Ferner and Varul

`Vanguard'Subsidiaries and the Diffusionof NewPractices: ACase Study ofGermanMultinationalsAnthony Ferner and Matthias Varul

Abstract

German companies, used to operating in their distinctive domestic businessenvironment, have had to learn new rules of the game as they have inter-nationalized. There are signs that they are adopting some of the characteristicsof more mature international companies, particularly those from an Anglo-Saxon tradition. This Anglo-Saxonization is seen in international HR policy,in areas such as training and development and performance management.Drawing on research into German multinationals, this paper explores the roleof vanguard subsidiaries in spreading Anglo-Saxon practices to Germancompanies. It also analyses the impact of such innovations on pre-existingpatterns of behaviour.

1. Introduction

One of the key issues in the study of multinational companies (MNCs)is their role in the dissemination of human resource and other businesspractices across national borders. They have been seen as among theforemost innovators for good and ill within national businesssystems. In the 1980s and 1990s, the spotlight was particularly on the role ofJapanese companies in spreading new approaches to the organization ofwork, employee motivation and involvement. In earlier decades, USmultinationals had played a lead role in the dissemination of systems ofwork organization based on Taylorism and scientific management;subsequently, their innovations in the area of employee relations productivity bargaining, for example were the object of considerablestudy. However, as Edwards (1998a, b) has argued, the reverse diffusion ofpractices from the subsidiary to the corporate centre and to other

Anthony Ferner is in the Department of HRM, Leicester Business School, De MontfortUniversity. Matthias Varul is at the University of Tubingen, Germany.

British Journal of Industrial Relations38:1 March 2000 00071080 pp. 115140

# Blackwell Publishers Ltd/London School of Economics 2000. Published by Blackwell Publishers Ltd,108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

subsidiaries is also important, not least because, in the field of humanresource management and industrial relations (HR/IR), it has the potentialto affect the bulk of a companys employees who tend to be concentratedwithin the MNCs home country.Theoretically, reverse dissemination is important as a mechanism of

regime competition, whereby the comparative advantages of nationalbusiness systems and of the companies operating within them may becaptured within MNCs and transferred to other business systems. Reversediffusion within MNCs, in other words, may act as a means of internaltransformation of national business systems. This is particularly appositein the case of the German model of business practice, and Germancompanies. The German model is currently experiencing pressures fortransformation as strong as any in the postwar period, as a result of re-unification, the opening of new labour and product markets on its easternborders, and the globalization of competition.This paper explores the dissemination of practices from the periphery to

the centre within German MNCs. German MNCs were relatively late inmoving from export-oriented national production to becoming full-blowninternational companies (Sally 1996). The globalization of competition inproduct markets, strengthening regional integration, and the expansion ofmarket and investment opportunities have accelerated the trend towards themultinationalization of German companies. However, the ability to com-pete within globalized product markets depends on rules of the game thatare different from those pertaining within their home-country business system.It is therefore plausible to suggest that German companies will attempt

to learn how to operate internationally by absorbing and exploitingthe lessons available to them in the more internationally advanced hostenvironments in which their subsidiaries operate. There are indeedsignificant indications that German MNCs are adopting some of the salientcharacteristics of more mature international companies, particularly thoseof an Anglo-Saxon tradition (especially those from the USA and Britain).Aspects of this process of Anglo-Saxonization include the embracing ofconcepts of shareholder value, moves to international business divisionswith fully devolved bottom-line responsibilities, the strengthening ofinternational management control systems, the development of an inter-national cadre of mobile senior managers, and the implementation ofinternational HR policy frameworks (Ferner and Quintanilla 1998; see alsoQuintanilla 1998 for a case study of a major German bank). Recent case-study research by Ferner and Varul (1999a) shows that many Germancompanies in recent years have adopted or strengthened formal systems ofinternational human resource management in areas that tend to be welldeveloped in longstanding Anglo-Saxon multinationals. These includesubstantive policy issues such as management development, successionplanning, appraisal and reward systems, as well as innovative structuressuch as formal international groupings of HR managers, and policygeneration through international working groups.

116 British Journal of Industrial Relations

# Blackwell Publishers Ltd/London School of Economics 2000.

This paper focuses on one aspect of this process of adaptation to therequirements of international operation: the role of vanguard subsidiariesin the UK as access points for German MNCs to innovative practices inthe field of HR/IR and other areas of management. Having outlined theresearch on which the argument is based, the paper briefly reviews literatureon the transmission of practices within the MNC, and argues that the UKcould be expected to be the site of vanguard practices for German MNCs.It then reports on the findings from the case studies concerning the contentof reverse diffusion from vanguard subsidiaries in the UK: what kinds ofpractices has the corporate centre identified and attempted to exploit?Subsequently it explores the mechanisms that German MNCs are using todisseminate practices from the vanguard subsidiary to other parts of thecorporation, and discusses some of the potential obstacles to diffusionderiving from specific features of the German national business system. Theconclusion addresses some issues concerning the possible outcomes of thetransfer process how innovative practices are absorbed into the prevailingGerman framework of regulation and the wider implications for debateson the convergence of business systems.

2. The study

The argument draws on data from a wider study of German MNCs andtheir subsidiaries in Britain and Spain, financed by the Anglo-GermanFoundation for the Study of Industrial Society (see Ferner and Varul1999a). The aim of the study was to explore the internationalization ofGerman companies, and in particular to ask whether the characteristics ofthe German business context influenced these companies style of HR andIR management abroad.The research, which was carried out between 1996 and 1998, looked at

40 UK subsidiaries belonging to 36 German MNCs.1 Work was also car-ried out with Javier Quintanilla in Spanish subsidiaries of six of the samecompanies. (Detailed results from this latter study are reported in Fernerand Quintanilla forthcoming.) The primary research tool was the in-depthsemi-structured interview. In the vast majority of cases, interviews weretape-recorded and fully transcribed. The interviews were coded andanalysed using the QSRNud.ist program for analysis of qualitative data.In 25 of the subsidiaries, belonging to 15 parent companies, it was possible

to conduct interviews at the corresponding headquarters in Germany.In total, 59 interviews were conducted in UK subsidiaries, 14 in Spanishsubsidiaries, and 20 in German headquarters. Of the 98 respondents,2 two-thirds (64) were senior personnel managers; the remainder were mainlyfinance managers and controllers (16), production or operations managers(8) and general managers (8).Although the case-study companies are not strictly a representative

sample of the population, they were chosen to reflect broadly the key

The Diffusion of New Practices in German MNCs 117


TABLE 1Summary of the UK Case-study Subsidiaries of German MNCs

Pseudonym ofsubsidiarya

Sector Employeesb Size ofparentc

Greenfield(G) orbrownfield(B)/decade ofentry

InterviewsconductedHQ Sub.d

1. Autodist1 Motor vehicle componentsdistribution

2,000 4 B/1990s 1

2. Autodist2 Motor vehicle distribution 100 4 B/1970s 13. Autopart1 Motor vehicle components 300 1 B/1990s 14. Autopart2 Motor vehicle components 1,000 4 B/1990s 15. Autopart3 Motor vehicle components 300 1 G/1980s 26. Autopart4 Motor vehicle components 600 1 B/1990s 1 27. Autopart5 Motor vehicle components 500 2 G/1990s 2 38. Autopart6 Motor vehicle components 200 4 G/1970s 1 19. Autopart7e Motor vehicle components 300 4 B/1990s 1 [1]10. Autopart8 Motor vehicle components 400 1 B/1990s 2 111. Business

