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Stehle, W. & Erwee, R. (2007). Transfer of Human Resource Practices from German Multinational Enterprises to Asian Subsidiaries, Research and Practice in Human Resource Management, 15(1), 63-88.
Transfer of Human Resource Practices from German Multinational Enterprises to Asian Subsidiaries
There are three Human Resource Management related issues that have attracted considerable interest in the international management literature. These three research issues deal with 1) human resource practice transfers, with 2) relational context affecting implementation and internalisation, and with 3) roles of key staff that influence European human resource practices across Southeast Asian countries. These issues were addressed in a study when human resource (HR) directors and line managers were interviewed in German companies with subsidiaries in Singapore, Thailand and Indonesia. The study findings indicate firstly, that German MNEs because of underlying value differences, tend to transfer policies and leave the translation into practices to the local Asia Pacific HR director, whereas the subsidiaries have contrasting expectations. Secondly, the findings confirm the importance of the relational context and trust between headquarters (HQ) and subsidiaries. Finally, the study evidence demonstrated HQ and subsidiary managers have different perspectives, and this observation highlights how cultural attributions affect organisational practice. The implications are that various approaches to the control of HR policies exist and the MNEs are encouraged to carefully analyse the relational context and subsidiary expectations when planning their international HR transfer strategy.
The first issue to be addressed is that of the transfer of human resource practices from headquarters to subsidiaries and from subsidiaries to parent companies. Although there is agreement that the transfer of knowledge internationally is a key requirement for successful multinational enterprises (MNEs) (Bartlett & Ghoshal 2000, Evans, Pucik & Barsoux 2002, Poedenphant 2002, Mariappanadar 2005), differences of opinion occur about factors that influence the adaptation of Human Resource (HR) policies and practices from MNEs to subsidiaries. A second discussion point within this literature is what relational context needs to exist between Headquarters (HQ) and their subsidiaries (Kostova & Roth 2002), and a third issue focuses on the roles of relevant staff in the transfer process (Taylor, Beechler & Napier 1996). The contention in this paper is that these issues have not been adequately researched in European firms, especially, German firms and their Asian subsidiaries.
In terms of the first research issue namely, the transfer of human resource practices, Kostova and Roth (2002) formulate hypotheses about factors that influence international transfer of organisational practices. This work serves as a guideline to conceptualise the transfer of HR policies and practices in this study. The need or desire to transfer policies and practices to implement global HR systems often arises from relatively basic needs, such as wanting quick access to global headcount or payroll volume (Roberts 2000). This is in contrast to the more strategic and theoretical notion that international human resource strategy (IHRM) is an integral part of business strategy (Hamel & Prahalad 1994, Bartlett & Ghoshal 2000, Rugman & Hodgetts 2000, Evans, Pucik & Barsoux 2002, Nankervis, Compton & Baird 2002, Takeuchi 2005).
The second research issue is in terms of context implementation. Specically, is the debate about relational context. A number of researchers argue that the approach to internationalisation is more often than not to expand, and, therefore, impose the existing home country system or process internationally, without getting involvement of the people from the subsidiary. Thus, the tendency to consider values, norms and customs of one’s own country to be superior to those of other countries is often referred to as an ethnocentric or exportive approach (Taylor, et al. 1996, Clark, Grant & Heijltjes 2000, Roberts 2000). Because the home country or HQ approach may be neither accepted nor appropriate, the practice at the operational level in subsidiaries often establishes itself as a sub standard solution. This further focuses attention on implementation and internalisation issues.
The third research issue centres on the debate about roles of relevant staff. The argument is that transfers of organisational practices can occur in various directions within the MNE, including transfers from the parent company to foreign subsidiaries, from foreign subsidiaries to the parent company, or from one subsidiary to another. This study investigates mainly the transfer of HR policies and practices, not only from HQ to subsidiaries, but from subsidiaries to HQ. The assumption is that more research is necessary about the internal processes by which MNEs transfer, translate or fail to transfer their HRM approaches into subsidiaries and the circumstances in which they do intend to undertake these interactions or decide not to effect such transfers.
From these themes the research issues and sections in this paper are about the transfer of three German multinational corporations’ HRM practices to their Asia Pacific subsidiaries. In summary, the three research issues in this study explore firstly, whether there is a climate of trust between HQ and subsidiary in general that facilitates the transfer of human resource practices. Secondly, the ways in which policies and practices are implemented and internalised, given the German MNE’s approach and the established country differences, are investigated. Finally, to evaluate the roles of HQ people and subsidiary staff in the transfer process.
Success of Practice Transfer
In terms of the first research issue on the transfer of human resource practices, Kostova and Roth (2002) note that in institutional theory a key perspective is that organisations sharing the same environment will employ similar practices. However, as many elements of an institutional environment, such as culture and legal systems, are often specific to a nation, organisational practices can be expected to vary across the countries of Germany, Singapore, Thailand and Indonesia. Transfer success could also be affected by the degree of national cultural differences of the home country and the recipient country, with regard to the practice that is being transferred (Hofstede 1993, Taylor, et al. 1996, Herkenhoff 2000, Adler 2001, Gong 2003, Mariappanadar 2005). In general, it is argued the success of transfer of a practice from a parent company to a subsidiary is universally associated with the cultural distance between the countries of the parent company and the subsidiary.
Transfer success and adaptation are also impacted by a range of other factors. These elements include the impact of the social, political, economic and strategic context; the pressures for global integration versus local responsiveness; and the evolving mentality that the MNE is facing (Bartlett & Ghoshal 2000). To respond to these challenges the MNE is obliged to develop global competitiveness, multinational flexibility and the capability of worldwide learning. Transfer of practices is typically associated with organisational learning, change, and innovation at the subsidiary. That is, a cultural orientation of that unit toward learning, innovation, and change is most likely to result in more positive attitudes toward the transfer process, which may lead to the eventual success of the entity (Bartlett & Ghoshal 1998, Herkenhoff 2000, Poedenphant 2002). This effect is not practice specific, since it reflects characteristics of the subsidiary that apply to all types of activities associated with learning, innovation, and change in general. The question could be posed if the statements on multinational flexibility could be applied to German MNE approaches in IHRM namely, that MNEs “…exploit their exposure to diverse and dynamic environments to develop strategies in more general or more flexible, terms so as to be robust to different environmental scenarios.” (Bartlett & Ghoshal, 2000:248). These perspectives on worldwide learning of MNEs suggest that if company resources are centralised at HQ, and where the subsidiaries are only required to implement centralised policies, that little learning in the company and its subsidiaries is likely to occur. In contrast, it could be explored if the local Asia Pacific subsidiary of a German MNE is allocated high levels of local resources and autonomy, whether learning about HR approaches could effectively be transferred if the subsidiary is able to analyse and synthesise knowledge and the HQ is open to accepting the expertise. The question is whether the success of transfer of a practice from the HQ (Germany) to a subsidiary (in Singapore, Thailand or Indonesia) is supported by the extent to which the organisation’s culture is generally supportive of learning and change. However, researchers (Szulanski 1996, Poedenphant 2002, Mariappanadar 2005) have shown that there are various barriers to the successful transfer of practices, some relating to the characteristics of the practices that are being transferred or others of a cultural and organisational nature. In addition, Taylor, et al. (1996), and Takeuchi (2005) proposed that the MNC’s strategic human resource management orientation is a key determinant of the level of transfer of the HRM system of a MNC to its subsidiaries.
It may be difficult to establish whether a strategic organisational practice has been transferred successfully to a subsidiary. Kostova and Roth (2002) advocated taking an active agency approach namely, that subsidiaries could have different attitudinal and behavioural responses to the request from their HQ to adopt a particular practice. Adapted from Kostova (1999) the following perspective is proposed to deal with the first research issue: The success of transfer is the degree of institutionalisation of the practice at the subsidiary. Institutionalisation is the process by which a practice achieves a taken-for-granted status at the subsidiary; a status of ‘this is how we do things here’.
