviors across countries.

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Boyacigiller, Nakiye A., M. Jill Kleinberg, Margaret E. Phillips and Sonja A. Sackmann (2002),

‘Conceptualizing culture: Elucidating the streams of research in International Cross-Cultural

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Management’, paper presented at the Identifying Culture Conference, Stockholm, June

14–15, forthcoming in B.J. Punnett and O. Shenkar (eds.),

Handbook for International

Management Research

. Ann Arbor: University of Michigan Press.

Child, John (2002), ‘Theorizing about organization cross-nationally’, Part 1 and 2, in Malcolm

Warner and Pat Joynt,

Managing Across Cultures: Issues and Perspectives

. London:

Thomson Learning, 26–56.

Chinese Culture Connection (1987), ‘Chinese values and the search for culture-free dimen-

sions of culture’,

Journal of Cross-Cultural Psychology

, 18, 143–174.

Cyert, Richard M. and James G. March (1963),

A Behavioral Theory of the Firm

. Englewood

Cliffs, NJ: Prentice-Hall.

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The Silent Language

. New York: Doubleday.

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Building Cross-Cultural

Competence: How to create wealth from conflicting values

. Chichester: John Wiley and

Sons.

Hofstede, Geert (1980),

Culture’s Consequences

. Beverly Hills, CA: Sage Publications.

Hofstede, Geert (2001),

Culture’s Consequences: Comparing Values, Behaviors, Institutions,

and Organizations Across Nations

. (Second edn), Thousand Oaks, CA: Sage Publications.

Kluckhohn, Florence R. and Fred L. Strodtbeck (1961),

Variations in Value Orientations

New York: Row, Peterson.

Kroeber, Alfred L. and Clyde Kluckhohn (1952),

Culture: A Critical Review of Concepts and

Definitions

. Cambridge, MA: Harvard University (Peabody Museum of Archeology and

Ethnology Papers, no. 47)

Lane, Henry W. and Joseph J. DiStefano (1988/1992),

International Management Behavior

Toronto, Ontario: Nelson-Canada.

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International Manage-

ment Behavior

, (Third edn). Malden, Massachusetts: Blackwell Publishers.

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International Manage-

ment Behavior: Text, Readings and Cases

. Oxford: Blackwell Publishers.

Maznevski, Martha L. and Joseph J. DiStefano (1995), ‘Measuring culture in international man-

agement: The Cultural Perspective Questionnaire’, in

Research and Publications

. Richard

Ivey School of Business, The University of Western Ontario, Toronto. Working paper 95–20.

Maznevski, Martha L., Joseph J DiStefano, Carolina B. Gomez, Niels G. Noorderhaven and

Peichuan Wu (1997), ‘The cultural orientations framework and international management

research’, Paper presented at the Academy of International Business annual meeting,

Monterrey, Mexico, October.

Maznevski, Martha L., DiStefano, Joseph J., Gomez, Carolina B., Noorderhaven, Niels G. and

Wu, Pei-Chuan (2002), ‘Cultural Dimensions at the Individual Level of Analysis: The Cultural

Orientations Framework’.

International Journal of Cross-Cultural Management

, 2(3):

275–296

Mulder, Mauk (1977),

The daily power game

. Leiden: Martinus Nijhoff.

Osland, Joyce and Allan Bird (2000), ‘Beyond sophisticated stereotyping: Cultural sense mak-

ing in context’.

Academy of Management Executive

, 14(1): 65–79.

Parsons, Talcott and Edward A. Shils (eds.) (1951),

Toward a General Theory of Action

Cambridge, MA: Harvard University Press.

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Rotter, Julian B. (1966), ‘Generalized expectancies for internal versus external control of

reinforcement’. In

Psychological Monographs: General and Applied

, 80(1): 1–28.

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Scale in 43 countries: A test of cultural relativity’.

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, 30,

377–400.

Søndergaard, Mikael (1994), ‘Hofstede’s consequences: A study of reviews, citations, and repli-

cations’,

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447–456.

Triandis, Harris C. (1972),

The Analysis of Subjective Culture

. New York: Wiley.

Trompenaars, Alfons (1993),

Riding the Waves of Culture: Understanding Cultural Diversity in

Business

. London: Nicholas Brealey Publishing.

Trompenaars, Alfons and Charles Hampden-Turner (1997),

Riding the Waves of Culture:

Understanding Cultural Diversity in Business

(Second edn). London: Nicholas Brealey.

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7 HRM in Europe

Christine Communal and Chris Brewster

1 Introduction 167

2 Distinguishing features of Europe 168

3 The American model of HRM and a European challenge 172

4 Differences within Europe 179

5 Concluding thoughts 188

6 Discussion questions 188

7 Further reading 189

References 189

Notes 193

1 INTRODUCTION

Looking at a map of the world, Europe appears rather small. Yet the richness of

its national and regional traditions, the variety of its topography, climate, people,

architecture, cuisine, languages, as well as the distinguishing features of its

national states, with their diverse institutions, laws and underpinning philoso-

phies, make it a unique place. Nowhere else in the world have so many distinct

and well-established cultures existed so closely together over such a long period

of time. For centuries, these differences and other vested interests made Europe

the scene of countless conflicts and wars, pitting one nation against the other.

Yet over past decades, a quiet revolution has been happening: the rise –

from within – of a European identity, overcoming with great success traditional

CHAPTER CONTENTS

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antagonisms. Europe now has a common currency, an overriding legislative

framework and associated Courts and political structures such as the European

Parliament and Commission. Europeans are becoming multilingual, with access

to the media in many languages and the branding of goods and services also in

different languages. Substantial investments in the transport infrastructure are

greatly facilitating the exchange of people, goods and services across former bor-

ders. Overall, Europeans benefit from high standards of living and are develop-

ing a common understanding of social responsibility. Consequently, a significant

effort is being made, accompanying the trend of globalisation, for organisations

to seek, find and apply common principles of management. This applies to the

management of human resources as much as any other area. How much diver-

sity still influences HRM in Europe, what HRM looks like in Europe and how it

compares to HRM in the United States, are the subjects of this chapter.

Section 2 below introduces some of the features which make Europe a dis-

tinct geographical, political and cultural entity. Section 3 describes European

HRM by contrasting it with the American and/or universalistic model. Section 4

takes a closer look at Europe from within. It examines in a little more detail the

cultural diversity that exists in terms of HRM within Europe at national and

regional levels. Finally, Section 5 draws conclusions about HRM in this com-

plex multicultural continent.

2 DISTINGUISHING FEATURES OF EUROPE

Geo-political Europe

Geographically, Europe consists of the western part of the landmass of which

Asia forms the eastern (and much greater) part, and includes Scandinavia, the

British Isles and a number of smaller islands. It is broadly framed to the north

by the Arctic Ocean, to the south by the Mediterranean Sea, to the west by the

Atlantic Ocean and to the east by the Ural mountains.

Politically, the borders of Europe have been less clear. In some formula-

tions only western Europe is included; in others Russia is too. In addition, the

south-eastern edge of Europe has been a subject of particular debate for the last

generation. Jean Monnet (1888–1979), one of the founders of the European

Community, once asserted: ‘Europe has never existed. It is not the addition of

national sovereignties in a conclave which creates an entity. One must gen-

uinely create Europe’ (Knowles, 1999: 526; from Anthony Sampson, The New

Europeans, 1968, quoting Jean Monnet). The creation of a ‘united Europe’ was

spurred by a desire for international reconciliation after World War II. Its first

expression was the creation of the European Coal and Steel Community,

founded by the Treaty of Paris in 1951 between Belgium, France, Italy,

Luxembourg, the Netherlands and West Germany. Thanks to the Treaty, coal

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and steel resources could be pooled between ‘the Six’ countries, thus creating

the basis for a greater common market. With the Treaty of Rome in 1957, ‘the

Six’ agreed the framework for a more comprehensive European Economic

Community (EEC). With the EEC started a colossal endeavour to harmonise

policies, touching areas of indirect taxation, regulation, border control, agri-

culture and fisheries, as well as monetary matters. In 1973, Denmark, Ireland

and the United Kingdom (UK) joined the EEC. They were followed by Greece

in 1981, Portugal and Spain in 1986. In 1987, the Europe of ‘the Twelve’ signed

the Single European Act. This came into force on 1 January 1993, creating for

the first time a single market, which enabled the free movement of goods, ser-

vices and people. The EEC became the European Union (EU), with significant

implications for HRM.

Following German reunification in 1990, the EEC enlarged to include

the former East Germany. Later, in 1995, Austria, Finland and Sweden joined

the EU, creating a ‘Europe of Fifteen’. The EU-15 comprises more than

375 million citizens (compared to around 280 million in the US), over an

area of 3,191,000 square km (compared to 9,159,115 square km for the US)

(EIU Viewswire, 2002). Economically, it is one of the powerhouses of the

world.

An important historical step was taken on 1 January 2002 with the intro-

duction of a single currency, the Euro, across the EU (with the exception of

Denmark, Sweden and the UK). This economic union has been accompanied

by a desire to create and strengthen political and institutional co-ordination

across the member states (the European Parliament, the European Court of

Justice) and above all by a growing sense of European identity amongst EU cit-

izens. The EU Charter of Fundamental Social Rights, established in 1989, (see

Table 7.1) is but one manifestation of this.

Towards European HRM

The establishment of the EU and the Charter have had significant implications

for employing organisations and for HRM. As elsewhere, HRM in Europe is in

transition but the circumstances here are unparalleled in history. There is a

question about whether a distinct European HRM culture is in the making. In

anticipation of the creation of the single European market, prior to 1993,

organisations were beginning to review their strategies to take advantage of the

markets, freed from border tariffs, which were going to open before them. The

1990s witnessed an unprecedented number of mergers and acquisitions in

Europe as organisations sought to develop an integrated Europe (see Chapter 4).

This led HRM professionals across the different countries to start conversations:

first, to map what practices prevailed at the national and industry level

(Brewster et al., 2001); and second, to find common ground for European HRM

policy. Communal (1999) reports such conversations between Swedish and

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British HRM professionals following the merger of their organisations, and pre-

vious consolidations at UK level. The following quote is from a Swedish man-

ager (Communal, 1999: 194):

In the UK they have a grading system. This grading system is

very important. Now they have a problem when they merge

different parts together and change the structure. They have

trouble because they mix different grading systems within the

same unit. I asked them: ‘What do you have them for? We don’t

have any grading systems.’ They said: ‘How can you manage

without grading systems?’ Then we started to discuss what do

they have them for and what do we do instead. So, for instance,

making sure that you do not belong to the same grade as your

subordinates is important in the UK (more than in Sweden). I

think that this reflects the society. For example, when you move

up a grade, you get a better car. I think that the grading system

in some way reflects the society outside. In Sweden the

differences between salaries is not very much, the range of

salaries in our society is very narrow.

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170

European Union Social Charter

The European Union Charter of Fundamental Social Rights or the ‘Social Charter’

lists the following 12 as major areas to be addressed:

• the freedom of movement

• employment and remuneration

• improvement of living and working conditions

• social protection

• freedom of association

• vocational training

• equal treatment for men and women

• information, consultation and participation of workers

• health protection

• protection of children and adolescents

• protection of elderly persons, and

• protection of disabled persons

After lengthy negotiations that intensified from May to December 1989, the

Charter was signed by all member states except the UK at the Strasbourg summit

in December 1989. The Labour government elected in the UK in 1997 accepted

the social charter for the UK as well.

TABLE 7.1

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These differences had also struck the British counterpart who commented

(Communal, 1999: 194): ‘In Sweden the internal organisational structure is less

visible than in the UK. This is because of the tighter social structure in Sweden.

They did away with grades.’

‘European HRM’, if it is to exist, will begin with such conversations, which,

in time, lead on to the creation of equivalent, consistent, coherent policies.

One may suggest that a dynamic view of HRM in Europe has to take into

account firms at their various stages of international development, so as to pro-

vide a full picture of the environment within which many European organisa-

tions operate (Adler and Ghadar, 1990, see also Chapter 3). The fact is that,

although there are clearly aspects of European HRM that can be identified in

contrast to HRM in other regions of the world, this also remains the geograph-

ical area with perhaps the largest diversity of HRM approaches (Brewster, 2001).

In that sense, it is more correct to speak of ‘HRM in Europe’, rather than

‘European HRM’ (Sparrow and Hiltrop, 1994). Moreover, it is essential to bear

in mind that the EU does not (yet) encompass the whole of Europe.

21st century Europe

There is another Europe, which throughout the history of the EU has posed the

question of enlargement. In 2002, the EU accepted applications to join from

ten states. They include two Southern European states (Cyprus and Malta) and

eight Central European states (the Czech Republic, Estonia, Hungary, Latvia,

Lithuania, Poland, Slovakia and Slovenia). These eight states have a combined

population of 73 million, with, in 2002, up to one in six workers unemployed

(Browne and Kite, 2002). Despite the socio-economic challenges of enlarge-

ment, these ten countries are set to join in 2004, bringing about EU-25, and the

total number of EU citizens to 455 million. Other countries that have filed

applications for EU membership are: Romania, Bulgaria (both set to join in

2007), Turkey and Switzerland. In the latter case, the Swiss voted ‘no’ to join-

ing in a 1992 referendum and the Swiss government did not pursue its appli-

cation, but neither did it withdraw it. Norway also held a referendum on

joining the EU but its citizens voted against and it remains outside. Turkey, on

the other hand, continues to press its case for membership. To some, Turkey’s

application poses the questions of what is the European cultural identity and

where the ‘true’ borders of Europe lie.

What is more, certain parts of Europe, where conflict has been endemic,

still require stabilising; for example Yugoslavia, Bosnia-Herzegovina, Croatia,

Albania and Macedonia. Some borders (between Northern and Southern

Ireland; Gibraltar and Spain; Spain and the islands off the North African con-

tinent) are perhaps still to be clarified. Nevertheless, commentators from else-

where should not discount the influence of the notion of ‘Europe’. Indeed,

those countries that are not currently part of the EU are taking steps to co-ordinate

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their labour practices with those within the Union. For example, in the various

areas of employment legislation and policy, such as laws on employment con-

tracts or the free movement of labour, the Norwegian, Swiss and ‘access coun-

tries’ are committed to harmonisation with the EU. In one sense, they are

already ‘in’ rather than ‘beyond’ this Europe. Nonetheless, the fact that, even

within the EU, there is still a lot of work going on to co-ordinate practice, indi-

cates the deep-rooted nature of the diversity which is such a key feature of

Europe and of HRM in Europe.

Having set the European scene, it is worth shifting our attention to exam-

ine the origins of HRM across the Atlantic, in the United States of America, so

as to compare and contrast the American model of HRM with developments in

Europe.

3 THE AMERICAN MODEL OF HRM AND A

EUROPEAN CHALLENGE

HRM: born in the USA

It is now widely accepted that HRM, as a concept, was initially popularised in

the United States of America. In fact, the teaching of management and busi-

ness as education subjects was first pioneered in the United States. Wharton

Business School was created in 1881. In contrast, Cranfield School of

Management and London Business School, which were the first two schools in

Europe, were created in 1965 (Locke, 1989).

The Americans were first into the field not only of management, but also

of human resource management and, arguably, have developed hegemony in

what the subject involves and what is good practice (Brewster, 2000). Lawrence

(1996) argues that Americans have a propensity to reflect and deconstruct the

activity of ‘management’ with the view of seeking greater efficiency.

Accordingly, organisations have to utilise, and hence to manage, human

resources to best effect to achieve competitiveness and efficiency. HRM is

viewed as a logical and rational system. From this viewpoint, Fombrun et al.

(1984) state that the activity of managing HR consists in a five-step cycle: selec-

tion, performance, appraisal, rewards and development. Indeed, all firms have

to manage this (or a similar) process regardless of where they are in the world.

However, it is helpful to consider the management of HR not as a strict system

of ‘rational’ processes but as the process of managing people. People cannot be

‘managed’ in a vacuum; they are managed within a context (e.g. cultural,

social, educational, religious, geographical, legal, historical). The process of

HRM is therefore not neutral; it is surrounded by cultural, social and other

norms characteristic of human behaviour. Although the American development

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of HRM first appeared akin to a scientific process, a number of writers have

since put it into context and characterised a so-called US-model of HRM

(Brewster, 1994; Sparrow and Hiltrop, 1997) or in some formulations, a ‘uni-

versalistic’ model (Brewster, 1999), since its proponents argue that it can be

applied anywhere in the world. It is important to spend some time reflecting

on what underpins the notion of American HRM as it allows other comple-

mentary positions to be refined; for example, HRM in Europe.

US versus Europe

At the most general level, the limited evidence that we have on national cul-

tural differences points clearly to the uniqueness of the USA. The USA is,

according to researchers in this field, quite atypical of the world as a whole

(Hofstede, 1980; Lawrence, 1996; Trompenaars and Hampden-Turner, 1997).

The US culture is indeed considered to be more individualistic and more

achievement-orientated than most other cultures. The American ideal of HRM

is underpinned by, on the one hand, a high degree of formalisation (process)

and, on the other hand, a strong sense of a managerial ‘right to manage’

(Jamieson, 1980, 1985). This is apparent in the effort invested in drawing up

clear sets of procedures, in formal management development programmes and

in the search for quantitative data (in the form of, for example, salary surveys,

employee satisfaction surveys or benchmarking of benefits with competitors).

Formalisation in the European context may look very different. As an example,

managers in France tend to be recruited from the grandes écoles, which train the

intellectual elite of that nation. Hence in the French context, there may be a

suspicion about the need for additional formal management development

programmes (Barsoux and Lawrence, 1997).

In his seminal work, D’Iribarne (1989) depicts the American understand-

ing of formalisation, drawing from observations of organisational life in a US

factory. In particular, he highlights the importance of contracts, which regulate

unambiguously the relationships between workers and management. The

study describes, for instance, the manner in which performance appraisals are

conducted. Managers insist on measurable aspects and ‘visible’ fairness,

D’Iribarne (1989: 138):

Une des manières d’assurer le caractère correct des évaluations

est de préciser soigneusement les objectifs donnés à chacun, et

à la lumière desquels il sera noté. Ces objectifs ‘doivent être défi-

nis en mettant les points sur les i’. Nos divers interlocuteurs ont

insistés sur le fait qu’ils devaient être ‘propres’,

<<<<

mesurables

>>>>

Ainsi chacun sera jugé sur une base aussi indiscutable et bien

connue d’avance que possible, et celui qui rempli son contrat

sera sûr d’être quitte.

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[Our translation: ‘One of the ways in which to ensure correct

evaluation is to carefully specify to each employee their objec-

tives. These will then form the basis of the assessment. These

objectives ‘must be clearly spelled out’. Our various informers

insisted on the fact that they had to be ‘proper’, ‘measurable’.

Hence, everyone will be judged on an undeniable basis, agreed

in advance as early and as well as is possible. Those who fulfil

their contract can be sure that they will be OK’.]

D’Iribarne (1989) points out that, in the US, managers are free to fire or reward

employees within the boundaries of a ‘fair contract’. He contrasts the situa-

tion in the US factory with matched factories in France and in the

Netherlands. In France, the notion of a ‘contract’, psychological or other, is

not of primary relevance. Instead, D’Iribarne insists on a ‘logic of honour’. If

the manager has status and if his (more often than her) authority is consid-

ered justified (justification comes primarily through standards of education,

qualification and to a lesser extent through experience), then orders are

obeyed and all is well. If this ‘logic of honour’ is breached and the authority

of the manager is not established, employees will refuse to respond to orders,

or at the very least will display passive and active resistance to authority.

Furthermore, under pressure, people will not hesitate to shout and complain.

This is part of normal organisational life and is seen as a healthy, positive way

of communicating.

In contrast, D’Iribarne (1989) observes that the guiding organisational

principle in the Netherlands is consensus. There is a strong resistance to both

formal pressures exercised by managers (American style formalisation) and

informal pressures (French style shouting). Hence, the management of HR in

the Netherlands is centred on the principle of ongoing communication: talk-

ing, explaining. People accept orders if they understand them.

The examples from France and the Netherlands explored above are a far

cry from the manager’s ‘right to manage’ through the contractual perspective,

which is a feature of HRM in the US. What underpins the American perspec-

tive is the notion of theirs as the land of opportunity in which any individual,

through hard work or self-improvement, can be a success. These ideals of free-

dom and autonomy are reflected in:

• the private enterprise culture;

• the low interference from the state with low levels of support, subsidy or control

(especially compared to the role of the state in European countries);

• the antagonism of management towards trade unions.

It is worth exploring each of these issues in a little more depth.

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The private enterprise culture

The private enterprise culture is reflected in the way HRM has been studied. In

the USA, it is generally assumed that the purpose of the study of HRM, and in

particular strategic human resource management (SHRM) is to improve the

way that human resources are managed within organisations (Fombrun et al.,

1984; Tichy et al., 1982; Ulrich, 1997; Wright and McMahan, 1992). The ulti-

mate aim of HRM research is to improve organisational performance, as judged

by its impact on the organisation’s corporate strategy (Huselid, 1995), the

customer (Ulrich, 1989) or shareholders (Becker and Gerhart, 1996; Becker et al.,

1997; Huselid, 1995). Further, it is implicit that the objective of improving

organisational performance will apply in all cases. Thus, the widely cited defi-

nition by Wright and McMahan states that SHRM is ‘the pattern of planned

human resource deployments and activities intended to enable a firm to

achieve its goals’ (Wright and McMahan, 1992: 298). By contrast, in Europe

there is considerable debate about the meaning and purpose of HRM and no

automatic assumption that employers’ interests should be paramount (Brewster,

1999; Brewster and Larsen, 2000; Legge, 1995; Guest, 1990; Keenoy, 1990).

Furthermore, HRM is often seen as something that can apply at either regional,

national level, or at European Union level.

Many authors have recognised that US views of HRM may be culture-

bound, particularly in the emphasis on organisational autonomy. In the UK

Guest (1990) has argued that the view of freedom and autonomy in HRM is

peculiar to the USA and epitomises the ‘private enterprise’ culture. These

factors are uncharacteristic of most European countries, with the possible

exception of the UK (which would in any case take a more moderate position

to that of the US). In the European tradition, private enterprises are more

constrained, not just by national culture (see Chapter 6) but also by legislation.

The low level of state involvement

The low level of state involvement, typical of the USA, is absent in Europe. The

autonomy of organisations in Europe to manage their HRM, as they wish, is

constrained by legislation (including supranational, EU level legislation), and

by other aspects of the state’s activities.

On the subject of legislation, German researcher Pieper (1990) unambigu-

ously pointed out that: ‘the major difference between HRM in the US and in

Western Europe is the degree to which [HRM] is influenced and determined by

state regulations. Companies have a narrower scope of choice in regard to per-

sonnel management than in the US’ (1990: 8). Pieper points, in particular, to

the greater regulation of recruitment and dismissal, the formalisation of edu-

cational certification, and the quasi-legal characteristics of the industrial rela-

tions framework (in comparison to the USA). One could add to Pieper’s list

legislative requirements on pay, forms of employment contract, health and

safety, the working environment and hours of work. Supplementary to these

requirements are rights to trade union representation, as well as requirements

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to establish and operate consultation or co-determination arrangements,

which impact on a range of organisational matters (Jacobi et al., 1998; Thelen,

2001). Thus, HR specialists in Europe are likely to have to deal with a much

wider range of legislative requirements than their US equivalents. This legal

framework in Europe is not necessarily seen as a ‘constraint’ but also as a source

of comparative advantage (Hall and Soskice, 2001).

For HR specialists in Europe, state involvement is not restricted to legisla-

tion. Indeed, EU member states tend to seek to regulate the labour market from

which organisations draw their pool of employees. The state may do so

through various interventions in the area of education, life-long learning and

tax incentives for organisations. OECD figures show public expenditure on

labour market programmes to be substantially higher in Europe than in the

USA (see Table 7.2). Other ways in which EU member states, compared to the

US, impact on HRM include: the high involvement in social security provision,

the provision of more personnel and industrial relations services and a more

directly interventionist role in the economy.

The antagonism of US management to trade unionism

The antagonism to trade unionism found in US management is much less

common in Europe. Studies of HRM in the USA have tended to take place in

the non-union sector. A constant thread in research programmes in the USA

has been the link between HRM practices and non-unionism (Beaumont,

1991).

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Public expenditure in labour market programmes in OECD countries

2001 Public expenditure as a percentage of GDP

Denmark 4.56

Belgium 3.48

Netherlands 3.44

Germany 3.13

France 2.96

Finland 2.96

Sweden 2.28

Spain 2.06

Austria 1.60

Portugal 1.52

Norway 1.23

Greece 0.93

UK 0.92

USA 0.45

Source: OECD, Employment Outlook (2002), Statistical annexe, pp. 325–332.

TABLE 7.2

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Although it is the case that union membership figures have different

implications in different countries it is quite clear that, in general, the European

countries are more heavily unionised than the United States and, indeed, than

countries in most other parts of the world. Some, such as Germany, France and

the Benelux countries (Belgium, Netherlands, Luxembourg), have legislation

requiring employers over a certain size to recognise unions for consultative pur-

poses. In France, Greece and Portugal employers have to negotiate with a union

if it can show that it has any members at all in the workplace.

Europe is a highly unionised continent. Trade union membership and influ-

ence varies by country, but is always significant (see Table 7.3). The Scandinavian

countries have union membership averaging three-quarters of the working

population whilst the UK averages around a third. Even in the less unionised

countries such as France, bargaining coverage remains higher than in the USA.

In many European countries, the law requires that trade unions be recognised for

collective bargaining purposes. Indeed, across Europe more than seven out of

every ten organisations with more than 200 employees formally recognise trade

unions (Morley et al., 1996). Furthermore, in most European countries, many

union functions, such as pay bargaining, are exercised at industrial or national

level, outside the direct involvement of organisational managers.

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177

Union density and coverage

1994 1994

Trade union Bargaining

density (%) coverage (%)

Austria 42 98

Belgium 54 90

Denmark 76 69

Finland 81 95

France 9 95

Germany 29 92

Italy 39 82

Netherlands 26 81

Norway 58 74

Portugal 32 71

Spain 19 78

Sweden 91 89

Switzerland 27 50

United Kingdom 34 47

Japan 24 21

United States 16 18

Source: OECD Employment Outlook (1997) p. 71, Table 3.3.

TABLE 7.3

3122 CH-07.QXD 10/29/03 3:47 PM Page 177

In itself, a measure of trade union membership underestimates the influence

that European employees may have on their management. Indeed, the practice of

employee involvement is widespread and the latest EU Directive requires organisa-

tions of successively smaller sizes to institute works councils over the coming years.

Works councils across Europe have differing degrees of power: most would shock

American managers influenced by theories of ‘management’s right to manage’.

Employee representatives may, for instance, resort to the courts to prevent, or to

delay, managerial decisions in certain areas (recruitment, termination, changing

working practices), which have bypassed the due consultative process. In the USA,

such decisions would be subject to managerial prerogative or, in limited circum-

stances, individual action (as opposed to collective action as in the EU).

In some countries, such as Denmark, the Netherlands and Germany, legis-

lation goes one step further and requires organisations to have two-tier man-

agement boards. This gives employees the right to be represented at the most

senior level (through a ‘supervisory board’). In such systems, employee repre-

sentatives can, depending on the country, size and sector, make up to 50% of

the supervisory board. These arrangements give considerable (legally backed)

power to the employee representatives.

The tradition of trade unionism and employee involvement therefore

remains widespread and important in Europe. This tradition is further

strengthened by EU policy. The EU is seeking harmonisation of employee rep-

resentation rights in all member states. Thus, EU legislation encourages the

creation of platforms for European-level dialogue through European Work

Councils (EWCs) for organisations with subsidiaries located in different mem-

ber states (see Chapter 18). EWCs complement local employee representation

systems, giving scope for European-level negotiation and consultation

(Communal, 1999; European Commission, 2000). The EU refers to the unions

as ‘social partners’ and the reality is that in many European organisations trade

unions are seen as a positive force for understanding between management

and employees. As such, trade unions are likely to be encouraged and sup-

ported by managers, who may even be trade union members themselves.

Some of the proponents of universalist HRM in the USA argue that con-

sultative and involvement systems can be used to supplant trade unions. In the

differing European context these systems tend to supplement the union posi-

tion. In relatively highly unionised countries, it is unsurprising that many of

the representatives of the workforce are, in practice, trade union officials. In

Germany, for example, the majority of works council and supervisory board

employee representatives are drawn from the union representatives.

An alternative European model

The contrast between the situation in America and that in Europe has high-

lighted a number of elements, namely: the American propensity for formalised

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processes, including quantitative and contractual elements; the American

private enterprise culture, reflected in a strong sense of organisational and

managerial freedom and autonomy; the low level of state involvement; and the

American antagonism towards trade unions. The contrasted portrait of HRM in

Europe has shown: the qualitative impact of cultural diversity on HR processes;

the wider sense of organisational and managerial responsibility towards

employees; the greater involvement of the state; and the wider support for and

different role of trade union representation.

A distinct picture of HRM in Europe is therefore emerging. Europeans are

gradually developing a more explicit awareness of what constitutes European

HRM. This has arisen from a critique of the American model. For example,

Guest (1990: 377), observing the UK, saw ‘signs that … the American model is

losing its appeal as attention focuses to a greater extent on developments in

Europe’. Similarly, Brewster (2000) attacked the ‘universalist’ assumptions of

many HRM texts. Critiques of simplistic attempts to ‘universalise’ the

American models also came from French writers (Communal, 1999; Voynnet

Fourboul and Bournois, 1999). The inapplicability of American models in

Europe was noted in Germany too: ‘An international comparison of HR prac-

tices clearly indicates that the basic functions of HR management are given dif-

ferent weights in different countries and that they are carried out differently’

(Gaugler, 1988: 26). Another German writer, Pieper, surveying European per-

sonnel management similarly concluded that: ‘a single universal model of

HRM does not exist’ (1990: 11).

Indeed, the American concept of HRM contrasts with the view of HRM in

Europe as summarised in Table 7.4. This emerging model of HRM in Europe

calls for flexibility for member states and their agencies to operate within their

respective cultural traditions; an understanding of minimum social standards

in society, protected by a legal framework; a degree of involvement of member

states or supranational institutions in labour market issues; as well as an appre-

ciation of the social dynamics between employers, their associations and

employees and their representative bodies.

Having discussed features of HRM in Europe at a high level of generali-

sation (cross-Atlantic comparison), it is time to take a closer look at HRM

within Europe, particularly at the differences that characterise the European

concept of HRM at regional and national level.

4 DIFFERENCES WITHIN EUROPE

The qualitative impact of cultural and institutional diversity on HRM has been

documented by an array of commentators (e.g. Brewster and Larsen, 2000;

Communal and Senior, 1999; Edwards and Lawrence, 2000). Thus, the

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3122 CH-07.QXD 10/29/03 3:47 PM Page 179

European concept of HRM embraces regional and national differences. The

position has been compared to using a telescope (Brewster, 2001): as the focus

is changed, so some items which had seemed from a distance to look very

similar begin to reveal identifiable differences. It doesn’t mean that the longer

view (US/Europe, for example), or the medium range view (regional differences

within Europe) or closer range views (national differences or even within-country

differences) have more validity than each other: they just reveal different

elements of the true picture.

Regional clusters

Let us start our discussion of differences within Europe by identifying the

various regional areas which show common elements of HRM. Some authors,

such as Ronen and Shenkar (1985), outline the following cultural and

geographic clusters in Europe: Nordic (Finland, Norway, Denmark, Sweden);

Germanic (Austria, Germany, Switzerland); Anglo (United Kingdom, Ireland)

and Latin European (France, Belgium, Italy, Spain, Portugal). Others, such as

Due et al. (1991), distinguish between the UK, Ireland; the Nordic countries;

and the Roman-Germanic countries. The differences are not all culturally

based. Brewster and Tregaskis (2001) found that as far as the use of flexible

working practices was concerned, countries tended to cluster according to

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180

Features of HRM in the USA and in Europe

Dominant features HRM in the USA HRM in Europe

Roots Freedom and Qualitative impact of

autonomy cultural diversity

Organisational Private enterprise Sense of organisational

cultures and managerial

responsibility towards

employees

Role of the state Low interference Greater involvement of

from the state the states and European

supranational agencies

Trade unions and Traditional antagonism Wider support towards

employee of management towards trade union and other

representation trade unions forms of employee

representation

TABLE 7.4

3122 CH-07.QXD 10/29/03 3:47 PM Page 180

institutional factors, such as trade unionisation or unemployment rates rather

than, overlapping but distinct, cultural factors. Brewster and Larsen (2000)

argued that there is something in common in HRM between the countries in

the North of Europe where English is widely spoken.

An attempt to refine such distinctions was made by Calori and de Woot

(1994). Trying to map an emerging European management model, they pro-

posed an examination of cultural clusters at a regional level (see Figure 7.1,

adapted by the authors). At the first level of segmentation, the United

Kingdom appears separate from the rest of Europe. The UK is pictured as closer

to the American model, with a shared history, language and spirit of free enter-

prise. The rest of Europe can then be broadly split into the North, the South

and the East. Calori and de Woot (1994) argue that the South of Europe is char-

acterised by more state intervention, more protectionism, more hierarchy in

the firm and more intuitive management. The North features less state inter-

vention, more liberalism, more participation in the firm and more organised

management.

Comparing Latin countries with Germanic countries, it appears for

instance that patterns of ownership in the private sector tend to vary. In many

of the Southern European countries, family ownership of most businesses

(even some giant, household names) remains a common pattern. In contrast,

in Germany a tight network of banks effectively controls a significant number

of the larger companies. These interlocking shareholdings and the close

involvement in the management of the larger companies create a major disin-

centive to drive competitors, often owned by the same banks, out of the market-

place. Equally, these shareholders are less likely to apply pressure to produce

short-term profits (compared to the US or UK style wider shareholding system:

see Lawrence, 1991a).

Eastern countries remain influenced by the Germanic model; this is espe-

cially true for Poland and the Czech Republic, who maintain strong commer-

cial links with Germany in particular. Many commentators have, at least thus

far, tended to refer to ‘Eastern Europe’ or, more correctly, Central and Eastern

Europe (CEE) as a whole, thus encompassing all post-communist economies.

Unsurprisingly though, a more sophisticated, and distinct, picture of manage-

ment and HRM has started to emerge in this region (see for example Clark and

Soulsby, 1999) as each country reasserts its own national identity, even whilst

shaping up towards acquiring EU membership.

Amongst Southern countries, France is differentiated mainly because its

management system uniquely combines, on the one hand, improvisation and

intuition with, on the other hand, structure and hierarchy (Barsoux and

Lawrence, 1997; Communal, 1999). From a geographical point of view, France

is also at the border between the North and the South.

Amongst Northern countries, the Nordic countries differ from

Germanic countries or smaller countries (such as Belgium, Luxembourg and

HRM in Europe

181

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FIGURE 7.1

the Netherlands). As Europe has a larger and more influential public sector

than the USA, so the Nordic countries have more of their economy in the

public sector than the rest of Europe. Compared to Germanic management,

Nordic management is less concerned with performance, less concerned

with status differences between people and more concerned with quality of

working life (Hofstede, 1980). As a consequence, Swedish HR managers, for

example, are likely to manage with fewer organisational charts and are

likely to make less use of formal grading systems (see earlier discussion and

Communal, 1999).

Calori and de Woot (1994) argue that the smaller countries (Belgium,

Luxembourg and the Netherlands) may provide a privileged ground from

which to observe European HR. Indeed, these countries opened early to outside

influences (Lawrence, 1991b) and have assimilated a blend of practices, as much

from the British model, as from the Germanic model, and encompassing the

Latin and Scandinavian influence. Calori and de Woot (1994: 21) quote a

senior manager on this subject:

These small countries are melting pots. They have been more

sensitive to outside influences and have integrated these influ-

ences: because of the pressure against them, because of the

small base they have for recruiting and because they were forced

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182

The rest of Europe United Kingdom

South North East

Other Latin countries France Other Northern Scandinavian countries Slavonic countries

Greece Other Latin Small countries Germanic Poland Czech Republic

Portugal Spain Italy Belgium Netherlands Luxembourg

Switzerland Austria Germany

Typology of management orientations in Europe (adapted from Calori and De Woot, 1994)

3122 CH-07.QXD 10/29/03 3:47 PM Page 182

to look outside looking for markets. … I think that they are

influenced by German practices. The Belgians may also be influ-

enced by French practices, while the Dutch are also influenced

by British practices.

Figure 7.1 merely serves to introduce some of the enormous differences

between European countries. It is beyond the scope of this chapter to explore

in detail the diversity inherent in the very different UK, Italian and Norwegian

ways of managing HRM or the more subtle but very real differences between

the German, Austrian and Dutch systems. The opportunity to go into depth on

the differences within countries has also been eschewed: differences exist

between the Walloon (French-speaking) and Flemish (Dutch-speaking) parts of

Belgium (Dewettinck et al., forthcoming). Differences also exist between the

Italian, French and German cantons in Switzerland. Differences exist between

the north and south of Ireland or the north and south of Italy. It would take

another book to encompass these national differences in HRM, but some simple

examples below will serve to illustrate our point.

Country specificities

We examine these national differences in HRM using, for reasons of space, just

the five major countries that have been involved in the Cranet network of

researchers:

France (F), Spain (E), Germany (D), Sweden (S) and the United

Kingdom (UK). Also, for space constraints, we confine ourselves to four topics:

the status of HR; flexible working practices; training and development and the

influence of trade unions.

One simple measure of the status of the HRM function concerns whether

its head is represented on the Board of the company (or the equivalent main

decision-making body of the organisation). It is true that there are numerous

CEOs who may not have come from the personnel function but exhibit a parti-

cular interest in HRM. However, these are still exceptions. In practice an

informed HR input to top-level debates is most likely only where the head of

the HR functions is a member of the key policy-making forum. According to

Purcell (1995: 78):

There is clear, unambiguous evidence … that the presence of a

personnel director on the main board makes a considerable dif-

ference to the role played in corporate strategy.

However, as Figure 7.2 shows, this varies by country. In Germany and the UK

there are noticeably fewer organisations with the head of HR represented on

the Board than there are in the Scandinavian country, Sweden, or the two Latin

countries. The reasons may be different. In Germany, HR issues are brought

into top-level discussions through the role of the employee director or the

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183

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works council. In France and Spain, the presence of HR directors may be as

much a reflection of the formalisation of roles (with all ‘heads’ being repre-

sented) as of the importance given to HR. In Sweden most organisations do

take HR as a key to the successful operation of their business. We have explored

this issue further in Brewster et al. (1997, 2000) and Communal (1999).

Two aspects of flexible working practices will serve as examples: the extent

of use of part-time work and the use of short-term contracts. In broad terms

part-time working is used more in the North of Europe and short-term employ-

ment more in the South. Both forms of flexible working practices can be very

cost-effective for management. At the risk of generalisation, part-time working

often suits those (84% of them women) who are on such contracts;

whereas

short-term working is less popular amongst employees (Eurostat, 2002).

Despite these generalities the incidence of these, and indeed other, forms of

flexibility varies significantly between countries (see Figures 7.3 and 7.4).

The data shows the percentage of organisations in each country that have

more than 10% of their workforce on each form of contract. The North/South

variation is clear: only one in 10 organisations in Spain has a substantial pro-

portion of their workforce in part-time employment, whereas nearly four in ten

of the Swedish organisations do. Though it is not shown here, the Netherlands,

which has more part-time work than anywhere else, has 41% of its total work-

force on such contracts (Eurostat, 2002). Spain has double the average number

of organisations employing a lot of people on temporary contracts (and Spain has

more short-term employment than anywhere else in Europe) whilst Germany

is noticeably lower. The variations between the countries reflect a combination

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184

FIGURE 7.2

46%

77%

79%

49%

88%

20%

40%

60%

80%

100%

Germany Spain France Sweden UK

Head of HR on Board (Survey 1999/2000, Cranet network 2002)

3122 CH-07.QXD 10/29/03 3:47 PM Page 184

24%

16%

19%

14%

10%

20%

30%

40%

50%

Germany Spain France Sweden UK

Organisations with more than 10% of workforce on temporary contracts

(Survey 1999/2000, Cranet network 2002)

of cultural differences (equal opportunities for women being arguably more

accepted in Northern Europe, for example), legislative differences and trade

union influence. This important and complex topic has been explored further

in Brewster, 1998; Brewster and Tregaskis, 2001, forthcoming; Mayne et al.,

1996; Tregaskis et al., 1998.

HRM in Europe

185

FIGURE 7.3

22%

10%

19%

37%

33%

10%

20%

30%

40%

50%

Germany Spain France Sweden UK

Organisations with more than 10% of workforce on part-time contracts

(Survey 1999/2000, Cranet network 2002)

FIGURE 7.4

3122 CH-07.QXD 10/29/03 3:47 PM Page 185

In terms of differences in training between the countries, a simple measure

is the amount of the labour budget that organisations spend on training. This

too varies considerably between countries; France generally has the highest

spending in this area. French taxation penalises companies that do not spend

just over 1% of their labour budget on training and French companies gener-

ally spend considerably more than that. Figure 7.5 shows that, if we compare

the proportion of organisations spending more than 5% of their pay bill on

training, it is in Sweden and France that the most organisations spend this high

amount on upgrading their staff. In contrast, organisations in Spain have the

lowest levels of such spending. Again, this needs to be set into the national

context. For example, the roughly similar proportions of organisations with

high spends on training in Germany and the UK may have different impacts if

the general education levels of employees in one country are significantly

above those of the other country. In such a circumstance, the training may be

developmental in one case but remedial in the other. This is perhaps a

simplistic means of assessment (measuring the value of the training would be

much more useful than the cost of it), but it does indicate significant national

differences. Further analyses can be found in Estevez-Abe et al. (2001); Ryan

(1991); Steedman and Wagner (1989).

We have noted that the influence of trade unions in Europe is high; this is

despite the variance in trade union membership amongst European countries.

Indeed, generally the unions in Europe have a more positive ‘partnering’

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186

FIGURE 7.5

19%

33%

36%

18%

10%

20%

30%

40%

50%

Germany Spain France Sweden UK

Organisations spending more than 5% of their wage bill on training (Survey

1999/2000, Cranet network 2002)

3122 CH-07.QXD 10/29/03 3:47 PM Page 186

relationship with employers than elsewhere in the world. Yet, it is an influence

that is changing, and also changing differently in different countries. It is

difficult to measure influence; but one way is to ask senior HR practitioners,

who have a high degree of confidence in knowing whether influence has

increased or decreased over a period. Figure 7.6 shows that in each country

there are both significant numbers of organisations, as represented by their

senior HR practitioner, that believe the unions’ influence has increased as well

as organisations where their influence has decreased. It also shows, though,

that in France and Spain more organisations are seeing an increase in union

influence than are seeing a decrease; the pattern is static in Germany; and in

Sweden and the UK the unions are losing influence. These trends have to be set

in the context of union density and coverage (see Table 7.3) which, again,

point to national differences. These data have been explored further in

Mayrhofer et al. (2000) and Morley et al. (2000).

The point has thus been made that cultural and institutional differences

do exist and that they do have an impact on HRM in Europe. Yet, these differ-

ences should not underplay the wider European trends identified earlier,

namely: the wider European sense of organisational and managerial responsi-

bility towards employees, the greater involvement of European states in organi-

sational life and the wider support of management towards employee and trade

union representation.

HRM in Europe

187

FIGURE 7.6

12%

20%

24%

−14%

−12%

−15%

−23%

−21%

−50%

−40%

−30%

−20%

−10%

10%

20%

30%

40%

50%

DE F SUK

Increase

Decrease

Changes in trade union influence (Survey 1999/2000, Cranet network 2002)

3122 CH-07.QXD 10/29/03 3:47 PM Page 187

5 CONCLUDING THOUGHTS

European history has been charged with conflict and alliances for two thousand

years. Yet, from the beginning, there have been attempts to unify Europe.

Between 50

BC and AD

50, the Emperors Caesar and Claudius established Roman

rule across most of Europe. Long after the collapse of the Roman Empire,

Charlemagne, in

AD 800, was crowned Emperor and reigned over great parts of

the continent (stretching from the Mediterranean to the North and Baltic seas).

However, throughout this history, nationalist sentiment has also played an

important role. Will the forces of twenty-first century globalisation and the social

capitalism prevalent in Europe prove stronger in establishing a unified zone for

commerce and prosperity? Will Europeans continue to develop a sense of com-

mon identity and common understanding of management? Do the various

endeavours to harmonise HR practice across Europe point in the direction of

long-term convergence? Or will the national differences remain profound?

It should not be assumed that European HR managers will increasingly

adopt the (universalist) American way and that US ideas will sweep across the

old continent. Nor should it be assumed that the increasing formalisation of

rules on employment that is being provided by the EU will lead to convergence

towards a European model. These are matters for further empirical investigation

in the future. However, it would not be too bold to predict that Europe will con-

tinue to be different from the USA in the way it approaches HRM, that regional

differences within Europe will remain and that ‘country’ will continue to pro-

vide a significant explanation for the differences in HR policies and practices.

It may be that, in the future, as flexibility, adaptability and agility increas-

ingly become sources of competitive advantage, the value of coherence and

unity enjoyed by countries such as the USA and Japan is lessened and the value

of diversity increases. If so, then regions like Europe, with its capacity to draw

on substantial diversity, may be in a better position to respond to the chal-

lenges of the modern era.

Arguably, there are many areas, such as providing for higher levels of edu-

cated workforces and the positive communication between managers and the

representatives of the employees, where individual countries in Europe could

be said to lead the field. There is certainly scope for HRM ‘made in Europe’.

6 DISCUSSION QUESTIONS

1 What factors might make US HRM models increasingly influential for European

HR managers? What elements of the US models are likely to create problems for

managers in Europe?

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2 What would you consider the competitive advantages of HRM in Europe to be?

3 How might HRM in Southern Europe generally differ from HRM in Northern

Europe? How might an international company operating in both regions han-

dle these differences?

4 In what ways is the greater trade union presence in Europe an advantage for man-

agers; and in what ways a disadvantage? How, generally, does the relationship of

unions to management differ between the US and Europe?

7 FURTHER READING

••

Brewster, C., Communal, C., Farndale, E., van Ommeren, J., Hegewisch, A. and

Johnson, G. (2001)

The HR Healthcheck: Benchmarking HRM Practices across UK

and Europe

, (Management Research in Practice series), London: Financial Times,

Prentice-Hall.

This research report reviews in what ways HR practice in the UK is similar to or different from

HR practice in other European countries. The report presents data gathered between 1990

and 1999 as part of CRANET (the Cranfield Network) and examines longitudinal trends.

••

Brewster, C., Mayrhofer, W. and Morley, M. (eds) (forthcoming)

Human Resource

Management in Europe: Convergence, Divergence or Statis?

London: Butterworth-

Heinemann.

A student textbook in which local authors use the latest Cranet data to compare HRM in 23

European countries and which considers and attempts to answer questions about convergence

and divergence.

••

Brunstein, I. (ed.) (1995)

Human Resource Management in Western Europe

, Berlin: de

Gruyter.

This book contains chapters on 12 different European countries, each written by a local author

or authors as a summary of extant work.

••

Sparrow, P. and Hiltrop, J.-M. (1994)

European Human Resource Management in

Transition,

London: Prentice-Hall.

An ambitious attempt to put together a theoretical and issue based comparison of a series of

HR issues across Europe and to examine the trends.

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NOTES

1 Much managerial prestige in France is associated with graduating from one

of the grandes écoles. Further formal managerial development later in one’s

career may be considered with suspicion in the sense that it can never replace

a grandes écoles qualification. Nonetheless, the French attach much impor-

tance to education in general and organisations tend to spend above

European average amounts on further training and developing their employ-

ees and managers (see Figure 7.5).

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2 Details of the HRM surveys carried out through the Cranet network are

available in Brewster and Hegewisch (1994) and in Brewster et al. (2003

forthcoming).

3 People working part-time in the EU-15 represent 18% of the total employed

workforce. Although the majority of part-time workers are women (84%), it

would be a myth to say that most women work part-time. Indeed, the major-

ity of women in employment are actually in full-time jobs (66%) – year 2000

statistics (Eurostat, 2002).

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8 HRM in East Asia

Ying Zhu and Malcolm Warner

1 Introduction 195

2 Traditional philosophical thinking and its implications 196

3 Capitalist market economies: Japan and Taiwan 201

4 Socialist market economies: China and Vietnam 208

5 Conclusion 216

6 Discussion questions 216

7 Further reading 217

References 217

1 INTRODUCTION

Since the 1960s, East Asia has been regarded as the region with the most rapid

economic development in the world. In the context of such rapid develop-

ment, being able to find a suitable HRM model was essential for countries in

the East Asian region. Economic success in this part of the world has often been

explained in culturalist terms, at least by a number of leading writers on Asian

management (Redding, 1995). However, we believe that other factors such as

political, economic and historical influences also shape managerial thinking

and practices. In this chapter, we therefore explore the interplay between wider

cultural factors and other factors (i.e. political, economic and historical) as they

affect HRM in business organisational settings. We are aware of the diversity of

management patterns in the East Asian region and do not claim that a homo-

geneous Asian HRM model exists.

CHAPTER CONTENTS

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The purpose of this chapter is to compare and contrast current HRM strategies

and practices in four East Asia economies, namely Japan, Taiwan, China and

Vietnam. The rationale of such selection and classification is based on the

following considerations: (1) we want to cover the diversity of HRM strategies and

practices in this region; (2) we want to explore the interplay between cultural

factors and political, economic and historical influences that affect HRM. The

four cases have similar traditional philosophical roots, but political, economic

and historical factors set them apart. We distinguish two groups of countries.

The first group includes Japan and Taiwan and represents capitalist industri-

alised economies. China and Vietnam are selected to represent a different type

of society, namely a socialist market economy. Generally speaking, the four

cases represent different stages of economic development, ideological orienta-

tion, maturity of managerial and market knowledge but share a similar tradi-

tional philosophical foundation.

This chapter is structured as follows: Section 2 reviews the traditional

philosophical thinking and illustrates the underlying cultural factors that may

be responsible for the development of their unique HRM approaches; Section

3 illustrates the HRM strategies and practices in Japan and Taiwan, while

Section 4 does the same for China and Vietnam. Finally Section 5 concludes

the chapter by highlighting the expectations for the future and the contribu-

tion for managerial thinking.

2 TRADITIONAL PHILOSOPHICAL THINKING

AND ITS IMPLICATIONS

Generally speaking, traditional philosophical thinking in East Asia is rooted in

ancient China thousands of years ago. During the period of Spring Autumn

Warring States (770–221

BC), many different philosophical schools emerged in

an age when old social rules (early Zhou dynasty 11th century – 771

BC) were

collapsing and the search was on for new systems of thought to explain the

resulting chaos (McGreal, 1995: 62). This era was named the ‘contention of a

hundred schools of thought’ (Chu, 1995). Three major domains dominated tra-

ditional thinking and are relevant to management: Confucianism, Daoism,

and War Strategies. One of the characteristics of Chinese thinking is that it does

not divide the search for knowledge into separate and rigid categories with a

separate set of principles governing each domain. Different philosophies

benefit from each other and efforts to combine philosophical approaches are

common. A typical example of such efforts can be found in War Strategy and

later Neo-Confucianism (

AD 1130–1200).

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Traditional philosophies

Confucianism

Confucius (Kongzi, 551–479 BC) developed a set of teachings based on absolute

respect for tradition (early Zhou Dynasty) and on a carefully ranked hierarchy

founded on primary relationships between members of families and between the

people and their rulers (De Mente, 1994). It has been seen as a philosophy guiding

people’s daily life. The major ideas of Confucius were three basic guides (i.e. ruler

guides subject, father guides son, and husband guides wife), five constant virtues

(i.e. benevolence, righteousness, propriety, wisdom, and fidelity), and the doctrine

of harmony. Confucius believed that Ren or human heartedness/benevolence is

the highest virtue an individual can attain and that this is the ultimate goal of

education (McGreal, 1995). Ren is a strictly natural and humanistic love, based

upon spontaneous feelings cultivated through education.

The path to the attainment of Ren is the practice of Li. Li can be interpreted

as rituals, rites or proprieties. In its broadest sense, the term includes all moral

codes and social institutions. In its fundamental but narrow sense, it means

socially acceptable forms of behaviour (McGreal, 1995). In addition, Li involves

the deliberate devices used by the intellectuals to educate people and maintain

social order. Since Li is a term for moral codes and social institutions, people

are tempted to think that the practice of Li (proprieties) is intended to enforce

conformity with social order at the cost of individuality (McGreal, 1995).

However, in Confucianism, an individual is not an isolated entity. Confucius

said, ‘In order to establish oneself, one has to establish others. This is the way

of a person of Ren’ (McGreal, 1995: 5). Therefore, individualisation and sociali-

sation are two aspects of the same process.

The principle governing the adoption of Li is Yi, which means righteous-

ness or proper character and is a principle of rationality. Yi is the habitual prac-

tice of expressing one’s cultivated feeling at the right times and in the right

places. Confucius said: ‘Junzi (a perfect person or superior) is conscious of, and

receptive to Yi, but Xiaoren (a petty person) is conscious of, and receptive to

gains’ (McGreal, 1995: 6).

According to Confucius, the right method of governing is not by legisla-

tion and law enforcement, but by supervising the moral education of the people

(McGreal, 1995: 6). The ideal government for him is a government of wuwei

(non-action) based on the solid groundwork of moral education. The reason

given by Confucius is: ‘If you lead the people with political force and restrict

them with law and punishment, they can just avoid law violation, but will

have no sense of honour and shame. If you lead them with morality and guide

them with Li, they will develop a sense of honour and shame, and will do good

of their own accord’ (McGreal, 1995: 7). This is the doctrine of appealing to the

human heart: self-realisation toward external world peace (harmony) and a

peaceful world and orderly society are the ultimate goal of Confucianism.

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Daoism

Certainly, Confucianism dominated Chinese philosophy for many years.

However, other philosophies before and after Confucianism were also influen-

tial, albeit with different emphases. Daoism is one of the other influential

schools of thinking. The founding father of Daoism, Lao Zi (6th century

BC–?)

introduced the idea of yielding to the primordial ways of the universe

(Whiteley et al., 2000). Everything in the universe follows certain patterns and

processes that escape precise definition and imprecisely this is called Dao, the

‘Way’ (McGreal, 1995: 9). In his work entitled Daode Jing (Classic of the Way

and Its Power), Lao Zi claimed that De (virtue) cannot be strived for, but

emerges naturally. The best ‘Way’ to act or think is wuwei (effortless activity).

However, the most important element of Daoism is the ‘Oneness’ and Yin-

Yang. In Lao Zi’s work, he indicated that ‘Dao produces one. One produces two.

Two produces three. And three produces ten thousand things (i.e. everything).

The ten thousand things carry Yin and embrace Yang. By combining these

forces, harmony is created’ (Daode Jing, Verse 42). These can be understood as

the fundamentals of the universe that contains the polar complements of Yin

and Yang. Yin represents the dark, recessive, soft, feminine, low, contractive,

centripetal, short, hollow, empty, and so forth, and Yang represents the light,

dominant, hard, masculine, high, expansive, centrifugal, long, full, and solid.

Nothing is ever purely one or the other; rather all things are in flux between

one pole and its opposite (McGreal, 1995: 14).

De is the second important concept within Daoism. De, usually translated

as ‘virtue’ or ‘power’, is an object’s personal stock of Dao, or, put another way,

it is the natural potential or potency instilled within one. In contrast to

Confucians who refer to De as a moral term, for Lao Zi De signifies natural abil-

ities that enable things to be their best spontaneously and effortlessly

(McGreal, 1995: 13). Furthermore, Lao Zi argued that once ineffectual Ren has

degenerated into rules, the conditions for conflict, rebellion and repression

have emerged. Since rules advise doing something unnaturally through human

intervention, there will always be someone who will refuse to comply. For a

rule to remain meaningful and not become an empty rule, compliance must be

enforced (McGreal, 1995: 13).

For Lao Zi, balance between the poles does not mean static parity, but a

dynamic reversion that perpetually counterbalances all propensities toward

one extreme or the other. However, the world tends to favour the Yang while

ignoring or denigrating the Yin. Daoism aims to rebalance this by emphasising

Yin over Yang. In Daode Jing, Lao Zi claimed: ‘Human beings are born soft and

flexible; when they die they are hard and stiff. Plants arise soft and delicate,

when they die they are withered and dry. Thus, the hard and stiff are disciples

of death; the soft and flexible are disciples of life. An inflexible army is not

victorious; an unbending tree will break’ (Daode Jing, Verse 76). Therefore, Daoism

provides enlightenment for human beings to understand and follow the funda-

mental cycle of the universe.

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Bing Fa (War Strategies)

Bing Fa is a form of strategic thinking that was first developed for military

purposes and has since been applied to almost all human interactions. It was writ-

ten down by Sun Zi in the fourth century

BC. In his book Sun Zi Bing Fa, Sun Zi

discussed the five elements that must be considered in formulating a strategy

(Chu, 1995: 25–30): (1) the moral cause: the Dao addresses the morality and

righteousness of a battle; (2) temporal conditions: heaven is signified by Yin

and Yang, manifested as summer and winter and the changing of the four

seasons; (3) geographical conditions: the earth contains far and near, danger

and ease, open ground and narrow passes; (4) leadership: the commander must

be wise, trustful, benevolent, courageous, and strict; (5) organisation and disci-

pline: organisation and discipline must be thoroughly understood. Delegation

of authority and areas of responsibility within an organisation must be

absolutely clear. The harmony of the five elements is of great importance to

success in any endeavour (Chu, 1995: 32). These elements are intangible, spiri-

tual, psychological and are more related to people’s mindset.

Implications for HRM practices

From the above review we can summarise the underlying elements that may be

responsible for the development of modern HRM concepts in Asia. The fol-

lowing key issues can be identified as the fundamental relational values that

determine the formation of managerial knowledge based on a combination of

types of Chinese traditional thinking.

1 The establishment of the fundamental virtue of Ren (heartedness/

benevolence) within the organisation. Under such influence, the con-

cept of ‘workplace is family’ is widespread among Chinese organi-

sations. It requires organisation/management to look after the interests

of fellow employees, while employees have high commitment to the

organisation. The outcome of implementing this relational virtue can

be reflected in management and individual behaviours, such as employ-

ment security, compensation and reward schemes, training (as part of

educational function) and development (including promotion) systems

from the management aspect, and high commitment, self-discipline,

and the blurred time boundary between work and leisure (more over-

time work) and so on from the employee aspect. The eventual goal of

such efforts is to achieve a peaceful and orderly workplace.

2 Collectivism and interdependent relational value: It is a well-defined

principle within Confucianism that an individual is not an isolated

entity. Therefore, the concept of family life as the basic unit in the society

is emulated in the work setting and with it the broader societal values

that ensure that social harmony and behavioural ritual are preserved

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(Scarborough, 1998; Yau, 1988; Whiteley et al., 2000). HRM practices

such as teamwork, sharing values and information, and group-oriented

incentive schemes are based on the foundation of collectivism.

3 The doctrine of harmony and the balance between Yin and Yang: the

effort to achieve harmonisation of the workplace and maintain a

dynamic reversion that perpetually counterbalances all propensities

towards one extreme or the other puts the organisation in a stable and

sustained position. The concept of Yin and Yang provides a mindset for

coping with the environment in an adaptive and flexible way.

4 Bing Fa and the philosophy of war strategy leads to strategic thinking

and strategic management: the ever-changing nature of internal and

external factors forces human beings to adopt strategic thinking in

order to survive not only in the short term, but also in the long term.

The outcome of combining different philosophies such as Bing Fa pro-

vides the general guidance for strategic thinking which helps organi-

sations to form business strategies.

5 The virtues and quality of leadership emphasised by Confucianism were

adopted by current management thinking in the area of leadership:

managerial leadership requires the qualities of wisdom, trust, sincerity,

benevolence, courage, and strictness to carry out policies (Chu, 1995: 29).

If managers lack these qualities, they will experience a shortage of sup-

port from employees, and the consequence will be low productivity and

discontent.

From these key elements of HRM, we can see that traditional thinking has a

profound influence on the formation and practices of modern managerial

approaches. In the next section, our country cases show that these elements

can be identified in their strategic thinking as well as HRM practices. However,

modification is necessary for individual countries in order to make their HRM

approach more relevant to their social, political and economic environments.

Hence, different HRM strategies and practices do exist in these four countries,

and that reflects the modification process. In the next two sections, we com-

pare and contrast four cases: Japan and Taiwan representing more developed

economies under the capitalist market economic system, and China and

Vietnam representing less developed economies under the socialist market eco-

nomic system. All of them were influenced by ancient Chinese philosophies

and such cultural roots led to some similarity in HRM strategies and practices.

However, the four countries experienced different histories and have different

political and economic environments. Hence, these factors may have reshaped

their HRM strategies and practices. It is clear that differences did and still do

exist among them.

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3 CAPITALIST MARKET ECONOMIES: JAPAN AND TAIWAN

It is interesting to compare and contrast Japan and Taiwan: each of them can

be identified as an island economy although their population base is different

in scale; both of them experienced the domination of a feudalist agrarian eco-

nomy and have transformed to state-led capitalism and industrialisation, and

more recently to a more open capitalist market economy; and Japan colonised

Taiwan for the first half of the twentieth century. Hence, similarities as well as

differences can be found, as we shall see.

Japan

In Japan, three ‘pillars’ have been identified as the foundation of the tradi-

tional Japanese HRM model, namely long-term employment (i.e. life-time

employment), seniority-based wage system (wage increases are determined by

the age and length of service of workers within the company) and enterprise

labour unions (Sano, 1995). The management pattern in post-war Japan has

been defined as paternalist in which employers relate to employees as parents

and the company is seen as a ‘family’.

From the cultural point of view, these Japanese characteristics of HRM are

rooted in tradition. The cultural background of the society plays a significant

role in the formation of company culture, expressions such as mura shakai (a

village society), shudan shugi (group-orientation), onjo shugi (paternalism),

nenko joretsu (seniority-base), danson johi (male domination), tate shakai (verti-

cal society or hierarchy) are used as part of organisational culture (Sano, 1995:

25). In the traditional Japanese management style, people are important and

enterprise costs are not thought about all that much. It is the vision that domi-

nates Japanese organisational culture with the focus on their people. In return,

a highly committed workforce strengthens the unity of the organisation. The

outcome here could reasonably be expected to be lower turnover and absen-

teeism and higher productivity.

However, such neo-Confucian virtual-oriented HRM practices did not

come automatically or without struggle in post-war Japan (see Gordon, 2001).

In the 1950s and early 1960s, the labour movement was very active and

through the struggle of labour unions and compromise with the government

and employers, the so-called ‘three pillars’ of the Japanese HRM model

(employment security, seniority wage systems, and enterprise labour unions)

were established (Mackerras, 1992: 373–376). Not only were these fundamental

issues of Japanese HRM gradually developed, but other related aspects with

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unique Japanese characteristics in the areas of recruitment, training and

development, group-based activities including decision-making, quality control

and incentives, and other management practices such as just-in-time (JIT) and

total quality management (TQM) were also being adopted (Sako and Sato, 1997).

In post-war Japan, employees were recruited from different levels of grad-

uates. The first group were factory workers who came from regional middle

schools. The second were high school graduates who would work as factory

workers or lower level clerks. The third was composed of administrative strata

candidates who had experienced an urban lifestyle, came from the middle class

and were university graduates (Sano, 1995). While each group was distinct, the

common denominator was the fact that they were selected directly after grad-

uation without work experience. Selection was related not to special technical

skills or knowledge, but to more general abilities and characteristics.

Individuals would follow the organisational needs for their career development

and the company would provide training for individuals to achieve that goal.

Therefore, training and development are crucial for both individuals and

organisations to be able to fulfil the operational tasks in both the short and

long term. In Japanese organisations, internal training and development are

pivotal HRM functions (Morishima, 1999: 331). As Koike (1988 and 1992)

found, the Japanese training system emphasises the content of employee learn-

ing on the job; so-called ‘on-the-job training’ (OJT). Most Japanese firms pay

attention to problem-solving and decision-making skills for routine and non-

routine problems and systematically use OJT to train workers to handle pro-

gressively difficult non-routine operations.

The philosophy of collectivism is also found in the Japanese organisation

in terms of its group-oriented approach. Group-based activities include team-

work and decision-making. Quality control and incentives are common man-

agerial practices. In the Japanese organisation, decisions are group-based (Sano,

1995). Employee participation and the reaching of consensus are important

steps in the decision-making process. It may take time to make the final deci-

sion but implementation can then be quick and smooth due to the better

understanding of a particular decision among employees. Total quality man-

agement (TQM) and quality control circles (QCC) are also practices based on

the philosophy of collectivism. QCC usually involves seven or eight workers

from the same work unit and aims not just at the satisfactory execution of

duties assigned to the unit, but also at the improvement (Kaizen) of productiv-

ity, product quality and the work environment (Watanabe, 2000: 314). It is a

collective effort to implement changes for better outcomes and it provides

valuable learning opportunities for employees. In addition, it motivates people

to design and manage their own work (ibid.). Another group-based activity

relates to the payment of bonuses. A bonus is usually considered as a specific

individual incentive, however in Japan the bonus calculation to a large degree

reflects organisational/group performance rather than individual performance.

It is usually paid twice a year and is equivalent to three to five months’

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salary (Sano, 1995). This shows that even in the incentive scheme, a collective

orientation is still the fundamental consideration.

Recent attempts at reform

Challenges such as the recent economic recession and global competition have

built up the pressure on the Japanese organisation to modify HRM strategies

and practices, although the change is very slow (Benson and Debroux, 1998).

The recent changes can be seen in both government policies and enterprises’

initiatives. From the government point of view, job creation and training have

become the most important issues since 1997. Therefore, the government has

provided a substantial financial support for tackling these issues. In addition,

the Ministry of Labour (MOL) promoted mobility of employees (e.g. the Shukko

Scheme: external mobility; and the Haken Scheme: internal mobility) through

government financial support and extended the retirement age from 60 to 65

in order to handle the problem of an ageing population.

From the enterprises’ point of view, reform has been relatively slow. Global

competition, domestic economic restructuring and company internal reorgani-

sation led to a situation of uncertainty and anxiety among both managers and

employees. In the area of human resource management, there are several new

initiatives but key elements remain unchanged. For instance, most companies

adopt two ways of recruitment now. One is the traditional way of recruiting grad-

uates from colleges and universities. Another is a relatively new way of recruiting

mid-career professionals and technicians. Job allocation becomes more skill- and

task-oriented compared with the traditional general-duty orientation.

Compensation is the major area of reform among the majority of Japanese

enterprises. Companies use different methods to implement compensation

policy with a similar goal, which is to promote and reward people who make

contributions to their organisation. The seniority-based pay system has been

gradually replaced by a performance-based and skill/knowledge-based pay sys-

tem (see Watanabe, 2000: 327). There is also a gradual change of the promo-

tion scheme from the traditional age/seniority-oriented promotion system to a

more capability/leadership-oriented system. Promotion now is closely linked

with the annual appraisal and compensation scheme. Following the policy of

restructuring and reorganisation of economy and enterprises, labour mobility

has been increasing in recent years. Many companies adopt Shukko (external)

and Haken (internal) mobility schemes.

However, most HR managers are still playing a passive role. They are not

part of the decision-making team. They are normally required by the senior

management to provide advice and proposals for HR related issues. In most

small companies, the general manager or the manager’s assistant takes up the

HR management function. Trade unions are also facing a challenge. Economic

down-turn has had a profound impact on the well-being of working men and

women. Unions are trying hard to raise their popularity and protect member

workers. Key issues have been addressed by the trade union movement, such

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as: using the strength of industrial unions to protect members from being

unfairly dismissed by companies during the economic down-turn; increasing

membership by providing support for employees working in small and

medium enterprises; creating dialogue with management through partnership

and cooperation with management; providing training for laid-off employees

and helping them to be re-employed, while reducing the problem of mismatch

between the job and the employee’s skills.

Taiwan

The Taiwanese management system is rooted in the traditional Chinese culture

and values and includes predominantly small-sized family businesses, coupled

with strong family control and an extensive subcontracting business network

(Chen, 1995). In the first half of the twentieth century, Taiwan was colonised

by Japan and the Japanese influence was widespread, including its manage-

ment system. Taiwan gradually developed large businesses in the capital-intensive

sector owned and/or controlled by the state under the Nationalist government

since the late 1940s (Lee, 1995).

Generally speaking, the characteristics of the Taiwanese management

system can be summarised as: obvious hierarchies, paternalist beliefs and prac-

tices with an emphasis on personal loyalty and commitment, the emphasis on

the moral superiority and greater rationality of leaders, and the importance of

personal connections and contacts (so-called guanxi) in business operation and

individual life (Chen, 1995). Those characteristics are rooted in Confucianism,

which emphasises hierarchy, harmony, and the tendency to cultivate indivi-

duals into a family- and group-oriented and socially dependent being.

Export expansion period and technology-intensive

industry expansion period

Different stages of economic development are accompanied by different

management patterns. In Taiwan, for instance, economic development since

the 1960s can be divided into two stages: the export expansion period between

1961 and 1980 and the technology-intensive industries’ expansion period from

1981 to recent years (Lee, 1995; Zhu et al., 2000). HRM in Taiwan also changed

during the two periods.

The main characteristics of HRM during the export expansion period can

be identified as follows:

1 Recruitment: recruiting blue-collar workers relied heavily on informal

channels, i.e. employee referral and company network. For recruitment

of white-collar workers, formal channels were preferred to informal

ones. Since most of the middle- and high-ranking management posi-

tions were filled either by the owners’ family members or by internal

promotions, little recruiting activity took place (Lee, 1995: 92).

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2 Company-sponsored training was not popular during this period.

Apprenticeships were also not common in Taiwan. However, as a rule,

more skilled workers received formal on-the-job training (OJT) than did

semi-skilled and unskilled workers, and foreign-owned companies

offered more OJT programmes than did local companies (Lee, 1995: 93).

3 The compensation package included basic pay and various types of

bonuses, such as year-end, competition, invention, long-services and so

on (Chen, 1998: 160). It was common practice for Taiwanese companies

to adopt the Japanese seniority-based wage system for base pay (Lee,

1995: 110). With the traditional culture of avoiding conflict between

management and employees, most workers could be promoted along

the grades of their job titles if their annual performances were classified

as ‘above-average’ (Chen, 1998: 161).

4 Trade unions were controlled by the government during this period

(Zhu et al., 2000). The ruling Kumintang (KMT) party guided most

unions through local government control over the election of union

officials, through the fostering of KMT branches at workplaces and

through ‘supervision’ by larger affiliates of the sole national union peak

organization, the Chinese Federation of Labour (CFL) (Zhu et al., 2000:

38). Therefore, the government was able to maintain a low minimum

wage and control the adjustment of wage rates in the public sector (Lee,

1995: 98).

However, during the technology-intensive industries’ expansion period, not

only did the structure of the economy change quickly, but so did industrial

relations, human resource management practices, and the government’s labour

policies. The industrial system became more complex and formal, and govern-

ment policy shifted towards a more pro-labour orientation. The outcome was

that the government amended some labour laws in the 1980s, including the

Collective Agreement Law in 1982 (in conjunction with the Labour Union Law

enacted in 1929 and last amended in 1975), the Labour Disputes Law and the

Labour Insurance Act in 1988, and the Vocational Training Act in 1983. The

ruling Nationist Party (KMT) controlled most unions at workplaces and

through ‘supervision’ by larger affiliates of the national union organization –

the Chinese Federation of Labour (CFL).

The changes in industrial structure and government policy and legislation

have had a profound impact on HRM and the structure of organisation in

Taiwan. To cope with the increase in production costs employers adopted

many strategies, such as employing lower-wage foreign workers with the per-

mission of the government (companies can employ foreign workers up to 30%

of its total employees) (Zhu et al., 2000), improving the efficiency of the work-

force by providing more training, introducing automated machinery to substi-

tute for labour, and subcontracting work (Lee, 1995: 105). In addition, to

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search for new competitive advantages many companies from Taiwan relocated

their operations to low-wage countries, especially in mainland China and

South-East Asia (Zhu and Warner, 2001).