ServicesBusiness services 500 2 G/1980s 1 1

12. Chem1e Chemicals &pharmaceuticals

1,000 4 G/51970 2 3 [2]

13. Chem2e Chemicals &pharmaceuticals

3,000 4 G/51970 1 1 [1]

14. Chem3e Pharmaceuticals 700 3 G/51970 1 1 [1]15. Chem4 Pharmaceuticals 400 2 B/1970s 216. Chem5e Chemicals 700 4 B/1970s 1 1 [5]17. Chem6 Chemicals 300 4 B/1980s 118. Chem7 Chemicals 400 2 B/1980s 119. Distrib1 Retail distribution 5,000 4 B/1990s 2 220. Distrib2f Trading 2,000 4 B/1970s 121. Distrib3 Timber 500 4 G/1970s 122. Elec1 Electrical engineering 200 1 G/51970 123. Elec2 Electrical engineering 200 1 G/1970s 124. Elec3 Electrical engineering 700 4 G/51970 125. Elec4 Communications services 800 4 B/1990s 626. Elec5 Electrical engineering 200 4 G/? 227. Elec6 Electrical engineering 410,000 4 B/51970 1 228. Elec7 Electrical engineering 300 4 G/1970s 129. Food1 Food products 700 1 G/1980s 130. Food2 Food products 300 1 B/1980s 131. Instruments Scientific instruments 200 2 G/51970 132. Leisure1e Leisure products 400 4 G/1980s 1 1 [4]33. Leisure2 Leisure services 410,000 3 B/1990s 1 134. Machinery1 Industrial machinery 600 3 G/51970 135. Machinery2 Industrial machinery 300 4 G/51970 2 236. Material Paper products 400 1 B/1990s 1 137. Metal Metal products 600 3 B/1970s 138. ManuCo Plastic products 700 2 G/51970 139. ResearchCo Research 400 4 B/1990s 440. Transport Transport services 600 1 G/1970s 1

Total 54,390 20 59 [14]

a Distrib includes wholesale and retail distribution (other than motor vehicle distributors), andtrading. Elec includes electrical and electronic products. Elec1 and Elec2 are subsidiaries ofthe same parent; the same is true of ResearchCo, Elec4, Elec5, and Elec6; and of Autopart6and Machinery2. Leisure products includes sectors such as publishing.



characteristics of German MNCs. First, half of the total of 46 subsidiarieswere in the two predominant manufacturing sectors represented amongGerman companies abroad: chemicals and pharmaceuticals, and engineer-ing. The engineering companies were concentrated in motor vehicle com-ponent supply and in electrical engineering. In addition, a broad range ofother manufacturing and service sectors was included. (For a detailedbreakdown of the UK subsidiaries, see Table 1.) Of the six Spanish sub-sidiaries, four were in the chemicalpharmaceuticals sector, one in leisureand one in metal products. Second, the sample took account of a typicallyGerman peculiarity: the predominance of family-owned medium-sized MNCs,representatives of the Mittelstand. Just under half the parent companieswere privately owned by a family or a foundation. The selection of the casesalso permitted a comparison of greenfield and brownfield sites.An important note of caution must be sounded about the limitations of

the study. The theme of the diffusion of practices from vanguardsubsidiaries emerged out of the data in the course of the project, ratherthan being a key focus of study from the beginning of the research. For thisreason, it is difficult to make robust statements about such questions aswhether the examples of reverse diffusion are representative of Germancompanies in general, the range and prevalence of different issues incompanies of different kinds, or whether clusters of issues are transferredtogether. The arguments must therefore be considered provisional, andmore systematic analysis must await further research specifically tailored tothe issue. None the less, the findings clearly point to the existence anddimensions of the phenomenon, as well as illustrating some of the specificpathways through which vanguard subsidiary practices are absorbed intothe wider company.

3. Transmission of management practices within MNCs

Diffusion in MNCs

In the field of HRM, at least, the great bulk of the relevant literaturehas focused on factors encouraging the dissemination of practices from anMNCs country of origin to its subsidiaries abroad and frequently fromthere into the wider host business system. (See Edwards 1998a for a review

b Employees include part-time and full-time. To avoid identification, figures for subsidiariesare rounded to the nearest hundred or thousand.

c For the parent companies, the following size categories are used: 1 = below 5,000; 2 = 5,00020,000; 3 = 20,00050,000; 4 = over 50,000.

d Number of additional interviews carried out in the Spanish subsidiary are indicated in squarebrackets.

e Research was also carried out in Spanish subsidiaries belonging to the parent companies ofthese UK subsidiaries.

f 350 of total subsidiary work-force are located in the UK.



of the literature.) Among the most important are the degree of productionintegration, organizational structure, especially the existence of inter-national business divisions, and the nationality of ownership. With regardto the last of these factors, a number of authors have argued that practicesare more likely to be diffused by MNCs from national business systems thatare hegemonic within the global economy notably Japan and the USA(Edwards 1998a; Smith and Elger 1994). Certain kinds of practices orpolicies are more likely to be diffused than others, particularly those that areless subject to regulation by the host-country business system.The role of MNC subsidiaries has been dichotomized as either adapter,

blending in with the local environment, or innovator, introducing theircorporate home-country practices into the host country (Marginson 1992).A third possibility is that subsidiaries act as cross-border reverse-diffusersof practices typical of the host environment. However, there is scantliterature on the diffusion of management policies, systems and techniquesfrom the periphery to the centre, certainly in the broad area of HRM(Edwards 1998a, b). What literature there is has tended to concentrateheavily on international flows of technical knowledge within MNCs,particularly with the growing internationalization of research and develop-ment functions, and the creation of centres of excellence outside thecorporations home country (e.g. Archibugi and Michie 1997); or onproduct and market innovation (e.g. Bartlett and Ghoshal 1989: ch. 7).None the less, the notion of reverse diffusion is certainly implicit in much

of the literature on the role of subsidiaries within international companies.For example, Birkinshaw et al. (1998) have looked at the conditionspromoting the establishment of global mandates in subsidiaries, givingthem responsibility for activities throughout the international company.Gupta and Govindarajan (1991), in their discussion of forms of control,categorize subsidiaries according to the direction of knowledge flows; thus,the global innovator is responsible for a high volume of knowledgeoutflows to other subsidiaries. However, the authors do not discuss whatsorts of flows occur, nor how they do so. In general, underlying thisextensive literature is the suggestion that, the greater the power andauthority of constituent units of MNCs through the emergence ofheterarchic (Hedlund 1986) or network MNCs (e.g. Ghoshal and Bartlett1990), the greater the likelihood of multi-directional flows of influence andknowledge and hence of practices, rather than top-down hierarchicaltransmission from the centre (cf. Ferner and Edwards 1995).As Edwards has argued (1998a; also Edwards and Ferner forthcoming),