Relational Context and Climate of Trust
In expanding on the first research issue the relational context becomes the focus. This context, that links a foreign subsidiary to a parent institution, becomes important because it influences the way such pressures from a home country are interpreted and perceived by a foreign subsidiary. Kostova and Roth (2002) define the relational context between a parent organisation and a subsidiary through three characteristics 1) dependence, 2) trust, and 3) identity.
Transfer failures are possible, even when both the cultural and the organisational contexts are favourable (Bartlett & Ghoshal 1998, Poedenphant 2002). A potential reason for such failures could reside in the specific relationships that exist between the parties involved in the transfer (Szulanski 1996). It is argued that one of the ways in which the recipient country’s institutional profile will affect the adoption of the practice is through subsidiary employees (Kostova & Roth 2002). Kostova (1999) identifies attitudinal relationships as the most important relationships with respect to transfer. There is contention that these relationships affect the motivation of the transfer coalition to engage in the transfer process and are especially important when the direct value of the knowledge that is being transferred is difficult to assess, as is the case for transfer of HR policies and practices, as opposed to technologies or new product designs.
An individual’s identification with an organisation results from a strong belief in, and acceptance of, the values and goals of the organisation (O’Reilly & Chatman 1986). Furthermore, when the members of a transfer coalition identify with the parent company, they will probably prefer the subsidiary to become more similar to the parent by adopting the practices used by the parent (Kostova 1999). However, Mariappanadar (2005:43) found that in contrasting perspectives about culturally alien HRM practices and culturally indigenous practices in large companies that some employees believe that a “… company’s interests motivate culturally alien HRM practices, and it did not matter whether it matched with employees value systems or not.”.
Trust of the transfer coalition in the parent company can be described as a shared belief among the members of the coalition that the parent company acts in good faith, is honest and does not take advantage of the subsidiary. Higher levels of trust in the parent company may reduce the uncertainty regarding the value of the policy or practice for the subsidiary, as well as the motives behind the transfer. Higher trust also is likely to be associated with higher perceived reliability of the source, a factor shown to have a positive influence on transfer success (Szulanski 1996, Poedenphant 2002). Finally, trust may reduce the costs of communication, negotiation and exchange associated with a transfer between the senders. That is, the parent companies, and the recipients, which are the stakeholder subsidiaries. When units trusted the parent organisation more, and are identified with it to a greater extent, they reported higher levels of implementation. Furthermore, trust and identification reduce the ambiguity related to the efficiency of practices and lead to processes of mimetic and normative rather than coercive adoption (Kostova & Roth 2002).
From the discussion on the transfer of human resource policies and relational context the first research question can be formulated: Is there a climate of trust between HQ and subsidiary in general that facilitates transfer of human resource policies and practices?
Implementation and Internalisation
A perspective relating to both the first and second research issues is that home country or HQ practices may be incompatible with prevailing employee values in the subsidiary. In other words, the transfer process does not end with the adoption of the formal rules describing the practice, but continues until these rules become internalised at the subsidiary. Indeed, a successful adoption depends upon the degree of institutionalisation of the HRM practice at two levels (Kostova 1999, Kostova & Roth 2002). The first level is at the implementation stage when employees simply follow formal rules. This is a relatively shallow level that is often used to support the concept of HRM convergence (Rowley & Benson 2002). A second, and deeper level is internalisation. This stage is reached when employees have commitment to the new work practices, and acquire perceptions of ownership of the newer work arrangements (Kostova 1999). This latter phenomenon is a less readily visible form of transfer and more difficult and time consuming to research. On the one hand, it may be relatively easy to implement a regime of standard operating procedures, but on the other hand much more difficult to internalise certain practices. Therefore, even if these are ‘best practices’, they may not bring positive results until people become fully committed to them (Rowley & Benson 2002).
Implementation and internalisation, although different, are likely to be interrelated. Implementation is a necessary condition for internalisation. However, implementation does not automatically result in internalisation. It is possible, that although a practice may be formally implemented and its rules strictly followed, the employees do not internalise it by developing positive attitudes towards the practice. For instance, the employees may disapprove of the practice or some of its aspects, or they simply may not have had the time to develop a positive attitude towards the new work arrangements (Kostova 1999, Rowley & Benson 2002). However, one study of MNEs and their international subsidiaries found that that those subsidiaries that reported lower levels of implementation also perceived themselves to be more dependent on their parent company (Kosova & Roth 2002). These authors argued that the implementation of an organisational practice typically requires some adaptation and modification of the practice at the recipient unit. Units that are less dependent on the parent organisation may have greater freedom and flexibility for making these adaptations and vice versa. Hence, the inverse relationship between dependence and implementation emerges.
Closely linked to the question of transfer is the discussion of convergence versus divergence. First, if transfer without adaptation was found to be successful, HRM would converge towards HQ policies and practices. Second, if there was either little acceptance without adaptation, or a downright rejection of some elements of HQ policies and practices, a case for divergence could be argued (Rowley & Benson 2002). Third, if policies were transferable without adaptation, and practices needed significant adaptation, then attention needs to be given to the element that translates policies into practices. Finally, crossvergence, a form of convergence towards something new that is a blending of various ideas and practices, might be expected in some cases (McGaughey & De Cieri 1999, Fisher & Haertel 2003).
Change at any one level does not automatically imply change at another level. Often, people at practice levels resist guiding principles or policies, as they may be unworkable due to local customs and practices, lack of training or even ignorance. At the policy level, operational practices may be tolerated, but not built into policy or philosophy due to ignorance or wider environmental constraints (Becker & Gerhart 1996, Rowley & Benson 2002). For Becker and Gerhart (1996), universal ‘best practice’ effects would be expected at the policy level. At the practice level, however, divergent phenomena would be more likely. Therefore, the issue of transferability and convergence of HRM systems becomes more a matter of degree, not of kind, and less about ‘all or nothing’ and more about ‘what aspects and how much’ in respect to choices (Taira 1990, Dickmann 2004). Nevertheless, with an expectation of converging policies and diverging practice implementations the role of the translator of policy into practice becomes more crucial, because without effective translation of a policy, the risk of transfer failure, that is transferring policies to which few pay attention, becomes greater. For the purpose of this study, translation, application, implementation or deployment of a policy into practice is understood to be roughly the same and the general term used is translation of a policy into practice. In short, there are many difficulties in examining the issue of HRM transfer. A key question is not whether particular practices are being adopted, but at what levels they are implemented and internalised, and what are the limiting factors.
Taking into account the nature of strategic organisational practices, it might be suggested that the success of transfer will be affected by the compatibility between the values implied by the particular practice and the values underlying the culture of an organisational unit. When these values are compatible, it will be easier for employees at the subsidiary to understand and internalise the practice. However, it will be difficult for them to understand, implement, and moreover internalise a practice, when the underlying values are incompatible with the values of their unit, implying a practice specific effect of organisational culture (Rowley & Benson 2002). Kostova and Roth (2002) define favourable institutional environments as those that contribute in a positive way to the adoption of a practice through regulations, laws, and rules supporting and/or requiring the practice; cognitive structures that help people understand and interpret the practice correctly; and social norms enforcing the practice.
From the discussion on the transfer of human resource policies and implementation of policies and practices the second research question can be formulated: How are specific HRM policies and practices implemented and internalised, given the MNE’s approach and the established country differences?
Roles of Key Staff
The third research issue focuses on the roles of relevant staff in the transfer process. The set of key players typically involved in transfers are referred to as the ‘transfer coalition’ (Kostova 1999). The transfer coalition serves as a bridge between the subsidiary and the parent company, and has a key role in understanding and interpreting the practice as well as the inherent value to the unit. The transfer coalition is responsible for selling the practice to the employees at the subsidiary, and it also determines what is communicated, how it is communicated, and how it is received (Bartlett & Ghoshal 1998). Finally, the transfer coalition is important because it has control over the resources employed towards a successful transfer.