SMEs and state-owned LEs

Different enterprises had different approaches to the changes in the labour

market and the challenges of global economic competition. Two major vari-

ables are family-based small- and medium-sized enterprises (SMEs) and state-

owned large-sized enterprises (LEs). SMEs have been seen as the most dynamic

and flexible sector determining Taiwanese economic growth (see Hamilton,

1997). However, since the mid-1980s, more SMEs have felt the environment

becoming less favourable for their business in Taiwan: higher business costs

and more regulations control their business operations. In addition, inter-

national competition is forcing them to reorganise their businesses in order to

survive. The major changes include internationalisation of business operations,

professional management and more flexible HRM and marketing strategies.

The SMEs still have a centralised decision-making process. However, there

is a tendency now for owners gradually to withdraw from routine management

activities. Some high-ranking managers are trained and promoted within the

companies and are not necessarily family members. Management professional-

ism is becoming more important and it is a kind of response to the criticism of

managerial nepotism. During the recent financial crisis, more companies

realised that more effective management and relevant skills were crucial to

business survival. Therefore, middle-level managers and skilled employees

may be recruited externally from formal employment agencies. Most SMEs

now pay attention to both pre- and ongoing types of training in order to cope

with market changes and link the skills of employees with the needs of produc-

tion. The compensation package has not been changed and the philosophy of

‘harmony’ still plays an important role in wage determination. Therefore, the

wage-gap between top managers and bottom employees is about five times,

which is much lower than that in foreign owned enterprises (FOEs), where

sometimes it is over 20 times (e.g. in the US firms) (Zhu and Warner, 2001).

Trade unions have always been weak in SMEs. Although the Trade Union

Law (1975) required unions to be established in workplaces in most sectors

with more than 30 employees (Lee, 1988: 188–191; cf. Warner, 1995), the real-

ity is that even now a large number of SMEs are without union organisation.

In addition, the major tasks of unions in these firms are rather narrowly

defined, such as communicating with and assisting management, organising

annual union meetings and collective agreements with management once

every three years. There is a general sense that the managers in SMEs do not

want union involvement in decision-making (Zhu and Warner, 2001).

On the other hand, the state-owned LEs in Taiwan for years enjoyed mono-

poly status in key sectors. This was in the strategic industrial areas with strong sup-

port provided by the government. However, in recent years, privatisation and

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marketisation have dominated the economic decision-making process and these

enterprises are facing restructuring and reform.

Generally speaking, LEs have well-established systems of external recruit-

ment of managers. Through examination, interview and evaluation proce-

dures, state-owned enterprises (SOEs) can obtain the most capable people from

outside their organisation. For a long time, people preferred the situation

within LEs for its security, better pay and welfare, good working environment,

and social prestige; this made recruitment even more competitive. Therefore,

the qualifications of managers in these enterprises still remain the highest,

with a superior level of university graduate and postgraduate. In addition, pub-

lic recruitment of employees is the major recruiting channel for LEs. However,

the public sector is not allowed to employ foreign workers. In terms of train-

ing, both on-the-job training and professional training are provided by the

enterprises. The compensation package has not been changed either. In fact,

among all types of enterprises, LEs seem to have the highest salary levels.

Bonuses are paid as a group incentive with an equivalence of three- to four-

month wages (Zhu and Warner, 2001).

The trade unions in the Taiwanese public sector have remained subservient

to the government for a long period (Frenkel et al., 1993). Even now, trade

unions in these state-owned LEs are not wholly independent, though they

have a strong membership base and bureaucracy. The functions of unions were

described as ‘promoting enterprise productivity as well as protecting workers’

interests’, and there is a strong sense of the ‘dual’ role of trade unions as a use-

ful bridge between employees and management to guarantee smooth indus-

trial relations (Zhu et al., 2000).

Summary of Asian capitalist market economies

We see that HRM policies and practices in Japan and Taiwan were under the

influence of the traditional culture and the changing political and economic

environments. Key characteristics such as collectivism, harmony, loyalty, quality

of leadership and hierarchy, and strategic thinking can be found in both

Japanese and Taiwanese management systems. Those characteristics are

reflected in HRM such as group-oriented production activity (teamwork),

group-based performance evaluation and incentives, a relatively close salary

gap between management and employees, cooperative and harmonised

labour–management relations, relatively high employee commitment to the

company in return for internal promotion and a seniority-based wage system.

In addition, strategic thinking and strategic management are dealing with

changes, in particular during the period of economic transition and crisis. In

recent years, both increasing global competition and the Asian financial crisis

have forced the government and enterprises in Japan and Taiwan to adopt

more flexible policies and management systems. The new political environment,

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a reformed legal framework and economic pressure added new dimensions to

HRM, though the changes are not rapid enough for policy makers, especially

in Japan. However, the evidence shows that traditional culture still has a pro-

found influence on HRM policies and practices, despite political, economic and

historical factors.

4 SOCIALIST MARKET ECONOMIES: CHINA AND VIETNAM

China and Vietnam represent a different political and economic system that is

still nominally influential both ideologically and politically. Both of them have

a similar traditional culture, predominantly Confucianism, and in recent years,

they have transformed from a centrally planed socialist system to a more

market oriented economy, but still with so-called ‘socialist characteristics’.

Economic reforms and an open door policy have led to significant changes in

these socialist market economies. The emergence of new interest groups, the

inflow of foreign capital and the diversity of ownership of enterprises, and a

large and floating population moving from the countryside to the cities, have

accentuated conflicts of interest and require a more relevant employment rela-

tions policy at a macro level and HRM strategies at a micro level to cope with

these challenges.

China

China is the birthplace of the ancient philosophies that influenced the East

Asian region. In China, Confucianism handed down the idea of correct behav-

iour and rules of conduct, and Daoism provided the knowledge of rituals and

laws of nature. In some form or another, these were preserved through the ages

right to the time of late Qing Dynasty, around the time that the industrial rev-

olution was happening in the West. Under the challenges of Western coloni-

sation, China was seen as backward and needing to be reformed and rejuvenated

(McGreal, 1995: 134). At this time Chinese scholars and philosophers were in

a transitional age making efforts to synthesise Western and Chinese philoso-

phies (Whiteley et al., 2000: 36). However, China did not experience business

in the Western sense during and after the period of the industrial revolution.

In the twentieth century, the Japanese invasion and civil war led to political

and military conflicts and communist ideology eventually prevailed. The

People’s Republic of China (PRC) was established in 1949 under the leadership

of the Chinese Communist Party (CCP), and this event was called ‘Liberation’.

After the Liberation in 1949, China laid the foundations of its industrial

and labour relations system, particularly during the 1950s, but there was great

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turbulence and upheaval over the decade or so following the laying down of

these foundations. China was turned ‘upside down’ by the ebb and flow of

radical change which occurred at that time, during the ten years of Cultural

Revolution (1966–1976), which was led by the CCP Chairman Mao Zedong in

an attempt to remove the party from the influence of the bourgeoisie (mainly

intellectuals). At the end of the Cultural Revolution, the Chinese economy was

nearly bankrupt: almost 100 million people had barely enough food and cloth-

ing, the level of enterprise performance was weak and unlikely to improve

greatly under a system in which the workers were not strongly motivated (Zhu

and Warner, 2000).

The year 1976 marked the end of an era: Mao Zedong died. In order to

develop the economy and achieve the goal of ‘modernisation’, under the new

leadership of Deng Xiao-ping, China adopted economic reform and an ‘open

door’ policy for foreign investment and international trade (Zhu and Warner,

2000). Both Western technology and management systems and the Japanese pat-

tern of economic development and management were encouraged as models to be

transferred into Chinese economic and management systems (see Child, 1994). In

order to understand the transformation of Chinese management systems, we need to

highlight the differences between the pre-reform period and the reform period.

Pre-reform period (1949–1979)

The development of the Chinese system during the pre-reform period was cov-

ered under the so-called ‘Socialist Superiority’ values in the following significant

ways: (1) employment security, seniority, social welfare, and party/management

leadership (central control) were labelled the ‘advantages’ of the ‘socialist system’;

(2) trade unions mainly played a ‘window- dressing’ role but this was explained

away as leading to ‘industrial harmony’; (3) narrow wage differentials were

praised as ‘egalitarian’; (4) life-time employment with a seniority-based wage

system was introduced; (5) the traditional kinship system was modified into a

‘revolutionary’ relationship, as relationships (guanxi) with powerful leaders deter-

mined the path of an individual career; (6) the goals of the work-unit (danwei)

required individual sacrifice not only for the unit but also for the nation;

(7) political interests replaced economic interests as dominating influences in the

Industrial Relations system; (8) as a consequence, workers lost their motivation

for production and both the economic system and management systems col-

lapsed at the end of the Cultural Revolution in 1976.

The reform period (1979–now)

In the reform period, the main task was reforming the IR system and trans-

forming it into a new one embodying employment relations and HRM. New

policies were mainly centred on the reform of wages, employment, welfare and

management. The reforming initiatives of the government have been broadly

defined as breaking the ‘three irons’: ‘iron rice-bowl’ refers to life-time employ-

ment, ‘iron wages’ refers to the fixed wage system, and ‘iron chair’ refers to the

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inflexibility of the position of cadre and manager. In contrast, more flexible

systems such as labour contract systems, floating wage systems, and cadre and

manager engagement systems were established (Yuan, 1990).

Under Deng Xiao-ping’s new ideological position, policy shifted to restore

the principle of ‘distribution according to work’ and to link individual perfor-

mance, skills and position with income in order to generate motivation for

greater production (Zhu and Campbell, 1996). New types of wage systems were

introduced such as the ‘piece (-work) wage system’, ‘bonus system’ and later

‘structural wage system’, ‘floating wage system’ (Li, 1992) and ‘post plus skills

wage system’ (Warner, 1997). This new wage policy was designed to break one

of the three irons – ‘iron wages’. This step was important because the economic

reform process called for greater efficiency in factor allocation, with labour

flexibility a priority.

Allowing variations in rewards based on productivity was part and parcel

of this reform. Moreover, labour was to be encouraged to move from less pro-

ductive firms to more efficient ones. Immobility of labour had been a feature

of the old system dominated by the SOEs, where there was overmanning and

zero turnover of workers. The new initiative was to create a labour market and

encourage labour mobility. Creating an effective labour market was therefore

high on the reformers’ agenda. However, improvements in labour mobility

were not to take place overnight. Even by the late 1990s, the level of job mobil-

ity was relatively low in many SOEs although it was rising in the non-state

sector, for example joint ventures (JVs) especially in large cities like Shanghai.

Managing human resources

With the reforms of the employment system, a new terminology of human

resource management came to China in the middle of the 1980s (see Child, 1994;

Warner, 1995, 1999). Initially, HRM as an academic concept was introduced by

joint teaching arrangements between Chinese and foreign universities as well

as in management practice in foreign-owned enterprises, mainly from Japan,

the US and Europe (Warner, 1995). The translation of HRM into Chinese is renli

ziyuan guanli (with the same Chinese characters as in Japanese) which means

‘labour force resources management’. But in fact, some people now use it mis-

leadingly as a synonym for ‘Personnel Management’ (renshi guanli) and indeed

treat it as such (Warner, 1997). This form of older personnel management prac-

tice is still very common in SOEs and a fair degree of conservatism continues

to pervade the administration of personnel in such enterprises. Certainly, it is

still very far from the initial concept of HRM as understood in the international

community (Poole, 1997).

In parallel, attempts were made to import ‘enterprise culture’, a ‘code-word’

for adopting and adapting the Japanese model (Chan, 1995). This is normally

found in firms entering JV arrangements with Japanese multinational compa-

nies or where the Japanese have set up wholly owned firms on site. Some aspects

of the Japanese management system such as the quality control circles (QCC)

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and total quality control (TQC) have been practised in both local and foreign

companies. However, the system is adapted to local laws and practices.

The term HRM is in fact mostly de rigueur in the more prominent Sino-

foreign JVs, particularly the larger ones. However, even in these types of firms,

management seems to be more inward-looking, with a focus on issues like

wages, welfare and promotion as found in the conventional personnel arrange-

ments rather than strategic ones like long-term development normally associ-

ated with HRM (see Table 8.1). Clearly, at this time, there is no homogeneous

model of HRM in Chinese enterprises. Individual enterprises are reforming

their HRM systems differently on the basis of their existing conditions and the

impact of economic reform.

Vietnam

Vietnamese society has experienced many changes, from the early years of

Chinese political and cultural influence (111

BC – AD 939) through French

colonisation, Japanese invasion, and American occupation, to later communist

rule and independence, and more recently economic reform and engagement

in the global economy. There are marks in Vietnamese society of all these

historical influences.

Fundamentally, the traditional thinking in Vietnam was influenced by

ancient Chinese philosophies, predominantly by Confucianism. Confucianism

came to Vietnam after 111

BC when the Chinese emperor colonised Vietnam

and brought important technology, including water buffalo, the plough, pig

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Employment systems in Chinese enterprises

OLD NEW

Plan Market

Cadres Managers

SOEs and COEs Diverse owners

Life-time employment Labour contracts

Personnel management Adapted-HRM

Flat reward structure Performance-based wages

Zero labour turnover Greater job mobility

Few dismissals Labour discipline

Free medical care Contributory insurance

Subsidised housing Market rentals or sales

All-China Federation of Trade Unions presence Often no union or Congress

Top-down IR Tripartism

TABLE 8.1

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rearing, market gardening, printing, minting of coins, silkworm breeding,

porcelain manufacture and international trade to Vietnam. In addition,

Chinese models of bureaucracy, judicial systems and education systems were

implemented in Vietnamese society. Even the written language was based on

the Chinese characters. This fundamental influence still exists in contempo-

rary Vietnamese society.

After World War II, Vietnam was divided into North and South, until uni-

fication in 1975. For many years, Vietnam has been the focal point of the

struggle for and against colonialism, of the ideological war between capitalism

and socialism and, more recently, of the conflict between different approaches

to economic reforms. In Vietnam certain cultural and socio-economic differ-

ences between North and South pre-date the formal separation of the two

regions in 1954 (Beresford, 1989). However, the socialist central planning sys-

tem based on neo-Stalinist doctrine dominated the country from 1954 in the

North and since 1975 in the South. The development of heavy industry was

the state’s first economic priority. State-owned enterprises and collective-

owned enterprises (COEs) were the only sectors permitted to operate in this

economic system. Their activities were heavily subsidised and all prices were

fixed by the state.

Vietnam took its first steps towards economic reform in 1986, marked by

the Sixth National Congress of the Vietnamese Communist Party’s resolution

of ‘doi moi’, namely economic renovation (Perkins, 1993; Ljunggren, 1993).

Under the doi moi policy, the government wanted to promote economic develop-

ment by introducing a market-oriented economic system with enterprise

autonomy and by opening the economy for international trade and invest-

ment (Chan and Norlund, 1999; Zhu and Fahey, 2000). Among the reform’s

initiatives, changing the employment relations system is the critical point at

which economic imperatives spill over into social and political considerations.

Pre-reform period (1975–1986)

Under the pre-reform system, SOEs were integrated into a system of mandatory

state planning. Enterprise inputs, including labour, were assigned by govern-

ment plan. Enterprises did not necessarily acquire labour with the right skills

set and were invariably overstaffed because the labour administration arranged

employees for individual firms (Doanh and Tran, 1998). In addition, enter-

prises had few ways to motivate or discipline employees. The reward system

had only an indirect relation to enterprise efficiency and individual labour

effort. It was based on a narrowly defined egalitarianism as well as the tendency

to reward labour on the grounds of seniority and contribution to the party as

well as to the war effort in the past. In the area of personnel management, it

had a rigid function in the areas of allocating jobs and managing personnel

files. Due to the absence of a well-developed external labour market, pre-reform

personnel management was inward-looking, with the focus on issues such as

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distribution of wages, provision of welfare and routine promotion of workers

and cadres from lower ranks to higher ranks according to regulations.

Reform period (1986–now)

In the early stages of doi moi (1986–1991), reform of the SOEs was intensified

owing to the loss of financial assistance from the former Soviet Union (Zhu and

Fahey, 1999). In addition, diversity in ownership of enterprises emerged. Not

only have the traditional SOEs been transformed into new ventures, such as

group companies or Joint Stock Companies (JSCs), but other private ownership

enterprises have also been developed, such as domestic private enterprises

(DPEs) and foreign-owned enterprises (FOEs) (Zhu, 2002). In order to create a

more flexible employment relations system, the government relinquished its

control over the recruitment and employment of workers. Individual firms

gained the autonomy to decide on the number of workers hired, the terms of

employment and the discharge of employees.

There has been a relatively slow pace in the transforming of life-time

employment into a new contract-employment system, with the predominance

of fixed-term contract employment since the new system was initially intro-

duced in 1987. By the mid-1990s, for example, 2.7 million workers were still

working under the old system (Norlund, 1993). At present, there are three types

of contracts covering different type of employees: the unlimited-term contract

for employees who joined the work unit before the introduction of the new

system; the fixed-term contract with a duration of one to three years for

employees who joined the work unit after the introduction of the new system;

and the temporary contract with a duration of less than one year for casual

workers or seasonal workers (Zhu, 2002). However, due to the economic diffi-

culties in a large number of SOEs, many so-called ‘permanent employees’ who

are under unlimited-term contracts can be retrenched due to further restruc-

turing of SOEs in recent years. So an unlimited-term contract does not mean

any security at all.

Another major change in the area of employment relations is the trans-

formation of wage systems. The central task is transforming the old egalitar-

ian system in which levels of wages were based on length of service to the

new system in which levels of wages link more closely with company and

individual performance in terms of profit, productivity, responsibility and

skills. The employee receives a basic wage and additional benefits accrue from

several forms of bonuses. Some companies can afford to pay cash bonuses

from profit sharing whereas other enterprises may pay wages in kind, from

part of the company’s production, such as clothes that cannot be sold (Zhu

and Fahey, 1999).

The third issue of reforming employment relations is changing the welfare

system into a social insurance system (Norlund, 1993). The old ‘cradle to grave’

type of welfare system (even it covered only the minority of the labour force

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who were working in the public sector) is considered a financial burden for

enterprises. Thus individual firms seek ways to minimise welfare costs. In order

to speed up the reform process and reduce the burden of SOEs, the government

issued a new policy introducing a social insurance system to replace the old

welfare system. According to the government regulation (Decision No. 12/CP,

26/1/1995), firms have to contribute social insurance and health insurance for

their workers. Social insurance comprises 20% of total wages, to which firms

contribute 15% and individual employees contribute 5%. Social insurance

would cover unemployment benefits, retirement benefits, sickness benefit,

maternity allowance and accident allowance as well as compensation for death.

In addition, health insurance comprises 3% of total wages which firms have to

pay entirely. At the present, not only do the majority of SOEs set up this insur-

ance system, but a large number of foreign-owned and domestic private enter-

prises follow the government regulations to set up these insurance funds.

The fourth issue of reforming employment relations is in the area of man-

agement–labour relations. Certainly, the central aim of economic reform is

increasing the autonomy of enterprise management. The results are varied, but

it seems that managers have enjoyed an increase in power. In addition, infor-

mal bargaining remains important to the success of the enterprise and this pro-

ceeds most smoothly through personal connections. Though economic reform

is premised on a reduction of party influence in the enterprise, political net-

works form a readily accessible structure for informal bargaining and personal

connections, which lead to problems ranging from unpredictability to corrup-

tion (Zhu and Fahey, 2000).

Trade unions have constituted one element – though a distinctly subordi-

nate element – in the power relations within the enterprise. The official trade

union movement, the Vietnam Federation of Trade Unions (VFTU), enjoys a

strong position because of its high level of membership (3 million in 1995)

amongst the workforce of urban industrial regions (Zhu and Fahey, 1999).

However, the major challenge that faces the trade union movement is one of

credibility in its representation of labour, especially if the union is to depend

on the voluntary contributions of workers for financial support. The official

unions are under pressure to change.

Managing human resources

In recent years, many Vietnamese enterprises have developed more flexible

work relations. However, there is a mixed pattern of HRM in Vietnamese enter-

prises. The influences of cultural traditions as well as political, economic and

historical factors are reflected in several dimensions, such as adherence to rules,

common values and norms, less individual-oriented pay, and harmony. Even

FOEs adopt certain localised strategies in order to fit into the social/cultural

environment (Zhu, 2002).

A recent survey by one of the authors shows that the realisation of flexi-

bility and competitiveness of enterprises depends on the type of employment

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relations established and practised by the management (Zhu, 2002). There is a

mixture of control and nurturing in management practices. Most senior man-

agement did demonstrate a more transformational leadership, and the middle

management and the HR manager demonstrated the more transactional

approach. In addition, more firms emphasised personnel procedures and rules

as the basis of good managerial practice. This indicates that compliance with

rules is more important, suggesting that the aim is to encourage employee

commitment. Generally speaking, the position of the HR manager was not a

specialised one and in most of the firms was filled by line managers. The HR

managers had little involvement in their firm’s strategic planning. In fact, the

HR task was more operational (wage, social welfare calculations) than strategic.

This is clearly a traditional role of the so-called ‘personnel manager’.

A paternalist management pattern still has certain influence. However, in

the post-reform era this attitude has gradually changed, especially among

younger employees. The fixed-term contract employment system has largely

contributed to this change. Except for people who have worked for SOEs for a

long time and have attained a high position in the enterprise, most workers

have no problem in changing their place of work for purely economic reasons.

The philosophy of collectivism is still found in Vietnamese organisations

in terms of their group-oriented approach. Group-based activities including

teamwork and decision-making, quality control and incentives are common

managerial practices. In the Vietnamese organisation, leadership and decision-

making are team-based. Another group-based activity relates to the incentive

scheme, a collective orientation, which is still fundamental for bonus pay-

ments (Zhu, 2002).

Summary of socialist market economies

Comparing China and Vietnam, both similarities and differences emerge: both

countries adopt the so-called ‘socialist market economy’ to replace the tradi-

tional planning system, and both countries are pushing for micro-economic

efficiency, flexibility and competitiveness. The trend of reforming SOEs and the

influence of foreign capital in terms of creating jobs and introducing new tech-

nology and management systems is profound in both countries. In the area of

HRM, however, the changes in China seem to be more radical: the implemen-

tation of regulations and policies on labour contracts, recruitment, dismissals,

wages and welfare has resulted in individual contracts, freedom in personnel

selection, and individual performance pay (Benson and Zhu, 1999: 71). The lib-

eralisation of the economy and the introduction of foreign investment in

China have created the opportunity for both FOEs and local firms to adopt

some of the best HR practices. In contrast, in Vietnam, change in local firms is

rather slow and FOEs adopt more local work practices in such areas as employ-

ment contracts and compensation.

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5 CONCLUSION

East Asia has seen a surge of economic growth since the 1960s. Its cultural

background has undoubtedly played a significant role in this process. There is

a core value-system based on the combined characteristics of Confucianism,

Daoism and War Strategies which still has a strong influence on Asian HRM,

although clearly exceptions also apply.

We have also seen that the management of human resources in the Asian

economies we have selected shows both similarities and differences. While

Japan and Taiwan have relied on the ‘market’, albeit backed up by robust state

support, China and Vietnam have only recently emerged from the strait-jacket

of the ‘command economy’. And while they all shared a similar employment

model relating to collectivism, harmony, hierarchy and paternalistic manage-

ment, they differed in the detail of actual practice.

Today, they all have greater labour-market flexibility but this may vary

between the economies with stronger state support and those with less. In

China, the ‘iron rice bowl’ system is being phased out entirely as it enters an

era of greater openness in its product and factor markets, with its entry into the

World Trade Organisation. The Japanese life-time employment model is now

also under severe pressure. More performance-driven rewards systems are

adopted by the family-owned businesses in Taiwan and other overseas Chinese

economies in the South-East Asian region and they are becoming more com-

monplace in even the nominally socialist societies such as China and Vietnam.

Social security has also been weakened and is now dependent on individual

workers’ contributions added to by the employers.

While we cannot propose a full degree of convergence either between

the two sets of countries in this chapter or other countries in this book

(see Chapters 7 and 9), we can accept that there will be a degree of ‘relative

convergence’ (see Warner, 2002). The trends towards globalisation can only

strengthen these tendencies towards greater similarities in Industrial Relations

and HRM policies and practices over the coming decades, although we can

expect that each country’s apparent distinctiveness will remain visible.

6 DISCUSSION QUESTIONS

1 What are the underlying traditional philosophies that may be responsible for

the development of some modern HRM concepts in East Asia?

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2 What are the driving forces for the current transformation of HRM in East Asia?

3 How relevant are Western-style HRM policies and practices to East Asia?

4 What are the future trends of HRM in East Asia under the process of globalisation?

7 FURTHER READING

•

Rowley, C (ed.) (1998),

Human Resource Management in the Asia Pacific Region:

Convergence Questioned

. London: Frank Cass.

A comprehensive view of HRM in East Asia.

•

Bamber, G. et al. (eds) (2000),

Employment Relations in the Asia-Pacific: Changing

Approaches

. London: Business Press Thomson learning.

Useful comparative studies and overall changes on IR and HRM in East Asia.

•

Whiteley, A., Cheung, S. and Zhang, S.Q. (2000),

Human Resource Strategies in

China

. Singapore: World Scientific.

Offers a comprehensive understanding of cultural differences between ‘East’ and ‘West’ and in

particular the case of China.

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Human Resource Management in the Asia Pacific Region

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9 HRM in Developing Countries

Terence Jackson

1 Introduction 221

2 Issues in discussing HRM in developing countries 223

3 Current perceptions of HRM in developing countries: the colonial legacy 225

4 Challenging the concept of HRM in developing countries 231

5 Developing an understanding of HRM in emerging countries:

crossvergence and hybridization 234

6 Developing approaches to managing people in emerging countries 238

7 Conclusions 243

8 Discussion questions 244

9 Further reading 245

References 245

1 INTRODUCTION

Countries that have been termed ‘developing’ comprise some 80% of the globe.

However, such countries have suffered from a negative image and under-

exposure in the mainstream management literature. Punnett (in press) points

to the difficulties and sensitivities of defining what is, and what is not, a

developing country. The term ‘developed’ country is used (for example by the

United States Council for International Business) to distinguish industrialized

countries, normally the 24 OECD members from developing countries or LDCs

CHAPTER CONTENTS

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(less developed countries). The term ‘developing’ is used (for example by the

United Nations) to describe a broad range of countries which include those

with both high and low per capita national incomes, which are heavily depen-

dent on primary production and normally lack an advanced industrialized

infrastructure, including education, health, communications and transport

facilities (Punnett, in press).

So within these definitions could be included all countries in the conti-

nent of Africa, in Latin America, South Asia, many parts of South East Asia and

Polynesia, and Central Asia including many of the former Soviet republics. One

could also stretch the point to include some of the transitional economies of

the former Soviet bloc in East and Central Europe, the newly industrialized

countries of East Asia, and much of the Middle East. China also is often

included in this category. It is difficult to provide a comprehensive account of

issues relating to HRM in all these countries in a short chapter. The main focus

here is on sub-Saharan Africa as an illustration of some of the specific issues

that need to be addressed, and these can equally be applied to many of the

other regions and countries that can be grouped under the somewhat pejora-

tive term ‘developing’.

The objectives of this chapter are to:

• review current perceptions of the management of people in the so-called devel-

oping countries within the literature;

• challenge the concept of human resource management as it is perceived and

applied in such countries;

• develop an understanding of management of people in such countries by focus-

ing on both historical and current international power relations, and on the

cross-cultural nature of human interactions in organizations in developing

countries; and,

• suggest a more constructive approach to managing people in such countries that

takes into account the complexity of stakeholder interests and aspirations.

This is undertaken first by looking in Section 2 at the particular issues involved

in discussing HRM in developing countries, including the problems of adopt-

ing the developing–developed world paradigm and the need to understand this

in the context of cross-cultural theory. Section 3 then reviews the current liter-

ature, which tends to focus on a post-colonial inheritance. The need to chal-

lenge the concept of HRM in the context of developing countries is

subsequently considered in Section 4. The processes of cultural crossvergence

and hybridization need to be understood within this context, and this is the

focus of Section 5. From this discussion, Section 6 then makes recommenda-

tions about how more appropriate approaches to ‘people management’ may be

developed within ‘emerging’ countries, using terms that may address the

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concerns and sensitivities discussed within the chapter. Section 7 concludes

this chapter.

2 ISSUES IN DISCUSSING HRM IN

DEVELOPING COUNTRIES

In achieving the objectives of this chapter there are three main difficulties. The first

is in finding a suitable alternative term for ‘developing’ country that breaks out of

the accepted developing–developed world paradigm. This paradigm is readily adopted

and employed in the few texts currently available on management in developing

countries (e.g. Jaeger and Kanungo, 1990). The paradigm projects a view that

‘developing’ countries should become more like the ‘developed’ countries: the

United States and Western Europe in particular. The aim of development then

becomes to make the developing countries more like the developed countries. This

includes introducing ‘modern’ management methods, in order to manage staff

more efficiently. This definitional problem will be addressed in more detail later.

The second difficulty is to find an alternative term for human resource management

which, as we explain later, enables us to break out of an instrumental view of

people in organizations, which sees human beings as a means to an end. Again, we

will say more about this later. The third (which is connected to the first two) is to

overcome the inadequacies of current cross-cultural theory in understanding the

management of people in ‘developing’ countries. Cross-cultural understanding and

analysis is required at at least three different levels (see Figure 9.1).

Inter-continental level. Interactions take place across continents with Western

powers, both historically as former colonial countries, and through the activities

of modern multinational companies, and as a result of the predominance of

Western education. These interactions were dominated economically, militarily

and often ideologically by the colonial power (Reader, 1998). Today they are dom-

inated economically through interactions with both multinational companies

and multilateral agencies, particularly the World Bank and the IMF, and bilateral

agencies of Western governments (Barratt Brown, 1995). The predominance of

Western education ensures an ideological disparaging of indigenous thought sys-

tems. Again, there is tremendous potential to develop effective hybrid systems of

management with admixtures of Western and indigenous thought systems and

practices. This is being undertaken in India, for example by the Human Resource

Development (HRD) systems being developed in Indian companies (Rao, 1996).

Cross-border level. Emerging trading blocs among countries such as

Southern African Development Community (SADC) in Southern Africa are

encouraging interaction among countries, rather than between the developing

country and its former colonial master (Mulat, 1998). For example, colonial

HRM in Developing Countries

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International Human Resource Management

224

powers severely restricted communications among African countries and their

neighbours. Transport infrastructure reflected this in roads and railways being

built to link seaports with mineral sources, rather than to link a country with

its neighbour. Trade was restricted to include only that between colony and

colonial power. Trading blocs are now encouraging more interaction, although

often the legacy of colonial transport infrastructure restricts this. The need to

work with managers and trading partners among post-colonial countries intro-

duces another level of cross-cultural interaction.

Inter-ethnic level Many of the countries of interest are multi-ethnic, often by

virtue of the fact that successive colonial powers have artificially divided up

continents, ignoring indigenous identities. South Africa has 11 official langu-

ages, while India has 18. Cameroon, an African country that was successively

ruled by Germany and then partitioned and jointly administered by France

and Britain, has over 250 language groups, as well as the two official languages

of French and English. ‘Divide and rule’ was a common political strategy for

colonial rulers, and resentments thus created have often extended into the

inter-ethnic tensions witnessed today. Yet in organizations in post-colonial

countries there is great potential to create synergies from multiculturalism.

Extant grand theories of cross-cultural management (e.g. Hofstede, 1980;

Schwartz, 1994; Smith et al., 1996) are inadequate in dealing with these differ-

ent levels of analysis (see Figure 9.1) where boundaries are often blurred and

FIGURE 9.1

LEVELS OF ANALYSIS

Inter-continental

Power dynamic

Cross-border

Power dynamic

Inter-ethnic

Power dynamic

PPaasstt

Colonial/Indigenous

Economic, military

and ideological

Restricted

cross-national

Political and military

Colonial ‘divide and

rule’

Political and military

PPrreesseenntt

Post-colonial/

Western/Indigenous

Economic, contrac-

tual and ideological

Increased

intra-regional

Political and

economic

Political/power

relations

Political, economic

and sometimes

military

FFuuttuurree

Future hybrid

systems

Contractual and

obligatory

Increased

intra-continental

Economic and

cooperative

Increased synergies

Multiculturalism

Cross-cultural dynamics in post-colonial/neo-colonial societies

3122 Ch-09.qxd 10/29/03 5:46 PM Page 224

where cultural ‘groups’ are difficult to define. Also, such theories do not

directly address the dynamics of cross-cultural interaction (Cray and Mallory,

1998) within a complexity of power relationships (Human, 1996), and within

a process of cultural crossvergence that gives rise to myriad hybrid forms of

management and organization. Figure 9.1 summarizes the factors, discussed

above, that need to be understood within the cross-cultural process of

hybridization of management systems in ‘developing’ countries. It is necessary

to understand these processes, and in so doing redefine human resource man-

agement in the context of developing countries. To do this it is first necessary

to look at the post-colonial factors in people management that predominate in

the literature.

3 CURRENT PERCEPTIONS OF HRM IN DEVELOPING

COUNTRIES: THE COLONIAL LEGACY

Descriptions of management in ‘developing’ countries, informed by the

developed–developing world dichotomy, contrast ‘Western’ management styles

involving teamwork, empowerment and participation with the centralized,

bureaucratic, authoritarian styles found in ‘developing’ countries (e.g. Jaeger

and Kanungo, 1990; Blunt and Jones, 1992). However these are mostly repre-

sentative of a colonial heritage, reflecting a theory X style of management

(McGregor, 1960) which generally mistrusts human nature and has a need to

impose controls on workers, allowing little worker initiative and rewarding a

narrow set of skills simply by financial means. This system has been ‘tacked on’

to the society originally by the colonial power (for example in Africa: Carlsson,

1998, and Dia, 1996), and has been perpetuated after independence, perhaps

as a result of vested political and economic interests, or purely because this was

the way managers in the colonial era were trained. Yet as can be seen in Table

9.1, the post-colonial systems that predominate in the literature provide a one-

sided view of the different admixtures of systems that may influence the man-

agement of people in organizations operating within developing countries. We

now briefly review this in relation to the management of people. The alter-

native systems are discussed in subsequent sections of this chapter, within a

consideration of cultural crossvergence of systems.

Post-colonial management systems

As can be seen in Table 9.1, the main characteristics of organizations in develop-

ing countries are perceived as:

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Influences on people management systems is developing countries

Post-colonial Post-instrumental Humanistic

Main principles • Theory X • Theory Y • Humanistic

• Western/post-independence • Western/‘modern’ • Ubuntu

African • Functionalist • Community collectivism

• Instrumental

Importance • Continuing legacy through • Looked to as alternative • Some elements may prevail in

political and economic • Influence from indigenous organizations, in

interests multinationals, African Ubuntu and Indian HRD

management education • Of growing interest

and consultants internationally

Strategy • Inputs and process orientation • Results and market oriented • Stakeholder orientation

• Lack of results and objectives • Clear objectives

• Risk aversive • Calculated risk taking

Governance and • Hierarchical • Flatter hierarchy • Flatter hierarchy

decision making • Centralized • Often decentralized • Decentralized and closer to

• Authoritarian • Often consultative stakeholders

• Non-consultative • Increasing emphasis on • Participative, consensus

• Rule bound ‘empowerment’ seeking (indaba)

• Lack of flexibility • Clear rules of action • Benign rules of action

• Outside influence or control • Flexible • Outside influence (government,

(family, government) often • Outside government family) may be seen as more

seen as negative influence decreasing benign

Character • May not act ethically towards • More ethically responsible • Stakeholder interest may be

stakeholders • Aims to be successful more important than ‘ethics’

• Not very efficient • Change is a feature • Success related to development

• Static • Probably foreign owned and wellbeing of its people

• Probably not foreign owned • Indigenous

(Continued)

TABLE 9.1

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(Continued)

Post-colonial Post-instrumental Humanistic

Internal policies • Discriminatory • Non-discriminatory • Stakeholder interests

• Employee policies aimed at • Access to equal opportunities • Access to equal opportunities

duties rather than rights and clear employee policies on

responsibilities and rights

Organizational • Employee alienation common • Emphasis on employee • Motivation through participation

climate and employee • Weak trade unions motivation important

commitment • Inter-ethnic friction • Weak or co-operative unions • Unions protect rights

• Discourages diversity of opinions • Move towards inter-ethnic • Inter-ethnic harmony taken into

• Promotion by ascription harmony consideration

• Diverse opinions often • Everyone should be able to state

encouraged their opinions

• Promotion based • Promotion based on

on achievement legitimization of status

Management • Educated management elite with • High, results oriented managerial • Management expertise based on

expertise low managerial expertise expertise is aimed for people orientation

Management • Economic security • Managing uncertainty • Belonging

motivators • Control • Self-enhancement • Development of person and group

• Autonomy

• Independence

• Achievement

Management • To business objectives • To self • To group

commitment • To relatives • To results • To people

• To organization • To ethical principles

• To work

(Continued)

TABLE 9.1

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(Continued)

Post-colonial Post-instrumental Humanistic

Management • External locus of control • Internal locus of control • Internal and external locus of

principles • Deontology • Teleology control

• Theory X • Theory Y • Trust of human nature

• Mistrust of human nature • Conditional trust of • Status and achievement orientation

• Status orientation human nature

• Achievement orientation

Management • Reliance on hierarchy • Some participation • Participation

practices • Use of rank • Mostly communicating openly • Egalitarianism

• Low egalitarianism • Providing open information • Communicating openly

• Lack of open communication when necessary • Providing open communication

• Lack of open information • Confrontational

People management • Administrative personnel • ‘Modern’ HRM practices relating • Holistic approaches to developing

practices procedures to individual competency the person within the context of

approaches and involving the the group

introduction of: • Reconciling work life with

• performance management community/home life

systems including appraisal • Participation and empowerment

systems; at strategic levels, and including

• participation at tactical/ a wider stakeholder base

implementation level • Management of diversity

• limited anti-discrimination and difference

policies

People orientation • Control orientation • People and results orientation • People and stakeholder orientation

Source: adapted from Jackson, 2002a

TABLE 9.1

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• top-down management with authoritarian and paternalistic decision styles

with centralized control and decision-making (Kiggundu, 1989; Blunt

and Jones, 1997). Associated with this is

• a heavy bureaucracy with an emphasis on control mechanisms, rules and

procedures rather than performance, with a high level of conservatism

and risk aversion, and the lack of a clear mission statement or sense of

direction in organizations. A reluctance to judge performance makes

appraisal systems problematic (Kiggundu, 1989; Blunt and Jones, 1992,

1997). This may be associated with

• an emphasis on inputs through increasing expenditure on health, educa-

tion and housing after independence in, for example African states, to

the exclusion of outputs such as quantity, quality, service and client sat-

isfaction (Blunt and Jones, 1992). Best use is not being made of inputs or

the supply to organizations (generated by improvement in education

and training) through capacity utilization within organizations (Dia,

1996). This, together with a bureaucratic focus may lead to

• inefficiencies, including lack of clear objectives, over-staffing, lack of job

descriptions and job evaluation, lack of incentives, as well as to political

interference, poor infrastructure and lack of systems (Balogun, 1986;

Kiggundu, 1988; Joergensen, 1990). In addition,

• internal policies may be discriminatory as a result of preferences given to in-

group or family members (this is well documented in the collectivism–indi-

vidualism literature, e.g. Triandis, 1990). This may lead to decisions (such

as promotion and appointments) based on relationships rather than the

application of universal rules. All these factors may lead to

• employee alienation. Under-staffing, poor motivation, risk aversion and

unwillingness to take independent action; close supervision of subordi-

nates with little delegation; operations that are often inefficient and high

cost with low productivity, over-staffing, under-utilization, poor pay and

poor morale indicated by high turnover and absenteeism (Kiggundu,

1989; Jackson and Bak, 1998, in China). Because of the general under-

development of the economy and the tenuous status of many jobs, unions

are likely to be weak and often subjugated to wider political

interests (Fashoyin and Matanmi, 1996). This may also be associated with

• lack of management skills Kiggundu (1989). Although top managers are

typically learned, articulate and well travelled, at middle management

levels there are weak systems and controls, inadequate managerial skills

and a lack of industrial knowledge. This is reflected in the generally low

levels of managerial expertise. This, together with the control-orienta-

tion of organization may encourage

• management motivated by control rather than results. While little research

has been undertaken on management motivation, those few studies

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undertaken in Africa do seem to support this supposition (Blunt and

Jones, 1992, report one study in Kenya by Blunt in 1976 and one under-

taken in Malawi by Jones in 1986). Management commitment may

ignore means in favour of ends, although not reflecting an achievement

orientation (Montgomery, 1987). This may reflect an ethical disregard

for wider stakeholders, and a pursuit of corporate objectives as they

dovetail with their own objectives. Kiggundu (1989) underlines the

political nature of this agenda; and de Sardan (1999) argues that corrup-

tion is embedded in the logics of such practices as negotiation and gift

giving in Africa. In addition,

• management principles reflect an external locus of control where events are

considered as not within the individual’s control, where creative poten-

tial is regarded as being limited, and people are generally fixed in their

ways and not malleable or changeable (Kanungo and Jaeger, 1990). This

may well reflect also a mistrust of human nature, and a belief in the

undisciplined attitudes of workers to industrial life (for example in

Nigeria: Abudu, 1986). Decisions are focused on the past and present

rather than the future (Montgomery, 1987; Kanungo and Jaeger, 1990)

and therefore may be deontological in nature rather than teleological.

Action is focused on the short term, and success orientation may be

moralistic rather than pragmatic as a result. This may reflect a passive-

reactive orientation (Kanungo and Jaeger, 1990). These principles then

may lead to

• authoritarian management practices with reliance on the hierarchy, use of

rank, low egalitarianism, and a lack of openness in communication and

information giving (Montgomery, 1987; Blunt and Jones, 1992, 1997),

with the main management orientations within post-colonial manage-

ment systems towards managing internal processes and managing

power relations. This results from and is related to the top-down man-

agement identified earlier.

Post-colonial personnel administration

The way these aspects relate to personnel practices in developing countries is

through an administrative emphasis on control. HRM systems (at least in the

Western sense) are likely to be underdeveloped. These aspects are compared in

Table 9.1 with other systems of people management operating within ‘develop-

ing’ countries. Western practices are often introduced in order that ‘modern’

HRM principles may challenge the predominant control and process focus of

personnel administration in developing countries. Yet the suitability of those

principles and practices summarized under ‘post-instrumental’ management

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systems in Table 9.1 should also be challenged within the context of ‘developing’

countries. It is to this that we now turn.

4 CHALLENGING THE CONCEPT OF HRM IN

DEVELOPING COUNTRIES

The perception of management in ‘developing countries’, created by the

conceptualization presented above, is summarized under the heading ‘post-colo-

nial’ in Table 9.1. The resulting profile is not useful when directly contrasted with

management in the ‘developed’ world, however much it may reflect the realities

of many organizations operating in Africa, India, and other post-colonial regions.

Yet this is a perception that is often employed by Western multinational compa-

nies operating in developing countries, and is accepted by indigenous managers

often through the influence of their own management education in Western-

style programmes and institutions. This pejorative view – of an inefficiently

bureaucratic, authoritarian and relationship-driven system – if accepted, leads to

only one logical solution: the introduction of ‘modern’ management – a Western

style, results-driven, customer focused, and ‘participative’ and accountable HRM.

Such a conclusion may not only affect organizations in the private sector

in ‘developing’ countries, but also those in the public sector, state owned enter-

prises and those recently privatized enterprises which are in the process of refo-

cusing as a result of downsizing and other major organizational change (in fact

this prescription to introduce modern Western management is often a condi-

tion of World Bank/IMF led structural adjustment programmes in both the

developing world and former Soviet bloc countries: e.g. Barratt Brown, 1995;

Glenny, 1993). If one accepts the developing–developed world paradigm this is

wholly appropriate, and represents the inevitable march towards ‘moderniza-

tion’ or emulation of the successful ‘developed’ world.

However, in order to understand the pitfalls of this approach it is necessary

to understand the cultural boundedness of the concept of human resource

management by making a distinction between the two very different cultural

perceptions of the value that is placed on a human being in different cultural

settings: instrumental and humanistic (Figure 9.2).

The cultural perception of human beings as a resource used in the pursuit

of shareholder value may be challenged by a perception of people as having a

value in their own right (Jackson, 1999). Hence, a developmental approach

towards people, as an integral part of the organization, and as a direction of its

objectives, may be implicit within, for example, Japanese approaches to man-

aging people (Allinson, 1993). There has been an increasing emphasis in

Western literature on the stakeholder approach to managing organizations,

and a hard instrumental approach has already been challenged in a limited

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FIGURE 9.2

way within the context and conceptual framework of Western human resource

management (Legge, 1989, Ellig, 1997). Hence a distinction has been made in

the strategic human resource management literature between the ‘hard’ per-

spective reflecting utilitarian instrumentalism which sees people in the organi-

zation as a mere resource towards achieving the ends of the organization, and

the ‘soft’ developmental approach which sees people more as valued assets

capable of development, worthy of trust, and providing input through partici-

pation and informed choice (Beer and Spector, 1985; Tyson and Fell, 1986;

Hendry and Pettigrew, 1990; Storey, 1992; Vaughan, 1994).

Yet Tayeb (2000) quite rightly states that the concept of human resource

management is itself a product of a particular Anglo-American culture. It is

likely that the ‘hard’ and ‘soft’ approaches taken within Western organizations

are both a reflection of an inherent cultural concept that perceives human

beings in organizations as a means to an end (Blunt and Jones, 1997, use the

term ‘functionalism’). They are simply two poles of a continuum from high to

low instrumentalism. Working within this conceptualization of people as a

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232

Management Management Organizational Developing

practices attitudes orientation people

Human People are a People serve the Competencies

resource valuable ends of the approach

−

management resource organization equipping people

for the job

INSTRUMENTALISM

Values concerning the regard for

people within organizations

HUMANISM

People People have a The organization Holism

−

development value in serves the ends developing the

themselves of its people whole person

Management Management Organizational Developing

practices attitudes orientation people

Instrumentalism and humanism in the management of people (Jackson, 1999)

3122 Ch-09.qxd 10/29/03 5:46 PM Page 232

means to an end, it is likely that when Western managers, or managers

educated in the Western tradition, try to implement ‘Western’ human resource

practices in cultures which have a different concept of the value of people,

then incompatibilities will be manifested through lack of involvement and

motivation. A study by the current author (Jackson, 2002b), in seven countries

found that the harder forms of instrumental HRM are being introduced uncrit-

ically in countries such as Russia and Poland, where there is a short-term focus

on achieving results and developing organizations along Western lines. This

may also be the case in the newly industrialized countries (NICs) such as Korea.

Also these harder forms seem to fit well with traditionally more authoritarian

management in organizations in post-Soviet and post-colonial countries.

‘Humanism’ can be defined as a regard for people as an end in themselves,

and as having a value for themselves and of themselves within an organiza-

tional context. Hence the locus of value or worth of persons in a work

organization is towards those persons in themselves rather than towards organi-

zational objectives as appropriate ends (for conceptual roots see Jackson, 1999;

Koopman, 1991; Lessem 1989; Saunders, 1998). This contrasts with ‘instru-

mentalism’ as a regard for people as a means to an end, where the focus of

value or worth is towards the ends (objectives) of the organization (see also

Jackson, 1999). This is the implicit perception of the value of people within

both the hard and soft varieties of HRM discussed above.

By employing a concept of locus of human value (instrumentalism–

humanism) we can start to explore the positives within the so-called

developing countries, and look towards the contributions that can be made if this

concept is understood and adopted in formulating people management policies

and practices. From this perspective, the paradigm behind the term developing

country is challenged, as is the assumption behind the use of the term HRM

within different contexts outside predominantly Anglophone countries. As a

generic term, the term people management can be adopted to overcome the culture-

boundedness of the term ‘human resource management’. This is a term increas-

ingly favoured in South Africa, for example, but in the emerging hybrid concept

and practice of Indian HRD, the term ‘human resource’ has been retained.

The term developing country is far more difficult to replace. ‘Post-colonial’

is perhaps too restricting. It is used in the present chapter to denote systems of

management that are a legacy of colonial times. This term, as well as ‘neo-

colonialism’ fails to acknowledge the evolving state of the country, yet provides

appropriate descriptions of power relations past and present. Although the

term ‘emerging’ has come into currency in connection with emerging markets

(i.e. for Western countries), and is perhaps inadequate in conceptual terms, it

appears to be a term that can be accepted by the ‘emerging’ country, as well

as aid agencies and multinational companies alike. It also provides a note of

optimism, as well as not providing a preconceived direction in emulating the

‘developed’ countries. Nor does it contrast directly ‘emerging–emerged’ countries.

This is therefore the term that is made use of in the remainder of this chapter.

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5 DEVELOPING AN UNDERSTANDING OF HRM IN

EMERGING COUNTRIES: CROSSVERGENCE AND

HYBRIDIZATION

The consequences of introducing Western-style HRM practices in emerging

countries appear to be a narrow focus on participatory management that

concentrates on the tactical implementation of strategy decided by top (and

sometimes foreign) management. It is therefore not inclusive of a wider stake-

holder base, including community, government and trade unions and other

employee representation. It also does not give better access to decision

processes within the organization to those who have been discriminated

against: e.g. non-dominant ethnic or gender groups. There is an individual

basis for performance management systems, rewarding the individual’s initia-

tive and underemphasizing the importance of the group, that may not be

appropriate. It provides a contractual basis for employing people, which makes

a distinction between the world of work and home/community life; and alien-

ates home culture from work culture. By ignoring the cross-cultural aspects of

operating in an emerging country, Western-style approaches tend to ignore the

cultural content of Western principles and practices, and the frequently inap-

propriate application in a different cultural context.

As mentioned above, the characteristics of humanistic people management

systems in emerging countries remain by and large an ideal, and generally do

not deal with relations of power and hegemony of other management systems,

tending to assume that the clock can somehow be turned back to pre-colonial

times. In order to make sense of the different influences (actual and potential)

on people management systems within the complex multicultural context, the

process of hybridization, and its implications, must be understood.

A view of African indigenous value systems

in the context of people management

Characteristics of African values and social systems that may influence the

development of humanistic people management principles are provided by

Binet (1970) on African economic psychology. Dia (1996) provides a brief

account of this work. This can be supplemented and supported by popular

African management texts (Boon, 1996; Mbigi and Maree, 1995; Mbigi,

1997), as well as academic anthropological work (e.g. Gelfand, 1973, on

Shona systems in Zimbabwe) to suggest the following cultural characteristics

of African organizational life.

• Sharing. A need for security in the face of hardship has provided a com-

mitment to help one another. However, it is likely that this value is not

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based on simple exchange, but on a network of social obligations based

predominantly on kinship but also on community. More recently the con-

cept of ubuntu has been prominent in the popular management litera-

ture, meaning that people are only people through other people. Mbigi

(1997) for example suggests that collective trust is a large part of this

value that should be developed in organizations before participation and

empowerment initiatives can succeed. Certainly Gelfand (1973) suggests

that trust (ruvimbo) is seen as an important virtue in Shona culture.

Openness, sharing and welcome together form important components of

ubuntu (Boon,1996).

• Deference to rank. Dia’s (1996) assertion that this refers to power dis-

tance, particularly within the organizational context between employer

and employee, may be too simplistic. Although traditional rulers gained

their position through succession (ascription), they had to earn the respect

of their followers, and rule by consensus. Political decision-making was

achieved through obtaining consensus, and through a system of checks

and balances against autocratic rule. People were free to express opinions

and to dissent (Mbigi, 1997). At the same time taking one’s proper place

in the social scale (kuzvipeta in Shona) is an important aspect of the virtue

of humility (kuzvidukupisa), and refers not only to deference to rank and

seniority, but also to the senior person showing humility towards the

younger person, and to the educated person not looking down on those

less educated (Gelfand, 1973).

• Sanctity of commitment. Commitment and mutual obligation stems from

group pressures to meet one’s promises and to conform to social expec-

tations. Social pressure can be brought to bear in order to ensure

commitment.

• Regard for compromise and consensus. This certainly involves the main-

tenance of harmony within the social context, but also incorporates the

deference to rank discussed above. Boon (1996) summarizes the main

characteristics of traditional African leadership by saying that the chief

personifies the unity of the tribe and must live the values of his commu-

nity in an exemplary way; not being an autocrat the chief must rely on

representatives of the people, councillors, to assist him and must be

guided by consensus. Failure to do this would result in his people ignor-

ing his decisions and law. The people are strongly represented and have a

duty to attend court hearings, and all have a responsibility to each other

collectively to ensure the laws are upheld. As a result of this collective

responsibility everyone has a right to question in open court. The concept

of openness is an important value and implies that no one should receive

retribution for anything said correctly in an open forum. If this is a latter-

day idealization of consensual authority, it was also a perception of early

anthropological work in Southern Africa (Gluckman, 1956).

• Good social and personal relations. This stems from many of the aspects

discussed above, particularly the commitment to social solidarity. Dia

(1996) observes that the tensions of management–labour relations which

have been a feature in African organizations may be attributed largely to

a lack of a human dimension and to the adversarial attitudes of colonial

(and apartheid) employment relations.

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While the developing–developed world paradigm reflects the traditions of

the convergence thesis (from Kerr, Dunlop, Harbison and Myers, 1960) which

takes the view that cultures are moving together and (often tacitly) accepting

the universality of American theory and methods in management in emerging

countries, crossvergence theory looks at the different influences on the develop-

ment of hybrid forms of management: a process that is very important in

post-colonial countries.

Concepts of crossvergence have been operationalized and researched in

other regions such as Hong Kong (Priem, Love and Shaffer, 2000). These studies

indicate that rather than a tendency of convergence (the coming together of

value systems) in regions and countries that have had high levels of influence

from other cultures, there is a tendency to crossvergence (developing of hybrid

values or management systems as a result of cultural interactions). The nature

of change, and continued influences from different cultural sources in emerg-

ing countries may indicate the development of hybrid systems of various

forms. Some of these may be highly adaptive and effective in managing cross-

cultural dynamics, and in managing the different requirements of instrumen-

tal and humanistic perspectives. Some may be maladaptive. There is evidence

from India (Rao, 1996) that hybrid ‘human resource development’ systems are

being designed to manage the different Western (instrumental) and Indian

(humanistic) orientations in organizations. Their applicability in other regions

such as sub-Saharan Africa needs to be investigated, as well as good practice

being developed in Africa (Cashbuild in South Africa may be an example:

Koopman, 1991).

Indian HRD

Indian management practitioners and academics have developed a distinctive

approach to Human Resource Development (HRD being a preferred term to that

of HRM, and by way of distancing from Anglophone practices which empha-

size the resource side of the equation: Sparrow and Budhwar, 1995). HRD

approaches are increasingly playing a role in organizational responses to issues

arising from liberalization. Accustomed to operating in protected markets, organi-

zations are having to learn to manage combining the virtues of conflicting

market models, rather than relying exclusively on a single set of pre-conditioned

theoretically validated policies. HRD therefore addresses the need to arrest dete-

riorating values, building up organizational and cultural strengths, broadening

the philosophy of tolerance and sacrifice and displaying deep concern for

people (Rohmetra, 1998). HRD as a ‘humanistic’ concept and a subsuming norm

that guides management approaches to its employees has come to assume a

critical role in Indian management thought and practice. As a management philo-

sophy, HRD involves a paradigm shift from the old approach of control to the

new approach of involvement and self-development (Silvera, 1988) and would

be more closely aligned with the ‘soft’ approach to HRM.

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HRD is similar to the concept about the rights and duties of human

beings, about which democratic constitutions the world over consider

inalienable and inseparable from human nature, and has similarities to the

United Nations Development Programme’s concept of a nation’s human

development. HRD is therefore a humanistic concept that places a pre-

mium on the dignity and respect of people and is based on a belief in the

limitless potential of human beings. It emphasizes that people should not

be treated as mere cogs in the wheel of production, but with respect as

human beings.

As a humanistic concept HRD proposes that human beings should be

valued as human beings, independent of their contribution to corporate pro-

ductivity or profit. The various underlying attitudes symbolizing respect for

people’s dignity, trust in their basic integrity and belief in their potential,

should lead to the creation of an environment in companies in which indi-

viduals should find fulfilment in work and seek newer horizons for them-

selves and the enterprise (Rohmetra, 1998).

HRD practices in Indian companies attempt to blend Western and

Eastern ideas and systems of people management. This concept of HRD

attempts to be more comprehensive and meaningful than utilitarian concepts

evolved in Anglophone countries. It has come to denote a planned way of

developing and multiplying competencies, and the creation of an organiza-

tional climate that promotes the utilization and development of new compe-

tencies. Culture building is seen as a part of its agenda.

(From T. Jackson, International HRM: A Cross-cultural Approach, London:

Sage, 2002a, Chapter 10, pp. )

The different influences and processes discussed above are summarized in

Figure 9.3.

The dynamic created by introducing Western HRM systems is often

unsuited to the social conditions prevailing in emerging countries and the

need to develop huge numbers of people, from basic literacy programmes

through to skilling and upskilling for a modern economy. In this context,

Western HRM systems are driven by global competition and a need

to develop competitive, mean and lean companies, companies driven by a

liberalization process through structural adjustment programmes. Organi-

zations, as a vehicle for providing this development, are not able to do this

through a need to lay off staff and downsize. This creates contradictions and

tensions within HRM systems and between work organizations and civil

society. Again this represents an antithesis between the instrumental

perception of people in organizations, which sees people, in the extreme, as

expendable, and humanistic views that see organizations as vehicles of

human development. Unless people management systems can address these

contradictions and contribute to developing adaptive hybrid forms of organi-

zation and managing, then such tensions and inefficiencies are going to

continue.

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6 DEVELOPING APPROACHES TO MANAGING PEOPLE

IN EMERGING COUNTRIES

We have seen that both post-colonial systems of management, and ‘modern’

HRM may not be appropriate for implementation in developing countries and

may result in alienation of the workforce. For example Blunt and Jones (1992)

remark in the context of Africa that workers use their work organizations

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238

Historical and political

Economical and structural

Post-colonial systems

Control -oriented

Legacy

Instrumental systems

Results-oriented

Economic reform

Humanistic systems

People and stakeholder-oriented

Cultural ‘renaissance’

THE CONTEXT

CHANGING

MANAGEMENT

SYSTEMS

CULTURAL GROUPS

Cultural values

Instrumental

Humanistic

Social position

Advantaged

Disadvantaged

Perceptions of

desirability

and efficacy

CROSS-CULTURAL

DYNAMICS

Creating

synergistic hybrid

organizational

cultures

Inter-continental

variation

Inter-ethnic

variation

Inter-country

variation

LEVELS OF

CULTURAL ANALYSIS

Increasing integrative effects

Decreasing dis-integrative effects

Developing

effective

management

through

cross-cultural

participation

CROSS-

CULTURAL

DEVELOPMENT

Gender

variation

Cultural and political

FIGURE 9.3

Cross-cultural dynamics and hybridization in people management in

developing countries (adapted from Jackson, 2002a)

3122 Ch-09.qxd 10/29/03 5:46 PM Page 238

instrumentally themselves: seeing them purely as a means of survival, but

sometimes also to provide a means of pursuing other interests in the informal

economy. There is a lack of appreciation of a wider stakeholder base in societies

that traditionally have been community-oriented (e.g. Koopman, 1991).

Aligned with this lack of appreciation is a lack of questioning of the appropri-

ateness of ‘modern’ HRM methods, and a failure to incorporate the manage-

ment of multiculturalism. Training and development interventions are not the

only ways of addressing these issues, but appropriate training can be incorpo-

rated into facilitating the process of change and effective hybridization of peo-

ple management systems in emerging countries. We now discuss these issues

and make suggestions for developing effective and appropriate people man-

agement principles and practices.

Accommodating the interests of multiple stakeholders

As a result of their adoption of structural adjustment programmes, and being

launched into a competitive global marketplace, companies in emerging coun-

tries may be becoming increasingly results-focused, as well as having the pri-

macy of shareholder value as their main strategic driver. For example, in South

Africa, Jackson (1999) found that managers saw their organizations as giving a

low priority to employees, managers and local community as stakeholders.

They saw their organizations as viewing quality and growth as important key

success factors but job satisfaction and success of affirmative action were con-

sidered to be of minimal importance as success factors. Yet organizations, to be

effective in South Africa and other emerging countries by all other measures

apart from profit and financial efficiency, may have to reflect the multiple

interests of a broader base of stakeholders, and incorporate these within the

strategic objectives of the organization.

In order to incorporate the interests of multiple stakeholders, it would

seem logical that organizations must have effective means to give voice to

those interests, and incorporate them within the dialogue of the organization,

its strategy, objectives, policies and practices. As we have seen, studies within

the ‘developing’ world see management as fatalistic, resistant to change, reac-

tive, short-termist, authoritarian, and risk reducing (Kanungo and Jaeger,

1990). With the influence of democratic processes from Western approaches to

management as well as from indigenous approaches, organizations in the

‘developing’ world generally may be looking towards more involvement of

their people in decision processes. Hence the current author found elements of

consultative management, but not participative management in South Africa

(Jackson, 1999). Organizations were seen as hierarchical, centralized, fairly

rule-bound yet having an element of consultative management.

It seems that lip service is being paid to participative management in

organizations. Often downsizing and de-layering leads to ‘empowerment’ of

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managers and staff at lower levels of the organization than was previously

required (e.g. Cameron, 1994; Freeman, 1994). This may well give the impres-

sion that there is participative management. Yet because of the diversity of

interests in organizations in many emerging countries, participative manage-

ment may only arise through the active empowerment of all such interest

groups. ‘Empowerment’ may be seen cynically as a means to get a manager to

take on more responsibility with fewer resources and for the same money in a

period of organizational downsizing. The concept of empowerment must also

stretch out to the community. In African societies, as in many communalistic

societies, the barriers between community life and organizational life must be

broken down in order to provide a context for commitment and motivation of

the workforce.

Obtaining commitment and motivation

There is an indication of a lack of commitment to the organization by

employees as we have seen in the context of Africa (Blunt and Jones, 1992).

Corporations in Japan have been successful in harnessing the wider societal

collectivism to corporate life, in order to foster commitment by employees in

a reciprocal relationship with the corporation. Corporations in most other col-

lectivistic societies (typically ‘developing’ societies) have failed to do this, and

this is mostly due to the legacies of colonial institutions and their failure to

integrate with their host societies.

The way a corporation pays attention to employee commitment and moti-

vation through integrating the links between corporation and community, the

bringing in of different stakeholder interests and the regard for its people, is

driven by its management systems: that is its principles, policies and practices.

These systems are culturally influenced through a mixture of post-colonial,

Western (and perhaps Eastern) and African inputs. The likelihood of the

management of these inputs in hybrid systems of management being adaptive

rather than maladaptive to their context may depend to a large extent on

managers’ abilities to recognize and articulate these cultural influences. In order

to achieve this, there is a need to maintain a high level of awareness of the con-

tributing factors to the way the organization is managed through principles,

policies and practices, and their appropriateness to the socio-cultural contexts

within which the organization operates.

Assessing the appropriateness

of management techniques

The concern discussed above was that there is an apparent antithesis between

Western and non-Western ideas of organization and management; between an

idea of people as a resource (human resource management) and people with a

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value in themselves (see the concept of ubuntu in Box 1). It may be possible to

reconcile this antithesis, but it would seem logical that before this can happen,

managers should be aware of these different perspectives. In the current

author’s study of predominantly black management in South Africa (Jackson,

1999), managers saw themselves as generally oriented towards the view of an

intrinsic value of people for themselves rather than as a means to an end of the

organization. The consensus was that people should be valued in their own

right, they should be consulted, and they should be treated fairly and ethically

in an organization that is not merely concerned with short-term results and

making profits or gaining results above all else.

Whilst the study indicated that organizations are making strides to address

the developmental aspects of people, there still seems to be a gap between

humanistic and developmental intentions of organizations and their somewhat

instrumental orientation. The fact that organizations were often seen as hierar-

chical, authoritarian and rule bound, and that they were trying to move towards

an outcomes-based management focus while at the same time encouraging

employee participation, indicates a move from post-colonial influences towards

Western influences (Jackson, 1999). This is reflected in a number of other studies

in South Africa (although Hofmeyr’s, 1998 findings indicated a lack of optimism

about the change from the one to the other). It may also be that there is still a

low articulation of an ‘African’ approach in South Africa, and very little evi-

dence that, for example, ubuntu principles are being applied. This may be in part

due to a lack of articulation of these different influences, as a result of a lack of

conscious management of multiculturalism not only at the macro-level of man-

agement systems, but also at the level of managing a culturally diverse work-

force with different expectations about the way people should be managed.

Managing the dynamics of multiculturalism

The management of multiculturalism can be undertaken from a number of

perspectives. For example, in most African countries, as indeed in countries in

other emerging regions, this would involve not only managing differences in

culture and gender from the point of view of understanding different cultures.

It would also involve managing the power relations that are bound up with

interactions among people of different cultures (e.g. Human, 1996). A huge dis-

tortion in the relative power of different cultural groups exists as a result of

apartheid in South Africa. In other African countries with large white settler

populations, such as Zimbabwe, such distortions also still exist. In most other

African countries dominant and subordinate cultural groups can be identified,

either at country or corporate level. Again, this is reflected in many

other emerging countries around the globe. The Central Asian states, such as

Kazakstan, have large Russian settler populations that have been dominant

within their industrial economies (e.g. Akiner, 1995).

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South Africa now has one of the most highly developed sets of

anti-discrimination laws in the world. Attempting to regulate relationships

among gender and ethnic groups in the workplace involves compliance to

employment equity legislation in order to redress the imbalances between

dominant and disadvantaged groups both at corporate and country level,

as well as consciously managing multicultural workplaces. Recent figures

(Breakwater Monitor, 2000) indicate that of a sample of 200 companies in the

year 2000, 9.52% of managers were African, 5.53% were Indian, 5.31% were

coloured and 79.64% were white. Of the total, 78.66% were male and 21.34%

were female. The relative power balance of ethnic groups within these sample

companies can be deduced if the managerial populations are compared with

the total representation of these four racial groupings within these organiza-

tions. These are 49.2% for Africans, 5.63% for Indians, 14.42% for coloured and

30.76% for whites: 72.07% are male and 27.93% are female. There still appears

to be considerable room for further redressing the power balances among the

racial groupings in corporations in South Africa.

Training courses in intercultural management and awareness sessions may

address issues of interaction. However, they may add very little directly to

addressing issues arising from the power imbalance within corporations which is

culturally related. They also do not address imbalances within the total stake-

holder population. Just looking at this statistically, the racial split in the population

of the Breakwater Monitor Report (2000) is fairly representative of the economi-

cally active population according to the 1999 Household Survey (although it

over-represents whites, and under-represents African females), yet this does not

reflect the total population (75.5% African, 2.5% Asian, 8.6% coloured and

13.1% white in the 1991 census). The number of Africans outside the economi-

cally active population indicates a disparity in power relations among the racial

groups in the total stakeholder community. This situation would be repeated

among emerging countries as different as India and Kazakstan.

Yet simply complying with the legislation is not sufficient in these

circumstances. Proactively managing across cultures would seem to be necessary

in order to redress some of the power imbalances not only by building aware-

ness, but also by developing general cross-cultural competences. Human (1996)

is critical of the maximalist approach (within South Africa, and elsewhere)

based on broad classification of cultures, such as Hofstede’s framework, as this

creates stereotypes. As these stereotypes are value-laden they have serious

implications for both the way in which individuals and groups perceive them-

selves and how others perceive them. They therefore acquire a self-fulfilling

nature. Previously these stereotypes led to perceptions about the inferiority of

black cultures from both blacks and whites. Human contends that more

recently perceptions have been created that African approaches are ‘nice’ and

that managers should be aiming to acquire more Africanized approaches. She

argues for a ‘minimalist’ position which ‘takes an interactional approach to

culture and argues that culture constitutes a subconscious part of a person’s

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identity as a communicator and is therefore constructed to a large extent by

the perception of the other party in the interaction’ (Human, 1996).

To effectively manage across cultures in emerging countries, it is perhaps

necessary to have an awareness of the kinds of stereotypes that one is working

with, in order to overcome some of the negatives and focus on the positive

aspects of cross-cultural working: to see multiculturalism as a positive aspect

whereby different stakeholders from different cultural perspectives can make a

variety of contributions, and where this input is not just simply desirable, it is

necessary for the realization of economic and social prosperity. A starting point

in this evolution is for individuals to have a high awareness of their own cul-

tural background, its values, and the contribution that their values, perceptions

and expectations can make.

One of the major problems with the maximalist approach described above

is that concepts such as those developed by Hofstede (1980) may describe

national culture in a very general way, but they do not provide enough detail

and sensitivity to describe the many different cultures represented in many

African societies, and indeed the numerous cultures in other regions such as

the Indian sub-continent. They also do not provide the means for describing

the manifestations of those cultures in corporate life. For example, there has

been much debate around the concept of collectivism: that it is target specific

and that its influence on corporate life may vary considerably among countries

(e.g. Hui, 1990), let alone within culturally heterogeneous countries such as

South Africa. More specific information is needed on the way people feel about

their own culture, and on the way they feel about others’ cultures. This

approach may also give rise to negative views of the value of one’s culture

among black Africans who have acquired such views through the legacy of

apartheid in South Africa, or (in common with the educated elite in other

African and emerging countries) through receiving a Western or Westernized

education that has had the effect of downgrading indigenous culture in rela-

tion to Western culture. In a multicultural context, the lack of understanding

and articulation of the nature and influence of one’s culture may be a serious

stumbling block to the building of synergies from cultural diversity.

7 CONCLUSIONS

In this chapter we started by looking at HRM in developing countries, and ended

by considering people management and development in emerging countries.

This journey required a reassessment of the way management systems are per-

ceived in the so-called developing countries, and showed that current literature

focuses predominantly on post-colonial systems within a developing–developed

world paradigm. By positioning our understanding within a multicultural

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context that operates at different levels, and within the framework of developing

effective hybrid forms of management, it may be possible to appreciate the

contributions that can be made to management from a more humanistic view

of people in organizations. It is also possible to assess the (lack of) appropri-

ateness of Western HRM systems in emerging countries. In order to develop

appropriate hybrid forms of people management, it is necessary to expand the

concept of participative management to include a wider stakeholder base that

has access to strategic levels of decision making. It is necessary to incorporate

within this framework a reconciling of the conflicts between community/

home life and work/organizational life in order to obtain commitment from

staff. This requires a high level of awareness of multicultural dynamics that

incorporates not only an appreciation of one’s own and others’ cultural values

and aspirations, but also an understanding of the power relations that exist

often as a result of a colonial legacy.

Often Western expatriate managers believe that they have nothing to learn

from their colleagues in developing countries. The same is true of managers

from developing countries who believe they have everything to learn from

their Western colleagues and nothing to teach them. Yet managers working

within the multicultural contexts of emerging countries, who have had to rec-

oncile humanistic values with instrumental ones, community values with work

values, and have had to develop multi-ethnic workforces, and now have to

work with colleagues in neighbouring countries, have a lot to teach. Not all

have been successful managers. Yet this lack of success may well have resulted

from a disparaging of non-Western approaches, and from a blind adherence to

principles learned in Western MBA programmes or in Western textbooks.

Success in developing effective people management processes relies on

developing a body of knowledge from success stories within emerging coun-

tries, and in sharing this information with colleagues in emerging countries

across the globe. It is hoped that this chapter has at least pointed the way to

thinking about how this task may be undertaken.

This chapter concludes the second part of this book, which has focused on

a comparative perspective. In Part 3, we will return to the international

perspective and look at the management of international staff.

8 DISCUSSION QUESTIONS

1 Why is the developing–developed world paradigm problematic in

conceptualizing the issues involved in managing people in emerging countries?

