Internationalization & HRM Strategies across Subsidiaries in Multinational Corporations from Emerging Economies – A Conceptual Framework

Mohan Thite*Department of Employment Relations and Human Resources,

Griffith Business School Griffith University,

170 Kessels Road, Nathan, QLD 4111, AustraliaEmail: M.Thite@griffith.edu.au; Phone: +61 7 373 57643

Fax: +61 7 3735 7177

Adrian WilkinsonCentre for Work, Organization and Wellbeing,

Griffith University,170 Kessels Road, Nathan, QLD 4111, Australia

Email: Adrian.Wilkinson@griffith.edu.au; Phone: +61 7 373 56792;Fax: +61 7 3735 7177

Dhara Shah

Department of Employment Relations and Human Resources,Griffith Business School,

Griffith University,170 Kessels Road, Nathan, QLD 4111, Australia

Email: d.shah@griffith.edu.au

* Corresponding Author

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ABSTRACT

The rapid rise of multinational Corporations (MNCs) from emerging economies has led

to greater interest and urgency in developing a better understanding of the deployment

and diffusion of managerial strategies from their perspective and without assuming the

prevailing Western ethnocentric orthodoxy. This paper develops a conceptual framework

of global HR strategies and practices in MNCs from emerging economies across their

subsidiaries in both developed and developing markets. Using data from a pilot study of

an Indian MNC, it provides insights and guidance into the motives, strategic

opportunities and constraints in cross national transfer of HR policies and practices in a

multi-polar world.

Key Words: New Multinationals; Emerging Economies; India; Internationalization

Strategies; Global HR Strategies.

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1. Introduction

“In the coming decades, China and India will disrupt workforces, industries,

companies, and markets in ways that we can barely begin to imagine” (Engardio,

2008: 23)

Research on MNCs has tended to be focused on those from developed countries

establishing subsidiaries either in other developed economies (e.g. U.S. to the UK) or into

developing economies (e.g. the U.S.A into Latin America). U.S. firms invested in

Europe from before 1939 but the major push came after World War Two (Ferner,

Almond, Clark, Colling, Edwards, Holden, & Muller-Camen, 2004). Japanese MNCs

began to locate in advanced economies, particularly in the 1980s. While, there has been a

rich stream of MNC research in this area, there has been relatively less research on newer

industrialized (e.g. Taiwan, India and South Korea) to the more industrialized economies

(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.

In this paper, we widen the horizon of International HRM to include HRM

strategies and practices from emerging economies. The purpose of the paper is to explore

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how HRM strategy of the MNCs in emerging economies is formed and how it operates in

practice. First, we outline the issues relating to emerging MNCs. Second, we develop a

conceptual framework of global HR strategies and practices in MNCS from emerging

economies. This provides managerial insights and guidance into the motives, strategic

opportunities and constraints in cross national transfer of HR policies and practices. It

uses the data from the pilot study of an Indian multinational company to test the

conceptual framework and propositions. The paper concludes with a discussion of how

our findings relate to existing research and identify directions for future research.

This paper helps identify and analyze ‘the travel of ideas’ (Delbridge, 1998;

Garrahan & Stewart, 1992) between the East and West, in terms of the motive and

opportunity behind cross-national transfer of HR policies and practices. Such an

understanding of corporate management thinking and practice in Asian MNCs helps

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).

2. The New Multinationals

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

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which came from Asia. Similarly, the growth rate of the number of TNCs from

developing countries and transition economies over the past 15 years has exceeded that of

TNCs from developed countries. Asia dominates the list of 100 largest developing

country TNCs. Further, the emerging economies are investing heavily in low-income host

countries, generating considerable South-South investment flows (UNCTAD, 2007). It is

anticipated that in the new world economy, the balance of power will shift to the East as

China and India continue to evolve as two of the most attractive inward as well as

outward FDI destination countries.

