Hrm%20 project %20final%20version1

Submitted ToDr. Md. Khasro Miah Ph.D. Associate ProfessorSchool of BusinessNorth South

University

Submitted bySalman ZahirMahjabin Sharmin

COMPARATIVE PERSPECTIVES ON HUMAN RESOURCE MANAGEMENT

LINKS BETWEEN HRM AND BUSINESS STRATEGY WITH FIRM

PERFORMANCE: A CROSS-CULTURAL STUDY AMONG US, EU AND JAPANESE MNCS IN SOUTH

ASIAN EMERGING ECONOMY

LETTER OF TRANSMITTAL

09 May 2012Dr. Md. Khasro Miah, Ph.D. Associate ProfessorSchool of BusinessNorth South UniversityDhaka

Subject: Submission of Report

Dear Sir

We hereby submit our report titled “Links between HRM and Business Strategy with Firm Performance: A Cross-cultural Study among US, EU and Japanese MNCs in South Asian Emerging Economy” as a partial fulfillment of the requirements of your course.

We tried to follow the concepts taught by you throughout this course as well as referred to relevant text books to develop our knowledge on of human resources and business strategy.

This report has helped us gain insight in to various HRM and Business Strategy across culture. We have worked hard to prepare this report to the best of our abilities and hope that our work would meet the level of your expectations.

Thank you sir for your guidance and valuable suggestions for this paper without which this paper would not have been possible.

Sincerely yours

Salman Zahir ID- 1010573560Mahjabin Sharmin ID- 0910058090

1

Table of Contents

Abstract...........................................................................................................................................3

1. Introduction...........................................................................................................................4

2. Theoretical Framework.......................................................................................................5

3. Literature Review...................................................................................................................6

4.0 Hypothesis Development..........................................................................................................8

4.1 Determinants of HRM Performance Fit Strategy, and Firm...................................................8

H1: Manager’s perception of firm performance will be positively associated with Prospector Business Strategy...........................................................................................................................8

H2: Analyzer Business Strategy will be positively associated with firm performance perceived by managers..................................................................................................................9

H3: Defender Business Strategy will be positively associated with firm performance perceived by managers................................................................................................................10

4.2 Part –2- Determinants of HRM Strategy, and Firm Performance Fit...................................11

H4: Accumulator HRM Strategy will be positively associated with firm performance perceived by managers................................................................................................................11

H5: Utilizer HRM Strategy will be positively associated with firm performance perceived by managers.....................................................................................................................................12

H6: Facilitator Business Strategy will be positively associated with firm performance perceived by managers................................................................................................................13

H7: Western MNCs firm performance is better than Eastern MNCs firm performance perceived by managers................................................................................................................13

4. Methodology.......................................................................................................................15

4.1 Data collection method.......................................................................................................15

5. Measures.............................................................................................................................15

Conclusion.....................................................................................................................................17

6. Bibliography.........................................................................................................................18

2

Abstract

Purpose– The purpose of this paper is to examine the links between HRM and Business Strategy with Firm Performance of US, European Union and Japanese origin MNCs active in business in South Asian economy.Design/methodology/approach– Through secondary research, this paper examines how, from the perspective of their operation in South Asia, a MNCs’ strategies are based upon different factors like mission and vision, host country influence, home country influence, legal and societal factors. Then it examines how a firm’s business strategy shapes its HRM strategies and how the HRM strategies affect a MNC’s performance.Findings– It was found that business strategies are influenced by mission and vision, host country influence, home country influence, legal and societal factors. It was also found that business strategies impact the performance of a firm by affecting the HRM strategies. The direct linkage between different HRM strategies and their impact on a firm’s financial performance was not found but substantial secondary research supports that a fit between business and HRM strategies leads to development of employee productivity and efficiency which in turn affects financial performance. Finally it was found that in the South Asian Economy, Western MNCs are performing better than Eastern MNCs because of their ability to integrate the local and their home country’s culture better. Practical implications– This paper provides us a general guideline as to understanding how MNCs are affected by their home country and host country environment. For any HRM practitioner it gives the conceptual framework of working out how a firm’s performance can be increased in a foreign country.Originality/value– The paper provides an insight into understanding why MNCs of different cultures adopt different levels of local and their home country’s culture and how this ultimately affects their performance.Keywords- Host country influence, HRM strategies, Business Strategies, Firm Performance. Paper type- Conceptual paper

3

1. Introduction

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 (Glover & Wilkinson, 2007, p.1438). This is a new era which is often referred to as a ‘new geography of investments’ (UNCTAD, 2004). Whilst most MNCs come from the world’s top five economies, a growing number are from developing and newer industrialized economies. UNCTAD categorizes developing economies into two groups - South Korea, Taiwan and Singapore who are newer industrialized and have an established track record as outward investors and those such as India and China that are rapidly developing.

This paper helps identify and analyze ‘the travel of ideas’ (Delbridge, 2002; Garrahan & Stewart, 2004) 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 practitioners understand their own strengths and weaknesses in the new scheme of things and assists them in strategizing accordingly as to how best to influence the top management layers and players. This would in turn assist them to facilitate a smooth ‘travel’ of policies and practices across subsidiaries (Ferner, 2009). The reason underlying the complexity of the travel of ideas is that, the “best practice” in one country may not be the “best practice” in another country, given that the culture and value system as well as institutional and structural factors are very different from one country to another (Aycan, 2005).

