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Question

Examine why multinational corporations seek to transfer their home-country human resource management policies to their overseas subsidiaries. Use examples to explain the difficulties that firms might encounter in the transfer process.

Answer

Many multinational corporations (MNCs) choose to transfer their home-country human resource management policies to all their overseas subsidiaries. This is a challenging undertaking that can lead to disastrous consequences if not properly handled. Corporations that choose to adopt this approach start by configuring the HR policies being used in the parent company. The process also requires these policies to be internalized by the employees working in the subsidiaries. This paper discusses the various reasons why MNCs choose to transfer their hom-country HRM practices and policies in their overseas subsidiaries. Examples are used to highlight the difficulties that such firms might encounter during this transfer process.

One of the reasons why MNCs seek to integrate the home-country HRM practices with those of the overseas subsidiaries is the effect of globalization (Peterson, 1996). Globalization makes these corporations feel the need to centralize and homogenize all their policies and practices. The organizational leaders of these corporations appreciate the role that human resource (HR) departments play in the achievement of success in overseas operations.

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In the US, MNCs such as Ford Motor Company and General Motors have had to deal with the issue of transfer of HRM practices to host countries (Noorderhaven, 2003). Other MNCs such as Wal-Mart, Office Depot, and Home Depot have started recording rapid growth as far as presence in the international market is concerned. Moreover, other MNCs such as Citicorp, Mobil, Motorola, Pepsi, and Coca Cola are dramatically expanding their operations in international markets. For each of these corporations, a critical challenge is on determining the extent to which home-country policies are transferred to various host countries (Heile, 2002).

In today’s globalized society, a lot of interest has been directed to studies on the methods that headquarter  companies use to transfer certain HR policies and practices to offices of subsidiaries in host countries. In this research, it is evident that different companies put in place different HRM  policies and practices. Transferring these policies and practices to host countries in most cases becomes quite problematic. Most of these problems are triggered by the institutional and cultural environment prevailing in the host country.

In the American management theory, one of the most outstanding assumptions is that certain management practices can be adopted universally (Harzing, 2001). However, on the contrary, real-life experience shows that differences tend to occur across cultures. These differences in most instances relate to values, attitudes, and behaviors. On this basis, it may be correct to argue that there is no single universally accepted way of managing organizations. National cultures always exert a profound influence on the choice of management practices. In fact, this consideration is one of the main motivating factors for the emergence of the cultural perspective.

In most aspects of management practices, human resource management practices and policies are based on deeply-rooted cultural beliefs that are a reflection of certain basic values and assumptions. These values and assumptions form an integral part of the national culture in which MNCs are embedded. Therefore, many questions arise whenever an MNC intends to transfer some of these practices to overseas subsidiaries. This is particularly the case when the beliefs and assumptions underlying these HRM practices are not compatible with the cultures of each of the host countries.

MNCs that fail do adapt their HRM policies and practices to the culture of the host country tend to face serious negative consequences (Ferner, 1997). Sometimes, this even leads to poor performance by the subsidiary. Contemporary HRM literature shows that MNCs conventionally adapt to a certain extent to the national cultures of the countries in which they have launched operations. Similarly, subsidiaries that live up to national cultural expectations tend to record more impressive performances than those that rely primarily on home-country HRM practices.

One of the reasons for the adoption of host-country HRM practices is the influence that social institutions have on organizational behavior and culture (Beechler, 2009). Social institutions always exert a lot of influence on the way companies operate. This influence tends to be systematic in nature, meaning that it is unavoidable. As a result of these social influences, business organizations end up adopting processes and structures that are a reflection of national patterns.

The impact of institutional systems can best be understood by examining the significance of the immediate environment within which the MNC is positioned. The national business systems of the host country determine the extent to which the multinational corporation will transfer its management practices. Some host-country national business systems facilitate transfer while others inhibit it. An example of an institutional framework that is permissive is one where few formal institutions exist. In such an environment, MNC face few constraints in their effort to introduce home-country HRM practices. However, in countries where cohesive, highly integrated institutions have been put in place, it becomes extremely difficult for MNCs to adapt their operations to local practice. This is largely because in such environments, the cohesiveness will already have led to the establishment of a distinctive business system.

Moreover, legal regulations existing in the host country pose a major problem to MNCs. The regulations pile environmental pressure on subsidiaries to comply with local business standards and processes. In such a situation, it becomes extremely difficult for subsidiaries to adopt the HRM practices of their home countries. This becomes a very tricky phenomenon because without complying with local cultural and legal expectations, it is impossible for these subsidiaries to gain legitimacy and acceptance. In this regard, the subsidiaries seem to be operating in an environment of intense coercive pressure.

Moreover, in other instances, a subsidiary may be relying on the managerial and technological expertise provided by local suppliers and host-country organizations (Bartlett, 1989). Even after adopting home-country HRM practices and policies, such subsidiaries end up being profoundly influenced by the HRM practices of the host country. This is particularly the case if the subsidiary intends to maintain the status of a preferred employer.

There are different levels of HRM transfer as far as the operations of subsidiaries of MNCs are concerned. In some instances, a subsidiary may choose to transfer individual HRM practices. In others, it may choose to embark on the overall HRM transfer. The extent to which a subsidiary is affected by HR adaptation constraints posed by the host-country’s national culture depends on the level of HRM transfer. In many cases, practices that are incompatible with local practices and regulations become conspicuous. This creates the impression that many employees have been affected.