there are a number of characteristics that are likely to encourage thediffusion of practices from the periphery, many of them comparable to thoseencouraging forward diffusion. They include such structural factors as thedegree of product integration internationally and the existence of worldwideproduct divisions. More generally, the argument about forward diffusionby MNCs from hegemonic business systems can be turned upside-down:backward or reverse diffusion is likely within MNCs whose home business



system is not hegemonic in terms of its role within the internationaleconomy. Streeck (1997) has argued that the postwar German model ofcapitalism has developed within a framework of politically instituted andsocially regulated markets. This model has been marked by a pattern oforganized cooperation among competitors and by the shaping of theinternal order of firms by extensive social regulation through law andcollective bargaining. It has, he argues, been especially suited to productmarkets in which firms could compete on the basis of quality, but is calledinto question by the demands of globalized competition. Similarly, Ebster-Grosz and Pugh (1996) suggest that the long-termist, cautious and heavilyplanned style of German management is best suited to markets that areevolving gradually and predictably, rather than to rapidly changing globalindustries. This suggests that as internationalized competition takes holdGerman companies will be seeking role models among business systemsbetter versed in the demands of the global economy.

UK Subsidiaries as a Site for Vanguard Practices

There are a number of grounds for expecting that German subsidiarieslocated in the UK can serve as vanguard sites for the development ofinnovative practices. First, Britain, as one of the most internationalized ofdeveloped economies, is home to a disproportionate number of globalcorporations with long-standing international presence in sectors such aschemicals and pharmaceuticals, food and beverages, and engineering. Thishas provided experience of techniques for managing international work-forces, of international integrative mechanisms such as explicit companyculture, and of control and co-ordination mechanisms appropriate foroperating across national borders.Second, Britain has traditionally been extremely open to foreign direct

investment, playing host to a large number of MNCs from the hegemoniceconomies of the USA and more recently Japan. As many studies haveshown, Japanese MNCs have transferred to their transplants features ofwork organization such as continuous improvement techniques, teamwork-ing and just-in-time production which have in some industries becomestandard practice and which tend to be diffused into the host environmentthrough very interventionist relationships with suppliers.Third, British-based companies have been in the forefront of the global-

ization of a number of industries, including telecommunications, financialservices, food and beverages and business services. An important aspect ofthis was the deregulatory drive of the 1980s and 1990s (strengthened bydevelopments at EU level), which encouraged the emergence of extremelycompetitive market environments, forcing companies to develop appro-priate responses such as customer-focused organizational structures andpolicies. This too is likely to enhance the UK environments value tointernationalizing German corporations as a locus of vanguard practices, insuch areas as product innovation and marketing.



Fourth, the strong framework of regulation that governs industrialrelations in Germany through industry-level bargaining and statutory co-determination within companies is missing in the UK. As a result, it mightbe expected that British subsidiaries could be used as a test bed for prac-tices in industrial relations, but also for HR techniques whose introductionis inhibited in Germany by statutory bulwarks against managerialprerogative (Muller 1999). As we shall see below, the same is true to asignificant degree with German MNCs subsidiaries in the former EastGermany, where the official framework of regulation may operate moreweakly in practice.In short, therefore, Britain could be expected to be the site of leading-edge

management practices, both Anglo-American and Japanese, arising out ofthe experience of international operations in increasingly global productmarkets; and it is therefore a good site for the observation of processes ofreverse diffusion within internationalizing German MNCs.

4. German MNCs and the vanguard role of the UK subsidiary: what isdiffused?

Table 2 presents the principal examples of vanguard diffusion that emergedfrom the research. Bearing in mind the limitations detailed above, it isnoteworthy that some evidence of the phenomenon was uncovered in nearlyhalf the subsidiaries studied. Examples are provided of diffusion of Anglo-Saxon models and practices in areas such as customer service, productinnovation, management control systems and business processes. Forinstance, the UK subsidiary of a large engineering company adopted themethodology of the European Foundation for Quality Management forimproving business processes and outputs; subsequently the central boardmember with responsibility for European operations adopted the EFQMapproach as a Europe-wide initiative.Of primary concern in this paper, however, are two areas related to

employment practices: the adoption of HRM policies, and work organ-ization. For both of these, there are a priori grounds for thinking thatBritish subsidiaries may play a vanguard role. The orientation towardshuman resource management in Anglo-Saxon business systems is likelyto have generated specific HR techniques which internationalizingGerman companies may seek to emulate. This is reinforced by the factthat US and British companies have had considerable experience in usingformal HRM instruments in an international context and thus are likelyto provide a ready-made model for key aspects of international oper-ations. As far as work organization is concerned, the model provided isJapanese rather than Anglo-Saxon. But the UK is a likely staging postfor the transfer of Japanese-style work organization approaches becauseof the deregulated environment allowing experimentation and the import-ant presence of major Japanese companies which have strongly influenced



TABLE 2Examples of Reverse Diffusion from Vanguard Subsidiaries

UKsubsidiary

Issue Description

Autodist2 Marketinginnovation

. UK subsidiary was seen as having best practice (withthe USA) in the area of customer relationshipmarketing, leading to the creation of a UK-basedproject group to develop the concept for theinternational company

Autopart2 HR: internationalgraduateprogramme

. HQ looked to the UK subsidiary for support and ideasabout running an international graduate programme the UK subsidiary supplied the centre with relevantdocuments

Autopart4 Managementprocesses (BPR)

HR: internationalcorporate culture

. Long-standing initiative by UK subsidiary (influencedby the US joint venture partner) on BPR-type toolswas taken up by German HQ which then attempted toharness the UKs expertise in the area to develop thetools on a company-wide basis

. UK personnel manager developing components of acommon culture (e.g. defining characteristics such asspeed and customer responsiveness) appointed to aninternational working party to develop a corporateculture for the group

Autopart6 Work organization . Diffusion of work organization practices from theprincipal (Japanese) customer through closeintervention in operations and management processes

Machinery2 Customer service

Work organization:teamworking

. Introduction by the UK (with Austria and France) ofa new computer system providing support for serviceengineers subsequently adopted by Germany

. Teamworking approach pioneered in the UK wastaken up by the companys manufacturing sites in EastGermany, then elsewhere, including one plant in WestGermany

Autopart8 Work organization

HR: employeecommunication

. Diffusion of Japanese-style work organizationpractices from the customer

. Adoption by the international company of workingclimate surveys pioneered by the US subsidiary