This coalition is normally composed of two groups of people: a stable ‘core’ and a flexible ‘expert’ group. The core group consists of the senior managers of the subsidiaries, who quite often have considerable discretion in making a decision as to whether to engage in the transfer or not, and if so, how much effort is to be expended. In this study it is argued that the core group in the context of transfer success of HR policies and practices would mostly include the CEO and the HR director of a subsidiary. The expert group interviewed in this study included employees who are experts in the functional area of the practice. For example, if a performance evaluation practice is being transferred, the transfer coalition in the subsidiary may include professionals from the human resources department at the subsidiary, in addition to the HR director and the CEO.
Taylor, et al. (1996) focused on the crucial role of top management in determining both whether the MNE possesses HR competence and whether this competence is useful outside of the home country. These researchers advocated that research should investigate to what extent the top management (or transfer coalition) perceive an MNE’s HR competence and whether this competence is context specific or can be generalised and transferred. Moreover, these scientists argued that the international experience, for example, of the top coalition HQs or the MNE’s capacity to learn from the success and failures of attempts at transferring HR to a host country may be critical determinants of the transfer of a HRM system. Arguably, transfers are more likely to succeed when members of the transfer coalition hold positive attitudes and trust toward the parent company. It should be noted that the ultimate success of a transfer depends on the support of all employees at the subsidiary and that this support does not follow automatically from the support by members of the transfer coalition. However, the role of the transfer coalition is still critical because its members are in a position to provide the necessary resources, as well as to influence the employees in general. Kostova and Roth (2002) point out that the level of dependence of a subsidiary on headquarters needs to be clarified. Subsidiary managers could be questioned about the extent to which the subsidiary relies on the support of HQ to provide major resources such as expertise. The subsidiary managers would also be able to voice beliefs about their subordination or control.
From the discussion on the roles of key staff in the transfer of human resource policies the third research question was formulated: What are the roles of HQ people and subsidiary staff in the transfer process?
Germany is the number one exporting nation in the world ahead of the United States (US) and Japan (Financial Times Deutschland 2003). Because of the smaller domestic market compared to the US many of the German MNEs have more business and more employees abroad than in Germany (Rugman & Hodgetts 2000). There is some evidence to suggest that German companies and German MNEs exhibit distinctly different work behaviours than those that are expressed in other countries and their MNEs (Kopp 1994, Pauly & Reich 1997, Rugman & Hodgetts 2000, Brodbeck, Frese & Javidan 2002, Hunt 2002, Chew & Horwitz 2004, Dickmann 2004).
There are at least three reasons for evaluating German MNEs specifically in selected Asian countries. First, there is the success of many Asian economies which are in the fastest growing region in the world (Economist 2002), and are still under researched compared to Europe and the US (Chew & Horwitz 2004). Second, the economies of the three countries investigated in this study are often grouped together as ‘Asian’ and underpinned by ‘Asian values’ on the basis of geographical and cultural proximity. Local customs, institutions, and labour forces do, however, provide for significant differences among the selected countries. Third, in view of the regional range of stages of economic development, the selection of the study countries also allows exploration of transfer both to advanced Asian economies, namely Singapore, as well as the economic communities of less developed societies namely, Thailand and Indonesia.
The selection of the MNEs for this study was based on the criteria that they are German Fortune Global 500 industrial companies that have a substantial amount of their business outside Germany and have subsidiaries in Singapore, Thailand and Indonesia. All three chosen MNEs have a history in Germany of well over 100 years with their international growth taking shape predominantly after World War II. Currently, all three study MNEs have more than 50 per cent of their employees and/or business volume outside of Germany. They have wholly foreign owned subsidiaries in more than 50 countries worldwide. The biggest market and subsidiary of all three MNEs is in the US, while the biggest market and subsidiary in Asia of all three MNEs is in China. This leads in all cases to an implicit understanding that while Singapore, Thailand and Indonesia are important markets, these subsidiaries do not receive the attention and resources from their HQs. Table 1 presents reliant details of the participants in terms of geographical location, MNE business type and job incumbents.
The HQ of each MNEs is defined as a main case and each country subsidiary of that MNE is defined as an embedded case. Based on this definition, this study is a multiple case study, involving three main cases in Germany and nine embedded cases (three each in Singapore, Thailand, and Indonesia). As the first author had visited numerous German MNEs and their subsidiaries in South East Asia over the last few years on a professional basis, the three MNEs were easily identified and the management of these MNEs agreed to participate in the research.
|Country||MNE Type and Respondents|
|MNE Electrical||MNE Mechanical||MNE Chemical|
|Germany||2 HQ||2 HQ||2 HQ|
a. MNE = Multi national Enterprise.
b. HR = Human resource director, L = Line manager, and HQ = Headquarters.
The principal source of data came from the 24 in depth interviews with selected managers of three German MNEs at HQ and subsidiaries in Singapore, Thailand and Indonesia as well as field observations in every country. These activities were conducted by the first author. A case study protocol was developed in this study to control the contextual environment of the case study (Chew 2001, Yin 2003). The next operational step was to ‘follow up’ with the interviewees through email and fax to explain the research design, assure them about confidentiality and to make arrangements for the interviews.
Interviewing HR directors and line managers such as CEOs and CFOs assures that the interviewees are directly involved in and affected by the transfer of HR policies and practices from HQ to subsidiary. Two managers of each participating MNE subsidiary in Singapore, Thailand and Indonesia, as well as two from each HQ were selected. Interview partners from HQ and from line management in the researched countries were predominantly male (13 interviewees out of 15 respondents) and of German nationality (14 interviewees out of 15 respondents), while the HR directors in all nine embedded cases involving Asian subsidiaries were local nationals with a majority being females (6 out of 9). Most data for this study came from the 24 interviews with non native English speakers.
All the data from the semi structured in depth interviews were systematically recorded. Throughout the interview, respondents could illustrate, expand or digress from the questions in the interview protocol. In addition, the result of the interviews were manually recorded verbatim in the structured interview protocol and shown to the respondents, for checking on errors and adding information as necessary. During the interview the respondents were also asked to provide appropriate documents for triangulation purposes. The interview result was then triangulated with evidence given by the interviewed managers. Subsequently, the reports of the eight managers in each main case study were integrated. Finally, each completed interview report was mailed to the managers of the participating MNE to review the case content and clarify any discrepancies or inaccuracies.
Data were collected by interviews. Exploratory interviews, were embracive and involved. For instance, as well as discussions with and feedback from two additional academics in the field of international HR (and one business practitioner not otherwise involved in the study), the procedures were underpinned an interview protocol with relevant questions that were subsequently, tested in two pilot interviews. There are two interview protocols with questions on the same content. One was for the HQ staff, and a second protocol was for the personnel of the subsidiaries. The differences between these two protocols are minor, but are undertaken to address the different perspectives held by the employees of HQ and their subsidiaries.
Each interview begins with a general introduction to acquaint the respondent with the interview purpose and agenda. Part A of the interview protocol introduces the research project and outlines the ethical considerations. Part B contains the opening questions to build rapport and allows the interviewees to tell their experiences in their own words without any prompting or input from the researcher (Patton 1990, Stake 1995). This research section deals with specific research questions and three of these research questions are presented as Appendix 1. The semi structured interviews start with open, general questions and then focus more on the specifics of the identified research issues (Perry 1998, Zikmund 2000).