The growing importance of emerging economies has lead to an upsurge of

strategy research on the topic (Wright, Filatotchev, Hoskisson, & Peng, 2005). Research

on global HRM has not paid enough attention to MNCs from emerging economies

despite of all the management domains, HRM is most sensitive to local context

(Rosenzweig & Nohria, 1994). Emerging country MNCs tend to be smaller in size with

considerably less resources and international experience than their counterparts from

developed markets. This limits their ability to transfer management practices across their

subsidiaries (Hussain & Jian, 1999; Lall, 1983; Wells, 1983)Guillen and Garcia-Canal,

2009). While there is growing recognition of and research on this contextual aspect with

respect to some relatively advanced Asian economies, such as Japan, Korea, Taiwan and

Singapore (Chang & Taylor, 1999; Chang, Mellahi, & Wilkinson, 2009b; Chang,

Wilkinson, & Mellahi, 2007; Glover & Wilkinson, 2007), the two emerging global giants,

China and India, have been much less explored (Ferner, 2009).

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Previous research on MNCs had identified dual pressures for the need to conform

to home country (push force) and host country (pull force) institutional environments

when adopting HRM strategies and practices (e.g.Farley, Hoenig, & Yang, 2004; Hillman

& Wan, 2005; Rosenzweig & Nohria, 1994). We know very little on how these pressures

influence HRM strategies and practices at subsidiary level of MNCs from emerging

economies. While previous comparative research on HRM in the Asia Pacific region

(Awasthi, Chow, & Wu, 2001; Bae & Lawler, 1998; Chow, Shields, & Wu, 1999;

Hofstede, 1993, 1997; Hofstede & Bond, 1988; Ulgado, Yu, & Negandhi, 1994)) has

identified the national origin of firms including its national institutions and culture as the

key shapers of HRM practices in the region, these studies do not address how cultural and

institutional differences affect the dissemination of HRM strategies and practices by

MNCs from emerging economies operating in a developed economy (Chang, Wilkinson,

& Mellahi, 2007).

A key research question relates to exploring the issues associated with the transfer

HR practices across borders within MNCs. As Martin and Beaumont (1998) comment,

diffusion has to take into account the local cultural and institutional context and the

ability and incentive of local managers to implement best practice (see Glover &

Wilkinson, 2007).

3. Country of Origin Effect on Strategy

One of the key challenges facing the MNCs is how to balance between the need for

global integration and local adaptation. National origin of MNCs is seen as a major

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influence in determining this balance (Ngo, Turban, Lau, & Lui, 1998, p. 632). Contrary

to Ohmae’s (1990) view of a borderless world and nationless corporations, cultural and

institutional determinants in the country in which firms were located are seen to be

salient determinants arising from a firm’s context (Chang & Taylor, 1999; Gooderham,

Nordhaug, & Ringdal, 1999). Researchers, such as Ferner (1997) and Gamble (2003)

examined the issues dealing with how MNCs manage their foreign subsidiaries and

concluded that the main influence on the MNCs effort to have a degree of control over

their subsidiaries was their country of origin (Harzing & Sorge, 2003; Hu, 1992).

Supporting this view, Harzing and Sorge (2003) state that although multinationals are

highly internationalized, their organizational coordination and control practices at the

international level tend to be explained by their country of origin.

There is empirical evidence that suggests that almost all MNCs have a trace of

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

(Ferner, 1997). Japanese multinationals have the characteristic of being strong but with

informal centralization and are highly reliant on establishing international networks

(Bartlett & Ghoshal, 1992). U.S. multinationals appear to have elaborate systems of

control and standardized worldwide systems in place (Ferner, 1997). Moreover, whether

the country is high or low on cultural context will also determine the impact of their

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country of origin on the IHRM practices. This work draws on the work of Hall (1976)

and his distinction between situations where things are less explicit where the context

exerts more influence (high context) and those that are much more explicit where the

context is less of an influence (low context). Western countries are seen as generally low

on cultural context whereas Eastern countries are mainly seen as high on cultural context

(Hofstede, 1984). The interplay between national and organizational culture is a

significant factor in the success of global mergers, acquisitions and alliances (Thite,

2004).