The world investment report from UNCTAD (2010) indicates that although developed-country transnational corporations (TNCs) account for the bulk of global foreign direct investment (FDI), developing and transition economies have emerged as significant outward investors accounting for one quarter of global FDI outflows in 2010, the bulk of 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.

4

2. Theoretical Framework

5

Effectiveness of transfer across nations

Firm performance

Internationalization strategy (adaptive)

Internationalization strategy (exportive)

HRM Activities

MNCs (Subsidiaries and Joint Ventures) vision and mission in the emerging market

Host Country National Culture Influences (Host Contextual factors)

Parent Country National Culture Influences (Global and Home Contextual factors)

Degree of Control (Legal, political, historical, socialization and socio-cultural dimension)

Firm StrategyBusiness strategyHRM Orientation

Figure1: Conceptual model

3. Literature Review

The study of the diffusion of human resource management (HRM) practices across country borders has become increasingly important in international HRM research (Brewster, 2006). Research shows that the transfer of HRM practices from multinational corporations (MNCs) to their foreign subsidiaries may be contingent upon the country-of-origin of the MNC (Lau & Ngo, 2001), institutional distances between the local and parent country locations (Gaur, Delios, & Singh, 2007), and the institutional pressures embedded in the local environment (Björkman, Fey, & Park, 2007). Despite extensive evidence exists about the contextual factors related to the similarities or dissimilarities of MNC subsidiary HRM practices across country borders, it is still the case that “little is known about the extent to which high-performance HRM practices are found in foreign subsidiaries across countries” (Björkman et al., 2007: 431).

Another approach has taken the view from institutional theory (Björkman et al., 2007). Björkman et al. (2007) tested the degree of utilization of high performance work systems (HPWSs) by MNC subsidiaries operating in the U.S., Russia and Finland. They found subsidiary factors (i.e. the status of the HR department and the involvement of subsidiary in knowledge transfer) influenced the use of HPWSs. Although they examined subsidiaries in three host countries and addressed the significance of institutional pressures faced by the subsidiaries, they had not directly tested specific measures of various aspects of the institutional environment within host countries. The likely institutional factors include the favorableness of the political-legislative environment to business, the restrictiveness of labor legislation, professional norms, and aspects of the cultural-cognitive institutional environment. Scholars have yet to “disentangle the relative influence of MNC-internal and –external regulative, normative and cultural-cognitive processes” (Björkman et al., 2007: 444) in determining the adoption of HRM practices in the diverse context of subsidiaries.

In developing guidelines on how to decide on IHR policies, we start from the models of strategic international human resource management (SIHRM). This work (Björkman et al., 2007: 444) has mainly taken a macro, strategic perspective focusing on the determinants of SIHRM systems in a multinational company (MNC). The early models focused primarily on strategy as the main factor, arguing that the central issue is not to identify the best HRM policy per se, but rather to find the best fit between the MNC’s overall strategy and its HRM policy (Fenton-O’Creevy, Gooderham, &Nordhaug, 2008). More recent models have specified other internal as well as external factors to explain MNCs’ choices of IHRM systems. In addition to strategy, the different determinants of IHRM seem to be the industry in which a MNC is operating (Chen, Lawler, and Bae, 2005), the MNC’s international life cycle and experience, the organizational structure, the HQ’s international orientation, the host country’s cultural and legal environments, and the resources or strategic role of affiliates and certain employee groups (Björkman et al., 2007).

In one of the most recent SIHRM models, Taylor and colleagues have identified three different SIHRM orientations in MNCs: adaptive, exportive and integrative. These

6

orientations determine the company’s overall HR approach to managing the tension between integration or the pressure for internal consistency and differentiation or the pressure for external consistency. An adaptive SIHRM orientation is one in which each affiliate develops its own HRM system, reflecting the local environment. Differentiation is being emphasized with almost no transfer of HRM philosophy, policies or practices either from the parent firm to its affiliates or between affiliates (Fenton-O’Creevy, Gooderham, &Nordhaug, 2008). The major advantage of such an approach is that HRM systems may be completely in tune with their local context. However, when each affiliate determines its own HR policies, disadvantages may occur. There may exist a lack of coherence within the MNC if, for instance, different performance criteria are considered in the employees’ appraisal in different affiliates. Because each HR department is focused on its own context, there may be also a duplication of efforts with no attention to economies of scale or synergies in terms of learning from each other. Each affiliate will have spent time and resources to design a HR policy without having consulted other HR managers for best practices.

The second, an exportive SIHRM orientation is one in which the parent firm’s HRM system is being transferred to its different affiliates. This approach emphasizes integration across all affiliates, developing a highly internal consistent MNC (Fenton-O’Creevy, Gooderham, &Nordhaug, 2008). However, the downside of such an exportive IHRM approach is its inflexibility, ignoring the possible local differences, and therefore having missed opportunities with respect to learning. This all may lead to an ethnocentric orientation from HQ and as a consequence, affiliates will show feelings of rejection towards the imposed practice.

MNCs are confronted with the challenge of simultaneously considering global integration and local adaptation. So, a pure exportive or adaptive IHRM approach doesn’t seem advisable to choose. This leads to the rise of the third kind of practice which is a hybrid of exportive and adaptive approach. This is known as the integrative approach.