2 How appropriate are Western-style HRM practices to emerging countries?

3 What are the shortcomings of current cross-cultural management theory in

addressing the issues of people management in emerging countries?

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4 How can people management practices be developed in emerging countries in

order to make them more appropriate to the local situation?

9 FURTHER READING

•

T. Jackson (2002a)

International HRM: A Cross-cultural Approach

, London: Sage.

Provides a more comprehensive view of the cross-cultural issues involved in managing people

in international contexts including emerging countries, particularly the instrumental-humanistic

dichotomy, and the way different cultures have addressed the split between home/community

and work life.

•

M. Dia (1996)

Africa’s Management in the 1990s and Beyond

, Washington, DC: World

Bank.

Provides a comprehensive view of the disconnection theory of organizations from the commu-

nity in the context of Africa. This is written largely for the development community rather than

the management community.

•

A.M. Jaeger and R.N. Kanungo (eds) (1990)

Management in Developing Countries

London: Routledge.

Difficult to obtain, but a classic, providing a number of chapters on aspects of managing in

developing countries, albeit largely within the developing–developed world paradigm.

•

P. Blunt and M.L. Jones (1992)

Managing Organizations in Africa

, Berlin: Walter de

Gruyter.

Again, this is getting more difficult to obtain. The classic work on management in Africa.

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PART 3

Managing An International Staff

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10 Composing an International Staff

Anne-Wil Harzing

1 Introduction 251

2 Staffing policies 252

3 Motives for international transfers 259

4 Recruitment and selection of expatriates 268

5 Expatriate adjustment and failure 271

6 Transfer archetypes 275

7 Summary and conclusions 277

8 Discussion questions 277

9 Further reading 277

References 278

1 INTRODUCTION

This chapter is the first of five that will look at different aspects of managing

international staff. In this chapter we will discuss the challenges associated

with composing an international staff. First, Section 2 reviews different staffing

policies and looks in some detail at the factors influencing the choice between

host country and parent country nationals. Subsequently, Section 3 takes a

strategic perspective on international transfers and looks at the underlying

motives that MNCs have to send out expatriates to their international sub-

sidiaries. We will investigate whether these different motives for international

transfers are more important in some circumstances than in others and

CHAPTER CONTENTS

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will review one of the motives for international transfers – control and

coordination – in more detail. The final subsections will discuss the alter-

natives to expatriation, including the use of impatriation. Section 4 then

deals with the recruitment and selection issues associated with expatriation

and discusses both the prescriptive models found in the expatriate literature

and the situation that seems to persist in practice. Expatriate adjustment and

failure is then reviewed in some detail in Section 5, while in the final section

we will examine four different transfer archetypes based on the type of expatri-

ate allegiance.

2 STAFFING POLICIES

In Chapter 2 we discussed Perlmutter’s (1969) classic study that identified three

different international orientations: ethnocentric, polycentric and geocentric.

As we indicated in that chapter, these three orientations have become the stan-

dard way to describe MNC staffing policies. MNCs following an ethnocentric

staffing policy would appoint mostly parent country nationals (PCNs) to top

positions at their subsidiaries, while MNCs following a polycentric staffing

policy would prefer to appoint host country nationals (HCNs). Firms with a

geocentric staffing policy would simply appoint the best person, regardless of

his/her nationality and that could include third country nationals (TCNs),

nationals of a country other than the MNC’s home country and the country of

the subsidiary. In a later publication Heenan and Perlmutter (1979) defined a

fourth approach, which they called regiocentric. In this approach, managers are

moved on a regional basis, such as within Europe, and it often forms a mid-way

station between a pure polycentric/ethnocentric approach and a truly geo-

centric approach. It is important to note that these staffing policies apply to

key positions in MNC subsidiaries only. Although some PCNs or TCNs might

still be found at middle management, MNCs normally appoint host country

managers at this and lower levels.

The term expatriation is often used to describe the process of international

transfer of managers. Although the term expatriate could literally be taken to

mean any employee that is working outside his or her home country, it is nor-

mally reserved for PCNs (and sometimes TCNs) working in foreign subsidiaries

of the MNC for a pre-defined period, usually 2–5 years. An alternative to expa-

triation is impatriation, where subsidiary managers are transferred to HQ. We

will discuss impatriation in Section 3. In this section, we will offer a more

detailed discussion of the advantages and disadvantages of using PCNs, HCNs

or TCNs as well as some recent statistics on the use of PCNs and HCNs in dif-

ferent countries and industries. We will also present a conceptual model that

summarises the factors influencing the choice between PCNs and HCNs.

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PCNs, HCNs or TCNs: (dis)advantages and statistics

A review of the advantages and disadvantages of employing these different

groups of employees will clarify the applicability of the different staffing poli-

cies identified above. Some of the most frequently mentioned advantages and

disadvantages (Negandhi, 1987; Phatak, 1989; Dowling and Schuler, 1990) are

summarised in Table 10.1.

It will be clear that none of the options is without its disadvantages. In the

next subsection, we will discuss several factors that might influence the choice

between these different types of managers, but first we will provide some

recent statistics on the relative use of these groups. Given the fact that staffing

policies might have an important impact on the functioning of the subsidiary,

it is surprising that there is such a paucity of research on the relative use of

PCNs, HCNs and TCNs. In fact until recently, only two studies had been con-

ducted which provided any details on this issue (Tung, 1982 and Kopp, 1994).

Kopp’s results were limited to the use of PCNs in MNCs from various home

countries only and neither Tung nor Kopp discussed the use of PCNs in differ-

ent industries. Moreover, both studies looked at Europe as one supposedly

homogeneous group, both in terms of home and host country.

A recent study (Harzing, 2001a) – based on archival data for 2,689 sub-

sidiaries of nearly 250 different MNCs – provides us with detailed information

on the relative use of PCNs for the managing director position in foreign sub-

sidiaries. Overall, 40.8% of the subsidiaries had a PCN as managing director,

but as Table 10.2 shows this percentage differed substantially by home coun-

try, host country cluster and industry. With regard to home countries, sub-

sidiaries of Japanese MNCs are much more likely to have a PCN as managing

director than are subsidiaries of European MNCs. The exact percentage of PCNs

in subsidiaries of European MNCs does differ considerably across the various

countries, however, from a low of 18.2% for Denmark to a high of 48.1% for

Italy. At subsidiary level, the highest percentage of PCNs can be found in Latin

America, Africa, Asia and the Middle East, while expatriate presence is much

lower in Canada and Western Europe and is particularly low in Scandinavia. In

general, MNCs operating in the financial sector and the automobile industry

show the highest percentage of PCNs as managing directors. A low expatriate

presence is found in some service industries and in ‘multidomestic’ industries

such as food. As the sample size for some of the categories is relatively small,

results for these categories should be treated with caution. It must be noted

though that the overall sample size is much higher than that of either Tung’s or

Kopp’s study.

The results above describe the percentage of PCNs in the managing direc-

tor function only. Although much less information was available for the other

functions, the level of expatriate presence was generally found to be lower in

these functions. Only 17.2% of the subsidiary finance directors (N = 358) were

PCNs, while this was the case for 10.1% of the marketing directors (N = 218).

Composing an International Staff

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The advantages and disadvantages of using PCNs, HCNs or TCNs

Advantages Disadvantages

PCNs (Parent country • familiarity with the home • difficulties in adapting to

nationals) office’s goals, objectives, the foreign language and

policies and practices the socioeconomic,

• technical and political, cultural and

managerial competence legal environment

• effective liaison and • excessive cost of selecting,

communication with training and maintaining

home-office personnel expatriate managers and

• easier exercise of control their families abroad

over the subsidiary’s • the host countries’

operations insistence on localising

operations and on

promoting local nationals in

top positions at foreign

subsidiaries

• family adjustment

problems, especially

concerning the unemployed

partners of managers

HCNs (Host country • familiarity with the • difficulties in exercising

nationals) socioeconomic, political effective control over the

and legal environment subsidiary’s operation

and with business practices • communication difficulties

in the host country in dealing with home-office

• lower cost incurred in personnel

hiring them as compared • lack of opportunities for the

to PCN and TCN home country’s nationals to

• provides opportunities gain international and

for advancement and cross-cultural experience

promotion to local

nationals and,

consequently, increases

their commitment

and motivation

• responds effectively to

the host country’s demands

for localisation of the

subsidiary’s operation

TCNs (Third country • perhaps the best • host country’s sensitivity

nationals) compromise between with respect to nationals of

securing needed technical specific countries

and managerial expertise • local nationals are impeded

and adapting to a foreign in their efforts to upgrade

socioeconomic and their own ranks and assume

cultural environment responsible positions in the

• TCNs are usually career multinational subsidiaries

international business

managers

• TCNs are usually less expensive

to maintain than PCNs

• TCNs may be better informed

about the host environment

than PCNs

TABLE 10.1

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Sample size and percentage of PCN subsidiary managing directors in different HQ countries,

subsidiary country clusters and industries

Country of origin % of % of

of headquarters N PCNs Industry N PCNs

Denmark 88 18.2 Business & 71 12.7

management

services

UK 381 23.1 Rubber & 30 20.0

miscellaneous

plastics

Norway 49 24.5 Stone, glass & 72 23.6

clay products

Switzerland 207 25.6 Pharmaceutical 156 25.0

France 247 30.0 Food & related 132 25.8

products

Finland 200 30.0 Advertising 109 26.6

agencies

Netherlands 196 32.7 Electronic & electric 160 30.6

equipment

Sweden 389 34.2 Industrial 282 32.6

equipment

Germany 279 40.9 Instruments 70 32.9

Italy 52 48.1 Paper 101 33.7

Japan 601 76.5 Computers & office 128 34.4

machines

Industrial 175 37.7

chemicals

Total 2689 40.8 Engineering services 41 39.0

Insurance carriers & 139 39.6

agents

Household 84 40.5

appliances

Subsidary country

cluster

Scandinavia 164 14.6 Metal products 83 42.2

Western Europe 1351 33.3 Printing & 80 45.0

publishing

Eastern Europe 81 39.5 Oil & gas 25 48.0

Canada 94 41.5 Non depository 46 52.2

financial institutions

Australia/ 135 41.5 Telecommunications 62 53.2

New Zealand equipment

Latin America 254 50.8 Motor vehicles 82 62.2

and parts

Africa 53 58.5 Banks & banking 481 76.1

services

Asia 515 60.2 Security & commodity 80 84.8

brokers

Middle East 42 66.7

Total 2689 40.8 Total 2689 40.8

TABLE 10.2

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The lowest percentage of PCNs, however, was found in the personnel director’s

function (2.2%, N = 92). In general, MNCs tended to have more PCNs for the

managing director function than for any of the other functions. For both

German and Italian MNCs, however, the percentage of PCNs for the financial

director function comes close to the percentage of PCNs for the managing

director function, while for British MNCs the financial director in subsidiaries

is even more likely to be a PCN than is the managing director.

Since less than 5% of the positions in this study were taken up by TCNs,

we have not discussed this category in any detail. However, we can say that,

similar to Tung’s study, the highest percentage of TCNs in our sample can be

found in African subsidiaries. Confirming the results of both Tung’s and Kopp’s

study, European MNCs tend to employ more TCNs than Japanese MNCs. This

might be a reflection of the availability of near-nationals in European countries

(e.g. Denmark–Sweden, Spain–Portugal).

Our study also shows that a differentiated approach to subsidiary manage-

ment, as advocated by many scholars in the field of international management

(Bartlett and Ghoshal, 1989; Ghoshal and Nohria, 1993; Martinez and Jarillo,

1991), is important for staffing practices as well. Fewer than 10% of the com-

panies in this study had a uniform staffing policy (only HCNs or only PCNs).

These companies were mostly Japanese MNCs in the financial sector, a sector

that on average had a very high percentage of PCNs as managing directors.

Other companies differentiated their approach according to host country and

subsidiary characteristics. We will look into the factors that influence the

choice between HCNs and PCNs in more detail in the next section.

Factors influencing the choice between HCNs and PCNs

The same study we referred to above (Harzing, 2001a) also gives us some

insight into the factors that influence the choice between HCNs and PCNs for

the managing director position in foreign subsidiaries. Figure 10.1 summarises

the factors that had a significant impact on this choice. It is important to

realise that this model was constructed based on multivariate statistical analy-

sis (logistic regression). This means that although some of the factors might be

intercorrelated, they all have a significant and independent impact on the

choice between HCNs and PCNs.

With regard to parent country/company characteristics, MNCs from coun-

tries with a national culture that scores high on uncertainty avoidance

(Hofstede, 1980, 2001) have a higher tendency to employ PCNs as managing

directors for their subsidiaries. In these cultures, there is a strong preference for

being ‘in control’. There is suspicion towards foreigners as managers and a view

that initiative of subordinates should be kept under control. Managers are

expected to be experts in their fields and generally are selected based on senior-

ity (Hofstede, 1980, 2001). These characteristics usually point to a trusted PCN

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as the preferred alternative for senior positions in subsidiaries. Direct control of

subsidiary operations will also be more important if the level of cultural dis-

tance between home and host country is high. In this case, HQ managers

might not trust the information they receive from local managers. In addition,

HQ managers might fear that local managers are less committed to the com-

pany. Furthermore, communication between people from different cultural

backgrounds can be very difficult (even if they speak the same language) and

the opportunity for misunderstandings is usually high (Boyacigiller, 1990).

Therefore, headquarters managers will prefer to have at least some home coun-

try managers in important positions to facilitate the information flow. Larger

MNCs have more PCNs as managing directors since they have more manager-

ial resources and are more likely to have a formal management development

program in operation that involves the transfer of managers around the world.

MNCs with a research intensive product are more likely to feel the need to

transfer at least some of this knowledge to their subsidiaries and to train local

managers (Hamill, 1989; Ronen, 1986). Our study did not find support for this

relationship, but a recent study by Tan and Mahoney (2002) found that R&D

intensity did increase the number of PCNs for Japanese firms, though not the

Composing an International Staff

257

Parent country/company

+ Level of uncertainty avoidance

+ Cultural distance between

parent and host country

+ Size of the company

[+ R&D intensity]

Host country

− Education level

+ Political risk

− Cost of living higher than parent

company

Subsidiary characteristics

− Age

− Acquisition

+ Majority ownership

− Reporting distance from HQ

+ Size

− Performance

Industry

+ Banks & banking services

+ Security & commodity brokers

+ Printing & publishing

− Advertising agencies

− Computers & office equipment

− Electronics & equipment

− Food & related products

Likelihood of PCN in

managing director

position at foreign

subsidiaries

FIGURE 10.1

Factors influencing the choice between HCN and PCN

3122 Ch-10.qxd 10/29/03 3:49 PM Page 257

likelihood of a PCN as managing director. This is probably due to the fact that

R&D knowledge is transferred mainly by technical specialists rather than by

the managing director.

With regard to industry, only the industries with a significantly higher or

lower level of PCNs as managing director are included in this model. A high per-

centage of PCNs as managing director is found in the financial services and print-

ing & publishing, while a low percentage of expatriates is found in the advertising

industry, the computers & office equipment industry, the electronic & electric

equipment industry, and the food industry. Some of the industry effects are easily

explained. The control aspect will lead companies to employ a large percentage of

PCNs in financial services, while the importance of knowledge of the local mar-

ket will lead companies to employ a large percentage of HCNs in advertising and

the food industry. The results for the other industries are less straightforward and

would merit further investigation in a more controlled sample.

With regard to host country characteristics, MNCs are more likely to

employ PCNs when the level of education in the host country is low

(Boyacigiller, 1990; Scullion, 1991), since in that case qualified local personnel

will be scarce. Further, a high level of political risk in the host country is likely

to make direct control through expatriates more important because the risks of

loss of income or assets might be substantial. It also makes the speed and clar-

ity of communication allowed by the use of PCNs of vital importance

(Boyacigiller, 1990). As we have seen above, one of the advantages of having

HCNs in top management positions is that they are less expensive to employ

than PCNs. This motive is more important when the cost of living in the host

country is higher than in the home country. In this case, an expatriate will

expect to get additional compensation to maintain his/her previous lifestyle.

Local managers have probably adjusted better to the high cost of living and

would not require additional compensation.

Finally there are several subsidiary characteristics that impact on the choice

between HCNs and PCNs as managing director. Subsidiary age will be negatively

related to the likelihood of using PCNs as managing directors. When a subsidiary

has just been established, HQ will feel a higher need to ensure its operations are

in accordance with HQ policies and will hence use trusted PCNs. Furthermore,

MNCs might have difficulty in attracting high-caliber locals in recently estab-

lished subsidiaries. When subsidiaries become more established, local recruitment

may be easier and some transfer of knowledge and training of local managers will

already have been effected (Boyacigiller, 1990; Franko, 1973; Hamill, 1989). The

parent company’s lack of knowledge of the local labor market and a lack of recruit-

ment potential will also be major reasons for greenfield establishments to attract

PCNs for top management positions. In acquired subsidiaries, there will often be

an established local managerial cadre. When a subsidiary is very important to

headquarters, keeping its operations under control through PCNs will be felt to be

more necessary (see also Boyacigiller, 1990). Large, majority-owned subsidiaries

that report directly to headquarters are more important to headquarters than are

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small, minority-owned subsidiaries that are much ‘lower’ in the corporate reporting

hierarchy. Finally, control of the subsidiary will also be more important when a

subsidiary is under-performing, and direct headquarters intervention by means of

a parent country expatriate is necessary.

3 MOTIVES FOR INTERNATIONAL TRANSFERS

Now that we have established the advantages and disadvantages of using dif-

ferent groups of managers and have reviewed the factors influencing the choice

between HCNs and PCNs, we will take a closer look at the motives that MNCs

have to send out expatriates to their foreign subsidiaries. In this section, we will

first discuss the classification by Edström and Galbraith (1977) and will show

that the results of German studies largely confirm this classification. We will

then investigate whether the different motives for international transfers are

more important in some circumstances than in others and will review one of

the motives for international transfers – control and coordination – in more

detail. A final subsection will discuss the alternatives to international transfers,

including the use of impatriation.

Edström and Galbraith’s typology

There are few theoretical clarifications or concepts regarding the motives for

international transfers. At first sight, the study by Edström and Galbraith

(1977) is the only one that theoretically explains why international transfer of

managers occurs. They found three general company motives for making this

type of transfer. The first was to fill positions, which concerns the transfer of

technical and managerial knowledge. This motive is quite important for devel-

oping countries, where qualified local nationals might not be available, but

specific knowledge transfer might be necessary to subsidiaries in developed

countries as well. Expatriates can be seen as the key bearers of tacit knowledge.

The second major motive is management development. The transfer gives the

manager international experience and develops him/her for future important

tasks in subsidiaries abroad or with the parent company. This kind of transfer

would be carried out even if qualified host-country nationals were available.

For the third motive for international transfers, the final goal is not individual

development but organisation development. This motive consists of two ele-

ments: socialisation of both expatriate and local managers into the corporate

culture and the creation of a verbal information network that provides links

between subsidiaries and headquarters.

The classification of Edström and Galbraith is well accepted in the litera-

ture on international transfers. Virtually every publication that deals with this

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topic refers to Edström and Galbraith’s now classic 1977 Administrative Science

Quarterly article. Borg perfectly describes this unanimous support in his disser-

tation: ‘The study of Edström and Galbraith (1977), which is very often quoted

in both articles and textbooks, seems to be the only one which theoretically

explains why international transfers of managers occur’ (Borg, 1988: 41). A fur-

ther investigation, however, revealed a substantial number of German studies,

both conceptual and empirical, on this topic. The fact that they appeared in the

German language only seems to have blocked their access by the Anglophone

research community. A summary of these studies and a comparison of their

classifications to the one by Edström and Galbraith can be found in Table 10.3.

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260

Motives for international transfers according to various authors

Organisation

Edström and development

Galbraith Management (coordination &

(1977) Position filling development control)

Pausenberger and To ensure transfer To develop the To ensure

Noelle (1977) [our of know-how; To expatriate’s homogeneous

translation] compensate for a management practices in the

lack of local capabilities; To company; To

managers; Training develop managers’ ensure a common

and development global awareness. reporting system

of local managers. in the company;

Presence of

different

view-

points in decision-

making bodies.

Welge (1980 [our Position filling; International Coordination;

translation] Transfer of experience; Use Change

know-how. management management.

potential.

Kenter (1985) Lack of qualified Development of Control and

[our translation] local managers parent country coordination;

available; Transfer nationals. Increase loyalty

of know-how; and

Training of local trustworthiness

managers. of expatriates.

Kumar and Transfer of Headquarters want To ensure

Steinmann (1986) know-how; Japanese managers coordination with

(Continued)

TABLE 10.3

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Continued

Organisation

Edström and development

Galbraith Management (coordination &

(1977) Position filling development control)

[our translation] The necessity to to gain headquarters

train German international corporate policies

managers. experience. and philosophies;

To facilitate

communication;

Desired loyalty

with headquarters

goals.

Pausenberger (1987) Transfer of Management To ensure a

[our translation] know-how. development. uniform company

policy.

Roessel (1988) [our Transfer of Managerial Coordination,

translation] management development of control and

know-how; Lack expatriates and steering;

of qualified local local managers. Reciprocal

personnel information flows;

Internationali-

sation of the

company as a

whole.

Groenewald and Transfer of Management Steering and

Sapozhnikov (1990) technological, development; coordination.

[our translation] administrative or Better career

sales know-how; opportunities

Lack of qualified for employees.

local personnel.

Kumar and Transfer of Headquarters want To ensure

Karlshaus (1992) know-how; German managers coordination and

[our translation] Limited to gain communication

availability international with headquarters;

of local experience. Desired loyalty

managers; The with headquarters

necessity to train goals.

foreign managers.

Macharzina (1992) Filling vacant Management Coordination.

[our translation] positions. development.

Wolf (1994) [our Filling vacant Personal Coordination.

translation] positions. or managerial

development.

TABLE 10.3

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There seems to be a considerable consensus on the principal functions of

international transfers, well represented by the original classification of

Edström and Galbraith. In many of the German studies, though, the focus is

more on a direct type of expatriate control than on the informal type of con-

trol or coordination identified by Edström and Galbraith. However, the ulti-

mate goal is similar in both cases: making sure that the various organisational

units strive towards common organisational goals. It is interesting to note,

however, that although Edström and Galbraith termed their third motive

‘organisation development’, their description of this organisational motive for

international transfers focuses exclusively on control aspects. This is also the

way in which this motive for international transfers has been interpreted in

most of the English articles that refer to the Edström and Galbraith classifica-

tion and the German studies. Pausenberger (1987), however, indicates that all

three functions of international transfer can in fact lead to organisation devel-

opment defined as the increase of the company’s potential to succeed and to

compete in the international market. Roessel (1988) puts forward a similar

view when he discusses how the various functions of international transfers

can lead to the further internationalisation of the MNC, which would make it

more effective in international markets. Maybe we should conclude that organ-

isation development is not a goal of international transfers as such, but is

rather the result of knowledge transfer, management development and the

creation of a common organisational culture and effective informal information

network. It might then be more appropriate to call the third category coordi-

nation and control rather than organisation development.

As Edström and Galbraith (1977) pointed out, these three motives for

international transfers are not mutually exclusive. The key point that compa-

nies should realise is the fact that expatriation is a strategic tool to achieve

specific organisational goals and needs to be used as such.

Different motives for different circumstances?

Although, as we have seen above, there is a reasonably well accepted classifi-

cation of the motives for international transfers, very little research has

been done with regard to the importance of different motives in different

circumstances. The most that studies in the field do is to assess the relative

importance of the three different motives and in this respect there is little con-

vergence across studies. Based on a study of 212 subsidiaries located in 22

countries representing MNCs headquartered in nine different countries,

Harzing (2001b) provided a first attempt at exploring this issue in more detail.

The study explored the motives for international transfers from a subsidiary

rather than a headquarters perspective. There might be a substantial difference

between the perspective of headquarters and subsidiary managers in this

respect. First of all, expatriates might be sent out for a particular motive (e.g.

management development), but in practice might actually fulfil another function

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(as well). Second, HRM managers at headquarters are more likely to put forward

the ‘company line’ in surveys, while subsidiary managers are more likely to

paint a realistic picture of the functions of expatriation in their

subsidiaries. Harzing investigated the impact of home country, host country,

cultural distance and subsidiary characteristics.

Home countries

Position filling is seen as significantly more important in subsidiaries of British

and American MNCs than in subsidiaries of MNCs from other countries. At the

same time, transfer for coordination and control was seen as less important in

these subsidiaries and transfer for management development was at a level

comparable to that in subsidiaries of other MNCs. American and British MNCs

tend to send out fewer expatriates than MNCs from other countries (Harzing,

1999). Apparently, if they do send out expatriates, it is because it is absolutely

necessary for reasons of knowledge transfer or the lack of availability of locally

qualified personnel.

Management development is seen as more important in subsidiaries of

Dutch, Swiss and also German MNCs than in subsidiaries of MNCs from other

countries. The higher than average use of international management training

(as a control mechanism) by Swiss and Dutch MNCs (Harzing, 1996) fits this

observation. In addition, German and to some extent Swiss and Dutch com-

panies tend to follow the functional approach to management development

(Evans, Lank and Farquhar, 1989). Horizontal job rotation through many dif-

ferent functions is a key feature of this ‘Germanic’ model of management

development. Developmental assignments abroad might fit this model better

than the ‘elite cohort’, ‘elite political’ and ‘managed development’ approaches

that are found in other countries.

Finally, there is a highly significant difference in the importance of the

coordination and control function of international transfers between subsidiaries

of German and Japanese MNCs on the one hand and subsidiaries of American

and British MNCs on the other hand. This fits with the findings of other stud-

ies that Japanese and German MNCs have a more personal approach towards

control, while American and British companies tend to rely on a more imper-

sonal bureaucratic type of control (see e.g. Egelhoff, 1984, 1988; Negandhi and

Welge, 1984; Ferner and Varul, 1999). It can also be argued that transfer for one

of the subfunctions of coordination and control – the improvement of com-

munication channels – is less necessary for American and British MNCs,

because many subsidiary managers will be able to communicate in English.

Host countries

Overall, the subsidiary region did not have a major impact in terms of differ-

ences across the three motives for international transfer. All three motives,

however, were seen as slightly more important for subsidiaries in Asia than for

subsidiaries in other regions, while position filling was more important in Latin

American countries as well. A (perceived) lower level of management capabilities

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in Latin America and Asia might explain the differences for both position filling

and management development. The level of cultural distance (see below) and

the higher communication barriers between headquarters and the subsidiary in

question could explain the relative importance of coordination and control for

Asian subsidiaries. It is interesting to note that although this difference was not

significant, transfer for management development was perceived as most

important and transfer for position filling as least important in subsidiaries in

the Anglophone cluster (USA, UK, Ireland). This might lead us to conclude that

MNCs see these countries as relatively advanced in terms of management skills

and that MNCs use an assignment in these countries to expose their managers

to the Anglophone style of management.

Cultural distance

As we have seen above, cultural distance is found to be related to a high expa-

triate presence (see also Boyacigiller, 1990; Wolf, 1994). Our data show that this

is mainly due to a higher importance of the coordination and control function in

culturally distant countries. As we have discussed above, both control of sub-

sidiary operations (either directly or indirectly) and improvement of commu-

nication channels between HQ and subsidiaries will be more important if the

level of cultural distance between home and host country is high. Position fill-

ing also showed a significant, though smaller, positive correlation with cultural

distance. The mere fact that subsidiary employees are culturally different would

probably lead headquarters managers to think that they are less suited for top-

level positions and that transfer of know-how would be necessary. Manage-

ment development, on the contrary, is perceived as less important in subsidiaries

in culturally distant countries.

Other subsidiary characteristics

Position filling is perceived as slightly more important in large greenfield sub-

sidiaries. Finding a large enough contingent of locally qualified personnel might be

more difficult in this type of subsidiary. Management development is seen as much

more important in older and larger subsidiaries. This type of subsidiary is likely to

be more established and more important to headquarters and might therefore offer

a more suitable training ground. Finally, transfer for coordination and control is seen

as more important in younger subsidiaries. Making sure that the new subsidiary

functions according to headquarters’ plans and establishing communication chan-

nels is likely to be very important in the early phases of operation.

These findings have an important impact on the management of expatriates.

Most publications in the expatriate literature prescribe ‘best practices’ in expa-

triate management in terms of selection, training and compensation. However,

since expatriates are sent out for different reasons, practices with regard to their

selection, training and appraisal and compensation might need to be tailored to

these different reasons for transfer. For instance, for an expatriate who is mainly

sent out for coordination and control and in particular to improve communi-

cation channels between headquarters and the subsidiary in question, excellent

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language and communication skills would be essential. These skills might be

less important for an expatriate who is sent out to transfer technical knowledge.

In this case, possession of specific technical skills would be most important. In

terms of appraisal and compensation, appraisal systems that are geared towards

the realisation of the specific objectives of the assignment would put the expa-

triate in a far better position to achieve his or her objectives.

Of bears, bumble-bees and spiders

In this section we’ll take a closer look at one of the motives for international

transfers: coordination and control, based on a study by Harzing (2001c). In

contrast to the study above, that directly asked managers for the motives for

international transfers, this study looked at expatriation in the context of con-

trol mechanisms in general. Data were analysed by correlating the level of

expatriate presence with the coordination mechanisms in question (direct

expatriate control, socialisation/shared values and informal communication).

The fact that there was a significantly positive relationship between expatriate

presence and these three coordination mechanisms, while no such relationship

was present for the other coordination mechanisms (e.g. bureaucratic control,

output control) included in this study, independently confirms the importance

of this function of expatriation.

As we have seen above, the coordination and control function of inter-

national transfers has three distinct elements. Expatriates are used to provide

personal/cultural control, in both a direct and an indirect way. They can serve

to replace or complement HQ centralisation of decision-making and direct sur-

veillance of subsidiaries by headquarters managers. This is the kind of control

that is alluded to in many of the German studies discussed above. We call this

the ‘bear’ role of expatriates. The bear is chosen as an analogy, because it reflects

a level of dominance (and threat that might be perceived in the extreme case)

associated with this type of expatriate control. Expatriates can also be used to

realise control based on socialisation and the creation of informal communica-

tion networks, which is the kind of control described by Edström and Galbraith

and some of the German studies. The role of expatriates in socialisation we refer

to as that of ‘bumble-bees’. Organisational bumble-bees fly ‘from plant to plant’

and create cross-pollination between the various off-shoots. Weaving an infor-

mal communication network is of course the role of expatriates as ‘spiders’.

While expatriates seem to perform their roles as bears in any situation, an

exploratory analysis showed that their role as bumble-bees and spiders is more

important in some situations than in others. It is more important in

subsidiaries that were established more than 50 years ago than in younger sub-

sidiaries, although the bumble-bee role is important in very young subsidiaries

as well. Both the bumble-bee and the spider role are particularly important in

subsidiaries that show a high level of local responsiveness, and that are not at

all or hardly dependent on headquarters for their sales and purchases. Finally,

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the bumble-bee and spider roles are more important in acquisitions than in

greenfields. What these situations have in common is that they all represent

situations in which subsidiaries operate quite independently from headquar-

ters. Apparently, expatriate presence is most effective in facilitating informal

control in subsidiaries that are otherwise relatively independent from head-

quarters, while in subsidiaries that are quite dependent on headquarters expa-

triate presence serves mostly to facilitate direct expatriate control. Since

absolute expatriate presence is generally lower in subsidiaries that are relatively

independent from headquarters (Harzing, 1999), we might also conclude that

the ‘marginal effectiveness’ of expatriates in facilitating informal control

decreases if expatriate presence increases. In other words: if there are no or only

a few expatriates employed in a particular subsidiary, ‘adding’ expatriates

might have a strong positive effect on shared values and informal communi-

cation, while the effect of adding another expatriate is much weaker in sub-

sidiaries that already employ a large number of expatriates.

Alternatives to expatriation

We have seen that international transfers can fulfill a number of very important

functions in MNCs. Unfortunately, there are increasing signs that barriers to

mobility – especially the issue of dual-career couples – become more and more

important, leading to a decline in willingness to accept an assignment abroad

(Forster, 1992; Kilgore, 1991; Punnett et al., 1992; Scullion, 1992; Welch, 1994).

Further, sending out expatriates can be very costly. So increasingly, companies

will be looking for alternatives to expatriation, which we will discuss below.

Impatriation

An alternative to expatriation might be impatriation, which involves the trans-

fer of subsidiary managers to headquarters for a specific period of time. This

would allow key subsidiary managers to get to know the workings of the

parent company and build up informal communication networks. It also

allows headquarters to inculcate the subsidiary managers into the corporate

culture in a more direct way than would be possible by the transfer of expatri-

ates. Impatriation is also a useful option if tacit knowledge needs to be trans-

ferred from subsidiaries to headquarters, which might very well be the case in

transnational companies (see Chapter 2) and it has the added advantage of

exposing parent company managers to an international perspective.

Unfortunately, there is virtually no information about the actual use of

impatriation by MNCs. A recent – as yet unpublished – survey by Harzing and

Noorderhaven investigated HQ–subsidiary relationships in some 175 sub-

sidiaries of MNCs headquartered in the USA, Japan, UK, France, Germany and

the Netherlands and can provide us with some basic data in this respect. Nearly

two-thirds of the subsidiaries indicated that some of their employees had been

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on temporary assignment to headquarters. Although in most cases this

concerned just one or two employees, in nearly 20% of the subsidiaries 3–5

employees had been impatriates, in a further 7% this was true for 6–10 employ-

ees and in 10% of the subsidiaries more than 10 employees had been impatriates.

In some companies impatriation does indeed seem to be used as an alternative

to expatriation: half of the subsidiaries that did not count expatriates among their

workforce, did have employees that had been impatriated to headquarters.

Impatriation therefore seems to be an important addition to the company

repertoire and can help to transfer knowledge, improve HQ–subsidiary rela-

tionships and develop managers. However, impatriates have to cope with

many of the same problems as expatriates, such as adjustment and repatria-

tion. It is therefore unlikely that they will ever completely replace expatriates.

Transfers vs. travel, training and teams

With regard to management development, Gregersen et al. (1998) see inter-

national transfers as the most powerful means of developing the skills and

knowledge that future global managers will need. When they asked leaders

what had been the most powerful experience in their life for developing global

leadership capabilities, 80% replied it was living and working in a foreign country.

However, they do indicate that travel, training and teams can also help in this

respect. The travel option is discussed in some detail by Marilyn Fenwick in

Chapter 12 under the heading ‘Virtual international assignments’.

Of course training can always fulfill a development role, but training is also

recognised as an important means for socialisation (Child, 1984; De Meyer, 1991;

Derr and Oddou, 1993; Ondrack, 1985). Formal training programmes can be an

effective way to directly transfer the organisational goals and values to a whole

group of people at the same time. Management trainees in large (multinational)

companies usually follow a whole series of one- or two-week training courses. In

addition, this shared experience might also create informal networks. So in

multinational companies, these training programmes can provide an important

impetus to achieve shared values and facilitate network building between head-

quarters and subsidiaries, as such acting as an alternative to expatriation.

Work in teams with people from different backgrounds can clearly have a

developmental role. These teams can be formalised into task forces or project

groups constructed to work on a specific company problem. The Philips

Octagon programme (Van Houten, 1989), in which a team of eight young

high-potential managers of different backgrounds and nationalities are brought

together to work on an actual company problem, is an excellent example. This

programme lasts six to eight months and ‘its purpose is to broaden the scope

of understanding of the company, to increase appreciation of the interdepen-

dence of functions and disciplines, and to provide a cross-cultural forum for

working together and exchanging ideas’ (Van Houten, 1989: 110). Of course,

this intensive cooperation also gives a very strong impetus to informal network

building (another function of expatriation).

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Since expatriation fulfills many roles, these three alternatives are unlikely

to completely replace expatriates. However, they are certainly a cheaper alter-

native to expatriation and it is much easier to involve a large number of man-

agers through travel, training and international task forces or project groups

than it is through expatriation. And since travel, training and international

task forces serve other important aims as well, directly related to the successful

operation of the company, they are instruments that should form part of the

repertoire of any MNC.

4 RECRUITMENT AND SELECTION OF EXPATRIATES

After our discussion of staffing policies and the motives for expatriation, it is

now time to look at recruitment and selection issues associated with expatria-

tion. In this section we will first discuss two popular studies in this respect and

then look at the situation that seems to persist in practice.

Selection criteria: prescriptions for good practice

The first major study in this area was carried out by Tung (1981). Based on a

review of the literature on the selection of personnel for assignments abroad,

she identified four groups of variables that contribute to success or failure on

the job and hence should be used to guide selection:

• Technical competence on the job. As in the selection and placement of per-

sonnel in domestic operations, this factor is one of the primary deter-

minants of success. It may be even more important for assignments

abroad because the individual is located at some distance from head-

quarters, often the hub of technical expertise, and cannot consult as

readily with his peers and superiors on matters related to the job.

• Personal traits or relational abilities. This refers to the ability of the indi-

vidual to deal effectively with his/her superiors, peers, subordinates,

business associates and clients. In assignments abroad, this variable

greatly influences the probability of successful performance. This factor

is not limited to simple knowledge of another culture. The crucial thing

is the ability to live and work with people whose value systems, beliefs,

customs, manners and ways of conducting business may be greatly dif-

ferent from one’s own.

• Ability to cope with environmental variables. In domestic operations the

ability to identify and cope with environmental constraints, such as gov-

ernments, unions, competitors and customers, is crucial to effective

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performance. This same requirement is no less valid in assignments

abroad, but the political, legal and socioeconomic structures which con-

stitute the macroenvironment in the host country may be very different

from the systems with which the expatriate is familiar. This poses prob-

lems of adjustment. The expatriate has to understand these systems and

operate within them.

• Family situation. This refers to the ability of the expatriate’s family (the

partner in particular) to adjust to living in a foreign environment.

Researchers and practitioners are becoming increasingly cognisant of the

importance of this factor to effective performance abroad. The situation

often becomes even more complex if the partner (male or female) has

had to give up a job or even a career to accompany his or her partner

abroad. We will come back to the problems of dual career families in the

chapter on women in international management.

A second important contribution is the study by Mendenhall and Oddou

(1985). According to them there is insufficient knowledge about the relevant

dimensions in expatriate acculturation, leading to the use of inappropriate

selection procedures. They distinguish four dimensions as components of the

expatriate adjustment process:

• the self-orientation dimension: activities and attributes that serve to strengthen the

expatriate’s self-esteem, self-confidence, and mental hygiene;

• the other’s orientation dimension: activities and attributes that enhance the expa-

triate’s ability to interact effectively with host nationals;

• the perceptual dimension: the ability to understand why foreigners behave the

way they do, the ability to make correct attributions about the reasons or causes

of host-nationals’ behavior;

• the cultural toughness dimension: this dimension can modify the importance of the

first three dimensions. In culturally tough countries (countries that are culturally

very different from the home country), the first three dimensions become even

more important than in culturally similar countries.

The expatriate selection process should focus explicitly on the strengths and

weaknesses of the applicant on the above-mentioned dimensions.

Expatriate selection in practice

In both the studies discussed above and in other studies in the field, we notice

an emphasis on the fact that expatriate selection is a multi-faceted subject and

that interpersonal skills are very important. In practice, however, most compa-

nies use technical competence and knowledge of company systems as selection

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criteria (Barham and Devine, 1990; Brewster, 1988; Harvey, 1985; Mendenhall

et al., 1987; Miller, 1972; Tung, 1981). According to Miller (1972) there are two

major reasons for this practice: first, the difficulty of identifying and measur-

ing the relevant interpersonal and cross-cultural skills, and secondly, the self-

interest of the selectors, who will try to minimise the personal risk involved in

selecting a candidate who might fail on the job. Technical competence will

almost always prevent immediate failure on the job. A more practical reason

for the lack of attention to factors such as relational skills, cultural empathy

and partner/family support in selection lies in the actual selection procedures

adopted by companies.

Brewster (1991) notes that reliance on personal recommendations for expa-

triate postings from either specialist personnel staff or line managers is wide-

spread. The result is that the outcome of selection interviews is more or less

pre-determined and negotiating the terms of the offer takes precedence over

determining the suitability of the candidate. In a provocatively titled article:

‘The Coffee-machine System: How International Selection Really Works’ Harris

and Brewster (1999) develop this idea further and provide a typology of inter-

national manager selection systems based on the distinction between open and

closed systems and formal and informal systems. Chapter 14 provides a more

extensive description of this typology and its implications for the role of women

in international management. The closed/informal system was most frequent

among the organisations that Harris and Brewster studied. The researchers

adopted the term ‘the coffee-machine system’ as a catchy summary for this type

of selection system. The process starts with a senior line manager (usually male)

who is joined by a colleague while waiting for his coffee at the coffee machine:

How’s it going?

Oh, you know, overworked and underpaid.

Tell me about it. As well as all the usual stuff, Jimmy in Mombai

has just fallen ill and is being flown home. I’ve got no idea who

we can get over there to pick up the pieces at such short notice.

It’s driving me crazy.

Have you met that Simon on the fifth floor? He’s in the same

line of work. Very bright and looks like going a long way. He was

telling me that he and his wife had a great holiday in Goa a couple

of years ago. He seems to like India. Could be worth a chat.

Hey thanks. I’ll check him out.

No problem. They don’t seem to be able to improve this coffee

though, do they? (Harris and Brewster, 1999: 497)

As Harris and Brewster indicate, the decision, that in effect has already been

taken, is subsequently legitimised by organisational processes. The inter-

national HRM department will usually only become involved to deal with the

financial aspects and practical arrangement related to the transfer. The disad-

vantages of this type of selection system are obvious. Candidates are not

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formally evaluated against ideal-type criteria, the pool of candidates is very

much restricted and the organisation takes a reactive rather than strategic

approach to expatriation.

5 EXPATRIATE ADJUSTMENT AND FAILURE

In the previous section we already alluded to the importance of expatriate

adjustment. In this section we will provide a comprehensive model of expatri-

ate adjustment and will critically evaluate the related issue of expatriate failure.

A model of expatriate adjustment

Black, Mendenhall and Oddou (1991) provided a comprehensive model of

expatriate adjustment that integrates perspectives from theoretical and empir-

ical work in both the domestic and international adjustment literature. They

argue that expatriate adjustment includes two components: anticipatory

adjustment and in-country adjustment. Anticipatory adjustment can have an

important positive impact on in-country adjustment. It is positively influenced

by cross-cultural training and previous international experience, although it is

reasonable to expect that the latter will only be true if the earlier experience

abroad was a positive one. Both help to build up accurate expectations and the

more accurate the expatriate’s expectations, the lower the level of uncertainty,

the fewer the surprises and the lower the level of culture shock. The MNC can

help anticipatory adjustment by providing cross-cultural training and using

comprehensive selection criteria (see Section 4).

The in-country adjustment part of their model, which is reproduced in Figure 10.2,

was tested by Shaffer, Harrison and Gilley (1999). Shaffer et al. introduced two

moderating variables, previous assignments and language fluency. In Figure 10.2

we have underlined the relationships that were confirmed in the empirical study.

The model identifies three dimensions of adjustment: adjustment to work, adjust-

ment to interacting with host country nationals and general adjustment to the

living conditions abroad. As expected, both role clarity (the extent to which what

is expected from the expatriate is clear and unambiguous) and role discretion

(flexibility in the execution of the job) were positively related to work adjustment.

Role conflict (conflicting signals about what is expected in the new work setting)

and role novelty (the extent to which the current role is different from past roles)

did not show the expected negative relationship to work adjustment, though role

novelty was negatively related to general adjustment.

Support from co-workers and logistical support were positively related to

interaction adjustment, though the expected impact of logistical support on

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general adjustment was not confirmed. Supervisor support did not have any

significant influence on adjustment. Cultural novelty and spousal adjustment

had a very strong impact on general adjustment and a weaker, though still very

significant, impact on interaction adjustment. Spousal adjustment did not

influence work adjustment. The two self-efficacy variables seemed completely

unrelated to adjustment, but contrary to the authors’ expectations both the

number of previous assignments and language fluency have a significant positive

direct effect on interaction adjustment.

As expected, both previous experience and language fluency had impor-

tant moderating effects as well. Previous experience moderated the relationship

between supervisor and co-worker support. For expatriates on their first assign-

ments, supervisor support was negatively related to all aspects of adjustment,

International Human Resource Management

272

* Numbers in parentheses indicate the corresponding dependent variables. Underlined relationships

were confirmed.

Job factors

+ Role clarity (1)

+ Role discretion (1)

− Role conflict (1)

− Role novelty (1) (3)

Organisational factors

+ Supervisor support (2)

+ Co-worker support (2)

+ Logistical support (2,3)

Non-work factors

− Culture novelty (2,3)

+ Spouse adjustment (1,2,3)

Individual factors

+ Achievement self-efficacy (1,2,3)

+ Social self-efficacy (1,2,3)

+ Previous assignments (1,2,3)

+ Language fluency (1,2,3)

Expatriate adjustment

(1) Work

(2) Interaction

(3) General

FIGURE 10.2

Determinants of expatriate adjustment (adapted from Black et al., 1991

and Shaffer et al., 1999)*

3122 Ch-10.qxd 10/29/03 3:49 PM Page 272

while for more experienced expatriates this relationship was reversed. The

same was true for co-worker support: experienced expatriates relied more on

their support for their adjustment. Shaffer et al. conclude that experienced

expatriates have learned to rely more on host country management than on

home country management. Language fluency moderated the relationship

between role conflict and all three dimensions of adjustment, which was more

strongly negative for those expatriates who were fluent in the host country lan-

guage. Shaffer et al. reason that the conflicting demands from host country

management and home country management might go unnoticed for expatri-

ates with fewer language skills.

Shaffer et al.’s results provide general confirmation of Black, Mendenhall

and Oddou’s conceptual model and clearly point to the importance of job

design, organisational support systems, the inclusion of the spouse in any

training and support programmes and the importance of language fluency as a

selection criterion.

Expatriate failure: is it just a myth?

If there is one thing that most publications in the area of expatriate manage-

ment – and in particular those dealing with either cross-cultural training or

adjustment – have in common it is that they all refer to the ‘fact’ that expatriate

failure rates – measured as premature return of the expatriate – are very high,

with commonly cited figures in the region of 16–50% for developed countries.

Harzing (1995, 2002) has argued that there is no empirical foundation for these

claims and that the myth of high expatriate failure rates has been perpetuated

by careless and inappropriate referencing. She also argues that this myth may

have had a negative impact on the effectiveness of expatriate management.

When reading the academic and practitioner literature on expatriate manage-

ment, practitioners cannot help but draw the false conclusion that expatriate

premature return is one of the most important problems in sending employees

abroad. This might lead companies to focus their attention and resources on

avoiding expatriates’ premature return, while failing to notice or manage other

issues that are, in fact, far more important for assuring the expatriates’ and the

company’s success. Forster and Johnsen (1996), suggest another practitioner

reaction to the myth of high expatriate failure rates that might be equally detri-

mental to both expatriate and company success. They propose that this myth

might well explain why the training and selection procedures of companies in

their study were so different from the ideal policies recommended in the liter-

ature. In reconciling the high expatriate failure rate figures with the actual

practice in their company, each individual firm may believe that it is other

firms who have a problem with high failure – not themselves. These companies

would therefore see no reason to change training and selection policies and

might lose out on the benefits of improved selection and training methods.

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So should we conclude we can disregard expatriate failure? On the

contrary! Further and more sophisticated research into expatriate failure is long

overdue. Such research would first of all involve using a much broader defini-

tion of failure. The current definition used by the overwhelming majority of

studies is the expatriate returning before his/her assignment contract expires.

However, in some circumstances a premature return might actually indicate a

success – a job accomplished in less time than originally anticipated – while in

others an expatriate who stays on, but is under-performing, might in fact do

much more damage than one who returns early. And what about the expat

who returns home, but finds that his/her skills developed during the assign-

ment are not really valued in the home company and is so frustrated that

he/she leaves the company soon after returning? Any definition of expatriate

failure should therefore include under-performance and repatriate failure.

Companies should also acknowledge that the costs of expatriate failure might

go well beyond a simple calculation including the expatriate’s salary, relocation

costs and training costs. They might include indirect costs such as damage to

customer relationships and contacts with host government officials and a neg-

ative impact on the morale of local staff. Expatriate failure will also be very

traumatic for the expatriate and his/her family and might impact his/her future

performance. A high incidence of expatriate and repatriate failure will also

make it more difficult for the company to recruit managers for international

assignments.

Expatriate failure is often due to the inability of either the expatriate or the

expatriate’s spouse to adjust or the expatriate’s inability to cope with the larger

international responsibility (Tung, 1981). Addressing expatriate failure there-

fore involves paying more attention to many of the same factors indicated

under adjustment:

• an acknowledgement that expatriate adjustment involves not just adjustment to

another job, but also adjustment to the interaction with host country nationals

from another culture as well as more general adjustment to living in a foreign

country;

• use of sophisticated selection procedures that include selection criteria such as

cross-cultural competence and language fluency;

• a job design that maximises role discretion and role clarity, minimises role con-

flict and compensates a high level of role novelty with proper training and/or

selection of a candidate with a high level of international experience;

• provision of proper organisational support systems, both through logistical sup-

port and support from supervisors and co-workers in the host country;

• inclusion of the spouse in any training and support programme.

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Addressing repatriate failure requires a different set of considerations that will

be discussed in detail in Chapter 13.

6 TRANSFER ARCHETYPES

In the previous section, we introduced the concept of role conflict, a situation

that arises because expatriates have to reconcile the different demands of the

home and host organisations. Black and Gregersen (1992) refer to this as

‘Serving Two Masters’ and based on a study of over 750 expatriates and repa-

triates provide a typology of expatriate allegiance as reproduced in Figure 10.3.

Each cell also indicates the percentage of expatriates who fall into this category.

Expatriates can be highly committed to either the home or host organisation,

to both organisations or to neither organisation. If an expatriate is over-

committed to the host organisation relative to the home organisation (going

native), integration and coordination within the MNC as a whole becomes

very difficult. An expatriate who is over-committed to the home organisation

relative to the host organisation (heart-at-home) might be unwilling or unable

to adapt home country practices and will not be able to manage host country

managers effectively. However, in Black and Gregersen’s study both these cate-

gories were rather small. The largest group of expatriates fell into the free agent

category, where commitment to both home and host organisation is low. Black

and Gregersen identify two different types of expatriates in this category:

‘hired-gun free agents’ and ‘plateaued-career free agents’. The hired-gun free

agents are often externally hired international experts. They are first and fore-

most committed to their own career and enjoy the challenges, status, freedom

and monetary rewards associated with expatriate life. In many ways this con-

cept is similar to the boundaryless career concept discussed in Chapter 13.

Although the hired-gun free agents are usually hard workers and do their job

well, they always keep an eye out for a better job and pay, and can leave the

firm without much warning. Since very few of them are interested in repatria-

tion to the home office, integrating their knowledge into the organisation is

virtually impossible. The plateaued-career free agents are willing to accept an

international assignment because their career has plateaued at the home

organisation and they see it as a last opportunity to change this. However, they

are not intrinsically interested in international work and are often ineffective

in their job abroad. The combination that Black and Gregersen see as most ben-

eficial to the long-term success of the MNC is dual allegiance, where expatri-

ates are highly committed to both home and host organisation. They found

that role clarity and role discretion, as well as clarity of repatriation pro-

grammes, promoted the development of dual citizens.

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Black and Gregersen’s typology resembles a schema frequently used in

acculturation studies to distinguish identification with the home culture and

identification with the host culture (Van Oudenhoven et al., 2001). The com-

bination of these two factors leads to four adaptation strategies that are

included in Figure 10.3. Through factor analysis based on responses of 127

expatriates in a large Dutch MNC, Van Oudenhoven et al. (2001) were also able

to determine which expatriate characteristics were associated with the four dif-

ferent forms of allegiance (see Figure 10.3). The characteristics in the free agent

category, however, would seem to apply only to the ‘hired-gun free agent’. The

authors also found some differences in the perceived importance of the four

types of allegiance according to demographic and situational factors. The dual

citizen allegiance was deemed more important by older expatriates, while the

free-agent allegiance was deemed more important by younger expatriates. The

heart-at-home allegiance was seen as more important by technicians and pro-

duction workers than by managers. With regard to host region, the free agent

and going-native allegiance was seen as less important in Africa than in Asia,

Europe and Latin America.

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276

FIGURE 10.3

Allegiance to the parent firm

Low High

Allegiance to the

local firm

Low

FREE AGENTS (41%)

Adaptation strategy: marginalization

Expatriate characteristics

•

Flexibility

•

Adventurousness

HEART-AT-HOME (12%)

Adaptation strategy: separation

Expatriate characteristics

•

Commitment to the company

•

Perseverance

High GOING NATIVE (15%)

Adaptation strategy: assimilation

Expatriate characteristics

•

Extroversion

•

Cultural empathy

DUAL CITIZENS (32%)

Adaptation strategy: integration

Expatriate characteristics

•

Open-mindedness

•

Orientation to action

Forms of expatriate allegiance (based on Black and Gregersen, 1992 and van

Oudenhoven et al., 2001)

3122 Ch-10.qxd 10/29/03 3:49 PM Page 276

7 SUMMARY AND CONCLUSIONS

This chapter has taken a general look at composing an international staff. We

provided an analysis of the motives for international transfers, the different

transfer policies and transfer archetypes as well as the alternatives to inter-

national transfers. We also discussed international recruitment and selection

and expatriate adjustment and failure in some detail. In the following four

chapters we will look at four subjects that are related to managing an inter-

national staff. We will begin by analysing the process of cross-cultural training

and development in multinational companies. Secondly, we will deal with a

very practical problem that often puzzles personnel managers: international

compensation and performance management. A third chapter deals with the

challenges associated with repatriation and knowledge management, while the

fourth and final chapter will consider the problems women encounter in

(international) management.

8 DISCUSSION QUESTIONS

1 With the growth in modern communication technologies, such as email and

video-conferencing, and the declining costs of international travel, expatriates

will become an extinct species! Comment on this statement.

2 With regard to recruitment and selection, actual practice in MNCs seems to be

quite different from recommendations for good practice. Why do you think this

is the case?

3 Section 6 discusses four transfer archetypes. Do you think any of these arche-

types would have a higher likelihood of occurring in one of the four different

organisational models discussed in Chapter 2: global, international, multido-

mestic and transnational?

9 FURTHER READING

••

Harzing, A.W.K. (2001a) ‘Who’s in Charge: an Empirical Study of Executive Staffing

Practices in Foreign Subsidiaries’,

Human Resource Management

, Summer,

pp. 139–158.

Composing an International Staff

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••

Harzing, A.W.K. (2001b) ‘An Analysis of the Functions of International Transfer of

Managers in MNCs’,

Employee Relations

, vol. 23, no. 6, pp. 581–598.

••

Harzing, A.W.K. (2001c) ‘Of Bears, Bumble-bees and Spiders: the Role of Expatriates

in Controlling Foreign Subsidiaries’,

Journal of World Business

, vol. 36, no. 4, pp.

366–379.

The main conclusions of the these three articles are summarised in this chapter, but the origi-

nal articles provide much more detail on the most recent empirical studies dealing with staffing

policies and the functions of international transfers.

••

Shaffer, M.A., Harrison, D.A., Gilley, K.M. (1999) ‘Dimensions, Determinants and

Differences in the Expatriate Adjustment Process’,

Journal of International Business

Studies

, vol. 30, no. 3, pp. 557–581.

This study provides the most comprehensive and up-to-date empirical test of the expatriate

adjustment model by Black, Mendenhall and Oddou. It introduces two new variables in the

model – international experience and language fluency – and shows that both variables have

an important direct effect as well as a moderating effect on some of the other variables related

to adjustment.

••

Black, J.S., Gregersen, H.B. (1992) ‘Serving Two Masters: Managing the Dual

Allegiance of Expatriate Employees’,

Sloan Management Review

, Summer. pp. 61–71.

The classic study about allegiance patterns of expatriates. Based on questionnaire data

of over 750 expatriates and in-depth interviews with over 30 expatriates, this article pro-

vides a highly readable account of the four transfer archetypes. It also includes strategies

to counterbalance ineffective allegiance patterns and to promote the development of dual

citizens.

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11 Training and Development of

International Staff

Ibraiz Tarique and Paula Caligiuri

1 Introduction 283

2 Phase 1 – Identify the type of global assignment 285

3 Phase 2 – Conduct a cross-cultural training needs analysis 288

4 Phase 3 – Establish CCT goals and measures 289

5 Phase 4 – Develop and deliver the CCT program 290

6 Phase 5 – Evaluate cross-cultural training 294

7 Final considerations 296

8 Conclusion 301

9 Discussion questions 301

10 Further reading 302

References 302

1 INTRODUCTION

Multinational companies (MNCs) recognize that human resources play an

important role in developing and sustaining a competitive advantage in today’s

highly competitive global business environment (Brewster, 2002; Schuler,

Budhwar, and Florkowski, 2002; Dowling, Welch, and Schuler, 1998; Stroh and

Caligiuri, 1998a, 1998b; Taylor, Beechler, and Napier, 1996). As a result, MNCs

increasingly use expatriates on short-term and long-term international job

assignments for a variety of purposes, such as to acquire and transfer knowledge,

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to manage a foreign subsidiary, to fill a staffing need, to maintain communication,

coordination, and control between subsidiaries and corporate headquarters,

and to develop global leadership competence (Gupta and Govindarajan, 2002;

Bender and Fish, 2000; Mendenhall et al., 2002; Au and Fukuda, 2002; Bonache

and Brewster, 2001; Mendenhall, 2000; Harzing, 2001; Downes, 2000;

Torbiorn, 1994, see also Chapter 10). Given this, successful expatriate assign-

ments are indispensable to MNCs for both developmental and functional rea-

sons (Adler, 1983; Brake et al., 1994; Mendenhall and Oddou, 1985; Stroh and

Caligiuri, 1998a, 1998b; Tung and Miller, 1990).

An expatriate’s success in the host country is largely determined by his or

her cross-cultural adjustment to the host country (Black and Mendenhall,

1990; Kealey and Protheroe, 1996; Sappinen, 1993). While immersed in the

new culture, expatriates are ‘removed from the comfortable environment of

their parental culture and placed in a less familiar culture’ (Sanchez et al., 2000: 96),

and are susceptible to adjustment problems because of numerous challenges

that inhibit their cross-cultural adjustment like the need to speak the foreign

language, to cope with culture shock, to understand different laws and cus-

toms, and to interact with local nationals (Black et al., 1999; Tung, 1981).

Scholarly research that has been conducted in recent years suggests that expa-

triates who are not prepared to confront the challenges (e.g., to cope with culture

shock) find it difficult to adjust and hence incur, and impose on

others, costly implications. For example, expatriates who are unable to adjust are

more likely to perform poorly (Caligiuri, 1997). Poor performance on the assign-

ment has costly implications for expatriates (such as low self-esteem, self-confi-

dence, and loss of prestige among co-workers), for the parent firm (such as lost

business opportunities), and for the host company (such as damaged company

image) (Aycan, 1997; Mendenhall and Oddou, 1985; Tung, 1987). Thus, improv-

ing cross-cultural adjustment has been the focus of many international HR inter-

ventions. Since cross-cultural adjustment can be facilitated if the expatriate has an

awareness of the norms and behaviors that are appropriate in the host country

(Black and Mendenhall, 1990), many MNCs offer cross-cultural training (CCT) to

teach their expatriates the host country’s appropriate norms and behaviors.

Cross-cultural training is defined as any planned intervention designed to

increase the knowledge and skills of expatriates to live and work effectively and

achieve general life satisfaction in an unfamiliar host culture (Kealey and

Protheroe, 1996). For more than 20 years, CCT has been advocated as a means

of facilitating effective cross-cultural interactions and cross-cultural adjustment

(Brewster, 1995; Caligiuri et al., 2001; Katz and Seifer, 1996; Kealey and

Protheroe, 1996). There has been a positive trajectory of growth with respect to

MNCs who are offering CCT. For instance, in the early 1980s, Tung (1981,

1982) found that only 32% of MNCs offered CCT. Almost 20 years later, the

1998 Global Relocation Trends Survey Report indicates that 70% of the 177

MNCs surveyed provide CCT of at least one day’s duration (Windham

International and National Foreign Trade Council, 1998).

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A vital aspect of any CCT program involves determining how training

effectively enhances expatriates’ cultural knowledge and skills and facilitates

expatriates’ adjustment to the host country’s culture. Cross-cultural training

effectiveness is reflected by the cognitive, affective, and behavioral changes that

occur during the CCT event. In order to improve the effectiveness of CCT pro-

grams, or to maximize the change that occurs during training, it is important

to follow a systematic approach to designing effective CCT programs. Research

has shown that a well-designed CCT program can enhance the learning process

of the expatriate and thus facilitate effective cross-cultural interactions and

cross-cultural adjustment (Black and Gregersen, 1991; Caligiuri et al., 2001).

This chapter focuses on the systematic process for designing effective CCT

programs. The process for designing effective CCT programs consists of five dis-

tinct phases:

1 Identify the type of global assignment for which CCT is needed.

2 Determine the specific cross-cultural training needs.

3 Establish the goals and measures for determining training effectiveness.

4 Develop and deliver the CCT program.

5 Evaluate whether the CCT program was effective.

This process for designing effective CCT programs is presented in Figure 11.1.

Each phase in this process will be described in greater detail in this chapter.

2 PHASE 1 – IDENTIFY THE TYPE OF GLOBAL ASSIGNMENT

The type of global assignment should be taken into consideration when

designing CCT programs. As many authors point out (e.g., Caligiuri, forth-

coming; Caligiuri and Lazarova, 2001; Hays, 1974; Oddou, 1991), there are differ-

ent types of global assignments – and expatriate practices, such as selection,

cross-cultural training, and repatriation will differ depending on the type of

global assignment being managed. Based on the performance goals for expatri-

ate assignments, Caligiuri (forthcoming) describes a classification of global

assignments into four categories:

1 Technical

2 Functional/tactical

3 Developmental/high potential

4 Strategic/executive

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PHASE 2

DETERMINING TRAINING

NEEDS

• Organizational

Analysis

• Expatriate

Analysis

• Assignment

Analysis

PHASE 1

IDENTIFYING THE TYPE

OF GLOBAL

ASSIGNMENT

• Technical

• Functional

• Developmental

• Strategic

PHASE 3

ESTABLISHING GOALS

AND MEASURES

• Short-term

• Long-term

PHASE 4

DEVELOPING AND

DELIVERING THE

TRAINING PROGRAM

• Instructional

content

• Instructional

methods

• Sequence of

training sessions

PHASE 5

EVALUATING THE

TRAINING PROGRAM

• Short-term goals

• Long-term goals

FIGURE 11.1

Systematic process of designing effective CCT programs

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Using this typology, CCT programs will vary based on the goals required

for the successful completion of each assignment. Below we briefly describe

these four types of global assignments, referring interested readers to Caligiuri

and Lazarova (2001) and Chapter 13 for a thorough description of the entire

typology.

The technical assignment is similar in content to the assignee’s domestic

position. Technical assignees are in an organizational setting fairly typical of

the setting of the home country. Many of the global assignees on technical

assignments describe their work experience as ‘quite similar’ to what they were

doing back home. When technical skills do not exist in one geographic region,

a global assignment may be necessary to fill a technical need. It is not expected

that these global assignees will have significant interactions with the host

nationals working at the subsidiary location – and those interactions that

inevitably will occur, will not greatly affect the outcome of the assignment. In

other words, the person is being sent for his or her technical skills. It is those

technical skills that will determine the outcome of the assignment. These

assignments include technicians on an oil refinery, systems engineers on con-

tinuation client sites, systems analysts interfacing with a computer system, and

the like.

The functional/tactical assignment is similar to the technical assignment

with one distinct difference – significant interactions with host nationals are

necessary in order for the assignment to be deemed successful. As with the

technical assignments, functional assignees are sent to fill technical or man-

agerial gaps in host countries. Unlike technical assignees, functional assignees

will need to interact with host nationals in order for the assignment to be

deemed successful. Given their interaction with host nationals, cross-cultural

skills are needed in order for functional assignees to be successful. This type of

global assignment is the most common global assignment.

For some MNCs, sending expatriates abroad on a developmental/high

potential assignment is consistent with their overall strategic human

resource plan. Most organizations which utilize this type of global assign-

ment do so within the context of their managerial development program.

These programs are often rotational – with one of the rotations being in

another country. While on this type of assignment, the goal is individual

development.

Strategic/executive assignees tend to be high profile (e.g., general managers,

vice-presidents) and very senior in the organizational hierarchy. Unlike the

more junior developmental assignees, the executive assignments are viewed

as both developmental and strategic. These strategic assignees are the core

‘critical’ group of assignees and considered a competitive resource for the

organization. They may have the task of entering a new market, developing

a country’s market base, being the general manager of a joint venture, and

the like.

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3 PHASE 2 – CONDUCT A CROSS-CULTURAL

TRAINING NEEDS ANALYSIS

A cross-cultural training needs analysis is conducted across three levels:

1 The organizational level, to determine the organizational context for CCT;

2 The individual (or expatriate) level, to determine any special needs that have to

be addressed in CCT for a given person; and

3 The assignment level, to determine the cross-cultural knowledge and skills

required to effectively complete the given assignment.

Organizational analysis considers the role of CCT within the context of the

organization’s (e.g., headquarter and/or subsidiary) culture, politics, structure,

and strategy. This analysis considers how CCT can assist both the headquar-

ters and the subsidiary in supporting its global strategy. In addition, organiza-

tional analysis considers the availability of training resources, such as trainers

and equipment required to effectively design and offer CCT. To illustrate,

organizations with a higher proportion of strategic or developmental

assignees are more likely to need higher CCT budgets, are more likely to use

professional cross-cultural trainers, and are more likely to conduct CCT, com-

pared to organizations with more of their expatriates on technical assign-

ments. Finally, organizational analysis should determine the expected cost

and the expected benefit of a CCT program. Based upon this organizational

assessment, HR decisions are made as to whether an organization is ready,

able, and willing to offer effective CCT.

The individual expatriate analysis examines the level of the individuals who

are on the receiving end of the CCT, the expatriates themselves. The expatriate

analysis examines the extent of the individual’s prior international experience,

their experiences with earlier CCT (Pusch, 1994), and their existing levels of

cross-cultural knowledge and skills. In addition, the expatriate analysis exam-

ines how expatriates perceive the issues the CCT program is designed to address

(e.g., expatriates may be opposed to CCT or may be opposed to a specific CCT

method such as role playing), and their intercultural communication style (e.g.

they may have specific problems in communicating with individuals from cul-

tures other than their own). Finally, this analysis examines the needs of the

expatriate’s entire family. Recent research has shown that a maladjusted spouse

is an important reason why expatriates do not succeed on global assignments

(Caligiuri et al., 1998).

Assignment analysis identifies the important tasks required on the global

assignment, and the type of cross-cultural knowledge and skills needed to per-

form those tasks effectively. As far as the assignment analysis of each type of

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global assignment is concerned, Caligiuri (forthcoming) provides a broad range

of tasks that are carried out by each type of assignee and identifies the general

level of cross-cultural knowledge and skills required to successfully complete

the assignment. Given that a global assignment is a job context (and not a job

description) there are numerous position-specific competencies which could be

included in CCT as needed.

4 PHASE 3 – ESTABLISH CCT GOALS AND MEASURES

After cross-cultural training needs have been identified, short-term and long-

term goals for the training outcomes must be developed. Short-term goals specify

what the expatriate should be able to accomplish on completion of the CCT

program. Long-term goals, in contrast, reflect the expected outcome of the

expatriate assignment, such as cross-cultural adjustment and success on the

assignment (Kealey and Protheroe, 1996).

Cross-cultural training goals should be stated in detailed and measurable

terms. As discussed by Noe (1999), detailed and measurable training goals help

develop appropriate outcomes for training evaluation (we will discuss this in

phase 5). Short-term CCT goals can bring about cognitive, affective, and behav-

ioral changes (Gudykunst et al., 1996). Cognitive goals focus on helping expatri-

ates understand the role of cultural values on behavior in the destination

country, in both social and business contexts. Specific examples of cognitive

goals include: increased understanding of the purpose, value, and benefits of

the assignment, increased knowledge about managing stress, and increased

awareness of norms required to effectively interact with local nationals. Affective

goals aim at helping expatriates effectively manage their attitude toward the

new culture and successfully handle negative emotions. Affective goals include

modifying an expatriate’s perception about the host culture and increasing

his/her self-confidence to communicate with individuals from other cultures.

Behavioral goals help expatriates form adaptive behaviors by emphasizing the

cross-cultural skills expatriates require in order to successfully interact with

individuals from other cultures. Examples of behavioral goals include develop-

ing intercultural skills, negotiating skills, and relationship building skills.

Although these three types of changes (cognitive, affective, and behav-

ioral) are relevant to most CCT goals, the type of global assignment determines

which type of change is required. For example, CCT for people sent on a tech-

nical assignment, which does not require significant interactions with the host

nationals, needs to focus on cognitive goals (e.g., providing practical informa-

tion such as information on the shopping and the transportation system in the

host country). In contrast, CCT for people sent on the developmental/high

potential assignments, and on strategic/executive assignments, which require

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significant interactions with host nationals to successfully complete the

assignment, must concentrate more on behavioral goals (e.g., developing their

intercultural effectiveness skills).

While the short-term goals of CCT will vary from assignment to assign-

ment, the long-term goal of many CCT programs is to improve the rate of

cross-cultural adjustment. Improving cross-cultural adjustment is important

for all expatriates and would generalize across assignments. Likewise, improved

success on the global assignment may be another generalized long-term goal –

with the specific dimensions, of course, being job specific.

5 PHASE 4 – DEVELOP AND DELIVER THE CCT PROGRAM

Once the training needs have been determined and translated into short-term

and long-term goals, the next step is to develop and deliver the training pro-

gram that achieves the training goals. This phase involves determining the

specific instructional content needed in order to achieve the stated goal, the

methods to deliver the instructional content, and the sequencing of the train-

ing sessions.

Instructional content

Harrison (1994) presented a framework that enables researchers and practi-

tioners to identify appropriate training content. Based on the cross-cultural

interaction research (e.g., Brislin et al., 1986; Copeland and Griggs, 1985;

Harris and Moran, 1991), Harrison suggests that content structure should

follow an integrated approach consisting of both general cultural orienta-

tion and specific cultural orientation. The purpose of cultural general orien-

tation is twofold. The first purpose is to understand factors that may

influence one’s receptiveness to effective cross-cultural interactions, such as

resistance to change, clear understanding of the purpose, value, and bene-

fits of the global assignment, and the ability to manage stress. The second

purpose is to understand how cultures differ and the impact of these differ-

ences on expatriates. (See Chapter 6 for details about the various cultural

dimensions).

The objective of specific cultural orientation is to help expatriates under-

stand more about the specific culture to which they are being assigned. To pro-

vide this cultural context, expatriates will learn about a country’s language,

customs, diversity, history, geography, etc. In addition, expatriates learn about

appropriate cultural behaviors and suitable ways of performing necessary job

tasks in the host country (Black and Mendenhall, 1990; Kealey and Protheroe,

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1996), and about creating realistic expectations about living and working in

the host country (Black and Mendenhall, 1990; Black et al., 1991; Caligiuri

et al., 2001).

Instructional methods

Gudykunst et al. (1996) suggest that CCT methodologies available for CCT can

be categorized according to two issues: learning approach (didactic vs. experi-

ential) and the content of the training (culture-general vs. culture-specific).

Based on these continua, CCT methodologies can be categorized into four

categories:

1 Didactic culture general training

2 Didactic culture specific training

3 Experiential cultural general training

4 Experiential cultural specific training

A didactic approach to training emphasizes knowledge acquisition and is

based on the assumption that a cognitive understanding of a culture is neces-

sary to appreciate the norms and behaviors of that culture. Didactic culture

general training methods provide cultural general information to expatriates

and include lectures, seminars, reading material, discussions, videotapes, and

culture-general assimilators. Didactic culture specific training methods, in con-

trast, present information on a particular culture. Methods used in this cate-

gory include area studies, videotapes, orientation briefings, case studies, and

the like.