As stated before, “there is relatively little research on the internationalization of

emerging economy firms either into other emerging economies or into developed

economies” (Wright, Filatotchev, Hoskisson, & Peng, 2005, p.25). The strategy literature

on emerging economies predominantly use institutional theory followed by resource-

based theory, transaction cost theory and agency theory as conceptual perspectives

(Hoskisson, Eden, Lau, & Wright, 2000). MNCs from emerging economies enter

developed economies for ‘exploration’ and other emerging economies for

‘exploitation’(Wright, Filatotchev, Hoskisson, & Peng, 2005). While in the past Japan

and Korea internationalized through greenfield expansion, founding their own

subsidiaries that mitigated cultural clashes, China and India are expanding mainly

through acquisitions in Western countries (Hofstede, 2007). Moreover, their

internationalization is very rapid and different from that of the conventional Western

MNCs and erstwhile developing country MNCs (Matthews & Zander, 2007). They also

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tend to use exporting and FDI as combined and simultaneous strategy, rather than being

distant alternatives (Contractor, Kumar, & Kundu, 2007).

Although in absolute terms the MNCs from emerging economies are not very

large, they are gaining importance and many companies are now globally diversified.

The key advantages for these MNCs are access to the most dynamic growth markets in

the world with a vast pool of low cost resources like production workers, engineers and

natural resources (Engardio, Arndt, & Geri, 2006). Besides being small, most of the

emerging market MNCs are in their early stage of internationalization with limited

international experience (Contractor, Kumar, & Kundu, 2007). Correspondingly within

the MNCs from the emerging economies, organizational culture, decision making and

control on subsidiaries can be noticeably different as compared to their counterparts in

developed markets due to national culture and economic differences (Hofstede, 2007).

4. Conceptual Framework

This paper deals with strategic international human resource management (SIHRM) that

explicitly links HRM with the strategic management processes of the MNCs in emerging

economies and emphasizes coordination or congruence among the various HRM

practices. It focuses on SIHRM orientation, i.e., the “general philosophy or approach

taken by top management of the MNC in the design of its overall IHRM system,

particularly the HRM systems to be used in its overseas affiliates” (Taylor, Beechler, &

Napier, 1996, p.966).

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According to Taylor et al. (1996), ‘there is a growing consensus that a key

differentiator between the corporate winners and losers in the 21st century will be the

effectiveness of the human organization’ and it is particularly critical in the emerging

markets (Strategic Direction, 2007). In the context of IHRM, Ngo, Turban, Lau and Liu

(1998) found strong support for the hypothesis that country of origin influences the firm’s

HRM practices. Taylor et al.’s (1996) model of IHRM considers that the transfer of HRM

policies and practices ‘can go in any direction’, not just from home to host countries.

Similarly, American and European HRM systems influence and are influenced by East

Asian HRM systems (Chew & Zhu, 2002). Empirical studies on the diffusion of HRM

practices by MNCs across their subsidiaries indicate that they predominantly adopt

hybrid methods, combining both push force for control from headquarters and pull factors

for conformity to host country, to suit the markets they are serving (Rose & Kumar,

2007). Global, national and internal pressures play a role in influencing HR strategic

recipes and delivery mechanisms (Brewster, Sparrow, & Harris, 2005). Edwards &

Rothbard (2000) contrast different approaches to the transfer of employment practices in

MNCs and argue for an integrated approach that focuses on interrelationships between

markets and institutions on the one hand and the material interests of actors on the other.

4.1. Influencing factors:

Research shows that control and coordination mechanisms and diffusion of management

practices in an MNC are subject to several external and internal influencing factors (see

Figure 1). If the degree of integration between the headquarters and the subsidiary is high

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it requires higher levels of control and coordination (Taylor, Beechler, & Napier, 1996).

With regard to external influencing factors, the MNCs from emerging economies face a

“double hurdle” of liability of foreignness and liability of country of origin with

perceived poor global image of their home country (Chang & Taylor, 1999; Chang,

Mellahi, & Wilkinson, 2009a; Engardio, Arndt, & Geri, 2006; Ferner, 1997; Ferner,

Almond, & Colling, 2005; Smith & Meiskins, 1995). These constraints are further

accentuated by liabilities of smallness and newness (Contractor, Kumar, & Kundu, 2007).