There is a need for HRM research to focus a great deal on the identification of different categories of HRM practices. It is imperative for these research efforts to yield an understanding of variations in the way different HRM practices are regarded as acceptable in host-country environments. The same case applies to the issue of transferability of various HRM practices. Most of the emphasis has been on the national culture of host countries. One example that is commonly cited is that of countries with a culture of concentrating power at the top levels of management. Multinational corporations intending to establish subsidiaries in such countries may face serious challenges if they choose to introduce HRM practices that do not require any concentration of power at the higher levels of management.

In many instances, subsidiaries have been forced to settle for hybrid HRM practices. They do this by transferring HRM practices of their home countries to a certain degree while at the same time living up to the cultural and institutional expectations of HR managers in the host country. These hybrid HRM practices can be discerned by examining specific groups of HRM practices as opposed to examining the overall transfer of HRM practices and policies. From this perspective, it is evident that some HRM practices naturally become more localized. Such practices eventually exert profound influence on the cultural, social, and institutional environment of the host country. In other instances, the practices are automatically integrated in all subsidiaries of the MNC in efforts to conform to the practices that were initially adopted at the headquarters.

It is virtually impossible for a subsidiary to resist the influence of home-country HRM practices. In most cases, multinational corporations begin by establishing themselves in home-country markets. In the process of gaining this home-country foothold, they end up being significantly influenced by the cultural and institutional practices existing there. For this reason, host-country HR managers find it irresistible to hire several home-country employees. The objective of doing this is to enlighten host-country employees regarding aspects of home-country organizational culture. In most cases, HR managers in host-country subsidiaries prefer to transfer top management teams with experience in home-country operations.

The characteristics of the home culture also influence the nature of difficulties experienced by HR managers in host-country subsidiaries of MNCs. In situations where the home culture is homogenous, these managers may feel the need to introduce many aspects of this culture in host-country contexts. Moreover, the size and level of openness within the home-country economy influences the decisions of HR managers. In situations where the home-country economy is small, it may be rather difficult to spread home-country influences within the subsidiary. This mostly happens if the MNC is seeking to achieve specific competitive advantages from the diversity of business environments.

An example of a company that has been greatly influenced by host-country HRM practices is Samsung. Samsung is one of the largest multinational companies from South Korea. The economy of South Korea is small and does not exert a lot of international influence in today’s era of globalization. This greatly influenced the ability by Samsung to transfer its home-country HRM practices to its overseas subsidiaries.

Following serious difficulties with regard to the acceptability of its home-country HRM practices, the best option for Samsung was to adopt host-country HRM practices. In the US, the company’s subsidiaries have adopted US HRM practices. The same case applies to the operations of the company’s subsidiaries in Europe and Africa. Moreover, at the company’s South Korean headquarters, Samsung had initially adopted the traditional HRM system that is characterized by tenure-based promotion and seniority-based wage. Upon establishing subsidiaries in other countries, the company started adopting new HR policies such as individual incentive, annual performance appraisal, and performance-based promotion.

Incidentally, the changes witnessed in Samsung’s subsidiaries coincided with the emergence of the globalization era. This globalization wave continues to present challenges even to MNCs originating from large, dominant economies such as the US and the UK. For instance, multinationals from these economies have been embarking on a radical shift from standard employment to uncertain employment. Initially, uncertain employment practices were associated with subsidiaries only. Today, the prevailing forces of globalization have led to the adoption of these practices even in home countries.

In essence human resource managers of subsidiaries tend to face a conflict between the need to adapt to local circumstances and the need to maintain their home-country identity. At the subsidiary level, different institutional pressures tend to aggravate this conflict. To address this challenge, many human resource managers adopt the internationalization strategy. This strategy seems appropriate in today’s era of globalization. In this strategy, managers adopt practices and policies that promote sustainable relationships between subsidiaries and headquarters.

By establishing such sustainable relationships, it becomes easy for subsidiaries to adopt the institutional heritage of the headquarters while at the same time adapting to the local business environment. For example, many German MNCs have been noted to be transferring German-style vocational training programs to employees in UK subsidiaries (Sethi, 1999). According to Sethi (1999) these companies do this because the UK has not put in place the institutions necessary for entrenching HR practices of German companies.

In conclusion, it is evident that MNCs face serious challenges in efforts to transfer the HRM policies to overseas subsidiaries. To address these difficulties, human resource managers of overseas subsidiaries should adopt practices and policies that facilitate the establishment of sustainable relationships between subsidiaries and headquarters.

 

References

Bartlett, C. (1989). Managing across borders. The transnational solution. Harvard Business School Press, Boston.

Beechler, S. (2009). The Transfer of Human Resource Management Systems Overseas: An Exploratory Study of Japanese and American Maquiladoras. Columbia University Press, New York.

Ferner, A. (1997). Country of origin effects and HRM in multinational companies. Human Resource Management Journal, Vol. 7, No. 1, pp. 19–37.

Harzing, A. (2001). Who’s in Charge? An Empirical Study of Executive Staffing Practices in Foreign Subsidiaries. Human Resource Management, Vol. 40, No. 2, pp. 139–158.

Heile. S. (2002). Challenges in International Benefits and Compensation Systems of Multinational Corporation. The African Economic and Business Review, Vol. 3, No. 1.

Noorderhaven, N. (2003). The “country-of-origin effect” in multinational corporations: Sources, mechanisms and moderating conditions. Management International Review, Vol. 43, No. 2, pp. 47-66.

Peterson, R. (1996). Corporate Expatriate HRM Policies, Internationalization, and Performance in the World’s Largest MNCs. MIR: Management International Review, Vol. 36, No. 3, pp. 215-230.

Sethi, S. (1999). The influence of “country of origin” on multinational corporation global strategy: A conceptual framework. Journal of International Management, Vol. 5, No. 8, pp. 285-298.

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