thite final report 4-11
TRANSCRIPT
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Internationalization & HRM Strategies across Subsidiaries in MultinationalCorporations from Emerging Economies A Conceptual Framework
Mohan Thite*
Department ofEmployment Relations and Human Resources,Griffith Business School
Griffith University,
170 Kessels Road, Nathan, QLD 4111, AustraliaEmail: [email protected]; Phone: +61 7 373 57643
Fax: +61 7 3735 7177
Adrian Wilkinson
Centre for Work, Organization and Wellbeing,Griffith University,
170 Kessels Road, Nathan, QLD 4111, AustraliaEmail: [email protected]; Phone: +61 7 373 56792;
Fax: +61 7 3735 7177
Dhara Shah
Department ofEmployment Relations and Human Resources,Griffith Business School,
Griffith University,
170 K l R d N th QLD 4111 A t li
http://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Department%20of%20Managementmailto:[email protected]://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Centre%20for%20Work,%20Organisation%20and%20Wellbeinghttp://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Centre%20for%20Work,%20Organisation%20and%20Wellbeingmailto:[email protected]:[email protected]://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Department%20of%20Managementhttp://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Department%20of%20Managementmailto:[email protected]://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Centre%20for%20Work,%20Organisation%20and%20Wellbeingmailto:[email protected]://www.griffith.edu.au/cgi-bin/phone_search.pl?format=browse&group=Business&school=Department%20of%20Management -
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170 K l R d N th QLD 4111 A t li
ABSTRACT
The rapid rise of multinational Corporations (MNCs) from emerging economies has led
to greater interest and urgency in developing a better understanding of the deployment
and diffusion of managerial strategies from their perspective and without assuming the
prevailing Western ethnocentric orthodoxy. This paper develops a conceptual framework
of global HR strategies and practices in MNCs from emerging economies across their
subsidiaries in both developed and developing markets. Using data from a pilot study of
an Indian MNC, it provides insights and guidance into the motives, strategic
opportunities and constraints in cross national transfer of HR policies and practices in a
multi-polar world.
Key Words: New Multinationals; Emerging Economies; India; Internationalization
St t i Gl b l HR St t i
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1. Introduction
In the coming decades, China and India will disrupt workforces, industries,
companies, and markets in ways that we can barely begin to imagine (Engardio,
2008: 23)
Research on MNCs has tended to be focused on those from developed countries
establishing subsidiaries either in other developed economies (e.g. U.S. to the UK) or into
developing economies (e.g. the U.S.A into Latin America). U.S. firms invested in
Europe from before 1939 but the major push came after World War Two (Ferner,
Almond, Clark, Colling, Edwards, Holden, & Muller-Camen, 2004). Japanese MNCs
began to locate in advanced economies, particularly in the 1980s. While, there has been a
rich stream of MNC research in this area, there has been relatively less research on newer
industrialized (e.g. Taiwan, India and South Korea) to the more industrialized economies
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how HRM strategy of the MNCs in emerging economies is formed and how it operates in
practice. First, we outline the issues relating to emerging MNCs. Second, we develop a
conceptual framework of global HR strategies and practices in MNCS from emerging
economies. This provides managerial insights and guidance into the motives, strategic
opportunities and constraints in cross national transfer of HR policies and practices. It
uses the data from the pilot study of an Indian multinational company to test the
conceptual framework and propositions. The paper concludes with a discussion of how
our findings relate to existing research and identify directions for future research.
This paper helps identify and analyze the travel of ideas (Delbridge, 1998;
Garrahan & Stewart, 1992) between the East and West, in terms of the motive and
opportunity behind cross-national transfer of HR policies and practices. Such an
understanding of corporate management thinking and practice in Asian MNCs helps
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which came from Asia. Similarly, the growth rate of the number of TNCs from
developing countries and transition economies over the past 15 years has exceeded that of
TNCs from developed countries. Asia dominates the list of 100 largest developing
country TNCs. Further, the emerging economies are investing heavily in low-income host
countries, generating considerable South-South investment flows (UNCTAD, 2007). It is
anticipated that in the new world economy, the balance of power will shift to the East as
China and India continue to evolve as two of the most attractive inward as well as
outward FDI destination countries.