Among the three options, it is the integrative IHRM approach that focuses on substantial global integration with an allowance for local differentiation. In this approach, the balance is being achieved through transferring best practices between HQ and affiliates. Integrative SIHRM orientation attempts to take ‘the best’ HRM approaches and uses them throughout the organization in the creation of a worldwide system. The focus here is on substantial global integration with an allowance for some local differentiation. An integrative approach combines both characteristics of the parent company’s HRM system with those of its international affiliates. Transfer of HRM policies and practices occurs and can go in any direction, from one affiliate to HQ or between affiliates and vice versa (Björkman et al., 2007). While the advantage of this approach seems to be the spreading of good practices, the major disadvantage is that a so-called best practice may still be ill suited for a particular context. The three orientations of an adaptive, exportive or integrative approach represent three basic choices for IHR managers, reflecting an overall approach towards IHRM. However, in practice, IHR managers may have the option to choose for a mix of the three approaches.

IHR professionals may also decide differently with respect to certain employee groups. When HR practices are designed for higher and senior level managers, they will probably encounter a need for consistency worldwide, either by exporting the HQ’s approach or by an integrated approach. For instance, the question of how to develop global managers seems to lead to an integrated HR approach for this employee group. Many companies emphasize that their senior managers must not only possess technical skills but also need to have a broad understanding of history, culture, sociology, and human relations. Consequently, the selection criterion often set for this employee group is global awareness or global mindset, referring to openness to other cultures, multiple language skills, tolerance and flexibility (Björkman et al., 2007).

7

4.0 Hypothesis Development

4.1 Determinants of HRM Performance Fit Strategy, and Firm

Huselid and Becker have done a substantial amount of research on developing a comprehensive firm-wide measure of an organization’s HRM system. They found that a high performing HRM system (termed High-Performance Work System) has a positive effect on firm performance. A high performance HRM system implies designing and implementing a validated competency model linked to every element in the HR system and with aim of maximizing the overall quality of human capital throughout the organization (Becker et al., 2001). In addition, their research supports the importance of both internal and external complementarities. (Becker and Huselid 2000, Becker, Huselid and Ulrich 2001) reviewed their past research on HRM systems and ended-up presenting typologies of four HR architectures.

Based on our literature studies of strategic human resource management (SHRM), we have identified eight dimensions of SHRM (e.g. Becker et al., 2001). Recruiting and selection, Training, the degree of formalization, compensation, alignment of HR system and firm strategy, Communication, Management skills of HR professionals and Executive leadership were identified as fundamentally critical issues for HRM and SHRM by Huselid et al., 2000; Godard & Delaney, 2004 .

According to goals HR bundles can be divided into two main categories:

Organic HR- The overall focus of organic HR systems is to meet demands for change, skill enhancement, and growth (Peltonen, 2003)

Mechanistic HR- The overall focus of mechanistic HR systems is to meet the demands for operational results, stability and skill utilization. (Peltonen, 2003)

H1: Manager’s perception of firm performance will be positively associated with Prospector Business Strategy.

The environment will be perceived as growing, even dynamic by the Prospectors who are exploiters and creators of change. For this type of firms, planning is concerned with problem-finding. Being innovative and constantly looking for new opportunities frequently result in an acceptance of moderate near-term profits in the search for new segments. Human resource units within Prospectors perform an entrepreneurial role, helping to identify and quickly develop crucial human resources through the rapid movement and alteration of assignments. High skill utilization is in focus. Employees are moved to match abilities, skills, and knowledge to specific tasks.

HR Architecture

8

Dimensions ProspectorHR System OrganicRecruitment &selection

Prospectors require highly skilled professionals, thus a highly selective recruiting & selection function is required

Training Prospectors require that employees upgrade skills continuously and have high levels of expertise. High levels of training are required.

Degree offormalization

Prospectors employ many professionals, and personnel turnover is likely to be high, therefore formalization should be low.

Compensation Jobs are loosely described, difficult to monitor, and outcomes unpredictable. High emphasis on incentive compensation.

Effectiveness & AlignmentAlignment betweenHR system andfirm strategy

N/a

Communication Jobs and procedures change frequently for, changes need to be communicated effectively to ensure effective implementation

Management skillsof HR professionals

HR professionals need to be able to adapt to changing demands for service as the needs of line managers change frequently. HR professionals should be proactive.

Executiveleadership style

Developmental culture. Focus on dynamics, entrepreneurship, and creativity.

Source- The Fit between Strategy and Strategic Human Resource Management (Andersen, Eriksen, Lemmergaard&Povlsen, 2010)

In the multinational context, when a company requires an HR system which is organic, Defender business strategy fits perfectly and a perfectly aligned strategic fit between HR policies and business strategies affects a firm’s performance positively irrespective of the firm’s location and country of origin (Peltonen, 2003).

H2: Analyzer Business Strategy will be positively associated with firm performance perceived by managers.