Chem1 HR: competencyframework

. Piecemeal, ad hoc spread of competency frameworksin the German operations following the example of theUK and US subsidiaries

Chem2 Work organization:teamworkingHR: corporateculture

HR: pay &performance

. East German site used as test-bed for development ofteamworking, then incorporated in a Vorstand-drivenproject on profit-linked teamwork

. Adoption by HQ of a corporate vision, drawing(unacknowledged) on large chunks of the existingUK vision

. HQ adoption of bonus pay system for executives,following the previous development of a similarsystem in US and UK subsidiaries

Chem3 HR: pay &performance

HR: corporateculture

. Development of global performance-related paysystem with strong input of senior HR managers fromthe UK and US subsidiaries which were alreadyoperating such systems

. World-wide organizational and cultural changeprogramme accompanied by training programmeusing Anglo-Saxon training concepts which UK andUS HR managers had a hand in guiding andintroducing



(Table 2 continued)

UKsubsidiary

Issue Description

Chem5 HR: internationalmanagementdevelopment

HR: performancemanagement

. Programme for identifying young high-potentials andsending them on international projects first introducedin USA, subsequently adopted by Germany and thenincorporated into international policy

. Introduction in the UK of new objective-settingsystem based on work targets and competences,subsequently developed by the European personnelmanagers for adoption throughout Europe

Distrib1 Customer service . Adoption by the centre of US subsidiarys practice ofhaving separate call centre numbers for orders andcomplaints

Elec2 Work organization:kaizen

Work organization:teamworking

. UK subsidiarys improvements to aspects of acompany-wide kaizen programme seen as a model tobe reimported into the German company

. UK plants model of teamworking taken as model fordevelopment of multi-functional and multi-flexibleteams in German plants

Elec4 Managementcontrol systems

Customer service

. Introduction by UK subsidiary of profit and lossresponsibility for business managers at subdivisionallevel being picked up by corporate controllers inGermany

. Innovative integration of sales and serviceorganization by UK subsidiary seen as model forpossible diffusion to the international division

Elec6 Managementcontrol systems

Managementprocesses

Organizationalstructure

. UK subsidiary the first to move away from Germansystem of dual-management responsibility, sharedbetween technical and operational managers

. UK subsidiarys use of EFQM (European Foundationfor Quality Management) methodology for improvingbusiness processes, taken up by the corporate board asEurope-wide initiative

. UK pioneered role of group services i.e. centralizedfunction providing professional services, fleetmanagement, legal, tax, etc., to operating businesses being looked at closely as model by Germany

ResearchCo Entrepreneurialapproach

. HQ allegedly exploited example of UK subsidiarysentrepreneurial approach and profitable performanceto lever change in central R&D function, resultingin work-force reduction and setting of targets forindependent income generation

Instruments HR: pay &performancesystems

. UK subsidiary sees itself as taking the lead in theintroduction of PRP systems which only recently werebeing introduced in the centre. Theyve looked andsaid has it been successful?, we say yes, youve gotto do it (UK MD).

Leisure2 HR: expatriation . UK subsidiary provided German parent withinformation on the handling of expatriation thesubsidiary was itself a multinational of long-standing,with experience of moving staff between thirdcountries, while the parent was newlyinternationalizing

Transport HR: performancemanagement, etc.

. Visit by German personnel manager to learn how theUK subsidiary handled appraisals, absenteeism,turnover, etc.



practice in the UK, not least through their typically hands-on relationshipwith suppliers.The findings in these two areas are discussed below.

HR/IR Practices

German MNCs have grown up in a home-country environment which hasinhibited the introduction of many of the innovative personnel practicesassociated with human resource management in UK companies. AsGerman MNCs internationalize, and as the pressures on them to adoptAnglo-Saxon HR techniques increase, one might therefore expect them tolook towards vanguard subsidiaries in the USA or Britain to providemodels for the design and implementation of such techniques.In a number of our case-study companies this was indeed the case, as is

summarized in Table 2. It was principally the internationally integratedcompanies within the most internationalized product markets (notablychemicals), rather than the polycentric MNCs whose subsidiaries primarilyserved national markets, that provided examples of the phenomenon.British subsidiaries acted as vanguard sites in three main areas of HR:

the management of performance, the management of the careers of keymanagers, and the management of culture. Performance-related rewardssystems have generally been adopted in continental European countriessignificantly later than in the USA or Britain. In Germany, the formalstatutory framework of co-determination has inhibited their development;for example, performance-related pay and formal appraisal systems requirethe approval of the works council in German companies (Muller 1999). As aresult, experimentation with such systems at the corporate centre of GermanMNCs has tended to lag behind developments in their foreign subsidiaries(Ferner and Varul 1999a). Where companies have moved towards a moreperformance-oriented culture, therefore, they have had an incentive to drawon Anglo-Saxon experience.Table 2 summarizes several examples of the transfer of performance

management systems from the UK subsidiary. One is the propagation ofperformance-related bonuses for senior managers in a large manufacturer.According to a senior UK personnel manager, some three years previouslythe British subsidiary had introduced a scheme linking a proportion ofsenior managers pay to performance on a variety of objectives set by thecountry managing director and by the managers product division. (The USsubsidiary had already been running one for some time.) This was achievedin the face of the scepticism, if not opposition, of Germany. Yet within twoyears it had become group policy throughout the world. Senior managementexecutives in Germany also were now on the variable bonus scheme, andmany of their previous fixed bonuses had been removed.In other cases, the adoption of Anglo-Saxon performance management

systems was more explicit and less grudging. One company (Chem3), forexample, co-opted English and US managers on to an international working



group to design a performance-related pay system for the company world-wide. This was apparently influenced by the need to be competitive in payterms in the companys key market, the USA, and to attract more inter-national managers. The system adopted internationally broadly followedthe Anglo-Saxon model already being applied in the UK and US sub-sidiaries, and was even given an English rather than a German name. Inanother company from the chemicalpharmaceutical sector (Chem5),the UK introduced a new system for appraising performance based on acombination of objectives and managerial competencies. A very similarscheme was subsequently developed by the grouping of European HRmanagers for adoption throughout Europe. (In the words of the British HRdirector, Id like to think the [European HR] Group did it because we did ithere first!)The internationalization and increasing international integration of

German companies has forced them to confront the issue of managingmanagers as part of an international managerial work-force. There wasconsiderable evidence in the case-study companies of attempts to moveaway from their previous approach to management development focusedlargely on the German managerial work-force (Ferner and Varul 1999a).However, many companies were still lacking well-developed systems ofinternational management development. Even where there existed mechan-isms for tracking key senior managers internationally or for identifying anddeveloping high potentials as a key international corporate resource,subsidiaries tended to regard them as secretive, fragmented and ineffective.Here too, UK subsidiaries considered themselves (and their US counter-parts) to be in the forefront of developments. In one major company,horizontally divided HQ responsibilities for different groups of managersimpeded the effective identification of young managers with the potential tomove up into the senior tier of management. This fragmentation waspinpointed as a problem by an international working group of which theBritish HR director was a member, and it might be expected that the US andUK experience would provide the company with pointers for a revision ofits existing systems.One area where some UK subsidiaries could provide policies was in the

handling of expatriates. In a couple of cases, the British subsidiary was itselfa multinational company of long standing, while the acquiring company wasrelatively new to international operations. Thus, the personnel director of asubsidiary in the leisure sector had been contacted by the central personnelfunction in Germany:

Theyve asked us to send over our expatriate policy, for example. Weve had long

experience of trying to do things in different countries, not just sending peoplefrom the UK overseas, but from Australia to the US or from the US to Canada orAfrica or whatever. [The parent companys] expatriates are exclusively Germanyto overseas, so when they try to move somebody from Japan to Australia, theyve

no idea how to go about it.