The growing importance of emerging economies has lead to an upsurge of
strategy research on the topic (Wright, Filatotchev, Hoskisson, & Peng, 2005). Research
on global HRM has not paid enough attention to MNCs from emerging economies
despite of all the management domains, HRM is most sensitive to local context
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influence in determining this balance (Ngo, Turban, Lau, & Lui, 1998, p. 632). Contrary
to Ohmaes (1990) view of a borderless world and nationless corporations, cultural and
institutional determinants in the country in which firms were located are seen to be
salient determinants arising from a firms context (Chang & Taylor, 1999; Gooderham,
Nordhaug, & Ringdal, 1999). Researchers, such as Ferner (1997) and Gamble (2003)
examined the issues dealing with how MNCs manage their foreign subsidiaries and
concluded that the main influence on the MNCs effort to have a degree of control over
their subsidiaries was their country of origin (Harzing & Sorge, 2003; Hu, 1992).
Supporting this view, Harzing and Sorge (2003) state that although multinationals are
highly internationalized, their organizational coordination and control practices at the
international level tend to be explained by their country of origin.
There is empirical evidence that suggests that almost all MNCs have a trace of
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country of origin on the IHRM practices. This work draws on the work of Hall (1976)
and his distinction between situations where things are less explicit where the context
exerts more influence (high context) and those that are much more explicit where the
context is less of an influence (low context). Western countries are seen as generally low
on cultural context whereas Eastern countries are mainly seen as high on cultural context
(Hofstede, 1984). The interplay between national and organizational culture is a
significant factor in the success of global mergers, acquisitions and alliances (Thite,
2004).
As stated before, there is relatively little research on the internationalization of
emerging economy firms either into other emerging economies or into developed
economies (Wright, Filatotchev, Hoskisson, & Peng, 2005, p.25). The strategy literature
on emerging economies predominantly use institutional theory followed by resource-
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tend to use exporting and FDI as combined and simultaneous strategy, rather than being
distant alternatives (Contractor, Kumar, & Kundu, 2007).
Although in absolute terms the MNCs from emerging economies are not very
large, they are gaining importance and many companies are now globally diversified.
The key advantages for these MNCs are access to the most dynamic growth markets in
the world with a vast pool of low cost resources like production workers, engineers and
natural resources (Engardio, Arndt, & Geri, 2006). Besides being small, most of the
emerging market MNCs are in their early stage of internationalization with limited
international experience (Contractor, Kumar, & Kundu, 2007). Correspondingly within
the MNCs from the emerging economies, organizational culture, decision making and
control on subsidiaries can be noticeably different as compared to their counterparts in
developed markets due to national culture and economic differences (Hofstede, 2007).
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According to Taylor et al. (1996), there is a growing consensus that a key
differentiator between the corporate winners and losers in the 21 st century will be the
effectiveness of the human organization and it is particularly critical in the emerging
markets (Strategic Direction, 2007). In the context of IHRM, Ngo, Turban, Lau and Liu
(1998) found strong support for the hypothesis that country of origin influences the firms
HRM practices. Taylor et al.s (1996) model of IHRM considers that the transfer of HRM
policies and practices can go in any direction, not just from home to host countries.
Similarly, American and European HRM systems influence and are influenced by East
Asian HRM systems (Chew & Zhu, 2002). Empirical studies on the diffusion of HRM
practices by MNCs across their subsidiaries indicate that they predominantly adopt
hybrid methods, combining both push force for control from headquarters and pull factors
for conformity to host country, to suit the markets they are serving (Rose & Kumar,
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it requires higher levels of control and coordination (Taylor, Beechler, & Napier, 1996).