Analyzers perceive the environment as slowly changing and are followers of change. Simultaneously they are operating in both stable and turbulent domains with corresponding foci on both efficiency concerning existing areas and innovation also in new market opportunities. Analyzers, here the HRM unit plays the training and maintenance role appropriate to the defender strategy by using accurate placement and appraisal devices. For innovation developments, the unit plays a more developmental role by designing flexible and enriching team structures and processes. Encourage and support self development of abilities, skills and knowledge is in focus. The HRM unit mainly is concerned with coordinate between accurate placement and flexible team structures.

HR ArchitectureDimensions Analyzer

HR System Mix of mechanistic and organic

9

Recruitment &selection

Analyzers require professionals for managerial positions. Moderate selectiveness.

Training Analyzers require experts in managerial and professional jobs.Training should be moderate.


Analyzers require experts in managerial and professional jobs. Formalization should be low for managers and professionals.High for other employees.

Compensation Most jobs are well described and easy to monitor. Managerial and professional jobs are an exception. Moderate emphasis onincentive compensation.

Effectiveness &Alignment

Alignment betweenHR system andfirm strategy

N/a

Communication Moderate change to jobs and procedures, and moderate change in daily operations and strategy. Moderate emphasis on communication.


Moderate change in demands for service from line managers. HR professionals should be proactive in relation to managers and professionals. The focus should be on administration for otheremployees.


HR professionals need to be able to adapt to changing demands for service as the needs of line managers change frequently. HR professionals should be proactive.


In the multinational context, when a company requires an HR system which is a mix of mechanistic and organic, Analyzer business strategy fits perfectly. A perfectly aligned strategic fit between HR policies and business strategies affects a firm’s performance positively irrespective of the firm’s location and country of origin (Peltonen, 2003).

H3: Defender Business Strategy will be positively associated with firm performance perceived by managers.

Defenders are firms that perceive the environment as relatively stable, have a narrow product line, and concentrate on efficient operations. This type of firm seeks niches and specialization through concentration on problem-solving Rumelt et al. (2001). The defender is therefore a strategy type that favors high reliability as a criterion for obtaining internal consistency. Therefore the HR-bundle of the defender should aim at improving the reliability of the human resources in the firm. Defenders rely heavily on internally developed human resources and employees are carefully selected, placed, and trained. Furthermore, employees are expected to stay with the company for long periods of time. (Quinn 2004, 2005).

HR Architecture

Dimensions DefenderHR System Mechanistic

10

Recruitment &selection

Defenders require standardized skills, and fewer professionals. Recruitment does not need to be as selective.

Training Defenders rely on standardized skills and narrow/specialized job descriptions.


Defenders require standardized skills and work processes. HR systems emphasize formalization.

Compensation Jobs are well described, easy to monitor, and outcomes are predictable. The emphasis on incentive compensations should be low.

Effectiveness &Alignment

Alignment betweenHR system andfirm strategy

N/a

Communication Jobs and procedures are well described, and there are few exceptions to daily operations and strategic changes. Emphasis on communication low.


Since demand for service is relatively stable, HR professionals can be reactive administrators.


Internal process culture. Focus on formalization and structure.


In the multinational context, when a company requires an HR system which is mechanistic, Defender business strategy fits perfectly. A perfectly aligned strategic fit between HR policies and business strategies affects a firm’s performance positively irrespective of the firm’s location and country of origin (Peltonen, 2003).

4.2 Part –2- Determinants of HRM Strategy, and Firm Performance Fit

Bird and Beechler (in Mendenhall et al, 2007) examine the relationship of human resource practices to business and corporate level strategies. As a low cost strategy requires standardization, they suggest the need for tight control and conformance to processes across all locations. As deviation from standard practices could impact efficiency and jeopardize the low cost position of the firm, there would be risk in allowing localization of processes. However, attempting to implement practices which are inconsistent with local cultural values presents the potential for conflict and risk in successful implementation. For MNEs implementing a differentiation strategy, a multi-domestic approach which accommodates local needs may be more consistent with business strategy through localized innovation, but limits the development of global knowledge. The authors describe three potential Human Resource (HR) strategies which should be aligned with business strategy:

H4: Accumulator HRM Strategy will be positively associated with firm performance perceived by managers.

11

·“Accumulator Strategy” builds up HR capacity based on potential, and supports the differentiation strategy (Mendenhall et al, 2007).

Differentiation Strategy: A firm is considered to pursue a differentiation strategy when it offers a product/service that is perceived to be unique along several dimensions that are valued by the customers. This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. (Mendenhall et al, 2007). Accumulator develops company’s workforce from a long term perspective, provides extensive trainings, and emphasizes stable career path within the company.

Accumulator strategy builds up human resources of the firm through (a) acquisition of personnel with large, latent (b) development of that potential over time in a manner consistent with the needs of the organization. According to the data provided by 229 successful MNCs of Japanese, U.S. and European origin a global “Differentiator” follows the following strategies (Berry, 2009)

Product Market Geographic Market: HR StrategyAverage Firm R&D

intensity all over the worldLow R&D and services

intensities in foreign affiliatesHighest firm services

intensity in the US and then Japan and Europe

Home country sales dominate

Weak pressure for consistency between parent

and subsidiary strategyHighest product diversity

of any groupLeast percent of sales in

IP risky countriesWeak pressure for

consistency with local external environments

H5: Utilizer HRM Strategy will be positively associated with firm performance perceived by managers.