One of the relevant questions in the interview protocol explored the need for adaptation of policies and practices when transferring them from the MNE HQ to their subsidiaries. The respondents are first asked to give examples of HR issues that need adaptation to fit the subsidiary, and specifically, why these modifications should occur. A research question addresses how unique a subsidiary feels in comparison to others, and a third question relates to what extent HR issues ought to be standardised globally in the MNE. In brief, respondents are asked to tell in their own words which (if any) HR policies and practices needed to be adapted when applied in their country.
In this section of the interview the respondents firstly, give examples of the organisation of interaction between HQ and subsidiary as well as HQ people assigned to their subsidiary by region or issue. A second question deals with whether these people are perceived as helpful or controlling. A third question probes if they take the subsidiary’s concerns into account, and finally, how the subsidiary ensures a feedback process to HQ is explored. In brief, respondents are asked to tell in their own words who the players are and what their roles are when HQ transfers policies and practices to the subsidiary.
This study presents two forms of case analysis. First, within case analysis compares data and patterns within one main case, drawing on the embedded cases (Scholz & Tietje 2002). This reveals the pattern in or the approach to the transfer of HR policies and practices inside one MNE to the different subsidiaries. The common factor is the organisational culture. Second, was cross case analysis which was mostly on the level of the embedded cases. This analysis compares data and patterns within one country across different MNEs (Scholz & Tietje 2002, Yin 2003). The technique has potential to reveal specific approaches in one country, and the common factor is the national culture that could be common traits of interview partners such as, educational background, position or gender. In other words, the twelve embedded cases are first analysed individually, using triangulation of data methods, and then two forms of case analysis are used to highlight patterns and themes emerging from the data.
Study data are presented in Table 2 to Table 6, inclusive. Information from the interviews is condensed and then elucidated with relevant descriptive knowledge of the authors. The context of the tables is structured for each of the three specific cases namely, Case E (Electrical company), or Case M (Mechanical company), or Case C (Chemical company); respectively. Trends across all three cases or divergent results pertaining to specific themes are contrasted either by column (by case) or by row (theme).
Success of Transfer: Cooperation Between HQ and Subsidiary
This section analyses the data collected with respect to the first research issue which examines the relational context that affects transfer success.
Research question 1: Is there a climate of trust between HQ and subsidiary in general that facilitates the transfer of human resource policies and practices?
In the first interview question, which was related to the first research issue, the level of cooperation between HQ and the subsidiaries was probed. Generally, in all three researched cases the presented evidence suggested the HQ of the MNE expressed growing interest of HQ in Asia, which in turn leads to a higher focus on business processes and cooperation. This result represents a shift from the past when HQs tended to manage ‘on the numbers alone’ with a low level of cooperation. For instance, it is shown in Table 2, that case E has a regional structure in place and a company wide initiative for productivity gains. Alternatively, case M relies heavily on individual initiative and fosters this culture, being different again from case C, which is using trust and tradition to manage its subsidiaries, much like a family business. Product expertise and international management skills are thought to be centred in the HQ in all three cases. This view is expressed most in case M, which has a very strong self image as a German company producing quality products. Sales activities used to be left almost exclusively to the subsidiaries and quotes such “…as long as the numbers were good they (the CEOs of the subsidiaries) could do whatever they wanted, just like kings” (Chemical, German HR manager), typify the past. But over the past three years all three MNEs have taken a greater interest in the management and cooperation with the subsidiaries in areas such as consistent financial reporting.
These data, from all three cases, reveal that while changes are regarded in the HQ as an opportunity to increase transparency and save costs, they are perceived largely as an additional workload in each of the subsidiaries, with little direct positive impact. This perspective was summarised by a line manager of the MNE (electrical) who stated “HQ wants new information, is not coordinated in its request and never tells us what they do with the data”. Indeed, over the last three years HQ are taking a more active interest in managing their subsidiaries and they believe that greater cooperation is achieved. The approaches vary yet, are usually driven by HQ and are not always seen as beneficial by the subsidiaries.
Success of Transfer: Company-Wide Initiatives and Programmes
Table 2 presents an overview of respondent perceptions on company wide HR and non HR initiatives used in the cases. It is shown in row one of Table 2 the general trend over all three cases is that Asia is more in the focus of German management and there is more involvement from the subsidiaries in HQ programmes and initiatives. Table 2 delineates the HR initiatives for case M and case C. For instance, case M has a HQ project of international HR excellence, (stated by the HQ HR manager) which has the goal to overcome “our Southern-German focus”. Also shown in Table 2 is the case C initiative of HR international, which aims to internationalise the HQ HR approach. The strategies to improve cultural awareness of the HQ staff are components of the HR initiatives at cases M and C. In contrast to case M and case C, case E does not have any special HR initiatives over and above its structure and process of regional cooperation. In short, the subsidiaries are involved in a number of HQ projects, both in HR and other central functions as well as in the business, that aim to streamline reporting and processes in addition to create synergies between the various subsidiaries.
|Case E||Case M||Case C|
|General trend over the last three years||Asia more in the focus of management, more involvement in HQ programmes and initiatives.|
|HR||Regional cooperation, using the regional HR structure, no specific initiatives.||HQ HR excellence initiative to internationalise HR in case M.||HQ initiative HR international, initiative to internationalise HR in case C.|
|Non HR||Company wide project with distinct name, rolled out first in Germany, then the US, then Asia. The goals are standardisation, synergy and growth.||Individual projects, country specific and/or product specific (e.g., a sales initiative for product line x in country y or a process improvement project in one country).|
The non HR initiatives are detailed in Table 2. It is depicted case E has a large initiative with a ‘catchy’ name, applied first in Germany and then in the US. This business initiative is meant to standardise, use synergies across borders and to foster growth. The perception from the interviewed CEOs is positive, possibly selling the initiative internally, whereas the perception of the HR directors from the subsidiaries is more sceptical. General (non HR) HQ initiatives and programmes designed to help the subsidiary are not present in cases M and C, despite comments from a HQ HR manager of the MNE (chemical) there is a keen sense of “Asia being more and more in the focus of management” and the HQ HR manager of MNE (mechanical). Another interview partner says: “We have very little tolerance for flavour-of-the-month projects in M, which explains why we do not have such programmes and initiatives”.
Relational Context and Perceived Climate of Trust
In this section further aspects of the relational context as it relates to the first research issue about the transfer of human resource policies and practices are explored. One of the questions in this section of the interview protocol is whether the respondents would describe the relationship between HQ and their subsidiary as trusting and the underpinning for their perception. A summary of the responses is presented as Table 3.
Table 3 shows the perceived climate of trust between the HQ and subsidiaries. The content of Table 3 infers a range of perceptions of trust between the entities. Indeed, the Singapore case M varies the most while case E displays neither high nor low trust perceptions are reported by the respondents. In contrast, case C (the MNE with the least control structure) has a very high feeling of trust, both in HQ and the subsidiaries for all countries. Comparatively, case E (the most advanced in terms of international infrastructure and procedures) tends to have a wider range of perceptions. When asked to provide examples of why this level of trust is perceived in the relationship it is very difficult to get a concrete example. The trust level seems to be a feeling based on incidental anecdotes and a general feeling about “the way we talk to each other” (Chemical, Thai HR manager) or “the way the HR regional meetings are conducted” (Electrical, Thai HR manager) or the way “the CEO represents HQ in the subsidiary” (Mechanical, Thai line manager).
|not at all||somewhat||neutral||To some extent||To a great extent|
Note. M = case M, E = case E, and C = case C.