The experiential approach to training stresses skills acquisition and is

based on the assumption that individuals learn best from their experiences in

the host country or from interacting with individuals from other cultures.

Experiential cultural-general training methods help expatriates experience the

impact of cultural differences on their behaviors. Methods in this category

include immersion programs or intensive workshops. In contrast, experiential

culture-specific training methods help expatriates experience and learn from

interactions with individuals from the host culture. This approach generally

includes methods like role-playing, look-see trips, in-country cultural coach-

ing, and language training.

A recent development in the use of written or reading methodology is the

notion that good fiction can provide a type of virtual learning (Fox, 2003), parti-

cularly in situations where trainees are separated from the realities of life in the

new country, such as in predeparture CCT. Fox describes several travelogues,

missionary biographies and autobiographies, and intentional collections that

can be used to facilitate the learning process (see Fox, 2003 for details).

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Selecting instructional methods

It is obvious from the above classification system that, within each category,

expatriates may be trained in a variety of ways. Black and Mendenhall (1989)

presented a theory-based contingency framework for selecting an appropriate

CCT method. Using Social Learning theory, they suggest that learning is a

sequential process involving three components: attention (i.e., gaining aware-

ness), retention (i.e., acquiring knowledge), and reproduction (i.e., developing

skills). They argue that CCT needs to be differentiated by the level of ‘training

rigor’ required to successfully train the expatriate. Training rigor is the degree

of cognitive effort necessary to grasp the cultural knowledge and cross-cultural

skills in order to successfully live and work in a new country.

According to Black and Mendenhall three contextual factors influence the

level of rigor necessary for training success: culture novelty, degree of interac-

tion with host nationals, and job novelty. Culture novelty is the extent to

which the expatriate’s home culture differs from the host culture. The authors

argue that the greater the novelty, the more difficult the learning challenge

because ‘the more difficult it will be for the individual to attend to and retain

the various models of appropriate behavior’ (p. 523). Degree of interaction with

host nationals is defined as ‘the degree of expected interaction between the

individual and members of the host culture’ (p. 524). Finally, job novelty refers

to the fact that ‘the more novel the tasks of the new job in the new culture, the

more assistance the individual will need through rigorous training to produce

the desired and necessary behaviors to be effective in the new job’ (p. 525). In

summary, the various types of training methods within each of the four cate-

gories (e.g., experiential cultural specific) can be differentiated according to the

degree of training rigor which depends upon the situational factors of the

global assignment (e.g., degree of cultural novelty, degree of job novelty, and

the degree of interaction with local nationals).*

Sequencing of training sessions

The sequencing of CCT refers to the timing of training sessions. Training

sessions can take the form of predeparture CCT (provided before departure),

in-country CCT (provided after arrival in the new country), or sequential CCT

(combination of the two) (Bennett et al., 2000; Black et al., 1999).

Cross-cultural training sessions may be provided prior to departure

(predeparture CCT), after arrival in the destination country (post-arrival CCT or

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*In general, training methods of high rigour include simulations, field trips, role-plays, and

interactive language training. Training methods of moderate rigour include sensitivity train-

ing, culture assimilators, case studies, classroom language training, and films. Finally, training

methods of low rigour include books, lectures, and area briefings (see Black and Mendenhall,

1989 or Mendenhall and Oddou, 1999: 442–69 for more details).

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in-country CCT) or as a combination of both (sequential CCT or continuous

CCT). Predeparture CCT has been the most widely utilized form of training used

by organizations to prepare individuals to live and work in a new country.

Advocates of predeparture CCT argue that this type of training allows

expatriates to enter the assignment already equipped with realistic expectations

about living and working in a new country. In a study to test a theoretical model

to determine whether the formation of expectations as a result of

predeparture CCT programs affects expatriates’ adjustment, Caliguiri et al.,

(2001) found that predeparture CCT affects the accuracy of expatriates’ expec-

tations prior to the assignment – and that having accurate expectations, in turn,

positively affects cross-cultural adjustment. Predeparture CCT, however, works

best if the training content focuses on basic information about the host culture,

such as currency exchange rate, hotels, transportation system, hospitals, etc.

Advocates of post-arrival or in-country CCT argue that while predeparture

CCT may provide the expatriate with greater confidence about being success-

ful in the new country, predeparture CCT is conducted apart from the actual

experience of realties in the host country. They propose that in-country CCT is

likely to be more effective than predeparture CCT because individuals, after

arrival in the new country, enhance their learning readiness by experiencing

the host country culture, beliefs, and values (see Black et al., 1999; Selmer et al.,

1998; Gudykunst et al., 1996).

Given that there are important differences between predeparture CCT and

post-arrival CCT, the appropriate sequencing of information (either predepar-

ture or post-arrival) is considered a best practice for CCT. For example, basic

information should be offered prior to a global assignment – while deeper cul-

tural learning about a new country and its culture, and the awareness of the

skills and behaviors needed to be successful in another culture could be effec-

tively administered after arrival in the host country (see Selmer et al., 1998;

Gudykunst et al. 1996).

Drawing on Cohen and Levinthal’s (1990) theory of absorptive capacity,

Tarique (2001) puts forward the theoretical framework of cross-cultural absorp-

tive capacity (CCAC) to support the notion of sequenced series of predeparture

and post-arrival training. Tarique argues that an individual’s ability to recog-

nize new cultural knowledge, assimilate it and apply it in new cross-cultural

settings is dependent on his or her prior accumulated cultural knowledge. That

is, an individual’s prior accumulated cultural knowledge enhances his or her

ability to learn new cultural knowledge. For instance, an expatriate from China

working in the US may not be able to learn the values of the American culture

without first having prior knowledge of the general dimensions on which most

cultures differ such as how people view humanity and how people see nature

(Kluckhohn and Strodtbeck 1961; for further frameworks of cultural dimen-

sions see Chapter 6). Furthermore, Tarique argues that an individual’s learning

of new cultural knowledge can vary with the magnitude of the individual’s

prior accumulated cultural knowledge, that is, the larger the individual’s prior

accumulated cultural knowledge, the greater the learning of new cultural

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knowledge. For instance, the Chinese expatriate’s learning of US culture will

be enhanced if his/her prior accumulated cultural knowledge contains an

understanding of all the general dimensions on which most cultures differ like

Kluckhohn and Strodtbeck’s six dimensions that describe the cultural orienta-

tions of societies (1961). In sum, Tarique’s notion of CCAC explains theoreti-

cally why training contents need to be sequenced at different training periods.

In practice, Caligiuri and Associates, a strategic global HR consulting firm, pro-

vide an example of a CCT program that follows the sequential approach. Their CCT

program consists of three sessions: predeparture, post-arrival session 1, and post-

arrival session 2. During the predeparture phase all participants take the Self-

Assessment for Global Endeavors test (the SAGE) online and participate in a SAGE

debriefing session. The SAGE is a decision-making tool for employees who are con-

templating whether or not to pursue a global assignment (for details visit

www.caligiuri.com). This session helps participants identify key areas of concern

and customizes the focus of the CCT sessions. Predeparture materials are sent to

participants to provide information on the host culture. The first post-arrival CCT

session takes place three to four weeks after arrival in the new country. Since the

participants have had some time to overcome logistical difficulties and experience

some degree of cultural interaction, the training relevance of session 1 is extremely

high. After the first CCT session, the trainer maintains a degree of e-support with

the participants to help coach on developing cultural issues. Approximately one

month after the first session of CCT, the second post-arrival CCT session is admin-

istered. This session is much more contextual and provides participants with a

sophisticated way of applying cultural learning. Again, e-support is maintained

after the second session of CCT for up to five months.

6 PHASE 5 – EVALUATE CROSS-CULTURAL TRAINING

After CCT has been delivered, it should be evaluated against the stated goals for

effectiveness. Results from the CCT evaluation should help the organization

decide whether CCT should be continued in its current form or modified.

Cross-cultural training evaluation refers to the systematic process of gathering

information necessary to determine the effectiveness of CCT. Cross-cultural

training effectiveness is generally defined in terms of the benefits the expatri-

ates receive from CCT and is determined by the extent to which expatriates

have changed as a result of participating in CCT.

The evaluation process involves establishing measures of effectiveness

(criteria), and developing research designs to determine what changes (e.g.

cognitive, affective, and behavioral) have occurred during the training. Criteria

must be established for both evaluation of short-term, and long-term goals.

The appropriate evaluation criteria should also be assessed prior to the delivery

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of CCT to provide some type of comparison bases for post-training assessment.

In addition evaluation strategies need to be developed during phase 3, that is,

the decision on how to evaluate CCT’s short-term and long-term goals needs

to be made at the same time as these goals are established.

Evaluation of short-term goals

Evaluation of expatriates at the conclusion of the CCT program involves developing

outcome measures that assess the extent to which cognitive, affective, and

behavioral changes have occurred during CCT. Cognitive outcomes are usually

used to determine whether the expatriates knew more than they did prior to par-

ticipating in CCT. Cognitive outcomes such as the acquisition of cross-

cultural knowledge and the awareness of the appropriate cross-cultural skills and

behaviors, measure what cross-cultural knowledge expatriates learned in the pro-

gram. Typically, paper and pencil tests or online tests are used to measure cogni-

tive outcomes. Affective outcomes, such as attitude and motivations, measure

expatriates’ perception of the CCT program and his/her attitude toward individ-

uals from other cultures. This information is collected through personal inter-

views or group discussions. Behavioral outcomes are used to assess the change in

the level of cross-cultural skill such as intercultural communication skills and

language skills. The extent to which expatriates have acquired cross-cultural skills

can be measured by observing performance in a cultural simulator or in a role

play. Although all three of these outcomes are relevant to CCT’s short-term goals

discussed earlier, the type of global assignment will decide which outcome(s) will

be used in evaluating expatriates at the conclusion of the CCT program. For

example, short-term goals for people sent on a technical assignment, which does

not require significant interactions with the host nationals, need to focus on cog-

nitive outcomes, such as acquiring practical information (e.g., information on the

shopping and the transportation system in the host country). In contrast, the

short-term goals for people sent on the developmental/high potential assign-

ments, and on strategic/executive assignments, which require significant inter-

actions with host nationals to successfully complete the assignment, must focus

more on affective and behavioral outcomes such as acquiring intercultural skills.

Evaluation of long-term goals

As mentioned earlier, the majority of CCT programs emphasize cross-cultural

adjustment as a long-term goal of CCT. Evaluation of expatriates’ adjustment can

be measured through paper and pencil questionnaires, phone interviews, in-

person interviews, or electronic surveys. Studies have shown that cross-

cultural adjustment is positively related to performance or professional effectiveness

on the assignment (Caligiuri, 1997). Professional effectiveness can be measured

through performance appraisal, which is done by those who are able to observe

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the expatriate (Caligiuri and Day, 2000). Blake et al. (1996) point out that a critical

aspect of the evaluation process is the source of data. An expatriate’s performance

may be effective from the headquarters’ perspective, yet may be deemed unsuc-

cessful from the subsidiary’s viewpoint. The authors suggest the use of balanced

evaluations that consider home and host culture data sources.

In addition to establishing measures of effectiveness, the evaluation phase

must also focus on the necessary research design to assess the effectiveness of

the CCT program. There are several research designs which can be used to eval-

uate CCT programs (e.g. post-test only, pre-test/post-test) and the choice of a

design depends on the focus of the evaluation (e.g., to improve the CCT pro-

gram, or to determine the extent to which expatriates have changed as a result

of CCT), and on the rigor of the evaluation (e.g., conclusions based on anec-

dotal data or highly quantitative data). The focus and rigor help determine the

structure of the evaluation design. Kealey and Protheroe (1996), for example,

reviewed the CCT literature and examined methodologies used to assess cross-

cultural training effectiveness. They concluded that these past studies were

‘seriously deficient’ (Kealey and Protheroe, 1996: 159) for a variety of method-

ological reasons. They suggest that a methodologically rigorous study of CCT

effectiveness would need to include the following elements:

1 A comparison between groups receiving CCT and control groups. Participants

have to be randomly assigned to groups.

2 Pre- and post measures of change in cognitive, behavioral, and affective

outcomes.

3 Longitudinal measures of subsequent performance on the assignment. Tests

should be conducted immediately after CCT to measure the immediate results

and at a later date to measure CCT’s impact on performance.

4 Multiple measures of the short-term and long-term outcomes of CCT.

5 Clearly defined independent variable(s), such as the type of training method

implemented, the instructional content of the CCT, and the sequencing of the

cross-cultural training sessions.

6 Clearly defined dependent variable(s), such as cross-cultural adjustment.

7 FINAL CONSIDERATIONS

In this section, we briefly discuss three additional issues that must be taken into

consideration when developing CCT programs: (1) electronic CCT; (2) linking

CCT to other HR practices; and (3) designing effective training programs for

host country nationals and for third country nationals.

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BOX 11.1: Sample e-CCT screenshots

These are examples from an e-CCCT program offered by RW

Electronic cross-cultural training

The recent advances in technology based training (TBT), particularly CD-ROM,

DVD, internet-based training, multimedia, and distance learning have resulted in

a vast array of new CCT methodologies (Mendenhall and Stahl, 2000; Greengard,

1999). One interesting TBT innovation is the development of electronic CCT

(e-CCT). e-CCT delivers training content via the internet/intranet in a variety of

forms such as motion pictures, stills, text, and sounds and allows trainees to

interact with the training content (see Box 11.1 for an example of e-CCT).

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Compared to traditional CCT methodologies (e.g., lecture based), e-CCT

has several advantages: it enables firms to lower costs associated with deliver-

ing training content, it allows trainees to individualize and self-manage their

learning experience, and is easier to administer. For these reasons e-CCT is

rapidly growing as an effective way of preparing expatriates to live and work in

a new culture. Because e-CCT contains highly specialized training content,

many organizations depend on external training vendors to design, develop,

and deliver the e-CCT program. e-CCT programs come in a variety of packages,

each with its own benefits and drawbacks, therefore selecting the right e-CCT

vendor is very important to the success of the CCT program (see Box 11.2 on

how to evaluate potential e-CCT vendors).

Box 11.2: Evaluation of e-CCT

With the inception of e-learning in many organizations, cross-cultural train-

ing programs are also beginning to be delivered via the internet or through

organization’s intranet systems. To evaluate these electronic delivery CCT pro-

grams, one should determine to what extent this system provides a complete

program of CCT, covering everything that would normally be covered in a

comprehensive cross-cultural training program. You can evaluate the content

of e-CCT by asking these questions:

• Does the program have a section explaining what culture is and how it

affects daily life? Evaluate how well these are explained.

• Does the program provide a framework (or model) for understanding

culture – including several dimensions of culture? Are they easy to under-

stand and apply to real life?

• Does the program allow the participant an opportunity to evaluate his or

her own cultural values? Is the cultural value assessment a reliable instru-

ment? Ask to see the reliability evidence for the scales measuring the

various dimensions (e.g., alpha coefficients).

• Can the participant’s cultural values be evaluated against the host country’s

cultural values? How were the values applied to the host countries

validated? (Be careful that they were not created by the author’s percep-

tions.) Ask to see a report on the development process and the validation

studies.

• Does the program effectively explain the challenges of culture shock?

Evaluate how well this concept is described.

• Does the program include a self-assessment to help the expatriate con-

sider the challenges for his or her family, career, and personality? As

before, check carefully the reliability of the scales used to assess these

concepts and validity reports which document the linkage between the

dimensions assessed and criteria of expatriate success. (Be careful because

there are tools that have been written to ‘look’ relevant – which have no

practical or substantiated worth.)

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In addition to the content of the system, several other factors should be

considered when evaluating an electronic-delivery cross-cultural training

program. Some other factors to evaluate include:

• Is the program self-directed? Is the participant able to move in and out of

the program easily? Are the basic materials presented before the more

challenging information is offered? Would they need to start over if they

exit the program?

• Can expatriates access this information in real time, while they are on

assignment? Are they allowed free access to the site – or do they have

limited time or a limited number of accesses to the site?

• Is the system designed to tailor the information for the expatriates as they

work through the training program? For example, does the system

remember the country in which the expatriate is living, that she has two

children, etc.? The more tailoring provided by the system, the more recep-

tive the expatriate will be to interacting with the e-CCT system.

• Is the system relatively easy to use? Does it load quickly? Is the system easy

to navigate?

• Is the information current? Check the country information – especially

with those also offering broader relocation provisions (home searches,

schools, etc.).

While e-CCT may be a cost-effective way to deliver training to many expatri-

ates, international HR professionals are advised to select their vendors

carefully – not solely on low cost or flashy graphics.

Link cross-cultural training with other HR practices

A CCT program that is linked with an organization’s HR practices has a greater

chance of success than CCT programs that are not linked by an overall HR

strategy. For example, when expatriates acquire new cross-cultural knowledge

and skills and apply them on the assignment, the way in which their assign-

ment performance is assessed must reflect these changes. The more critical

global assignments should be emphasized within the organization’s total per-

formance management system. In a similar fashion, expatriate compensation

should reflect the outcomes of CCT. If expatriates have acquired new

cross-cultural knowledge and skills and are able to use them effectively on the

assignment to enhance their performance, then they should be compensated

accordingly. Cross-cultural training should also link with selection and assess-

ment. Some personality traits, such as openness, may influence CCT success and

could be incorporated into the assessment phase of the expatriate process

(Caligiuri, 2000a, 2000b). Therefore, selection of people to participate in

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CCT – and ultimately go on a global assignment – will play a key role in the

outcome of the effectiveness of a well-designed CCT program.

Designing effective training programs for host country

nationals and for third country nationals

As organizations globalize their operations (e.g. establish international joint

ventures and foreign subsidiaries), they continue to recruit and select a mix of

different types of employees including host country national (employee with

citizenship of a country where he/she works), third country national

(employee with citizenship of a country different from the country where the

organization has its headquarters and different from the country where

he/she works), and parent country national (employee with citizenship of the

country where the organization has its headquarters). International joint ven-

tures (IJVs), for example, can include as many as nine different types of

employees each with their own distinct characteristics: foreign parent expa-

triate, host parent appointee, foreign parent transferee, host country national,

third country expatriate of foreign parents, third country expatriate of host

country parents, third country expatriate of the IJV, foreign headquarter exec-

utive, and host headquarter executive (see Zeira and Shenkar, 1990). The var-

ious employee groups, each with its own cultural background and unique

performance goals, highlight the complexity of issues associated with design-

ing CCT programs in organizations with multiple employee groups. For exam-

ple, should all employees receive general cultural awareness training and/or

cultural specific training? How will training for co-workers and subordinates

of a parent country national on a strategic/high potential assignment (e.g.,

general manager, vice-president) differ from training for co-workers and sub-

ordinates of a parent country national on a functional assignment (e.g., com-

pensation manager) or on a developmental assignment (e.g., international

marketing coordinator)?

The above issues, and other training design issues in general, can be

addressed through the systematic process for designing effective CCT pro-

grams explained in this chapter (see Figure 11.1, p. 286). Although we have

used the five phases of the CCT design process to provide an overview of

the major issues associated with designing CCT programs for expatriates

who can either be parent country nationals or third country nationals, the

five phases can also be used to design training programs for host country

nationals (Tarique et al., 2001). Phase 1 (identification of employee type),

however, will need to be modified to include different types of host coun-

try nationals. The remaining phases can be used to determine the specific

training needs, to establish learning goals and measures for determining train-

ing effectiveness, and to evaluate learning outcomes of host country

trainees.

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8 CONCLUSION

This chapter has provided broad guidelines for both cross-cultural trainers and

human resource specialists to better understand the systematic process of

designing effective CCT programs for expatriates. This systematic process

included identifying the type of global assignment for which CCT is needed,

determining the specific CCT needs, establishing the goals and measures for

determining training effectiveness, developing and delivering the CCT pro-

gram, and evaluating whether the CCT program is effective. Also, this chapter

briefly discussed e-CCT, the alignment of CCT with other HRM practices, and

designing effective training programs for host country nationals and for third

country nationals.

The CCT industry is continuously working to improve the effectiveness of

CCT programs (Mendenhall and Stahl, 2000). As Mendenhall and Stahl stated,

‘those of us in the industry are constantly learning how to improve the design

and delivery of cross cultural training programs from both practice and schol-

arly research’ (p. 251). We believe that the key to improving the process for

developing, delivering, and evaluating CCT programs for expatriates lies in new

training technologies. Based on the current instructional technology research

and on our practical experience, new training technologies, such as the internet

and web-based technologies, are developing at an enormous pace and are pro-

viding cost effective alternatives to traditional training design processes. Using

new technology to its best advantage is a major challenge facing cross-cultural

trainers and human resource specialists. In our opinion, it seems that making

the most of this technology is critical to designing effective CCT interventions

now and in the future. Currently, new technology is having a growing impact

on the delivery of CCT programs (e.g. instructional content, instructional methods,

and the sequence of training sessions). We sense that new technologies will

soon allow organizations to improve the process of conducting a needs assess-

ment and of evaluating CCT outcomes. As new technologies make it easier than

before to design CCT programs, the use of CCT to prepare individuals for global

assignments will continue to increase in the coming decades.

9 DISCUSSION QUESTIONS

1 Compare and contrast the four types of global assignments. Explain why CCT

programs will differ depending on the type of global assignment.

2 What factors would you consider in evaluating an e-CCT program?

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3 What are the six steps in a methodologically rigorous study of CCT effectiveness?

4 Under what circumstances would e-CCT be preferable to instructor-based CCT?

Under what circumstances might you recommend instructor- based CCT instead

of e-CCT?

10 FURTHER READING

•

Fowler, S.M., and Mumford, M.G. (1999).

Intercultural Sourcebook: Cross-Cultural

Training Methods, volume 2

. Yarmouth, ME: Intercultural Press.

This book includes articles by 23 leading cross-cultural trainers and covers divergent training

methods for cross-cultural skill development and intercultural learning. These include self-

awareness inventories, videotapes, small group exercises, and area studies.

•

Harrison, J.K. (1994). ‘Developing successful expatriate managers: A framework for

the structural design and strategic alignment of cross-cultural training programs.’

Human Resource Planning,

17: 17–35.

This article suggests that MNCs can maximize returns from their human resources by imple-

menting CCT programs in accordance with their corporate strategies, and describes in detail

how CCT programs should be aligned with corporate strategies.

•

Kohls, L.R., and Knight, J.M. (1994).

Developing Intercultural Awareness: A Cross-

Cultural Training Handbook

. Yarmouth, ME: Intercultural Press.

This book provides information on simulation games, case studies, icebreakers, and other CCT

activities. In addition, this book provides preplanned programs and demonstrates how to lead

a workshop designed to develop intercultural awareness in a culturally naive audience.

•

Landis, D., and Bhagat, R. S. (eds) (1996).

Handbook of Intercultural Training,

2nd edn.

Thousand Oaks, CA: Sage Publications.

This book discusses theoretical and methodological issues inherent in understanding intercul-

tural interactions and training and the contexts in which training takes place.

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12 International Compensation and

Performance Management

Marilyn Fenwick

1 Introduction 307

2 International compensation 308

3 Performance management of international staff 317

4 Virtual international assignments 325

5 Conclusion 327

6 Discussion questions 328

7 Further reading 328

References 329

1 INTRODUCTION

This chapter deals with the compensation and performance management of

staff in multinational companies (MNCs). The first section, on international

compensation, outlines the definition and purposes of international compen-

sation; the variables influencing international compensation strategy; options

for compensating those on international transfer within MNCs; and problems

and enduring issues with international compensation.

The second major part of the chapter examines the performance manage-

ment of MNC staff. Performance management is defined and its dual purpose

outlined within the context of MNCs. Then, performance appraisal, the core

human resource management (HRM) activity of performance management, is

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examined. The chapter concludes by highlighting the changing nature of

international work and, using ‘virtual assignments’ as an example of this change,

the implications for international compensation and performance management.

2 INTERNATIONAL COMPENSATION

An organization’s compensation system is the usual means by which employee

rewards are planned and administered. Increasingly, the importance of inter-

national compensation strategy in the implementation of organizational strat-

egy is being acknowledged (Bonache and Fernández, 1997; O’Donnell, 1999).

International compensation can be defined as the provision of monetary and

non-monetary rewards, including base salary, benefits, perquisites, long- and

short-term incentives, valued by employees in accordance with their relative

contributions to MNC performance. Its broad HRM purpose is to attract, retain

and motivate those personnel required throughout the MNC currently and in

the future. Job evaluation is the means by which internal relativities and com-

pensable factors, those elements such as skills, physical and mental demands

and responsibilities that comprise an individual’s work role in the MNC and

contribute to its performance, are determined (Cascio, 1991). From the per-

spective of employees, in particular, compensation is one of the most visible

aspects of strategic international human resource management. Indeed, Kessler

and Purcell have demonstrated ‘the centrality of pay to the structure and oper-

ation of the employment relationship’ (1995: 17).

There has been relatively little theory applied to explanations of inter-

national compensation. However, contingency, resource-based and agency

theories offer some insight. An influential management theory, the contingency

approach, suggests there are variables that impact on compensation policies

and practices to make them more or less appropriate and effective (for a review

in relation to compensation, see Balkin and Gomez-Mejia, 1987). Its contri-

bution to international compensation strategy is implicit in the rationale for

enduring expatriate compensation practices such as the Balance Sheet

approach, and in more recent, global models of international compensation

such as that proposed by Milkovich and Bloom (1998) discussed later in this

chapter. Both developments incorporate the need to consider particular con-

tingencies or situations, such as host country preferences, when devising and

implementing international compensation.

Recently, two additional theories, Resource-based theory and Agency

theory, have been applied to explain and predict particular aspects of international

compensation. Resource-based theory analyses conditions in which organi-

zations can gain positions of competitive advantage through having human

resources which are valuable, rare, and difficult to imitate or replace (Barney, 1991)

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(such as employees with knowledge gained through specific international

experience and organizational experience). Possession of such a resource can be

seen to contribute to the organization’s sustainable competitive advantage and

therefore add value to the organization (see Bonache and Fernández, 1997, for

an explanation of these concepts in the context of international compensation).

In human resource terms, value creation for the MNC resides in competent, or

knowledgeable and skilled employees. According to Resource-based theory,

international compensation that effectively applies appropriate rewards to

maintain and retain such employees throughout the MNC can serve to protect

this source of sustainable competitive advantage.

The principal–agent relationship proposed in Agency theory (Eisenhardt,

1989) translates as the MNC headquarters–subsidiary relationship, where the

headquarters is the principal and the subsidiary is the agency to which work

and responsibilities are delegated. Given that the headquarters does not have

all the unique knowledge of the subsidiaries, not all decisions in the MNC can

be made by headquarters. It must depend on the subsidiaries, as their agents,

and an ‘agency problem’ arises if the goals of the headquarters and subsidiary

managers are not aligned (Roth and O’Donnell, 1996). International compen-

sation strategy, therefore, must include those elements that motivate appropriate

behaviours to implement the MNC strategy (O’Donnell, 1999).

In practice, international compensation strategy must facilitate equity

and the movement of staff throughout the MNC. Equity is a fundamental

principle of compensation. In human resource management terms, the basis

of equity is the definition of relativities between work performed by employ-

ees, usually determined by the job evaluation activity, and expressed via the

different rates of compensation administered to employees. Extending the

equity principle to international compensation has been a significant chal-

lenge. Relativities are much more difficult to establish within the complex

organization of an MNC, due to its geographic and cultural spread, and its

workforce mix of home, host and third country nationals. Sparrow (1999: 111)

notes the contemporary shift away from job-based HRM systems to person-

based approaches. He suggests that this transition has ‘immense’ implications

for international compensation, concluding that the assumption of the job as

the essential differentiator of wage or salary in an organization is increasingly

being challenged.

Within MNCs, international compensation requires very high involve-

ment of the HRM activity (Reynolds, 1997). Drawing from Dowling (1988) and

Dowling et al. (1999), the key differences for HRM in MNCs lie in the increased

scope, perspective and level of involvement required in employees’ lives as well

as the level of risk. For example, the fundamental principles of compensation

strategy are to balance the organization’s capacity to pay with the provision of

fair and equitable compensation. In MNCs, achieving this balance in practice

is much more complex as it involves multiple international contexts and

employee groups. Thus, the scope is greater, with different policies and practices

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traditionally developed for headquarters staff and international staff transfers,

including expatriation.

A broader perspective is required in order to achieve global consistency in

compensating employees throughout the MNC while allowing for variations in

accordance with workforce characteristics and local preferences and require-

ments. In the case of international staff transfers, international compensation

has included elements not usually explicit in compensation, such as allowances

for housing and children’s education, resulting in greater involvement of the

human resource management (HRM) function in the personal lives of

employees.

The level of risk associated with international compensation is greater in

two related ways. First, risk is increased by the complexities of operating within

multiple diverse economic, employment and taxation regimes. Second, the

imperative for global consistency in international compensation can increase

risk through direct and indirect cost inefficiencies associated with international

staff transfers, and also with the implementation of an international compen-

sation strategy. For example, recent research has identified a proliferation of

employee ownership, or equity based schemes such as stock options in inter-

national compensation. It concluded that unless MNCs pay due diligence to

adapting to local conditions, such schemes can result in employee dissatis-

faction, failure of international compensation to meet its objectives and cost

inefficiencies through inappropriately over-rewarding some employees (Cahill,

2002; Dwyer, 1999).

Variables influencing international

compensation strategy

Internal and external factors influencing international compensation strategy

are shown in Figure 12.1.

Within the internal environment, the goal orientation is reflected in the

mission and goals of the MNC. Goals may be viewed as MNCs’ images of their

future states, which may or may not be realized (Etzioni, 1961). Manufacturing

and service MNCs producing and supplying commodities to outsiders for profit

have economic goals. Cultural rather than economic goals are reflected by organi-

zations such as international non-government organizations seeking to make a

difference to the human condition by institutionalizing and preserving desired

values. Compare the late 1990s goal orientations of World Vision Australia,

‘Fighting poverty by empowering people to transform their worlds’ and Broken

Hill Petroleum, ‘To enter the 21st century as a billion dollar a year international

oil and gas company’ (O’Connor, 1996: 1; World Vision Australia, 1998: 1).

The mission and goals will frame the way the role of international

compensation is defined. For instance, in the UK-based foam manufacturer

Zotefoam, where equality is a key aspect of HRM in the company’s mission, the

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‘only perks that differentiate executives from other workers are private health

insurance and a car allowance’ (Donkin, 1998: 8). The Managing Director of

Zotefoam sees the internationalizing firm as one with minimal status differ-

ences between levels in the organization hierarchy.

An MNC’s capacity to pay affects both the levels and types of international

compensation. Thus, international compensation strategy must reflect

consideration of cost constraints on the enterprise. The competitive strategy of

the MNC will most likely influence the nature of international compensation

through its IHRM strategy, the aspect of MNC that is aimed at sustaining com-

petitive advantage through human resources. If, for example, as part of the

MNC competitive strategy, the IHRM strategy is to be a market leader in

employee compensation in order to compete for the most competent candi-

dates, then the levels of compensation might well be higher than if the com-

petitive strategy is based on, say, the provision of secure employment.

Attitudes, values and beliefs about the relative value of employee contri-

butions and international compensation elements such as cash compensation,

benefits, perquisites and employee ownership plans across the MNC are inherent

in the organizational culture. The latter also influences the degree to which

International Compensation and Performance Management

311

MNC internal

environment

* Goal orientation

* Capacity to pay

* Competitive strategy

* Organizational culture

* Internal workforce

composition

* Labour relations

* Subsidiary role

MNC external

environment

* Parent nationality

* Labour market

characteristics

* Local culture

* Home & host country

governments’ roles

* Industry type

* Competitors’

strategies

Internal and external

relativities

International

compensation

strategy

Staffing

orientation

FIGURE 12.1

Internal and external variables influencing international compensation strategy

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employees are compensated on the basis of seniority, in contrast to personal

connections or performance.

Workforce characteristics such as age, education level, qualifications and

experience, along with workforce tastes and preferences, and labour relations

factors such as the nature of the employment relationship, for instance the level

of trade union involvement within MNCs, will result in different international

compensation approaches. Finally, if the strategic role of each subsidiary varies,

then this is likely to influence international compensation strategy.

In addition to the internal environmental variables, the external environ-

ment also influences the nature of international compensation in MNCs.

Relevant external elements include the nationality of the parent country, in

terms of culturally determined values and attitudes towards compensation

policy and practices. Local culture influences international compensation strategy

through the dominant societal values, norms, attitudes and beliefs concerning,

for example, bases for compensation differences (for example, performance,

family connections, gender), degrees of compensation differences between

managerial and non-managerial employees, and the propensity for using parti-

cular types of compensation (such as pay incentives and benefits). Other influ-

ences include labour market characteristics of supply and demand, and the

education and skill levels, ages and experience of those in the labour market.

The roles of home and host country governments in labour relations will also

affect the level of government regulation of the labour market and the employ-

ment relationship, including compensation of the workforce.

Referring to Porter’s (1986) typology, O’Donnell (1999) has recently con-

cluded that international compensation strategy will vary according to industry

type. For example, she cites evidence from two global industries, scientific mea-

suring and medical instruments, that MNCs competing in a global industry may

be more likely to allocate rewards based on corporate and regional performance,

rather than on subsidiary performance, as favoured by MNCs competing in a

multidomestic industry (see Chapter 2 for a discussion of these different industry

types). Further, different industry sectors also have different norms and practices

for international compensation. For example, service-sector and high technology

MNCs have been more likely than manufacturers to incorporate equity-based

options in their international compensation strategies (Butler, 2001).

Competitors’ strategies will influence international compensation strategy.

Even if the MNC is not seeking to be a market leader in international com-

pensation, it generally cannot afford to fall behind market rates across its loca-

tions, as it will risk losing valuable employees to competitors.

As indicated in Figure 12.1, the internal and external environments of

MNCs will largely determine the staffing orientations they adopt. As discussed

in Chapter 10, MNCs commonly adopt ethnocentric, polycentric, regiocentric,

geocentric or a mixture of these staffing orientations (Dowling et al., 1999).

Traditionally, these orientations referred to staffing senior management posi-

tions in MNCs (Heenan and Perlmutter, 1979). The nature of international

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compensation will vary in accordance with the staffing orientation. For example,

an ethnocentric orientation, expatriating senior management from headquar-

ters to positions in international subsidiaries, has usually been associated with

an approach based on compensating the manager and his or her family for

relocating outside their home country through a number of allowances

(Harvey, 1993). In contrast, MNCs with a predominantly geocentric approach

might more readily adopt a global compensation strategy. Such an approach,

according to Milkovich and Bloom (1998) moves away from relying on stereo-

typical ideas of cross-cultural, cross-national differences toward understanding

and leveraging cross-cultural and cross-national differences. These approaches

will be discussed further later in this chapter.

Compensation for international staff transfers

Until recently, international compensation research and practice has been

firmly focused on expatriation. This focus is understandable given the reported

high direct costs of such assignments. Take, for instance, the following example.

The million dollar assignment

The Director of Compensation and Benefits for Europe, the Middle East and

Africa at UK-based Lucent Technologies, Steve Spencer, notes that the

‘million dollar assignment’ (in terms of total costs over three years) is now

commonplace. He allocates the costs as:

Recurring costs Non-recurring costs

US$ p.a. US$ p.a.

Basic salary 100,000 Preparation/orientation 10,000

Performance bonus 20,000 Relocation/shipment 25,000

Pension, insurance, 20,000 Temporary 5,000

etc. accommodation

Accommodation 50,000 Relocation allowances 15,000

Schooling 25,000 Repatriation/shipment 25,000

Local transport 10,000 Repatriation allowance 10,000

Home-leave travel 10,000

COLA

/Hardship 10,000

Tax gross-up 75,000

Total 320,000 Total 90,000

Total x 3 years 960,000

Total assignment cost: US$1.05 million over three years (assuming a married

assignee with two school-age children).

Cost of living allowance.

Source: Spencer, 1999: reproduced with permission.

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Expatriate compensation comprises various allowances for international

relocation. Some common allowances are:

• Foreign service premiums – most common for employees on long-term assign-

ments (over one year), as an incentive to take the assignment. More often paid

to parent country nationals (PCNs) than to third country nationals (TCNs).

• Hardship – in consideration of isolation, crime, natural hazards, political vio-

lence, based on government data upon which rates can be provided by consult-

ing organizations such as International SOS, a global medical and security

assistance company.

• Relocation – compensation for costs such as transport, storage, temporary

accommodation, purchases of appliances and vehicles, associated with moving

to the host country.

• Education – for assignees’ children. This may involve compensation for language

classes, books, and school fees. Home country boarding school fees may also be

involved for assignees who opt not to take their children to isolated and or polit-

ically violent locations.

• Home leave – provision for the assignee and family to return home

periodically during the length of the assignment. (Dowling et al., 1999; Stanley,

2001)

Phil Stanley, the South East Asia Director of Organization Resources Counselors

(ORC), reported recently on trends in expatriate allowances. Recent research in

650 MNCs world-wide by ORC suggests that foreign service premiums are

increasingly being paid in lump sums rather than as ongoing salary payments,

and that even in longer-term assignments the premium payment continues.

Housing allowances are increasingly being made as ‘benefit-in-kind’ rather

than in cash. Over 80 per cent of respondents use tax equalization, a hypo-

thetical tax deduction based on the usual compensation, excluding expatriate

allowances, withheld by the MNC with the host country taxation liabilities

fully paid by the MNC (Stanley, 2001).

The basis for expatriate compensation is maintaining relativities with parent

country national colleagues and preserving parity of purchasing power; that is,

ensuring that the expatriate maintains the same standard of living that he or she

enjoyed at home. This has been most commonly achieved through applying the

Balance Sheet approach (Dowling et al., 1999; Stanley, 2001). It comprises the pay-

ment of a base salary consistent with home country rates, plus cost of living and

housing allowances reflecting home country standards, and provision for tax

equalization or tax protection and a reserve of, say, savings, social security and

investments. Costs incurred by the international assignee that exceed equivalent

costs in the home country are met by both the MNC and the assignee proportional

to preserving the assignee’s home country equivalent purchasing power.

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The Balance Sheet approach preserves equity between international

assignees of the same nationality and between assignments, and is easy to com-

municate. It also facilitates repatriation (Dowling et al., 1999). However, it can

create disparities and inequities between PCNs and TCNs and between them

and host country nationals (HCNs). It can also be expensive. Cost of living

allowances can provide unintended financial windfalls to assignees, if for

example the data upon which the allowance is calculated is inaccurate, or for

other reasons it is overestimated. A negative cost of living allowance occurs

when an expatriate is unintentionally overpaid through a cost of living

allowance that is higher than the actual cost of living in a particular location.

ORC’s research indicated that the majority of MNCs replying to their survey

indicated they did not act to recover overpayments, or negative cost of living

allowances. The distribution of such windfalls to certain international

assignees and not others challenges the equity principle. ORC suggests that for

73 per cent of the MNCs surveyed, the Balance Sheet remains the system of

choice (Stanley, 2001).

Host country and region-based expatriate compensation strategies are the

best-known alternatives to the Balance Sheet approach. These are often referred

to as localized approaches. Host country compensation places higher priority

on local equity than on home country equity, compensating the assignee to

host country standards, and often participation in a home country retirement

scheme is the only compensation link with the home country (Dwyer, 1999).

It is suited to long-term assignments where comparisons with home country

peers are less relevant to assignees. However, some countries might find this

approach more difficult to adopt due to the nature of their taxation and social

security reporting requirements. For example, according to Dwyer, a host-

country-based approach ‘is often more difficult to apply to U.S. expatriates due

to strict home country tax and social security reporting obligations’ (1999: 51).

This approach may also result in some repatriation problems if the home salary

is lower than that being paid by the host country subsidiary.

A regional approach attempts to capitalize on apparent similarities in cul-

ture, compensation and taxes, for example by adopting the same compensation

for all countries within a particular region. There is some evidence that MNCs

are beginning to view the 11 countries that have adopted the Euro, or the

‘Eurozone’, as a region for compensation structures. For example, Portal

Software Europe has equalized car allowances and some other benefits for

employees in 8 of their 11 Eurozone bases, (Crabb, 2002; Dwyer, 1999). As

Dwyer (1999) notes, while the Eurozone is a relatively easy region to define, one

of the challenges with this approach can be that of defining a region. Consider

Australia, for example, geographically close to but culturally distant from Asia.

Localization involves integrating the assignee into regional or host country

compensation levels and systems to the extent that the law allows. This is obvi-

ously best suited to the longer-term international assignment. According to ORC,

while reasons such as cost reduction by the MNC or the assignee wanting to

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remain in the assignment favour localization, only 27 per cent of respondents to

their 2000 survey have a compensation policy that is localized at either the regional

or host country level. A similar minority pursuing localization was identified in

the most recent survey of 70,000 mobile workers in 276 companies by

PricewaterhouseCoopers, with only 13 per cent considering the local market when

determining salaries for expatriates on long-term assignments (Pricewaterhouse-

Coopers, 2002). Of course, these approaches, including the Balance Sheet

approach, have many variations and degrees. Overall, conservative and traditional

models dominate compensation for international assignments, and enduring

problems such as inequities between parent country national, third country

national and host country national executive compensation, and the compensa-

tion legacy, or adherence to outmoded and irrelevant practices, have been identified

(Harvey, 1993). The above section has focused on compensation for international

staff transfers and issues related to it. The next section takes a broader view to con-

sider issues with international compensation as a whole.

International compensation and the

role of national culture

As shown in Figure 12.1, local national culture was identified as an external vari-

able influencing international compensation strategy. While international com-

pensation research and practice is extending beyond expatriate and executive

compensation, debate about the influence of national culture on international

compensation strategy and implementation endures. Consider, for example, the

egalitarian compensation approach that the Managing Director of Zotefoam

intends to transfer to his international operations. He does not see this as a bar-

rier to international expansion into the USA and given that the cultural dis-

tance, or degree of cultural difference, between the UK and the USA is relatively

small, his view might prevail. Proponents of a culture-free approach to compen-

sation (see for example, Milkovich and Bloom, 1998) would argue that a standard,

yet flexible, international compensation strategy could be universally applied

with some modification in, say, defining an egalitarian organization across

cultures. However, others would argue that cultural differences warrant different

international compensation strategies ( Harvey, 1993).

While recognizing the importance of cultural values in determining com-

pensation, Bradley et al. (1999) suggest that, in addition to cultural similarities

and differences, industry and corporate effects must also be included in deter-

mining whether or not a global compensation system is feasible. Compatible

with this suggestion is the notion of strategic flexibility, an emerging trend in

international compensation. This means focusing on leveraging national dif-

ferences, developing MNC organizational culture and on managing multiple

compensation deals. In effect, the strategic flexibility approach reflects

Sparrow’s (1999) caution against cultural determinism, and that international

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compensation strategies may be at once culture free (etic) and culture bound

(emic). Milkovich and Bloom’s (1998) international compensation model con-

sists of three sets of different forms of total (monetary and non-monetary)

compensation. The ‘core’ set is defined as that compensation which signals the

organization’s ‘global mind-set’. Local conditions can be accounted for with

variations in specific practices, but they must be consistent with core policies.

The need for each subsidiary or business unit to be able to choose from total

compensation options, which might be important to gaining and sustaining

competitive advantage in each of their operating markets, is allowed for in the

‘crafted’ set of compensation forms.

The final, ‘choice’, set of total compensation offers flexibility for employ-

ees to choose from various options in total compensation from within a total

cost framework. This acknowledges the ‘difficulties in identifying national cul-

tures’ by customizing at the individual level (Milkovich and Bloom, 1998: 23),

allowing individuals to have some say in their international compensation. It

seems that, as involvement in globalization intensifies, multicultural environ-

ments increasingly influence MNC populations, and approaches such as that

of Milkovich and Bloom are likely to find favour. Indeed, recent results from

the Best Practices in International HRM study suggest that understanding ‘what

employees in a given culture want from a compensation system rather than

replicating current cultural norms’ might be the way forward for international

compensation (Lowe et al., 2002: 76).

An effective international compensation strategy facilitates implementation

of MNC strategy and contributes to employee job satisfaction and the motivation

to achieve MNC goals. As shown in Figure 12.1, a robust international compen-

sation strategy balances internal and external relativities across the MNC in order

to ensure consistency and equity. However, as O’Donnell (1999) and Bonache

and Fernández (1997) have recently pointed out, the strategic role of inter-

national compensation systems has been largely neglected. The second part of

this chapter deals with performance management, the way in which goals may

be transformed into action, the progress towards goal achievement monitored

and the results rewarded. As indicated at the beginning of this chapter, perfor-

mance management is defined and its dual purposes outlined within the context

of MNCs. Then, at the functional level, performance appraisal, the core human

resource management activity of performance management, is examined.

3 PERFORMANCE MANAGEMENT OF

INTERNATIONAL STAFF

Performance management, according to Lewis (1998: 67), ‘is a term used to

describe an integrated set of techniques which have had an independent

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TABLE 12.1

existence under their own names, e.g. performance appraisal’ (author’s italics).

Broadly, performance management could be considered to comprise any HRM

activity, or bundle of HRM activities, designed to improve employee perfor-

mance, consequently it has been variously defined by writers and researchers.

Differences have resulted in a lack of consensus as to the precise nature of

performance management. There is however, agreement that performance man-

agement in contemporary organizations comprises a bundle of HRM activities

with performance appraisal as the core, or central activity. Most narrowly, per-

formance management would involve performance appraisal linked to reward

decisions (Bernthal, 1996). At the optimum level, that of its strategic integration

with other management systems, performance management involves:

1 links to organizational strategy

2 setting individual performance goals

3 providing regular feedback on progress towards those goals

4 providing opportunities for improving; and

5 linking results and rewards. (Armstrong, 1994)

The direct links of these characteristics to specific HRM functions within the

MNC are shown in Table 12.1.

Performance management emphasizes employee development and

rewards as outcomes of performance evaluation or appraisal. From an organi-

zational behaviour perspective, Expectancy theory and Goal Setting theory

have been identified as particularly relevant when discussing performance

management (Clark, 1995). Expectancy theory hypothesizes that employees

alter their behaviour due to their anticipated satisfaction of valued goals. Goal

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Characteristics of integrated performance management and their links to HRM functions

Performance management HR functions

Links to MNC strategy clearly HR planning; job design and analysis

communicated to all employees (job descriptions)

Setting individual performance Job analysis (job descriptions);

goals performance appraisal

Providing regular feedback towards Performance appraisal

those goals

Providing opportunities for Performance appraisal; training and

improving performance development

Links between results and rewards Performance appraisal; compensation

3122 Ch-12.qxd 10/29/03 3:50 PM Page 318

Setting theory suggests that goals pursued by employees potentially play an

important part in enhancing performance: challenging or difficult goals provide

directional cues and motivate employees to exert effort. Goals also encourage

consideration of the performance and goal setting processes (Fenwick and De

Cieri, 2001).

Understanding of the nature of the job together with equitable, accurate

and timely performance evaluation, the provision of feedback about perfor-

mance to employees and equitable distribution of development opportunities

and pay are aspects of performance management that form an employee’s

psychological contract (Stiles et al., 1997). The concept of the ‘psychological con-

tract’ has received considerable attention in relation to HRM. It is a concept

referring to an employee’s belief regarding the terms and conditions of a recip-

rocal exchange agreement between that employee and the employer (Robinson

and Rousseau, 1994). It establishes the nature of the employee’s psychological

relationship with the MNC and directs work-related attitudes and behaviours.

For example, in international HRM, particularly with regard to interna-

tional staff transfers, it is often assumed that assignees have strong loyalties

and commitment to the MNC. In practice, these attributes seem more likely to

be present when assignees have relational rather than transactional psycho-

logical contracts (Welch, 1998). The former contract is viewed as longer lasting

and based on some sense of emotional attachment to the MNC; the latter is

more a short-term, exchange-based contract typified by the view, ‘a fair day’s

work for a fair day’s pay’. This distinction is important in relation to the per-

formance management of international assignees because often the assignee is

expected to engage in extra-role activities, to go beyond his or her position

description, due to his or her presence in a foreign country.

In an MNC, performance management is more complex as it occurs across

national and cultural boundaries. The impact of this additional complexity on

each of the characteristics of an integrated performance management system

listed above will now be considered for all MNC employees.

Links to the MNC strategy

In the performance management literature, the need for links between perfor-

mance management and organizational strategy for achieving a shared vision

of organizational objectives has been emphasized (Armstrong, 1994; Bevan and

Thompson, 1991). This necessitates the relationship between each individual’s

performance and the achievement of strategic goals and objectives being

clearly established and understood. It reflects the desirability of alignment of

international HRM practices with the organization context, or vertical fit,

advocated for organizational performance outcomes such as competitive

advantage in the strategic international HRM literature (Schuler et al., 1993;

Taylor et al., 1996).

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Even with recent advances in communications technology, communicating

strategy in MNCs is more complicated due to their competitive arena and the

latitude, inherent in their strategies, to respond to competition differently,

both strategically and structurally (Bartlett and Ghoshal, 1992).

Setting individual performance goals

Effective individual performance goals are said to be those that are Specific,

Measurable, Achievable, Realistic and Timely (SMART) (Flamholtz et al., 1985).

They should also reflect critical success factors or key performance indicators of

the job role. In control terms, goal setting is said to be critical for organizations

seeking to ‘increase the probability that individuals and groups will behave in

ways that lead to the attainment of organizational goals’ (Flamholz et al., 1985:

36). Tasks to be performed by employees are usually communicated in the first

instance in the position or job description. In performance management terms,

this process should occur with extensive employee involvement and in the

context of both the immediate position and the whole organization

(Armstrong, 1994).

The rationale for such involvement appears to be that participation in goal

setting ‘has been found to be related to the acceptance and subsequent com-

mitment to the established goals, leading to favourable outcomes in terms of

both performance and attitudes’ (Flamholtz et al., 1985). However, this is

essentially a western perspective and there will probably be variations in the

manner in which goal setting is conducted across the MNC. For example,

Tahvanainen (1998), in her case study research of a large Finnish MNC, found

that employees in Germany and Sweden commonly participated in goal setting

for their jobs, but those in the USA tended to have their job goals assigned.

Cultural differences in the nature of performance goals have also been noted

(Rubienska and Bovaird, 1999).

Providing feedback on progress

towards goal achievement

Feedback ‘as part of a control system refers to the information provided about

work behavior and outcomes’ (Flamholtz et al., 1985: 41). Feedback controls the

work behaviour of organization members by directing behaviour through the

provision of necessary feedback for corrective action. Also, it motivates behav-

iour by acting as a promise for future rewards. Therefore, such feedback through

the performance appraisal activity is central to performance management and

has two distinct purposes: evaluation and development (Cascio, 1991).

In MNCs, great physical distance, which often exists between subsidiaries

and the headquarters, can result in lack of meaningful, effective observation,

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support and supervision of those on international assignment (Harvey, 1997;

Janssens, 1994). Opportunities for thorough headquarters performance reviews

may also be limited by distance and time-zone differentials (Fenwick, 2000).

Failure to provide such feedback might violate the psychological contract

between employees and the MNC, in addition to preventing corrective action

in the event of ineffective performance (Stiles et al., 1997). These problems

highlight the challenges for international performance management in terms

of being able to deliver timely, relevant, and therefore effective, feedback.

Providing opportunities for improvement through

appraisal feedback and training and development

As previously mentioned, performance appraisal feedback has a developmental

purpose. Much expatriate training and development appears to have been

focused on developing expatriates’ ability to adjust to the new culture.

Certainly, cross-cultural adjustment has been shown to influence performance

(see for example, Black et al., 1992; Tung, 1982). However, providing opportu-

nities for improvement through appraisal feedback and training and develop-

ment is an ongoing performance management activity aimed at continuous

improvement and socialization to desired organizational practices. This is par-

ticularly relevant when MNC policies and practices change and re-socialization

is required (Fenwick et al., 1999).

A significant performance management issue in international assignments

is that of conflicting expatriate loyalty to the subsidiary and headquarters

(Black et al., 1992). While this may also be identified as an issue between divi-

sions and headquarters of a large domestic organization, again the broader per-

spective, scope and activities required, and greater risk exposure in the

international environment, differentiate domestic training and development

from that in MNCs. Training and development may also facilitate the develop-

ment of dual allegiance in expatriates, thus ensuring balanced bonds with both

headquarters and subsidiary (Black et al., 1992).

Links between results and rewards

Strategic HRM has emphasized the need to link performance to compensation,

through monetary and non-monetary rewards (Kessler and Purcell, 1995). The

underlying assumption has been that individuals can be motivated to perform

more effectively and efficiently if there is a direct link between their effort and

reward. In MNCs, management of links between performance and rewards is

complex, due to the specialized knowledge required of multiple employment

and legal environments in order to meet the objectives of international com-

pensation outlined earlier in this chapter.

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An important performance management requirement for MNCs seems to

be ensuring that individuals are not financially disadvantaged by accepting an

international assignment, moving to another location or re-entering head-

quarters (Crandall and Phelps, 1991). In terms of integrated performance man-

agement, the major concern if this occurs is the finding that there may be no

link to expatriate performance. This contradicts the performance-based empha-

sis in reward systems currently occurring elsewhere in MNCs, as evidenced by

recent research in European, Japanese and American MNCs (Hiltrop, 1999).

This discussion has illustrated the strategic and operational complexities

around managing the performance of MNC staff. The ensuing section will now

examine the core performance management activities of determining perfor-

mance criteria and appraising performance.

Performance criteria

Both quantitative and qualitative criteria for measuring performance are

necessary for effective performance management (Kaplan and Norton, 1992).

Performance criteria may be classified according to time-span covered, speci-

ficity and closeness to organizational goals. In essence, it is important for per-

formance criteria to be relevant, practical and reliable.

Organization level criteria. Within MNCs, specific performance expectations

for each MNC subsidiary exist relative to the market performance and contri-

bution of each to total profit and competitiveness. Based on Pucik’s (1985)

analysis, Dowling et al. (1999) presented five key variables likely to affect the

evaluation and performance of each subsidiary management team. First, ‘whole

vs part’ decisions may influence subsidiary performance such that subsidiary

performance in the short term might be sacrificed in the interests of the ‘whole’

MNC. Second, incomparable data across the MNC’s operations can cloud the

ability for objective appraisal of subsidiary performance, and therefore manage-

ment. Third, the volatility of the international environment means that if

inflexible performance goals are set from a headquarters perspective, local con-

ditions might be mismanaged. Fourth, separation by time and distance further

complicates assessments about congruence between MNC and subsidiary activ-

ities. Fifth, variable levels of market maturity might necessitate additional time

for foreign subsidiaries to achieve performance goals compared to that which is

customary in the domestic market. These are constraints that might affect MNC

performance management. Consideration of the industry in which the MNC

operates when determining performance criteria might facilitate management

of these constraints. For example, it has been suggested that performance crite-

ria should emphasize sets of decisions and behaviours that focus on corporate

and regional performance in MNCs competing in global industries, whereas for

MNCs competing in a multi-domestic industry, decisions and behaviours

should focus on subsidiary, not corporate, performance (O’Donnell, 1999). Of

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course, MNCs often have simultaneous, different strategies for different business

units competing in different industries.

The propensity to rely on accounting measures as the basis for MNC per-

formance criteria has also been problematic. For example, measures such as

return on investment (ROI) do not consider the nature of each subsidiary’s

assigned role within the MNC: ‘successful performance for a subsidiary with a

primary role of R & D or market development would not necessarily be

reflected in an increase in ROI’ (O’Donnell, 1999: 158). Further, for MNCs seek-

ing to be global, since the motive for globalization is value creation, adherence

to accounting-based measures might cause managers to avoid value-creating

opportunities. The short-term focus on accounting and transfer pricing for

transactions between units of globalizing firms may also be poor measures of

employee performance. Transfer pricing is often set ‘with the objectives of

minimizing taxes, avoiding tariffs, and circumventing exchange controls’, so the

profit outcome for a particular subsidiary is not necessarily an accurate indica-

tor of its employees’ performance (Reilly and Campbell, 1990: 65).

Individual level criteria. For individuals working in MNCs, their international

work often involves additional dimensions to those in their domestic work.

Repatriates interviewed in an Australian MNC with approximately 75 expa-

triates at any one time revealed changes to their positions that were not

acknowledged in the performance criteria upon which the MNC’s perfor-

mance management system was based. Although not necessarily in senior

management roles, the repatriates found they were often expected by the

company to act as ‘envoys’ or ‘diplomats’ representing the company in the

communities of the locations to which they were expatriated. This involved

such activities as entertaining local government representatives, and attend-

ing invitation-only official functions such as ceremonies and social events at

foreign embassies, usually with their spouses. They reported that this

required considerable interpersonal skills. It also involved their families in

extra-role activities they felt went unrecognized by the MNC. There were no

criteria related to such activities in the MNC’s performance appraisal form,

even though successful performance of these activities greatly benefited

their organization in its relationships with the local community. The repatri-

ates felt this disadvantaged them in relation to others during the annual per-

formance review, and that it was a function of the standardized

position-based performance criteria implemented throughout the MNC.

(Fenwick, 2000)

Individual performance criteria and standards in MNCs need to be relevant

to the international context in which they are performing (Harvey, 1997). For

those on international assignments, for example, in addition to recognizing

any increase in job scope, the cultural distance between them and their

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co-workers and the extent to which their first language is the same, are of

considerable importance in the development of relevant performance criteria.

One popular framework for linking strategic organizational objectives to

individual performance, the ‘balanced scorecard’, exemplifies attempts to

address the problems of determining appropriate measures of effective perfor-

mance. Originally a framework of organizational performance measures, the

balanced scorecard has been extended to HRM and the performance manage-

ment of individuals (McKenzie and Shilling, 1998). This approach identifies

four critical perspectives on organizational performance that might form the

basis for effective performance criteria: the financial perspective, the internal

business perspective, the innovation and learning perspective and the cus-

tomer perspective (Kaplan and Norton, 1992).

Performance appraisal

Performance appraisal involves two distinct processes: observation and judge-

ment (Cascio, 1991). It serves two purposes: evaluation of performance and

development of it. In the context of international performance management,

performance appraisal is the means by which training and development needs

are identified, and compensation decisions made. The latter is particularly per-

tinent given the current trend towards larger proportions of variable pay and

away from fixed components mentioned earlier in this chapter.

One of the challenges for performance management as part of the MNC’s

international HRM portfolio is to balance the simultaneous needs for global

consistency and for fit with local conditions and preferences. Thus, the

dilemma is often to what extent the performance appraisal process at home is

transferable to international locations. With regard to the core activity of per-

formance management, performance appraisal, it seems that even when the

appraisal process is the same world-wide, local variations in practice are evi-

dent. For example, in Australian organizations, including MNCs, a combi-

nation of performance appraisal methods has most commonly been used, with

Management by Objectives and competency-based appraisal the most popular

of these (Nankervis and Leece, 1997).

As discussed earlier in this chapter, caution should be exercised when

claiming national cultural differences as the sole or major explanatory

factor for local differences in international HRM preferences, policies and

practices. However, evidence has emerged that suggests performance appraisal

practices probably require adaptation across cultures. For instance, although

performance management and performance appraisal appear to be etic, or cul-

ture-free concepts, and therefore present across cultures, different preferences

between western cultures and Asian cultures have been noted. These have

included the extent to which extrinsic rewards, group performance, specific and

formal appraisal methods, employee involvement and off-the-job behaviours

are favoured (Bernthal, 1996; Vance et al., 1992).

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Issues such as who conducts performance appraisals, how and based on

what data, remain high on the research agenda. This has been reflected in

recent developments such as 360-degree feedback and competency-based

appraisal techniques (Albright and Levy, 1995). Within the MNC, such endur-

ing issues may be intensified. For example, the extent to which performance

appraisal and feedback is interpreted with distrust or as an insult differs across

cultures (Rubienska and Bovaird, 1999). Bernthal (1996) compared traditional

and progressive USA and Pacific Rim appraisal practices. The study did not

include popular USA and Australian approaches such as Management by

Objectives and multiple-rater, for example 360-degree, appraisals. However, it

does conclude that managers from different cultures vary as to what perfor-

mance appraisal practices they find most effective.

It seems that regardless of the impact of national culture on the process,

performance appraisal remains problematic. In particular, recent research has

highlighted that common to the ten countries studied was the failure of per-

formance appraisal to fulfil its development purpose (Milliman et al., 2002).

The findings are further evidence of the need for performance appraisal to be

embedded in a performance management system, such as the integrated

approach outlined in this chapter, rather than as a stand-alone international

HRM function.

The preceding discussion has considered international compensation and

performance management in the context of the MNC and international staff

transfers. However, not all international work occurring in MNCs involves phys-

ical relocation to another country. By way of recognizing the evolving nature of

international HRM, and the increasingly complex work environment in MNCs,

the final part of this chapter explores implications for international compensa-

tion and performance management in virtual international assignments.

4 VIRTUAL INTERNATIONAL ASSIGNMENTS

International work in MNCs is changing. Recent research has identified trends

to a range of non-standard international assignments (Fenwick, forthcoming,

2003; PricewaterhouseCoopers, 2000). For example, MNCs surveyed in

Australia and in Europe revealed at least four types of international assignment

in use. These are: ‘long-term’ or ‘expatriate assignment’, ‘short-term assign-

ment’, ‘international-commuter’, and ‘frequent-flyer’ assignments. For the sur-

vey, long-term assignments were defined as those when the employee and

family move to the host country for a specified period of time, usually over one

year, also known as an expatriate assignment. Short-term assignments were

defined as those with a specified duration, usually less than one year, and on

which the family may accompany the employee. International-commuter

assignments were defined as ones where the employee commutes from home

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country to a place of work in another country, usually on a weekly or bi-weekly

basis, while the family remains at home. Frequent-flyer assignments were

defined as those when the employee undertakes frequent international busi-

ness trips but does not relocate (Fenwick, forthcoming, 2003).

It is possible that shorter assignments are used as a way of overcoming

costs and risks associated with longer expatriate assignments. Further, alter-

native forms of multinational enterprise such as collaborative, intra- and inter-

organizational networks or informal yet intensive collaborations, and ‘born

globals’, firms that are international from their inception, have proliferated

(Bartlett and Ghoshal, 1992; Oviatt and McDougall, 1995). These forms signi-

ficantly challenge prevailing views of multinational enterprise and, therefore,

of international HRM. They are implemented only through high levels of inter-

dependence between their constituents, and may require different approaches

to international staffing. Therefore, the likelihood of alternatives to traditional

international compensation and performance management being adopted in

such organizations will increase.

Increasingly, all who work in MNCs, not just those on international assign-

ment, are involved in international work. The ‘virtual assignment’ is defined as

an assignment where ‘an employee does not relocate to a host location, but has

international responsibilities for a part of the organization in another country

which they manage from the home country’ (PricewaterhouseCoopers, 2000: 31).

It is a replacement for a traditional international assignment, and not one where

business travel is a normal part of a person’s role. However, it does involve

frequent business trips to the host country and relies on the use of telecommuni-

cation and information technology such as telephone, e-mail and video con-

ferencing as a substitute for actual physical presence in the foreign location.

A marketing manager for Hewlett-Packard Australia, for example, in addition

to several international business trips per year, is involved in teleconferencing

with other locations in the Hewlett-Packard international network. Often he

will wake at 3 a.m. to participate in a two- to three-hour international tele-

conference, after which he will prepare for a normal business day in his

Australian office. It is not unusual for this executive to spend 16-hour days ‘at

work’, balancing the demands of his home-based international responsibilities.

The appeal of the virtual assignment is that it either removes or lessens

some of the barriers to the traditional assignment: staff immobility and cost

containment (Welch and Fenwick, 2002). However, in relation to international

compensation and performance management, the virtual assignment presents

its own challenges. These will now be briefly considered.

As mentioned earlier, equity is a central concern in compensation strategy.

Informal and formal interactions between virtual assignees necessary for effective

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performance brings individuals from all participating organizations together to form

ongoing relationships. For employees throughout the MNC possibly performing

very similar international work yet being paid different amounts, conflict and dis-

satisfaction might develop in spite of the existence of any particular national cul-

tural norms defining what is equitable. Also, questions like, ‘what are the

compensable factors in virtual assignments?’ and ‘how might compensation for vir-

tual assignees fit with global compensation strategy?’ will need to be resolved.

In relation to performance management in MNCs, virtual assignments

challenge the characteristics of integrated performance management discussed

earlier in the chapter. For instance, the already difficult challenge of effectively

communicating the strategic links between the employee’s performance and

MNC strategy is likely to be magnified for virtual assignments. Also, in terms

of performance criteria, what are the critical success factors of virtual assign-

ments? These will need to be identified. In relation to performance appraisal,

those enduring concerns of who conducts them, how they are implemented

and based on what performance data, may be intensified when it involves

those outside head office with whom the virtual assignee is working.

It might not be so easy to identify the international aspects of job perfor-

mance in a virtual assignment as in international assignments involving

physical relocation, so determining individual performance levels – outstanding

performance, under-performance or failure in virtual assignments – will present

a challenge (Welch and Fenwick, 2003). Given that effective performance of

virtual assignments is most likely to rely substantially on competence with

communication technology and with interpersonal communication, up-front

training in, and maintenance and updating of those competencies might well

emerge as a development priority.

5 CONCLUSION

This chapter has outlined the definition and purposes of international compen-

sation; the variables influencing international compensation strategy; options

for compensating those on international transfer within MNCs; and problems

and enduring issues with international compensation. From the employee’s per-

spective, international compensation is one of the most visible and contended

aspects of international HRM. The contention often arises as, from the organi-

zation’s perspective, international compensation policy and practice seek to recon-

cile principles of capacity to pay and equity across the complex operating

environment of the MNC. Further, while it has been ignored in favour of a focus

on expatriate compensation in research and practice, the role of international

compensation in achieving MNC strategic goals and objectives is now receiving

increasing attention. Many external and internal environmental variables

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influence international compensation strategy. While traditional forms of

international compensation still dominate international staff transfers, evidence

is emerging of global compensation strategies robust enough to allow for consis-

tency and for adaptation to different international environments.

The second major part of the chapter examined the performance manage-

ment of international staff. International compensation and performance

management are interdependent, as the objectives of compensation and the char-

acteristics of integrated performance management illustrate. At the strategic level,

performance management was defined and its dual purposes of evaluation and

development were outlined within the context of MNCs. At the functional level,

performance appraisal, the core human resource management activity of perfor-

mance management, was examined. Enduring issues concerning who conducts

performance appraisals, and what is appraised, remain. Accounting-based,

organizational-level performance criteria are often used to appraise the perfor-

mance of subsidiary managers in spite of the environmental constraints on their

validity and reliability. Performance criteria which recognize the international

context, that are therefore accurate and reliable measures of the international work

being performed, and which align with the mission and objectives of the MNC,

are essential for individuals and organizations. The challenge of developing and

maintaining effective international compensation and performance management

across the MNC will be further magnified by changes in international work such

as non-standard international assignments, for example virtual assignments.

6 DISCUSSION QUESTIONS

1 What variables influence the development of an international compensation

strategy?

2 How can consistency of international compensation across international loca-

tions be achieved when local environments differ?

3 What are the challenges to effective performance management, including per-

formance appraisal, in MNCs?

7 FURTHER READING

••

Bernthal, P.R. (1996) ‘Comparing performance management practices in the United

States and Pacific Rim’,

Advances in International Comparative Management,

11: 1–29.

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A comparison of surveys conducted into traditional and progressive performance appraisal

practices rated for current and future use. The study highlights the need to contextualize per-

formance management, particularly with regard to the provision of performance feedback and

whether to focus on the individual or the group.

••

Brewster, C. and Harris, H. (eds) (1999)

International HRM: Contemporary Issues in

Europe.

London: Routledge.

This text provides number of interesting articles from a European perspective that extend dis-

cussion of IHRM strategy and functions.

••

Lowe, K., Milliman, J., De Cieri, H. and Dowling, P. (2002) ‘International compensation

practices: a ten-country comparative analysis’,

Asia Pacific Journal of Human

Resources,

40 (1): 55–78.

This is a special edition of the journal reporting the Best Practice in International HRM col-

laborative 10-country/regional analysis covering several IHRM functions, including compen-

sation and performance appraisal as well as convergence and divergence and the role of

HRM.

••

O’Donnell, S. (1999) ‘Compensation design as a tool for implementing foreign sub-

sidiary strategy’,

Management International Review

, 39 (2): 149–165.

A detailed discussion and testing of agency theory in the context of international compensa-

tion. See also Roth and O’Donnell (1996).

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13 Repatriation and Knowledge Management

Mila Lazarova and Paula Caligiuri

1 Introduction 333

2 Benefits from expatriate assignments 335

3 Challenges of repatriation 336

4 ‘Best practice’ recommendations for successful repatriation 339

5 The role of organizational support for successful repatriation 343

6 Beyond providing support: new concerns (and solutions) for strategic

repatriation and knowledge management 344

7 Conclusions 351

8 Discussion questions 351

9 Further reading 352

References 353

1 INTRODUCTION

The diversity of national contexts and the necessity to effectively manage

workers of different cultural backgrounds introduces complexity to the opera-

tions of multinational corporations (MNCs). Many MNCs recognize that they

lack not only global executives capable of managing and leading on a global

scale, but they also lack the comprehensive systems for developing these

necessary human resource capabilities (Gregersen et al., 1998; Caligiuri and

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Stroh, 1995; Stroh and Caligiuri 1998a, 1998b). Such challenges posed by

globalization have caused many companies to rethink their global manage-

ment development systems. For many MNCs, one important aspect of these

systems involves expatriate assignments for the purpose of global leadership

development (Stroh and Caligiuri, 1998a, 1998b). While traditionally expatri-

ates were deployed to foreign locations solely to fill technical or managerial

needs or to provide the liaison with headquarters, today expatriate assignments

are increasingly being utilized for their potential to develop global talent (see

also Chapter 10).

Recent research has suggested that, on an individual level, global assign-

ments can play an important role in shaping professional and career develop-

ment (Tung, 1998; Stahl et al., 2002; Inkson et al., 1997). On an organizational

level, it has been found that ‘developing global leadership through develop-

mental cross-cultural assignments’ is related to MNCs’ bottom-line financial

performance (Stroh and Caligiuri, 1998a). In order for MNCs to utilize the

benefits of international experience, ideally they should ensure that repatri-

ates stay with them upon return from their international postings. In reality,

however, many global organizations state that the low retention rate of

assignees upon repatriation is among their greatest human resource chal-

lenges. The reasons for this elusive, yet common, repatriation problem are dis-

cussed in this chapter. We provide an overview of the basic issues related to

the repatriation process and focus on how repatriation can be used within the

broader knowledge management framework of an organization. Recommen-

dations for best practices addressing common repatriation concerns are also

reviewed.

Specifically, we first identify the major benefits and the primary challenges

associated with the repatriation process. The following section addresses, in

turn, the benefits of global assignment experience from an individual perspec-

tive and from an organizational perspective. We then look at a ‘darker side’ of

the expatriate assignments: Section 3 illustrates the challenges associated with

repatriation following global assignments from both an individual and an

organizational point of view. The section identifies repatriate retention as a key

concern for multinational companies. Section 4 summarizes the most com-

monly suggested recommendations for company activities aimed at easing

repatriates’ transition and, in turn, at reducing their turnover rates. Next, in

Section 5, we outline the common view that the outcome of repatriation is ulti-

mately a function of the availability of company-provided repatriation support

programs and then argue that this perspective, while very informative, may

not fully explain the reasons behind high repatriate turnover. Finally, in

Section 6 we suggest alternatives to this view by pointing out other concerns

that we believe need to be considered and addressed by companies wishing to

make their repatriation process more strategic. Recommendations for practice

are provided throughout the chapter. Section 7 concludes this chapter.