“Utilizer Strategy” deploys HR as efficiently as possible and is consistent with the low cost strategy (Mendenhall et al, 2007).

Low Cost Strategy- A firm producing at the lowest cost in the industry enjoys the best profits. Producing at lower cost is a strategy that can be used by various firms so as to have a significant cost advantage over the competition in the market. This in effect leads to growth in the market share. This strategy is mostly associated with large businesses offering standard products that are clearly different from competitors who may target a broader group of customers. The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained; labor is recruited and trained to deliver the lowest possible costs of production. Cost advantage is

the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy. A low cost leader’s basis for competitive advantage is lower overall costs than competitors.

The need to manage cost is nothing new, yet surprising number of organizations struggles to successfully control their operating expenses overtime (Bertone, Clark, West & Groves, 2009). Successful low cost leaders are exceptionally good at finding ways to drive costs out of their business. According to the data provided by 160 successful MNCs of

12

Japanese, U.S. and European origin a global “Cost Leader” follows the following strategies (Berry, 2009)

Lowest R&D and services intensity in both the US and in foreign affiliates (along with Group One)

No R&D and services expenditures in foreign

affiliates

Utilizer HR strategy is best suited

Lowest product diversity of any group

Lower developing country activities than Group

One – but still second highest percent across all

groups

Using host country nationals wherever possible

Second highest sales in IP risky countries

Low levels of expats

H6: Facilitator Business Strategy will be positively associated with firm performance perceived by managers.

“Facilitator” strategy is effective by focusing on knowledge, as may be suitable for firms using both “Low Cost” and “Differentiator” strategies (Mendenhall et al, 2007).

Facilitator Strategy – is focused on new knowledge creation. It seeks to develop the human resources of the firm through acquisition of self-motivated personnel and the encouragement and of personnel to develop, on their own, the skills and knowledge which they, the employees, believe are important. Based on these three HR strategies and the need for integration (or consistency) between Parent and subsidiary, we can illustrate the linkages between HR and business strategies as follows:

A Facilitator strategy fits the organizational requirements of Analyzer firms because it accommodates the management of dual pressures imposed by an Analyzer strategy. The pursuit of new markets requires an infusion of new skills and talents into the firm, encouraging hiring from the external labor market. Maintenance of existing product lines, by contrast, necessitates the internal development of employees and encourages the development of an internal labor market. Consequently, staffing policies will likely be a mix of both internal and external selection. Firms with a Facilitator strategy may seek to offset the potential schizophrenic outcomes of a mixed staffing policy by carefully recruiting employees

with a desire for self-development. By encouraging and supporting self-development, a firm can focus its activities more fully on the accurate placement of personnel and the design of flexible teams (Berry, 2007).

The facilitator HR strategy aims to create new knowledge through self-motivated employees. So, this strategy can meet the needs of evolving HR demands resulting from strong pressures in opposing directions for both strategic orientation and integration.

• In subsidiaries employing product differentiation strategies and having low degree of integration with parent, those that adopt accumulator strategy perform better.

• Finally, subsidiaries pursuing both cost leadership and differentiation strategies, those which adopt a facilitator HRM strategy.( Porter, 2003)

C. MNCs Comparative fit between Western MNCs and Eastern MNCs

13

H7: Western MNCs firm performance is better than Eastern MNCs firm performance perceived by managers.

Authors following the convergence approach assume that in management ‘best practices’ can be defined which are universally valid and applicable, irrespective of national culture or institutional context. Efficiency imperatives and an increasingly similar global competitive environment are perceived to force companies to adopt such best practices in order to increase their competitiveness. From this follows a cross-national convergence of management practices (see e.g. Kerr et al., 1960; Levitt, 1983; Toynbee, 2001; Fenton-O’Creevy & Gooderham, 2003). Due to the dominance of American business schools in the development and dissemination of new management knowledge, the dominance of American consultancies in further spreading this knowledge and, most importantly, the strength of the American economy and American MNCs, ‘best practices’ in management are often, explicitly or implicitly, equated with management practices employed by successful American MNCs (Smith & Meiksins, 1995).

According to Forbes 2011 issue the top ten MNCs in India, the biggest economy of South Asia, are the following:

1) IBM: The net income of this company post completion of the financial year end of 2010 was $14.8 billion with a net profit margin of 14.9 % (Country of origin – United States).

2) Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (United States) based Microsoft Corporation, one of the software giant’s has got their headquarter in New Delhi. The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760 million in 2010.

3) Nokia Corporation: Nokia Corporation was started in the year 1865 and is one of the leading mobile companies in India. The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4 billion as compared to 2009's EUR 41 billion. Over the past few years, this company in India has been acquiring companies, which have got new and interesting competencies and technologies so as to enhance their ability of creating the mobile world (Country of Origin- Norway).