A climate of trust and perceptions of the relational context are regarded as two separate issues. Therefore, to probe the relational context, another question about a respondent’s perception of the climate of innovation was included in preparation for further questions about adaptation. These results are summarised. For instance, case C was found to be the lowest in perceived innovation, being seen as neutral, whereas case M reported the highest extent of perceived innovation, a spirit that runs through the company reflecting its product image. “Everything we do is innovative, just like our products” (Mechanical, HQ German HR manager; Mechanical, Thai line manager), a statement that is deeply ingrained in the company culture of case M. Despite putting innovation at the forefront of its public relations (EO), the perceived level of innovation in case E was observed to be neutral to rather innovative, but the responses were markedly less enthusiastic than those of the interviewees of case M. After a thoughtful pause one subsidiary CEO stated, with a half smile: “I guess we are innovative, at least that is what we say” (Electrical, Indonesian line manager). The HQ of M is seen as “pushing and expecting innovation; new ways, different ways” (Mechanical, HQ manager; Mechanical, Singapore line manager) and according to one CEO of a subsidiary sometimes “puts too much confidence in the individual rather than creating a process” (Mechanical, Thai line manager). During the interviews everybody at case M gave an anecdote about one individual who wants to do something, just does it, and then is rewarded. So, a spirit of innovation is equated with the possibility, and positive reaction of the MNE, to try out new things on an individual level. Even the respondents from the subsidiary of case M in Singapore, who are rather critical in many instances, are quick to point out that “innovation is our strength in all areas” (Mechanical, Singapore line manager). Case C, on the other hand, while very innovative on its product scale and technology, sees itself as managed “based on trust and tradition” (Chemical, German HR manager; Chemical, Thai line manager) with innovation not being a central thought when describing management.
In summary, case C has a strong common feeling of trust which is manifested in positive statements about other colleagues and departments. In contrast, the common denominator in the interviews of case M is the pride in being part of a very dynamic and innovative organisation, regardless of differences of opinion between HQ and subsidiaries. Case E has no such common denominator, even though it has a process and a structure for everything.
Implementation and Internalisation: Need for Adaptation
This section analyses a number of questions and the data collected with respect to research issue 2 which examines the implementation and internalisation of policies and practices.
Research question 2: How are specific HRM policies and practices implemented and internalised, given the MNE’s approach and the established country differences?
Table 4, in summary format, shows extent of the agreement for the need to adapt HQ HR issues to better fit the subsidiary exigencies. The specific HR issue addressed (and reported in Table 4) was for variable compensation. It is clearly needed for case E as the subsidiary has to adhere to the globally valid guidelines, and in case M the subsidiaries have to adhere to the more general ‘global five’ principles. While in case C the CEO in the respective subsidiary can decide individually, yet has to ensure that the company culture is respected.
|Case E||Case M||Case C|
|Germany||Yes, depending on local need, subsidiary has to decide but still adhere to the guidelines.||Yes, depending on local need, subsidiary has to decide but still adhere to the Big Five Principles and keep the culture of M.||Yes, depending on local need, subsidiary has to decide, CEO ensures that company culture is respected.|
|Singapore||Yes, rules are modified depending on local market conditions.||Yes, rules SHOULD change, but subsidiary cannot change the rules.|
|Thailand||L: No, the rules are applied to everybody in the MNE.
H: Yes, because Thailand is different.
|Maybe, but only after a set of HQ rules has been applied and failed.||Not applicable, subsidiary makes own system and wishes for more guidance from HQ.|
|Indonesia||Yes, rules are modified depending on local market conditions and national culture.|
Note. L = CEO, and H = HR director.
The evidence presented by Table 4 is the subsidiaries were unclear about their freedom to decide on modification of rules. For instance, in case E the HR director and the CEO have differing opinions. Indeed, the CEO was adamant that the rules that apply in Germany also apply to the employees in Thailand. The HR director did not hesitate to point out that “the final decision which rules to apply lies in Thailand” and that HQ rules have to be modified due to the differences in the size of organisations and national culture. In contrast, the latter position was to some extent exposed by other data provided from case E (Singapore and Indonesia). Relevant commentary from these subsidiaries mentioned the local market condition as an important factor in deciding if and how the HQ rules on variable income are modified. A lack of consensus is further exacerbated by input from other stakeholders. For instance, there was an argument put by the case M subsidiaries that the HQ rules can only be modified after having unsuccessfully tried them. However, the Singapore subsidiary was adamant that “HQ rules have to be applied”, and while they should be modified, the HQ neither modifies them nor allows the subsidiary to modify those rules. The case C subsidiary interview partners appeared to vacillate with a wish for more guidance from HQ, having a problem with too few rules and guidelines (a position held by the HQ). In spite of modification of HQ rules being possible in all three main cases the subsidiaries have some uncertainty in terms of the content, and the timeliness of modifications.
Perceived Uniqueness of Subsidiary
Further questioning about adaptation of policies for research issue 2 was probed. The respondents were invited to consider a need to adapt practices because of a perceived uniqueness of the subsidiary. Generally, the subsidiaries of the MNEs in case E, case M and case C regarded themselves as being part of a larger group of country subsidiaries in Asia. These subsidiaries did not argue that they are uniquely based on the nature of their business, the local market, the organisation of the subsidiary or because of legal differences between the countries. The Singapore respondents argued their uniqueness is based on “Singapore being an efficient city state” that bridges the East and the West. The respondents of the MNEs are of the opinion that Singapore is more developed and more business minded than Thailand and Indonesia. Alternatively, the respondents from Thailand set their country apart because of “its lack of a colonial past”. Moreover, the respondents from Indonesia cited religion as a pertinent factor as their nation is the only Muslim country in the study, and the geographical feature of “it comprises hundreds of islands and is difficult to govern centrally”, as another key reason why Indonesia is different to the other study organisations. Despite the question probing for the uniqueness of the subsidiary (of the MNE) in the respective country, the responses from the subsidiary respondents more keenly addressed national cultural differences. In contrast, HQ respondents in Germany viewed the countries in South East Asia compatible, but differentiate the subsidiaries in Singapore, Thailand and Indonesia by their respective size and product range.
HR Issues to be Standardised Globally
A further probing question in this section tested the respondents’ beliefs whether there are specific HR issues where they feel the HQ policies and processes should be applied in all countries. The responses to this enquiry revealed there is a strong belief in the German HQ of all three MNEs that some globally valid principles apply to all subsidiaries. Specifically, a German HR manager of a MNE (mechanical) stated that “there is something to being an employee of M which is stronger than national culture”. However, it appears these are principles rather than processes and it is left to the subsidiary to interpret and apply these principles locally. While claiming these principles are mandatory, a German HQ manager or HR (M) freely acknowledged that “there is very little control if and how these principles are applied”. Conversely, all HQ respondents unanimously stated that the respective companies’ leadership principles and talent identification processes are to be applied globally, something that the subsidiaries in Thailand, for example, perceived differently. This position was demonstrated initially by a Thai line manager of a MNE (mechanical) who claimed that “Our leadership principles and style have to be modified here to fit the country”; and subsequently, by a Thai HR manager of a MNE (electrical) who retorted “The leadership principles from Germany are no good in Thailand and cannot be applied”. These data evidenced the common approach in the three main cases is that the HQ sets principles on a strategic policy level and the subsidiary develops its own practice and process. Poignantly, HQ insists on standardisation which the subsidiaries resist.
Roles of HQ People and Subsidiary Staff
This section analyses the data collected with respect to research issue 3 which examines the roles of HQ people and subsidiary staff in the transfer process.
Research question 3: What are the roles of HQ people and subsidiary staff in the transfer process?
