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«The HRM of Foreign MNCs Operating in Europe March 2015 Chul Chung Henley Business School, University of Reading, UK Masayuki Furusawa Faculty of ...»

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Discussion Paper

The HRM of Foreign MNCs Operating

in Europe

March 2015

Chul Chung

Henley Business School, University of Reading, UK

Masayuki Furusawa

Faculty of Business Administration, Osaka University of Commerce,

Japan

Discussion Paper Number:

JHD-2015-04

The aim of this discussion paper series is to

disseminate new research of academic

distinction. Papers are preliminary drafts,

circulated to stimulate discussion and critical comment. Henley Business School is triple accredited and home to over 100 academic faculty, who undertake research in a wide range of fields from ethics and finance to international business and marketing.

dunning@henley.ac.uk www.henley.ac.uk/dunning © Chung and Furusawa, March 2015 ii © Chung and Furusawa, March 2015  Henley Discussion Paper Series The HRM of Foreign MNCs Operating in Europe Abstract Europe has been a major destination for foreign direct investment as one of the triad economies with the USA and Japan. MNCs have brought not just financial resources but also human resources and, in many cases, particular ways of managing workforces from their home base.

Transferring HRM practices could be highly complex and challenging, as human resources are the most country-bounded resources. Foreign MNCs operating in Europe face cross-national challenges stemming from the process of transfer and adaptation of HRM practices, due to the uniqueness of European traditions as well as the national diversity within Europe in relation to employment relations. This paper examines how MNCs from three different countries – the USA and Japan, the two other triad economies, and South Korea, a home base of emerging MNCs – have dealt with the challenges in managing human resources in their European operations within the given institutional contexts.

Keywords multinational corporation, human resource management, Europe, Japan, USA, South Korea Contacts Chul Chung, Henley Business School, University of Reading, RG6 6UD +44 (0)118 378 7751 c.chung@henley.ac.uk Forthcoming, in M. Dickmann, C. Brewster & P. Sparrow (Eds.), International Human Resource Management: Contemporary Issues in Europe (3rd Edition), Routledge, 2015.

© Chung and Furusawa, March 2015 1 John H Dunning Centre for International Business Introduction Europe has been a major destination for foreign direct investment as one of the triad economies with the USA and Japan (UNCTAD, 2014). US MNCs and, later, Japanese MNCs invested significantly in European countries in order to develop markets and expand their operations in the region. More recently, emerging MNCs from countries other than the triad economies have come to Europe and set up their operations. These various MNCs have brought not just financial resources but also human resources – expatriates – and, in many cases, particular ways of managing workforces from their home base. Transferring HRM practices could be highly complex and challenging, as human resources are the most country-bounded resources (Rosenzweig and Nohria, 1994). Foreign MNCs operating in Europe face cross-national challenges stemming from the process of transfer and adaptation of HRM practices, due to the uniqueness of European traditions as well as the national diversity within Europe in relation to employment relations (Scullion and Brewster, 2002). This paper examines how MNCs from three different countries – the USA and Japan, the two other triad economies, and South Korea, a home base of emerging MNCs – have dealt with the challenges in managing human resources in their European operations within the given institutional contexts.

Managing human resources in MNCs One of the key issues in managing human resources in MNCs is how to adapt their headquartersbased or global ways of managing human resources to the different national contexts in the host countries on the one hand, and how to utilise their dispersed workforces and coordinate overseas HRM operations to exploit the benefits of scale and scope fully as a multinational organisation (Evans et al., 2011; Rosenzweig, 2006). Two aspects in managing human resources in MNCs have been highlighted in the international HRM literature: (1) the degree of global standardisation versus localisation of subsidiary HRM practices and (2) the utilisation of parent country nationals (PCNs) versus host country nationals (HCNs) in subsidiary staffing of MNCs.

Researcher have identified a number of factors which shape subsidiary HRM practices by examining various institutional influences on such practices as shown in Figure 1. These include the home country influences on corporate level IHRM strategy and subsequently on the subsidiary (‘country of origin effect’); the host country influences (‘local effect’); and the transnational influences (‘dominance effect’) (Pudelko and Harzing, 2007). For example, it was claimed that as HRM practices of MNEs are subject to strong pressures to adapt to local ways of practicing HRM, they tend to adopt local practices (Rosenzweig and Nohria, 1994). Another 2 © Chung and Furusawa, March 2015 Henley Discussion Paper Series variant of the research suggests that MNCs are deeply embedded in the national institutional arrangements of their country of origin and accordingly their HRM practices in foreign operations are strongly influenced by their home practices (Ferner, 1997). It was found that MNCs may adopt HRM practices from a dominant nation (e.g. the USA), perceived as advanced practices (Pudelko and Harzing, 2007). In short, the subsidiary HRM practices are shaped by various institutional influences and the degree of relative influences of the three forces on subsidiary practices could be different depending on a particular context. It should be noted that there is still a room for manoeuvre by corporate or subsidiary actors who are involved in the design and implementation of subsidiary HRM practices in a given institutional context (Geppert and Williams, 2006).





Figure 1 The influences on subsidiary HRM practices of MNCs

In a similar vein, studies of subsidiary staffing have focused on whether and when MNCs utilise PCNs (or HCNs) for positions in subsidiaries (Gong, 2003). One of the key findings in the studies is the strong effect of country of origin on the tendency of utilising PCNs in subsidiary key positions, as Japanese MNCs utilise PCNs more for subsidiary managerial positions than US or European MNCs (Harzing, 2001; Kopp, 1994). The contextual factors such as cultural distance (Gong, 2003) and institutional distance (Gaur et al., 2007) between a home and a host country have been identified to explain when the use of PCNs (or HCNs) would be more beneficial for subsidiary performance. In short, a particular context of a home and a host country matters as a major factor that shapes the patterns of subsidiary staffing as well as subsidiary HRM practices.