4) PepsiCo: PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989. Within a short time span of 20 years, this company has emerged as one of the fast growing as well as largest beverage and food manufacturer. As per the annual report of the company in the last business year, the net revenue of PepsiCo grew by 33 %. (Country of origin- United States)

5) Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in India, started their business in the country from the year 1961. In the business year 2010, the registered global sales of the company was US $ 1, 868 Mn. (Country of origin- India)

6) Reebok International Limited: This global brand is a famous name in the field of sports as well as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S. A. (United States of America) started its operation in 1890s. During the last financial year, Adidas's currency neutralized group sales increased by 9 %. (Country of origin – United States)

7) Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their business operation in the year 1946 in Japan. Established in India in November 1994, this company has captured one of the leading positions in the field of consumer electronics goods. By the end of the business year 2010 on 31st March, 2011, the company showed a remarkable increase in the share related to numerous categories. Sony India is planning to invest around INR. 150 crore for the marketing of the activities related to ATL and BTL. (Country of origin- Japan)

8) Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a famous name in the field of I. T. (Information Technology) services, Business Process Outsourcing (B. P. O.) as well as business solutions. Tata

14

Consultancy earned a growth of 8.9 % during the latest quarter of this financial year, which ended on 30th September, 2011. In this current business year, they are about to employ 60, 000 people to meet their business requirement. (Country of Origin- India).

9) Vodafone: Vodafone Group Plc is an international telecommunication company, which has got it's headquarter based in London in the United Kingdom (U. K.). Vodafone India is among the largest operators of mobile networking in the country. The turnover of the Vodafone Group Plc after the completion of the 2010 financial year grew to £ 44, 472 m from £ 41, 017 m that was the turnover of the business year 2009.

10) Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among the leading commercial vehicles manufacturer in the country. They are one of the top 3 passenger vehicle manufacturers. Post completion of the financial year 2010 to 2011, the global sales of the company grew by 24.2 % with sales crossing INR. 100 million.

It can be clearly seen that Western MNCs are performing better than Asian MNCs in the emerging economies.

5. Methodology

Methodology refers to a combination of methods and systematic outlet that leads to accomplish certain goal. This was a purely qualitative research and was developed using secondary data from a variety of sources. We browsed through relevant scholarly articles, journals and periodicals to gather relevant secondary information.

5.1 Data collection method

Literature survey and analysis was the sole method of data collection. Data from different journals, articles, research papers were carefully pursued to complete this research.

6. Measures

Firm Performance- Based on our literature studies of strategic human resource management (SHRM); we have identified eight dimensions of SHRM (e.g. Becker et al., 2001) that promotes firm performance. These are listed below with a brief description that includes key sources for the variables. The table is largely based on empirical contributions. Here it should be noted that the tradition for scale development in HRM and SHRM appears to favor a focus on the substantive issues rather than measurement issues.

Research practice does not seem to use formally validated scales, and different measures often refer to the same underlying constructs.

Recruiting and selection refers to the emphasis an organization places on the recruiting and screening of potential employees. When an organization devotes many resources to recruiting and selection (controlled for size of course), it is likely that it will run fewer risks of selecting poor performers.

15

Training refers to the amount of training offered to employees at different organizational levels. A high emphasis on training will result in better skilled and potentially more motivated employees, while less training only results in employee learning-by-doing.

The degree of formalization refers to the formal HR systems that firms implement, for example salary and hiring policies, and delegation of decision making. A high degree of formalization will entail less flexibility.

Compensation refers to the use of incentive pay by organizations, and the extent to which it is used at different organizational levels. Incentive pay means that employees are rewarded based on their results, for example through bonuses, stock options, piece rates and similar mechanisms.

Alignment between HR system and firm strategy refers to the extent that HR practices are aimed at influencing strategy level outcomes. If this is the case, the goal of HR practices is to affect outcomes by planning, analysis, and influence activities.

Communication refers to the extent that HR issues are communicated and discussed throughout the organization, and implies that the organization focuses on the traditional human relations perspective in industrial relations that emphasizes participation in decision making and extensive communication within the organization (Huselid et al., 2000; Godard & Delaney, 2004).

Management skills of HR professionals refer to the extent of professionalism and proactiveness in HR professionals. This means that he HR professionals are externally focused, knowledgeable in their field, and engage in influence activities and active cooperation with other functions in the firm.

Executive leadership style is a fuzzy concept, and the interpretation offered in e.g. Becker et al. (2001) tends to favor a uni-dimensional perspective on leadership. We offer an alternative perspective based on work by (Quinn 2004, 2005) on competing values in organizations where leadership roles are defined on two dimensions: stability-flexibility and internal-external orientation. We believe that the Quinn’s theory is a more refined way of describing leadership in organizations, and, that there is a reasonable empirical support for the model at both the level of leadership and the level of the organization.

Business strategy - The environment will be perceived as growing, even dynamic by the Prospectors who are exploiters and creators of change. For this type of firms, planning is concerned with problem-finding. Being innovative and constantly looking for new opportunities frequently result in an acceptance of moderate near-term profits in the search for new segments. Human resource units within Prospectors perform an entrepreneurial role, helping to identify and quickly develop crucial human resources through the rapid movement and alteration of assignments. High skill utilization is in focus. Employees are moved to match abilities, skills, and knowledge to specific tasks.

Analyzers perceive the environment as slowly changing and are followers of change. Simultaneously they are operating in both stable and turbulent domains with corresponding foci on both efficiency concerning existing areas and innovation also in new market opportunities. Analyzers, here the HRM unit plays the training and maintenance role appropriate to the defender strategy by using accurate placement and appraisal devices. For innovation developments, the unit plays a more developmental role by designing flexible and enriching team structures and processes. Encourage and support self development of abilities, skills and knowledge is in focus. The HRM unit mainly is concerned with coordinate between accurate placement and flexible team structures.