The third element of vanguardism in the HR area concerns corporateculture. We refer here to a specific and delimited aspect of the concept ofculture: the development by corporate strategists of explicit definitionsof corporate values as a management tool designed to give direction andcohesion to corporate activities. In the international context, thismanipulation of cultural artefacts has been used as what Evans (1992)calls corporate glue technology. The Anglo-Saxon concept of corporateculture, with its notion of amenability to conscious control and codification,contrasts with the traditional German model of culture, based on diffuseand implicit values encapsulated in the notion of the Betriebsgemeinschaft(the works community). This notion is seen as much less susceptible tomanagerial intervention, something that pervades work relations andemerges organically out of the companys history and relationships betweenmanagers and employees as mediated through institutions such as co-determination (Eberwein and Tholen 1993; Varul and Ferner 1999).The need to orchestrate operations and staff across national borders, a

role for which the context-dependent notion of Betriebsgemeinschaft waspatently unsuited, appeared to be leading to the partial Anglo-Saxoniza-tion of culture within German MNCs. We found a number of examples(e.g. Autopart4, Chem2 and Chem3) among our case-study companies inwhich this process drew on the experience of UK subsidiaries to developmore explicit and formalized expressions of corporate culture such asvision or mission statements. In one manufacturing company, the UKsubsidiary was the first to develop its own vision,

very much focused on customer rather than production, on synergies, oncollaboration, on human resources developments for the future all of which

was very new . . . When wed launched the vision in the UK, [the UK MD] alsothen presented the UK vision at his next session of the Vorstand and there were anumber of the Vorstandmembers who were very interested. We also presented it atthe next [European] works council. . . and that created interest in a couple of

countries. . . . The Vorstand didnt consult with him, but [his presentation] startedthe process.

Subsequently the centre developed its own guidelines which borrowed largechunks of the UK vision.

Work Organization

The vanguard role for the subsidiary in the area of work organization mayappear paradoxical, in that German companies have commonly beencharacterized as having advanced systems for the management of theproduction process, based on a commitment to engineering values and theuse of a highly trained, skilled and relatively flexible work-force (e.g. Lane1989; Streeck 1996). The vanguard role of the British subsidiary appearspotentially to operate in two areas. The first is in the use of systems of valuechain management stemming from US experience of business process



re-engineering of various sorts. The second is the application of Japanesetechniques of lean production through the use of low stocks, continuousimprovement, teamworking and so on.An example of the first is that of the adoption of a business re-engineering

programme in an engineering subsidiary (Autopart4) as a result of its closeassociation with a US joint venture partner which previously owned it. Ithad adopted a radical American programme for improving businessperformance, while Germany is still just about getting improvement groupsand small incremental improvements. This programme our respondentconsidered to be the leading initiative in major US automotive andelectronics companies. It was a step-change programme aimed at radicallyreducing error rates in processes, whether operational or other businessareas: The Europeans havent cottoned on to it yet, but because we wereAmerican originally, we cottoned on to it. To get world class perform-ance in your key competencies, you use [programme name] (fieldnotes,operations manager). According to our UK informant, the corporatecentre eventually took up the programme itself, after considerableprompting:

They [the parent] were never interested in it because theyd started a TQM

programme. Every time they used to come here for their bi-monthly meetings,we used to say forget it, its a load of crap, this [US programme] is whatyou want. . . . Suddenly over the last couple of months, one of the [parent

company] board members asked our MD to go along to a presentation in Paris. . . .Two of us went from here. The bloke who was doing the presentation was the MDof [the US joint venture partner]. . . . Our boss went along, met him and . . .

suddenly all the [parent] board of directors in Munich are saying blimey, wedbetter have a look at this. Suddenly theyre a bit more alive to [this programme],and they want us now to go into these [other European] plants and vet them fortheir quality.

The second kind of role in innovative work organization stems from thediffusion of Japanese manufacturing methods from transplants in the UKover the past couple of decades. In the UK engineering subsidiary(Machinery2) of a large conglomerate, an experiment in teamworkingbegan in the late 1980s. This was picked up by East German plants of thesame company: What happened was that we got a lot of visitors from the[company] manufacturing sites in east Germany and then there was a triporganized to go to [the UK plant] to see how it works here, and the workscouncil came as well (fieldnotes). Subsequently, the teamworking approach,modified for the German context, was also introduced in a small WestGerman plant in which the works council was not as powerful as in largersites of the company.An unusual incidence of diffusion occurred in an engineering subsidiary

(Elec2) whose parent had introduced Japanese-style kaizen continuousimprovement techniques. The contribution of the British plant was toimprove on the techniques adopted for example in the use of a visualdisplay board carrying data about quality, production and the working



environment so that it became a sort of flagship for the new methods forthe group as a whole. The German parent sent over a large group of factorymanagers for an extended visit in order to see how it was being operatedin the subsidiary plant, and the operations manager was invited by the HQhead of the kaizen programme to address a meeting in Germany on theissue.In some cases, the influence of Japanese work organization methods

is direct, through the extremely thorough and detailed intervention ofJapanese customers in the internal operating systems of the company. In onesubsidiary of an automotive supplier, even though the original productionline and equipment came from Germany, it operated in a distinctive way asa result of the pressure of the major customer, a Japanese transplant in theUK. The influence was exerted on the back of relentless pressure to cut theprice of the product. According to the UK personnel manager,

The very first time you say it cant be done [i.e. costs cannot be reduced], they thensend supplier development teams in, start looking at your processes, they start tolook at your business. Theyll do a business audit, tell you your processes are

incorrect. Theyll look at your costings, whats known as an open-book costing.Theyll say how much did it cost you? So what happens, when theyre coming in,and they start to look at your production, theyll say [e.g.] if that person was notsitting, if those 4 people were standing up, if you took away that and did this, you

would save one person. Which equals 10 pence. You have 5 pence and we have5 pence. If you change this to that. . . . And thats the way it goes. So you startdeveloping production facilities that match that concept. All this kaizen,

continuous improvement philosophy. [fieldnotes]

The interesting question is how far such innovations are then reverse-diffused throughout the German company, a question raised by Streeck(1996) in connection with the diffusion of lean production techniques toGerman manufacturers. Streeck argues that aspects of the Germaninstitutional environment, especially the way skills are defined in relationto occupations, limits the scope for such imports. However, if diffusion doesoccur, then Japanese work organization methods may well pose a con-siderable threat to traditional German patterns of work organization. As theUK managing director of another automotive supplier told us, the Japanesehave taught us that for direct operations skills, you de-skill them, you dontactually need all those skills [that the Germans deploy], youre paying forsomething you dont really need. If youve good work flow practices, ifyouve got good machine lay out, etc. . . . (fieldnotes).