As Guillen and Garcia–Canal (2009) note, they also need to deal with the liability and

competitive disadvantage that stems from being latecomers lacking the resources and

capabilities of established MNCs from the most advanced countries. Furthermore, the

degree and level of integration between headquarters and subsidiaries will also influence

the multinationals. Similarly, with regard to internal influencing factors, the strategic

framework of the MNC, organizational culture, leadership, decision making and

delegation of authority can be considerably different in MNCs from emerging economies

than their counterparts in developed markets due to national cultural, economic and

political differences (Hofstede, 2007).

Proposition1: MNCs from emerging economies adopt control and coordination

mechanisms because of the double hurdle they face of ‘liability of foreignness’

and ‘liability of country of origin’.

4.2. Control of subsidiaries in developed markets:

MNCs exercise a degree of control over their subsidiaries to ensure their resources and

efforts are directed towards attaining the main objectives of the MNC (Chang & Taylor,

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1999). Control refers to the processes by which an MNC ensures that their subsidiaries

operate in a particular way as determined by the headquarters in order to achieve

organizational goals (Chang & Taylor, 1999). According to Harzing and Sorge (2003),

corporate control “comprises of all the mechanisms instituted to tie the operations and

decisions within and across components into a larger whole and establish coherence of

meaning and purpose within the larger enterprise” (p.190). We adopt the Harzing’s

(1999) typology that suggests two dimensional classification between direct (personal &

impersonal) and indirect (personal & impersonal) control. Complementary to the above

typology is Taylor et al.’s (1996) classification of adaptive or polycentric approach vs.

exportive or ethnocentric approach to management control of subsidiaries.

Unlike developed country MNCs engaging in ‘forward diffusion’ of superior

home country practices into developing country subsidiaries, emerging economy MNCs

utilize the knowledge gained in operating in developed markets to transfer best practices

across the entire organization (Zhang, Tsui, Song, Li, & Jia, 2008). They are expected to

adopt an “adaptive” or “polycentric” approach to management in developed country

subsidiaries (Edwards & Rothbard, 2000; Kaye & Taylor, 1997). In terms of HR

strategy, this could mean low internal consistency with the rest of the firm and high

external consistency with the external environment. Accordingly, HR practices may

include hiring host country managers with local knowledge and transfer of practices

“both” ways, depending on which is seen as working better.

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Proposition 2: MNCs from emerging economies adopt a predominantly

‘adaptive’ or ‘polycentric’ approach to manage their subsidiaries in developed

markets.

4.3. Control of subsidiaries in emerging markets:

Due to the paucity of empirical literature in this area, we hypothesize that MNCs from

emerging economies entering other emerging markets may follow their counterparts in

developed markets by adopting an ethnocentric approach. They attempt wholesale

transfer of the parent firm’s HRM systems to their subsidiaries, especially with regard to

their core competencies (Pudelko & Harzing, 2007), to achieve high internal consistency.

The other reason identified is the limited availability of management and technical skills

in some countries (Delios & Bjorkman, 2000; Scullion, 1994). Some authors have noted

that MNCs are more likely to adopt an adaptive or polycentric approach in developed

countries than lesser-developed countries due to the greater availability of managerial

skills in developed countries (Bazeley & Richards, 2000; Richards, 2001; Shen, 2006).

Proposition 3: MNCs from emerging economies adopt predominantly an

‘exportive’ or ‘ethnocentric’ approach to managing their subsidiaries in other

emerging markets.

Figure-1 presents a diagrammatic representation of the conceptual framework.

Insert Figure 1 about here

In order to provide an initial test of the conceptual framework, the authors have begun

collecting data from a number of Indian MNCs by interviewing senior managers in their

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headquarters and subsidiaries in both developed and developing markets. As the data

collection is still underway, we report the findings from a pilot study conducted at one

Indian MNC. Before reporting these findings, we provide a brief overview of Indian

MNCs as representatives of emerging economy MNCs so as to provide some context for

our work.