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2 BENEFITS FROM EXPATRIATE ASSIGNMENTS

Benefits from the perspective of the individual

Strategically beneficial for the MNC, global assignments also have indispensable

value – both personal and professional – for the individual assignee. Upon return,

an overwhelming majority of assignees report the uniqueness of their inter-

national experience has enabled them to develop valuable knowledge, skills and

abilities that can greatly enhance their professional expertise and improve their

performance (Adler, 1981, 1997; Caligiuri and Di Santo, 2001; Tung, 1998;

Inkson et al., 1997; Pickard and Brewster, 1995). Such reports fit well with the

commonly held view of international assignments as a tool for developing global

competence. However, a comprehensive review of existing research found little

agreement among various writers as to the precise definition of global compe-

tence and pointed out that there really is not much empirical support that inter-

national assignments truly lead to the attainment of such global competence

(Caligiuri and Di Santo, 2001; Levy et al., 1999).

A recent study by Caligiuri and Di Santo (2001) addressed both these issues

and provided preliminary evidence that global assignments can be used as an

effective method for developing global leadership. First, Caligiuri and DiSanto

found that multinational organizations define global leadership competencies

in terms of specific dimensions of knowledge (for example, increase in an indi-

vidual’s knowledge of international business issues and increase in a company’s

worldwide business structure), abilities (for example, increase in individual abil-

ity to transact business in another country and an increase in an individual’s

ability to effectively negotiate in another country), and personality characteris-

tics (for example, openness, flexibility). Caligiuri and DiSanto (2001) then

examined the extent to which these dimensions can indeed be developed by

global assignments. The results of their study indicated that personality charac-

teristics (by definition relatively stable and immutable) did not change as a

result of assignments. This is consistent with past research on personality char-

acteristics related to expatriate success (Caligiuri, 2000a, 2000b). In contrast,

global assignments were successfully achieving their developmental goals by

developing the knowledge-based aspect of global competence. It is interesting to

note that with respect to the ability dimensions of global leadership compe-

tence, repatriates and expatriates self-reported lower scores compared to those

who had never been sent on a global assignment. The authors interpreted this

interesting finding by noting that being on assignment helps people under-

stand what they do not know. In other words, compared to those who have

never been on assignment, expatriates and repatriates become more sensitive

to the challenges of working in another culture and realize how difficult the

process of adaptation to new and unfamiliar environments can be (see also

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Adler, 1997; Osland, 1995). Global assignments, therefore, are beneficial for

individuals as they can help them develop an appreciation for the complexities

of transacting business across national borders – and it is this cognitive com-

plexity that is critical for global leaders’ success (Levy et al., 1999).

Benefits from the perspective of the organization

In addition to individual advantages of having gained valuable human capital,

successful repatriation is also associated with benefits for the MNCs. Having

extensive understanding of how the company is perceived in other countries

and being part of a global social network that can advance the company’s busi-

ness around the world, repatriates are an important element in expanding the

international operations of the company. Repatriates, therefore, play an irre-

placeable role in organizational learning (Bonache and Brewster, 2001; Downes

and Thomas, 1999, 2000).

Repatriates provide a resident base of knowledge about the complexities of

international operations. They possess first-hand knowledge about characteris-

tics of national markets, their business climate, cultural patterns, structure of

the market system, and most importantly, knowledge about individual cus-

tomers and suppliers. Such market-specific knowledge can only be gained

through experience in specific countries. In addition, as suggested previously,

repatriates also acquire more general knowledge about doing business inter-

nationally on a global market. Such knowledge can often be transferred from one

country to another and is cumulative in nature. By sharing and transferring

both market-specific and general knowledge to new individuals across bound-

aries of space, time, or hierarchy, repatriates enable companies to learn from

their previous globalization efforts. This serves to enhance the group intellec-

tual capital of the MNC (Downes and Thomas, 1999, 2000).

In short, repatriates represent a unique vehicle for knowledge transfer and

organizational learning. Their role in these processes is becoming increasingly

important in a context where learning has been recognized as one of the key sources

of sustainable competitive advantage. Not surprisingly, many companies view their

repatriates as an important human capital investment (Caligiuri and Lazarova, 2001;

Downes and Thomas, 1999; Lazarova and Caligiuri, 2001; Tung, 1998).

3 CHALLENGES OF REPATRIATION

Challenges from the perspective of the individual

While global assignments are viewed as beneficial on many counts, when repa-

triation is considered it becomes clear that the experience also entails some

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costs – both for individuals and organizations. Repatriation is associated with

several concerns – personal and professional – for the individual global

assignee. From a personal perspective, the majority of repatriates experience

‘reverse culture shock’ (Gullahorn and Gullahorn, 1963). Some suggest that

coming home is more emotionally stressful than going abroad (Adler, 1981,

1997; Baughn, 1995). For instance, global assignees may be expecting every-

thing they encounter in their host country to be different from their home

country. When going home, however, most repatriates expect that nothing

will have changed. The latter expectation is generally wrong: the political,

economic, social, and cultural climate has changed. Moreover, the expatriates

themselves have changed, and this in turn produces an even wider gap

between repatriates’ expectations and their reality upon return (Adler, 1981,

1997; Black et al., 1992a; Shilling, 1993). In addition to the personal adjust-

ment problems the expatriate is experiencing, he or she may also have family

members going through the same difficult readjustment period. Research has

suggested that expatriates’ and spouses’ repatriation adjustment are signifi-

cantly correlated (Black and Gregersen, 1991). These family adjustment diffi-

culties usually magnify the problems repatriates face upon return (Harvey,

1982, 1989).

Several other factors, related to the repatriates’ sudden change in lifestyle,

create personal concerns upon repatriation. For example, repatriates may expe-

rience cash flow or disposable income problems, housing problems, and other

problems associated with loss of social status and lifestyle changes (Harvey,

1982; Kendall, 1981). While on assignment, many expatriates usually receive

generous financial allowances to accommodate the ‘hardships’ of living away

from home – allowing them to live in excellent housing conditions and to

enjoy a relatively more affluent way of life (Black et al., 1992b; Harvey, 1982,

1989; Kendall, 1981; Stroh et al., 1998). While on the global assignment, expa-

triates are usually occupying high-level positions in the host national sub-

sidiary and have a unique social status that gives them prominence both in the

local community and at work (Black and Gregersen, 1991; Engen, 1995;

Gomez-Mejia and Balkin, 1987; Kendall, 1981). It is difficult for global

assignees when these advantages are taken away upon repatriation. In addition

to the loss of financial and social status, repatriates soon learn that others’

interest in their international experience fades fairly quickly – and that they no

longer hold any special social position (Black et al., 1992a; Gregersen and

Black, 1995; Kendall, 1981; Shilling, 1993).

Repatriation is often related to professional disappointments as well.

While repatriates describe their global assignments as career enhancing (Tung,

1998), the career enhancement may often be realized only by finding a posi-

tion with another company. Repatriates’ primary concern is related to the

under-utilization of their newly developed global skills. Many repatriates

perceive their new jobs at home as lacking in autonomy, authority, and

significance, compared to their global assignments (Black et al., 1992a;

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Gomez-Mejia and Balkin, 1987; Harvey, 1982; Kendall, 1981). They feel that

the organization unfairly ignores their global competence. Indeed, a recent

study indicated that fewer than 40 per cent of repatriates had the opportunity

to utilize their international experience upon returning to their home coun-

try (Black et al., 1992a). Often, due to poor career planning, repatriates are

placed in a ‘holding pattern’ – being assigned jobs that are available, without

regard to the individual’s abilities, qualifications, and needs (Baughn, 1995;

Harvey, 1982, 1989). Many repatriates report that, upon return, they are

offered a limited number of career choices and are rarely considered for pro-

motions – which makes them feel that they have been removed from the

mainstream of corporate advancement. Not surprisingly, many repatriates

report bitter disappointment with the repatriation process (Adler, 1997;

Baughn, 1995; Black et al., 1992a, 1992b; Gomez-Mejia and Balkin, 1987;

Harvey, 1989; Stroh et al., 1998).

Challenges from the perspective of the organization

The multitude of problems encountered by global assignees upon return has

traditionally been linked with low repatriate retention – an issue of great con-

cern for many MNCs. From the perspective of the organization, in order to

capitalize on the human capital investment of global assignments, repatriates

must remain with the organization upon repatriation. The reality of repatri-

ation, however, appears to provide evidence for some concerning trends.

Research from the late 1980s and the early 1990s suggested that approxi-

mately 20–25 per cent of repatriated employees left their firms within a year

after their return to the US. Additionally, more than 40 per cent of repatriates

had seriously considered leaving their companies after repatriation, 26 per

cent had been actively searching for an alternative employment, and 74 per

cent of them reported that they did not expect to be working for the same

MNC within two years after repatriation (Black, et al., 1992a, 1992b). The

1999 Global Relocation Trends Report reveals that companies report that 12

per cent of their employees leave within one year of returning and another

13 per cent leave within the following year – for a total of 25 per cent within

two years after repatriation (Windham International, NFTC, and SHRM,

1999).

Considering the large investment to develop, maintain, and transfer global

assignees, and their role for increasing organizational effectiveness, losing an

employee with valuable expatriate experience is costly and can affect the

MNC’s bottom line (Black et al., 1992a; Stroh, 1995). Moreover, the loss of an

internationally proficient employee often indirectly translates into providing

advantage to direct competitors, as repatriates are likely to find jobs with them,

thus providing them with a valuable human asset (Caligiuri and Lazarova,

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2001). In addition, high turnover among repatriates compromises the

company’s ability to recruit future expatriates since it signals to other employ-

ees in the company that, despite the stated message to the contrary, interna-

tional assignments may have a negative impact on one’s career (Downes and

Thomas, 1999). Therefore, repatriate retention remains an important challenge

facing MNCs today (Black et al., 1992a; Gregersen and Black, 1995; Pickard and

Brewster, 1995; Stroh, 1995).

4 ‘BEST PRACTICE’ RECOMMENDATIONS FOR

SUCCESSFUL REPATRIATION

Previous studies on repatriation have suggested that these unsatisfactory expe-

riences are the primary determinants of repatriate turnover. As a result, man-

agement researchers and experienced practitioners alike have continuously

advised companies to take a proactive stance and provide numerous resources

to ease their repatriates’ transition back home – both from a professional as well

as from a personal perspective. Past literature offers a wide range of practical

recommendations for what companies should do to counterbalance common

challenges faced by expatriates. Various programs are suggested, some targeted

towards the repatriate only, and others that include the repatriate’s family. The

following paragraphs present, in loose chronological order, the most com-

monly recommended programs:

(a) Prior to going on assignment:

• Guarantee/agreement outlining the type of position expatriates will be

placed in upon repatriation: In order to reduce ambiguity about the expa-

triates’ future with the company, companies should offer written guaran-

tees or repatriation agreements even before the assignment begins. This

repatriation agreement should, as clearly as possible, outline the type of

position expatriates will be placed in upon return (Gomez-Mejia and

Balkin, 1987).

(b) During the assignment:

• Continuous communication with the home office: During the assign-

ment, MNCs should offer opportunities for communication with the home

office. For example, expatriates should be included on company e-mail

lists, important memos should be forwarded to them, they should regularly

receive company newsletters, and both the expatriates and their colleagues

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in the home office should be encouraged to continuously communicate

with each other in order to maintain an extended professional network. As

the repatriation date approaches, expatriates could also be offered

extended home visits timed so that they can participate in networking

activities with key people and maintain high visibility at the office

(Adler, 1997; Black, 1994; Gomez-Mejia and Balkin, 1987; Gregersen and

Stroh, 1997).

• Mentoring programs while on assignment: In addition to encouraging

informal mentoring, MNCs should assign formal mentors to expatriates.

The mentors’ role would be to guide expatriates’ future careers with the

organization by being their internal champions. Mentors should keep

expatriates abreast of important occurrences in the home office and

should help them stay connected with important people in the organi-

zation during the period of the assignment (Black et al., 1992b;

Conference Board, 1996; Gomez-Mejia and Balkin, 1987; Napier and

Peterson, 1991).

• Career management activities: Organizations should provide help in

repatriates’ career planning. Between 6 and 12 months before the end of

the global assignment, MNCs should offer multiple career planning ses-

sions to discuss the expatriate’s concerns regarding repatriation, for

example career objectives, performance, etc. (Adler, 1981, 1997; Black,

1992; Black et al., 1992a; Conference Board, 1996). The intention of

these career planning re-entry sessions is to give the expatriate a sense

of security regarding his or her future with the company. This planning

may utilize the skills of a team, including HR, the sending manager, the

business unit leader (Black et al., 1992a). In addition, expatriates should

be assigned to projects that require them to work closely with the home

office at least a few months before repatriation if not throughout

their assignment (if such an alternative is feasible, of course). They

should also be kept in mind for potential positions to be taken upon

repatriation.

• Pre-departure briefings on the details of the repatriation process:

MNCs should ensure that all elements of the repatriation process are

transparent. The expatriate needs to be given specific information on the

company policies on travel reimbursement, shipping of household goods,

compensation immediately before and after return; contact information

of the person they need to report to upon arrival, etc. Clarity of the repa-

triation process could reduce the uncertainty associated with returning

home and thereby could facilitate adjustment (Black, 1994; Black and

Gregersen, 1991).

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(d) After repatriation:

• Repatriation training seminars on the emotional response and lifestyle

changes following repatriation: Such seminars should be offered to

employees and their families. They should be aimed at improving re-entry

adjustment by addressing potential emotional concerns expatriates may

experience upon returning home. Lifestyle counseling can also be benefi-

cial to employees and their families, as their lifestyles are likely to change

dramatically upon return (Black, 1992, 1994; Black et al., 1992a, 1992b;

Conference Board, 1996; Hammer et al., 1998; Harvey, 1989; Kendall, 1981).

Such programs may be provided through the company’s pre-existing

International Employee Assistance Program (Gomez-Mejia and Balkin, 1987).

• Financial counseling and financial/tax assistance: Such counseling

would help repatriates adjust back to their lifestyle without the additional

allowances of the expatriate position (Gomez-Mejia and Balkin, 1987;

Harvey, 1982; Kendall, 1981). For example, some organizations offer bridg-

ing loans, low interest loans for the purchase of a house or assistance with

mortgages. Other organizations are willing to pay for private schooling

back home to have educational continuity for the children of global

assignees (Kendall, 1981; Napier and Peterson, 1991).

• Reorientation program about the changes in the company: Organizations

should offer a reorientation session to brief returning expatriates on the

changes in the company, such as in policies, personnel, strategy (Gomez-

Mejia and Balkin, 1987; Harvey, 1982). This should be provided immedi-

ately upon return from the assignment, when the repatriate returns to

work.

• Downtime upon repatriation: MNCs should offer an adjustment period

for the employees to reintegrate without added pressures from the organi-

zation (Harvey, 1989; Kendall, 1981). Given the pressures of repatriation

both at home and at work, some organizations will reduce the repatriates’

travel time, give more vacation time, etc.

• Visible signs that the company values international experience:

Companies should send out clear signals to all of their employees that

international experience is valued. For example, they should be proactive

in ensuring that the repatriate’s reintegration into the company is going

smoothly. They may circulate an internal memo announcing the repatri-

ate’s return, pointing out any of his/her special contributions to advancing

the company’s business while abroad, and/or may organize an informal

get-together to welcome the repatriate back. Repatriates’ contacts with key

individuals in the organizations should be facilitated. Their newly devel-

oped knowledge should be utilized by assigning them to challenging

projects with high visibility that can have a beneficial impact on their

careers.

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The following example illustrates the successful activities of a large

multinational company to take control of its repatriation concerns.

GTE Repatriation Case Study

Situation

GTE, then a $25bn, 100,000+ employee telecommunications giant, had a

range of international assets, with varying percentages of ownership. The

expatriate population was in excess of 350 expatriates, with almost 1000

accompanying family members. Repatriation was handled alongside expatri-

ate staffing; frequently, returning expatriates were unable to find another

role at GTE, and they were subsequently released, or became frustrated with

the repatriation process and exited the business.

This process, or lack thereof, had a knock-on effect of establishing

somewhat of a corporate reputation for expatriate assignments being the

‘end of a GTE’ career. This, then, caused the occasional hesitancy amongst

the best and brightest to accept overseas assignments. All of this served to

reduce the corporation’s Return on Expatriate Investment.

Task

The goal was to correct this situation, and implement a robust, well-thought-

out repatriation process that would bring discipline, thoroughness and trans-

parency to the repatriation effort. It was key that this transparency extended

to the repatriating family. We also needed to start the repatriation process

earlier in the cycle to give more time for the repatriates to find their next role

within GTE. We also needed to establish higher hurdles before a repatriate is

released.

Key actions

• Hired and assigned a full-time HR specialist solely to enhance and manage

the repatriation functions.

• Created ownership in line managers by repositioning the repatriates as an

investment, and communicating the value of the investment.

• Managed cost expectations by including costs of repatriation into pre-

assignment cost sign-offs.

• Developed a robust worksheet for repatriates, starting 6 months prior to

end of assignment. This worksheet served to ensure that everyone

involved in the process, whether the repatriate, international staffing or

domestic staffing, understood their role in the process.

• Included interviewing trips home as a part of the repatriation process and

expense budget.

• Established evaluation strategies surrounding the repatriation process

which would allow GTE to track success in repatriation.

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Results

Successfully completed all the above Key Actions. Results were reflected in

significant success in repatriating and placing expatriates whom the organi-

zation wanted to retain. Metrics delivered in the function were used in the

company-wide HR Balanced Scorecard.

(Lance Richards, formerly Director, International Staffing for GTE)

Note: In 2001, GTE and BellAtlantic completed their merger. The ensuing entity is

now called Verizon.

5 THE ROLE OF ORGANIZATIONAL SUPPORT

FOR SUCCESSFUL REPATRIATION

The long lists of repatriation recommendations can easily be associated with

the commonly accepted view that repatriate turnover is, above all, ‘a company

affair’ (Inkson et al., 1997). While turnover among returnees is usually volun-

tary, the literature explicitly or implicitly suggests that it comes primarily as a

result of poor management of the repatriation process on behalf of the MNC

(Gomez-Mejia and Balkin, 1987; Harvey, 1982, 1989). The departing point of

research is that a returnee’s decision to stay with or leave the MNC after repa-

triation is a consequence of certain actions or lack of actions by the MNC (such

as implementing or not implementing a number of repatriation assistance

practices). Repatriation is most often considered from the standpoint that

MNCs have full control over the repatriation process and that retention of

repatriates is ultimately a function of what the MNC does about it. It has been

suggested that if all repatriation problems are considered in advance and

attended to by the MNC, repatriate turnover will occur less often (Harvey,

1989). The rationale of that proposition is that if the company offers support

to returning repatriates, their concerns will be addressed and they will grow

more committed to the company – and, in turn, will be more likely to stay.

While intuitively logical, this relationship between company-provided sup-

port and repatriate turnover has received very little empirical investigation and

support. Indeed, a large part of the research on repatriation turnover and repatri-

ation in general comes from research on return cross-cultural adjustment. Many

studies focus on the problems associated with return adjustment, turnover among

repatriates being one of the important consequences of unsuccessful adjustment

rather than an outcome in its own right (Black, 1992; Black and Gregersen, 1991;

Black, et al., 1992a; Feldman and Thompson, 1993; Hammer et al., 1998).

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One recent study, based on a relatively small sample of North American

repatriates, did find that employees who were offered repatriation support

from their companies were less likely to leave (Lazarova and Caligiuri, 2001).

Interestingly, the results of this study also indicated that repatriation support

practices were related to overall perceptions of organizational support but were

not related to organizational commitment, an assumption often stipulated by

past repatriation studies. This suggests that employees may remain with the

MNC only if they feel that the company values and supports them, rather than

because of a greater sense of company loyalty or organizational commitment.

This finding makes intuitive sense in today’s environment of ‘boundaryless’

careers and ‘boundaryless’ organizations – where individuals may manage their

careers across a variety of organizations (Tung, 1998; Inkson et al., 1997; Suutari

and Brewster, 2000). After years of restructuring, re-engineering, and outsourcing,

companies have shown that the notion of lifetime employment and security

belongs to the past. Many employees believe that in order to develop and sustain

their own careers, they need to be self-directing and flexible, constantly learning

and upgrading their skills, and ready to change employers whenever that change

would land them at a better position with another organization (Rogers, 1995). In

this ‘boundaryless’ context, it is a likely scenario that organizational support of

career investment activities through relevant repatriation practices may encourage

retention – but without necessarily positively influencing long-term loyalty.

6 BEYOND PROVIDING SUPPORT: NEW CONCERNS

(AND SOLUTIONS) FOR STRATEGIC REPATRIATION

AND KNOWLEDGE MANAGEMENT

The changing contexts in which MNCs operate – both in terms of the global

markets where they sell their products and services and the labor markets from

which they recruit their employees – have demanded a new approach to repa-

triation. MNCs undoubtedly play an important role in the repatriates’ transi-

tion back to their home country and to their domestic position. However, there

are other issues, beyond the types of repatriation support available to returning

assignees, that need to be considered when formulating a strategic repatriation

program. While retention remains a formidable challenge for the human

resource function, MNCs tend to be reactive, rather than strategic, in their

approach to solving this problem. We believe that given the strategic impor-

tance of a successful repatriation process and its implications for promoting

organizational learning on a global scale, the solutions to the repatriation prob-

lem must, likewise, be strategic.

The following sections will identify three major issues that companies

need to consider if they are to successfully align the reality of repatriation and

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their desired state for strategic repatriation. A series of recommendations to

address each issue are also suggested. More specifically, these issues include

the following:

1 MNCs believe that all global assignees intend to have long-term careers with the

MNC – when they do not. Individuals have different career goals.

2 MNCs tend to treat all global assignments as if they had the same strategic objec-

tive – when they do not. Some turnover upon repatriation is functional – and

possibly even strategic. Different global assignments should have different repa-

triation strategies.

3 MNCs often do not integrate selection, performance management, and repatri-

ation systems into one strategic process – when it is necessary.

Differences across individual career goals

While the repatriation ‘problem’ may be a very strategic concern for MNCs,

organizations should expect some natural attrition – as they would with any

other ‘high demand’ professionals. In some cases, even with the best possible

repatriation program, MNCs will not be able to retain certain repatriates.

Harvey (1982) found that many returnees may have better career opportunities

in multinational companies other than the company that sent them on the

global assignment. He suggested that in such cases, many repatriates would be

likely to leave for ‘both motivational and monetary reasons’ (Harvey, 1982: 54).

As with other individual career decisions, rather than staying, some repatriates

may choose to leave for a better job offer elsewhere and not perceive the organi-

zational exit (initiated by them) as a negative job move.

Clearly, international experience is a competitive asset that may enhance

the opportunities for future career advancement even though this may take

place in another company. A 1998 study of 409 expatriates on assignment to

51 countries found that most expatriates overwhelmingly agree that the global

assignment had ‘a positive impact upon subsequent career advancement either

in the current organization or elsewhere’ (Tung, 1998: 129). In addition, most

of the expatriates in the sample reported that an international assignment pre-

sented them with an opportunity to acquire skills and expertise usually not

available at home (Tung, 1998; see also Suutari and Brewster, 2000 for a dis-

cussion on self-initiated assignments).

Tung’s (1998) study suggests that ‘boundaryless’ careers are becoming the

pattern for international assignees – as with other ‘high demand’ professionals

(such as information technology engineers). A boundaryless career assumes

that individuals will move from one company to another to pursue the best

opportunities for their own professional development. Recently, authors have

suggested that professionals may accept global assignments to gain the additional

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skills and experience that they perceive to be valuable for their advancement

in their career, not in their company (Inkson, et al., 1997; Tung, 1998; Lazarova

and Caligiuri, 2001; Stahl et al., 2002; Suutari and Brewster, 2000).

This trend is even more problematic in countries with a tight job market.

In the US currently, there is increased ‘job-hopping’ and shorter average tenure

(in some cases of highly valued professionals, only amounting to several

months). Data from the US suggest that in the early 1970s a manager worked

for one or two companies in his or her entire career. The US managers of today

are more likely to hold 7 to 10 jobs in their lifetime (Cascio, 1993; Kransdorrf,

1997). The average tenure for the managers has also been dropping continu-

ously. In some professions (for example, accounting and auditing), typical

tenure ranges from 3 to 6 months (Grossman, 1998). Among information tech-

nology managers, the turnover rate have been reported to be 15.5 per cent for

12 months (Cone, 1996). Given these trends among managers and technical

professionals, it is not surprising that some repatriates are interested in chang-

ing companies after their global assignment is completed.

Recommendations for practice. It is a challenge for MNCs to retain their

global leaders who are in high demand and have a high internal career moti-

vation. However, there are things companies can do to increase their repatriate

retention rates. Some recommendations may be borrowed from other indus-

tries, such as the information technology (IT) industry, where the labor market

has enabled IT professionals to job-hop with relative ease. Studies of IT profes-

sionals suggest many ways to retain high-quality employees. These studies sug-

gest the importance of recognition, encouragement, praise, and opportunities

for professional growth (Grossman, 1998). Additional incentives, besides

higher pay and competitive benefits, are suggested for high-potential profes-

sionals. Such incentives include career development, training programs, pro-

motions, better corporate communications, flexible staffing, and stock options

(Comeau-Kirchner, 1999; Fryer, 1998).

Differences across types of global assignments

Shifting focus to the perspective of the MNCs, what research often does not

consider is that while international experience can create core competencies

for competitive advantage, not all global assignees are created or intended to

be equal – in terms of their strategic significance to the organization. A global

assignment is a job context (that is, a position in a host country), rather than a

job description. A Vice-President of Operations in Brussels and a systems engi-

neer in New Delhi are both on global assignments. However, the job descrip-

tions for these two positions are very different. The two assignments have

different goals (strategic vs. functional) and entail different requirements for

their successful completion. In this sense, it is both inappropriate as well as

unrealistic to simply lump all global assignees into a single category – especially

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given that the typical MNC is a complex structure with many global assignees

serving many different purposes.

While researchers have outlined different categories of global assignments

(Caligiuri, 1998; Hays, 1974; Oddou, 1991), to date recommendations for repa-

triation tend to group all assignments together without regard to the differ-

ences in their strategic purpose. One concern arising from treating all

assignments alike is related to the fact that, in reality, some MNCs do not want

or need all of their assignees back. In some cases, the global competencies

(either present or acquired during the assignment) may be needed only for the

assignment itself – but not upon repatriation. Indeed, some turnover upon

repatriation may very well be strategic – in line with the company’s strategic

objectives and overall human capital needs.

In general, given the differences among various assignments and the diver-

sity in MNCs’ strategic needs for the global assignees’ competencies upon repa-

triation, a strong argument can be made that different assignments should

have different repatriation strategies. Based on analysis of the dimensions of

expatriate performance, Caligiuri (1998) recently developed a typology of

global assignments that can be utilized as a useful foundation for a discussion

of repatriation policies and practices of MNCs. She argued that global assign-

ments vary according to (1) the amount of intercultural effectiveness needed in

order to be effective and (2) the presence or absence of a developmental com-

ponent of the assignment. She suggested that we can differentiate among the fol-

lowing four categories: (A) Technical, (B) Functional/tactical; (C) Developmental/

high potential, and (D) Strategic/executive. The next paragraphs briefly

describe these categories, and offer some specific suggestions for repatriation

programs for each category.

Technical assignments

This type of assignment is becoming increasingly common as organizations are

expanding their technical expertise worldwide. When technical skills do not

exist in one geographic region, a global assignment may be necessary to fill a

technical need. The typical technical assignment is similar in content to the

assignee’s domestic position. Specifically, these technical assignees are in an

organizational setting fairly typical to the setting of the home country. Many of

the global assignees on technical assignments will describe their work experi-

ence as ‘quite similar’ to what they were doing back home. It is not expected

that these global assignees will have significant interactions with the host

nationals working at the subsidiary location – and those interactions that

inevitably occur will not greatly affect the outcome of the assignment. In other

words, the person is being sent for his or her technical skills. It is those techni-

cal skills that will determine the outcome of the assignment. These assignments

involve such roles as technicians on an oil refinery, systems engineers on con-

tinuation client site and systems analysts interfacing with a computer system.

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In order for repatriation strategies to be effective, organizations have to

consider their needs for these individuals’ technical skills after the assignment

is completed. In most MNCs, these technical experts are needed throughout

the organization and are in relatively high demand. However, it may not

always be the case that these expatriates’ technical skills are needed back in the

home country. Sometimes technical experts may rotate from host country to

host country – going where their technical skills are needed. In either case, a

repatriation system for these assignees would assess technical skills and deter-

mine where the skills are needed most in the organization. In some MNCs,

technical experts are needed only for a fixed period of time in the host coun-

try to complete a given project. These expatriates are ‘contract assignees’.

MNCs hire these assignees solely to do the job. Once the job is completed, the

employment contract with the MNC is over. If this is indeed the case, indivi-

duals must be given a realistic preview of the global assignment process, stating

the ‘no guarantee’ reality of their positions.

Functional/tactical assignments

The functional/tactical assignment is similar to the technical assignment with

one distinct difference – significant interactions with host nationals are neces-

sary in order for the assignment to be deemed successful. As with the technical

assignment, a person will be sent to fill a technical or managerial gap in a given

host country. While they are there, they will need to interact with host nation-

als in order for the assignment to be deemed successful. This is the most com-

mon type of global assignment (Windham International NFTC and SHRM,

1999).

These assignees are sent to fill a technical need; however, they realize, once

they are there, that cross-cultural skills are needed in order to be successful. If

the global skills are an afterthought to the assignment, global assignees are pos-

sibly being sent without the skills necessary to be successful on the job (Black

et al., 1992a, 1992b). This tends to be an oversight in selection.

In addition to selection, this category of assignees poses the greatest chal-

lenge for MNCs in terms of retention upon repatriation. Given that intercul-

tural communication and effectiveness is needed to successfully complete one’s

global assignment, these functional/tactical assignments have an unintended

developmental component. The global assignees within this category are the

ones most likely to turn over upon repatriation, because they are the ones who

have developed new international skills and competencies that were not

needed (or intended in the first place). As such, the global assignees within this

category are the ones most likely to feel unfulfilled upon repatriation.

As a part of their repatriation strategy, MNCs first need to consider whether

the skills and competencies are truly needed within the organization upon

repatriation. If the skills and competencies are needed, MNCs should assess (via

a performance management system) the additional developmental skills

gained during the global assignment. These should be acknowledged and

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rewarded – and considered as a part of the MNC’s human capital investment.

Where possible, these skills should be utilized in the domestic position.

If the skills and competencies of repatriates are not needed, then the repa-

triates should be given a realistic expectation prior to accepting the global

assignment. In some cases, MNCs will hire more contract assignees to fill these

functional positions. Moreover, some individuals may be very attracted to

these contract assignments because they may be consistent with their overall

career goals.

Developmental/high potential assignments

For some MNCs, sending expatriates abroad for two or more years to develop

global competencies is consistent with their overall strategic human resource

plan. Most organizations that utilize this type of global assignment do so

within the context of their managerial development program. These programs

are often rotational – with one of the rotations being in another country. While

on this type of assignment, the goal is individual development.

These developmental rotational assignments often have a very structured

series of experiences. Given the structured nature of these assignments for

these repatriates, their next assignment is often very clear and known well in

advance of the completion of the global assignment. Repatriation, in this

case, is rather straightforward and predetermined by the rotations within the

leadership development program.

Strategic/executive assignments

Many MNCs, when asked to analyse their ideal staffing strategy for global

assignments, will identify ‘the strategic/executive assignment’ as the ideal.

These strategic assignments are usually filled by individuals who are being

developed for high-level management positions in the future. The purpose for

these assignments tend to be high profile (such as general managers or vice-

presidents) and the experience is viewed as both developmental and strategic.

Thus, these individuals are not sent solely for developmental assignments;

rather, they are there to fill a specific need in the organization. These global

assignees are the core ‘critical’ group of assignees. They may have the task of

entering a new market, developing a country base in a new area, or being the

general manager of a joint venture. An inpatriate assignment, where high-

profile managers from other countries take a global assignment in the headquar-

ters country, is also an example of a strategic assignment (Black et al., 1992a;

Kobrin, 1988).

Repatriation for these individuals is often well thought out and a part of

the overall succession planning initiative of the organization. In many cases,

these expatriates are very well aware that they are being groomed for a given

position. An important aspect of the repatriation process will be to ensure that

the position for which these individuals are being groomed will actually utilize

their developed global skills. As these individuals are often considered the

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highest human capital investment for MNCs, companies must ensure that they

have the appropriate levels of autonomy and job discretion upon repatriation.

A turnover upon repatriation within this category of assignee is seriously detri-

mental to the strategic management of a MNC’s human capital.

Lack of integration among selection, performance

management, and repatriation systems

Finally, the low retention rates of repatriates are not surprising, given that

global assignments generally have not been viewed by companies as a compo-

nent in employees’ career development. The 1994 Global Survey Relocation

Report found that repatriation support programs offered by companies typi-

cally do not include long-term career development plans. While 97 per cent of

the US-based MNCs in the survey offer to pay for the return shipment of house-

hold goods, only 31 per cent offer any expatriate career development assistance

(Windham International and NFTC, 1994). This lack of strategic integration

seems to be a concern not isolated to US-based MNCs. A 1996 repatriation

report found that only 13 per cent of US-based companies, 22 per cent of UK-

based, and 46 per cent of Continental European-based MNCs plan for their

global assignees’ return (Conference Board, 1996). More recent research has

also suggested that many repatriates describe their repatriation as a more or less

‘haphazard affair’ – characterized by a lack of coherent HR policies (Lazarova

and Caligiuri, 2001).

Recommendations for practice. While these studies and many others bemoan the

need to integrate the skills acquired by the global assignee upon repatriation,

little has been done to examine the entire strategic global assignment process,

including selection, performance management, and repatriation. Given the

centrality of repatriates’ career needs and expectations, the key to retention

after repatriation is creating an environment appreciative of global experience

that allows opportunities for career development. This means that the MNC

must provide support to the expatriate during all stages of the assignment.

Expatriation and repatriation are not two separate processes; expatriation is the

initiation and repatriation is the culmination of the same process. In reality,

most activities that ensure high retention after repatriation happen during –

rather than after – the expatriate assignment.

Care needs to be taken that repatriates’ careers not be derailed as a result

of their overseas assignment. The career development concerns cannot be

addressed by a repatriation system in isolation. Rather, they need to be inte-

grated into selection, performance management, and repatriation. To be truly

strategic, MNCs’ purpose for selecting an individual for a global assignment

should be a part of a greater developmental career path. In addition, the people

with the greatest likelihood of success should be selected for global assignments

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(Caligiuri, 2000a, 2000b). MNCs should assess the expatriate’s performance on

the basis of any desired developmental competencies (Caligiuri and Day,

2000). From the perspective of a total knowledge management system, it fol-

lows that the repatriates who were selected, and whose developmental com-

petencies were coached appropriately, would be the greatest benefit to the

organization.

7 CONCLUSION

The strategic context for repatriation, in the framework of organizational learn-

ing, is creating new implications for HR professionals. With the rise of globali-

zation and the colossal scale of the global economy, international experience

is becoming a critical asset for global organizations. International assignment

experience is rare, valuable, and hard to imitate. In the right context, it can

create competitive advantage – both for the individuals and for the companies

that employ them (Carpenter et al., 2000). In order to be able to capitalize on

their repatriates’ skills and knowledge, MNCs need to cultivate a global vision

and corporate culture that supports repatriates and values international expe-

rience and its contribution to the strategic development of the company

through organizational learning on a global scale.

8 DISCUSSION QUESTIONS

1 What can organizations do to measure the ‘return on expatriate investment’?

What are some factors that will indicate whether retaining repatriates con-

tributes to improving the performance of the organization/ department/unit?

2 Suggest a plan for a comprehensive strategic repatriation system. What are some

major programs that need to be introduced to help individuals make the transition

more effectively? From an organizational standpoint, what should MNCs do to

facilitate transfer of knowledge across subsidiaries?

3 Research has suggested that there are often differences between the repatriation

experiences of senior level managers and lower level employees, with senior

managers traditionally receiving more support from the MNC to facilitate the

potential repatriation concerns they may have. From a point of view of knowl-

edge transfer, are there differences between the two groups of repatriates? Is one

group more ‘valuable’ than the other? Why, or why not?

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4 Do you think that there are variations among MNCs from different countries in

view of how much they value international experience? If yes, why do you

believe such differences exist?

9 FURTHER READING

•

Black, J.S., Gregersen, H.B. and Mendenhall, M.E. (1992). ‘Toward a theoretical framework

of repatriation adjustment’.

Journal of International Business Studies

, 24: 737–760.

The article argues that repatriation adjustment is not only costly, but is also theoretically dif-

ferent from domestic relocation and expatriation adjustments in both degree and kind. Given

the costs associated with poor repatriation adjustment and the conceptual characteristics of

repatriation adjustment, a preliminary model of repatriation adjustment is proposed and

some important relationships and outcomes are discussed. The underlying theoretical

process for antecedents of repatriation adjustment is that of reducing uncertainty through

predictive and behavioral control. Factors are divided into four categories and are hypothe-

sized to influence three separate facets of repatriation adjustment (work, interaction, and

general adjustment)

•

Conference Board (1996).

Managing Expatriates’ Return

(Report Number

1148–96–RR). New York: The Conference Board, Inc.

The Report provides some statistics on variables related to the repatriation process and sug-

gests ‘best practices’ such as integrating global assignments into succession and career plan-

ning, managing expatriates’ expectations, and facilitating spouse and family repatriation. Case

studies and best practice examples from Ciba-Geigy, Royal Dutch Shell, Elf Aquitaine, 3M, and

Motorola discuss specific techniques for keeping repatriates satisfied.

•

Gomez-Mejia, L. and Balkin, D.B. (1987). ‘The determinants of managerial satisfaction

with the expatriation and repatriation processes’.

Journal of Management

Development

, 6: 7–17.

While written over a decade ago, with conclusions based on a relatively small sample of repa-

triates, this article remains among the commonly cited ‘classics’ on the topic of repatriation. It

reports the outcomes of a survey of returning expatriates and their spouses and identifies

important reasons for their dissatisfaction with the repatriation process. The article draws spe-

cial attention to issues of career development and to repatriates’ perceptions that they had

limited opportunities within the career ladder of the expatriating organization. Measures to

prevent such problems are suggested.

•

Solomon, C.M. (1995). ‘Repatriation: Up, down or out?’

Personnel Journal

74(1): 28–37.

The article is targeted towards practicing HR professionals. It reviews the basic challenges

encountered by individuals upon repatriation and provides specific recommendations

to MNCs related to overcoming the systemic weakness and lack of planning within the

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international HR function. It showcases successful repatriation programs offered by

a selection of large MNCs and provides a ‘repatriation planning checklist’ for the HR

professional.

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14 Women’s Role in International

Management

Hilary Harris

1 Introduction 357

2 Women in international management: getting there 359

3 Women in international management: critical issues 366

4 Advantages for female international managers 376

5 Summary and conclusions 378

6 Discussion questions 378

7 Further reading 379

References 380

1 INTRODUCTION

The importance of international assignments as a key method of developing the

future senior management of international organisations and of fostering diver-

sity in the management population has been highlighted in previous chapters.

Recent survey evidence (ORC, 1997) shows that this is a growing trend, with

63% of responding organisations indicating that they were planning to increase

the number of international assignments in Asia and 54% also planning to

increase international assignments in Europe. Over 60% of the assignments

were single trips with planned repatriation. This confirms the importance of

international experience as part of management development.

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Despite this increase in demand for international assignees, the numbers

of women in such positions remains stubbornly low. In North America figures

show that between 2 and 14% of global assignees are women, compared with

45% of women in management in domestic contexts (Adler, 1984a, 1994a and

b; Florkowski and Fogel, 1995; The Conference Board, 1992, Tung, 1997).

Figures from Australia indicate that approximately 6.5% of global assignees are

women compared to 22% of women who are in management (Hede and

O’Brien, 1996). In Europe a similar picture emerges, with between 9 and 15%

of women on global assignments, compared with 26% representation in man-

agement (Brewster, 1991; Harris, 1998, 2002; ORC, 1997). Such statistics ques-

tion the assumption that diversity is being acknowledged and incorporated in

the development of a geocentric mindset. It is particularly worrying to see that

the representation of women on international assignments is increasing at such

a slow rate since Adler’s study in 1984.

The low incidence of women on international management assignments is

even more puzzling when one looks at research into the criteria for effective

international managers. Here, the emphasis is on interpersonal, intuitive and

cooperative styles of management as the key skills for working internation-

ally (Barham and Devine, 1991; Birchall et al., 1996; Coulson-Thomas, 1992;

Mendenhall and Oddou, 1985; Wills and Barham, 1994). These same skills have

been argued to be more suited to a woman’s style of management. Rosener

(1990), for instance, argues that women adopt an ‘interactive leadership style,

particularly well suited to the versatile and rapidly changing business environ-

ment of today’. Women’s ability to work well with people, developing ‘smooth

and cooperative relationships’ is also stressed by Wentling (1992). Sharma

(1990), meanwhile, sees the main attributes of their approach as collaboration

and cooperation, teamwork, intuition and creativity. We will come back to this

later in this chapter, especially in our discussion of managerial/leadership

behaviour.

Many of the reasons put forward for minimal participation rates of women

arise from assumptions about the likelihood of women experiencing problems

whilst on assignments. Research into expatriate failure, however, provides no evi-

dence with which to support these assumptions (Copeland and Griggs, 1985; ECA,

1994; Mendenhall and Oddou, 1985; Stone, 1991; Torbiorn, 1982; Tung, 1981;

Zeira and Banai, 1985). The most significant feature of the research into expatri-

ate failure rates and reasons for failure is that it is based on a male population. This

research contains actual evidence of male expatriates facing cross-cultural adjust-

ment problems and family problems. In contrast, research conducted on the out-

comes of women’s global assignments indicates that female expatriates are

successful in their assignments (Adler, 1987; Caligiuri and Tung, 1998; Taylor and

Napier, 1996). The attribution of male expatriates’ problems is however assumed

to be a lack of adequate preparation on the part of the expatriate or lack of organi-

sational support and is therefore seen to be open to remedy. This contrasts starkly

with the situation for women where assumptions of potential problems, not linked

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to any concrete evidence of failure, are used on the part of home country

managers as reasons for non-selection of female candidates.

This chapter examines the factors influencing the numbers of women on

international assignments. This definition refers only to women sent abroad by

the home country organisation and does not take account of women who

obtain jobs in foreign countries as a result of independent job-search methods.

As selection for international assignments is embedded within home country

managerial promotion processes, we will first examine potential barriers to

women in the home country context. We will then explore how these and

other factors work together to restrict the numbers of women in international

management. The chapter will end with recommendations for increasing

women’s participation rates.

2 WOMEN IN INTERNATIONAL MANAGEMENT:

GETTING THERE

Women’s participation in international management assignments is influ-

enced by a complex set of cultural, social, legal, economic and political factors

which affect women both within their home countries and in host country

environments. Later in this chapter we shall look in more detail at the effect of

host country cultural barriers on women international managers; at this stage,

however, we need to examine more closely the factors affecting women in

management within their home country environment to determine the extent

to which they may affect women’s ability to gain entry to international assign-

ments and to perform effectively as international managers.

A focus on women’s progression within home country environments is

essential when searching for reasons for their low participation rates, as the

vast majority of international assignments are filled by internal applicants. As

such, selection for an international assignment is very much embedded in

overall organisational promotion and assessment procedures. In particular,

when sending individuals on assignments for developmental purposes, the

extent to which that person has been identified as ‘high potential’ and the

influence of ideas of ‘fit’ can be seen to be problematic, given the substantial

domestically based literature on discrimination in selection and promotion.

The following sections address these issues in more detail.

In the light of more and more women entering the workforce, their failure

to attain the highest management positions is particularly puzzling. This pheno-

menon has become known as the ‘glass ceiling’ or ‘glass wall’, to denote an

impenetrable barrier which is invisible and which prevents upward – and in the

case of the ‘glass wall’, also lateral – movement. Solomon (1990) explains these

terms as describing the phenomena experienced by women and minorities as

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they attempt to climb upwards in the managerial ranks or move sideways into

line positions which have traditionally been held by the dominant work group,

in most cases white males. One argument put forward against the ‘glass ceiling’

theory is that women have not been in the pipeline long enough to reach top

management levels. This, however, does not do justice to the complexities of

the issue, for studies of men and women’s progress up organisational career

ladders show blockages for women appearing at much earlier stages than for

men (Broderick and Milkovich, 1991; Davidson and Cooper, 1987). It is neces-

sary, therefore, to look for causal factors which affect women’s choices and

options at both entry level and during subsequent stages of their careers.

Barriers to women in management: entry level

Despite a trend towards increased participation in non-traditional occupational

areas, women’s choices and options at entry level are still very much influenced

by socio-economic factors contributing to occupational segregation and wage

differentials. Ragins and Sundstrom (1989) argue that initial choices by women

in terms of employment can be affected by sex role stereotyping in early social-

isation. Such socialisation leads women to self-select in terms of job versus

career and choice of gender-typed occupation and gender-typed speciality.

These choices exclude women at the first stage of their careers from positions or

areas of power which, the authors argue, are essential for career progression.

The exact nature of gender-typed occupations and careers is elaborated in

social-role theory (Eagly, 1987). This perspective argues that societal expecta-

tions lead to women developing communal type beliefs and behaviours such

as caring, interpersonal sensitivity and emotional expressiveness (Eagly and

Wood, 1991). In contrast, men are encouraged to develop agentic type beliefs

and behaviours, such as ambition, control, and independence from other people

(Bakan, 1966). These characteristics lend themselves more easily to traditional

organisational managerial styles.

Occupational segregation can be seen to have a direct effect on women’s

pay and promotion prospects. Women entering traditional gender-typed occu-

pations may find themselves in such archetypal female ‘ghetto’ occupations as

secretarial work which offer few opportunities for lateral and vertical transfers

(Pringle and Gold, 1989). Historical devaluing of women’s work means that tra-

ditional women’s occupations tend to be symbolised by lower pay, power and

prestige, which may negatively affect women’s career progress.

Barriers to women in management:

career path options

Underlying causes of occupational segregation and wage differentials fail, how-

ever, to account for the fact that even within strongly gender-typed occupations,

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such as teaching or the social services, women do not necessarily hold a

proportionate number of senior management positions. In the United Kingdom,

for instance, latest figures for full-time teachers in secondary schools show

that, although women make up 54% of all teaching posts, they hold only 30%

of head teachers’ positions (UK Department for Education and Skills (2002)

statistics for 2000). This would suggest either that women are less able or less

willing or that they encounter more obstacles than men in their career pro-

gression within organisations. Given that women nowadays enter employment

with the same level of educational attainment as men, especially in gender-typed

occupations, the literature on male/female differences in motivation/ commit-

ment attitudes to work and male/female managerial/leadership styles, together

with issues of perception of male/female attributes and the impact of organisa-

tional systems, may provide some clues to more deeply rooted causes of the

‘glass ceiling’ phenomenon.

Motivation/commitment

The effect of sex role identity and gender-related behaviour features prominently

in discussions relating to women’s motivation to succeed in the workforce.

Powell (1988) argues that early socialisation from parents, schools, the media

and peer groups contributes to the development of a sex role identity which

will affect occupational aspirations and expectations. Aspirations will be con-

strained both by a need to restrict career hopes to ‘sex-appropriate’ activities

and by the strength of occupational segregation in a given sector. Expectations

are viewed in highly sex-typed terms for females.

Vinkenburg et al. (2000) summarise research into differences in manager-

ial motivation. They report gender differences in achievement motivation,

with fear of success and competitiveness in women often being found (Gattiker

and Larwood, 1990; Ruf and Chusmir, 1991). Female managers were, however,

more likely to be ‘career-primary oriented’ as opposed to ‘career-family

oriented’ (Burke and McKeen, 1993); in other words they put their career first.

In this respect female managers’ needs for achievement and need for power

generally do not differ from men’s (Chusmir, 1985; Stevens and Brenner, 1990;

Ferrario, 1994).

Managerial commitment is subdivided into commitment to the organi-

sation (affective commitment), team commitment and career commitment (Blau

et al., 1993; Aryee et al., 1994; Becker et al., 1996). Results from studies show

few gender differences in commitment, with some reporting less commitment,

some the same and some more (Rosin and Korabik, 1991; Giacobbe and

Wheeler, 1992; Aven et al., 1993; Burke and McKeen, 1993; Ellemers et al., 1996;

Schneer and Reitman, 1996).

Singh and Vinnicombe (2000), however, indicate that women and men

have differences in the nature of their commitment at work. In a sample of

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matched male/female manager pairs, male meanings overall were more similar

to top managers’ meanings than were females’ meanings. Top managers’ mean-

ings included task delivery, putting yourself out, being proactive, being ready

for a challenge and being business aware. More women overall gave meanings

oriented towards the organisation, particularly good citizenship behaviours,

which would be less visible to managers, whilst men overall gave meanings

benefiting themselves as well as the organisation, which were very active and

highly visible.

Research into motivation/commitment reflects a complicated picture;

however, the effect of social-role theory (Eagly, 1987) can still be seen in differ-

ences in meanings of commitment and issues relating to achievement orientation

for women. In this respect, it is important to bear in mind the evolutionary

nature of sex roles. Given the dramatic changes in social roles for men and

women in countries such as the UK and the US, for instance, future studies may

find very different attitudes relating to motivation/commitment amongst both

young men and women.

Managerial/leadership behaviour

Conflicting results in relation to women’s motivation/commitment reflect that

this is only part of the story of why there are so few women at the most senior

managerial positions. A key area of research in this respect focuses on how pre-

vailing views of senior management styles might impact on women’s progress

into these positions. Given that women have the same motivation to succeed

as men in similar circumstances, why do so few achieve executive status? Are

women innately less suited to management?

In line with Adler’s complementary contribution model (1986/1987) and

Rothwell’s (1991) vision of a ‘woman-shaped pattern of life’, the unique

management style of women is expounded by a number of writers, amongst

them Marshall (1984), who argues that the literature on management impli-

citly alludes to masculine qualities which are equated to ‘good’ management.

Marshall views women as having different managerial/leadership styles, with

an emphasis on interpersonal, intuitive and cooperative skills, but argues that

these are often seen as deficient in contrast to the predominant male style.

However, such qualities are being emphasised increasingly as especially suited

to the needs of international management. Rosener (1990) details the ways in

which women’s interactive leadership style is especially well suited to contem-

porary business. Women ‘encourage participation, share power and informa-

tion, enhance other people’s self-worth and get others excited about their

work’. Sharma (1990) describes the feminine management style as being dis-

tinct and non-traditional. The main attributes of women’s approach are col-

laboration and cooperation, teamwork, and intuition and creativity. Tom

Peters, one of management’s most celebrated gurus, is reported as having

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discovered the future potential of women’s leadership styles and even as claiming

that men need to learn ‘women’s games’.

In a recent UK study, this traditionally perceived leadership style of women

was highly valued by CEOs (Catalyst and Opportunity Now 2001). In particu-

lar, they praised their interpersonal, communication and people-management

skills. However, many senior women interviewed said that they felt they had

to adjust their style to one with which men were comfortable.

The link between management style and more ‘masculine’ personality

traits and behaviours has been the subject of an extensive body of literature.

One of the first studies of the sex role stereotyping and requisites of successful

top managers was conducted by Schein (1973, 1975). Schein built on previous

work into sex role stereotypes (Anastasi and Foley, 1949; Maccoby, 1966;

Rosenkrantz et al., 1968), which suggested that there were distinct characteris-

tics, attitudes and temperaments that could be attributed to men and others

that could be attributed to women. She argued that sex role stereotypes could

create a barrier to advancement where an occupation is ‘sex-typed’, i.e. a large

majority of individuals in it are of one sex and there is an associated normative

expectation that this is how it should be. Writing in the early 1970s, Schein

viewed management as a sex-typed occupation due to the high ratio of men in

managerial positions. This being the case, she hypothesised that the managerial

position would seem to require personal attributes thought to be more charac-

teristic of men than women (Schein, 1973: 95).

In order to test this hypothesis, Schein developed a Descriptive Index

(SDI), with items that differentially described males and females. Schein then

took the SDI to a sample of 300 male middle line managers of various depart-

ments within nine insurance companies located in the United States (Schein,

1973). The sample was split randomly into three equal groups which were each

presented with a different form of the SDI containing the same descriptive

terms and instructions, but one form asked for a description of women in

general, one for a description of men in general and one for a description of

successful middle managers. In a second study (Schein, 1975), a sample com-

posed of 167 female managers in the insurance sector who matched as closely

as possible the male sample from the previous study, were asked to complete

the same task. The findings from both studies found that both males and

females perceived a strong correlation between the items rated as resembling

men and those resembling managers and a near zero correlation with women

and managers. Further research replicating Schein’s experiment has tended to

produce the same results from men, although women no longer sex-type the

managerial job (e.g. Brenner et al., 1989; Heilman et al., 1989; Schein et al., 1989;

Schein and Mueller, 1992; Schein and Davidson, 1993; Schein, 1994; Schein et al.,

1996). Heilman et al. (1989) expanded Schein’s original research by asking 268

male managers to rate one of seven target groups: men (in general, managers,

or successful managers), women (in general, managers, or successful managers),

or successful middle managers. The results from this study were similar to

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Schein’s original findings in relation to ratings of men and women in general and

managers; however, they also discovered that the correspondence between

descriptions of women and successful managers strengthens when women are

depicted as managers and is very strong when women are depicted as success-

ful managers.

More recent research (Vinnicombe and Singh, 2002) investigating the

impact of sex role stereotyping on perceptions of successful managers used a

different instrument, the PAQ, developed by Spence et al. (1975). The PAQ is

derived from a model of agency and communion. Under this model, masculine

typed traits are related to instrumentality and agency, whilst feminine typed

traits are interpersonal and expressive. Individuals who have been traditionally

socialised would be seen to show more features from one dimension than the

other, whereas androgynous individuals would be high on both dimensions.

Korabik (1990) argues that androgynous managers may have an aptitude for

combining their masculine and feminine strengths to use in a wide variety of

situations. Vinnicombe and Singh (2002) used the PAQ in a large UK insurance

company to identify male and female managers’ management styles and their

perceptions of the style of the ‘successful manager’. The results showed that

women managers saw themselves as androgynous or feminine, but they saw

top managers as significantly more masculine than themselves. The authors

argue that this is likely to have a significant impact on the women’s career aspi-

rations as they seek progression. The results indicate that they are less likely to

identify with, and be seen as identifying with, the current model of leadership

in their organisation.

From an individual perspective, therefore, a number of factors relating to moti-

vation/commitment and managerial/leadership behaviour can be seen to impact

on women’s ability to progress to the highest levels of the organisation. In addition

to these factors, however, women face barriers in trying to fit their model of career

development into the traditional corpocratic career model, which traditionally is

based on the typical working lives of men. The next section looks at the impact of

organisational career systems on women’s opportunities for advancement.

Impact of organisational career systems

The domination of men in management over many years has led career theory and

practice to reflect the patterns of men’s working lives rather than women’s. Careers

have traditionally been defined as a meaningful progression through a series of

related jobs (White, 1995). This would normally take place over a number of years,

but following a fairly tight chronological timetable and leading to increasing levels

of responsibility at each stage. The core meaning of career centred on paid work

and linear upward progression (Mavin, 2000; Still and Timms, 1998).

Perceptions of appropriate career development processes therefore tend to

reflect male workplace experiences, values and goals. A key feature of this

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model is the ability to progress in a predictable and ordered manner through

increasingly higher status roles (O’Leary, 1997). It is notable that this dominant

model does not reflect all men’s experiences of work, but reflects a predomi-

nantly middle-class profile. Women’s greater need for more flexibility in career

patterns due to child-care and other domestic responsibilities does not fit this

traditional career model (Flanders, 1994). The idea of career development as a

competitive series of tournaments in which there are winners and losers sug-

gests that those individuals who wish to work in collegiate and supportive

atmospheres will be seen to have little career ambition (O’Leary, 1997).

Women, more than men, are seen to be affected by conflict between work

and home roles. Traditional career structures and organisational demands often

mean that women have to choose between maintaining a home life and moving

upwards. Even the choice of having a family is becoming an increasing prob-

lem amongst young women who do not want to interrupt their careers to take

time off to look after their children. Whereas having a family is often viewed

as a positive in a man, the choice of women in management is still not viewed

as a positive by society and organisations. Women’s career theories (see Hall,

1976; Derr, 1986; Powell and Mainiero, 1992; White, 1995; O’Leary, 1997) high-

light the specific ‘life stages’ that women pass through whilst still showing

commitment to their career. In White’s (1995) study, all the successful women

displayed a high ‘career centrality’. Continuous full-time employment appeared

to be a prerequisite for career success.

Rigid approaches to career development and the meaning of careers can be

seen as major barriers for women, given their traditionally greater home

responsibilities. However, changes in the psychological contract with the

impact of globalisation, pressure on wage and social costs of employment and

demographic pressures have major implications for career expectations and the

field of career management (Herriot and Pemberton, 1995, 1996; Hiltrop, 1995).

The old psychological contract was based on a world where there was full

employment, stability, growth and predictability and was built on steady finan-

cial rewards, investment in training and expectations of advancement in return

for hard work and loyalty (Sparrow, 1996). The new contract is based on a more

transactional model, with less security of employment and, in return, less

loyalty, combined with performance-based reward and promotion structures.

The idea of the traditional organisational career is changing and this may lead

to a new model of careers which may prove more favourable to women (and

men) who have responsibilities outside the workplace. At present, it is still too

early to tell what the impact of these changes will be.

In summary, this section has examined the key factors influencing the

ability of women to advance to senior levels of management within organi-

sations. The need for individuals who are sent on the majority of international

assignments to be seen as ‘high potential’ highlights the potentially negative

impact of perceptions that men are more ‘acceptable’ as managers and that

women are not keeping up with the normal model of career progression. In

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addition, the tension between work and home demands, which is often the

cause of women opting out at higher management levels, becomes even more

critical in the case of an international move.

3 WOMEN IN INTERNATIONAL MANAGEMENT:

CRITICAL ISSUES

The preceding section has highlighted the fact that women and men are not

on an even playing field when opportunities for international assignments

arise. The complexity of these internal barriers is only partially acknowledged,

however, in research into women in international management. Here, the

impact of gender on international assignments is discussed under four main

categories: (1) personality traits, (2) family characteristics, (3) host nationals’

attitudes towards women and (4) organisational processes.

Personality traits

Motivation

A common myth held by decision makers is that women do not want to go on

international assignments. Adler addressed this myth in her research (Adler,

1984b) amongst 1,129 graduating MBA students in Canada, the United States

and Europe. Her findings showed that new women graduates expressed as

much interest in international careers as their male colleagues. Women, how-

ever, saw organisational barriers facing females as greater potential constraints

to achieving this goal than did the male sample. A more recent study, by Lowe

et al. (1999), amongst graduate and undergraduate business students in the

United States, reported however that gender was a significant predictor when

specific referent countries were identified. Differences in cultural distance and

human development explained substantial variance among males and females

in their willingness to accept certain international assignments. Political risk

was not deemed to be a significant factor. The authors acknowledge that their

findings need further replication to ensure generalisability. However, they do

raise issues for organisations in terms of the amount of support needed to assist

women to successfully undertake assignments in specific countries.

Personality orientations

Personality traits have been linked to successful cross-cultural adjustment

(Mendenhall and Oddou, 1985). Caligiuri et al. (1999) argue that three key per-

sonality dimensions are unique in the context of a female expatriate’s experience.

These are self-orientation (stress reduction, technical competence and reinforcement

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substitution), others-orientation (i.e. the ability to form relationships and the

willingness to communicate with host nationals) and perceptual orientation

(i.e. the ability to understand the behaviour of others).

Self-orientation may be particularly important for female assignees due to

the need for them to demonstrate exceptional competence in order to be

accepted by colleagues. They must also be able to manage the stress resulting

from being the only woman in a given work setting. Ability to handle stress-

ful situations and confidence in one’s abilities have been found to be posi-

tively related to cross-cultural adjustment (Black, 1988, Mendenhall and

Oddou, 1988).

Others orientation could provide women with a competitive advantage on

global assignments. Women’s superior interpersonal skills (see above) should

enable them to form relationships with host nationals as colleagues and

clients. However, socio-cultural norms can be problematic for women in this

respect.

Perceptual orientation of women is important in host countries which have

a lower rate of women managers (Caligiuri and Tung, 1998). Understanding

both cultural and gender differences in host societies and being flexible in

one’s attitudes towards these has been seen to be a factor of adjustment

(Harvey, 1985; Mendenhall and Oddou, 1985).

Caligiuri and Lazarova (2002) take the concept of social interaction further

and suggest that this, together with social support, is a critical determinant of

cross-cultural adjustment for women due to their unique position in work and

particularly if they are alone on an assignment. Key factors influencing a

woman’s ability to form relationships during global assignments are seen as her

own affiliating personality characteristics; the extent to which host national

cultural norms towards developing relationships with women form a con-

straint; and situational constraints such as language skills and job constraints.

Sources of social interaction and support include family, colleagues, host

nationals, mentors, other expatriates, and host national functionaries. These

interactions can deliver emotional, informational and instrumental support,

which is linked to successful cross-cultural adjustment (See Figure 14.1).

Family characteristics

Success in international assignments is a function not just of the individual but

also of the partner and family. Increasing problems are being experienced by

organisations in trying to resolve dual-career issues in international assign-

ments (Caligiuri and Cascio, 1998; Harvey, 1995, 1996, 1997). Research into

dual-career couples undertaking long-term assignments highlights the need to

take into account both partners’ willingness to relocate in order to ensure a suc-

cessful assignment (Harvey, 1995, 1996, 1997; Linehan and Walsh, 2000. The

disruption caused by geographical relocation has also been seen to create

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Source of

interactions

Family

Colleagues

Host nationals

Mentors

Other expatriates

Functionaries

Type of interactions

Instrumental

Emotional

Informational

Cross-cultural

adjustment

Moderating variables: relationship-formation antecedents

Affiliating personality characteristics

Cultural constraints, e.g. host national cultural norms towards developing

relationships with women

Situational constraints, e.g. language skills, job constraints

tremendous disruption in the lives of all family members (Guzzo et al., 1994;

Munton, 1990; Noe and Barbar, 1993). Work – life issues are amongst the most

cited problems associated with international working patterns for those in

relationships as well as for single employees (CReME, 2000; Fenwick, 2001;

Peltonen, 2001).

Whilst work–family balance has been the focus of a great deal of organisa-

tional, governmental and academic interest, it has remained a predominantly

domestic-based issue. Work–family conflict is, however, likely to increase in

international working scenarios, which may involve the physical relocation of

the entire family. In such cases, the boundaries between work and home

become blurred due to the involvement of the whole family (Harvey, 1985). In

dual-career couples, the partner’s career may be disrupted and his or her sense

of worth and identity may suffer (Harvey, 1997). The children’s education may

also be interrupted (Fukuda and Chu, 1994) and their social networks

destroyed, which may affect their feelings of security and well-being (Harvey,

1985). In short, in international assignments, family life becomes more impor-

tant because the whole family is uprooted. Even in the case of short-term

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FIGURE 14.1

Social interaction and social support as antecedents to female expatriates’

cross-cultural adjustement (Caligiuri and Lazarova, 2002: 763)

3122 Ch-14.qxd 10/29/03 3:53 PM Page 368

assignments and international commuting assignments, where the family may

not physically relocate, the additional stressors of the individual living away

from home have been seen to exacerbate work–family conflict (CReME, 2000;

Fenwick; Peltonen, Suutari, 2001).

Research into the problems facing dual-career expatriates indicates that

this is equally problematic for men. However, Adler (1984c) and Harris’ (1999)

research shows that potential dual-career couple restrictions are seen to be a

key entry barrier for women wishing to gain international assignments. This

may in part result from traditional socio-cultural norms that identify the domi-

nant gender-role profile of women as homemakers (Lewis and Cooper, 1988;

Sandqvist, 1992). From this perspective, it is argued that women will experi-

ence greater stress than men when faced with work-related pressures, including

mobility requirements, due to the degree of incompatibility between role pres-

sures from work and family domains (Gupta and Jenkins, 1985; Sekaran, 1986;

Wiersma, 1994). In addition, it has been argued that male spouses face addi-

tional role transition obstacles in terms of adjusting to the role of secondary

breadwinner (Paddock and Schwartz, 1986) or homemaker, if they cannot find

work in the foreign location. Additional socio-cultural barriers include the like-

lihood of the male spouse finding himself the lone man in a group of wives and

the unavailability or inappropriateness of traditional volunteer activities which

wives undertake in foreign locations, thus limiting the extent of productive

activities for males (Punnett et al., 1992).

A key additional variable in looking at work–life balance in the context

of international working is the adjustment process of the individual and

his/her family. The adjustment process has been studied in both domestic and

international contexts and is a multi-faceted phenomenon. In international

scenarios, adjustment is seen to be a factor of both anticipatory adjustment and

in-country adjustment (Black et al., 1991). Accurate expectations of the assign-

ment as a result of previous international experience and/or training, together

with appropriate selection mechanisms, are antecedents to successful anticipa-

tory adjustment.

Host nationals’ attitudes

A major limiting factor to international management participation for women

has traditionally been managers’ perceptions of whether women can undertake

assignments abroad. In a survey of 60 major North American MNCs, more than

50% expressed reluctance to select female managers for foreign assignments.

One of the major reasons given was that foreigners are prejudiced against

female managers (Adler, 1984a).

Subsequent research by Adler (1987) amongst US women expatriates work-

ing in South-East Asian countries challenges the validity of this assumption by

finding a very high rate of success amongst women international managers,

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largely due to the fact that women were seen as foreigners who happened to be

women, not as women who happened to be foreigners – a subtle, but highly

significant distinction. Female expatriate managers were therefore not subject

to the same limitations imposed on local females.

Examples of interviewees’ responses from Adler’s study are:

Japan

: ‘It’s the novelty, especially in Japan, Korea, and Pakistan.

All of the general managers met with me. It was much easier for

me, especially in Osaka. They were charming. They didn’t want

me to feel bad. They thought I would come back if they gave me

business.You see, they could separate me from the local women.’

Pakistan

: ‘Will I have problems? No! There is a double standard

between expats and local women. The Pakistanis test you, but

you enter as a respected person.’

More recent research by Napier and Taylor (2002) reiterates Adler’s (1987) find-

ings in looking at the experiences of women professionals working on assign-

ments in China, Japan and Turkey. They all reported issues with gaining

credibility in the initial stages of working abroad. In this respect, Japan was per-

ceived as more difficult than China. However, most of the women reported

that they had found ways to overcome the resistance. They also mirrored

Adler’s findings in that they found that they were very ‘visible’ and had more

responsibility than they would have had in an equivalent position in their

home countries. The need to have and use interpersonal skills was another

common feature of their experiences. Interestingly, the women reported most

frustration with the non-work parts of their life. As women in these countries,

they felt that certain activities were ‘restricted’ or limited for women. They also

felt that there was very little chance of developing a relationship with foreign

men, or for that matter with local women as friends. Loneliness was therefore

a factor. Many of the women joined associations or women’s networks shortly

after arriving in the host location as a way of alleviating this problem.

The question of host country cultural prejudices as a major barrier to

women’s employment in expatriate positions appears to have been debated

only from the point of view of women going to traditionally male-dominated

cultures. Little research has been carried out into women’s experiences when

transferring to countries with similar or more relaxed cultural values, for

instance British women expatriates working in North America or Europe, or

female expatriates from Pacific Rim countries working in Australia or North

America, where the literature would argue there should be fewer problems of

acceptance for female managers/professionals.

The question of how men are affected by cultural differences in the area of

international management is an important issue in this respect. There is

increasing research into cross-cultural adaptation and its links to expatriate

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adjustment and performance. A related question revolves around the subject of

culturally determined managerial behaviours and their relationship to perfor-

mance during assignments abroad. According to the ‘cross-cultural’ school of

thought, the effectiveness of a particular managerial behaviour is a function of

the culture in which the behaviour is performed. The basic logic for such a

position is that because managerial attitudes and values differ from one culture

to another, so do effective managerial behaviours.

Despite conflicting research results as to the extent to which cross-cultural

differences can affect expatriate management performance, it is important to

note that these issues relate to the expatriate management population as a

whole. One can then question the validity of the argument put forward by very

many companies that women will not perform successfully in expatriate man-

agement positions as a result of host country cultural sanctions against

females. It is necessary to examine the exact nature of these claims; for

instance, to which countries do they refer, what is the basis for the claims –

women’s actual experiences, the opinions of host country managers, of exist-

ing male expatriate managers or of home country managers? Unless women

can be seen to be directly prevented from entering and working in a country as

a result of cultural sanctions, it would appear that they would be subject to the

same problems as men in terms of cross-cultural effectiveness. Evidence from

the literature supports the claim that women are potentially better suited to

international management in view of their superior interpersonal and com-

munication skills. However, Adler’s survey of women expatriates in the Pacific

Rim region found they had experienced numerous instances of corporate resis-

tance to sending them abroad. For example, according to one woman being

considered for an assignment in Malaysia:

‘Management assumed that women don’t have the physical sta-

mina to survive in the tropics. They claimed I couldn’t hack it.’

Several women were offered positions only if there were no suitable male can-

didates for the post:

Japan

: ‘They never would have considered me. But then the

financial manager in Tokyo had a heart attack and they had to

send someone. So they sent me, on a month’s notice, as a tem-

porary until they could find a man to fill the permanent position.

It worked out and I stayed.’

Firms often expressed their hesitancy by sending women in temporary or

lower-status positions:

Hong Kong:

‘After offering me the job, they hesitated, “Could

a woman work with the Chinese?” So my job was defined as

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temporary, a one-year position to train a Chinese man to replace

me. I succeeded and became permanent.’

Lack of confidence on the part of organisations can communicate itself to

foreign colleagues and clients, thus making it even harder for women to be taken

seriously (Adler, 1987). It may well be, therefore, that worries about women being

accepted as expatriate managers stem more from male managers in the home

country organisation blaming other cultures for their own prejudices, as postu-

lated by Moran (1986), than from a correct interpretation of reality.

Organisational processes

Despite the problems facing women on international assignments outlined in

the section above, there is no evidence to show that women fail in significantly

larger numbers than men. In fact the evidence is the other way, with signifi-

cant failure rates (in terms of premature return home) for men. If women are

not failing once they are appointed, the low number of women in these posi-

tions might well be more a result of processes happening within the organisa-

tion. Research shows three potential influencing factors: approaches to

increasing diversity; supervisor–subordinate relationship and organisational

selection processes for international assignments.

Approaches to increasing diversity

Adler (2002) argues that participation rates of women in international manage-

ment will depend on companies’ assumptions about the value to the company

of diversity, the value to the company of men’s and women’s unique contribu-

tions and to the belief, or lack thereof, of the possibility of positive synergies.

She identifies four different approaches as follows:

• Identifying with men’s approaches to managing internationally;

• Denying differences;

• Identifying with women’s approaches to managing internationally;

• Creating synergy – leveraging women’s and men’s approaches to managing

internationally.

The first and third approach acknowledge difference but in a negative way, in

that one approach is seen to be better than the other (as we have seen earlier in

this chapter). The second approach, in contrast, denies the possibility of differ-

ences: it sees women’s and men’s styles of managing internationally as identical

and that they will be perceived as identical by foreign colleagues and clients.

The fourth approach, most commonly associated with the transnational type

organisation, is premised on a company’s ability to create synergy by integrating

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and leveraging women’s and men’s unique styles into complementary

approaches. It is this approach which Adler advocates as most conducive to

sustained, long-term global effectiveness.

This perspective does not provide an explanation as to the reason why so few

women are sent. We need to look, therefore, at the role of the home country selec-

tion process to see how this might contribute to women’s low participation rates.

Supervisor–subordinate relationship

Varma and Stroh (2001) investigated reasons why women might not be made

offers on international management assignments. They used the Leader-

Member Exchange (LMX) model, which states that because of time pressures,

the leader can develop close relationships with only a few of his/her key sub-

ordinates (the ‘in-group’) while maintaining a formal relationship with the rest

of his/her subordinates (the ‘out-group’). Individual characteristics such as

gender, race and educational background may be related to LMX and may

determine the quality of the relationship between a supervisor and his/her

subordinates. The authors argued that a poor quality relationship between

female subordinates and primarily male superiors was the primary cause of the

low number of female international assignees.