5. German MNCs and vanguard subsidiaries: how diffusions occur

In this section, we examine some of the mechanisms whereby innovativepractices in vanguard subsidiaries were identified and diffused to otherparts of the MNC, as well as the obstacles encountered in the diffusionprocess.



The Mechanisms of Diffusion

There is some evidence that well established MNCs adopt a proactive,formalized approach to the identification and propagation of best practice(e.g. Coller 1996: 166). In our case-study companies, diffusion often tookplace casually as a result of informal information flows. Thus, the centremight be sent a copy of a UK policy on appraisal, or a mission statement,and use it, explicitly or not, as the basis for its own policies; the subsidiaryssenior managers might make presentations to the Vorstand in Germany,which then got picked up; or periodic visits by senior German managers tothe UK could lead to the centre hearing about recent innovations. But wealso came across a small number of examples of more formalized, centrallydriven mechanisms, which could be used to identify vanguard practices insubsidiaries and to diffuse them to other parts of the corporation.One company, for example, made use of a systematic management audit

of operations in different parts of the world. The team, composed ofpermanent staff of the central HQ audit unit and of seconded managersfrom operations around the world, conducted a thorough examination ofmanagement practices, processes and structures in subsidiaries. It then maderecommendations in consultation with subsidiary management, and laiddown a timetable for their implementation. Although primarily intended asa form of oversight and a way of driving improvement in the subsidiaries,audits were also a systematic means whereby innovative developments in theperiphery could become known in the centre and diffused outwards fromthere. According to the managing director of a UK subsidiary, where theysee good things happening [in one country] they would make recommenda-tions about things that could improve [another] countrys set up or businessstructure. Their findings were diffused back to the centre, from where theyrippled down to the business divisions. Thus, the central audit had movedaway from its traditional top-down inspection role to more of a two-wayconduit for best practice.Two other mechanisms both widely reported in the literature as forms

of cross-national corporate integration appear to play a crucial role in thedissemination of practices from vanguard subsidiaries. The first is the cross-national flow of personnel. This is stressed by Bartlett and Ghoshal (1989:ch. 7), although they are concerned primarily with product and marketinnovations. Their case studies of international companies seem to implythat the effectiveness of managerial mobility in diffusing innovation dependsnot only on the quantity of movements, but also on the degree to which theyare bi-directional (from subsidiary to HQ or to other subsidiaries, as wellas from the centre outward).Our case-study companies provide only relatively rare examples of key

managers from the subsidiaries being transferred to Germany. However,movement from the centre is also relevant for reverse diffusion: whensecondees return to HQ, they may have become partially Anglo-Saxonizedby their experience. At the least, they may take with them knowledge of



developments in the periphery which they are in a position to drive throughat the centre. For example, in one company the head of the group dealingwith management development and succession planning had worked inthe USA; in another, German managers returning from spells in the USAwere said to have brought with them competency frameworks which theyintroduced piecemeal in central departments. Such movements of peoplecould also facilitate flows of ideas between different subsidiaries. In a UKmanufacturing subsidiary the (German) finance director, who hadexperience of working in the USA, introduced the concept of cross-divisional corporate controllers, modelled on a system that had first beenadopted in the US subsidiary. Sometimes the flow of personnel is specificallygeared to the transfer of knowledge from a vanguard subsidiary. InAutodist2, for example, German managers were leading a team workingwithin the favourable UK market environment to develop the concept ofcustomer relationship marketing, with a view to importing the lessons backto the centre. Moreover, several instances were reported of visits by Germanmanagers to learn about innovations in UK sites.The second mechanism is the use of more or less formalized international

networks of functional managers. These predominantly take the form ofinternational HR committees which periodically bring together personnelmanagers from the centre and from different subsidiaries (see Ferner andVarul 1999b). Marginson et al. (1993: table 5.7) found that the majority ofoverseas-owned companies in the UK had some form of regular inter-national meeting of personnel managers, a finding echoed in our own casestudies: 19 of the 36 firms for which we have data had or were about tointroduce some sort of periodic international HR meeting. Such committeeswere more common in larger companies and sectors such as chemicals whereinternational integration was significant; they were less common inpolycentric companies whose subsidiaries primarily served local markets,in smaller family-owned companies and in highly diversified conglomerates.Where they existed, however, international HR committees, and theirassociated working groups, were a key mechanism for transmitting thepolicies of vanguard subsidiaries to other parts of the company. They were aforum for the exchange of information about developments taking place indifferent subsidiaries. A characteristic description is given by a headquartersrespondent from Autopart7:

Personnel directors. . . meet four times a year and everybody presents a report

about his highlights, what developments were made, how hes getting on, e.g. ifsomebody had interesting experiences on how to bring down sick-leave orsomebody else has interesting experiences with the recruitment process or has

found a new kind of wage system somewhere which would fit into the basicframework but then goes a step further. . .

In some companies the venue for committee meetings rotated betweensubsidiaries. This allowed the UK subsidiary to showcase its own policieswhen it hosted meetings.



Moreover, such committees were frequently used to devise policy for thegroup as a whole. Managers from subsidiaries were co-opted on to workinggroups to help draw up specific policies in their area of expertise. In anumber of companies, British and American managers were prominent inthe development of international performance management systems, thedesign of expatriate contracts or the management of high potentials, since,as discussed above, their subsidiaries had often implemented such policies inadvance of the international company. In one company (Chem3), forexample, a performance-related pay system for the MNC was designed inan international project group on which Germany was represented butwhich in fact in the initial phases I led (UK personnel manager). Similarly,the UK personnel manager of Autopart4 reported to the international HRmeeting on the British subsidiarys initiatives in the area of company cultureand was subsequently brought on to an international working group todesign elements of a new corporate culture.In some companies, the initiative and drive to innovate through inter-

national HR committees rested with the subsidiaries rather than the centre.For instance, in one company, regional European working groups met fora period without a central German presence, while the major Germanysubsidiary decided to have its own meetings. Within three meetings, [theGerman subsidiary] had returned because the European countries werestarting to agree things on movement of young potential candidates, onexchange of information about competency frameworks, developmentcentres, etc. and [Germany] was being left behind (UK personnel manager).As this suggests, the role of HR forums as a conduit for innovations wasnot always actively driven by the centre. Sometimes the conduit role wasnot planned but emerged gradually. As a UK respondent from a chemicalcompany told us,

When they started it was very much us going along there and basically being toldeverything that was happening in Germany on HR. It only started with me beingasked to present on what we were doing on our vision so that the balance of

that has progressively changed now and theyve been looking to get a greater inputfrom whats happening in the different countries. . . . Then moving on I was askedto talk about what we were doing in the UK on management development,

performance management, pay. So Ive almost had a regular session. Colleagueshave also been asked to present on whats happening in Italy or France orSpain. . . . For the last year theyve also invited the head of personnel from theStates. So it has developed and become more internationally focused from its

original [style] of listening to all the good work thats going on in Germany.