5. Indian Multinationals

Between 2004 and 2007, India’s outward flow of FDI rose sharply from $2 billion to $14

billion (UNCTAD, 2008). As a result, in 2008, seven Indian multinationals featured in

Global Fortune 500 and twenty in Boston Consulting Group’s BCG 100 new Global

Challengers (Sirkin, Hemerling, & Bhattacharya, 2008, p.23). The services sector

constituted 38% of Indian FDI stock in 2006 mainly in IT, communications and software.

Indian multinationals are largely private owned and cover a wide range of sectors in

energy-related areas (mainly oil and gas), IT services, pharmaceuticals, engineering

goods and natural-resource-based manufacturing firms (Ramamurti & Singh, 2009).

The Indian firms are showing a clear preference for overseas acquisition as an

entry strategy largely in North America and Europe. Over 70% of them prefer complete

control over their overseas ventures, mainly to protect their firm specific advantages and

also due to the relaxation of government policy restriction on Indian equity participation

(Pradhan, 2007). The Indian multinationals seem to “represent a new breed of

multinationals that build their competitive advantage in novel ways; multinational

corporations that derive their advantage from service rather than technological

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innovations and manufacturing MNCs that straddle a low-cost and medium technology

position” (Jonsson, 2008, p.6).

Pradhan (2007) believes that the motivators for Indian firms to expand overseas,

particularly into the developed markets include the need to acquire new technologies, raw

materials, skills and expertise and also to leverage on their trade-supporting infrastructure

overseas. This supports Proposition 2, discussed before, that MNCs from emerging

economies choose an adaptive or polycentric approach to manage their subsidiaries in

developed markets.

With respect to their entry into other developing markets, the approach has been

mixed. This is more to do with shifting investment patterns and markets than managerial

choice. Prior to the liberalization of the Indian economy in 1991, a small group of large-

sized family owned Indian firms invested mostly in neighboring developing countries,

opting for greenfield investments in joint ventures (Thite & Dasgupta, 2011). In line with

Proposition 3, this was predominantly an exportive or ethnocentric approach that

involved wholesale transfer of parent firm’s systems, policies and personnel. Since then,

the very nature of Indian outward FDI has undergone fundamental changes and is now

characterized by a large number of professionally run firms in the services sector

investing mostly in developed countries. The implications of the same will be discussed

in the pilot study described below.

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6. Pilot Study of an Indian Multinational

As part of a larger research project that focuses on Indian multinationals as

representatives of emerging economy MNCs, the authors conducted a pilot study of a

large Indian IT multinational company, referred to here as Alpha Services. Alpha

Services is one of the top five Indian consulting and IT services companies with a

turnover of about US$ 2.5 billion from its operations in over 44 countries that employ

around 45,000 professionals. It operates in three business segments, namely, IT services,

Business Process Outsourcing (BPO), and software products. Alpha serves a wide range

of industry segments, including manufacturing, banking and finance, insurance,

telecommunications, infrastructure, healthcare, retail and transportation. It is publicly

listed on the Mumbai and New York Stock Exchange. Its vision is to be one of the five

most valuable global integrated IT services and BPO companies in the next few years.

Alpha Services has development centers in India, North America, Europe, the Middle

East and the Asia Pacific region and serves over 570 global companies. Its overseas

revenue mainly comes from North America (59%), Europe (21%) and the Asia Pacific

region (20%). The company has been consciously trying to reduce its dependence on any

one particular region and has been aggressively diversifying to other regions. It has full-

fledged development centers in India, U.S.A, Germany, China and Malaysia. It has 100%

subsidiaries in China, Egypt, Mexico and Belgium. Its recent overseas acquisitions

include some niche IT services companies in the U.S.A and UK.