With regard to external influencing factors, the MNCs from emerging economies face a
double hurdle of liability of foreignness and liability of country of origin with
perceived poor global image of their home country (Chang & Taylor, 1999; Chang,
Mellahi, & Wilkinson, 2009a; Engardio, Arndt, & Geri, 2006; Ferner, 1997; Ferner,
Almond, & Colling, 2005; Smith & Meiskins, 1995). These constraints are further
accentuated by liabilities of smallness and newness (Contractor, Kumar, & Kundu, 2007).
As Guillen and GarciaCanal (2009) note, they also need to deal with the liability and
competitive disadvantage that stems from being latecomers lacking the resources and
capabilities of established MNCs from the most advanced countries. Furthermore, the
degree and level of integration between headquarters and subsidiaries will also influence
the multinationals. Similarly, with regard to internal influencing factors, the strategic
framework of the MNC, organizational culture, leadership, decision making and
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1999). Control refers to the processes by which an MNC ensures that their subsidiaries
operate in a particular way as determined by the headquarters in order to achieve
organizational goals (Chang & Taylor, 1999). According to Harzing and Sorge (2003),
corporate control comprises of all the mechanisms instituted to tie the operations and
decisions within and across components into a larger whole and establish coherence of
meaning and purpose within the larger enterprise (p.190). We adopt the Harzings
(1999) typology that suggests two dimensional classification between direct (personal &
impersonal) and indirect (personal & impersonal) control. Complementary to the above
typology is Taylor et al.s (1996) classification of adaptive or polycentric approach vs.
exportive or ethnocentric approach to management control of subsidiaries.
Unlike developed country MNCs engaging in forward diffusion of superior
home country practices into developing country subsidiaries, emerging economy MNCs
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Proposition 2: MNCs from emerging economies adopt a predominantly
adaptive or polycentric approach to manage their subsidiaries in developed
markets.
4.3. Control of subsidiaries in emerging markets:
Due to the paucity of empirical literature in this area, we hypothesize that MNCs from
emerging economies entering other emerging markets may follow their counterparts in
developed markets by adopting an ethnocentric approach. They attempt wholesale
transfer of the parent firms HRM systems to their subsidiaries, especially with regard to
their core competencies (Pudelko & Harzing, 2007), to achieve high internal consistency.
The other reason identified is the limited availability of management and technical skills
in some countries (Delios & Bjorkman, 2000; Scullion, 1994). Some authors have noted
that MNCs are more likely to adopt an adaptive or polycentric approach in developed
i h l d l d i d h il bili f i l
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headquarters and subsidiaries in both developed and developing markets. As the data
collection is still underway, we report the findings from a pilot study conducted at one
Indian MNC. Before reporting these findings, we provide a brief overview of Indian
MNCs as representatives of emerging economy MNCs so as to provide some context for
our work.
5. Indian Multinationals
Between 2004 and 2007, Indias outward flow of FDI rose sharply from $2 billion to $14
billion (UNCTAD, 2008). As a result, in 2008, seven Indian multinationals featured in
Global Fortune 500 and twenty in Boston Consulting Groups BCG 100 new Global
Challengers (Sirkin, Hemerling, & Bhattacharya, 2008, p.23). The services sector
constituted 38% of Indian FDI stock in 2006 mainly in IT, communications and software.
Indian multinationals are largely private owned and cover a wide range of sectors in
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6. Pilot Study of an Indian Multinational
As part of a larger research project that focuses on Indian multinationals as
representatives of emerging economy MNCs, the authors conducted a pilot study of a
large Indian IT multinational company, referred to here as Alpha Services. Alpha
Services is one of the top five Indian consulting and IT services companies with a
turnover of about US$ 2.5 billion from its operations in over 44 countries that employ
around 45,000 professionals. It operates in three business segments, namely, IT services,
Business Process Outsourcing (BPO), and software products. Alpha serves a wide range
of industry segments, including manufacturing, banking and finance, insurance,
telecommunications, infrastructure, healthcare, retail and transportation. It is publicly
listed on the Mumbai and New York Stock Exchange. Its vision is to be one of the five
most valuable global integrated IT services and BPO companies in the next few years.