16

Defenders are firms that perceive the environment as relatively stable, have a narrow product line, and concentrate on efficient operations. This type of firm seeks niches and specialization through concentration on problem-solving Rumelt et al. (2001). The defender is therefore a strategy type that favors high reliability as a criterion for obtaining internal consistency. Therefore the HR-bundle of the defender should aim at improving the reliability of the human resources in the firm. Defenders rely heavily on internally developed human resources and employees are carefully selected, placed, and trained. Furthermore, employees are expected to stay with the company for long periods of time. (Quinn 2004, 2005).

HRM Strategy -“Utilizer Strategy” deploys HR as efficiently as possible and is consistent with the low cost strategy (Mendenhall et al, 2007).

“Facilitator” strategy is effective by focusing on knowledge, as may be suitable for firms using both “Low Cost” and “Differentiator” strategies (Mendenhall et al, 2007). A Facilitator strategy fits the organizational requirements of Analyzer firms because it accommodates the management of dual pressures imposed by an Analyzer strategy. The pursuit of new markets requires an infusion of new skills and talents into the firm, encouraging hiring from the external labor market. Maintenance of existing product lines, by contrast, necessitates the internal development of employees and encourages the development of an internal labor market. Consequently, staffing policies will likely be a mix of both internal and external selection. Firms with a Facilitator strategy may seek to offset the potential schizophrenic outcomes of a mixed staffing policy by carefully recruiting employees.

Accumulator strategy builds up human resources of the firm through (a) acquisition of personnel with large, latent (b) development of that potential over time in a manner consistent with the needs of the organization. According to the data provided by 229 successful MNCs of Japanese, U.S. and European origin a global “Differentiator” follows the following strategies (Berry, 2009)

7. Conclusion

There is empirical evidence that suggests that almost all MNCs have a trace of their country of origin within them. It could be subconscious choices which are influenced by the cultural and institutional characteristics of the country of origin of the MNC or it could be transferred through the people who work in the organization (Harzing & Sorge, 2003). U.S. multinationals have been typically contrasted with Japanese multinationals in respect of their styles of HRM employed in their subsidiaries (Harzing & Sorge, 2003). Japanese multinationals have the characteristic of being strong but with informal centralization and are highly reliant on establishing international networks (Bartlett and Ghoshal, 2000). U.S. multinationals appear to have elaborate systems of control and standardized worldwide systems in place (Harzing & Sorge, 2003). Moreover, whether the country is high or low on cultural context will also determine the impact of their country of origin on the IHRM practices. This work draws on the work of Hall (2000) 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 (Thite, 2004). The interplay between national and organizational culture is a significant factor in the success of global mergers, acquisitions and alliances (Thite, 2004).

Despite the increasing trend towards the globalization of trade and commerce and cross-national convergence arising from it, significant differences remain in the way in which different countries organize business activities and more specifically, the management of employees (Brewster, Sparrow & Harris, 2005). Even though some have contested the emphasis placed on national culture in international management at the cost of

17

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 company mission and vision, institutional differences, home and host country cultural differences and the interplay between them (Schuler, Budhwar, & Florkowski, 2002). It shows that firm strategies guide HRM strategies and when they are a fit, the firm performs better. The different types of business strategies were explored as used by MNCs in emerging economies and their resulting HR strategies were also seen. The level of internationalization was explored and the transfer of practices or lack of it was also explored. It is seen that the U.S MNCs are the best at taking an integrative approach and export home practices as well as adopt local ones. EU MNCs and Japanese MNCs are trying to copy the “best practices” but their culture is still playing a big role in their determination of HRM policies. Their approach to the emerging economy of South Asia is no different than their approach to other emerging economies in South America.

Increasing investment by emerging economies in developed as well as emerging markets, particularly via mergers and acquisitions means that there is a greater need for management practitioners to understand the ways in which MNCs from emerging 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 now understood that the universal or U.S. model does not have complete 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).

So in the 21st century knowledge economy where services and creative industries dominate the economic landscape that is tilting more towards developing and transition economies, the theories and practices applicable to Western MNCs that monopolized the 20th century industrial economy are slowly but steadily giving way to new economic and management paradigms. Accordingly, examining the management approaches and practices of MNCs in newer industrialized and developing economies such as India, Bangladesh, Sri Lanka, Nepal and other South Asian countries are likely to remain a key research issue for the next decade, given the speed of economic development and the increasing influence and numbers employed by such companies.

18

8. Bibliography

Awasthi, V. N., Chow, C. W., & Wu, A. (2001). Cross-Cultural Differences in the Behavioural Consequences of Imposing Performance Evaluation and Reward Systems: An Experimental Investigation. The International Journal of Accounting. 36: 291-309.

Bazeley, P., & Richards, L. (2000). The NVivo qualitative project book. Thousand Oaks, CA: Sage Publication.

Brewster, C., Sparrow, P., & Harris, H. (2005). Towards a new model of globalizing HRM. International Journal of Human Resource Management. 16(6): 949-970.

Colling, T., & Clark, I. (2002). Looking for “Americanness”: home-country, sector and firm effects on employment systems in an engineering services company. European Journal of Industrial Relations. 8(3): 301-325.