Between late 2007 and early 2009, we conducted in-depth, semi-structured

interviews with 19 senior managers of the company at three locations – its headquarters

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in India, subsidiary office in Melbourne, Australia (representing a developed market) and

in Shanghai, China (representing a developing market). The interviewees included 5

human resource (HR) managers and 3 business heads at the headquarters; 5 business

account managers managing key clients in Australia and the HR Head of the Asia Pacific

region based in Singapore and the country head, HR head and 3 business managers in

China. All the interviews were conducted face to face except for two telephone

interviews. The choice of locations provided a three dimensional perspective of the

company’s global operations from the stand point of headquarters where strategy is

formally formulated and reviewed and subsidiaries in both developed and developing

markets where it is intended to be implemented.

The interview protocol consisted of a semi-structured questionnaire to probe

various aspects of a company’s internationalization strategies, control and coordination

mechanisms and staffing practices including talent attraction and retention strategies and

corporate culture. In most cases, the questionnaire was circulated prior to the interviews

to enable the interviewees to prepare in advance. Each interview typically lasted an hour

and was taped and later transcribed. The results from the thematic analysis of the

interview data from this study are described below.

6.1. Organizational Structure & Systems:

At the apex of this organization lies the Leadership Council, consisting of around 45 top

leaders from business and support functions. It is charged with the responsibility to

formulate, implement and review strategic policies and priorities on a regular basis. At

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the heart of Alpha’s organizational structure lie the Customer Facing Units (CFUs),

consisting of Vertical Business Units (VBUs) and Regional Business Units (RBUs). The

CFUs are charged with the entire spectrum of customer relationship management and in

the process are supported by Horizontal Competency Units (HCUs) that provide the

backing of appropriate resources.

The approach to leadership at Alpha is exemplified by the motto “every Alphaite

(employee) is a leader”. Alpha believes that it is in the ‘business of building and

developing leaders faster than the competition’. Its organizational structure and systems

are supposed to be underpinned by its philosophy of enabling leadership with its core

concepts of ‘full life cycle business’ (FLCB) and ‘full life cycle leaders’ (FLCL). Alpha

is said to espouse a philosophy of encouraging employees to “think like CEOs” whereby

every employee is encouraged to consider himself/herself as the chief executive officer

(CEO) of the particular task that they perform and the people whom it affects as their

investors in the business.

The same performance metrics are supposed to be applied to every employee and

position at every location. The metrics assess the performance of each employee on

specified built measures, such as people, process and product against specific outcome

measures, namely better, larger, faster, cheaper and steadier (repeatable). These metrics

mirror the ones followed at its key U.S.-based client which is world renowned for its

management systems. According to the Global Head of HR, ‘metrics are the most

common communication tool at Alpha’. The company claims to take its metrics driven

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business approach beyond organizational boundaries by involving customers and

suppliers as part of its “eco-system.”

According to corporate managers, Alpha is also keen to ensure that every key

stakeholder in the company, including managers, employees, customers and suppliers, get

the same “One Alpha Experience” (organizational culture), codified in a manual,

throughout its global operations. Its corporate leadership center is geared to groom

present and future leaders in the organization’s corporate values. The center’s mission is

to spread the organizational culture to every unit. Senior managers from all over the

world are given weeklong induction training at the company’s headquarters in India to

attend a focused leadership immersion program spearheaded by the top management

team.

In the interviews with managers in its subsidiaries, it was apparent that the

organization had a decentralized approach. The heads of every business unit managed and

took decisions regarding their business units with only major decisions taken at the

headquarters. When asked about the influence of national culture or country of origin on

the company’s growth and thinking, all the HR managers and business heads interviewed

at the headquarters asserted that it did not have any influence on the organizational

culture or the way they operate, but as pointedly noted by a senior manager at the

Australian subsidiary “considering that almost 85% of the workforce is Indian, there will

surely be the subtle influence of Indian culture”.

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6.2. International Business Strategies:

Alpha has been seen as an ambitious and entrepreneurial organization throughout its

history. For example, Alpha understood in the late 1990s that it needed to move beyond

the established developed markets in the U.S.A and Europe and enter other emerging

markets, such as the Middle East and China where it was an early entrant along with

other Indian IT firms. Similarly, in mid-1990s, when enterprise resource planning (ERP)

was identified as a potential high growth area in the IT industry, Alpha decided to enter

this emerging field to exploit the opportunities ahead of its competitors. This paved the

way for the global leadership position that Alpha is said to enjoy today in ERP

implementation, particularly, in the telecommunications sector. As the Head of Alpha’s

China operations proudly pronounced “it is a perfect storm- entrepreneurship, vision and

excellent domain tradition that have made Alpha what it is today”.