Alpha Services has development centers in India, North America, Europe, the Middle
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in India, subsidiary office in Melbourne, Australia (representing a developed market) and
in Shanghai, China (representing a developing market). The interviewees included 5
human resource (HR) managers and 3 business heads at the headquarters; 5 business
account managers managing key clients in Australia and the HR Head of the Asia Pacific
region based in Singapore and the country head, HR head and 3 business managers in
China. All the interviews were conducted face to face except for two telephone
interviews. The choice of locations provided a three dimensional perspective of the
companys global operations from the stand point of headquarters where strategy is
formally formulated and reviewed and subsidiaries in both developed and developing
markets where it is intended to be implemented.
The interview protocol consisted of a semi-structured questionnaire to probe
various aspects of a companys internationalization strategies, control and coordination
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the heart of Alphas organizational structure lie the Customer Facing Units (CFUs),
consisting of Vertical Business Units (VBUs) and Regional Business Units (RBUs). The
CFUs are charged with the entire spectrum of customer relationship management and in
the process are supported by Horizontal Competency Units (HCUs) that provide the
backing of appropriate resources.
The approach to leadership at Alpha is exemplified by the motto every Alphaite
(employee) is a leader. Alpha believes that it is in the business of building and
developing leaders faster than the competition. Its organizational structure and systems
are supposed to be underpinned by its philosophy of enabling leadership with its core
concepts of full life cycle business (FLCB) and full life cycle leaders (FLCL). Alpha
is said to espouse a philosophy of encouraging employees to think like CEOs whereby
every employee is encouraged to consider himself/herself as the chief executive officer
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business approach beyond organizational boundaries by involving customers and
suppliers as part of its eco-system.
According to corporate managers, Alpha is also keen to ensure that every key
stakeholder in the company, including managers, employees, customers and suppliers, get
the same One Alpha Experience (organizational culture), codified in a manual,
throughout its global operations. Its corporate leadership center is geared to groom
present and future leaders in the organizations corporate values. The centers mission is
to spread the organizational culture to every unit. Senior managers from all over the
world are given weeklong induction training at the companys headquarters in India to
attend a focused leadership immersion program spearheaded by the top management
team.
h i i i h i i b idi i i h h
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6.2. International Business Strategies:
Alpha has been seen as an ambitious and entrepreneurial organization throughout its
history. For example, Alpha understood in the late 1990s that it needed to move beyond
the established developed markets in the U.S.A and Europe and enter other emerging
markets, such as the Middle East and China where it was an early entrant along with
other Indian IT firms. Similarly, in mid-1990s, when enterprise resource planning (ERP)
was identified as a potential high growth area in the IT industry, Alpha decided to enter
this emerging field to exploit the opportunities ahead of its competitors. This paved the
way for the global leadership position that Alpha is said to enjoy today in ERP
implementation, particularly, in the telecommunications sector. As the Head of Alphas
China operations proudly pronounced it is a perfect storm- entrepreneurship, vision and
excellent domain tradition that have made Alpha what it is today.
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in becoming a truly global company. The desire of Alpha to localize its workforce is
reinforced by the statement from Alphas Head of HR in China that Alpha wants to be a
Chinese company in China but provide the same global experience to clients, no matter
where the operations are carried out. As a policy, Alpha strives to staff locally at least
20% of all positions in all of its overseas operations, 50% of entry level positions and
90% in its non-English speaking geographies, such as China, where possible.
Accordingly, today nearly 98% of Alphas workforce in China is staffed locally while in
Australia it is nearly 50%. But the senior management positions, from country head to
project managers, at both these subsidiaries are still overwhelmingly staffed by
expatriates from its Indian headquarters.
From the interviews it was recognized that the recruitment and selection process,
career management and performance management were similar across the global
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The main talent management issue or challenge identified was brand value or
recognition of the company across the world, which was one of the major concerns
identified by the HR managers. While the company was pleased with its employer brand
in China where Indian IT companies are held in high esteem for their quality standards
and offshoring business process efficiency, the Australian managers generally believed
that the global image of the company needed to be strengthened as a high quality services
provider. This highlights the constraints that the MNCs from emerging economies face of
the liability of foreignness and liability of country of origin, as pointed out before.