The results from the study were not conclusive, mainly due to problems

with the sample make-up (the survey targeted women who were on an inter-

national assignment, together with their current supervisors and hence was

unable to address the issues surrounding the LMX of potential women

assignees and their supervisors). The focus on the informal interpersonal rela-

tionship between potential women assignees and their supervisors is, however,

significant in the light of research into the role of the home country selection

process as a key determinant of low female participation rates.

Home country selection systems

Until recently, research into women in international management had focused

on issues outside of the organisation’s control, namely, personality, family and

host country national issues. The role of organisational selection processes as a

determinant of participation rates was mainly overlooked. However, an exten-

sive body of literature from both North America and Europe highlights the per-

vasive influence of discrimination in selection processes. This work addresses

the issue of ‘fit’ from both a sociological and a social psychological perspective.

From a sociological perspective, selection is seen as a social process, to be used

by those in power within the organisation as a means of determining the con-

tinuing form of the organisation by recruiting and promoting only those indi-

viduals who most closely conform to organisational norms. Individuals would

therefore be judged more on the basis of their acceptability than their suitability

(Jewson and Mason, 1986).

Social psychological studies explore the role of individual values in

perpetuating discrimination in selection through the use of schemata and

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stereotyping (for example Futoran and Wyer, 1986; Heilman, 1983). Such studies

suggest that individual selectors will develop schemata of ideal ‘jobholders’ and

will use them as a yardstick against which all prospective candidates are measured

during the process of selection. The less specific the information concerning the

vacancy and/or the candidate, the more likely selectors are to use schemata and

stereotypes. Given the emphasis on ‘fit’ as a key determinant of selection decisions

in both the sociological and social psychological literature, the ‘gender-blindness’

of research into expatriate management represents a significant gap for any study

trying to assess the role of selection systems for international assignments on

women’s representation rates. Empirical survey results indicate that over 90% of

expatriates are male. Previous research has argued that occupations where there is

a predominance of one gender over the other can lead to gender-typed ‘job-

holder’ schemata in the minds of selectors (Perry et al., 1994).

The gender of expatriates is, however, rarely acknowledged as a signifi-

cant factor in the literature on expatriate selection. Descriptive and prescrip-

tive studies of the features of expatriation therefore tend to perpetuate the

profile of an expatriate manager as being male and married with a trailing

spouse. Discussions of appropriate selection, preparation and repatriation

systems subsequently tend to reflect both a lack of appreciation of gender-

related needs and a reluctance to acknowledge the possibility of alternatives

to the prevailing model. The ‘gender-blindness’ of the majority of research

into expatriate management is reflected in feminist discussions concerning

the patriarchal nature of organisations. They argue that the organisational

population has traditionally been predominantly male and that therefore the

holders of organisational power, in terms of shaping structures and beliefs,

have been almost exclusively male. The need to acknowledge this perspective

is critical as gender-role assumptions have been seen to be important com-

ponents of decisions about ‘fit’ (Alimo-Metcalfe, 1993, 1995; Rubin, 1997;

Webb, 1991).

Harris’ (1999, 2002) research into the lack of women in international man-

agement highlighted the role of the home country selection process as a critical

determinant of participation rates. Through an examination of the literature

and interviews with major UK-based international organisations, she developed

a typology of international manager selection systems (see Figure 14.2).

The implications of these variations in selection systems for international

assignments in relation to women’s participation are as follows:

• An open/formal system would see greater clarity and consistency in

thinking about international managers and a greater link with formal

criteria. This system was seen to provide the greatest opportunities for

women to be selected for international manager positions.

• A closed/formal system was seen to be similar to an open/formal system.

However, the lack of personal contact with the candidate and the fact

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that the field of potential applicants is determined by the selector/s,

with the attendant risk of omission of suitable candidates, may enable

the use of individual preferences by selectors in terms of nominating

individuals.

• An open/informal system would decrease clarity and consistency and

linkage with formal criteria and was therefore seen to provide less

opportunity for women to enter international management positions,

as selection decisions would be more subjective.

• A closed/informal system was seen to be the worst situation for equality

of opportunity in this area, mixing as it does the potential for subjec-

tivity on the part of the selectors and lack of access on the part of poten-

tial candidates.

Case study investigations carried out as part of this research indicated that the

type of selection system in use for international assignments did affect the

number of women in international organisations. In organisations with

roughly equal numbers of men and women at entry and junior management

levels and operating in similar overseas environments, the main differentiating

factor in participation rates for male and female expatriates was the type of

international selection system in operation.

Women’s Role in International Management

375

FIGURE 14.2

FORMAL INFORMAL

OPEN • Clearly defined criteria • Less defined criteria

• Clearly defined measures • Less defined measures

• Training for selectors • Limited training for selectors

• Open advertising of vacancy • No panel discussions

(internal/external) • Open advertising of vacancy

• Panel discussions • Recommendations

CLOSED • Clearly defined criteria • Selectors’ individual preferences

• Clearly defined measures determine criteria and measures

• Training for selectors • No panel discussions

• Panel discussions • Nominations only

• Nominations only (networking/reputation)

(networking/reputation)

Typology of international manager selection systems

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4 ADVANTAGES FOR FEMALE INTERNATIONAL

MANAGERS

In the light of the many disadvantages faced by women international managers,

the advantages are harder to define. Adler (1993) summarises some potential

advantages from her research studies as follows:

• Visibility. Many of the women in Adler’s study of expatriates in the Pacific Rim

countries reported their high visibility as an advantage, as foreign clients were

curious about them and anxious to meet them. They were also more easily

remembered.

• Interpersonal skills. The female managers in the study also discovered a number

of advantages relating to their interpersonal skills; local men, for instance,

appeared to be able to talk to them more easily than to male expatriates about

a wide range of topics.

• Novelty. Because of the rarity of women in international management positions,

many foreign clients assume that the women who are sent must be ‘the best’.

This situation is likely to change with the appearance of more and more inter-

national women managers.

• Domestic help. Some of the role overload experienced by female managers in general

can be alleviated on international assignments by the availability of domestic help.

Avenues for change

Increased participation for women in international management is a possibil-

ity if both organisations and women adopt a flexible approach to international

assignments. Evidence that international assignment experience is a prerequi-

site for progression to senior management makes the minimal representation

of women a fundamental equality issue for any organisation operating in the

global arena. Equally, from a business perspective, failure to utilise and develop

a significant and growing proportion of their human resources in an increas-

ingly knowledge-based global economy will result in organisations losing a

vital component of competitive advantage. Evidence of widespread use of

closed/informal systems for selection to international management assign-

ments raises serious concerns with regard to ensuring objective and unbiased

decision-making in this process. Organisations need to:

1 Become more strategic in their planning for international assignments in order

to prevent ad-hoc and informal placements which may replicate an existing

expatriate profile and prevent the adoption of alternative approaches.

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2 Adopt a sophisticated approach to the determination of criteria for effective

international managers. Competencies should be developed and debated in as

wide and diverse a forum as possible.

3 Monitor their selection processes for international management assignments to

ensure access is not unfairly restricted to specific sections of employees. This

includes auditing career development systems leading up to international

assignments for potential unintended bias.

4 Run selection skills training for all employees involved in selection for interna-

tional assignments. This training should include raising awareness of the advan-

tages of using diverse groups of employees on international assignments and

challenging existing stereotypes relating to women and other non-traditional

groups.

5 Avoid assumptions as to the likely motivation of women to accept overseas

assignments and the likely success rate of women expatriates.

6 Provide flexible benefits packages which will cater for single employee and dual-

career couples as well as the traditional ‘married male with family’ expatriate.

7 Define the international assignment in such a way that the chances of success

are high: that is, establishing full-status, permanent assignments.

8 Provide full support for alternative arrangements for the domestic aspect of

international assignments which might influence women’s perceptions of

accessibility.

9 Work with relocation companies to ensure the female expatriate’s new residence

will facilitate the possibility for social interaction.

For women themselves, there are a number of important action points, as follows:

1 Adopt an ‘educative’ approach to organisational resistance to sending women

abroad; do not assume it is the result of direct prejudice.

2 Ensure excellence in the professional field to aid selection. Also, try to be in the

right place at the right time.

3 Address private life issues directly.

4 Use networks wherever possible.

5 Ask for international assignments!

The growth of international business is a continuing phenomenon and, by its

nature, will need to incorporate the most talented human resources. It is

unlikely that these will be found within the ranks of male employees only.

Adler (1993) looks to the transnational corporation as a fitting role model in

terms of hiring and promoting women to significant international manage-

ment positions as a result of competitive advantage considerations. These

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trends indicate that women will take a more active part in international

management in the future. The question is: how rapidly and to what extent?

5 SUMMARY AND CONCLUSIONS

This chapter has looked at the process of international management as it relates

to women, taking into account individual, organisational, and socio-cultural

perspectives. It has examined the impact of increasing internationalisation of

business in terms of the types of skills required for effective international man-

agers and has contrasted the theory with the actual practice adopted by many

MNCs. The extent to which international experience will become a prerequisite

for access to senior management positions has also been debated.

The role of women in international management was reviewed by looking

first at major influences affecting female managers’ representation and contri-

butions at home country level. Secondly, additional barriers facing potential

female expatriates were examined, including host country cultural barriers and

problems of dual-career couples.

Opportunities for increased representation of women in international

management were highlighted by research evidence contradicting the myth

that women would not be successful in international assignments. The extent

to which women will participate in this arena depends, however, on the will-

ingness of both the organisation and the individuals involved to adopt a flex-

ible and positive approach to existing constraints.

This chapter concludes the third part of this book. In the fourth and final

part, we will change our focus to the collective aspect of the employment rela-

tionship by looking at industrial relations in both a comparative and an inter-

national perspective.

6 DISCUSSION QUESTIONS

1 What are the key contributing causes of the small number of women on inter-

national assignments? How do these interrelate?

2 What type of research could you undertake to identify the organisational and

individual factors influencing women’s participation rates in international

management?

3 Suggest a plan for an organisation to improve the participation rate of women

on international assignments.

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4 What do you think organisations should do to address dual-career and family

constraints to international mobility? Can an organisation implement a stan-

dardised global policy in this area? How might an organisation identify and

address differing socio-cultural norms concerning men and women’s roles in its

countries of operation?

7 FURTHER READING

••

Adler, N. (2002) ‘Global Managers: No Longer Men Alone’,

International Journal of

Human Resource Management

, 13(5): 743–760.

This paper updates Adler’s earlier (1987) work on how different models of diversity in organi-

sations affect the participation rates of women in international management. Four approaches

are outlined, with the most beneficial being seen as the ‘leveraging differences’ philosophy.

From this perspective, the organisation values the unique contributions of both men and

women and believes in positive synergies.

••

Caligiuri, P.M. and Cascio, W.F. (1998) ‘Can We Send Her There? Maximizing the

Success of Western Women on Global Assignments’,

Journal of World Business

33(4): 394–416.

This is a practical article which examines the factors affecting the performance of Western

women on global assignments. The authors identify four categories of causal agents that affect

female expatriates’ success: their individual characteristics, their organisations, their families

and the host nationals with whom they work. Each category is subdivided into key factors. Each

factor is accompanied with a strategy for multinational organisations to maximise the likelihood

of success of their female expatriates.

••

Caligiuri, P. and Lazarova, M. (2002) ‘A Model for the Influence of Social Interaction

and Social Support on Female Expatriates’ Cross-cultural Adjustment’,

International

Journal of Human Resource Management

, 13(5): 761–772.

This article looks at an under-researched topic, namely, the way in which female expatriates can

develop and use relationships to assist with cross-cultural adjustment. The model developed in

the paper includes three predictive components affecting cross-cultural adjustment. The first

includes the factors affecting whether a woman is able to form relationships on the expatriate

assignment. The second component includes the various sources of social interaction and social

support. The third describes the nature of a female expatriate’s social interaction and social sup-

port. The article also gives practical hints to organisations to help women adjust.

••

Harris, H. (2002) ‘Think International Manager, Think Male: Why Are women not

Selected for International Assignments?

Thunderbird International Review

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175–203.

This article summarises research to date on women in international management. It notes that

explanations for this phenomenon have centred on women’s personal characteristics,

home/family circumstances, organisational support and host country nationals’ attitudes. This

study examines the status of women in international management from a United Kingdom

Women’s Role in International Management

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perspective. A key finding arising from the study is the critical influence of selection systems

for international assignments where the predominant use of closed, informal selection

processes for international assignments was seen to create unintended gender bias in

recruitment.

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PART 4

Industrial Relations: A Comparative and

International Perspective

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15 The Transfer of Employment Practices

Across Borders in Multinational Companies

Tony Edwards

1 Introduction 389

2 Why transfer practices? 391

3 The four influences framework 394

4 Conclusion 406

5 Discussion questions 407

6 Further reading 407

Acknowledgements 408

References 408

1 INTRODUCTION

This first chapter of Part 4 links our discussion in the other parts of the book

to the collective aspect of the employment relation: industrial relations.

Research in the area of industrial relations has typically developed in relative

isolation from research into comparative and international HRM and inter-

national management and business. However, the authors in this part of the

book make a conscious attempt to ensure the relevance of their analysis to

management of MNCs.

It is commonly argued that one of the reasons why multinational compa-

nies (MNCs) are significant is that they have the capacity to implement exper-

tise in their operations in one country that was developed in operations in

CHAPTER CONTENTS

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another. One element of this is the transfer of employment practices across

borders. This capacity can be seen as a potential source of higher efficiency in

MNCs compared with firms based solely at the national level. However, many

of those who work for MNCs, including some managers, may see the transfer

of practices as a challenge since the process can cause a shift away from prac-

tices that have become accepted at the national level. Employee representa-

tives, in particular, may see their interests as being threatened and may be able

to block the introduction of practices that originated elsewhere. Thus the

process of transfer can be contested, even blocked in some cases, and can also

create fraught relations between different organisational groups.

The troublesome nature of such transfer arises in part from the way in which

employment practices are ‘embedded’ in distinctive national contexts.

Employment practices, like any other social custom, are strongly influenced by

the context in which they operate. The political system and the dominant polit-

ical traditions within it shape several key aspects of the employment relationship,

notably the strength of organised labour and the nature of employment regula-

tions. The legal system, itself partly the product of the political system, not only

constrains the range of courses open to management in devising procedures in

areas such as employee representation, but also plays a part in conditioning the

expectations of organisational actors in this area. Concomitantly, the nature of

key institutions in the labour market also limits the options available to man-

agement in employment relations and further contributes towards the creation

of a set of norms and values. The existence of a set of values concerning work and

organisations – often referred to as culture – is the most commonly cited source of

national distinctiveness in employment relations (e.g. Tayeb, 1996, see also

Chapter 6). The political, legal and institutional context gives rise to the emer-

gence of dominant values in societies, and these are central to the character of

the employment relationship (see Chapter 5 for a more extensive discussion).

Given that the context and the values differ markedly from country to country,

transferring practices across diverse social systems is bound to be a tense process

In this chapter we tackle several of the key aspects of the transfer of

employment practices within MNCs. One initial question is that, given that

such practices are embedded in particular national contexts, why do many

MNCs seek to transfer practices to quite different national contexts? In address-

ing this, three broad explanations that are evident in the academic literature

are reviewed and the strengths and weaknesses of each of these are assessed.

Identifying the weaknesses points to the need for a fourth, integrated approach

which can explain a number of aspects of the transfer of employment practices,

such as in which countries MNCs’ practices that are transferred are likely to

originate, how we can explain variations between MNCs in terms of the extent

of transfer, and the likely nature of the relations between different groups

within MNCs in the transfer process. To this end, the fourth approach elabo-

rated here consists of a framework of four key influences. The chapter ends

by examining the consequences of the transfer of practices for national systems

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of employment, addressing in particular whether they contribute to the

convergence of these systems.

2 WHY TRANSFER PRACTICES?

The complex nature of the transfer of employment practices begs a key ques-

tion: why do many senior managers look to engage in such transfer at all? Why

do they not simply take a highly decentralised approach, allowing actors in the

various countries in which the firm has subsidiaries to determine the type of

employment practices that are compatible with the particular national con-

text? Some do, of course, seeing the pressures of ‘multi-culturalism’ (Ghoshal

and Bartlett, 1998) as significant enough to warrant a hands-off approach from

senior management to employment practice. This nationally responsive style

was termed ‘polycentric’ by Perlmutter (1969) more than 30 years ago.

Perlmutter (1969: 13) argued that the polycentric style recognises that ‘since

people are different in each country, standards for performance, incentives and

training methods must be different’.

The rational approach

There are three broad categories of explanation that have been used to explain

the attractiveness of transfer. The first, which I term the rational approach, sees

the transfer of employment practices as a potential source of enhanced effi-

ciency. For many writers on HRM in MNCs, the strength of competition in the

global product markets that MNCs tend to inhabit means that a firm is missing

an opportunity to enhance its own efficiency if it does not engage in the shar-

ing of ‘best practice’. One particularly influential book about the multinational

company that takes this rational approach is Ghoshal and Bartlett’s (1998)

Managing across Borders. In this work, the authors argue that the mature stage of

evolution for a firm which spans many different countries is the ‘transnational’

form, which is based on an ‘integrated network’ of plants sharing expertise and

knowledge with each other (see Chapter 2 for a further discussion). The transfer

of employment practices is a central part of such a firm. The authors go so far

as to argue that ‘in the future, a company’s ability to develop a transnational

organisational capability will be the key factor that separates the winners from

the mere survivors in the international competitive environment’ (1998: 299).

The rational approach is also evident in some of the work that examined the

transfer of Japanese employment practices in MNCs from Japan as they

expanded into Europe and North America in the 1980s and 1990s. Abo (1994),

for example, saw the dilemma facing senior managers in Japanese firms

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concerning the management of employment relations in their foreign

subsidiaries as essentially a trade-off between the competitive pressure to utilise

those practices that formed a part of successful production at home on the one

hand, and the need to adapt to the exigencies of local conditions on the other.

The contribution of this approach stems from the recognition of the poten-

tial advantages that can arise from transferring employment practices. However,

the rational approach risks downplaying the contested nature of transfer. The

balance between adopting policies that are both globally integrated and locally

sensitive tends to be portrayed as a technical matter, on which senior managers

simply need to come to a reasoned judgement. Where some recognition is given

to the possibility that there will be differences of view on the desirability of

transferring practices, as in Ghoshal and Bartlett’s (1998) work, senior managers

are seen as having the ability to resolve any problems through communication

and persuasion. Ghoshal and Bartlett talked of the need to create an appropri-

ate ‘management mentality’, for example. However, as a range of studies of

MNCs has revealed, the process of transfer across borders is an intensely politi-

cal process, in which a number of organisational actors have some influence.

A good example of research which emphasises the political nature of transfer is

Belanger et al.’s (1999) study of ABB, a company cited by Ghoshal and Bartlett

themselves as a ‘classic transnational organisation’. Belanger and his colleagues

argued convincingly that Ghoshal and Bartlett’s account of ABB downplays the

tensions between groups which are a key feature of organisational life in multi-

national companies, and they demonstrated that international coordination is

strongly contested within the firm.

The culturalist approach

The culturalist approach is the second form of explanation as to the reasons

why MNCs transfer practices across their sites in different countries. Many

argue that the transfer of practices is not so much a process governed by the

forces of competition as one shaped by the legacy of national and corporate

cultures. Writers from this approach commonly draw on Hofstede’s (2001)

much-cited work, originally published in 1980 with an updated version more

recently, in which he distinguished a number of dimensions along which

national cultures differ (see Chapter 6 for a discussion of this and other frame-

works of cultural dimensions). The culturalist approach raises two important

points concerning the transfer of practices. First, it provides an explanation,

albeit partial, for why MNCs must adapt their desired practices to local condi-

tions rather than adopting common practices across their operations.

Hofstede’s own study of IBM showed that even in a company with a strong

company culture, there were marked variations in employee values at the local

level. An extension of this idea is the fact that national cultures inform the

behaviour of MNCs in a different sense: MNCs take aspects of a national culture

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with them when they go abroad. In other words, their corporate culture is

informed by the national culture in the original country. Thus some

researchers have sought to explain the transfer of home country practices to

foreign subsidiaries through this lens (e.g. Ngo et al., 1998).

The value of this approach is in recognising that transfer is more than just a

question of competition and rationality. Rather, national cultures differ and these

differences endure. However, it suffers from a number of problems. The key prob-

lem arising from the heavy reliance on a small number of typologies – primarily

Hofstede’s but also to a certain extent that of Trompenaars and Hampden-Turner

(1994) – means these studies are open to the same criticisms as the original works

themselves. In particular, this approach tends to fail to locate cultural values in a

convincing social context. As noted above, dominant values and attitudes in

a society emerge in a particular political, legal and institutional environment

(see also Chapter 6), yet the culturalist approach fails to acknowledge the full force

of these influences. Moreover, while the culturalist approach says something

about how tensions can arise during the process of transfer, it says little about how

political activity is played out within organisations.

The political approach

The third approach, which I term the political approach, is one that looks at the

way that actors in organisations can be willing to engage in the process of

transfer as a way of obtaining legitimacy and to advance their own interests. A

range of actors can seek to protect or advance their own positions by initiating

or engaging in the transfer of practices. For example, those at the HQ may look

to raise their status within the organisation by portraying themselves as key

agents in controlling the transfer of practices. For those in senior positions in

firms producing a component or providing a service to other firms, ensuring

that their operational units are sharing practices with one another may also

assist senior managers in their quest to obtain legitimacy – and consequently

orders – from potential customers since creating an image of a networked

‘transnational’ is likely to be viewed favourably by potential customers. Those

in key managerial positions in the subsidiaries may be keen to engage in shar-

ing practices with their counterparts in order to portray themselves as key con-

tributors to the network. Acting as ‘good corporate citizens’ in this way may be

a way of advancing an individual’s claims for promotion or for a pay rise

(Edwards, 1998). Others who work in the subsidiaries of MNCs, particularly

employees and their representatives, may be willing to go along with transfer-

ring practices if they fear that not to do so would result in their unit being less

likely to receive future investment from the HQ. Of course, as we noted at the

outset, some actors may also seek to block diffusion if they perceive it as chal-

lenging their interests (see Broad, 1994, for a case study of a Japanese trans-

plant in the UK). Hence, diffusion is a contested and political process.

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A key contribution of this approach is to recognise that the motivation

that organisational actors have to engage in the transfer of practices is more

than just a rational assessment of the potential gains to the organisation as a

whole. However, the focus on the micro-politics of the organisation on its own

does not tell us much about the influence of the wider ‘national business sys-

tems’ which MNCs transcend and, consequently, is not particularly revealing

in generating an understanding of where the imperative to transfer practices

comes from, nor does it tell us much about the constraints to transfer practices

that are external to the firm.

These three approaches all make a contribution to understanding the

transfer of practices across borders, but on their own each of them offers only

a partial understanding. What is required is a fourth, integrated approach

which does three things: first, recognises the competitive pressures on firms in

international markets and the way these pressures create a commercial interest

in transferring practices (the rational approach); second, analyses the influence

of institutions as well as cultures in shaping the behaviour of MNCs (an

amended version of the cultural approach); and, third, examines the role of

organisational actors in initiating, engaging in, or obstructing, the transfer of

practices (the political approach). This integrated approach, which is based on

four sets of influences, is elaborated upon in the next section.

3 THE FOUR INFLUENCES FRAMEWORK

The framework consists of four key influences on the nature and form of the

transfer of practices across borders. The influences arise from the interaction of,

first, the differences between national business systems and, second, the grow-

ing internationalisation of economic activity. In some cases the impact of one

influence is contrary to those of others, creating a tension; in others, however,

the impact is for one influence to reinforce another. Each of the four influences

is considered in turn.

Country-of-origin effect

The first influence is an enduring ‘country-of-origin’ effect in MNCs. That is,

the country in which the multinational originates creates a distinctive national

effect on management style in general and on the nature of employment prac-

tice in particular. A range of sources indicates that even the largest MNCs retain

strong roots in their home country. Ruigrok and van Tulder (1995: 168), for

instance, examined the geographical distribution of the operations of the

biggest 100 MNCs in the world (ranked by foreign assets) and concluded that

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‘not one of these can be dubbed truly global, footloose or borderless’. Analysis

of data from the UN’s World Investment Report (2001) suggests little has

changed since Ruigrok and van Tulder’s study was published: the transnation-

ality index, which condenses the ratios of foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment into one ratio,

shows that on average around half of the operations of the largest 100 MNCs

are located in the home base. While there are a small number of MNCs which

have a high degree of global spread – mainly those originally based in small

countries such as Nestlé and those formed through a merger of two firms from

different countries such as ABB – these tend to be the exception.

The influence of the home country over a multinational stems not just

from the concentration of assets, sales and employment but also from other

ways in which MNCs are ‘embedded’ in the country of origin. One such source

of a country-of-origin effect is the dominance of home country nationals in

senior managerial positions. The CEO of the vast majority of MNCs is a citizen

of the original country of the firm, while the management boards are domi-

nated by home country nationals. The significance of this lies in the way that

the managerial traditions of the country of origin shape the nature of key deci-

sions. Another source of the country-of-origin effect relates to the way that

firms are financed and governed. We know that financial systems differ

markedly – for example, the fluid and arm’s-length relationship between share-

holders and management in Britain and the USA contrasts with the stable and

close relationship between the two groups in Germany (O’Sullivan, 2000) – and

that MNCs retain close links with banks, stock markets and other financial

institutions at home (Doremus et al., 1998). The logic of this is that the differ-

ing pressures on firms that the divergent financial systems create are carried

over to the international level in MNCs. A further source of the country-of-

origin effect is the concentration of key activities in the home base. In particular,

R&D activities tend to be very home country focused and since national inno-

vation systems differ this will lead to differences by nationality in the nature

of innovations found in MNCs.

There is considerable evidence of the way in which the ‘institutional con-

figurations’ (Hall and Soskice, 2001) in the country of origin of MNCs influ-

ence the style the firm adopts in managing its international workforce. For

instance, the primacy of the rights of shareholders in the financial system in

the USA and the hostility of management to trade unions have created a clear

orientation at the international level towards shareholder interests and a

related hostility to unions among American MNCs (Edwards and Ferner, 2001).

In contrast, other evidence testifies to the link between the way the German

system of corporate governance accords rights to a range of ‘stakeholders’ and

the more consultative management style and pragmatic approach to dealing

with unions in German MNCs (Ferner and Varul, 1999). Crucially, the influ-

ence of the country of origin also shows up in the preferences of MNCs of dif-

ferent nationalities for particular practices. Japanese MNCs, for example, have

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made strenuous attempts to transfer the practices associated with ‘lean production’,

such as teamworking, functional flexibility and ‘single status’ (e.g. Oliver and

Wilkinson, 1992). American MNCs, on the other hand, appear to have trans-

ferred ‘human resource management’ practices, such as performance-related

pay and forms of direct communication, to their foreign subsidiaries (Muller,

1998). Overall, Ferner’s conclusion in his summary of the evidence was that

‘MNCs of different national origins behave in significantly different ways’

(1997: 33), reflecting the importance of institutions in the home country.

In terms of relations between different groups of organisational actors, the

logic of the strength of the country-of-origin effect is that it is actors in the

home country that are likely to be key players in the transfer of practices. Thus

transfer is characterised by a strong authority flow from the centre to the sub-

sidiaries in different countries. Actors in the subsidiaries may adopt a variety of

approaches in responding to this central influence: some may be very willing

to learn from the parent company and implement the practices enthusiasti-

cally; others may question the appropriateness of ‘foreign’ practices being

transferred but grudgingly accept that they should go along with the demands

of the HQ; while yet others may seek to resist the transfer altogether or insist

on practices being adapted. Thus the focus on the role of the country of origin

is also revealing in understanding the political nature of transfer.

The nature of the country-of-origin effect evolves over time. It tends to fall

in significance as a firm engages in international expansion, such as in the case

of a cross-border merger which significantly extends the global reach of a firm.

Moreover, many actors in MNCs, including some at the HQ, will not see a

strong influence from the home country as necessarily an advantage to the

firm and, consequently, may look outside the country of origin for ‘best prac-

tice’. In other words, MNCs do not possess a fixed and rigid national identity

which imposes a straitjacket on organisational actors; rather, national origin

shapes and constrains the actions of these actors but leaves scope for them to

draw on practices operating in other countries.

Dominance effects

Given that actors have scope to observe and implement practices from coun-

tries other than the country of origin, what influences how they go about this

process? A 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 ‘borrowing’ of elements of that busi-

ness system by firms in other countries. Smith and Meiskins (1995: 255–256)

argue that the hierarchy of economies within the international system gives

rise to ‘dominance effects’; at any one time, they argue, countries ‘in dominant

positions have frequently evolved methods of organising production or the

division of labour which have invited emulation and interest’. In terms of the

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impact on the transfer of employment practices, the logic of the ‘dominance

effects’ argument is that such transfer is not solely created by the legacy and

force of institutions, but is also shaped by competitive pressures at the inter-

national level.

For much of the post-war period it was the American economy which

appeared to be the most influential. In a context of political hegemony and

industry in the USA, which had emerged from the war relatively unscathed

compared with its counterparts elsewhere, the American business system

exerted a significant, albeit contested, influence over the form of restructuring

in Europe and Japan. During the 1980s and early 1990s, however, the Japanese

economy was widely perceived to be the dominant power, and writers and

practitioners alike referred to the Japanese model in general, and lean produc-

tion in particular, as providing the solutions to common organisational prob-

lems. Towards the end of the twentieth century, however, the prolonged

stagnation in Japan and the resurgence of the US economy arguably led to a

renewal of the influence of the American business system.

In its simplest form the use of the concept of dominance is open to a num-

ber of lines of criticism. First, it rests on an assumption that there exist marked

differences in rates of economic growth between the major developed

economies; in fact, these differences are not as great as is often assumed. For

instance, while the 1970s and 1980s were seen as a period of economic decline

by many in the US, the growth rate of the American economy was actually

higher than that in Germany, Sweden and the UK. Only compared with the

Japanese economy was there a marked difference and even this was less signifi-

cant than is often supposed (see, for example, Hall and Soskice, 2001). Second,

even where there are significant differences in economic performance between

countries, only a part of this can be explained by divergences in forms of eco-

nomic organisation. Some of the explanation lies in the process of ‘convergence

and catch-up’. That is, particularly rapid economic growth in an economy is

often due in large part to a recovery from an adverse shock or the more inten-

sive use of existing resources rather than the result of key features of the

national business system. It is widely accepted that this factor explains part of

the rapid levels of economic growth found in the so-called ‘Asian Tiger’

economies prior to 1997. Third, the notion of dominance might imply that a

national business system is characterised by a homogeneous set of structures

and practices that operate across firms, and that companies in other countries

can identify and seek to emulate these. This is, of course, not the case; all

national business systems are characterised by a degree of intra-national variety.

Despite these criticisms, the concept of dominance retains some utility.

When thought of as a rough measure of management ideology and the way

that the perceptions of actors creates a dynamic for change and diffusion, it

adds to the understanding of the process of transfer. Specifically, actors within

MNCs can perceive the diversity of employment practices that they experience

across national systems as an opportunity to advance the competitive position

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either of the firm as a whole in relation to other firms, or of the unit in which

they work in relation to other units within the firm. There are thus traces here

of the rational approach. Moreover, actors can utilise the notion of dominance

to advance their own positions within a firm. For instance, managers in the

American operations of European MNCs may use their knowledge and famil-

iarity with the current dominant business system to develop an international

role within the firm. In other words, dominance effects also shape the politics

of transfer.

A part of the significance of the notion of ‘dominance effects’ is that it sug-

gests that the flow of practices will not only be from the home country to the

firm’s operations in other countries. As we saw in the previous subsection,

there certainly is evidence of the country-of-origin effect leading to transfer

occurring in this direction, and we might expect this to be most common in

MNCs from a dominant country since the two effects reinforce one another.

However, in the case of MNCs from a developing economy, or a developed

economy which has been performing poorly, dominance effects will challenge

the country-of-origin effect. The possible result is that practices that are trans-

ferred across a multinational may originate in the foreign subsidiaries. Indeed,

there is a growing body of evidence that such ‘reverse’ transfer does occur and

that it is shaped by the notion of dominance. The case study illustrates this

process, and demonstrates the dynamic and competing influence of the country-

of-origin effect and dominance effects.

Case study: Swedco

The issue of the direction in which practices are diffused across a multina-

tional’s operations is particularly interesting in the case of Swedish MNCs. The

small size of the domestic economy has meant that in order to grow, many

firms became multinational at a relatively early stage in their development

and subsequently became highly internationalised. Thus, compared to MNCs

of most other nationalities, the domestic operations of Swedish MNCs

comprise a small proportion of their total sales, assets and employment.

Moreover, the nature of the Swedish system of employment relations – the rel-

atively highly centralised system of bargaining; the strength of union organisa-

tion and high level of density; the structures promoting co-determination and

tradition of cooperation between management and labour – raises the issue

of how such a distinctive system influences a firm’s approach at the interna-

tional level where the structural supports for such practices are much weaker.

The issue was at the heart of a recent case study of a Swedish multi-

national. Swedco is a highly internationalised firm providing IT and commu-

nications services and equipment for other firms. It employs tens of

thousands of employees, approximately half of whom are outside Sweden,

while 95% of the firm’s sales are made abroad. The case study involved

research into the Swedish, Belgian and British parts of the firm and sought to

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address the influence of the Swedish business system over employment

relations in the firm and the role of the transfer of practices in reinforcing or

eroding this influence.

There was evidence of a distinctively Swedish element to the manage-

ment of the firm’s international workforce, something which showed up in a

number of respects. First, in the international context, Swedish workers oper-

ate with relatively little direct supervision; indeed, there is no direct transla-

tion in Swedish for the word ‘supervisor’ (Anderson, 1995: 72). Managers at

the HQ of Swedco described attempts to spread a ‘democratic’ approach to

decision making throughout the organisation. As one put it: ‘I want to let my

guys loose. I don’t want to control them and stand behind their backs. This

is typically Swedish, to be a coach.’ Second, Hedlund (1981) has argued that

in Swedish firms it is acceptable to ‘bypass the hierarchy’ in that organisa-

tional actors do not feel constrained by formal authority relationships.

Accordingly, one of the British managers claimed that:

‘the company encourages a Nordic approach to openness. Swedes think

nothing of jumping the hierarchy to put forward their ideas.’

Third, the tradition of seeking agreement through compromise and negotia-

tion – what Anderson (1995: 76) refers to as the ‘quest for accord’ – was also

evident at the international level in Swedco. One of the Belgian managers

argued that this style clashed with what he was used to:

‘You cannot always agree or compromise. Sometimes you have to say no. In

Belgium, we raise our voices, we explode sometimes. But Sweden says this is

something you must not do.’

Fourth, the Swedishness of the firm shows up in the stability of ownership.

Unlike most big American and British firms which have fluid ownership struc-

tures involving a large number of shareholders each holding a small propor-

tion of the total stock, Swedco has three large shareholders who control

nearly three-quarters of the voting shares and have done so for many years.

Consequently, in an industry characterised by significant restructuring in

recent years involving a number of ‘hostile’ take-overs, Swedco has expanded

internationally by ‘greenfield’ investments and through a series of collabora-

tive joint ventures and ‘friendly’ acquisitions.

This evidence of a ‘country-of-origin effect’ is very significant; even in a

highly internationalised MNC the nature of the domestic business system

shapes the management of the international workforce. However, the evi-

dence also indicated that the country-of-origin effect is being eroded as

senior management seeks to draw on practices originating in other business

systems. This process was evident in two areas. The first of these is the devel-

opment of ‘flexible’ or ‘variable’ compensation systems. An international

policy-working group involving HR managers from across Swedco has recently

introduced bonus systems that are linked to individual and company perfor-

mance. In addition, for very senior managers, there is a ‘Short Term Incentive

Plan’ which rewards the achievement of immediate goals. Moreover, four

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years ago all employees were given the right to subscribe to a convertible

debenture scheme, something that about 40% of staff world-wide have

taken up. Perhaps most significantly, an individual performance-related pay

scheme, in which an employee’s performance is assessed against specified

targets, affects all employees across the group world-wide. These variable

forms of compensation appear to have much in common with practices

which have become popular in America and Britain during the last two

decades.

A similar process of adopting ‘Anglophone’ style practices was evident

in relation to management development. In recent years the HQ has made a

concerted effort to develop a cadre of managers recruited from across the

MNC. Subsidiaries have been encouraged to submit suggestions for indivi-

duals who should be considered for promotion to positions elsewhere in the

firm, a group known as ‘high potentials’. The identification of such ‘high

potentials’ as part of an international cadre of managers is, according to

Ferner and Varul (1999), a common trait of British and American MNCs.

More generally, in Swedco the British operations appear to have been parti-

cularly influential in the formation of policy on management development.

The manager of the firm’s ‘Management Institute’ indicated that the UK sub-

sidiary and UK universities have been influential in developing policy on train-

ing programmes and management development:

‘When I am developing a training programme for managers, I always include the

UK. Firstly, it ensures I get the language right but, secondly, there are a lot of

good training and management development ideas in the UK that I would like

to benefit from. I always bring someone in from the UK site on to the team. We

are also developing links with the UK universities such as Cranfield and LSE.’

In summary, while there is evidence of the country of origin being influ-

ential over the way Swedco manages its international workforce, there is also

evidence that senior managers in the firm perceive the USA and the UK as

providing practices in the area of performance management and manage-

ment development that were seen as being desirable. This process of reverse

transfer – arguably reflecting the perceptions of key actors of dominant

systems – can be seen as constituting an erosion of the country-of-origin effect.

For a more detailed discussion, see Hayden and Edwards (2001)

International integration

The third element of the framework concerns the extent to which MNCs are

internationally integrated, defined as the generation of inter-unit linkages

across borders. A number of recent developments has created scope for MNCs

to build stronger linkages between their international operations. In relation to

product markets, differences in consumer tastes appear to have narrowed – a

process to which the advertising and marketing strategies of MNCs themselves

have contributed – while there has also been a trend toward deregulation of

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many markets, making it easier for firms to realise synergistic linkages between

their subsidiaries. Coupled with these changes have been improvements in

communications and transportation which have facilitated international coor-

dination. Accordingly, many MNCs have strengthened the inter-unit linkages

by developing new structures for their international operations. In particular,

many have moved away from country-based structures towards organising

themselves around global divisions or regional blocks, so that comparable

operations are linked together. For example, IBM’s operations are not struc-

tured along the lines of the various countries in which the firm operates, such

as IBM China or IBM Canada; rather they are organised into global divisions,

such as software and services, and regional blocks, such as Europe, Middle East

and Africa (EMEA) and North America.

The replacement of country-based structures with these types of inter-

national management structures appears to have been most marked within

Europe. The process of European integration has created a product market

which is largely free from formal barriers to trade, while aspects of the regula-

tion of other issues, such as competition, industrial and social policies, have

also become harmonised. Perhaps most significantly, the single currency has

increased the transparency of costs and prices across Europe and created a large

Euro capital market. Thus Marginson has argued that Europe is ‘an economic,

political and regulatory space whose character and dynamic is distinctive when

set against wider, global, developments or those in the other two “triad”

regions’ (2000: 11). Consequently, many MNCs have created an influential

European aspect to the structure, with the potential to develop Europe-wide

policies in HR.

The developments described above in relation to the markets are uneven,

however. Many sectors remain localised in that they are strongly influenced by

nationally distinct customs or regulations. Commonly, these sectors are ones

in which MNCs are generally absent, such as the provision of personal care and

hairdressing. In some other sectors which are still influenced by national cus-

toms or regulations, MNCs are present but tend to adopt management struc-

tures based around the countries in which they operate, and there are few

inter-linkages between their operations. Examples are electricity and retail

banking. In contrast, the scope for achieving a high degree of international

integration is much stronger in sectors like textiles, automotive, IT services and

investment banking, where units are strongly linked to their counterparts in

other countries.

This integration can take two forms, each of which has important impli-

cations for employment relations. International integration can take the form

of the segmentation of operations across countries, with those in one country

providing components or services to those in another. Examples of this are the

producers of branded sports and fashion wear which subcontract production to

nominally independent, but in fact closely controlled, firms mainly in South-

east Asia. These arrangements, through which production is both internationalised

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and externalised, are often referred to as ‘global commodity chains’ (Gereffi,

1999). Another set of examples of firms which have segmented the production

or service provision process are the airlines which also use bases in Asia, com-

monly India, to carry out routine IT services such as data entry and processing.

In these cases, the various units across the world are performing quite distinct

functions, leading to variations in the type of HR practices that the firm

deploys. Thus there will be little incentive for such firms to transfer practices

across sites. International integration can also take the form of the standardis-

ation of operations, with the units in different countries carrying out very similar

activities. Examples of this are the automotive and electronic manufacturers,

which have developed increasingly standardised products and, relatedly, simi-

lar manufacturing techniques. Investment banks, similarly, have sought to

develop a unified set of services to clients who are often multinationals them-

selves. Given that the nature of the operations in different countries have

important similarities, there is considerable scope for such firms to transfer

practices across borders.

In summary, the pressures to achieve international integration reflect the

nature of competition in particular sectors. We have seen that the scope for

transfer is constrained in MNCs which operate in sectors that are characterised

by nationally specific tastes or regulations. Moreover, in MNCs which have seg-

mented their international operations, there will be little incentive to transfer

practices across borders. In contrast, in those sectors in which MNCs have

developed standardised operations, the transfer of employment practices is

likely to be more attractive to management. It is in such ‘standardised’ MNCs

that the forces of the country of origin and of dominance will be felt most

acutely, whereas for the sectors which are constrained by national differences,

and those in which MNCs have developed ‘segmented’ international opera-

tions, the influence of the country of origin and of dominance will be more

muted. The strength of these forces is not determined only by the extent and

form of international integration, however, but also by the characteristics of

the various host country employment systems in which MNCs operate.

Host country effects

There are a number of aspects of a national business system which can limit

the scope a multinational has to transfer practices. The system of employment

law to a greater or lesser degree poses constraints to employers in implement-

ing practices at workplace level. Moreover, the nature of key labour market

institutions, such as unions and works councils, presents similar limitations,

both directly through affecting the form of employee representation, and indi-

rectly through the impact these institutions are able to exert on other areas of

employment relations. There are also cultural barriers to transferring practices

to host environments. Broad’s 1994 study of a Japanese transplant in the UK,

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for instance, found that the parent company’s insistence that the plant operate

the system termed ‘High Involvement Management’ clashed with the expecta-

tions of British managers who were not used to devolving responsibility for

operating decisions to shop-floor workers. This illustrates the way in which the

institutional and cultural features of national business systems constrain the

scope for transfer, and the way in which actors in host countries may be able

to block transfer when they see it as challenging their interests.

In other cases, however, the constraints may be only partial. In many

cases, a practice may be adapted to fit the new national business system as it is

transferred. In this way, a particular practice ‘may not operate in the same fashion

in the recipient as in the donor unit but, rather, may undergo transmutation as

actors in the recipient seek to adapt it to pre-existing models of behaviour,

assumptions and power relations’ (Edwards and Ferner, 2000: 13). One exam-

ple is the adoption by many US MNCs of Japanese-style lean production. These

practices have been implemented in a distinctive system of employment

relations, involving a reliance on the external labour market and a pronounced

hierarchy-within-work organisation. Maccoby (1997: 165) argues that US com-

panies have concentrated on the use of lean production to eliminate waste and

defects, and downplayed the Toyota-style emphasis on the creation of ‘trust’

and facilitating ‘learning’.

While the peculiarities of the host business systems may present con-

straints to transfer, whether absolute or partial, these constraints will often be

open to the influence of large MNCs. By appearing to be mobile rather than

dependent on a particular set of operations, senior managers in large MNCs can

pressure governments to relax regulations and prevail upon unions to make

concessions in collective bargaining. Accordingly, Muller’s (1998) study of

American and British MNCs in Germany found that a significant number had

opted out of the systems of sector-wide collective bargaining and vocational

training. In this way, actors in the HQ may be able to break down resistance to

transfer from those at national or plant level.

However, the role of host country effects in the transfer of practices is not

simply a matter of managers at HQ trying to break down resistance. To operate

effectively, a particular practice may be dependent on workers possessing high

levels of skills and knowledge. Without these abilities, organisational actors

may be unable to operate the practice in question. In this case, the host coun-

try is not ‘receptive’ to transfer, but this lack of receptiveness is not due to any

opposition. An example of this is the implementation by Japanese MNCs of

amended versions of lean production in Brazil; the amendments reduced the

requirements for workers to rotate across a range of tasks since the Brazilian

workers tended to lack the breadth of necessary skills (Humphrey, 1995).

Moreover, where resistance to transfer occurs it will not necessarily be con-

fined to the implementation of practices. Resistance can also occur at an ear-

lier stage, namely during the search for practices that have the potential to be

diffused. Where managers at HQ set up mechanisms designed to identify practices

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in one part of the firm able to be implemented in another, and combine this

strategy with establishing competitive relations between different units, actors

at plant level may be reluctant to share their expertise with their counterparts

for fear of undermining their performance within the group. Instead of letting

other plants with whom they are in competition use the practices developed in

their own plant, some may prefer to keep those practices which they perceive

as assisting their performance to themselves. In doing so, they may draw on

the peculiarities of the national business system concerned to obfuscate the

nature of employment practice in their plant.

Thus since the transfer of practices entails the crossing of ‘institutional

divides’ (Morgan et al., 2001), the process of transfer is evidently a highly polit-

ical one. Actors at the centre of MNCs may find that the distinctiveness of host

country systems of employment relations present constraints to the transfer of

practices, although these will sometimes be malleable. Actors at subsidiary level,

on the other hand, may be able to use this distinctiveness to block either the

implementation of practices or the initial search for them. The way in which

these features of host countries complicate the pressure to achieve international

integration is clearly demonstrated in the case of General Motors in Spain.

Case study: General Motors in Spain

During the 1980s many large American firms experimented with the

practices that appeared to lie at the heart of the strong performance of their

Japanese counterparts. In the case of General Motors, a principal way in

which the firm learned about these practices was through the collaboration

with Toyota which began in the early 1980s. The joint venture between the

two firms, termed NUMMI, was significant because it was seen by manage-

ment at GM as a way in which it could learn about Japanese management

practices, and use the joint venture to move away from those practices which

had characterised the company’s North American plants. One important

aspect of this was the emphasis on teamwork, involving groups of operators

working flexibly within teams and taking on shared responsibility for the

quality of their work (see O’Sullivan, 2000). Apparently persuaded that team-

work had potential benefits across its operations, senior managers sought to

transfer it to other locations across the world as part of a standardised pro-

duction system within the company.

In its Spanish subsidiary, as in many others, GM was faced with over-

coming the potential resistance of its trade unions. There are two main union

confederations in Spain: the UGT, which has enjoyed close links with the

Socialist Party (PSOE) and is considered to be moderate; and the communist-

oriented CCOO which has its roots in workplace resistance to Franco’s dicta-

torship (Martinez Lucio, 1998). In addition to union representation, there

exists another channel of worker representation known as the comité de

empresas, or works committees. While formally separate from unions, in

many cases the delegates elected by workers to these committees are also

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union representatives. The dual system of unions and works committees had

to be confronted by GM’s managers in attempting to implement teamwork.

The form of teamwork favoured by management for its Spanish plant

had many common elements with the model operating in its other plants.

The key aspects included: work being organised into teams of between 8 and

15 people; operators rotating across jobs within a team; members of a team

meeting regularly to discuss possible improvements to their work; and ‘the

usual rhetoric about fostering a “team spirit” between workers and the com-

pany’ (Ortiz, 1998: 46). The initial proposals envisaged maintenance workers

being required to engage in ‘mixed teams’ with production workers.

Moreover, the appointment of a team leader by the company was significant

since he or she was to have a role in the appraisal and promotion of mem-

bers of the team.

Towards the end of 1992 managers and unions began the process of

negotiations concerning the introduction of teamwork. The unions were ini-

tially sceptical, expressing concerns about potential job losses, the prospect

of work becoming intensified, the danger of unions being marginalised by

the identification of workers with their teams, and the possibility that work-

ers would not share in the benefits of the resulting higher productivity.

Despite these concerns, and a history of division between the UGT and the

CCOO, the two main union groups did cooperate with management and

managed to negotiate a number of concessions. For instance, teamworking

was to be piloted for a year in the first instance, workers would only join the

experiment voluntarily, and maintenance workers were excluded from team-

work. While these concessions ameliorated the concerns of many union rep-

resentatives, they also saw some possible advantages of the scheme: job

rotation could help relieve monotony and avoid the danger of repetitive

strain injuries; many workers (particularly those in low grades) could be pro-

moted; teamwork could increase the autonomy that workers enjoyed from

supervisors; and it could also result in more information being provided to

workers and unions. Moreover, possible opposition from unionists was fur-

ther eroded by pressure from the company, since managers stressed the

multinational character of the company and the competitive position of the

plant within it. Many union leaders had been taken to visit other plants

implementing teamwork practices, creating a sense of it being an inevitable

development in Spain too. For the leaders of the CCOO, now controlled by

more ‘moderates’, opposing teamwork seemed futile and risked marginalis-

ing the union since the UGT would probably go along with management. In

November 1993 agreement was reached at the works committee.

This shows the way that a powerful company can exert influence over

the constraints of national business systems. By instilling competitive relations

between plants, and by making concessions on some aspects of their plans,

managers were able to break down resistance from unions, resulting in the

constraints becoming partial rather than absolute. However, this was not the

end of the story. At the end of the pilot scheme in November 1994 there was

a call from the minority union, the USO, for a workforce ballot to decide on

whether to stick with teamwork. Despite a campaign for ratification from all

the unions the workers voted narrowly to reject the proposal. There appeared

to be a number of reasons why employees were more hostile to teamwork

than were their unions. Some workers, particularly those with scarce skills,

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were reluctant to engage in job rotation if this meant moving to less desirable

jobs, which could also result in a loss of status for these workers. More gen-

erally, the adversarial industrial relations traditions of the plant meant that

many workers were sceptical about management’s motives. While it is likely

that many workers in GM’s plants in other countries shared such concerns, the

Spanish system of employment law presented a distinctive constraint.

Ortiz concludes that many characteristics of national systems of indus-

trial relations shape the attitudes of unions and workers to teamwork, such

as the organisational strength of unions and the legal support that they

enjoy. He argues, for example, that the British unions were more opposed to

teamwork than their Spanish counterparts because it endangered the impor-

tant role of the shop steward. The peculiarities of these aspects of national

systems of industrial relations are key factors impacting on the nature of

transfer of practices across borders, particularly for those MNCs seeking to

use this as a way of developing internationally integrated operations.

For more detail, see Ortiz (1998)

4 CONCLUSION

The framework set out in this chapter provides a mechanism with which to

analyse the transfer of employment practices across borders within MNCs. This

approach based on the framework of ‘four key influences’ has sought to integrate

elements of the three approaches outlined at the beginning of the chapter. It

recognises the strength of the competitive pressures on MNCs to engage in trans-

ferring practices across their operations. In particular, the notion of ‘dominance’

and the extent of the pressures for firms to achieve international integration capture

this dynamic. The ‘four influences’ framework also attaches great significance to

the institutional and cultural aspects of national business systems in shaping and

constraining the nature of transfer. The legacy of institutions shows up most

clearly in the concepts of country of origin and host country effects. Moreover,

the framework accords importance to the political nature of transfer by recognis-

ing the way in which organisational actors can use a range of resources – relating

for example to ‘dominant’ ideas in the international economy or to characteris-

tics of the particular systems in which they are located – to initiate, engage in or

obstruct the process of transfer. Thus this fourth, integrated approach has sought

to use elements of the rational, cultural and political approaches.

By way of conclusion, what do the arguments in this chapter tell us about

the consequences for national systems of employment relations? One clear

consequence is the way in which the transfer of practices within MNCs will

lead to change within national systems as the practices introduced are spread

throughout an economy. Some argue that the development of standardised

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policies on employment practice within many MNCs is a key factor in the

convergence of national systems. Cases such as the move by General Motors

towards establishing teamworking as the norm throughout their international

operations appears to lend some weight to this argument. Yet the logic of this

chapter has been that while transfer will lead to change, it will not necessarily

lead to convergence because transferred practices often go through a process of

transmutation, in that they operate differently in the recipient unit from the way

they had operated in the donor unit. While it may be possible to operate some

practices in a more or less identical way in different countries, many others will

be adapted by management to ‘fit’ the new environment or will be interpreted

in a different way by actors in the recipient country. Indeed, in this respect, the

effects of the transfer of practices within MNCs is similar to the more general

impact of the internationalisation of economic activity; national systems of

employment relations evolve in response to these pressures, but do not neces-

sarily converge. In the next chapter, Richard Hyman expands this analysis by

looking at the transnational challenges to national industrial relations systems.

5 DISCUSSION QUESTIONS

1 Does the transfer of practices result in MNCs from various countries becoming

more like one another?

2 You have been hired as a consultant to three firms: a British retail bank setting up in

Spain; a German textiles firm relocating its production to Vietnam; and an American

high-tech electronics firm opening a new site in Britain. You have been asked by all

three firms to advise them on the desirability and feasibility of transferring practices

to their new locations. How would your advice differ in each situation?

3 You have been appointed as an adviser to an international federation of

national unions in the oil industry. The member unions are concerned at the

growing tendency on the part of the major companies in the sector to transfer

practices across their operations. You have been asked to advise them on how

they might seek to block or amend those practices they see as challenging their

interests. What would you tell them?

6 FURTHER READING

••

Edwards, T. and Ferner, A. (2002) ‘The Renewed “American Challenge”: A Review of

Employment Practice in US Multinationals’,

Industrial Relations Journal

, 33, 2, 94–111.

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This article provides a more comprehensive description of the four influences framework than

does this chapter. It also illustrates the uses to which it can be put, in this case to analyse the

strengths of previous research in a particular area.

••

Ferner, A. (1997) ‘Country-of-origin Effects and HRM in Multinational Companies’,

Human Resource Management Journal

, 7, 1, 19–37.

The sources of the impact that a multinational’s original business system on the orientation of

the company is detailed in this article. It also discusses a range of methodological problems in

researching this issue.

••

Ortiz, L. (1998) ‘Unions’ Response to Teamwork: The Case of Opel Spain’,

Industrial

Relations Journal

, 29, 1, 42–57.

The case study of Opel in Spain and its attempts to introduce teamworking is covered briefly

in the chapter but a fuller account can be found in this article. It provides more detail on the

Spanish system of employment relations and the various motivations in supporting or oppos-

ing teamwork in the different groups within the organisation.

ACKNOWLEDGEMENTS

The four influences framework has been developed with Anthony Ferner and

has featured in a recent co-authored article (Edwards and Ferner, 2002). I am

grateful to Anthony for encouraging me to use the framework in this chapter.

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Edwards, T. (1998) ‘Multinationals, Work Organisation and the Process of Diffusion: A Case

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Hayden, A. and Edwards, T. (2001) ‘The Erosion of the Country-of-origin Effect: A Case Study of

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Hedlund, G. (1981) ‘Autonomy of Subsidiaries and Formalization of Headquarters– Subsidiary

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16 Varieties of Capitalism, National Industrial

Relations Systems and Transnational

Challenges

Richard Hyman

1 Introduction 411

2 One capitalism or many? 412

3 Some important analytical distinctions 417

4 The European social model(s) 421

5 ‘Globalisation’: the death knell for social Europe? 423

6 Conclusion: contradictory trends 427

7 Discussion questions 429

8 Further reading 429

References 430

1 INTRODUCTION

This chapter discusses a broad range of issues concerning the past, present and

future of employment regulation. Drawing on the recent literature on ‘varieties

of capitalism’, it shows that national economies can be structured in many dif-

ferent ways, and that these differences are associated with varieties of industrial

relations systems. The analytical approach has much in common with that

which underlies Chapter 5: in any society there is an interdependence, often

mutually reinforcing, between the behavioural dispositions of the parties to the

CHAPTER CONTENTS

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employment relationship and the institutional context within which they operate.

The discussion in the next section focuses on elements in national business

systems – and the broader framework of social and economic regulation – which

are more extensive than those discussed in the earlier chapter. In Section 3, we

then discuss the conceptual distinctions that most writers on cross-national

economic differences have used in their analyses: status and contract, exit and

voice and liberal versus organised market economies.

In Europe it has become common to speak of a distinctive ‘social model’

of labour market regulation: but it is also widely assumed that ‘social Europe’

may not withstand the challenges of ‘globalisation’ – another issue examined

in Chapter 5. It is important to explore the different (to some extent nation-

ally specific) meanings of social Europe and their implications for employment

regulation, and this is done briefly in Section 4. The final sections of this

chapter attempt to disentangle the challenges inherent in globalisation, and

consider whether they imply convergence towards a more market-driven

model, or whether distinctive forms of social regulation are likely to persist.

2 ONE CAPITALISM OR MANY?

What do we mean by ‘capitalism’? More often than not, the term is used as a

polemical slogan rather than as a ‘scientific’ category. One definition would

point to three inter-related features of the economic order: productive resources

are in private ownership; work takes the form of waged employment; and

goods and services are allocated through market mechanisms. When the term

came into common use in the mid-nineteenth century, capitalism was an

emergent and contested system, widely regarded as a bizarre social experiment

unlikely to endure. The word ‘capitalism’ was itself mainly used by critics of the

system, in particular Marxists; its defenders usually preferred more anodyne

substitutes. For much of the twentieth century, capitalism was challenged by

the existence in eastern Europe (and later in China) of a ‘communist’ alter-

native, with state ownership of the means of production and resource alloca-

tion by central planning rather than the market.

The confrontation between systems often encouraged both opponents and

defenders of capitalism to treat it as an undifferentiated socio-economic

regime. In the twenty-first century, with the collapse of the Soviet Union and

its satellites and the turn to the market in China, the existence of capitalism is

now hegemonic. Partly in consequence, there is growing emphasis on the

diversity of types of capitalism, linked to a recognition that markets are rule-

governed institutions and that rules can vary.

In terms of the definition above, ‘pure’ capitalism should be understood as

an ideal type which nowhere matches empirical reality. In all societies,

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• private ownership co-exists with varying degrees of public ownership and state

regulation;

• wage-labour co-exists with self-employment and unpaid family work (including

in particular women’s domestic labour); and

• markets co-exist with different types of non-market allocation mechanisms

(such as welfare benefits and public services).

How do we categorise the varieties of ways in which real capitalist societies

diverge from the ideal type? And can we map different types of capitalism

against different industrial relations systems? There is a rapidly expanding

literature on ‘varieties of capitalism’. At its core is the argument that markets

do not exist in a social vacuum: they are social institutions which are in turn

‘embedded’ in the broader framework of each society (Granovetter, 1985).

Because no two societies are identical, it follows that market economies are dif-

ferentiated: it may be appropriate to speak of capitalisms in the plural rather

than the singular. Modern capitalisms may be conceived in terms of (at least)

four different dimensions of social relations. Slightly adapting the categories

proposed by Crouch (1999), these may be defined as

• the property regime;

• the production regime;

• the welfare regime; and

• the gender regime.

The property regime

The property regime denotes the system of ownership and economic gover-

nance within a society. Private ownership of productive resources can be quali-

fied by the existence of a (perhaps extensive) nationalised sector, and by forms

of state regulation and planning which limit the autonomy of private owners.

Ownership itself can be concentrated or dispersed: it is a paradox that while

neoclassical economic theory assumes that no economic actor is large enough

to affect market outcomes by their individual decisions, where economies of

scale exist the natural consequence is the growth of monopolies or oligopolies

which tend to undermine competition. To differing degrees, most countries

possess anti-monopoly legislation; and conversely, many countries provide

support and incentives for small businesses. Since nations’ rules and practice

vary – as do the historical roots of their economic structures – the proportions

of employees in companies of different size differ markedly.

Another key factor emphasised by the ‘varieties of capitalism’ literature is

the nature of company financing. An influential classification by Albert (1993)

distinguishes between ‘Anglo-American’ and ‘Rhineland’ capitalism. In the

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former, companies obtain a large proportion of their finance from the stock

market; company law prescribes that directors are primarily or exclusively

responsible to the interests of shareholders; there are few restraints on

takeovers; and executive rewards commonly reflect performance as measured

by share price. The consequence is a bias towards ‘short-termism’ (Hutton,

1995), with company policy driven by the need to maximise short-term indi-

cators of ‘shareholder value’. The alternative model is one in which a higher

proportion of company finance is drawn from institutional investors with a

long-term commitment to the firm’s success; hostile takeovers face many

obstacles; management is permitted, or expected, to take account of a wide

range of ‘stakeholder’ interests; and corporate governance systems reflect this

plurality of interests (for example, through the existence of supervisory

boards). This dichotomy between ‘stock-market’ and ‘welfare’ capitalism (Dore,

2000), like all simple classificatory schemes, neglects far wider patterns of

national diversity in property regimes; but it highlights real contrasts in the

imperatives confronting managements, contrasts with very important implica-

tions for industrial relations.

The production regime

The term ‘production regime’ refers to the system of organisation of work and

workers – which embraces a wide range of themes central to other chapters in

this volume. Elements of this regime include the division of labour within the

work process, the nature and quality of skills, the ways in which tasks are allo-

cated to different individuals and groups, the hierarchy of pay and the opera-

tion of promotion ladders (Marsden, 1999). Here, it has become common

practice to draw a contrast between the low skill levels and rigid division of

labour associated with standardised mass production, and the more polyvalent

skills required in some alternative production systems. Much recent literature

sums up this contrast under the labels ‘Fordism’ (the model of assembly-line

production developed by Henry Ford in his car factories) and ‘post-Fordism’ (for

a critical discussion of this dichotomy see Hyman, 1991). Closely related are two

central issues for the management of labour: does the employer control perfor-

mance though close supervision and strict discipline, or seek to encourage ini-

tiative and responsibility by cultivating trust (Streeck, 1987)? And are employees

treated as disposable resources, to be discarded when costs have to be cut, or do

they enjoy a long-term status within the firm (as, at least in theory, with the

traditional principle of ‘lifetime employment’ in large Japanese companies)?

Within any country, production regimes can vary between firms, partly

reflecting the requirements of different industries and services, but also in line

with employers’ strategic choices. To take another familiar distinction, there is

a ‘low road’ and a ‘high road’ to competitive success: firms may attempt to

compete on the basis of low cost or of high quality. Even within companies,

different categories of worker (or even individuals) may be subject to different

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treatment. Nevertheless, there is some basis for speaking of national ‘models’

of work organisation. For example, property regimes which facilitate a long-term

perspective are likely to be linked to greater investment in skill development

than where short-termism prevails; or legal systems which make it difficult to

dismiss workers thereby obstruct ‘low-road’ competitive strategies. Hence the

societal characteristics under discussion here link closely to the elements of

national business systems examined in Chapter 5.

The welfare regime

The welfare regime is the link between the situation of workers as employees

and as citizens. In no society is labour simply a commodity to be bought and

sold. Not only do workers, to a greater or lesser extent, acquire a status which

establishes them as stakeholders within the employing organisation or at the

very least restricts the employer’s ability to dispose of them at will; there are

also important processes of what Esping-Andersen (1990) has called the

‘de-commodification’ of life-chances. So, for example, to varying degrees all

governments assume some of the responsibility for the education and training

which contribute to an individual’s ‘human capital’; provide health care which

maintains workers’ productive capacity; manage systems of social protection

which sustain income in case of accident, ill-health or unemployment; and

allocate pensions after the end of the working life. All these extra-employment

resources have an impact on an individual’s situation within the labour market.

To take a simple (and today politically contentious) example, the availability of

relatively generous unemployment benefits strengthens the individual

worker’s position when deciding whether to accept an offer of employment on

terms which appear uncongenial.

There are many different types of welfare regime – indeed each national

system is distinctive – but Esping-Andersen suggests that these cluster around

three ideal types. The first, the social-democratic model, is highly redistribu-

tive, financed largely from general taxation, and provides generous universal

entitlements. The second, the conservative model, is also state-provided,

largely financed by payments from employees and employers, and with a floor

of support which is below that of the social-democratic model but still rela-

tively high; contributions and entitlements are both earnings-related. Finally,

the liberal model is insurance-based (often with private providers rather than a

public system), offering earnings-related entitlements and a minimal ‘safety

net’ for those who are outside the normal coverage of the system. These differ-

ent models have contrasting implications for the balance of power in labour

markets: it is hardly accidental that the liberal welfare system in the USA is

associated with a large volume of employment in low-paid, insecure jobs. A fur-

ther point to be noted is the varying extent to which the industrial relations

actors (or ‘social partners’) are implicated in the administration of the welfare

state. In much of Europe, certainly, unions and employers’ organisations have

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a key role within the welfare system (for French or Italian trade unions, indeed,

this function may be more important than collective bargaining with employers).

As a corollary, in such countries ‘industrial relations’ encompasses social policy

much more generally than where a liberal welfare regime prevails.

The gender regime

Traditionally, writers on industrial relations and employment practices have

regarded the worker in unisex terms: gender relations have been considered

irrelevant to the workplace. But increasingly, it has become recognised that the

gender regime has to be incorporated in the analysis of the world of work.

Economic theory may be gender-blind, but in practice a powerful sexual divi-

sion of labour is universal. In most countries of the world, the predictions of

writers like Marx that female labour would become central to the evolution of

capitalist production were not borne out in the century after he wrote his studies.

On the contrary, there emerged a stark polarisation between the male ‘bread-

winner’ and the female ‘housewife’, at least after the age of marriage and child-

bearing: a division indicated in most countries by a sharp contrast between the

proportions of women and men in the ‘active’ labour force (Gorner, 1999;

Rubery, 1992).

But here too, different national capitalisms display very different patterns.

Within any country there are many factors which either reinforce or counter-

act the ‘breadwinner/housewife’ division. One of the most important is the

extent of employment in public services, since these perform functions tradi-

tionally assigned to women within the household, enabling more to enter the

external labour force. The outcome is not necessarily egalitarian; in Sweden, for

example, viewed by many as a model of sexual equality at work, employment

in public services is overwhelmingly female (a system for collectivising domes-

tic labour, perhaps?) while most higher-wage manufacturing industries are

overwhelmingly male. Another important issue in the gender regime is the

unit of welfare entitlement within social protection: ‘household’ or individual.

‘Household’ systems tend to reinforce the ‘breadwinner/housewife’ division;

individual systems may support greater sexual equality (though perhaps

increasing inequality between income groups) (Lewis, 1992; Sainsbury, 1999).

Gender issues are more directly involved in the employment system. Skill

classifications may be gender-biased; the treatment of part-time employment

in terms of promotion opportunities and social entitlements may implicitly

discriminate against women; career trajectories may be biased against women

who interrupt their employment for child-rearing; to the extent that domestic

responsibilities are typically distributed unequally between women and

men, many women have to manage a double burden of commitments which

may be partially mitigated where genuinely ‘family-friendly’ policies are imple-

mented. Finally, an important issue is the extent to which gender issues are

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‘mainstreamed’ within industrial relations, rather than treated as subsidiary

(and perhaps irrelevant?). Undoubtedly there are important cross-national differ-

ences in all these respects.

Are there distinctive configurations of these four regimes in different

national settings? It seems possible to delineate, albeit crudely, four simplified

‘models’. This takes slightly more account of the diversity of national situations

than Esping-Andersen’s three-part classification, which has been criticised for

neglecting important cross-national differences (Arts and Gelissen, 2002:

142–6):

• an Anglo-American model (which applies to a large extent in all English-speak-

ing countries), characterised by a liberal property regime, a Fordist production

regime, a liberal welfare regime, and a formally egalitarian but in practice patri-

archal gender regime;

• a northern European model, with a strongly regulated property regime, varying

degrees of status-based production regime, an extensive (social-democratic or

conservative) welfare regime, and in some cases a relatively egalitarian gender

regime. This model displays two main variants, considered in more detail below,

which may be termed ‘Nordic’ and ‘Germanic’;

• a southern European model, with a property regime which is also regulated

(though in very different ways), varying degrees of status-based production

regime, a less developed welfare regime, and a ‘male breadwinner’ gender regime

(though with recent modifications); and

• a Japanese model, with yet another form of regulated property regime, a dis-

tinctive status-based production regime, a conservative welfare regime, and a

‘male breadwinner’ gender regime.

These are crude stereotypes, indeed caricatures; in the case of Europe they will

be refined below. However, they serve to underline the point that capitalisms

are different, and that the social context of industrial relations varies so greatly

between different parts of the world that we cannot assume that the same

dynamics necessarily apply. Indeed on the contrary, as Peck insists (1996: xv),

‘labor markets…work in different ways in different places’.

3 SOME IMPORTANT ANALYTICAL DISTINCTIONS

Status and contract

Writers on cross-national economic differences have often based their analyses

on a limited number of conceptual distinctions. Perhaps fundamental to all of

these is whether economic actors are perceived primarily as autonomous

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individuals or as members of collectives which shape their interests and options.

One element in this broad distinction between individualism and collectivism

is the contrast (dating from the nineteenth century) between contract and

status. In pre-capitalist societies, rights and obligations largely derived from the

positions and identities which an individual acquired by birth or by achieve-

ment. The distinctive feature of the rise of capitalism, for many observers, was

that rights and obligations were increasingly defined by market transactions.

The degree to which contractual obligations established through economic

exchanges pervade social relations was one important criterion for Albert’s dis-

tinction between Anglo-American and Rhineland capitalism. In the specific

case of labour, as already noted, there are important variations within countries

(and also firms) as well as between them in the extent to which employees are

treated as disposable commodities to be hired and fired at will, or as stake-

holders within a social community.

Many nineteenth-century (and indeed later) writers on the transition from

status to contract saw this as an enlargement of human liberty. The growing

prevalence of contractual relations was however a source of ambiguous free-

doms. The dissolution of the previous fixity of rights and obligations based on

traditionally defined status offered new opportunities for choice and achieve-

ment; but the beneficiaries were principally those with the economic power

derived from superior market resources (a thesis as self-evident to Weber as to

Marx). For those less advantaged, the principal outcome was accentuated inse-

curity. And at a macroeconomic level, while the rise of a contract-based econ-

omy undoubtedly facilitated an unprecedented expansion of production, it

also encouraged an ‘opportunism’ in economic relationships corrosive of the

trust which underpinned former status-based interactions. This posed major

difficulties for the new capitalist entrepreneurs: if the relationship with

employees was purely market-based, the latter might well prove recalcitrant in

providing the desired performance once the employment contract was struck.

Concerns of both social welfare and economic efficiency underwrote

resistance – its strength, again, varying cross-nationally – to the pervasiveness of

contractual relations. They also led, in the twentieth century, to a reassertion

of non-market principles as a basis for regulating employment (Polanyi, 1957).

In the phrase made famous by Marshall (1950), the rise of political citizenship

was followed by the creation of an ‘industrial citizenship’ which reinforced

workers’ status within the labour market and within the employing organisa-

tion. To this extent, the shift from status to contract was reversed (though

status was redefined in very different forms from the old).

Exit and voice

This distinction between status and contract links to another, that between exit

and voice. The concept of voice was used by Hirschman in 1970 as a metaphor

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for attempts to redefine the terms of a social or economic relationship. In his

model, an aggrieved customer, employee or member of an organisation has

two main options: either to go elsewhere (exit) or to demand improvements

(voice). The more committed an individual to a particular supplier, employer,

political party or other organisation – in Hirschman’s terms, the stronger their

loyalty – the greater the incentive to choose voice rather than exit. In addition –

though Hirschman did not fully pursue this issue – an exit decision is typically

individual, whereas voice is normally collective: it requires the existence of

(usually institutionalised) channels. Hence it is in institutionally embedded

societies – where rights of collective association and expression are protected –

that voice is a widespread option.