Table 5 expressed the extent of organisation of the interaction between HQ and subsidiaries. An inspection of the non HR feature of Table 5 indicates the relationship depends on the product line (on a global level in companies M and C) or the division (E), and includes responsibility on board levels for the Asian region. In the HR area of Table 5 (see column ‘HR’ and all rows) there is evidence of global HR competence centres. These seem to have emerged from the previously German competence centres in fields such as compensation and benefits. Respondents noted that there are specialists for selected topics (e.g., compensation) and there are different ways in which the regional experts are acknowledged or networked in the regions or at HQ.
|Case E||Responsibility for Asia on board level, with business divisions being organised individually. At HQ a corporate department to determine business development per country and to monitor progress.||Specialists in HQ for selected topics like leadership or compensation with a global scope and regional experts both in HQ and in Singapore. One HR director from Asia is the spokesperson for concerns regarding HQ.|
|Case M||Responsibility along the product lines globally. At HQ a corporate department to determine business development per sales region and to monitor progress.||Specialists in HQ for selected topics like development or compensation with a global scope. Regional interface by the operational HR who takes care of the German expatriates in the subsidiary.|
|Case C||Responsibility for Asia on board level; below board level along the product lines globally.||Specialists in HQ for selected topics like training or compensation with a global scope and, in the process of being established, regional experts in HQ.|
It is also shown in Table 5 (by examining the HR component) the support structure to transport these global HR competencies and responsibilities varies greatly from case to case. For instance, case E has a complete system with councils, spokespersons and a regional HR competence centre in Singapore. In addition, case M uses the HR contacts between the HQ and subsidiaries, stemming from expatriate management as the interface between the HQ and subsidiaries. And case C is only recently realising the need to connect the HR from HQ with the local HR in the subsidiaries. Overall, Table 5 demonstrates all three cases have a central HR in the HQ, yet size and organisation of this central HR varies greatly.
HQ Staff Assigned to Subsidiary
There was consensus by the subsidiaries that the primary function of the HR HQ staff should be in terms of assistance rather than controlling. Nevertheless, opinions as to how the HR HQ staff can provide this condition of helpfulness, vary. Often it was perceived by the subsidiary study participants that the HR specialists from HQ are not primarily interested in advancing the subsidiary, but in fulfilling their goal to report implementation success back at the HQ. Another contention of the subsidiary respondents was the quality of communication to the subsidiary from the HQ staff could be improved, and there is potential for the HQ to better understand the business parameters of the subsidiaries. For example, case E has a system of reporting globally on implementation of various policies, ranging from recruiting to pension schemes, that employs colour codes to indicate the level of installation. In this scheme red is for ‘bad’, white is for ‘no action yet’, yellow is for ‘begun action’ and green is for ‘implemented’, but in practice the phenomenon of ‘colour blindness’ becomes a reality. This condition was highlighted by a Singaporean HR manager (Electrical) who expressed the viewpoint that the specialists, who are in charge of facilitating the implementation worldwide are people “who want to have the boxes green, regardless of the difficulty in our country”. This sentiment was mirrored by a Singaporean CEO (Mechanical) with past experience of working in a corporate department who stated “sometimes the HQ specialists are prisoners of their own system, failing to see the other side”.
Respondents of the subsidiaries were asked if concerns are adequately addressed by the HQ staff. The subsidiaries responded in unison that there is considerable scope for improvement, a consensus that was couched mainly in terms of sensitising the HQ staff about ways to communicate as well as awareness of the business reality in the respective country. The HQ respondents, of all three main cases, are aware of these deficiencies and regard sending junior level HQ employees to Asia to gain first hand experience as the best solution. Yet, being aware of the cost factor to transfer German expatriates to Asia (to be responsible for HR issues) the HQ hold a preference for the subsidiaries to be more willing to embrace a ‘Western attitude’, and to at least address the communication problems. A Thai HR manager (Mechanical) stated “We look inside the Thai society for talent that is open towards modern management methods and people who have been educated abroad, therefore, we have fewer problems now than in the past” of which would indicate this subsidiary has a strategy for embracing the HQ initiatives. Overall, the HQ HR staff is regarded by the subsidiaries as not very effective due to a perceived lack of local knowledge, but the HQ HR engagements are useful and not legally directive.
Table 6 shows the HQ view is that there is inadequate feedback from the subsidiaries. More input and proactive interest in global HR issues is desired from the HQ respondents, whereas the subsidiaries are ambivalent about this, as exemplified by one statement given by a Thai HR manager from a MNE (electrical) “It is not our culture to complain or to show off, we prefer to be quiet and do our job”. It is also expressed in Table 6 (case C) that the HQ is aware of a lack of structure to receive and use such feedback and consequently, is in the process of creating a regional HR council as well as a web tool for enhancing communication processes. The statement given by a German HQ manager (Chemical) “We expect people to use the platform when available” reflects a level of optimism already devoid in case E and case M. The statement “While we have all the tools and processes we receive little to no input for fear of sounding stupid or generating more work for themselves” (Electrical, German HQ HR manager) describes the current state of affairs. The HQ HR managers realise that the process will take time. However, there is a tension between top management and HR, with senior management “wanting to make up for lost time in a hurry” (Mechanical, German HQ HR manager).
|Case E||Case M||Case C|
|HQ perception||Platform and processes are in place, subsidiary people need to use these more proactively.||Platform and process is being created, expectation is that platform will be used.|
|Subsidiary perception||Formal feedback procedures are seen as either complaining or showing off and usually creates more work for the subsidiary.|
|Feedback route taken||CEOs formally part of the regional HR structure.||Informally via CEOs.|
A salient feature of Table 6 reveals the most used route for feedback from subsidiaries to HQ is via the CEOs. In eight out of nine subsidiaries under study the CEO is German with HQ working experience and a network in the HQ. The CEOs travel to Germany frequently, and are obviously culturally conversant in the German HQ ways. Case E has recognised the importance of the CEO with respect to the international HR network and invites one CEO from the region to its regional HR meetings on a rotational basis. While that increases effectiveness of HR in the region it does in a way undermine the effort to establish HR communication paths, so that the HQ views this CEO participation with “mixed feelings” (Electrical, German HQ HR manager).
The discussion has three parts. Firstly, the discussion concentrates on the climate of trust and relational context between HQ and subsidiary in general that facilitates the transfer of human resource practices. Secondly, the ways in which policies and practices need to be adapted during the implementation process given the German MNE’s approach and the Asian country differences are then discussed. Finally, the form of control exercised by the HQ staff is explored as well as the impact of language affecting roles of key staff in the transfer process.
Transfer of Human Resource Policies and Relational Context
The first research issue proposed that a climate of trust between HQ and subsidiary in general could facilitate the transfer of human resource policies and practices. The findings of this study confirm that a climate of trust facilitates the success of transfer of human resource practices. The two characteristics of relational context and perceived level of trust are elucidated, separately.
Relations on an individual level, for example, whether an individual regards himself or herself to be working in a trustworthy, benevolent organisation are found to influence transfer procedures and success (O’Reilly & Chatman 1986, Szulanski 1996, Kostova 1999, Kostova & Roth 2002, Mariappanadar 2005). The findings of this study confirm the related literature. Comparison across cases shows that case C is more trusting and relies less on checks and controls, while case E, which reports lower levels of trust, has or needs more procedures and still achieves less cooperation between the HQ and subsidiaries on HR issues. This finding suggests that both theory and practice can benefit greatly by focusing more on attitudinal relationships, again reinforcing the proposals of Kostova (1999), as well as Kostova and Roth (2002). It is acknowledged in the literature, and in this study, that cooperation between the HQ and subsidiaries is of paramount importance to attain successful business outcomes, and that there is no one best way to manage growth, tradition or local customer focus (Bartlett & Ghoshal 1998).
Perceived Level of Trust
The literature on attitudinal relationships emphasises the need for trusting relationships (Kostova 1999, Kostova & Roth 2002), on both individual and organisational levels for successful transfer of processes and practices. Bartlett and Ghoshal (2000) described the need for openness towards learning, change and innovation. In particular the transfer coalition (Kostova 1999), members who were the interview partners for this study, reported a need for trust in institutional initiatives. This study did not find a case where a climate of trust or innovation emerged strongly between the HQ and the subsidiaries. Neither do the findings highlight one MNE’s approach in building trust as more successful than the other.