7. Managerial Relevance
Our pilot study of an Indian MNC offers some interesting insights into the way MNCs
from emerging economies strategize and manage their operations in different parts of the
world. While Western MNCs have traditionally taken their domestic strengths outward
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With regard to Proposition 1, our case study illustrates that Indian MNCs do face
multiple hurdles in furthering their internationalization strategies. For example, despite
their growing global reputation, Indian IT companies still have problems recruiting talent
at higher levels due to poor perception of their employer brand. Despite its desire to
localize its management team in Australia, Alpha seems to be unable to attract the best
local talent and therefore, forced to send expats from India. Accordingly, its corporate
control and coordination mechanisms are influenced by the multiple hurdles that it faces
as an MNC from an emerging economy.
Similarly, with regard to proposition 2, alphas adoption of performance metrics
from its key U.S. client and making it a central part of its performance management
system is a clear sign of an adaptive approach in managing subsidiaries in developed
markets. At the same time, Alpha, along with other top Indian IT companies, has
pioneered the art of global offshoring business process and the global services delivery
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different countries organize business activities and more specifically, the management of
employees (Brewster, Sparrow, & Harris, 2005; Ferner, 1997). The cultural values
framework pioneered by Hofstede (1980) demonstrates the limitations of universalistic
models of IHRM that emphasize one-best-way. Even though some have contested the
emphasis placed on national culture in international management at the cost of
organizational differences (Ericksen & Dyer, 2005; Gerhart & Fang, 2005), the
importance of country of origin is a consistent theme in the research in this area (Harzing
& Sorge, 2003).
Our conceptual framework adopts a broad approach by examining the key factors,
such as cultural differences, institutional differences, organizational differences and the
interplay between them (Schuler, Budhwar, & Florkowski, 2002). Any study on MNCs
from emerging markets also needs to take into account sectoral variables (Colling &
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economies strategize and act in diffusing and coordinating management practices. For too
long, international HR management literature and practice have been embedded in
Western thinking and concepts with little cross-pollination (Wright, Snell, & Dyer, 2005,
p.876) and an over emphasis on expatriate management, reflecting the ethnocentric bias
of North American scholars (Schuler, Budhwar, & Florkowski, 2002). It is clear that the
universal or U.S. model does not have applicability to the emerging MNCs. If the East
becomes, in popular jargon, the new West we need to develop newer models to aid the
understanding of how Asian MNCs, particularly from China and India, are going to
exercise corporate control in an increasingly multi-polar world (Pudelko & Harzing,
2007, p.553).
In the 21st century knowledge economy where services and creative industries
dominate the economic landscape that is tilting more towards developing and transition
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DomesticOperations
Subsidiariesin developedcountries
Subsidiariesindevelopingcountries
Global HR Strategies & Practices
Direct Indirect
Attract Develop Retain
Personal Impersonal Personal Impersonal
Figure 1: Diffusion of Global HR Strategies & Practices across
Subsidiaries in a Multinational Corporation from an Emerging
Economy
Internal Influencing Factors
1.Strategic framework (business,corporate, international, co-operative)
2.Organizational culture/ leadership3.Importance of subsidiaries to
MNCs bottom line & strategy4.Mode of subsidiary set-up
(Greenfield, M&A )5.Headquarters diffusion capacity6.Subsidiaries absorptive capacity
7.Subsidiaries resourcedependency on the headquarters
8.Availability, ability & choice ofexpatriate managers
External Influencing Factors
1. Home Country Factors(Economic strength; global image;national culture )
2. Host Country Factors(Perceived relative strength ofhome & host country mgt.
practices; Environmental factors(openness of business systems,legal framework, institutions )
3. Industry-specific Factors(Degree of product integration;level of integration betweenheadquarters & subsidiaries )
Hypotheses
Adaptive Exportive
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