In sum, therefore, the research identified various channels of diffusionthrough which vanguard practices made their way from UK subsidiaries tothe centre. These channels were a mix of routine, formal systems and moread hoc or informal mechanisms. In some companies diffusion wasproactively encouraged and co-ordinated from the centre; in others itoccurred despite central indifference or even resistance, practices filteringthrough in a rather hit-or-miss, piecemeal and gradual way.



Factors Predisposing to and Inhibiting Vanguardism in German MNCSubsidiaries

The discussion above suggests that a number of general factors are likely topredispose subsidiaries to playing a vanguard role. Although our sample offirms is not appropriate for statistical analysis, some impressionistic con-clusions may be drawn. First, some of the structural factors identified byEdwards (1998a) are important. The vanguard role is more likely to emergein larger subsidiaries that are closely integrated into international businessoperations; it is less likely to emerge in smaller, more autonomous subsidiariesorientated to national markets. The reason for this is that the former aremore likely to be linked to the circuits of diffusion discussed above, such asinternational flows of personnel, international committees and task forces.It is no surprise, for example, that many of the most striking examples ofvanguardism occurred in internationally integrated chemical companies inwhich operations outside Germany were becoming increasingly important.Second, Edwards suggests that diffusion is more likely to take place from

brownfield subsidiaries than from greenfield. As we have argued, therequirements of internationalization are forcing German MNCs to adoptpractices that are more likely to be found in Anglo-Saxon and Japanese-influenced business environments. In acquiring subsidiaries embedded inthese environments, they may consciously or accidentally be acquiringaccess to innovative practices. This is particularly evident in the case-studycompanies where the acquired companies are themselves MNCs, or parts ofMNCs. This was the case in a significant number of subsidiaries (around athird of the total). Such companies often had longer and more extensiveexperience in the management of international work-forces than did theacquiring German MNC; this was true in such areas as the operation ofinternational graduate recruitment programmes, international managementdevelopment and the management of expatriates (as mentioned earlier).They were also sometimes centres of excellence in their own right, and theiracquisition could shift the centre of gravity within the global company,facilitating the diffusion of practices towards the centre.A special case of vanguardism occurs in joint ventures, of which there

were a small number among our cases. In such instances, the influence ofprevious practices and management cultures is ongoing following acquisi-tion. This was most visible in the engineering company whose American co-owner strongly influenced the dissemination of a state-of-the-art approachto business re-engineering.This is not to say that greenfield sites are excluded from a vanguard role.

Some greenfield sites did play such a role by virtue of the managementculture that their British managers had introduced in respect ofperformance management systems, for example (e.g. Chem3). Moreover,greenfield sites may in principle be especially appropriate test beds forpractices that the MNC has been unable to implement in the centre, possiblybecause of statutory constraints on implementation. Inter-plant competition



for investment may then be used by the MNC to persuade its Germanwork-force to accept practices developed elsewhere (cf. Mueller 1996). Onewould expect to find such greenfield vanguardism in certain areas ofworking practice in internationally integrated companies, in sectors suchas vehicles whose production is organized around a number of closelycomparable sites in different countries.A final factor concerns the strategic choices of management in both the

centre and the subsidiary. The vanguard potential of the subsidiary is morelikely to be identified where the centre plays a proactive, co-ordinating role,aggressively scanning the horizon for useful practices in subsidiaries.Where the centre is more passive, knowledge about new practices may filterthrough only haphazardly, by means of various more diffuse and informalcommunication channels. One may thus see a picture of pragmatic, unco-ordinated grassroots diffusion from the subsidiary what one of our UKrespondents referred to as bush-fire diffusion:

If you take something like the competency framework back to a site the size of[key German site]. . . with [tens of thousands of] people, 50 or 60 different [businessunits] and all the issues to do with culture and consultation, how the hell do you

actually put that idea into operation? The only way is to allow it to be like littlebush fires, so that a particular [business unit head] or an HR person or even a linemanager saw this, liked this and was prepared to agitate enough to get it. Sowhats actually happening is youre getting little pockets of competency

frameworks popping up around the businesses. [fieldnotes]

The micropolitics of the centre may play an important role in determiningwhether it assimilates vanguard practices easily. One recurrent theme of thecase studies is the way in which the innovation process accompanyinginternationalization has been slowed or contested by groups in the centre. Acommon scenario was to have a group of very senior managers committedto radical transformations, and a stratum of managers below them resistantto change which they would see as threatening their organizational positionand their traditional modes of operation. Central resistance was sometimesstrengthened by the sheer weight of German operations, which meant thatcorporate administrative groups were predominantly focused inwards ratherthan towards international operations.In some instances, senior HQ managers were able to use innovations in

the subsidiaries as a lever to overcome central resistance to change. Oneexample is that of an acquired UK research subsidiary (ResearchCo). Itsvery market-oriented, responsive and entrepreneurial approach allowed it tomake a profit from the sale of its technology to third parties. According toUK respondents, its success gave HQ management the leverage to securechange in the allegedly over-sized, slow and bureaucratic central R&Dfunction which was subsequently reduced in size and set targets forindependent income generation.A further factor inhibiting the central adoption of practices from the

subsidiaries, especially in areas of HR and work organization, was the



statutory framework of co-determination, giving works councils the abilityto resist in many cases the introduction of new reward systems, forms ofteamworking and so on; hence the initial introduction of innovations inwork practices in smaller plants, or plants in eastern Germany, with less wellorganized works councils (cf. Streeck 1996). (Such resistance was especiallyunderstandable when, for example, innovations challenged the high-skill,high-cost labour traditions of production organization in Germany throughthe introduction of Japanese lean production methods less dependent on ahighly qualified work-force.)As mentioned earlier, the subsidiary may sometimes take the active role in

pushing for the diffusion of its ideas. However, some of the case-studycompanies revealed an important lesson for subsidiary management: inorder to influence the centre, they had to understand and even assimilate themanagement style and thought processes of the German company. It wasalmost as if the subsidiary had to Germanize itself before it could Anglo-Saxonize the parent. One way this was achieved was through individualswho had an intimate knowledge of how the centre worked, perhaps becausethey were German themselves, or had spent time there. This allowed themto innovate successfully without falling foul of the micropolitics of thesubsidiaryHQ relationship. In one instance, the UK MD (a third-countrynational) introduced a significant structural change against the oppositionof business divisions in Germany; as the UK personnel director commented,it was a significant achievement by the MD and was more because of hisown personality and his contacts in Germany and his adeptness in handlingthat that got it through. Hes a long-term [company] person, and he knewhow to play the game (fieldnotes).Failure to play this game made a vanguard role difficult. One UK

subsidiary, for example, regarded itself as the most efficient and productiveof the companys plants in Europe. But What we didnt understand wasculturally what was going on, according to a senior UK respondent. Thesubsidiary alienated the Germans through the way in which it continuedto identify culturally with its US joint venture owner. The culture barrierwas so great that decisions were made that we didnt influence one little bit,and we could have done if wed understood the European way of doingthings. It failed to network effectively with the German managers: ourfunctions werent talking to these functions [in Germany]. When the crunchcame, and the company rationalized its network of plants in Europe, itwas the UK plant that lost out, despite its superior performance andprofitability.