Implementation and Internalisation: Need for Adaptation
The second research question proposed that given the HR approach of the German MNEs and the Asian country differences, that specific German HRM policies and practices would need to be adapted in order to be implemented and internalised in the Asian subsidiaries. There was consensus among the investigated MNEs that policies and guidelines should be standardised, while processes and practices need to be locally adapted.
HR Issues to be Modified Specifically for Each Country
The findings support the notion that on a practice level almost all HR issues seem local (Herkenhoff 2000, Nankervis, et al. 2002). The Asian subsidiaries claim and reserve the right to adapt any policy and guideline to their local needs. This assertion has as much to do with real differences between the countries as well as with the power dynamics in the MNEs (Szulanski 1996, Kostova & Roth 2002). For example, in one case the opinion whether a specific practice of variable income payout should be adapted locally or be universally applied there was a difference of opinion between the HR director and the CEO. Further investigation highlighted that while adaptation is positive and a sign of independence for the HR director, the CEO (the only non German CEO in the sample), has the underlying belief that adaptation of this issue is equal to denying his subsidiary the same rights held by the HQ employees. Thus, differences of opinion exist when it comes to defining in detail whether the adaptation of a practice is a sign of independence and power, or whether it is a disguised attempt to create a multiple class system of employees, whereby the HQ employees would get a benefit that the subsidiary does not get. This finding also reinforces the need for trust in the relationship between the HQ and the subsidiary on an individual level (Kostova 1999).
Perceived Uniqueness of Subsidiary
National culture and history are posed to be stronger factors for differentiation between subsidiaries than business factors (Hofstede 1993, Herkenhoff 2000). Such studies support the notion that German HR policies that are to be transferred need not be differentiated between the Asian countries under study, given that subsidiary size is comparable, and that local translation into practice is to be carried out by the subsidiaries themselves, based on cultural and legal differences in each country. In addition, Takeuchi (2005) proposed that subsidiaries with specific business practices tend to adopt integrative strategic human resource practices. However, that study also cast doubt on the effectiveness of using excessive localisation practices when the subsidiary does not have well planned marketing strategies to move into a particular market.
HR Issues Standardised Globally
The opposite of the question, which HR issues are to be adapted locally, is which HR issues should be standardised globally. There was consensus among the investigated MNEs that policies and guidelines should be standardised, while processes and practices need to be locally adapted. The study findings reaffirm the literature such as, Briscoe 1995, Nankervis, et al. 2002 as well as Takeuchi 2005. In day to day operations, however, the results of this study demonstrate the existence of a ‘grey zone’ of various interpretations of exactly what constitutes a policy, a guideline, a process or a practice. This ‘grey zone’ leads to differences of opinion regarding whether a certain issue needs to be adapted because it constitutes a practice, or needs to be standardised because it constitutes a guideline. Of course, the balance of power between the HQ and the subsidiaries is directly affected when designing systems with the aim of standardisation (Bartlett & Ghoshal 1998, Kostova & Roth 2002).
One example is the increased concern of the three MNEs to manage international talents. While the HQ insists on standardisation, the subsidiaries want to follow local practice. The main reason for the insistence of HQ on standardisation may be the trend towards looking at the talent pool on a global basis, rather than a purely national one, which requires the MNEs to develop some standards to have a common language on competency and leadership capabilities (Schuler, Dowling & De Cieri 1993, Brodbeck, Frese & Javidan 2002). Indeed, if the transnational or global company is the next step of development, then staffing procedures need to change from ethnocentric and relationship driven, towards geocentric driven by objective criteria (Briscoe 1995, Bartlett & Ghoshal 1998, Dowling, Schuler & Welch 1999, Adler 2001, Schuler, Budhwar & Florkowski 2002). Hence, a need for standardisation of the management talent globally, is in line with the literature. The Asian subsidiaries in this study, however, regard this drive towards standardisation as not necessarily advantageous for themselves, especially if they feel this is a bureaucratic exercise or worse, an attempt to steal their talented staff. It is now the task of the HQ and senior management to encourage the subsidiaries accept standardised management talent as an opportunity rather than a threat. To achieve this, outstanding management talent examples should be used as pilot cases, rather than HQ directives.
Roles of Key HQ and Subsidiary Staff
The third research question proposed that the roles of the HQ and subsidiary staff differ during the transfer process and that the level of perceived HQ control and subsidiary feedback influences the interaction between the parties. The study findings confirm that the German MNEs chose a more formal approach to control and coordination in finance and business planning, and a more informal approach in HR matters. Furthermore, the lack of international experience of staff can negatively influence the exchange of information between a subsidiary and the HQ.
Organisation of Interaction Between HQ and Subsidiary
MNEs have a need to formally control and coordinate their subsidiaries. This outcome can be achieved through reporting systems and targets, or less formally through relationships and the bonds of corporate culture (Bartlett & Ghoshal 1998, Dowling, et al. 1999). With these forms of control, trust between the involved parties is a key element (Bartlett & Ghoshal 1998). The German MNEs of this study chose a more formal approach to control and coordination in finance and business planning, and a more informal approach in HR matters. Differences between the three MNEs exist. For instance, case E generally has a more formal approach, and case C a more informal approach to HR matters. The informal approach to control and coordination is most likely the best choice with respect to HR matters, because HR is viewed as a soft issue and as being of secondary importance with respect to business target achievement (Dowling, et al. 1999, Evans, et al. 2002). For the informal control and coordination to work effectively, strong interpersonal relationships and managers with international experience are essential. A regional approach with an outpost of HQ to form a regional HR competence centre, such as in case E, increases the possibility of forming trusting interpersonal relationships or regional clusters.
HQ Staff Assigned to Subsidiary
In this study being helpful rather than controlling (that is the HQ following an informal approach), is generally regarded as positive. However, assigning specialists in specific HR issues with global responsibility, such as a compensation specialist or a training specialist, as occurs in all three cases, undermines the opportunity of the assigned specialist to develop personal relationships or a deep understanding, of a country or region (Dowling, et al. 1999, Adler 2001). Consequently, the Asian subsidiaries regard the assigned HQ specialist as ineffective, which suggests that the informal control mechanism does not work well. This renders the HR HQ staff assigned to the subsidiary virtually powerless and without impact. Rather than having topic specialists with a global scope, the informal approach calls for regional partners in the HQ who can then in turn get their expertise from HQ specialists, if needed (Dowling, et al. 1999, Evans, et al. 2002).
Feedback From Subsidiary to HQ
Bartlett and Ghoshal (1992) define the ‘transnational’ manager as a manager who is well versed in many languages and cultures and with an ability to transcend national culture. While this study finds no such profile, it emerges quite clearly that the CEOs and CFOs of the subsidiaries of the MNEs have working experience from many countries, as well as a strong network in the HQ, and, therefore, they form the backbone of the formal and informal feedback routes from subsidiaries to the HQ and vice versa. Both the HQ staff assigned to the subsidiaries and the subsidiaries’ HR directors lack the international experience and the network in the MNE, which unnecessarily inflates the role of the CEO in the feedback process. This finding supports the literature which states that personal relationships and international experience are critical in international business (Bartlett & Ghoshal 1998, Evans, et al. 2002).
In this study the expectation from German HQ is that the Asian subsidiaries adapt HR standards that are passed on from the HQ in the form of policies, principles and guidelines and translate them into practices, or state clearly where no practices can be derived from the policies. The possibility of this definitive expectation being culturally biased is acknowledged yet, the need for clear communication is regarded as overriding such a concern. There is a shared understanding by German HQ and Asian subsidiaries that company values, principles and policies are to be standardised globally. Nevertheless, there is a caveat that the form of actual implementation of rules or processes, for example, for variable compensation, rests to a large extent with the subsidiary. That is, in this study the German HQ and the subsidiaries agree that almost all practices need to be adapted individually. Furthermore, the subsidiaries regard themselves as unique in their MNE because of general national differences, not because of hard business reasons such as market size or the legal situation. Where a HQ sees a need, not only to set a principle, but to define the practice in specific detail (e.g., the language used and the date of review) there is a feeling in the subsidiaries that the German HQ system cannot be applied and needs to be modified.