This argument has been developed in the specific context of industrial

relations by Freeman and Medoff (1984). They stress that effective voice

reduces exit; and because labour turnover imposes costs on the employer (in

seeking replacements, providing training, absorbing the lower productivity

normal with new employees because of learning-curve effects) there are bene-

fits for managements as well as for workers in institutionalising voice; griev-

ance procedures and seniority systems, in particular, have a stabilising effect on

employment. They argue however that the economic benefits are most evident

at the aggregate, macroeconomic level; whereas the size of the union wage

mark-up entails that for the individual employer, the costs may outweigh the

benefits. Hence a favourable legal regime is necessary to underpin institutions

of employee voice, obliging employers to adopt industrial relations procedures

which may not be in their individual short-term interests though they will

benefit employers collectively in the long run.

To an important extent, this analysis reflects a North American perspec-

tive: in the USA, company-based certification of trade unions for collective

bargaining purposes results in a clear division between union and non-union

firms and sectors, with substantial differences in terms and conditions of

employment between the two. Twenty years ago, for example, it was common

to speak of a ‘union wage mark-up’: pay rates might be 20% higher in a

unionised firm than in an analogous company without union recognition. In

many other national contexts the situation is very different. First, the distribu-

tion of union membership is typically more extensive: union density in the

USA when Freeman and Medoff wrote was only about 20%, and has fallen

significantly since then; in almost all of western Europe the figure is much

higher (over 80% in many Scandinavian countries), and the American level of

unionisation is exceeded in many other parts of the world. Second, bargaining

rights in many countries do not necessarily depend on majority membership;

in some cases any union officially considered ‘representative’ has the right to

negotiate. Third, the meaning of union recognition (and hence the character

of institutionalised voice), a matter of tight legal definition in North America,

is elsewhere often diffuse and elastic. Fourth, in the USA (and also Britain) col-

lective bargaining takes place overwhelmingly at company level, giving the

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individual employer considerable discretion over whether and how to negotiate;

but in many countries, multi-employer bargaining is the norm, and this is

often accompanied by ‘extension mechanisms’ (Traxler, 1998) which gener-

alise the terms of agreements across whole sectors; this reduces the advantage

to individual employers of union exclusion. Nevertheless, it remains important

to note that whatever the industrial relations context, the cost-benefit calculus

for individual employers may be very different from the balance of advantage

at the societal, macroeconomic level. Streeck (1997) develops arguments rather

analogous to those of Freeman and Medoff when he analyses social peace in

employment (in his case, as encouraged by the German mechanisms of work-

place and board-level codetermination) as a collective good which individual

employers may nevertheless consider an unreasonable burden. The collective

action problem for employers has, in many countries, in the past been over-

come by powerful social norms of solidarity but without statutory under-

pinning. It is partly for the reason, as is seen below, that there are fears that the

institutional framework may not survive the pressures of ‘globalisation’.

Freeman and Medoff focus on the institutionalisation of exit/voice at the

level of the individual employer (again, reflecting the pattern of US industrial

relations). But it is important also to address the macro level. Crouch (1995)

has used exit/voice to characterise the dynamics of national employment and

industrial relations regimes. At both national and company levels, some insti-

tutional frameworks encourage a preoccupation with short-term options; both

employers and workers, if dissatisfied with the current cost/benefit balance,

will tend to choose exit. In other contexts, exit is more difficult (employers

cannot dismiss workers, or at least those with an established employment

status, without pursuing a complex, perhaps legally prescribed procedure;

employees with seniority are discouraged from leaving because elsewhere they

may have to start again at the bottom of the ladder). Where short-term oppor-

tunism is constrained, all parties are more likely to seek remedies within the

framework of the existing relationship which provides an incentive to voice

arrangements.

Liberal and organised market economies

A third, more general distinction which is central to recent analysis of varieties

of capitalism is between ‘liberal’ and ‘organised’ or ‘coordinated’ market

economies (Hall and Soskice, 2001; Hollingsworth and Boyer, 1997; Kitschelt

et al., 1999; Soskice, 1999; Streeck, 2001). In the latter, there is a dense network

of institutions – sustained by law, custom or moral values – which subject the

decisions of individual economic actors to broader collective, normative imper-

atives. In the former, by contrast, market participants are far more autonomous

(or, one should add, because of the asymmetry of market outcomes, the rela-

tively powerful are freer to benefit at the expense of the relatively weak). Here

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again, the link with Albert’s identification of two contrasting models of capitalism

should be obvious.

4 THE EUROPEAN SOCIAL MODEL(S)

From the perspective of this simple dichotomy, it makes sense to regard con-

tinental western Europe as a cross-national region with many common fea-

tures in the organisation of the economy in general and the labour market in

particular. The idea of ‘Social Europe’ has been a key element in the official

discourse of the European Union for more than a decade. For critics, particu-

larly in the Anglo-American world, this idea was merely an expression of out-

dated socialist values. Yet it is noteworthy that the concept can be linked to

the German notion of a ‘social market economy’ which was invented in the

1950s by conservative politicians and theorists. It expressed the principle that

economic affairs should be primarily dependent on the market, but that

market relations should in turn respect underlying social and moral values.

This perspective has been highly influential in much of Europe for half a

century, particularly in countries where support for capitalism has been qual-

ified by a Christian- democratic ideology critical of unconstrained economic

individualism.

It is interesting that, in most of western Europe, the English term ‘industrial

relations’ is commonly understood through the notion of ‘social affairs’ or some

analogue. Similarly, government responsibility for industrial relations is typically

vested in a ministry of labour and social affairs. Employment is perceived as a

social relation, not a simply contractual issue. Partly as a corollary, industrial rela-

tions is an arena for collective actors: trade unions and employers’ organisations

are described in much of Europe as ‘social partners’, a term which at one and the

same time expresses an aspiration that conflicts of interest should be resolved

cooperatively but also an assumption that collective representation is a necessary

and important basis for agreement between employers and workers.

Viewed from the outside, there are important common features to indus-

trial relations in most of western Europe (Ebbinghaus 1999). Five of these are

of key importance in underpinning status alongside contract, encouraging

voice versus exit, and embedding market relations in systems of institution-

alised rules. They can be summarised as follows:

• there is broad social and political acceptance of the need for collective regulation

of the employment relationship in order to protect the weaker party;

• accordingly, individual contracts are subordinate to collective ones, limiting the

freedom of individual labour market actors;

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• usually, voice is articulated within standardised systems of workplace representation

(established by law or peak-level collective agreement, or both);

• both socialist and catholic traditions have encouraged non-liberal welfare

regimes which substantially ‘decommodify’ labour; and

• the concept of the ‘social wage’ (which in Britain, for example, has

little meaning) is taken for granted: the collective bargaining agenda encom-

passes social policy and the ‘social partners’ are key actors in the development

and implementation of the welfare regime.

In many cases, the institutional framework of industrial relations is the out-

come of past social and economic crises. Austria is a good example: in the

1930s the confrontation between strongly organised employers and trade

unions helped precipitate a bloody civil war and paved the way for the Nazi

takeover; the institutions of ‘social partnership’ were subsequently embraced in

part as a bulwark against a similar disaster in the future. For Austria, and much

more generally in continental Europe, postwar efforts to rebuild a shattered

economy also encouraged the institutionalised regulation of economic activity.

Moreover, the interwar experience of mass unemployment had widely discred-

ited belief in the virtues of ‘free’ markets. An additional factor of importance in

many European countries is the prevalence of coalition governments: the polit-

ical system contains an inbuilt bias towards compromise, creating obstacles to

radical change in the institutional order once this has become stabilised.

Yet if the organised capitalisms of western Europe share important com-

mon features in their industrial relations systems, there are also major

differences – to some degree reflecting the different models of capitalism discussed

earlier. Crouch (1993) has indeed argued that every national system of indus-

trial relations is distinctive, in that the historical evolution of employment reg-

ulation has been shaped by specific national ‘state traditions’. This is certainly

true; viewed from inside Europe, the diversity of national industrial relations

systems is obvious. Nevertheless, it is possible to identify a limited number of

national types. Britain is an ‘outlier’: it possesses neither a tradition of exten-

sive state regulation, nor strong central organisations of unions and employers;

consequently it is scarcely possible to speak of a national system, since there is

large scope for each company to establish its own employment regime. But in

mainland (western) Europe it is possible to identify three main ‘models’

(though indeed many ‘mixed cases’ exist):

• a ‘Germanic’ model, in which economic governance is largely private but sub-

ject to strong collective institutions; the actors and procedures of industrial rela-

tions are in important respects juridically defined; and in many cases there is

significant legal regulation of substantive employment conditions;

• a ‘Nordic’ model, in which economic governance is also largely private but mod-

ified by an extensive, egalitarian welfare system; an industrial relations system

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which (as in Britain) is ‘voluntaristic’ – in other words, not subject to detailed

statutory regulation – but coordinated by strong collective organisation among

the ‘labour market parties’; and

• a ‘Mediterranean’ model, with (until recently) an extensive nationalised sector

and significant state intervention in economic development; elaborate legal reg-

ulation of employment contracts; and institutionalised union and employer

involvement in the welfare regime.

5 ‘GLOBALISATION’: THE DEATH KNELL

FOR SOCIAL EUROPE?

In the past decade, it has been increasingly questioned whether such institu-

tionally regulated industrial relations systems, and indeed the diversity of vari-

eties of capitalism, can survive in the face of growing internationalisation. The

argument is widely voiced – by academics, politicians and industrial relations

practitioners alike – that ‘globalisation’ is driving a convergence of capitalisms

towards the Anglo-American model, within which status will increasingly give

way to contract, exit will predominate over voice (in particular making it

easier for employers to ‘exit’ from continued obligations towards employees),

and the regulation of labour markets by law or collective organisations will

atrophy.

The concept of globalisation has become something of a cliché. Among

the pioneers of the idea is Ohmae, who writes (1991) of the emergence of a

‘borderless world’ or ‘interlinked economy’ in which the globalisation of pro-

duction chains, product markets, corporate structures and financial flows

makes national boundaries and the nation-state largely irrelevant. Reich (1991: 3)

likewise anticipates an era with ‘no national products or technologies, no

national corporations, no national industries. There will no longer be

national economies, at least as we have come to understand that concept.’

Whether such a prospect is welcomed or deplored, its inevitability is widely

agreed.

Recent decades have indeed seen clear trends towards the liberalisation of

cross-national trade through the reduction or removal of tariff barriers; and

while international trade is nothing new – some indeed argue that the inter-

national economy today is no more globalised in this respect than at the begin-

ning of the twentieth century – the cross-national integration of production

within multinational companies (MNCs) certainly is. Again, while there may

be debates concerning how far MNCs are genuinely multinational – in most

cases their activities are concentrated close to home – the potential for large

firms in particular to move operations across frontiers, partly to escape restrictive

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industrial relations regimes or to exploit cross-national differentiation, certainly

poses new challenges.

Such mobility is facilitated by the liberalisation of cross-national invest-

ment and by the more general liberalisation of financial flows across borders.

Given the advances in information technology and telecommunications,

transactions in shares and currencies have become continuous and instanta-

neous. ‘Finance capital has forged its own instruments of expansion and a

momentum of accumulation that are increasingly independent of what is hap-

pening in the sphere of production’ (Burbach et al., 1997: 67). This destabilises

material economies and allows capital-holders to ‘punish’ economies and

governments whose policies fail to match the criteria of rectitude embraced in

financial markets. The corollary is that individual companies are increasingly

free – and given the pressures of competitiveness, are obliged – to escape the

regulatory force of national industrial relations systems and establish employ-

ment regimes which meet their distinctive market strengths and weaknesses

(Katz and Darbishire, 2000; Kochan et al., 1997). The result is that ‘bad’

economic systems (those with the least regulated social outcomes) drive out

‘good’ (the more socially regulated can no longer compete).

Crouch and Streeck (1997) have pointed to the paradox that theories of

institutional convergence developed in the early postwar years were disproved

by experience; and by the 1970s, academics and policy-makers alike came to

recognise that markets (including labour markets) functioned best within the

framework of institutional regulation which could take very different forms

according to national context. Yet after two decades in which the superior per-

formance of such ‘institutional economies’ as Germany and Japan was widely

recognised, the conventional wisdom of the 1990s was that dense social regula-

tion involves rigidities requiring a shift to market liberalism. With the reconfig-

uration of product competition and the organisation of production, ‘more open

economies of the Anglo-American kind that have long learned to operate with-

out the succour of an interventionalist state and in the absence of strong social

cohesion’ (1997: 14) appear to experience a new advantage. Does this spell con-

vergence towards market liberalism? Streeck himself suggests that this may be

the case, at least in Germany. The competitive success of the soziale

Marktwirtschaft rested on three foundations: a global market for quality produc-

tion; the capacity of firms to innovate ahead of the competition; and adequate

demand for skilled labour. But from the 1980s the pace of innovation in rival

economies accelerated, and the differentiation between cost and quality com-

petitiveness broke down, encouraging German firms to shift production else-

where and resulting in a surge in unemployment. While these challenges

pre-dated unification, within the enlarged Germany they have probably become

unmanageable. And because ‘the institutions which embed its economy and

shape its performance are politically negotiated and typically legally constitu-

tionalized’ (1997: 36), these are more visible and more open to deregulation

than the more informal and internalised arrangements of a country like Japan.

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Similar arguments have been applied to the welfare regime: that national

competitiveness within Europe is incompatible with generous social provisions

financed at least in part by taxation on companies: firms will prefer to locate

where they can escape with lower, if any, contributions. Moreover, even within

Europe the collectively imposed restraints embodied in the Maastricht ‘con-

vergence criteria’ for participation in the single currency have required curbs

on public debts and government deficits, widely resulting in pressures to cut

back the welfare state. Some have seen this as a decisive challenge to the

European social model (Hemerijk and Schludi, 2001); or at least as requiring its

radical reconstruction (European Commission, 2002). This example indicates

that the belief in the potency of global competitive forces may itself acquire a

coercive social force: ‘whether the globalization thesis is “true” or not may

matter less than whether it is deemed to be true (or, quite possibly, just useful)

by those employing it’ (Hay and Rosamond, 2002: 148).

Path-dependence: the case for continuing diversity

There is a counter-argument which challenges the ‘globalisation’ thesis. The clear-

est example is that of Hirst and Thompson (1996): they deny that the economic

system is significantly more internationalised today than a century ago, and insist

that globalisation is not so much fact as ideology. For many employers and gov-

ernments in recent years, the idea of globalisation has provided a useful excuse: it

implies that the fate of national economies is not susceptible to influence by

domestic policies, or at best that governments can do no more than impose the

most effective forms of adaptation to external forces. Yet in reality, globalisation

‘both is authored by states and is primarily about reorganising, rather than bypass-

ing, states’ (Panitch, 1994: 63). As Boyer (1996) puts it, the twentieth century is

‘still the century of nations’. However, from this perspective the myth of national

impotence has provided a powerful rationale for advocates of deregulation –

though this is itself a misleading concept since, as Standing (1997) has insisted,

the social relations embodied in market forces impose their own disciplines and

punishments and thus market liberalism is itself a mode of regulation.

The task must be to disentangle reality and myth. Part of the problem is that

the ‘G-word’ (Ruigkrok and van Tulder, 1995) has many meanings and can serve

both as analytical instrument and as rhetorical device (Scott, 1997). All striking

(and influential) interpretative arguments tend to involve oversimplification and

incautious extrapolation of complex, confused and contradictory trends and

relations. What are the industrial relations implications of the cross-national

restructuring of production and the shift to a regime of ‘flexible accumulation’

(Harvey, 1989)? How far do MNCs possess and exploit a capacity to undermine

national regulatory systems? Has the regulatory capacity of the nation-state been

destroyed by the dynamics of international finance? And if – as numerous writers

insist, and as Ohmae (1985) himself has indicated – internationalisation has to

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date primarily taken the form of growing interconnectedness at a regional rather

than a global level (the consolidation of the elements of the ‘Triad’ of Europe,

Japan and North America), does this open up scope for new forms of regulation

at a regional level (and notably, of course, by the EU)?

Other authors in this volume address a number of these questions. Here I

intend to focus more narrowly on three themes which underlie much of the

literature sceptical of the arguments for globalisation-induced convergence:

the interconnectedness of institutions; the logic of ‘path-dependence’; and the

relative autonomy of politics.

The first consideration is that within any society, the evolution of one set

of institutions is affected by that of others (see also Chapter 5). For example,

labour markets, education systems, welfare regimes and family structures are

interdependent in their operation. Hollingsworth and Boyer (1997: 2–3) use

the notion of ‘social systems of production’ to denote a multiplicity of regula-

tory mechanisms: ‘the industrial relations system; the system of training…; the

internal structure of corporate firms; the structured relationships among

firms…; the financial markets of a society; the conceptions of fairness and

justice held by capital and labor; the structure of the state and its policies; and

a society’s idiosyncratic customs and traditions as well as norms, moral princi-

ples, rules, laws and recipes for action’. These, they suggest, may be ‘tightly

coupled with each other’ and thus ‘coalesce into a complex social configura-

tion’. Similarly, Dore (2000: 45–7) writes of ‘institutional interlock’ as typical of

national economies and the relationship between the economy and broader

society. Of course, in no society are all institutions functionally integrated into

a stable whole: there are always tensions and contradictions which contribute

to institutional dynamism. Nevertheless, there are two obvious implications of

this interconnectedness. First, how an institution actually operates will depend

on national context; for example, the economic effects of German works coun-

cils are shaped by other features of German society and would not necessarily

be replicated in other countries where the institutional ensemble is different.

Second, an attempt to change one set of institutions (for example, ‘deregulat-

ing’ labour markets) may require alterations in ‘a complete architecture of gen-

erally interdependent institutions’ (Boyer, 1996: 55). Consequently, even were

it generally accepted that the Anglo-American model of capital performs best

under conditions of intensified global competition (and this is of course dis-

puted), ‘there can be no assumption that the evolution of national systems is

guided by a mechanism that selects more efficient arrangements’; ‘dysfunc-

tional institutional arrangements’ may prove resilient (Wade, 1996: 85).

This links to the thesis of path-dependence. Here, the argument is that past

choices constrain future options. Looking at the historical evolution of the

German and Japanese varieties of capitalism, Streeck (2001: 30) argues that ‘the

political economies of Germany and Japan were built by sequences of political

decisions, the outcomes of which were far from predetermined’. The

concept of path-dependence has also been used in a range of interpretations of

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developments in central and eastern Europe since 1989: here, the thesis is that

the very different types of economic systems which have emerged reflect both

significant variations even in the period of ‘communism’, and the nationally

distinctive pathways adopted after the collapse of the former regime. Here too,

a cumulation of decisions over time can be seen as biasing subsequent policy

options. In the specific context of the globalisation debate, the theory implies

that responses to otherwise similar problems of national competitiveness will

be shaped by inherited institutional frameworks (and the ways in which these

shape the balance of power among different actors), and that these responses

will in turn differentially affect the repertoire of future decisions. Path-

dependence is not absolute: radical changes of direction are possible, particularly

in circumstances of perceived crisis. But these are the exception rather than the

rule. Normally, radical change is easier to resist than to implement – particularly,

as indicated earlier, in political systems which embody a range of checks and

balances and require compromise and accommodation among conflicting

interests.

This leads to the issue of the relative autonomy of politics. Many argu-

ments for convergence-through-globalisation rest on a rather simplistic form of

economic determinism (ironically a theory often attributed, somewhat mis-

leadingly, to Marxism). But politics have to be considered as in part an inde-

pendent factor, for at least two reasons (Boyer and Drache, 1996; Streeck,

1996). First, the thesis of institutional interlock implies that there is likely to be

a ‘fit’ between property and production regimes on the one hand and political

processes on the other. Thus Hall and Soskice (2001: 57–8) dispute ‘the

monolithic political dynamic conventionally associated with globalization’.

Intensified international competition is likely to evoke one set of political

responses in liberal market economies, another in coordinated systems.

Second, though related to this point, any attempt to dismantle the protections

embodied in systems of ‘welfare capitalism’ provokes inevitable resistance. ‘In

all industrial countries processes of economic integration and globalization are

generating a backwash of reaction and resistance in national politics. …New

political alliances are beginning to coalesce around these issues. …A new poli-

tics is in the making’ (Berger, 1996: 23–5). The electoral cycle is shorter than

the business cycle, and the contradictory interaction between economic analysis

and political survival results in significantly different policy outcomes

cross-nationally.

6 CONCLUSION: CONTRADICTORY TRENDS

Convergence or continued diversity? If there is a consensus emerging, it is that

there is evidence for both tendencies. Some writers suggest that there may

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indeed be a process of consolidation around two poles. Iversen and Pontusson

(2000: 3–8), for example, speak of ‘dual convergence’ in industrial relations:

‘there is a trend toward convergence on the German model of coordinated

industry-level bargaining among the coordinated market economies…

and…toward convergence on the dual American model of firm-level bargain-

ing and a large non-union sector among the liberal market economies’. One

possible explanation, suggest Hall and Soskice (2001: 56), is that ‘firms are not

essentially similar across nations’ and should not be expected to respond to

similar pressures in a uniform manner. As Thelen notes, employers in liberal

market economies may regard collective bargaining institutions as externally

imposed constraints which they are anxious to escape if circumstances permit;

whereas in coordinated market economies the ‘national-level bargaining insti-

tutions have been shored up not just by strong unions, but by employers who

realize the extent to which the plant-level cooperation that they seek with

labor is underwritten and sustained by the collective management of labor

markets above the plant level’ (2001: 72–3).

One key implication is that even if managements are increasingly in the

driving seat, their strategic choices are likely to reflect distinctive traditions and

the nationally specific institutional landscape. This is not immutable: financial

liberalisation linked to the spread of Anglo-American conceptions of ‘share-

holder value’ (reinforced by the growing hegemony of US accounting proto-

cols) may shift perspectives significantly; and perhaps the spread of US-style

MBAs may also be encouraging more standardised management behaviour. Yet

different strategies can be expected to persist if one rejects the idea that there

is ‘one best way’ of organising work and workers, whether in the individual

firm or at the level of the macroeconomy (Hyman, 1987). Contract-based

systems which encourage exit, and status-based systems which foster voice,

have their reciprocal costs and benefits for managements, and there can be no

decisive measure of their comparative advantage.

As Kitschelt et al. conclude, ‘there are undoubtedly trends toward

convergence in advanced capitalism, but these do not rule out that regions and

countries respond to such challenges in partially path-dependent ways…that

reflect the sometimes competitive, sometimes cooperative, search among politi-

cal actors for new solutions to old dilemmas’. Accordingly, ‘we can be certain

that the diversity that has characterized the entire history of capitalism will

continue. Stable contours of that diversity, however, are not yet in sight’ (1999:

428, 460). Lowering our sights to industrial relations institutions and com-

pany-level employment regimes, the same holds true. For those who seek clear

predictions and straightforward recipes, this may be a frustrating conclusion.

For those sceptical of certainties and favourable to human self-determination,

it offers grounds for optimism.

In the next chapter Keith Sisson takes this analysis of convergence and

divergence one step further by moving to the regional level of analysis and

reflecting about the prospects for the ‘Europeanisation’ of industrial relations.

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7 DISCUSSION QUESTIONS

1 Is the labour market a market, and are there any universal rules which govern

its operation?

2 If market forces are impersonal, why are men and women so commonly treated

differently in employment?

3 Is there such a thing as a European social model, and can it be made compati-

ble with competitive success?

4 Is globalisation a myth or a reality?

8 FURTHER READING

•

Albert, M. (1993)

Capitalism against Capitalism

. London: Whurr.

A popularly written account of the differences between ‘Anglo-American’ and ‘Rhineland’

models of capitalism, and the ways in which the increasing openness of cross-national

competition may be undermining what the author considers to be the superior model.

•

Crouch, C. (1993)

Industrial Relations and European State Traditions

. Oxford:

Clarendon Press.

Difficult at times (especially the first chapter) but a valuable account of how national employ-

ment regimes in Europe have evolved over the centuries. The final section is particularly

stimulating.

•

Dore, R. (2000)

Stock-Market Capitalism, Welfare Capitalism: Japan and Germany

versus the Anglo-Saxons

. Oxford: Oxford University Press.

A very readable account which contrasts Japan, ‘a society of long-term commitments’, and to

a lesser extent Germany with Anglo-American capitalism. Dore concludes that while globali-

sation may undermine the German model, Japanese distinctiveness is more likely to persist.

•

Katz, H. and Darbishire, O. (2000)

Converging Divergences: Worldwide Changes in

Employment Systems

. Ithaca, NY: ILR Press.

An overview based primarily on two cross-national projects studying employment relations in

telecommunications and motor manufacturing. It argues that national systems are becoming

increasingly differentiated internally, as major companies develop their own distinctive regimes,

but that overall cross-national differences are diminishing.

•

Polanyi, K. (1957)

The Great Transformation

. Boston, MA: Beacon.

A classic study which argues that the whole idea of a competitive market for labour, associated

with the industrial revolution, was deeply flawed: labour is a ‘fictitious commodity’ and work is

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inevitably shaped by non-market influences. Polanyi argues that the twentieth century saw

increasing social regulation of employment as an essential means to economic and political

stability.

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Boyer, R. and Drache, D. (1996) ‘Introduction’, in R. Boyer and D. Drache (eds),

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Crouch, C. (1993)

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Crouch, C. (1995) ‘Exit or Voice: Two Paradigms for European Industrial Relations after the

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European Journal of Industrial Relations

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Crouch, C. (1999)

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Hirst, P. and Thompson, G. (1996)

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Hollingsworth, J.R. and Boyer, R. (1997) ‘Coordination of Economic Actors and Social Systems

of Production’, in J.R. Hollingsworth and R. Boyer (eds),

Contemporary Capitalism: The

Embeddedness of Institutions

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Katz, H. and Darbishire, O. (2000)

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(eds),

Continuity and Change in Contemporary Capitalism

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Kochan, T.A., Lansbury, R.D. and MacDuffie, J.P. (eds) (1997)

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Marsden D.W. (1999)

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Ruigkrok, W. and van Tulder, R. (1995)

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, Oxford: Oxford University Press: 245–76.

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, London: Routledge: 1–22.

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1(3): 281–308.

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, London: Sage: 33–54.

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17 Industrial Relations in Europe: a

Multi-level System in the Making?

Keith Sisson

1 Introduction 433

2 Industrial relations at EU levels: a glass half full as well as half empty? 435

3 National industrial relations systems: a case of ‘renationalization’

and ‘Europeanization’? 444

4 Conclusion: prospects for the future 449

5 Discussion questions 453

6 Further reading 453

References 453

1 INTRODUCTION

The development of the Economic and Monetary Union (EMU) in Europe has

led to considerable reflection about the prospects for the ‘Europeanization’ of

industrial relations. Although few present-day commentators refer to him, the

grounds for thinking that EMU might create inexorable pressures for an equi-

valent European industrial relations system stem from the proposition estab-

lished by Commons (1909) almost a century ago. Essentially, this sees

industrial relations systems following developments in the market. Especially

important in the European Union (EU) context is not so much the labour

market, where there continue to be considerable practical obstacles to mobility,

CHAPTER CONTENTS

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but the establishment of an integrated market for products and services, in

which process the introduction of a single currency represents a significant

step. Together with a strong political authority, many expected social union

to be a ‘spill over’ effect of economic union, reflecting the so-called ‘neo-

functionalist’ approach associated with such founding fathers of the EU as

Schumann and Monnet (Rosamond, 2000: 51–2).

Simultaneously, however, EMU has also fuelled debate about the implications

for different national systems of the developments associated with increasingly

globalized competition and the highly restrictive monetary regime EMU has

ushered in. EMU, it is argued, has increasingly set industrial relations systems in

competition with each other, both at the macro level and at the micro level, with

policy makers and practitioners in different countries under pressure to make their

arrangements as ‘competitive’ as they can to secure investment (Streeck, 1992).

Far from encouraging the development of a coherent European system, EMU is

expected to lead to the fragmentation and eventual ‘Americanization’ of indus-

trial relations. In effect, this means the break-up of the inclusive structure of multi-

employer bargaining (i.e. benefits are extended across a country or throughout a

sector and are not just the preserve of the well organized), a reduction in welfare

arrangements and an emphasis on supply side policies (Martin, 1998).

In the event, in the words of Social Affairs Commissioner Diamantopoulou

(quoted in Smith, 2000), rather than the ‘two extremes of social union versus a

completely deregulated free-for-all’, a complex multi-level system appears to be

emerging. Like the multi-level governance system of the EU polity itself, this

multi-level industrial relations system reflects a history of informal and gradual

development as well as deliberate institution building. It has developed and

continues to develop relatively autonomously rather than by design, as a range

of actors seek to exploit the available means to grapple with the implications of

the ‘regime competition’ that EMU is promoting. Significantly, too, this multi-

level system cannot simply be defined in hierarchical terms or as relations

between the EU and the member states, with a Community level added on top

of national systems and decisions cascading down. Critically, cross-national

(horizontal) influences mix with national (vertical) ones and involve the sector

and Euro-company levels as well as the community level. Furthermore, this

multi-level system is an intervening as well as dependent variable. In other

words, it is not just something to be explained in terms of ‘globalization’ or

‘Europeanization’. The system’s evolving patterns of regulation, ‘policy net-

works’ and opportunities for mutual learning are also having an impact on

existing processes and structures. Its particular significance lies in the fact that,

in bringing about a measure of convergence within companies and sectors

between national systems, the multi-level system is also simultaneously leading

to greater diversity between companies and sectors within national systems.

The rest of this chapter expands on this argument. Section 2 begins by

highlighting the features of the emerging multi-level system of industrial

relations. Section 3 then goes on to describe the key effects that such a system

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is having on the processes of industrial relations within national systems.

Section 4 concludes by emphasizing that complexity, uncertainty and instabil-

ity look set to be the defining characteristics for the foreseeable future, with the

forthcoming enlargement of the EU in 2004 the major imponderable.

2 INDUSTRIAL RELATIONS AT EU LEVELS: A GLASS

HALF FULL AS WELL AS HALF EMPTY?

For many commentators, the story of EU social policy is one of a failure to

develop a vertically integrated system equivalent to that which exists within

individual nation states, i.e. one where there is a common and comprehensive

system of employment regulation. The list of reasons is extensive (for reviews,

see Falkner, 1998; Hay, 2000). It not only includes differences of viewpoint

about the role of social policy and the immensely practical difficulties of over-

coming the collective action problem of a significant number of sovereign

national states reaching agreement, but also fundamental considerations

intrinsic to the process of EMU. Essentially, EMU is seen as involving a form of

negative integration in which obstacles to a single market were removed rather

than positive in which measures were put in place to control its operation.

Critically important is the fact that, although the EU has developed a far more

extensive political dimension than other regional trading blocs, it lacks a

‘strong state protagonist’ (Traxler, 1996) to sponsor the development of a com-

prehensive system. Instead, national governments have been reluctant to cede

authority, leading to an affirmation of the principle of subsidiarity in the

Amsterdam Treaty. This means that core areas such as social policy are deemed

to be the responsibility of member states: ‘Europe deals only with matters

where an EU solution makes more sense’ (European Commission, 2000a: 3–4).

In Streeck’s (1996: 313) striking words, the European nation state appears

‘obsolete and alive at the same time: obsolete as the wielder of effective sover-

eignty over “its” economy, and powerfully alive as the most effective opponent

of the recreation of internal sovereignty at the international level’.

The result is that, although representative organizations of employers (the

Union of Industrial and Employers’ Confederations of Europe: UNICE), and

trade unions (the European Trade Union Confederation: ETUC), have emerged,

they have little authority compared to their national equivalents. The same is

true of the European-level sector organizations of employers and trade unions.

The EU may not have developed a vertically integrated system. From the

point of view of the development of a multi-level system, however, the glass is

far from being completely empty. The EU has a social policy framework that

can lay claim to principles, a framework of common minimum standards and

a process for adding to them. The Treaty of Amsterdam in 1997, which was the

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first to deal with it in a comprehensive manner, sets out the main tasks of

European social policy in Article 136:

the promotion of employment, improved living and working con-

ditions, so as to make possible their harmonization while the

improvement is being maintained, proper social protection, dia-

logue between management and labour, the development of

human resources with a view to lasting employment and the

combating of exclusion.

The principles are set out in the Social Affairs Commissioner’s foreword to the

Commission’s first ever report on industrial relations published in 2000, and

these reflect the conviction that economic and social progress must go hand in

hand: ‘respect for fundamental social rights in a frontier-free Europe; workers’

rights to information and consultation on company operations; social dialogue

as a mainstay of good governance and a means of involving citizens in the

European venture’. The framework of common minimum standards and

the process for adding to them, which together make up the so-called acquis

communautaire, are considered below.

An acquis communautaire

A framework of common minimum standards

Despite the failure of the EU to give birth to a strong state protagonist, a sig-

nificant ‘European’ dimension to industrial relations has nonetheless emerged.

In terms of legislation, the European Commission (2000b: 24) reminds us that

the acquis communautaire is now considerable, affecting key areas of industrial

relations and social protection. It goes on to suggest that the development of

such legislation may be divided into six periods, details of which will be found

in Figure 17.1. As Falkner (1998) has argued, much of this regulation was a

direct ‘spill over’ from economic union. Some resulted from initial integration,

such as the freedom of movement and the exchange of qualifications.

Concerns about ‘social dumping’ led to measures dealing with health and

safety, which were subsequently extended to working time, and the directive

on posted workers. Other regulation, such as the directives dealing with infor-

mation and consultation, stemmed from the pressure to put a ‘human face’ on

the restructuring that EMU has brought about. As has been widely recognized

(Keller, 2000; Wendon, 2000), there has been a marked switch in emphasis in

the last three periods from ‘hard’ to ‘soft’ regulation, reflecting a growing

emphasis on the promotion of a ‘European social model’ ‘based on high skill,

high trust and high quality’ (European Commission, 1997: 11). Such a model,

which is contrasted with the low cost, low skill model of some developing

countries, is thought to be best achieved by using processes such as ‘open

co-ordination’ discussed below.

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FIGURE 17.1

Industrial Relations in Europe

437

Stage I: the 1960s and early

1970s

The instruments establish-

ing and reinforcing freedom

of movement for workers,

and the co-ordination of

social security schemes for

migrant workers, occupied

the attention of the

European social legislation

until the early 1970s. The

Treaty of Rome contained a

chapter on freedom of

movement for workers,

Articles 48 ff. (new Article

39 ff.) for freedom of move-

ment, and Article 51 (new

Article 42) for social secu-

rity for migrant workers. In

1972, the basic legal frame-

work for achieving these

aims was in place. It was

subsequently to be consid-

erably developed and rein-

forced by the case law of

the Court of Justice of the

European Communities. It

also included a social chapter

(Articles 119 ff.) which made

no provision for legislative

interventions.

Stage 4: 1990–93

The signing in 1989 of the

Community Charter of the

Fundamental Social Rights

of Workers was a milestone

in the development of

social policy. A number of

initiatives followed, some of

them legislative. The action

programme based on the

charter led to the adoption

of 15 health and safety

directives, one equal

Stage 2: the second half of

the 1970s

This period is characterized

by the adoption of the first

directives on labour law,

equal opportunities for

women and men, and

health and safety at work.

The institutional framework

has remained unchanged,

but a number of events led

the European legislature to

act: for example, the oil

crisis and the first major

industrial restructuring

exercises (the first labour

law directive deals with

collective redundancies)

and the discovery, in the

mid-1970s, of the carcino-

genic effects of vinyl chlo-

ride monomer, a substance

used in the plastics indus-

try. These provisions were

based on Article 100 of the

Treaty, which enabled the

Council to adopt unani-

mously directives for the

approximation of such

national provisions as affect

the establishment or func-

tioning of the Common

market, and on Article 235c

‘for equal Opportunities for

women’ and men.

Stage 5: 1994–99

The social protocol attached

to the Maastricht Treaty pro-

vides an active role for col-

lective bargaining. It

enables the social partners

to make a direct contribu-

tion to the production of

Community social legisla-

tion. On three occasions

(parental leave, part-time

work and fixed-term con-

tracts), the directives have

Stage 3: the 1980s

This period enabled the

progress achieved in rela-

tion to equal opportunities

for women and men and

health and safety at work to

be consolidated. A frame-

work directive adopted in

1980, defining a strategy for

dealing with all physical,

chemical and biological

agents at work, was

followed by a series of

specific directives. The Single

European Act strengthened

the legal basis for health

and safety provisions. The

first indent of Article 137(1)

(ex Article 118a of the EC

Treaty) enabled the adop-

tion by qualified majority of

directives laying down

minimum requirements for

safety and health at work.

The other significant legal

innovation in the Single Act

in the social field was that

the social dialogue was

recognized at European

level (Article 118b – new

Article 139).

Stage 6: since 1999

The Treaty of Amsterdam

consolidates and signifi-

cantly reinforces the institu-

tional framework and

instruments of Community

social policy. It ends the UK

opt-out and moves Europe

forward in four areas:

employment, combating

discrimination, equal

Continued

3122 Ch-17.qxd 10/29/03 3:50 PM Page 437

FIGURE 17.1

A social policy process

The EU also has an established process for arriving at social policy. Systematic

social dialogue began in 1985 with the Val Duchesse process. In 1991, the then

members minus the UK agreed to append the so-called social ‘protocol’ or

‘chapter’ to the Maastricht Treaty. Subsequently, the protocol became an inte-

gral part of the Treaty in 1997, when the UK dropped its opposition. Basically,

it obliges the Commission to consult the social partners in advance of adopt-

ing legislative proposals in the following fields (Article 137):

• improvement of the working environment to protect workers’ health and safety;

• working conditions;

• information and consultation of workers;

• equality of opportunities and treatment at work between men and women;

• integration of persons excluded from the labour market;

• social security and social protection of workers;

• protection of workers where their employment contract is terminated;

• representation and collective defence of the interests of workers and employers;

International Human Resource Management

438

(Continued)

Stage 4: 1990–93

opportunities directive and

four labour law directives.

However, the experience of

this second action pro-

gramme showed the need

for a stronger legal basis for

social policy. The entry into

force of the Maastricht

Treaty and, in particular, its

social protocol (currently

Articles 136 ff.) extended

the use of qualified majority

voting beyond health and

safety and defined the role

of the social partners at

Community level.

Stage 5: 1994–99

implemented agreements

between the social partners

at European level. The pro-

tocol also establishes a

more favourable political,

institutional and legal con-

text and enables proposals

pending for the action pro-

gramme linked to the Social

Charter to be followed up. It

was under this phase that

the European Works Council

Directive was adopted in

1994, after a failure to agree

by the social partners.

Stage 6: since 1999

opportunities for men and

women, and the role of the

social partners (Articles 3,

13, employment chapter, 137,

138 and 141). It enables the

European Parliament to

increase its involvement

(co-decision). A directive

dealing with national-level

information and consulta-

tion was adopted in 2002,

after a failure to agree by

the social partners.

Main developments in EU labour law (based on European Commission, 2000b: 25)

3122 Ch-17.qxd 10/29/03 3:50 PM Page 438

• conditions of employment for third-country nationals residing in the EU;

• financial contributions for the promotion of employment and job-creation.

Article 138 of the Treaty requires the Commission to consult the social partners

in two stages: (a) on the need for and the possible direction of Community

action; and (b) on its content. At the end of this consultation process, the orga-

nizations can present an opinion to the Commission or inform it of their

intention to open negotiations on the subject. In this case, the social partners

have an initial period of nine months to reach an agreement. Where the social

partners do not take the initiative, or do not reach agreement, the Commission

resumes its active role.

Looking back, the European Commission (2000b: 20) records that there

have been 34 ‘joint texts’ since the start of the Val Duchesse process (see Figure 17.2).

Only four of these are noteworthy: the original agreement dealing with the role

of the social partners, which underpinned the social chapter to the Maastricht

Treaty; and the three ‘framework agreements’ subsequently given legal status as

directives – on parental leave, part-time work and fixed-term, temporary

employment.

Wages, employment and ‘open co-ordination’

benchmarking towards ‘Europeanization’?

In recent years, more and more Commission time and effort has been put into

the different forms of co-ordination involving the identification of ‘best prac-

tice’ and target-setting based on benchmarking. Indeed, these might be said to

be taking over from the traditional community methods of legal enactment

and collective bargaining as the main regulatory process. Benchmarking started

life as a management tool and continues to be widely used in multinational

companies (Sisson et al., 2002). Its attraction for EU policy makers is that it

helps to resolve the collective action problems of securing agreement to com-

mon or standard templates associated with legal enactment and collective bar-

gaining. Common goals can be identified and countries encouraged to achieve

them, but they retain the freedom to decide the means in the light of their own

circumstances.

In the case of wages, the process of co-ordination is very informal. Strictly

speaking, wage determination remains the province of the social partners in

the individual member states. It is nonetheless seen as the third element of the

EU’s macroeconomic policy mix, monetary policy being in the hands of the

European Central Bank (ECB) and fiscal policy remaining the responsibility of

national governments. The key messages were taken up in the broad economic

policy guidelines adopted by the Council of the European Union in 1998 and

updated in subsequent years (European Commission, 2000c). The Council

stressed that ‘in EMU, with the single monetary regime, the link between wages

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6 November 1986

6 March 1987

26 November 1987

13 February 1990

19 June 1990

10 January 1991

5 April 1991

31 October 1991

20 December 1991

3 July 1992

13 October 1992

June 1993

28 July 1993

29 October 1993

3 December 1993

5 December 1993

8 November 1994

4 April 1995

16 May 1995

21 October 1995

14 December 1995

29 November 1996

6 June 1997

Joint opinion on the co-operative growth strategy for more

employment

Joint opinion concerning training and motivation, and information

and consultation

Joint opinion on Annual economic report 1987/88

Joint opinion on the creation of a European occupational and

geographical mobility area and improving the operation of the

labour market in Europe

Joint opinion on education and training

Joint opinion on new technologies, work organization and

adaptability of the labour market

Joint opinion on the transition from school to adult and working life

Agreement on the role of the social partners in developing the

Community social dimension

Joint opinion on ways of facilitating the broadest possible

effective access to training opportunities

Joint opinion on a renewed co-operative growth strategy for

more employment

Joint statement on the future of the social dialogue

Joint opinion on vocational qualifications and certification

Joint recommendation on the functioning of interprofessional

advisory committees

Joint opinion on the future role and action of the Community in the

field of education and training including the role of the social partners

Proposals by the social partners for implementation of the

agreement annexed to the protocol on social policy of the Treaty

on European Union

Joint opinion on women and training

Joint opinion on the framework for the broad economic policy

guidelines

Joint publication: ‘Broad lines of the White Paper on growth, com-

petitiveness and employment in the fields of education and train-

ing and responses to the joint opinions’

Joint opinion on the contribution of vocational training to com-

bating unemployment and reabsorbing the unemployed into the

labour market in the light of the new situation created by the

White Paper

Joint opinion on the social partners’ guidelines for turning

recovery into a sustained and job-creation growth process

Joint declaration on the prevention of racial discrimination and

xenophobia and promotion of equal treatment at the workplace

Joint declaration of the European social partners to the Madrid

European Council on the employment policy arising from the

Essen European Council

Framework agreement on parental leave

Joint declaration ‘Action for employment: a confidence act’

Framework agreement on part-time work

Continued

FIGURE 17.2

3122 Ch-17.qxd 10/29/03 3:50 PM Page 440

FIGURE 17.2

and employment will become more evident and stringent’. It invited the social

partners in the member states to conclude wage agreements in accordance with

four general rules:

• Aggregate nominal wage increases must be consistent with price stability.

• Real wage increases should safeguard the profitability of capacity-enhancing

and employment-creating investment.

• Wage agreements should better take into account differentials in productivity

levels according to qualifications, skills and geographical areas.

• Wage imitation effects need to be avoided.

Subsequent guidelines said the aim should also be to reduce de facto gender

wages discrimination.

It was to support these aims that the Council of Ministers launched in

1999 the ‘Cologne process’. Basically, the ‘Cologne process’ introduced a form

of ‘macro-economic dialogue’, involving representatives of the ECB, the EU

Council, the Commission and the social partners to improve the interaction

between wage development, fiscal policy and monetary policy. The group’s

meetings, which take place twice a year, are informal and designed to ensure

that, if nothing else, the parties are well aware of each others’ position.

In the case of employment, the so-called ‘open method of co-ordination’

prevails, involving what has been described as ‘tough monitoring and a real

Industrial Relations in Europe

441

13 November 1997

17 October 1998

9 December 1998

18 March 1999

19 May 1999

2 June 1999

Joint contribution of the social partners to the Luxembourg

Employment summit

Joint opinion on the draft decision establishing the second phase

of the Leonardo da Vinci programme

1999 Employment guidelines – joint declaration of the social

partners to the Vienna European Council

Joint opinion on the reform of the Standing Committee on

Employment

Framework agreement on fixed-duration employment contracts

Joint declaration for the Warsaw Conference on enlargement

Declaration of the European social partners on the employment of

disabled people

Declaration of the social partners to the Cologne European Council

The results of the cross-industry social dialogue (European Commission, 2000b: 20)

(Continued)

3122 Ch-17.qxd 10/29/03 3:50 PM Page 441

evaluation culture’ (Goetschy, 2001). The idea of an EU employment strategy

dates back to the Delors White Paper on Growth, Competitiveness and Employment

(1993) and it was developed, along with provision for a form of monitoring, by

the European Council in Essen in December 1994. Member states were asked to

establish employment programmes and to report annually to the Commission

on their implementation. Article Four of the new Title on Employment of the

1997 Amsterdam Treaty not only institutionalized this procedure, but also intro-

duced two major innovations that provided for more active intervention from

above. First, acting by a qualified majority on a proposal from the Commission,

and after appropriate consultations, the Council draws up annual guidelines on

employment consistent with the broad economic policy guidelines. Second, act-

ing by a qualified majority on a recommendation from the Commission, it may

also make recommendations to member states in the light of its yearly examina-

tion of their employment policies.

The Extraordinary Summit in Lisbon in 2000 was especially significant.

Substantively, 60 specific targets were set for member states to reach within ten

years concerning such criteria as the proportion of the population in employ-

ment (70% on average and 60% for women) and average annual growth (3%).

Procedurally, Lisbon saw the confirmation of the ‘open co-ordination method’

whereby national employment policies were put to the test of international

comparison, including ‘peer review’ (i.e. scrutiny by a wide range of EU insti-

tutions), and outcomes measured against time-specific targets and recommen-

dations. The subsequent Nice summit required the establishment of a Social

Protection Committee to promote co-operation between the Commission and

member states on social protection policies.

The sector dimension – the basics for

co-ordinated bargaining?

Although the sector is the key level of collective bargaining in most EU coun-

tries, developments at the European sector level are more embryonic than at

the EU inter-professional level. Even where the sector social dialogue is most

developed, in those sectors where the EU has an integrated industrial policy

and where encompassing employer, as well as trade union, organization at the

European level exists, it deals largely with frameworks and statements of prin-

ciple. In total, the European Commission (2000b: 17) estimates that there have

been more than 150 ‘joint texts’, with a doubling over the last ten years in

what the Commission describes as ‘dialogue productivity’ from 0.7 to 1.4 texts

per sector per annum. Unlike the cross-sector level, where most texts deal with

employment or employment-related matters, only around 50% of sector joint

texts have been so concerned, the other half concentrating on the business or

commercial position of the sector in response to proposals or initiatives of the

Commission. Elsewhere, such as in metalworking, where the absence of

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representative employers’ organizations willing to negotiate is regarded as the

dominant factor, the sector social dialogue has hardly taken off (see, for example,

Keller and Sörries, 1998).

Arguably more significant are the initiatives of the ETUC and its industry

affiliates aimed at developing co-operation and co-ordination across European

borders to combat the intensified regime competition that the creation of the

Euro-zone is expected to encourage. At its June 1999 Congress in Helsinki the

ETUC adopted a resolution on the ‘Europeanization of industrial relations’

stressing the need ‘for the European trade union movement to act swiftly to

put in place instruments and procedures to promote co-ordination of collective

bargaining now that the Euro-zone is a reality’. At the sector level, deemed to

be ‘essential in collective bargaining co-ordination’, the ETUC’s industry feder-

ations are ‘to create the requisite structures and instruments, adapted to the

needs of the sector concerned’. At the inter-sector level, the ETUC will be ‘com-

petent for overall co-ordination, providing the necessary framework to guar-

antee the overall coherence of the process’ (Fajertag and Pochet, 2000: 11–13).

To this end an ETUC committee for collective bargaining, comprising repre-

sentatives of national affiliates and the European industry-level federations,

has subsequently drawn up a system for benchmarking settlements concluded

by unions across the European Economic Area (EEA) according to a range of

reference points (EIRO, 2001).

Initiatives have also been launched by several of the European industry

trade union federations, including those for metalworking and financial ser-

vices, aimed at developing forms of cross-border co-operation and co-ordination

of collective bargaining. The initiative of the European Metalworkers Federation

(EMF), which dates back to 1993 and thus provided a template for the ETUC,

has gone furthest (Gollbach and Schulten, 2000). The EMF has elaborated com-

mon bargaining guidelines for negotiators in its affiliates, in the form of its

Working Time Charter which specifies a target of 1,680 annual hours and an

annual overtime ceiling and a bargaining co-ordination rule for pay negotia-

tions which, as adopted at its 1999 Congress, stipulates that increases should be

consistent with increases in the cost of living plus a ‘balanced share in produc-

tivity gains’. In tandem, EMF has established a comprehensive electronic data-

base of collective bargaining information, aimed at both diffusing information

across affiliates and monitoring outcomes of negotiations. The EMF initiative

embraces another by IG-Metall to establish regional bargaining co-operation

networks with its partner unions in neighbouring countries and regions to each

of its bargaining districts. In the banking part of the finance sector, through

Uni-Europa, trade unions across the EEA aspire to establish a similar process of

bargaining co-operation and co-ordination. Uni-Europa’s initiative, which is in

its infancy, aims to draw up European-level recommendations, which can be

incorporated in the bargaining agenda in national negotiations, and to establish

a mechanism for the systematic exchange of bargaining information with the

intention of facilitating a benchmarking process across borders.

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The Euro-company dimension

As the next chapter by Paul Marginson describes in greater detail, there have

also been significant developments at Euro-company level. According to the

European Trade Union Institute, by the end of 2001 around 650 MNCs had

reached agreements with representatives of their employees to establish trans-

national machinery for information and consultation under the 1993 European

Works Council (EWC) Directive. Moreover, the increasing importance of man-

agement benchmarking, above all in sectors such as automotive, is encouraging

greater harmonization regardless of the activities of trade unions.

3 NATIONAL INDUSTRIAL RELATIONS SYSTEMS: A CASE

OF ‘RENATIONALIZATION’ AND ‘EUROPEANIZATION’?

Less obvious, but fundamentally important in the emergence of a multi-level

system of industrial relations, have been developments within national sys-

tems. National industrial relations systems have always been multi-level to

some degree, with national, sector, company and workplace levels interacting

with one another. Making the difference is the international dimension that

the EU brings. As Richard Hyman’s chapter discusses in greater detail, national

systems everywhere are under pressure. Arguably, this is especially so in the

case of EU countries, as policy makers and practitioners have sought to grapple

with the implications of globalization in general and EMU in particular. One

result, however, is some striking parallels in the developing patterns of regula-

tion between national systems, reflecting a great deal of ‘hybridization’ and

‘cross-fertilization’ – Europe is learning from Europe, in Teague’s words (2001:

54). Thus, as well as a rise in company bargaining, there has also been strength-

ening of the national level through the negotiation of ‘social pacts’. Seemingly

contradictory – the one involving decentralization, the other centralization –

they represent two dimensions of the same problem: the need for policy makers

and practitioners to meet the challenge of the ‘regime competition’ that

European integration is helping to promote.

Centralization and decentralization

Most EU countries, the exception being the UK, have been characterized by an

inclusive structure of multi-employer collective bargaining at national and/or

sector level. Indeed, such structures could be said to form a cornerstone of their

industrial relations systems. In the face of growing international competition,

however, there has been a widespread trend towards more decentralized

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bargaining arrangements giving management greater scope to negotiate working

and employment practices appropriate to the circumstances of the company or

its constituent units. The development is long running, but the creation of the

single European market and its subsequent deepening through EMU has served

to reinforce it by unleashing extensive restructuring and rationalization. The

result is a growth in the negotiation of what have been called ‘pacts for employ-

ment and competitiveness’ (PECs), in which management and employee repre-

sentatives seek to handle the implications of restructuring by agreement (Sisson

and Artiles, 2000). Frequently, developments in metalworking have set the pace,

reflecting the extent to which the sector is open to international competition

and differentiated in terms of products and production processes (Marginson and

Sisson, 1998: 523). In recent years, however, sectors such as banking and insur-

ance, where competition has remained nationally bounded, have been affected.

Significantly, however, although decentralization is causing considerable

tensions within national systems, more of which below, it has not led to the

widespread break-up of multi-employer bargaining. As Ferner and Hyman

(1998: xvi–xvii) observe, ‘Decentralization has largely taken the form of a con-

trolled and co-ordinated devolution of functions from higher to lower levels of

the system’, i.e. more and more of the detail of industrial relations practice is

being filled out through negotiations at lower levels, especially the company

level. In most cases, to use Traxler’s (1995) words, decentralization has been

‘organized’ inasmuch as the company bargaining occurs within the framework

of the sector agreement; only in the UK, reflecting the very different form and

status of multi-employer agreements, has the decentralization been ‘disorga-

nized’, with sector agreements disintegrating and being displaced by company-

level arrangements. A variety of methods have been used to achieve flexibility,

such as ‘opening’, opt-out and ‘hardship’ clauses in sector agreements, along

with a shift from uniform to minimum standards.

Moreover, at the heart of the ‘centrally co-ordinated decentralization’ in

many EU countries has been a strengthening of higher-level (central) co-

ordination. Under pressure to hold back inflation and reduce public sector

deficits in line with the convergence criteria for EMU, most national govern-

ments have sought agreements with employers’ organizations and trade

unions – so-called ‘social pacts’ (Fajertag and Pochet, 2000) – on wage moder-

ation, greater labour market flexibility and reform of the system of social pro-

tection. In some cases, such as Italy and Spain, confederal-level agreements

have established new procedural roles formalizing the respective competence

of the different levels in the collective bargaining structure and simultaneously

have conferred greater autonomy on the company level, thereby allowing

scope for greater substantive flexibility (Ferner and Hyman, 1998: xvi–xvii).

Even where there has been no formal agreement, as in the case of Germany, the

macro-social dialogue has been significant in structuring attitudes.

Social pacts can be viewed as promoting ‘regime competition’ in that they

are a form of ‘renationalization’ with a view to increasing the attractiveness of

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the national economy as an environment for business and investment (Martin,

1998; Schulten, 2001). Equally, however, they can be seen as an instrument of

‘regime collaboration’ involving mutual benchmarking of terms and condi-

tions in other countries (Dølvik, 2001), i.e. a key development in the process

of ‘Europeanization’. For, it can be argued, they both reflect the emphasis at EU

levels on social dialogue and collective bargaining as the vehicles for handling

economic and social change, and serve to give credibility to the inclusive struc-

ture of multi-employer bargaining.

As Traxler (2003) has suggested, meeting the stringent monetary and fiscal

convergence criteria for membership of the third stage of EMU (i.e. adoption of

the single currency) considerably enhanced the benefits of multi-employer bar-

gaining for governments and employers at the same time as it emphasized the

costs of exit. An inclusive structure of collective bargaining made it possible, in the

form of ‘social pacts’ and their equivalent, to make fundamental changes in a

number of key areas built, procedurally, around the notion of ‘organized’ decen-

tralization’ and, substantively, around competitiveness. Equally, it drew attention

to the very high costs that employers and governments would have had to pay if

they turned their backs on such structures. For an inclusive structure of collective

bargaining not only helps to legitimize overall frameworks, but also underpins the

deep involvement of employers’ organizations and trade unions in other key

activities such as the administration of training and social protection systems.

Fundamentally important is the fact that a combination of centralization

and decentralization has great advantages in helping to deal with the com-

plexity of the collective action problem involved in sovereign bodies reaching

agreement. It makes it possible for the principals to set a sense of direction and

yet to avoid failure to agree on the details which can so easily bedevil the nego-

tiations between them. At the same time, by delegating responsibilities to

representatives at lower levels to tailor solutions to their immediate situation, it

improves the prospects of member acceptance internally.

Changing patterns of regulation?

Especially critical in understanding the parallel developments within national

systems is the fact that policy makers and practitioners have to grapple with an

increasingly complex raft of ‘new’ issues, reflecting the pressures of ‘globaliza-

tion’ and ‘Europeanization’. To paraphrase the Supiot Report (1999: 140–7), in

many EU countries, collective bargaining has traditionally been seen primarily

as a means of improving the legal status of employees. In some countries,

notably Germany, the very strict legal division of powers between collective

bargaining, on the one hand, and the responsibilities of works councils on the

other, has reinforced this. Increasingly, however, collective bargaining is

assuming a wider range of functions, breaking down the distinction in the

process. It is not just that the content of legislation is very often determined by

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collective bargaining. As well as taking over some of the legislative function of

the state, collective bargaining has been given greater responsibility for imple-

menting legal provisions (i.e. a regulatory function) and has also become an

instrument for handling restructuring (i.e. a flexibility function). In some cases,

it has even involved employees in economic decision making within the com-

pany (i.e. a management function). The overall effect of the wider roles being

assumed by collective bargaining is to bring about a considerable shift of

emphasis in the key assumptions, subjects and processes of industrial relations,

which are increasingly influential at national as well as EU levels. Figure 17.3

endeavours to capture the emphasis of this shift in contrasting caricatures of

the ‘old’ and the ‘new’ industrial relations paradigms.

A reorientation of the bargaining agenda

As collective bargaining assumes a wider range of regulatory functions, common

changes are also taking place in the other dimensions. Most obviously, there is

a widening of the scope. At national level, ‘social pacts’ can cover employment

policy and social protection arrangements as well as issues more traditionally

associated with the employment relationship such as wages and working time.

At company level, PECs can include fundamental changes in work organization

and working time arrangements, the handling of substantial job reductions,

guarantees of employment security and detailed investment plans. Significantly

too such ‘pacts’ typically do not just involve a one-off ‘agreement’. Many make

explicit provision for on-going joint implementation, development and collec-

tive administration through ‘bilateral bodies’ and ‘company-wide action teams’.

From distributive to integrative bargaining?

An increase in the subjects and the greater devolution of collective bargaining

is also having an impact on the process involved. In the language of Walton

and McKersie (1965), collective bargaining has traditionally been associated

with distributive bargaining in which there are ‘winners and losers’ in a ‘fixed-

sum’ or ‘zero-sum’ game. Yet many bargaining situations are better understood

in terms of what they term integrative bargaining, involving a ‘positive-sum’

game in which the parties seek to integrate their objectives to some degree and

in which there can be ‘mutual gains’ from arriving at an agreement.

There is a strong element of problem solving and ‘quid pro quo’ bargain-

ing about the process of negotiating ‘social pacts’ and PECs, which is charac-

teristic of integrative bargaining. Significantly, too, many of the mechanisms

of integrative bargaining are to be found, including joint working parties,

third-party facilitation and continuous review of progress.

Especially noticeable, however, is the key role played by management. In

distributive bargaining, it has tended to be the trade union which takes and is

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expected to take the initiative in formulating claims and demands, while

management is largely reactive. This reflects the mutual recognition implicit in

the process of collective bargaining and which is often enshrined in the earliest

national compromises. In the case of PECs, it is management that very often

played the key role, initiating the negotiations and coming to the bargaining

table with its own bargaining agenda. Important too is the understanding that,

as well as seeking to negotiate changes in the terms and conditions traditionally

covered by collective bargaining, management has also often been willing to go

further and include items that previously were regarded as falling within its pre-

rogative, such as changes in work organization or future investment.

In many cases, management has not had a great deal of choice in the

matter. The practical reality is that many of the changes that it has been seeking

to introduce involve the terms and conditions of existing collective agreements

and/or works agreements. Arguably even more important, however, is the fact

that intensifying competition requires management both to minimize costs and

promote the co-operation and commitment of the workforce necessary for

continuous improvement. In these circumstances, the legitimacy of management

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448

The ‘old’ industrial relations The ‘new’ industrial relations

Key assumptions

• stability • change

• conflict • co-operation

• social justice • continuous improvement

• standardization • diversity

• a predominant level of activity • multiple levels of activity

• centralization • decentralization (subsidiarity)

Subject matter

• claims/grievances • information/benchmarking

• rights/obligations • standards/targets

• pay and conditions • employment and competitiveness

• inputs • outputs

Processes

• distributive bargaining • integrative bargaining

• agreement making • social dialogue

• law making • target setting

• vertical integration • horizontal co-ordination

• enforcement/sanctions • monitoring/learning

Changing emphases in industrial relations

FIGURE 17.3

3122 Ch-17.qxd 10/29/03 3:50 PM Page 448

decision making can be profoundly important, helping to explain why managers

seek the agreement of employee representatives. In effect, local managers and

employee representatives are forced into each other’s arms, helping to account for

the shift in emphasis from distributive bargaining to integrative bargaining.

From compulsory systems to flexible frameworks?

A further consequence of the developments taking place has been a shift in

emphasis from ‘hard’ to ‘soft’ regulation in terms of output at national as

well as EU levels. As the Supiot Report (1999: 145–6) reminds us, it is not just

that more issues are being decided by collective bargaining, leading to the

tendency to divest laws of substantive rules, which tend to be ‘hard’ in form,

in favour of rules on negotiation, which tend to be ‘soft’. In recent years, so-

called ‘proceduralization’ has been affecting collective bargaining as well –

there has also been a considerable growth in framework agreements.

Typically, the higher the level at which a collective agreement is reached, the

more likely it is to take the form of a framework agreement or accord cadre,

wherein much of the regulation is of the ‘soft’ or incomplete variety. Indeed,

a key rationale of much of the higher-level activity – indeed, it is the very

essence of ‘organized decentralization’ – is to lay the way for more detailed

negotiations at lower levels that can embrace ‘hard’ regulation tailor-made to

the specific circumstances of individual units. Most social pacts between

national social partners take the form of ‘framework’ agreements, as do many

company-level PECs.

Just as the kind of detail involved in the negotiation of PECs cannot be

dealt with at higher levels, so too it is much more difficult to pin down in the

form of ‘hard’ regulation. This would be true, for example, of commitments to

flexibility and continuous improvement or the involvement of employee rep-

resentatives in the organization’s planning for the future. In these and other

cases, delegation of the responsibility for implementation to lower levels, an

issue already discussed above, can also mean that the company-level provisions

are general in definition. A further consequence is greater informality, which

links back to the point about form – collective bargaining begins to look more

like social dialogue than agreement making.

4 CONCLUSION: PROSPECTS FOR THE FUTURE

Multi-speed ‘Europeanization’?

Evidently, the pace at which these developments are taking place within

national systems varies considerably between and within sectors as well as

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between and within countries. Differences between sectors are inextricably

bound up with industrial structure and industrial relations institutions. A

comparison of the automotive and financial services sectors will illustrate the

point. In automotive manufacturing, cross-national comparisons at company

level are already an important consideration; in financial services, they hardly

feature except in the case of specialist groups, which tend to be non-unionized.

Automobile manufacture is exceptional in the degree of homogenization of

activities and the accompanying integration of operations for their delivery,

being dominated by a small number of very large MNCs with increasingly inte-

grated European and in some cases world-wide markets and production opera-

tions. An internal market for capital has long been a feature and the use of

‘coercive comparisons’ integral to its operation. Finance services are also

increasingly dominated by large MNCs. Yet most of these organizations are

involved in an increasingly diverse range of activities embracing both banking

(retail, corporate and investment) and insurance. Most importantly, retail

banking, where most unionized employees are to be found, remains largely a

domestic affair, albeit increasingly influenced by global developments (for fur-

ther details, see Sisson and Marginson, 2001).

Differences within the sectors can be related to the specifics of the nature

and extent of integration, ownership, market, geographical spread, organiza-

tion structure and the ability of employee representatives to mount their own

‘coercive comparisons’. A comparison of Volkswagen and Opel in the automo-

tive sector in Germany illustrates the point. Volkswagen is a German-owned

company with an element of public ownership, which has the bulk of its work-

force not only in Germany but in one particular area of the country. The acqui-

sitions that it has made in other countries, such as SEAT in Spain and Skoda in

the Czech Republic, produce their own marques. Opel belongs to a US-owned

company, which has a number of operations across Europe as well as Germany

producing the same or very similar products. Volkswagen has been able to

achieve a position for itself where demand tends to outstrip supply, whereas

Opel (like Ford) has to rely on a high volume approach.

Differences between countries reflect two factors: the extent to which the

economies of sub-groups of countries are already more integrated with each

other than they are with those of the EEA as a whole; and the similarity or other-

wise of industrial relations structures and traditions, which shapes the imme-

diate potential for co-ordination initiatives. Thus, co-operation amongst both

employers’ organizations and amongst trade unions in the Nordic countries

reflects both the comparative depth of the economic integration that already

exists between these countries and important similarities in industrial relations

institutions and traditions. A similar argument applies, although a little less

forcefully, to the countries which were previously part of the unofficial

‘Deutsch-Mark zone’: Austria, Belgium, Germany and the Netherlands (see

Marginson and Schulten, 1999) and which, as noted earlier, have been the

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focus of pioneering initiatives in bargaining co-ordination on the part of trade

unions. An implication is that European co-ordination of bargaining may flow

from arrangements that embrace varying geographical configurations of

European countries, thereby intensifying the tendency toward multi-speed

Europeanization.

An unstable balance?

Like the EU polity’s multi-level governance system, the trajectory of the multi-

level industrial relations system is uncertain. It is by definition a system ‘in the

making’ and there is no ‘pre-assumed end point’ for developments. Tensions

abound. For example, there is the issue of the balance of responsibilities

between the different levels, which ‘subsidiarity’ deals with only superficially.

These involve not only the balance between the EU and member states, but

also the responsibilities of Community, EU sector and Euro-company levels.

Similarly, within countries there is the balance between national and sector

arrangements and between sector and company arrangements. Employers’ rep-

resentatives complain about the costs and time involved in so many levels,

whereas their trade union counterparts worry about the ‘hollowing out’ of

higher-level agreements and the resulting diversity at company and workplace

levels.

The corollary of the greater convergence across countries is greater diver-

sity within countries. ‘Globalization’ and ‘Europeanization’ are intensifying

the long-standing differences between ‘sheltered’ and ‘unsheltered’ sectors,

complicating the achievement of national-level ‘social pacts’. At the same time,

they are exaggerating the equally long-standing differences between large and

small employers, making it more difficult for employers’ organizations to

achieve the necessary consensus to arrive at meaningful sector agreements.

Here the emergence of ‘new’ sectors and activities associated with ‘tertiariza-

tion’ is creating further difficulties: incorporating these into existing agree-

ments has further significant implications in terms of their scope and form

(Hornung-Draus, 2001).

Complicating matters further are the informal processes at work. Perhaps

most obviously there is the sharp asymmetry in focus on the part of trade

unions and employers at EU levels (Marginson and Schulten, 1999). On the

trade union side, initiatives aimed at cross-border co-ordination are focusing

on the sector level. At company level, the potential offered by EWCs appears

to remain largely unfulfilled. Instances where action has been co-ordinated

through the EWC have occurred, particularly in the highly organized automo-

tive sector (European Works Council Bulletin, 2001). But a wider tendency, evi-

dent in other sectors as well as automotive, is for union representatives to see

EWCs as an instrument to gain information to be deployed in their domestic

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negotiations (Hancké, 2000). Amongst employers, the organizations responsible

for sector-level negotiations are strongly opposed to cross-border co-ordination.

The management of MNCs, by contrast, is increasingly co-ordinating bargain-

ing over working practices and working time arrangements across countries,

reflecting a range of ‘isomorphic’ pressures. In so doing, the role of headquar-

ters management in enforcing ‘coercive comparisons’ is becoming increasingly

transparent, potentially exposing it to future demands from employee

representatives for more European-level negotiations.

Arguably, however, most fundamental of all is the tension at the heart of

collective bargaining itself. It is perhaps best summed up in the phrase that

policy makers have increasingly used in recent years to seek to maintain a

balance, i.e. flexibility and security. As the previous section has argued, the

multiple roles that collective bargaining is required to play put a premium on

flexibility. Yet experience suggests that, to paraphrase Wedderburn (1997: 11),

the effectiveness of processes such as integrative bargaining and social dia-

logue depend on a ‘fundament’ of ‘hard’ regulation, be it ‘constitutional prin-

ciple’, ‘legislative provision’, ‘tough judges’ or collective agreements. It is this

fundament of ‘hard’ regulation that gives employee representatives the confi-

dence to engage in these processes as well as legitimizing them in the eyes of

managers.

The forthcoming enlargement of the EU in 2004 is likely to be especially

critical in terms of future direction, meaning more of the same or an unravel-

ling of the balance. Self-evidently, enlargement means that the collective

action problem cannot fail to grow, making any consensus even more difficult

to achieve. The difficulties of reaching agreement have been substantial

enough with the original six member countries, let alone the present 15 coun-

tries. They will become even greater when the EU expands to embrace 25 coun-

tries. Perhaps even more important, though, is the fact that the accession

states’ institutional framework of industrial relations remains relatively imma-

ture and, crucially, the predominant pattern of collective bargaining is single

employer rather than multi-employer, reflecting weak or non-existent employ-

ers’ organizations. Moreover, the accession countries are at very different stages

of economic development, with wages and conditions lagging behind those of

most EU member states. Not surprisingly, the priorities are very different.

Indeed, such is the commitment of some of the leaderships to the neo-liberal

position that it has been suggested that the accession countries may turn out

to be the ‘Trojan Horse’ for the much-feared ‘Americanization’ of industrial

relations (Meardi, 2002). Complexity, uncertainty and instability look set to be

the defining characteristics of industrial relations in Europe for the foreseeable

future.

In the following and final chapter Paul Marginson takes our analysis to the

company level by examining the relevance of the concept of the Eurocompany

within (European) industrial relations.

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5 DISCUSSION QUESTIONS

1 Why do you think most EU member states insisted on the principle of sub-

sidiarity in matters of social policy, and were they correct to do so?

2 What would you say were the main strengths and weaknesses of legal enact-

ment, collective bargaining and benchmarking-type activities such as the ‘open

co-ordination method’ in developing international industrial relations systems?

3 What do you see as the most likely trajectory for industrial relations in Europe –

‘Europeanization’ or ‘Americanization’ – and why?

6 FURTHER READING

•

Ferner, A. and Hyman, R. (eds) (1998)

Changing Industrial Relations in Europe

Oxford: Blackwell.

The most authoritative overview of European industrial relations departments and the national

systems of EU member states.

•

European Commission (2000b)

Industrial Relations in Europe 2000

, Luxembourg:

Office for the Official Publications of the European Communities.

Very useful in its dealing of EU institutions and the relationships between them. It also offers

an ‘official’ view of the significance of many of the developments discussed in this chapter.

•

Fajertag, G. and Pochet, P. (eds) (2000)

Social Pacts in Europe: New Dynamics

Brussels: ETUI.

The ‘social pacts’ phenomenon, along with the debates it has given rise to, is dealt with most

thoroughly here.

•

Sisson, K. and Marginson, P. (2000a)

The Impact of Economic and Monetary Union

on Industrial Relations. A Sectoral and Company View

. Luxembourg: Office for the

Official Publications of the European Communities.

Here is a review of the impact of EMU on industrial relations that adopts a ‘bottom-up’ as

opposed to the usual ‘top-down’ approach.

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EU Social Policy in the 1990s

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Ferner, A. and Hyman, R. (1992) ‘Introduction: industrial relations in the new Europe: seventeen

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Industrial Relations in the New

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18 The Eurocompany and European

Works Councils

Paul Marginson

1 Introduction 457

2 The Eurocompany differentiated from wider, global developments 459

3 European company characteristics which transcend national borders 462

4 Europe as a distinct social space 466

5 The case of European Works Councils 468

6 Conclusions 475

7 Discussion questions 477

8 Further reading 477

Acknowledgement 478

References 478

1 INTRODUCTION

In the face of the internationalization of markets and production, many

commentators argue that multinational companies (MNCs) are becoming increas-

ingly ‘global’ in nature. Conversely, the specificities of national markets and pro-

duction regimes, according to which international companies were previously

constrained to organize their activities, are seen to be of diminishing salience.