6. Conclusions

According to Streecks (1997) reading, the German model of economicorganization is too rooted in a specific set of national-level accommodations



to be able to operate effectively when confronted with the twin shocks ofreunification and globalization: it is impossible to reproduce at supra-national level an appropriate sustaining framework of market regulationsuch as has existed in postwar Germany.On this analysis, the advantages of the German system are not

translatable to the wider international arena unlike the Anglo-Saxons,with their exportable advantages deriving both from long internationalexperience and from the ability to operate in deregulated environments; andunlike the Japanese, with their transferable advantages associated withinnovation in mass production techniques. Therefore, as German companiesmove beyond their classic export platform strategy to become internationalplayers, they are much more likely to absorb the prevailing businesscultural practices of companies well versed in the deregulated rules of theinternational economy than they are to transmit their own peculiarities toothers.In some respects our evidence supports the assumptions of the Streeckian

analysis. Although our data do not permit firm conclusions as to the extentof reverse diffusion, they clearly show that in many areas, such diffusiontakes place within German multinational companies from vanguardsubsidiaries to the corporate centre. The data also indicate some of thespecific pathways of reverse diffusion. Our interpretation of the phenom-enon is based on the argument that the Anglo-Saxon subsidiary mayprovide a model of practices to be adopted by the corporate centre in itsattempt to operate effectively in international markets.This suggests a more general conclusion about the nature of reverse

diffusion: the kind of diffusion described here may be seen as strategicin that it involves late internationalizers learning how to operate inter-nationally. Thus, in the absence of their own well developed tradition ofstrategic international HRM, German MNCs appear to be adoptingsignificant elements of an Anglo-Saxon model. By contrast, much ofthe diffusion described by Edwards (1998b) and others (e.g. Coller 1996)may be seen as a more tactical and pragmatic type of organizationallearning, in that practices are smoothly incorporated into a pre-existingstructure and international modus operandi, rather than changing funda-mentally the way in which MNCs function internationally. (For extendeddiscussion of the issue, see Edwards and Ferner forthcoming.) Indeed,the use of institutionalized procedures for reverse diffusion seems to bea settled characteristic of US MNCs, reflecting the tradition of a for-malized, procedure-based way of international operation (e.g. Negandhi1983).However, the evidence is not altogether clear-cut in relation to the

Streeckian thesis. First, looking beyond our case studies, companiesembodying the German model have proved extremely successful. A numberof the more global players in sectors from manufacturing to mass media toretail distribution are closed family companies whose success is built on astrong, German-flavoured corporate ethos of partnership or co-operation



(see Ferner and Varul 1999a). This suggests that, in some respects at least,Germanness is an exportable commodity.Second, and connected, it is questionable how far reverse diffusion

even where it is strategic is fundamentally eroding the nationallydistinctive character of MNCs. Although our data concerning the impact ofvanguard practices on the corporate centre are limited, there is someevidence that the practices disseminated from vanguard subsidiaries ofGerman MNCs may become transmuted into elements within a managerialrepertoire that remains basically German. For example, as we reportelsewhere (Varul and Ferner 1999), components of the Anglo-Saxon notionof business culture are being adopted (sometimes enthusiastically) byGerman MNCs; but they are being assimilated in such a way as to changetheir significance. Thus, many companies have adopted that linchpin of theAnglo-Saxon corporation, the mission statement, and such statementsoften retain the typically Anglo-Saxon obeisance to shareholder value. Butits significance is very different where shareholders are family membersand house banks, rather than arms-length institutions and individualslooking to maximize short-term returns. In other words, one may be wit-nessing a process of Anglo-Saxonization in the German manner (Fernerand Quintanilla 1998), rather than the radical weakening of the Germanmodel that Streeck predicts.This finding has wider implications for debates about the prospects for

convergence on a homogeneous international model of HRM in MNCs.International borrowings may not necessarily erode national differences,since elements of practice acquire a different meaning when located within adifferent business context. To appropriate the terms of cultural anthro-pology, borrowed elements may be regarded as objets trouves, whoseoriginal purpose is transformed as they are inserted into a pre-existing set ofstructures and values. This is the business equivalent of Levi-Strausssnotion (1966) of bricolage using ready-made elements to constructvery different cultural artefacts. Other familiar developments in inter-national HR/IR may plausibly be read in the same light. For example,it may be argued that the Japanese lean production techniques adoptedby US MNCs in motor manufacturing and other industries have notfundamentally Japanized work organization in these companies but,rather, have helped revitalize a pre-existing US business culture rooted intraditions of standardized mass production and the predominance ofexternal labour markets. And, as Streeck (1996) himself shows in hisanalysis of the prospects of lean production in the German car industry, theGerman model of work organization may well assimilate such practices intoits existing ethos, rather than be fundamentally changed by them.In short, international MNCs borrowings from different business

systems do not necessarily prefigure homogenization and convergenceamong national models. A distinctive national business system may learn toadapt to the demands of internationalized operation while retaining andeven consolidating its distinctiveness.



Acknowledgements

The study on which this article is based was funded by the Anglo-GermanFoundation for the Study of Industrial Society and by the ESRC. It wasconducted by the Industrial Relations Research Unit of the University ofWarwick and the Institute for the Study of Labour Law and LabourRelations in the European Community (IAAEG), Trier. The Spanish part ofthe study was carried out by Javier Quintanilla of IESE business school, andby Anthony Ferner. We would like to thank Paul Edwards, Tony Edwards,Paul Marginson and Dieter Sadowski for helpful comments on an earlierdraft. We have also received invaluable advice on improving the piece fromEd Heery of the BJIR and from a BJIR reviewer, Martin Behrens. We aremost grateful to the many managers in Germany, Britain and Spain whoagreed to be interviewed for the project.

Notes

1. In addition, three interviews were conducted in headquarters of a further twocompanies for which access to subsidiaries was not granted.

2. The number of respondents and the number of interviews do not tally, since insome cases more than one respondent was present at an interview (and, con-

versely, some respondents were seen more than once).

Final version received 7 October 1999.

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