The relational climate and perceptions of trust vary considerably between the German firms and their Asian subsidiaries. Each of the three German MNEs choose a different approach to become more global and integrate their subsidiaries in Singapore, Thailand and Indonesia. These approaches range from company wide initiative of streamlining to individual actions and specific projects. However, in two of the three cases job rotation, other than for expatriates from HQ managing the subsidiaries, is regarded as important and still underdeveloped.
A salient implication of the findings of this study is that process and structure should not come before trust between the HQ and the subsidiary staff. General company policies and principles are welcome, whereas the possibility of adapting the process locally is regarded as a necessary right in the subsidiaries. This again reinforces the need for trust in the relationship between the HQ and the subsidiary on an individual and interpersonal level.
The boundaries of the study need to be noted. By researching only German MNEs in Asia it is difficult to generalise the findings to MNEs with headquarters in different countries. It is partially this lack of generalisability of other research studying international transfer of HR policies and practices from an Anglo Saxon perspective that led to this study (Briscoe 1995, Adler 2001). The HR function is embedded in the business environment and as such, is subject to uncontrollable influences from the market or political situation. Consequently, care is paramount in the selection of the MNEs to ensure that they have a stable presence in the respective Asian countries. To minimise the influence of macroeconomic differences between the MNEs, all the interviews in one country were conducted in the same timeframe. Nevertheless, it is acknowledged internationalisation of HR is an ongoing process and in terms of ‘repeatability’ it is impossible to turn the clock back and ‘repeat’ the transfer of HR policies and practices under the same circumstances as would occur in a controlled experiment.
The study findings indicate that the HQ staff with global or regional HR responsibilities are perceived as helpful, rather than controlling or threatening. However, in this study the HQ staff are seen as ineffective, basically lacking skills to adapt to local ways of doing things, with examples of focusing on selecting new staff in the subsidiaries based on their readiness to accept Western ways. Regional partners in the HQ are working in parallel to the global specialists, adding confusion rather than clarifying exigencies in all three MNEs. The study evidence also highlights the MNEs are being challenged to increase the HQ network and international experience of their HR directors, which will lead to a more direct feedback route of HR issues from the subsidiaries to the HQ. The results further suggest that CEOs of the subsidiaries have a role in giving feedback to the HQ on HR matters, due both to their position as well as their extensive network and cultural fit in the HQ. Another insight gained from the study is that the preparation of subsidiaries to accept and adapt the HQ practices requires careful planning. The implication of this observation is that such preparation is likely to be more meaningfully undertaken through the office of the HR director, who has a key role in the transfer process. A further implication is that MNEs are likely to benefit by ensuring international experience for both the HR staff in the subsidiaries, and the HQ HR staff assigned to the subsidiary. Furthermore, in terms of the role of relevant staff and for the informal control and coordination to work effectively, strong interpersonal relationships and managers with international experience are essential. A regional approach with an outpost of the HQ to form a regional HR competence centre, increases the possibility of forming interpersonal relationships. Moreover, the formation of a regional cluster that combines internal competencies for interacting with the HQ is likely to provide greater opportunities for HQ staff to gain international experience when transferred to the regions.
A final insight that emerged during the study concerns role of language in the relationship between the HQ and the subsidiaries. The business language of most MNEs (at least on an international level) is English, and often language training is not considered vital for international business. However, it is often the lack of language skill that makes true exchanges between the HQ and the subsidiaries difficult (Marschan, Welch & Welch 1997, Adler 2001, Evans, et al. 2002). None of the interviewed people in this study are native English speakers, and for many Asians and Germans, conversing in English is an additional challenge. None of the HR directors of the subsidiaries are fluent in German, which keeps them effectively out of the ‘inner circle’ of communication, again unnecessarily inflating the role of the CEO as the messenger to the HQ. In situations where trust is required and an informal form of control is exercised, a thorough knowledge of the ‘insider’ language of a company is particularly necessary. The MNEs of this have a disadvantage against US companies, where English language skills are by definition not a problem in the HQ. Overcoming this deficit and ensuring that the HQ staff have more than a working level of English would be a first step towards deeper communication between the subsidiaries and the HQ.
is the global head of HR of SIG Neuhausen, Switzerland, a global packaging company. Prior to that, Dr Stehle was an electrical engineer (who holds an MBA from INSEAD), who has worked for more than 15 years with Siemens in Germany, the US, China and Singapore. His interests lie in international HR, specifically expatriate management, development and compensation. Wolfgang has various publications in international HR and is a frequent speaker in international HR conferences. Dr Stehle served as a Guest Professor, International HR at the Asia Institute of Technology, Bangkok/Hanoi and was a guest Lecturer at Payap University, Thailand as well as Asia Business Forum, Singapore. Wolfgang is a member of the Editorial Board of Research and Practice in Human Resource Management.
is Professor and Director of the USQ Australian Graduate School of Business, Faculty of Business, University of Southern Queensland teaching postgraduate courses in International Management; management consulting and supervising PhD and DBA candidates. Her research interests are cross cultural business networks, managing diversity, knowledge management and organisational change. She has consulted on diversity management and designed and presented management development programmes for private and public sector companies. She served as Professor (tenured) since 1989 in the Graduate School of Management, University of Pretoria, South Africa and taught in the MBA and Executive Development Programs. She has publications in refereed, national and international journals on achievement motivation, women in organisations, career development, entrepreneurship, organisational behaviour and leadership. She served on the national Boards of Directors of the Small Business Development Corporation, Women’s Bureau and Denel Informatics, was Technical Adviser to the Subtheme Committee in the Constitutional Assembly, Parliament, South Africa, founded the National Association of Women Business Owners and designed the Women as Executives programme.
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Semi-structured interviews: Questions related to the three research questions.
Research Question 1:
Is there a climate of trust between HQ and subsidiary in general that facilitates transfer of human resource policies and practices?
1.1 How does your subsidiary cooperate with HQ in areas other than HR? Please give examples.
1.2 Please tell me about general (non HR) HQ initiatives/programmes designed to help the subsidiary. Do they help in your view? Why or why not?
1.3 Could these initiatives/programmes be improved? How?
1.4 Would you describe the relationship between HQ and your subsidiary as trusting?
not at all somewhat neutral rather very
Why is that, do you have examples?
1.5 Would you describe the practices of HQ and your subsidiary as innovative?
not at all somewhat neutral rather very
Why is that, do you have examples?
Research Question 2:
How are specific HRM policies and practices implemented and internalised, given the MNE’s approach and the established country differences?
2.1 Are there specific HR issues (if prompted the interviewer gives examples such as, variable compensation) where you feel the HQ rules should be modified to fit the subsidiary? Please give examples.
2.2 Why do you think these processes or policies ought to be modified? National culture? Size of organisation? Complexity of operation?
2.3 In your opinion, is your situation unique to your country or do similar conditions exist in many countries in the region / worldwide?
2.4 Are there specific HR-issues (if prompted interviewer gives examples such as, leadership principles) where you feel the HQ policies and processes should be applied in all countries? Please give examples.
Research Question 3:
What are the roles of HQ people and subsidiary staff in the transfer process?
3.1 Are there HQ people assigned/responsible for your subsidiary. Are they clustered by region or by issue?
3.2 Do you see these HQ people as being more helpful to or more controlling of your subsidiary staff?
3.3 Do you feel that your subsidiary’s concerns are adequately addressed by the HQ staff?
3.4 How do you ensure that your concerns are being fed back to HQ?