6.3. Global Staffing & HR Systems:

Most of the Indian IT companies have operated in international markets, particularly in

the developed world from their inception. In terms of strategic and operational policy

making, they have remained largely local –that is as an Indian company (as reflected in

the composition of their top management pool and managerial staffing). Alpha is no

exception to this trend but there has been a conscious effort to change this mindset over

the years according to the managers interviewed.

For example, Alpha’s global HR Head believes that with over 45,000 employees

spread over 40 countries, the company has reached a critical mass to scale the next level

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in becoming a truly global company. The desire of Alpha to localize its workforce is

reinforced by the statement from Alpha’s Head of HR in China that “Alpha wants to be a

Chinese company in China but provide the same global experience to clients, no matter

where the operations are carried out”. As a policy, Alpha strives to staff locally at least

20% of all positions in all of its overseas operations, 50% of entry level positions and

90% in its non-English speaking geographies, such as China, where possible.

Accordingly, today nearly 98% of Alpha’s workforce in China is staffed locally while in

Australia it is nearly 50%. But the senior management positions, from country head to

project managers, at both these subsidiaries are still overwhelmingly staffed by

expatriates from its Indian headquarters.

From the interviews it was recognized that the recruitment and selection process,

career management and performance management were similar across the global

operations with the flexibility to accommodate local laws and HR trends and practices.

The Business Head in the Australian subsidiary stated that “when I started 5 years ago,

Alpha being an Indian company, the policies and procedures were very strongly suited to

the Indian environment. Now the company has more adapted to Australia but not fully

suited to the Australian environment as an Australian company”. This sentiment was

echoed by the Global Head of HR who agreed that subsidiaries in developed markets

needed more flexibility in determining the remuneration structure of managerial staff to

attract and retain talent.

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The main talent management issue or challenge identified was brand value or

recognition of the company across the world, which was one of the major concerns

identified by the HR managers. While the company was pleased with its employer brand

in China where Indian IT companies are held in high esteem for their quality standards

and offshoring business process efficiency, the Australian managers generally believed

that the global image of the company needed to be strengthened as a high quality services

provider. This highlights the constraints that the MNCs from emerging economies face of

the ‘liability of foreignness’ and ‘liability of country of origin’, as pointed out before.

7. Managerial Relevance

Our pilot study of an Indian MNC offers some interesting insights into the way MNCs

from emerging economies strategize and manage their operations in different parts of the

world. While Western MNCs have traditionally taken their domestic strengths ‘outward’

to the rest of the world, the Indian MNCs in the services sector have typically grown first

in the developed markets by leveraging on their skills and domain expertise and have

pioneered the art of global offshoring services delivery model using a combination of

onshore, offshore and near-shore locational strategies. Most of their overseas growth has

occurred in the last decade and in a very short span of time, they have spread their global

network, mainly via setting up 100% subsidiaries or acquisitions. Despite attempts to

localize their workforce in different geographies, their global management team is still

predominantly Indian but increasingly their systems and to some extent their management

mindset are becoming global.

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With regard to Proposition 1, our case study illustrates that Indian MNCs do face

multiple hurdles in furthering their internationalization strategies. For example, despite

their growing global reputation, Indian IT companies still have problems recruiting talent

at higher levels due to poor perception of their employer brand. Despite its desire to

localize its management team in Australia, Alpha seems to be unable to attract the best

local talent and therefore, forced to send expats from India. Accordingly, its corporate

control and coordination mechanisms are influenced by the multiple hurdles that it faces

as an MNC from an emerging economy.