–  –  –

The HRM of US MNCs HRM in the US context The USA has been considered as a major source of contemporary HRM ideas and practices since the field of ‘human resource management’ was developed in the USA in mid-1980s (Parry et al., 2008). Though introduced and used widely across the world, HRM could be considered as a product that has evolved from particular social and institutional contexts in the USA (Guest, 1987). HRM in the US context has often been characterised by the high degree of freedom that companies enjoy in deciding how to manage their employees (Brewster, 1995). As a ‘liberal market economy’ (Hall and Soskice, 2001), the American business system imposes fewer restrictions on firms’ HRM practices, allowing US firms to experiment and develop distinctive HRM practices which might be geared toward pursuing shareholders’ interests rather than wider societal values (Guest, 1990). HRM practices that are intended to enhance workforce flexibility and performance, such as contingent employment and pay systems, have been largely utilised by American firms (Brewster et al., 2011). It was noted that employment practices in the USA, particularly their ‘proactive’ stance (Ferner et al., 2011; Lawrence, 1999), contrasts those in European countries where national governments and other social institutions play a significant role in shaping practices with regard to employment relations and employee welfare (Brewster, 1995).

Another notable aspect of the US HRM is the high degree of formalisation and standardisation in its practices (Edwards et al., 2010). Ferner and his colleagues (2004) pointed out that this distinctive feature has been shaped by a number of historical factors in the USA. First, the growth of large firms which were increasingly dispersed across a wide range of geographical locations domestically and later internationally promoted the development of bureaucratic control mechanisms in general and in personnel management systems in particular. In addition, the adoption of scientific management promoted the codification of job requirements and job descriptions (Baron et al., 1986). The growth of white-collar occupational groups further facilitated the introduction of highly specified and formalised job structures and performance evaluation methods (Edwards, 1979). Second, in the two world wars, US firms were required by the government to control the number of hired employees and provide detailed information on their workforce in order to contribute to national wide manpower planning for the war economy (Jacoby, 1985). To respond, firms developed a systematic classification structure to document employees’ jobs by skill and wage categories. To create more efficient management of workforces, sophisticated techniques such as selection testing, job evaluation and internal 4 © Chung and Furusawa, March 2015 Henley Discussion Paper Series career ladders were developed (Jacoby, 1985). Third, the use of the systematic and formalised HRM practices for fair and consistent treatment of employees was further promoted by the legislation of Equal Employment Opportunity (EEO) as well as the development of the companylevel collective bargaining model in the post-war period to manage tensions arising from the concerns for job security in the difficult economic condition (Jacoby, 1985). Although the American context of HRM can be characterised by the relatively deregulated labour markets, legislations does exist in relation to equality and diversity issues in workplaces. US firms are liable if they fail to proactively prevent incidents which can be associated with any form of discrimination under the EEO Act, which enforces affirmative actions against discriminations based on an individual's race, national origin, religion, sex, age, disability and sexual orientation (Ferner et al., 2005).

HRM of US MNCs operating in Europe Influenced by these historical and institutional developments in the home country, the approach to international HRM of US MNCs are distinctive in two respects. One is the relatively strong tendency towards global standardisation in HRM practices across different subsidiaries and the other is the more limited utilisation of expatriates and the greater use of local employees in key positions in subsidiaries. These patterns in HRM of US MNCs were found in their European operations too.

Global standardisation of subsidiary HRM practices Studies of HRM practices in the European subsidiaries of US MNCs have shown evidences of global standardisation of subsidiary practices following practices in US parent firms (e.g. Collings et al., 2008; Harzing, 1999). US MNCs tend to exert central control over their European subsidiaries by attempting to transfer their home practices to the European operations. In practice, though, they also adapt to local contexts to some degree (Collings et al., 2008; Ferner et al., 2004). Almond and his colleagues’ (2005) intensive case study on HRM policies of a large US IT company’s operations in four European countries – Germany, Ireland, Spain and the United Kingdom – shows the typical approach of US MNCs. The orientation in international management of the American firm in Europe has evolved from a strongly ethnocentric approach which lasted until the 1980s, to a decentralised approach giving greater autonomy to national subsidiaries during the late 1980s, and then to a regionalisation approach which allowed the Europe headquarters to exert more influence over subsidiaries in the region since the 1990s.

Though the case study demonstrates a dynamic interplay of local effects and country of origin effects in subsidiary HRM practices, the strong tendency of global uniformity towards the US © Chung and Furusawa, March 2015 5 John H Dunning Centre for International Business parent’s HRM model is clearly evident. In a large-scale survey research project on MNCs from the United States, Japan and Germany across subsidiaries in the three countries, Pudelko and Harzing (2007) also found that subsidiaries of US MNCs tend to transfer their US parent practices more than their counterparts of German and Japanese MNCs.

These findings reflect the particular characteristics of US HRM practices developed in the home institutional context (Ferner et al., 2011). As US firms developed early the formalised and standardised practices in managing geographically dispersed organisations in their home county, it tended to be taken for granted that they continued their particular way of managing dispersed units even when they expand their businesses operations abroad (Ferner et al., 2011).

The high degree of codification of HRM practices in US firms would, it was assumed, make it straightforward to transfer the practices across the borders and furthermore; the US dominance in the world economy during the last decades might lead US managers as well as subsidiary managers to consider US home practices as advanced ones (Ferner et al., 2011).



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