This has led some to conclude that MNCs are increasingly ‘stateless’ organiza-

tions, detached from the institutional structures, practices and customs of the

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particular societies in which they originated (Ohmae, 1990). Others, however,

contend that whilst the scope of corporate activity may be becoming more

‘global’, the competitive advantages that individual MNCs seek to leverage in

international markets are crucially shaped by the national ‘business systems’

(Whitley, 1992) in which they are rooted.

Earlier debate over these two positions tended to polarize the ‘global’ and

the ‘national’. More recently attention has turned to sub-global processes of

internationalization showing in particular how processes of internationali-

zation are concentrated within the sub-global regions of western Europe, North

America and east Asia that comprise the so-called ‘Triad’ (Dicken, 1998;

Rugman, 2000). This chapter conceptualizes the international company as an

intermediate form of organization on a sub-global basis and demonstrates the

value of doing so for industrial relations analysis. Focusing on one particular

region, western Europe, it argues that the ‘Eurocompany’, a term coined in ear-

lier writing (Marginson and Sisson, 1994), can be differentiated from both the

‘global’ corporation and the international company as ‘national champion’.

The approach taken in this chapter is to examine the Eurocompany from

both ‘above’ and ‘below’. The next section argues that from above, Europe con-

stitutes an economic, political and regulatory space which can be distinguished

from wider, global, processes of internationalization. This forms the context

within which international companies develop distinct European dimensions

to their forms of (management) organization and coordination of production

and market servicing. The third section, whilst recognizing that companies can

be differentiated according to their national origins, argues that from below the

Eurocompany is something more than the simple extension of national com-

panies beyond their borders. Crucially, it also coheres around characteristics

which transcend national borders. These comprise the diverse, but over-

lapping, forms of enterprise found in many national economies and the sector-

and organization-specific transnational management practices being forged by

MNCs. As such the Eurocompany is a plural rather than uniform construct.

In examining the relevance of the concept of the Eurocompany within

industrial relations analysis, the chapter focuses on European Works Councils

(EWCs). The evolution of an, albeit limited, European regulatory space in the

sphere of industrial relations is briefly reviewed in the fourth section, focusing on

developments within MNCs themselves. At company level, the establishment of

EWCs represents a major innovation in institution-building at transnational

level in MNCs within a global region. Their scope in all save a few cases is

European rather than global. Yet it has been argued that these ‘European’ struc-

tures are essentially extensions of national systems of workplace representation;

EWCs differ in their structure and operation largely according to the national

industrial relations system in which the parent company is headquartered

(Streeck, 1997). Drawing on evidence from studies of the provisions of agree-

ments establishing EWCs and of the functioning of EWCs in practice, the fifth

section questions this assessment. It highlights the additional, and in some

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instances pronounced, influence on the structure and functioning of EWCs of

factors which transcend national borders. It thereby demonstrates that the con-

cept of the Eurocompany can purposefully be applied within industrial relations.

In its conclusion, the chapter asks whether EWCs are likely to provide a

focal point for further developments in European industrial relations, espe-

cially collective bargaining.

2 THE EUROCOMPANY DIFFERENTIATED FROM WIDER,

GLOBAL DEVELOPMENTS

The structures and institutions of the EU are creating an economic, political and

regulatory space whose character and dynamic are distinctive when set against

wider, global, developments or those in the other global regions. ‘Political insti-

tutions have been created which have a capacity to control the process of inter-

national economic integration that is greater than in any other region, for

example North America’ (Martin, 1996: 6). The economic nature of the political

project underlying the construction and enlargement of the EU is well estab-

lished. From the mid-1980s, the programme to create the single market by the

end of 1992 was expressly aimed at promoting the rationalization and restruc-

turing of European industry, so as to enhance its competitive position in global

markets. Further impetus is given to these processes by the dynamics of the

Economic and Monetary Union, launched in 1999: encouraging companies to

organize their production and their market servicing on a continental basis.

Paradoxically, the emergence of Europe as a distinct economic zone is underlined

by the extent to which international companies based outside Europe, concerned

to consolidate their presence within a key global market, have also been players

in the twin processes of restructuring and rationalization within the EU (Ramsay,

1995). In addition, the European Commission has pursued industrial policies to

facilitate the restructuring of particular industrial sectors, such as steel, and com-

petition policies aimed at opening up previously closed markets to European-

wide competition, as in energy, telecommunications and airlines.

The distinctiveness of a European economic space within the global econ-

omy is sharpened by parallel developments in the other advanced industrial-

ized regions (Dicken, 1998). More recent and less far-reaching than the EU,

NAFTA (North American Free Trade Area) currently embraces the economies of

North America; enlargement into Latin America is foreseen. Although as yet

only in the process of establishing a free trade area, AFTA (ASEAN Free Trade

Area) groups the industrialized and industrializing economies of east and

south-east Asia. The result is the emergence of a tri-polar international econ-

omy, the ‘Triad’, comprising Europe, North America and Japan and its eco-

nomic satellites, in which economic exchanges (amongst the countries) within

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each of these poles are significantly more intense than those between the three

poles (Dicken, 1998; Rugman, 2000).

This regional dimension to the process of internationalization has received

insufficient attention (Hay, 2000). In their critique of the globalization thesis,

Hirst and Thompson (1996, 1999) produce evidence which they interpret as

showing that, above all, multinational corporate activity is heavily concen-

trated in home countries. Yet this same evidence points also to the extent to

which European MNCs are regional in the scope of their activities. Their analy-

sis of the geographical distribution of assets and sales in 1992 of MNCs head-

quartered in France, Germany, the Netherlands and the UK shows significant

regional concentration on both counts, a finding echoed by Van Tulder et al.

(2001) (see Box 18.1). Differences between ‘home’ countries are evident too:

French- and German-based MNCs are more home, and less extra-European,

focused than their Dutch and British counterparts, as Van Tulder et al. (2001)

also observe. Even so, Pain (1997) reports that since 1990 UK-based MNCs have

oriented overseas direct investment more towards western Europe and less

towards the US. Regional concentration of economic activity of European-

based MNCs suggests that the construct of the Eurocompany is useful analyti-

cally in accounting for developments.

Box 18.1 The European regional dimension to economic

internationalization

• In 1997, intra-EU trade accounted for 61 per cent of EU exports and a

further 13 per cent of EU exports went to non-EU European countries

(Rugman, 2000). Between 1980 and 1998, analysis of the destinations of

exports from two different EU member states, Denmark and the UK, indicates

a significant Europeanization of trade relations in both cases (Hay, 2001).

• Analysing 200 of the world’s largest firms, Van Tulder et al. (2001: 63)

remark on the extent to which the European-based companies remain

regionally concentrated; in 1997 Europe accounted for some 70 per cent

of both assets and sales for these companies.

• In 1997, the largest share of the outward stock of foreign direct invest-

ment from EU-based companies, 41 per cent, was located in other EU

countries (Rugman, 2000).

• Cross-border mergers and acquisitions by EU-based companies primarily

took place within the European region between 1987 and 1999, with the

exception of UK-owned companies where North America also accounted

for a substantial proportion (United Nations, 2000)

The concept of the Eurocompany also implies a direction of development

over time. Most evidently, companies have invested considerable resources in

establishing market servicing and production operations on a pan-European

basis. This is reflected in the wave of mergers and acquisitions from the

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mid-1980s in anticipation of the single market, which peaked in 1990, a growing

proportion of which were cross-border in scope (Buiges, 1993). The prospect of

deeper integration through economic and monetary union reinvigorated the

process. Cross-border mergers and acquisitions in the EU surged again from

1995, accelerating towards a new peak in 2000 before declining in the face of

an economic downturn (United Nations, 2000; Acquisitions Monthly, 2002).

Economic and market integration has also led to the creation of new European-

scale companies through joint ventures and, more tentatively, strategic

alliances; indeed, some commentators have predicted that it will foster the

emergence of a ‘super-league’ of European MNCs (Martin, 1998). In pharma-

ceuticals, for instance, developments since 1998 have seen the merger of

Hoechst’s operations with those of Rhone-Poulenc, that between Astra

and Zeneca and the combinations of British-based GlaxoWellcome and

SmithKlineBeecham and Swiss-based Ciba-Geigy and Sandoz. Importantly,

these developments have been far from limited to European-based companies:

MNCs headquartered in the other two poles of the Triad have participated

strongly in these consolidations (Ramsay, 1995; Van Tulder et al., 2001), in the

process creating identifiable European regional units. Effectively integrating

the resulting combinations at European level and securing a coordinated

approach to the market and/or to the organization of production at European

level is, however, contingent on the strengthening of European-level manage-

ment structures and forms of coordination within MNCs.

More generally, as Tony Edwards demonstrates in Chapter 15, the inter-

nationalization of markets and of the organization of production have stimu-

lated the deepening of international forms of management coordination and

organization within international companies. Such deepening has also taken

on an expressly European dimension, more evident in some sectors than others.

Mendez (1994) provides a detailed study of the progressive deepening of

Groupe Danone’s management structures at European level. Elsewhere in the

food industry, Coller (1996) identifies the distinctive coordinating role played

by the European management structure of the European foods business of a

globally spread European MNC. The development of a regional dimension to

the management organization of the European operations of MNCs headquar-

tered outside Europe is also evident. In the automotive sector, both Mueller and

Purcell (1992) and Hancké (2000) underline the coordinating role of the

European management organizations in the regionally integrated operations of

North American MNCs.

Despite the evident regional concentration of stocks and flows of inter-

national investment by MNCs, taxonomies in the international business literature

typically locate sectors and companies within a matrix which accounts for the rel-

ative strength of global and local (i.e. national) pressures operating on the dual

logics of marketing and production (Bartlett and Ghosal, 1992, see also Chapter

2). Porter’s (1986) distinction between companies operating in ‘multi-domestic’

industries, where competition is nationally bounded, and those which are ‘global’

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in scope has been particularly influential. Such taxonomies might be usefully

refined to incorporate the salience of regional economic influences for marketing

strategies and production organization. In a rare empirical investigation of the

utility of the ‘Porterian’ categories, based on in-depth interviews with directors

and senior managers in 52 enterprises in ten industries in France, Atamer (1993)

found that firms differed in their perceptions of the impact of the creation of the

single European market. The impetus to develop European-level marketing and

production varied across sectors: respondents in the agro-chemical and food sec-

tors anticipated a strong impact, and hence the need for a European response;

those in paper, printing and plastics, currently perceived as essentially national

markets, anticipated little impact, and accordingly had plans to formulate a

European response in only a few specialist sub-segments; in machine tools,

already perceived as European in scope, little further impact was anticipated.

The process of constructing a European economy is driving industrial

sectors towards European-level production and/or marketing strategies at varying

speed. Reinterpreting the ‘Porterian’ taxonomy in the light of economic and

market integration, in some industries the multi-domestic category is no longer

feasible. The ‘domestic’ market and the ‘domestic’ scale of production are now

regional: Europe is the new ‘domestic’ context. But neither are such industries

necessarily becoming global: they might be appropriately categorized in

Porterian terms as ‘multi-regional’. Ruigrok and Van Tulder (1995), in arguing

that regionally focused internationalization strategies dominated globalization

during the 1990s, suggest a similar conclusion.

In sum, Europe exists as a distinct economic space for a growing number

of industries and enterprises. It is analytically useful to differentiate the

Eurocompany from the global corporation. But empirically this can be more

readily discerned in some industries than in others; it is also more apparent in

the organization of the business operations of some firms than in others. The

implication for the development of transnational industrial relations arrange-

ments in Europe is, first, that they will tend to be European rather than global

in scope and, second, that they will be more evident in some sectors and inter-

national firms than in others.

3 EUROPEAN COMPANY CHARACTERISTICS

WHICH TRANSCEND NATIONAL BORDERS

From below, an important source of differentiation between European MNCs is

the variety of national institutional forms within which they are located.

Societal contingency approaches, which constitute the prevailing orthodoxy,

insist that enterprises are primarily shaped by these nationally specific features.

Under the societal approach proposed by Maurice et al. (1986), which is

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considered in more depth by Arndt Sorge in Chapter 5, the organization of

production and work within the enterprise is shaped by the interlocking influ-

ences of the institutional forms, specific to each society, governing education

and training, the conduct, control and coordination of work and the regulation

of conflict. Alternatively, the concept of nationally distinct business systems

advanced by Whitley (1992) relates the fundamental differences in enterprises

across countries to two sets of institutional features which are elaborated below.

Yet national economies across Europe are far from homogeneous: they continue

to support a diversity of forms of organization, some of which transcend national

borders (Mayer and Whittington, 1996). Moreover, ‘organization effects’ (Mueller,

1994) involving processes of cross-national diffusion within multinational com-

panies are resulting in convergence of management and production practice

across countries. The concept of the Eurocompany amounts to more than an

umbrella for a set of nationally differentiated companies: MNCs within Europe

also cohere around axes which transcend national borders.

The influence of national business systems on the strategies and behaviour of

enterprises is well established (Whitley; 1992; 1996). The first set of features iden-

tified by Whitley is the nature and extent of the activities coordinated through

authority structures or through external networks and institutions. Considerable

national variation within Europe is evident according to this set of factors. Large

Anglophone enterprises organized along multi-divisional lines display a strong

tendency to internalize activities but to develop new competencies through acqui-

sition; the diversified variant has also shown considerable industrial mobility.

Large German enterprises equally display a strong tendency towards internaliza-

tion within an industrial combine, but a greater tendency to develop new com-

petencies internally and to remain committed to particular products and sectors.

The second is the nature of corporate governance structures, where

Whitley (1996) underlines the contrast between the ‘insider’ systems found in

continental European countries and the ‘outsider’ system characteristic of

Anglophone countries. Insider systems, of which the French and German are

two main variants, are distinguished by interlinked networks of corporate,

institutional or family shareholdings, a financial system based on long-term

bank credit, less developed stock markets and constraints on hostile take-over.

Enterprises are embedded in networks of relationships in which the ability to

act independently is restricted by ties of mutual obligation to and dependence

on various stakeholder groups, including employees. In contrast, outsider sys-

tems are characterized by dispersed networks of shareholdings, greater reliance

on internal sources of finance, highly developed stock markets and an active

market for corporate control. Enterprises are largely discrete economic actors

primarily accountable to a single stakeholder, the shareholder.

In terms of behaviour, enterprises embedded in insider systems are likely

to emphasize longer-run performance, and to pursue investment strategies

which involve longer-term commitments to product and process innovation

and associated skill development. In contrast, enterprises embedded in outsider

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systems place more emphasis on short-run financial performance, and adopt

investment strategies which are driven by purely financial criteria. Also, under

insider systems employees are likely to be regarded as enduring assets who

form a potential source of competitive advantage, encouraging an emphasis by

management on training and skill acquisition, whereas under outsider systems

employees are likely to be regarded as disposable liabilities and to be the focus

of short-run cost minimization by management (Marginson and Sisson, 1994).

Whitley (1996: 39) concludes that European enterprises continue to dis-

play considerable variation according to the national business systems in

which they are located, and that there is little evidence amongst large enter-

prises of convergence on a single type, such as the diversified multi-divisional

form. The implication is that European MNCs remain a collection of differing

national types: the national business system remains the essential reference

point for international companies. Mayer and Whittington question this con-

clusion: ‘national economies in Europe seem both to be more internally diverse

and to have more in common than most societal-contingency accounts can

explain’ (1996: 88). They propose instead a ‘societal choice’ approach, which

recognizes that business organization within Europe is simultaneously over-

lapping and fragmented. They argue that institutional environments contain

actors – the state, entrepreneurs, families – that may prefer and have the

resources to support forms of enterprise organization which do not conform to

the dominant model. Such an approach remains sensitive to dominant pat-

terns of business organization, but is also alert to forms that cross-cut national

boundaries. Those forms which cut across European countries include family-

owned enterprises, state-owned or public enterprises, the traditional holding

company structure and the multi-divisional structure (see Box 18.2).

In underlining the scope of intra-societal variation in enterprise forms as

well as the potential points of overlap across borders between them, the soci-

etal choice approach offers some analytical underpinning in conceptualizing

the Eurocompany. Much, however, remains to be specified before this line of

argument can be taken further.

Box 18.2 European enterprise-forms which cross-cut

national boundaries.

• Family ownership is a persistent feature of a number of European

economies, including France, Germany, Italy and the Walloon region of

Belgium. Moreover the challenge posed by internationalization does not

appear to be insuperable for such companies; some have extended their

reach across European markets by acquiring firms in other countries,

French-based LVMH for example.

• The state-owned enterprise has, until recent privatization initiatives, been

a prominent feature of several economies, notably Austria, France, Italy

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and Spain. The parameters within which such enterprises function have

differed from their private-sector counterparts: for instance, their role as

‘social buffers’ in state policies to maintain employment (Ferner, 1994: 57).

Also, state influenced strategic direction and massive state financing have

underpinned the internationalization strategies of some public enter-

prises, particularly in France.

• The loosely structured holding company continues to survive in France,

Germany, the Walloon region of Belgium and Britain in the face of com-

petition from the multi-divisional form, widely regarded as possessing

superior economic properties. In part, this structural form survives for

institutional reasons: the holding company provides a way of mobilizing

capital resources (through minority stakes, for example) in the absence of

supportive capital markets (Mayer and Whittington, 1996).

• The multi-divisional form, the prevalent form of enterprise structure

amongst large corporations in the Anglophone economies, is spreading

more widely across countries with ‘insider’ systems of corporate gover-

nance too. Internationalization strategies appear to be an important trig-

ger: in the face of market integration in Europe and globalization of

markets, German- and French-based MNCs are increasingly adapting their

established modes of business operation and management practice

towards those associated with the Anglophone model of the multi-

divisional enterprise (Ferner and Quintanilla, 1998).

A second problem with the social contingency approach is that it leaves

little analytical space in which to recognize that in becoming international,

MNCs partially escape the national institutional configurations in which they

were previously embedded. As Mueller (1994) argues, MNCs play an active role

in determining how they bridge the multiple national environments in which

they operate. In response to economic pressures which stretch beyond national

boundaries, and in the context of limited forms of supranational regulation,

MNCs are developing organization-specific transnational structures and prac-

tices. These ‘organization effects’ (Mueller, 1994) draw on a wider range of

institutions and practices than those found in the home country, including

practices drawn from the host economies of overseas operations, through

processes of ‘reverse diffusion’ (Edwards, 1998, see also Chapter 15). Ferner and

Quintanilla (1998) report evidence of similar developments in structure and

control systems amongst MNCs embedded within different national business

systems within Europe. Yet they add that this process of ‘anglo-saxonization’ is

one that entails distinctive national variation. Such national variation is under-

lined by Harzing and Sorge (2003) in respect of the control systems utilized by

MNCs based in different European countries, while at the same time identify-

ing cross-border commonalities in the internationalization strategies of com-

panies from different countries of origin.

International notions of best practice at the level of the sector are also

influential. Within some sectors a convergence process around a limited repertoire

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of models of management organization, product strategy, production organization

and working practice has been observed amongst major companies based in dif-

ferent countries. Instances include car manufacture and telecommunications

(Katz and Darbishire, 2000). Such convergence processes extend also to inter-firm

relations which cross-cut national boundaries. As the major car manufacturers

internationalize their sources of supply, they are also increasingly imposing com-

mon production and work practices down the supply chain. With single sourc-

ing and JIT (just-in-time) management, firms along the supply chain are

increasingly dependent on each other, but most particularly on the multina-

tional enterprise that organizes inter-corporate production. ‘Eurocompanies’ can

have Europeanizing consequences beyond their own, directly owned, operations.

In summary, the societal-specific institutions in which enterprises are

embedded at national level are a prominent influence on their behaviour and

structure. Concomitantly, the diversity which exists within national systems,

its overlapping nature across national borders and the convergence of produc-

tion and management practices within and between MNCs as a result of two-

way processes of cross-border diffusion, mean that the Eurocompany is not

reducible to a set of national variants. Neither is the Eurocompany a uniform

transnational form: rather it signifies a plurality of forms which transcend

national borders within Europe. The implication for European-level industrial

relations arrangements, such as European Works Councils (EWCs), is, first, that

they will not be primarily international extensions of different national indus-

trial relations arrangements and, second, that commonalties between EWCs

(and other European-level structures) will be evident according to influences

which cut across national borders such as sector and type of enterprise.

4 EUROPE AS A DISTINCT SOCIAL SPACE

Growing economic integration within the European Union stimulated pres-

sures for a ‘social dimension’, given impetus by the ‘social charter’ proposed by

the Commission in 1989. This was carried forward by the social policy proto-

col of the 1991 Maastricht Treaty, subsequently incorporated as the social chap-

ter of the 1997 Amsterdam Treaty. Yet, as compared with the progress of

economic integration, the development of ‘social Europe’ has been hesitant

and more limited. Although extending European-level regulation of aspects of

industrial relations significantly beyond anything that has previously been

achieved, the measures involved are nonetheless restricted in their scope. This

reflects the limited legal competence of the EU and its institutions to legislate

in the industrial relations field (Hall, 1994; Streeck, 1994). The inability of the

EU to develop a vertically integrated system of industrial relations, providing

comprehensive regulation of the European labour market, which mirrors those

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of the individual member states has been seen as a policy failure by many

commentators. But, as Keith Sisson argues in Chapter 17, from a different per-

spective an alternative assessment can be reached: a multi-level system has

developed in which the EU has a social policy framework that can lay claim to

principles, procedures and substantive outcomes. Sisson goes on to review

developments at the EU multi-sector and sector levels; developments at com-

pany level are addressed here.

Under a multi-level system, account needs also to be taken of pressures

from below for integrated approaches to industrial relations across European

countries. These are operating on management at sector and, above all, com-

pany levels. In most countries pressure for industrial relations and employment

practices which reflect the market and business circumstances of specific sec-

tors and companies are reflected in a widespread decentralization of collective

bargaining arrangements. Although the nature and extent of such decentral-

ization differ across countries (Ferner and Hyman, 1998), there has been a

marked growth in the incidence of collective bargaining within the enterprise,

either at company or workplace level. As a result of such pressures, arrange-

ments in a given sector or international company in one country tend increas-

ingly to resemble those in other European countries and to diverge from those

in other sectors or companies in the same country (Locke, 1992). MNCs are the

critical players involved, leading the trend towards more decentralized

bargaining arrangements (Marginson and Sisson, 1994) whilst simultaneously

developing transnational forms of coordination of industrial relations policy

and practice.

As MNCs deepen their European-level management structures, they

increasingly have the capacity to develop pan-European approaches to indus-

trial relations and employment matters. Where production and market servic-

ing are organized on a European scale, companies are looking to secure similar

levels of labour performance through implementation of similar employment

and working practices across different European countries. International sys-

tems of performance control are used to compare the performance of work-

forces at sites across countries (Coller and Marginson, 1998) and such

comparisons are deployed to lever concessions in working and employment

practices from workforces deemed to be performing poorly, under threat of dis-

investment or closure. In parallel, companies have put in place systems to dif-

fuse best employment and industrial relations practice between operations

located in different countries (Coller, 1996; Edwards, 1998). Within more glob-

ally organized MNCs these parallel processes of performance comparison and

diffusion of best practice extend to sites across the globe, although the inten-

sity of the twin processes involved tends to be greater within the European

region than at global level (Coller, 1996; Mueller and Purcell, 1992). However,

although the corporate perspective on performance comparison and diffusion

processes is European (or wider) in scope, any negotiation over the implemen-

tation of such best practices has largely remained at local or national level.

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Explicit European-level initiatives in the sphere of industrial relations remain

unusual: a small number of MNCs have concluded joint texts with either their

EWC and/or with international trade union organizations on employment

matters (Carley, 2001).

The combination of a European dimension to corporate activity, the exis-

tence of points of convergence within sectors and companies which transcend

national borders, together with the EU’s social policy measures and new regu-

latory processes and instruments described in the preceding chapter, constitute

the elements around which a distinctively European dimension to industrial

relations is emerging.

5 THE CASE OF EUROPEAN WORKS COUNCILS

At company level, the most significant institutional innovation in the develop-

ment of a European dimension to industrial relations has been the estab-

lishment of EWCs. Their emergence is an example of the interaction of

pressures from both ‘above’ and ‘below’. From above, proposals for employee

rights to transnational information and consultation, which resulted in the

directive on European Works Councils, were central to the European

Commission’s initiative for a social dimension (Hall, 1994). From below – in

the face of increasing international integration of production and growing

trade union organizational capacity at European level, as well as distinctive

political circumstances – a small number of French- and German-owned MNCs

had already established voluntary European-level information and consulta-

tion arrangements prior to the publication of the draft directive in 1991.

Indeed, as Hall (1992) argues, the terms of the directive were both prefigured

and influenced by these prototype EWCs.

Originally adopted by 17 European Economic Area (EEA) countries in

September 1994, and subsequently extended to the UK in December 1997, the

directive requires ‘European-scale’ companies to establish EWCs for the pur-

poses of informing and consulting with employees and their representatives on

matters of a transnational nature affecting employees’ interests (see Box 18.3).

The framing of the directive, which provides scope for negotiated arrange-

ments to take precedence over the statutory requirements which it specifies,

has prompted European-level negotiations between management and

employee representatives (frequently trade unions) on an unprecedented scale.

To date, some 700 MNCs (or international divisions of MNCs) have negotiated

agreements to establish EWCs (ETUI, 2001) (see box 18.4). Of these, no more

than 40 were in existence at the time the directive was adopted.

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Box 18.3 European Works Councils Directive: key features

• adopted in September 1994 by the EU Council of Ministers under the

social policy protocol of the 1991 Maastricht Treaty covering 14 member

states (excluding the UK).

• extended to the UK in December 1997 following the UK Government’s

adoption of the social chapter of the 1997 Amsterdam Treaty; now

applies to the 18 countries of the EEA.

• requires ‘Community-scale’ companies to establish European-level proce-

dures for employee information and consultation on transnational

matters, a process triggered by a request from representatives of employees

in more than one country.

• ‘Community-scale’ companies defined as those with 1,000 or more

employees in the EEA and operations employing 150 or more in at least

two EEA states.

• estimated to cover 1,800 MNCs, including the EEA operations of compa-

nies headquartered in the US, Japan and other non-EEA countries.

• gives precedence to arrangements negotiated between management and

employee representatives to establish an EWC over the statutory model

specified in the directive, which acts as a default option.

• as of late 2001, agreements had been concluded establishing some 700

EWCs at either group or international division level within MNCs; the

largest number were in German-based MNCs (125), followed by US- and

UK based MNCs (105 and 100 respectively), then French-based MNCs

(77). There were 50 agreements in Dutch-based, 45 in Swedish-based, 42

in Swiss-based and 22 in Italian-based MNCs.

Box 18.4 European Works Council: geographical scope

and sectoral diffusion

• The precedence which the directive accords to agreements negotiated

between the parties to establish EWCs leaves scope for the conclusion of

arrangements which extend beyond the EEA in their geographical cover-

age. First, in almost all cases European-level structures have been estab-

lished, although management and employee representatives in a handful

of MNCs, including Endesa, Renault, SKF and VW, have (also) established

world-wide bodies. Second, a considerable minority of EWCs provide for

representation from operations in European countries outside the EEA.

One in five agreements extends coverage to Switzerland and a similar pro-

portion to one or more of the countries of central Europe (Carley and

Marginson, 2000). Considerations of companies’ production and man-

agement organization within Europe, rather than the political boundaries

of the EEA, are driving the way in which ‘Europe’ is operationalized. These

findings are consistent with the concept of the Eurocompany.

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• There are considerable sectoral differences in the ‘strike rate’ of

agreements establishing EWCs compared to the number of MNCs covered

by the directive. This may be due to a range of factors, including the

strength of trade union organization within companies, the effectiveness

of their European-level organizations and employer strategy. But also

important is the extent to which production is internationally organized

and integrated. Overall, the ‘strike rate’ of agreements in the more inter-

nationalized manufacturing sectors is double that in the service sectors,

where competition tends to be more nationally bounded (Marginson

et al., 1998; Carley and Marginson, 2000). The same factor can explain

why, within manufacturing, strike rates in the oil and chemicals sectors

are markedly higher than those in paper and printing and textiles, clothing

and footwear; and why the strike rate in financial services is considerably

higher than in any other service sector. Less evidence is available on dif-

ferences in the penetration of EWCs according to type of company.

However, the findings of a study undertaken before the directive was

adopted are suggestive: surveying 100 of the largest MNCs in Europe,

Streeck and Vitols (1995) report that the incidence of EWCs was higher

where employment was concentrated in operations outside the home

country.

Yet the ‘European’ character of these new European-level industrial

relations structures has been challenged by Streeck, who has argued (1997)

that EWCs are ‘neither European nor works councils’. In suggesting that they

are not European, Streeck’s contention is that ‘one can expect European works

councils to be heavily coloured by the national system of their company’s

country of origin’ (1997: 331). This is because employee representatives of the

MNC’s home country workforce, by dint of their established relations with

group management and their numerical dominance, are likely to play a deci-

sive role in negotiations and thereby significantly influence the structure and

role of the resulting EWC. ‘In effect ... European works councils will be inter-

national extensions of national systems of workplace representation, instead of

European institutions in a strict sense’ (ibid., emphasis in original). Streeck’s

claim is distinctly at odds with the implication of the earlier argument that

the Eurocompany is not reducible to a set of national variants. This in turn

suggests that EWCs will tend to develop non-nationally specific forms and

practices; although some ‘country of origin’ effect may be identifiable, com-

monalties between EWCs will also be evident in the form of practices which

cut across countries. In the face of such differences in position, and in order

to test the proposition that EWCs will tend to have a ‘European’ as opposed

to a ‘national’ character, the remainder of this section examines evidence first

on the agreements establishing EWCs and second on EWC practice.

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EWC agreements

Part of Streeck’s argument is that in their basic structure EWCs will reflect

nationally based structures for employee information and consultation: that,

following the French model, EWCs in French-based MNCs are constituted as

joint management–employee structures whereas, in accordance with the

German model, their counterparts in German-based EWCs are employee-only

structures (Streeck, 1997: 331). Findings from analyses of agreements support

this, but only up to a point (Marginson et al., 1998; Carley and Marginson,

2000). Whereas virtually all EWCs in French-based MNCs are joint bodies, less

than three-quarters of those in MNCs headquartered in Austria, Germany and

the Netherlands are employee-only. In other words, a substantial minority

break with the established model for these countries and establish joint EWCs.

Amongst UK-based MNCs the great majority have opted for joint structures,

arguably reflecting the practice of joint consultation arrangements where such

exist. Yet in the Nordic countries, a mixed approach is also evident: two-thirds

of EWCs in MNCs based in these countries are joint bodies, whilst one-third

are employee-only. In part this reflects variations in national practice between

the four countries, but in Denmark and Sweden the constitution of a number

of EWCs breaks with national traditions (Knudsen and Bruun, 1998: 138–9).

National systems, whilst being an important influence on this basic feature of

EWCs, do not appear to be an overriding one.

More generally, four influences on the contents of EWC agreements are

apparent (Gilman and Marginson, 2002). First, are the terms of the EWC direc-

tive itself, or a ‘statutory model effect’, including both specific requirements

detailed in the directive and the terms of the statutory fall-back model

appended to the directive which are to be applied in the event that negotiations

fail to result in agreement. For example, as compared with agreements con-

cluded in the period before the directive came into force in September 1996,

later agreements are more likely to contain provision for the employee side to

have access to independent experts and to convene additional EWC meetings

should extraordinary circumstances arise. Both these are matters directly

covered in the directive. Second is a ‘country effect’ under which industrial

relations arrangements in the European country in which an MNC is head-

quartered, and particularly those for employee information and consultation,

influence the provision of EWC agreements. In addition to the basic structure

of EWCs, referred to above, the country effect is evident in the extent to which

trade union officials are explicitly acknowledged as having the right to attend

and participate in EWCs, something which is more common, for example,

amongst MNCs based in France than in their Dutch or German counterparts. The

influence of different systems of corporate governance is also evident in the

stipulation of confidentiality clauses, which are significantly more widespread

amongst EWCs in UK-based MNCs than amongst their counterparts in French,

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German or Nordic-based companies. More stringent confidentiality clauses,

enabling management to withhold potentially detrimental information, are also

significantly more evident amongst agreements in UK-based MNCs.

Third is a ‘sector effect’, which cuts across countries. This arises from the

similarities in production methods, employment practices and industrial rela-

tions traditions within sectors, but also from the influence of the European

trade union industry federations which have played an important role in initi-

ating and coordinating negotiations across MNCs within their respective

sectors (Rivest, 1996). Such an effect is evident, for example, in the basic structure

of EWCs where, controlling for country, joint structures are significantly more

evident in chemicals and food and drink as compared with metalworking,

arguably reflecting different industrial relations traditions in the respective

sectors. Sector differences are evident too in the incidence with which agreements

explicitly provide for trade union officials to participate in the EWC, with such

participation being more evident in EWCs in chemicals, food and drink and

textile and clothing than metalworking. Following Rivest (1996), this can be

attributed to the differing emphasis placed on such provision by the respective

European industry federations. Fourth, a ‘learning effect’ is evident, under

which innovations in earlier agreements which come to be regarded by one or

other, or both, of the parties as good practice become generalized in later agree-

ments. Like the ‘sector effect’, the ‘learning effect’ cuts across countries and is

evidenced by the growing incidence of clauses in agreements dealing with

training for employee representatives and opportunity for employee represen-

tatives to convene their own meeting immediately following the EWC, both

matters on which the directive is silent.

Overall, the evidence on the provisions of EWC agreements shows that

national systems of workplace representation and consultation do have an

influence, as also do systems of corporate governance. But it also points to the

salience of sector influences and learning effects which are cross-country in

nature. This is at odds with the contention that EWCs are primarily inter-

national extensions of national systems: cross-border processes and European-

level actors, trade unions and MNCs, also appear to be influential in shaping

the provisions of agreements. From this perspective, EWCs represent an inter-

section of country-specific and transnational, sector-specific, influences.

EWC practice

So much for the nature of the agreements which have established EWCs, but

what of their actual functioning? Drawing on research on the functioning of

eight EWCs in multinationals based in four European countries, Lecher and

Rüb (1999) identify three trajectories of development. On the basis of a study

of ten EWCs, Stoop and Donders (1998) posit three similar paths of develop-

ment. Under the first two of these, the operation of EWCs results in bodies

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which, in contrasting ways, are no more than extensions of national systems.

But under the third, the functioning of the EWC is creating a genuinely

transnational form of interest representation.

The first path is where the EWC is essentially the meeting point of differ-

ent national representatives. Each national delegation regards the EWC as an

extension of its national system and attempts to use the EWC to promote pri-

marily issues which accord with national priorities. In this scenario, the EWC

is no more than the sum of the different delegations. Such EWCs are likely to

develop a largely symbolic existence based on an annual meeting, but with

little or no independent contact and coordination between members in

between meetings and no ongoing liaison with group management. Following

Levinson’s (1972) classic analysis of the potential for transnational collective

bargaining, and echoing Perlmutter (1969), these might be described as ‘poly-

centric’ in orientation. Second are those EWCs in which representatives of the

home country dominate the functioning of the EWC, providing the secretariat

and leading officers. The EWC assumes an active rather than symbolic role,

characterized by communication and coordination between employee repre-

sentatives in between meetings and ongoing contact with group management.

But EWC members from operations outside the home country are marginalized

in this process and the international agenda is primarily driven by employee

representatives from the home country. In Levinson’s terms, this equates to an

‘ethnocentric’ approach to constructing industrial relations at the European

level. Third are those EWCs which are developing a new, European, identity

distinct from that of the structures of representation in the home country.

These correspond to Levinson’s ‘geocentric’ orientation. Continuing commu-

nication and activity on the employee side is not necessarily coordinated by

home country representatives, who do not have a monopoly of leading posi-

tions on the EWC or secretariat. Such EWCs are more than the sum of the

national delegations, developing a European agenda which is not nationally

driven, and are beginning to regulate some matters at the European level.

Amongst the cases studied, both Lecher and Rüb (1999) and Stoop and

Donders (1998) find evidence of all three types of EWC. Moreover, instances of

each type are found amongst MNCs headquartered in any given country; it is

not the case that EWCs in MNCs based in some countries are more likely to be

‘ethnocentric’ while those based in other countries tend to be either ‘polycen-

tric’ or ‘geocentric’. Crucially, even though many of the EWCs in question had

only been in operation for two to three years, some were already evolving a

transnational or ‘European’ mode of operation. In these EWCs, the ‘network of

contacts’ (Streeck, 1997: 333) and the control of resources is not nationally cen-

tred. It remains to be seen whether those EWCs which currently operate as

extensions of national structures will, over time, develop a transnational mode

of operation. In any case, the proposition that EWCs are primarily an exten-

sion of national systems is supported only in a contingent sense, and does not

stand as a generalization.

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More recent evidence indicates that the mode of operation of EWCs may

well be influenced more by the international nature of the company concerned

than by features of the particular country in which a given company is head-

quartered. In a study of EWCs in eight UK- and US-based MNCs (Hoffmann

et al., 2001; Marginson et al., 2001), the organization and networking activity of

the employee side and, in turn, the capacity of the employee side to influence

the outcome of management decisions on transnational business matters, were

found to be fundamentally shaped by the nature of companies’ business

operations and the degree to which they were internationalized. Three consider-

ations are important. First is the extent to which business operations are spread

across several countries or concentrated in one country, and therefore whether

the EWC is numerically dominated by representatives from a single country.

(Indeed, the only instance where the smaller executive committee established

by most EWCs was numerically dominated by representatives from the home

country, was the situation where the operations where overwhelmingly con-

centrated in the UK.) The second consideration is the business portfolio of the

company, and whether this extends across a range of business activities or is

focused on a single business. Where there are multiple business activities,

which may be differentially spread across countries, similarities of interest

amongst employee representatives are more difficult to establish – even

amongst representatives from the same country. Where there is a single busi-

ness focus, such similarities of interest are more easily established amongst

employee representatives from different countries. This second consideration is

intensified or attenuated by the third, which is integration of production and

other activities across borders. With integrated production across national

borders, employee interests are not only similar but become directly interdepen-

dent. Accordingly, employee-side organization and networking activity was

found to be strongest, and the impact of the EWC on management decision-

making greatest, in single business companies whose operations are spread

across countries and where production and other activities are integrated

across European borders. Conversely, such employee-side organization and

networking activity had the least impact, with no evidence of EWC impact on

management decision-making, in multi-business companies whose operations

tended to be concentrated in one country and/or where there was little or no

cross-border integration of production. In a further study of 15 EWCs in com-

panies based in four European countries, Lecher et al. (2001: 85–6) also point

to the importance of structural considerations relating to the degree of inter-

nationalization of business operations and business focus in distinguishing

symbolic from more active EWCs.

The mode of operation of the EWCs in the UK- and US-based MNCs was

further shaped by a range of other factors which, with one exception, are also

company- rather than country-specific. Management structure and manage-

ment policy are both important. How far EWCs are ‘active’ rather than ‘sym-

bolic’ was facilitated or constrained by whether a central management

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structure at European level, which provides a direct counterpart to the EWC,

exists. Where there was ‘fit’ (Hoffmann et al., 2001) between the management

structure and the EWC at European level, the EWC was more likely to be active

and more likely to have an impact on management decisions, than where there

was not. And EWCs were more likely to be active than symbolic where man-

agement’s approach to the EWC was pro-active, seeing it as a mechanism that

could be utilized for management purposes – such as improving employee

understanding of the rationale for business decisions and hence the legitimacy

of management actions – than where management’s approach was minimalist,

primarily concerned to comply with its legal obligations but strictly circum-

scribing the activity and influence of the EWC. The existence of an industrial

relations platform, in the shape of national group-level industrial relations

structures, is a further influence. Where such structures exist at national level

within companies they can provide a platform from which EWC activity can

develop. In their absence, employee representatives find it difficult to develop

their own organization and activity at European level. In this instance only

country considerations are relevant, since national group-level industrial rela-

tions structures are more widespread in some European countries, such as

France and Germany, than they are in others, such as Britain.

Overall, the findings from these studies strongly suggest that company-

specific considerations which cut across borders weigh at least as heavily in

determining the character of EWCs as do nationally specific features of the

industrial relations systems of the countries in which companies are head-

quartered. Again this is at odds with the proposition that EWCs will be pri-

marily ‘national’ rather than ‘European’ in character. From the perspective of

practice, EWCs represent an intersection of country-specific and transnational,

company-specific, influences.

6 CONCLUSIONS

The extent and dynamic of European economic integration, and the develop-

ment of political institutions to regulate this process, set developments in the

European Union apart from wider global trends and from those in other global

regions. This chapter has established that a European dimension is evident in

the international organization of production and market servicing in MNCs

and the management structures which coordinate them. This has given rise to

the Eurocompany. At the same time, it has argued that the Eurocompany is not

reducible to a set of international organizations which are essentially ethno-

centric, shaped by the national institutional environments in which they are

based. In their structure and behaviour, MNCs within Europe also cohere

around elements which transcend national borders: forms of ownership, types

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of internal organization and sector. The chapter has located the Eurocompany

in economic, organizational and behavioural terms. More than a quarter of a

century since proposals were first introduced, the European Company Statute

(ECS) will, when implemented from late 2004, give a legal form to the

Eurocompany.

The case of EWCs has demonstrated the analytical value for industrial rela-

tions of the concept of the Eurocompany. It has been shown that EWCs repre-

sent an intersection of company-specific and transnational influences. In their

functioning some EWCs are evolving into institutions whose behaviour and

practice does not reproduce that of the national system of the parent company

but is transnational or European in nature. Are EWCs likely to provide a focal

point for the further Europeanization of industrial relations at company level?

Ahead of the adoption of the directive, employers voiced widespread concern

that EWCs would provide a stepping stone towards European-level collective

bargaining over substantive industrial relations matters. Conversely, on the

trade union side, there were and are aspirations that EWCs would provide just

such a platform. Are EWCs opening the door to European company-level col-

lective bargaining?

The potential of EWCs as a focal point for employee action at a transna-

tional level has already been glimpsed in the European-level mobilization of

workforces from different countries. Two examples were forms of protest action

following Renault’s 1997 announcement of the closure of its plant at Vilvoorde

in Belgium and the transfer of production to its Spanish facility (EIRO, 1997)

and General Motors’ European-wide restructuring plans announced in 2000

(EWCB, 2001). Conversely, the potential of EWCs as a mechanism through

which management can secure enhanced legitimacy for its cross-border

restructuring decisions and better facilitate their implementation is also evi-

dent in the automotive sector (Hancké, 2000). Elsewhere, amongst the large

Dutch banks the potential of EWCs to facilitate the promotion of common

European-wide approaches to HRM has been recognized by management

(Sisson and Marginson, 2000).

If the EWCs directive has promoted substantial negotiating activity

towards the establishment of European Works Councils, the remit of most

EWCs nevertheless remains confined to employee information and consulta-

tion. In line with the intentions of the directive, virtually all agreements define

their role as the provision of employee information and consultation (Carley

and Marginson, 2000). At present, it seems unlikely that most EWCs will

assume a collective bargaining role in the conventional sense, concluding

European-level agreements on pay and conditions. Instead, EWCs are prompt-

ing forms of ‘virtual collective bargaining’ at Eurocompany level, embracing

two kinds of process (Marginson and Sisson, 1998). First, EWCs may conclude

European-level framework agreements or joint opinions on aspects of employ-

ment policy. This has already occurred in a small but growing number of situ-

ations. Indeed, two of these, dealing with issues of employment status, rights

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and terms and conditions consequent on particular aspects of restructuring at

Ford and General Motors’ European operations, come close to traditional col-

lective agreements (Carley, 2001). Second, EWCs may facilitate ‘arm’s-length

bargaining’ in which management and employee or union representatives do

not negotiate face-to-face at the European level; instead negotiating positions

and bargaining outcomes within the different national operations of an MNC

are increasingly coordinated across countries. On the employee side, EWCs rep-

resent a potentially vital resource for organizing such cross-border coordina-

tion: as yet it appears to be developing in only a few instances, amongst which

EWCs in the automotive sector are prominent. The Economic and Monetary

Union, by making terms of employment across countries more transparent, is

likely to accelerate this second process of virtual collective bargaining within

Eurocompanies.

7 DISCUSSION QUESTIONS

1 To what extent are large, international companies developing distinctively

European dimensions to their business operations, management structures and

control systems?

2 In the way they are constituted and in their actual practice, are European Works

Councils primarily international extensions of nationally based representative

structures for employee information and consultation?

8 FURTHER READING

••

Lecher, W., Platzer, H-W., Rüb, S. and Weiner, K-P. (2001)

European Works Councils:

Developments,Types, Networking

. Aldershot: Gower.

A field-based study of European Works Councils in practice, which grounds differences in the

role, influence and development trajectory of these novel transnational industrial relations

structures in a robust actor-centred analytical framework.

••

Marginson, P. and Sisson, K. (1998) ‘European Collective Bargaining: a Virtual

Prospect?’,

Journal of Common Market Studies

36(4): 505–28.

Considers European-level industrial relations developments within multinational companies

alongside developments at the EU sector and inter-sector levels, and speculates on the future

Europeanization of industrial relations at company level.

••

Whitley, R. and Kristensen, P. H. (eds) (1996)

The Changing European Firm: Limits to

Convergence

. London: Routledge.

The Eurocompany and European Works Councils

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A collection of essays which illustrates the variety of enterprise forms characteristic of different

European countries, the extent to which specific enterprise forms cross national borders and

the impact of internationalization on nationally characteristic forms of enterprise organization

ACKNOWLEDGEMENT

This is a revised and updated version of an article which appeared in the

European Journal of Industrial Relations in 2000 6(1): 9–34.

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Author Index

Abo, T. 391–2

Adler, N.J. 34–5, 65, 68–71, 72, 171, 284,

335–6, 337, 339–40, 358, 362, 366,

369–70, 371, 372, 376, 377

Ahlstrand, B. 75

Akiner, S. 241

Albert, M. 413, 418, 420–1

Albright, M.D. 325

Alimo-Metcalfe, B. 374

Allinson, R. 231

Anastasi, A. 363

Anderson, B. 399

Angwin, D. 90–1

Arkin, A. 76

Armstrong, M. 318, 319, 320

Arthur, M.B. 334

Artiles, A.M. 445

Arts, W. 417

Aryee, S. 361

Ashkenas, R.N. 105, 106

Aston, A. 292

Atamer, T. 462

Au, K.Y. 284

Aven, F.F. 361

Aycan, Z. 284

Bak, M. 229

Bakan, D. 360

Balkin, D.B. 308, 337–8, 339–40, 341, 343

Balogun, M.J. 229

Banai, M. 358

Barbar, A.E. 367–8

Barham, K. 269–70, 358

Barkema, H.G. 91

Barratt Brown, M. 223, 231

Barry, S. 334

Barsoux, J.-L. 89, 100, 173, 181

Bartlett, C.A. 36–8, 39, 41, 45, 48, 49, 50,

51–2, 54, 59, 66–7, 68, 69, 70, 77, 79,

81, 82–3, 256, 320, 326, 391,

392, 461–2

Baughn, C. 338

Beaumont, P.B. 176

Becker, B. 73–4, 175

Becker, T.E. 361

Beechler, S. 283, 319, 335

Beer, M. 104, 232

Belanger, J. 392

Bell, J.H. 91

Bender, S. 284

Bennett, R. 292

Benson, J. 203, 215

Beresford, M. 212

Berger, S. 427

Bernthal, P.R. 318, 324, 325

Bevan, S. 319

Birchall, D. 358

Bird, A. 159

Black, J.S. 51, 66, 77, 78, 99, 271, 272, 273,

275–6, 284, 285, 290–1, 292, 293, 321,

333, 337, 338, 339, 339–40, 340, 341,

343, 349, 367, 369

Blake, B. 296

Blau, G. 361

Bleeke, J. 92

Bloom, M. 308, 313, 316, 317

Blunt, P. 225, 229–30, 232, 238–9, 240

Boje, D. 324

Bonache, J. 284, 308, 309, 317, 336

Bond, M. 144, 147–8

Boon, M. 235

Borg, M. 260

Boselie, J.P. 74

Bovaird, T. 320, 325

Bowditch, J.L. 90

Boxall, P. 74–5

Boyacigiller, N. 65, 149, 258, 264, 335

Boyer, R. 420, 425, 426, 427

Bradley, P. 75, 316

Brake, T. 284

Brenner, O.C. 361, 363, 381

Brewster, C. 66, 74, 169, 171, 172–3, 175,

179, 180–1, 184, 185, 269–70, 283, 284,

335, 336, 339, 344, 345–6, 358

Brislin, R.W. 290

Broad, G. 393, 402–3

Broderick, R. 360

Bruun, N. 471

Budhwar, P. 236, 283

Bühner, R. 92

Buiges, P. 460–1

Buono, A.F. 90

3122-Au-Index.qxd 10/29/03 2:32 PM Page 482

Burbach, R. 424

Burgi, P. 284, 285, 290–1, 293

Burke, R.J. 361

Burns, T. 45

Butler, M. 312

Cahill, S. 310

Caligiuri, P.M. 66, 74, 76, 78, 79, 99, 283,

284, 285, 287, 288–9, 290–1, 293,

295–6, 299, 333–4, 335, 336, 338, 343–4,

345–6, 347, 350–1, 358, 366, 367, 368

Calori, R. 91, 181, 182–3

Cameron, K.S. 239–40

Campbell, A. 74

Campbell, B. 323

Campbell, I. 210

Carley, M. 468, 471, 476–7

Carlsson, J. 225

Carpenter, M.A. 351

Cartwright, S. 90, 91, 108–9

Cascio, W.F. 66, 79, 308, 320, 324, 346, 367

Chan, A. 210, 212

Chandhuri, S. 100–1, 102

Chandler, A.D. 42

Chatterjee, S. 91

Chen, M. 204

Chen, S.J. 205

Cherrie, C. 290

Child, J. 106–7, 142, 209, 210, 267

Chu, C.N. 196, 199

Chu, P. 368

Chusmir, L.H. 361

Clark, G. 318

Coarse, R.H. 18

Cohen, W.M. 293

Coller, X. 461, 467

Colquhoun, T. 292

Comeau-Kirchner, C. 346

Communal, C. 169–71, 179, 181, 182, 184

Cooper, C. 284

Cooper, C.L. 90, 91, 108–9

Cooper, G. 360, 369

Copeland, L. 290, 358

Coulson-Thomas, C. 358

Crabb, S. 315

Crandall, L.P. 322

Cray, D. 225

Crouch, C. 420, 422, 424

Crozier, M. 122

Curtis, S. 296

Cushner, K. 290

Cyert, R.M. 144

Darbishire, O. 424, 466

Das, T.K. 320

Datta, D.K. 91

D’Aveni, R.A. 66

Davidson, M. 360, 363

Day, D.V. 295–6, 350–1

De Cieri, H. 67, 68, 71–4, 82, 317, 319,

321, 325

de Leon, T. 293

De Mente, B. 197

De Meyer, A. 267

de Sardan, J.P.O. 230

de Woot, P. 181, 182–3

Debroux, P. 203, 215

Delors, J. 442

DeMonaco, L.J. 105

Derr, C.B. 267, 366

Devine, M. 269–70, 358

Dewettinck, K. 183

Di Santo, V. 335

Dia, M. 225, 229, 235

Dicken, P. 75, 458, 459–60

D’Iribane, P. 173–4

Distefano, J.J. 156–61

Dølvik, J. 446

Doanh, L.D. 212

Donders, P. 472–3

Dore, R. 124–5, 414, 426

Doremus, P. 395

Dowling, P.J. 66, 67, 68, 71–4, 74, 77, 82,

253, 283, 309, 312, 314, 315, 317,

319, 322

Downes, P.J. 284, 336, 338–9

Doz, Y. 39, 49, 50, 67, 68, 77, 82

Drache, D. 427

Dugan, S. 154, 224–5

Dunlop, J.T. 235

Dunning, J.H. 17–19, 39, 41

Dwyer, T. 310, 315

Eagly, A.H. 360, 362

Ebbinghaus, B. 421

Edström, A. 68, 259–60, 261–2

Edwards, T. 393, 395, 400, 403,

465, 467

Edwards, V. 179

Egelhoff, W.G. 263

Eisenhardt, 309

Eisenstat, R. 104

Ellemers, N. 361

Ellig, B.R. 231–2

Engen, J.R. 337

Esping-Andersen, G. 415, 417

Estevez-Abe, M. 186

Etzioni, A. 310

Evans, P. 89, 92, 98, 99–101, 103–4,

106, 108–9, 263

Author Index

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Fahey, S. 212, 213, 214

Fajertag, G. 443, 445

Farquar, A. 263

Fashoyin, T. 229

Faulkner, D. 66, 106–7

Faulkner, G. 435, 436

Fayerweather, J. 49

Feldman, D.C. 343

Fell, A. 232

Fenwick, M. 319, 321, 323, 325, 326,

327, 368–9

Fernández, Z. 308, 309, 317

Ferner, A. 263, 395, 400, 403, 445, 465, 467

Ferrario, M. 361

Ferris, G. 74

Fish, A. 284

Flamholtz, E.G. 320

Flanders, M.L. 366

Florkowski, G.W. 283, 358

Fogel, D.S. 358

Foley, J.P. 363

Fombrun, C. 172, 175

Forster, N. 66, 78, 79, 266, 273

Fox, F.F. 291

Francis, S.C. 105

Franko, L.G. 258

Freeman, R.B. 419, 420

Freeman, S.J. 239–40

Frenkel, S. 207

Friedberg, E. 122

Fryer, B. 346

Fukuda, J. 284

Fukuda, K. 368

Futoran, G.C. 373–4

Galbraith, J.R. 259–60, 261–2

Gattiker, U.E. 361

Gaugler, E. 179

Gelfand, M. 235

Gelissen, J. 417

Gerhart, B. 73–4, 175

Ghadar, F. 68–71, 72 , 171

Ghoshal, S. 28, 29–30, 36–8, 39, 41, 45, 48,

49, 50, 51–2, 54, 59, 66–7, 68, 69, 70,

77, 79, 81, 82–3, 256, 320, 326, 391,

392, 461–2

Giacobbe, M.J. 361

Giddens, A. 119, 122

Gilley, K.M. 271, 273

Gilman, M. 471

Glenny, M. 231

Gluckman, M. 235

Goetschy, J. 441–2

Gold, U. 360

Gollbach, J. 443

Gomez-Mejia, L. 74, 308, 337–8,

339–40, 341, 343

Goold, M.C. 74

Gordon, A. 201

Gorner, J.C. 416

Goulet, P.K. 91, 108–9

Govindarajan, V. 284

Gratton, L. 319

Greengard, S. 297

Gregersen, H.B. 77, 78, 267, 275–6, 284,

285, 292, 293, 321, 333, 337, 339–40,

343, 351

Griggs, L. 290, 358

Groenewald, H. 262

Grossman, R.J. 346

Gudykunst, W.B. 289, 291, 293

Guest, D. 175, 179

Gullahorn, J.E. 337

Gullahorn, J.T. 337

Gupta, A. 284

Gupta, N. 369

Guzley, R.M. 289, 291, 293

Guzzo, R.A. 367–8

Hall, D.T. 366

Hall, E.T. 151, 152

Hall, M. 466, 468

Hall, P. 176, 395, 397, 420, 427, 428

Hall, P.D. 90

Hamill, J. 258

Hammer, M.R. 289, 291, 293, 341, 343

Hampden-Turner, C. 173, 393

Hancké, B. 451–2, 476

Harbinson, F.H. 236

Harris, H. 66, 270, 358, 369, 374

Harris, P.R. 290

Harrison, D.A. 271, 273

Harrison, J.K. 290

Hart, W. 341

Harvey, M. 68, 76, 78, 269–70, 313,

316, 320, 323, 337–8, 341, 343,

345, 367, 368, 425

Harzing, A.W.K. 52, 55, 61, 74, 82, 253,

256, 263, 265, 266–7, 273, 284, 465

Haspeslagh, P. 92, 107, 108

Hay, C. 425, 435, 460

Hayden, A. 400

Hays, R.D. 285, 347

Heckscher, E. 13–14, 16, 20

Hede, A. 358

Hedlund, G. 399

Heenan, D.A. 252, 312

Hegarthy, W.H. 102, 103

Heilman, M.E. 363, 373–4

Hemerijk, A. 425

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Hendry, C. 67, 232, 316

Herriot, P. 366

Heslin, R. 296

Hiltrop, J. 322

Hiltrop, J.-M. 172–3, 366

Hirschman, A.O. 418–19

Hirst, P. 425, 460

Hoffmann, A. 474–5

Hofmeyr, K. 241

Hofstede, G. 91, 120–1, 131, 144–50, 151,

154–6, 158, 162, 173, 182, 224–5, 242,

243, 256, 392, 393

Hollingsworth, J.R. 420, 426

Hope-Hailey, V. 319

Hornung-Davis, R. 451

Hui, C.H. 243

Human, L. 225, 241, 242–3

Humphrey, J. 403

Hunt, J. 74–5

Hunt, J.W. 90, 92

Huselid, M. 175

Hutton, W. 413–14

Hyman, R. 414, 428, 445, 467

Inkpen, A. 106

Inkson, K. 334, 335, 343, 344, 345–6

Iversen, T. 428

Jackson, T. 226–8, 229, 231, 233,

236–7, 239, 241

Jacobi, O. 175–6

Jaeger, A.M. 223, 225, 230, 239

Jamieson, I. 173

Jansens, M. 320–1

Jarillo, J.C. 57, 256

Jemison, D.B. 92, 107, 107–8, 108

Jenkins, G. 369

Jewson, N. 373

Johnsen, M. 273

Jones, M.L. 225, 229–30, 232, 238–9, 240

Kalleberg, A. 122, 134

Kanungo, R.N. 223, 225, 239

Kaplan, R. 322

Karlshaus, M. 262

Katz, H. 424, 466

Katz, J. 284

Kay, I.T. 97

Kealey, D. 284, 289, 290, 296

Keenoy, T. 175

Keller, B. 436, 442–3

Kendall, D. 337–8, 341

Kenter, M.E. 261

Kerr, C. 236

Kessler, I. 308, 321

Kiggundu, M. 229, 230

Kilgore, J.E. 266

Kitschelt, H. 420, 428

Kleinberg, J. 149

Kluckhohn, F.R. 156–7, 293–4

Knowles, E. 168

Knudsen, H. 471

Knungo, R.N. 230

Kobrin, S.J. 54, 67–8, 74, 349

Kochan, T. 66, 67, 74

Kochan, T.A. 424

Kogut, B. 91

Koike, K. 202

Koopman, A. 233, 236, 239

Kopp, R. 253

Korabik, K. 364

Kotter, J.P. 107

Kouzes, J.M. 107

Kransdorf, A. 346

Krug, J. 102, 103

Kulhmann, T.M. 284

Kumar, B.N. 261, 262

Lane, C. 23, 123, 124

Lane, H.W. 156–61

Lank, E. 263

Larsen, H.H. 175, 179

Larsson, R. 91, 92

Larwood, L. 361

Lawrence, J.W. 49

Lawrence, P. 172, 173, 179, 181, 182

Lazarova, M. 284, 285, 287, 290–1, 293,

336, 338, 343–4, 345–6, 350, 367, 368

Lecher, W. 473, 474

Lee, J.S. 204, 205, 206

Leece, P. 324

Legge, K. 175, 231–2

Lengnick-Hall, C.A. 74

Lengnick-Hall, M.L. 74

Lessem, R. 233

Levinson, C. 473

Levinthal, D.A. 293

Levy, O. 335, 336

Levy, P.E. 325

Lewis, J. 416

Lewis, P. 317–18

Lewis, S. 369

Li, T.C. 210

Lincoln, J. 122, 134

Lindblom, C.E. 48

Linehan, M. 78–9, 367

Ljunggren, B. 212

Locke, R. 172, 467

Lorsch, P.R. 49

Love, L.G. 236

Author Index

485

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Lowe, K. 317, 366

Lubatkin, M. 91

Maccoby, M. 403

Maccoby, E.E. 363

McDougall, P.P. 326

McGovern, P. 319

McGreal, I. 196, 197, 198, 208

McGregor, 225

Macharzina, K. 262

McKeen, C.A. 361

Mackerras, C. 201

McKersie, R.B. 447

McLaine, S. 324

McMahan, G.C. 175

MacQueen, J. 17

Mahoney, J.T. 257–8

Mainiero, L.A. 366

Malekzadeh, A.R. 90, 91

Mallory, G.R. 225

March, J.G. 144

Marginson, P. 74, 75, 401, 445, 450,

451, 458, 464, 467, 471, 474, 476

Marks, M.L. 90, 93, 102

Marsden, D.W. 414

Marshall, J. 362

Marshall, T.H. 418

Marschcan, R. 67

Martin, A. 434, 445–6, 459

Martin, P. 461

Martinez, J.I. 57, 256

Martinez Lucio, M. 404

Marx, K. 416

Mason, D. 373

Matanmi, S. 229

Maurice, M. 123, 125, 126, 127,

128, 132, 463

Mavin, S. 364

Mayer, M. 463, 465

Mayne, L. 185

Mayrhofer, W. 78, 187

Maznevski, M.L. 156–61, 162

Mbigi, L. 235

Meardi, G. 452

Medoff, J.L. 419, 420

Meiskins, P. 396

Mendenhall, M. 99, 269, 269–70, 271, 272,

273, 284, 290–1, 292, 293, 297, 301,

321, 337, 358, 366, 367

Mendez, A. 461

Milkovich, C. 308, 313, 316, 317, 360

Miller, E. 269–70, 284

Miller, E.L. 334

Milliman, J. 68, 317, 325

Mintzberg, H. 44, 48

Mirvis, P.H. 90, 91, 93, 102

Mirza, H.R. 61

Monks, K. 66

Monnet, J. 168, 434

Montgomery, J.D. 230

Moran, R.T. 290, 372

Morgan, G. 404

Morishima, M. 202

Morley, M. 177

Morosini, P. 91–2

Morrison, A.J. 333

Mueller, F. 463, 465, 467

Mulat, T. 223

Mulder, M. 144

Mulhern, A. 66

Muller, M. 396, 403

Muller, R. 363

Munton, A.G. 367–8

Myers, C.A. 236

Myloni, B. 61

Nahavandi, A. 90, 91

Nankervis, A.R. 324

Napier, N. 283, 319, 340, 341, 358, 370

Nason, S. 325

Negandhi, A.R. 253, 263

Ngo, H. 393

Noe, R. 289, 367–8

Noelle, G.F. 261

Nohria, N. 51, 61, 256

Norburn, D. 90

Norlund, I. 212, 213

Norton, D. 322

O’Brien, E. 358

O’Connor, J. 310

Oddou, C. 269, 284, 285, 347, 358, 366, 367

Oddou, G. 267, 271, 272, 273, 290–1

O’Donnell, S. 308, 309, 312, 317, 322–3

Ohlin, B. 13–14, 16, 20

Ohmae, K. 423, 425–6, 457

O’Leary, J. 365–6

Olie, R. 90

Oliver, N. 395–6

Ondrack, D.A. 267

Onzack, D. 65

Ortiz, L. 405, 406

Osland, J.S. 159, 284, 335–6

O’Sullivan, M. 395, 404

Oviat, B.M. 326

Paauwe, J. 73–4, 75

Pablo, A.L. 107–8

Paddock, J.R. 369

Pain, N. 460

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Panitch, L. 425

Parsons, T. 151

Pausenberger, E. 260, 261

Peltonen, T. 368–9

Peck, J. 417

Pemberton, C. 366

Pennings, A. 75

Pennings, J.M. 91

Perkins, D.H. 212

Perkins, S. 316

Perlmutter, H.V. 59, 60, 61, 252,

312, 391, 473

Perry, E.L. 374

Peters, T. 45, 362–3

Peterson, R. 340, 341

Pettigrew, A. 232

Phatak, A.V. 253

Phelps, M.I. 322

Phillips, J. 284, 285, 290–1, 293

Phillips, M.E. 149

Pickard, J. 335, 339

Pieper, R. 175, 179

Pitkethly, R. 106–7

Pochet, P. 443, 445

Polanyi, K. 418

Pontusson, J. 428

Poole, M. 210

Porter, M.E. 19–24, 28, 39, 54, 90,

312, 461–2

Posner, B.Z. 107

Powell, G.N. 361, 366

Prahalad, C.K. 39, 49, 50, 67, 68, 77, 82

Priem, R.L. 236

Pringle, J.K. 334, 360

Protheroe, D. 284, 289, 290, 296

Pucik, V. 66, 89, 322

Punnett, B.J. 221, 266, 369

Purcell, J. 75, 183, 308, 321, 467

Pusch, M. 288

Quinn, J.B. 48

Quintanilla, J. 465

Ragins, B.R. 360

Rall, W. 54

Ramsay, H. 459, 461

Rao, T.V. 223, 236

Reader, J. 223

Redding, G. 195

Reich, R.B. 25–7, 423

Reilly, R. 323

Reitman, F. 361

Reynolds, C. 309

Ricardo, D. 13, 20, 21

Richardson, R. 73–4

Risberg, A. 91, 92

Rivest, C. 472

Robinson, S.L. 319

Rockwood, K. 106

Roessel, R. von 260, 261

Rogan, R. 341

Rogers, R.W. 344

Rohmetra, 236, 237

Ronen, S. 180

Rosamond, B. 425, 434

Rosener, J. 358, 362

Rosenkrantz, P. 363

Rosenzweig, P.M. 61

Rosin, H.Z. 361

Roth, K. 309

Rothwell, S. 362

Rotter, J.B. 151

Rousseau, D.M. 319

Rüb, S. 473

Rubery, J. 416

Rubienska, A. 320, 325

Rubin, J. 374

Ruf, B.M. 361

Rugman, A.M. 18, 39–40, 49, 459–60

Ruigrok, W. 394–5, 425, 462

Ryan, P. 186

Sackmann, S.A. 149

Sainsbury, D. 416

Sako, M. 202

Sales, A.L. 91

Sanchez, J.I. 284

Sanders, W.G. 351

Sano, Y. 201, 202–3

Sapozhnikov, A. 262

Sappinen, J. 284

Sato, H. 202

Saunders, E. 233

Savill, B. 90–1

Scarborough, J. 199–200

Schein, E.H. 99

Schein, V.E. 363–4

Schludi, M. 425

Schneer, J.A. 361

Schneider, S.C. 100

Schuler, R.S. 67, 253, 283, 309, 319

Schulten, T. 443, 445–6, 450, 451

Schwartz, K.M. 369

Schwartz, S. 224–5

Schweiger, D.M. 90, 91, 108–9

Scott, A. 425

Scullion, H. 65, 66, 67, 68, 75, 75–7,

77, 78–9, 258, 266

Segal-Horn, S. 66

Seifer, D. 284

Author Index

487

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Sekaran, U. 369

Sellier, F. 132

Selmer, J. 293

Senior, B. 179

Shaffer, M.A. 236, 271, 273

Shane, S. 91

Sharma, S. 358, 362

Shelton, M. 97

Shenkar, O. 180

Shilling, M.S. 337

Shils, E.A. 151

Shrivastava, P. 90

Silvera, D.N. 248

Silvestre, J.J. 132

Singh, H. 91

Singh, V. 361–2, 364

Sisson, K. 75, 445, 450, 458, 464,

467, 476

Sitkin, S.B. 90, 92, 102, 107–8, 108–9

Smapson, A. 168

Smith, A. 12, 13, 20

Smith, C. 396

Smith, M. 434

Smith, P.B. 154, 224–5

Søndergaard, M. 149

Solomon, C. 359–60

Sorge, A.M. 123, 126, 465

Sörries, B. 442–3

Soskice, D. 176, 395, 397, 420, 427, 428

Sparrow, P. 172–3, 236, 309, 316–17, 366

Spector, B. 104, 232

Spector, P.E. 284

Spence, J.T. 364

Spencer, B. 74

Spencer, S. 313

Stage, H.D. 324

Stahl, G.K. 90, 91, 102, 108–9, 334, 346

Stahl, K. 284, 297, 301

Stalker, G.M. 45

Standing, G. 425

Stanley, P. 314, 315

Starkey, K. 67, 75–7

Steedman, H. 186

Steinmann, H. 261

Stevens, G.E. 361

Stiles, P. 319, 321

Still, V. 364

Stone, R. 358

Stoop, S. 472–3

Stopford, J.M. 42–3, 45, 46, 47–8

Storey, J. 76, 232

Streeck, W. 128, 414, 420, 424,

426, 427, 434, 435, 458, 466,

470, 471, 473

Strodtbeck, F.L. 156–7, 293–4

Stroh, L.K. 66, 74, 76, 78–9, 79, 283, 284,

292, 293, 333–4, 337, 338, 339–40, 373

Sundaram, A.K. 51, 106

Sundstrom, E. 360

Supiot, A. 446–7, 449

Suutari, V. 344, 345–6

Swiercz, P. 74

Tabrizi, B. 100–1, 102

Tahvanainen, M. 320

Tan, D. 257–8

Tarique, I. 99, 284, 285, 290–1, 293

Tayeb, M. 232, 390

Taylor, S. 60, 73, 283, 319, 335, 358, 370

Teague, P. 444

Thelen, K. 175–6, 428

Thomas, A.S. 336, 338–9

Thompson, G. 425, 460

Thompson, H.B. 343

Thompson, M. 319

Tichy, N. 175

Tilghman, T. 75

Timms, W. 364

Torbiorn, I. 284, 293, 358

Tran, T.C. 212

Traxler, F. 419–20, 435, 445, 446

Tregaskis, O. 180–1, 185

Triandis, H.C. 149, 229

Trompenaars, A. 150–4, 158, 159, 162,

173, 224–5, 393

Truss, C. 319

Tsui, A.S. 74, 320

Tung, R.L. 78, 253, 268, 269–70, 284, 321,

334, 335, 336, 337, 344, 345–6, 358, 367

Tyson, S. 232

Ulrich, D. 175

Van Oudenhoven, J.P. 276

van Tulder, R. 394–5, 425, 460, 461, 462

Vance, C. 324

Varma, A. 373

Varul, M. 263, 395, 400

Vaughan, E. 232

Verbeke, A. 39–40

Vernon, R.G. 16–17, 19, 37, 68

Very, P. 90, 91, 92

Vinkenburg, C.J. 361

Vinnicombe, S. 361–2, 364

Voynnet, C. 179

Wade, R. 426

Wagner, K. 186

Walsh, J.P. 90

Walsh, J.S. 367

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Walton, R.E. 447

Warner, M. 126, 205–6, 209, 210, 216

Watanabe, S. 202, 203

Waterman, R.H. 45

Webb, J. 374

Weber, M. 121

Weber, Y. 91

Wedderburn, W. 452

Welch, D.E. 67, 266, 283, 309, 319,

321, 326, 327

Welge, M. 51, 261, 263

Wells, L.T. 42–3, 45, 46, 47–8

Wendon, B. 436

Wentling, R.M. 358

Wheeler, K.G. 361

White, B. 364, 366

Whiteley, A. 199–200, 208

Whitley, R. 129–31, 457–8, 463, 464

Whittington, R. 463, 465

Wiesma, U. 369

Wilkinson, B. 395–6

Williamson, O.E. 18

Wills, S. 358

Winkler, J. 74

Wolf, J. 262, 264

Wood, W. 360

Wright, P.M. 175

Wyer, R.S. 373–4

Yau, O. 199–200

Yong, M. 290

Yuan, L.Q. 209–10

Zeira, Y. 358

Zhu, C. 325

Zhu, Y. 204, 205–6, 207, 209, 210, 212,

213, 214–15

Author Index

489

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Subject Index

Page numbers in italics refer to boxes,

figures and tables.

absolute/relative comparative cost

advantage 12–13, 15, 19

absorption acquisitions 95

acculturation 91, 92