Contractor, F. J., Kumar, V., & Kundu, S. K. (2007). Nature of the relationship between international expansion and performance: The case of emerging market firms. Journal of World Business. 42: 401-417.

Delios, A., & Bjorkman, I. (2000). Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States. International Journal of Human Resource Management. 11(2): 278-293.

Edwards, J. R., & Rothbard, N. P. (2000). Mechanisms linking work and family: Clarifying the relationship between work and family constructs. Academy of Management Review. 25: 178-199.

Engardio, P. (2008). Chindia: How China and India are revolutionising global business. New Delhi: Tata McGraw-Hill

(Engardio, P., Arndt, M., & Geri, S. (2006). Emerging Giants. Business Week, New York, 40, July, 31Ericksen, J., & Dyer, L. (2005). Toward a Strategic Human Resource Management Model of High Reliability Organization Performance. International Journal of Human Resource Management. 16(6): 907-935.

Farley, J. U., Hoenig, S., & Yang, J. Z. (2004). Key Factors Influencing HRM Practices of Overseas Subsidiaries in China's Transition Economy. International Journal of Human Resource Management. 15(4-5): 688-704.

Ferner, A. (2009). HRM in Multinational Companies In A. Wilkinson, N.Bacon, T. Redman & S. Snells (Eds.), The Sage Handbook of Human Resource Management (pp.539-558). Thousand Oaks, CA: Sage.

Ferner, A., Almond, P., Clark, I., Colling, T., Edwards, T., Holden, L., & Muller-Camen, M. (2004). Dynamics of Central Control and Subsidiary Autonomy in the Management of Human Resources: Case Study Evidence from US MNCs in the UK. Organization Studies. 25 (3): 363-391.

Ferner, A., Almond, P., & Colling, T. (2005). Institutional theory and the cross-national transfer of employment policy: the case of ‘workforce diversity’ in US multinationals. Journal of International Business Studies. 36(3): 304-325.

Gerhart, B., & Fang, M. (2005). National culture and human resource management: assumptions and evidence. The International Journal of Human Resource Management. 16(6): 971.

Glover, L., & Wilkinson, A. (2007). Worlds colliding: the translation of modern management practices within a UK based subsidiary of a Korean-owned MNC. The International Journal of Human Resource Management. 18(8): 1437.

Harzing, A.-W., & Sorge, A. (2003). The relative impact of country of origin and universal contingencies in internationalization strategies and corporate control in multinational enterprises: Worldwide and European perspectives. Organization Studies. 24(2): 187.

Hofstede, G. (2007). Asian management in the 21st century. Asia Pacific Journal of Management. 24(4): 411-420.

Hoskisson, R., Eden, L., Lau, C.-M., & Wright, M. (2000). Strategy in emerging economies,. Academy of Management Journal. 43: 249-267.

Jonsson, S. (2008). Indian multinational corporations: Low-cost, high-tech or both? . Ostersund, Sweden: Swedish Institute for Growth Policy Studies.Matthews, J. A., & Zander, I. (2007). The international entrepreneurial dynamics of accelerated internationalization. Journal of International Business Studies. 38(3): 387-403.

Pudelko, M., & Harzing, A. (2007). Country-of-origin, localization, or dominance effect? An empirical investigation of HRM practices in foreign subsidiaries. Human Resource Management. 46(4): 535-559.

Rose, R. C., & Kumar, N. (2007). The transfer of Japanese-style HRM to subsidiaries abroad. Cross Cultural Management. 14(3): 240-253.

19

Thite, M. (2004). Managing People in the New Economy: Targeted HR Practices that Persuade People to Unlock their Knowledge Power. New Delhi ; Thousand Oaks, Calif: Response Books.

UNCTAD. (2004). World Investment Report 2004: The Shift Towards Services. New York: United Nations. United Nations Conference on Trade and Development

UNCTAD. (2006). World Investment Report 2006: FDI from developing and transition economies: Implications for development: United Nations Conference on Trade and Development

UNCTAD. (2007). World Investment Report 2007: Transnational corporations, extractive industries and development. New York: United Nations. United Nations Conference on Trade and Development

UNCTAD. (2008). World Investment Report 2008: Transnational corporations and the infrastructure challenge. New York: United Nations. United Nations Conference on Trade and Development

UNCTAD. (2010). World Investment Report 2010: Investing in a low-carbon economy. New York: United Nations. United Nations Conference on Trade and Development

Björkman, I., Fey, C.F., & P ark, H. J. (2007). Institutional theory and MNC subsidiariy HRM practices: evidence from a three-country study. Journal of International BusinessStudies, 38: 430-446.

Brewster, C. (2006). Comparing HRM policies and practices across international borders. In G. Stahl & I. Björkman (eds), Handbook of international human resource management (pp. 68-90). Cheltenham, UK: Edward Elgar.

Chen, J., Lawler, J., & Bae, J. (2005). Convergence in human resource systems: A comparison of locally owned and MNC subsidiaries in Taiwan. Human Resource Management, 44: 237-256.

Child, J. & Tsai, T. (2005). The dynamic between firm’s environmental strategies and institutional constraints in emerging economies: Evidence from China and Taiwan. Journal of Management Studies, 42: 95-125.

Porter, M. (2004). Competitive advantage. NY: The free press.

20