Similarly, with regard to proposition 2, alpha’s adoption of performance metrics

from its key U.S. client and making it a central part of its performance management

system is a clear sign of an ‘adaptive approach’ in managing subsidiaries in developed

markets. At the same time, Alpha, along with other top Indian IT companies, has

pioneered the art of global offshoring business process and the global services delivery

model indicating a two way exchange of best practices. However, Alpha’s management

of its subsidiary in China does not reflect ‘exportive or ethnocentric’ approach to

managing subsidiaries in developing markets, as stated in proposition 3. Alpha’s

managers seem to indicate that unlike the U.S. and UK markets, they are unfamiliar with

the cultural and business environment in China and therefore, would prefer to leave it to

the locals to manage the China operations with only broad corporate oversight.

8. Conclusion

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

23

different countries organize business activities and more specifically, the management of

employees (Brewster, Sparrow, & Harris, 2005; Ferner, 1997). The cultural values

framework pioneered by Hofstede (1980) demonstrates the limitations of universalistic

models of IHRM that emphasize one-best-way. Even though some have contested the

emphasis placed on national culture in international management at the cost of

organizational differences (Ericksen & Dyer, 2005; Gerhart & Fang, 2005), the

importance of country of origin is a consistent theme in the research in this area (Harzing

& Sorge, 2003).

Our conceptual framework adopts a broad approach by examining the key factors,

such as cultural differences, institutional differences, organizational differences and the

interplay between them (Schuler, Budhwar, & Florkowski, 2002). Any study on MNCs

from emerging markets also needs to take into account sectoral variables (Colling &

Clark, 2002) in different industry segments, such as IT services and manufacturing. For

example, Indian MNCs in the service sector ‘tend to gain the positive benefits of

internationalization sooner than manufacturing companies’ (Contractor, Kumar, &

Kundu, 2007, p.401). Our research framework adds value to IHRM research by giving

‘equal weight to both the subsidiary level and to corporate headquarters within a firm’

(Ferner, 2009).

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

24

economies strategize and act in diffusing and coordinating management practices. For too

long, international HR management literature and practice have been embedded in

Western thinking and concepts with little cross-pollination (Wright, Snell, & Dyer, 2005,

p.876) and an over emphasis on expatriate management, reflecting the ethnocentric bias

of North American scholars (Schuler, Budhwar, & Florkowski, 2002). It is clear that the

universal or U.S. model does not have applicability to the emerging MNCs. If the East

becomes, in popular jargon, the new West we need to develop newer models to aid the

understanding of how Asian MNCs, particularly from China and India, are going to

exercise corporate control in an increasingly multi-polar world (Pudelko & Harzing,

2007, p.553).

In the 21st century knowledge economy where services and creative industries

dominate the economic landscape that is tilting more towards developing and transition

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, reexamining the management approaches and

practices of MNCs from newer industrialized and developing economies such as India is

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.

Acknowledgements: This study was funded by a grant from the SHRM Foundation,

U.S.A. However, the interpretations, conclusions and recommendations are those of the

authors and do not necessarily represent the views of the SHRM Foundation.

25

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Domestic Operations Subsidiaries in developed countriesSubsidiaries in developing countries

Global HR Strategies & Practices

Direct Indirect

Attract Develop Retain

Personal Impersonal Personal Impersonal

Figure 1: Diffusion of Global HR Strategies & Practices across Subsidiaries in a Multinational Corporation from an

Emerging Economy

Internal Influencing Factors

1.Strategic framework (business, corporate, international, co-operative)

2.Organizational culture/ leadership3.Importance of subsidiaries to

MNCs bottom line & strategy4.Mode of subsidiary set-up

(Greenfield, M&A …) 5.Headquarters’ diffusion capacity6.Subsidiaries’ absorptive capacity7.Subsidiaries’ resource dependency

on the headquarters8.Availability, ability & choice of

expatriate managers

External Influencing Factors

1. Home Country Factors(Economic strength; global image; national culture …)2. Host Country Factors(Perceived relative strength of home & host country mgt. practices; Environmental factors (openness of business systems, legal framework, institutions …)3. Industry-specific Factors(Degree of product integration; level of integration between headquarters & subsidiaries …)

Hypotheses

Adaptive Exportive

31