HRM 460 Project Edited

Transfer of Japanese HRM practices to the emerging economy of South Asia:

an empirical study based on Bangladeshi context

Introduction:

The concept of Human Resource Management (HRM) was developed initially in the U.S.

in the 1960s and 1970s (Brewster, 1995). Over a span of 20 years or so, the topic of human

resource management (HRM) has become one of the most documented in the management

literature (Boxall, 1995). And it is the demand of time to examine HRM systems of Asian

countries particularly the important emerging markets which are based in the south continent.

The elements of cohesiveness and collectiveness, such as harmony, information sharing, loyalty,

on-job-training, and teamwork etc. were key dimensions of the ‘new’ HRM paradigm, but had

existed in East Asian organizations for a long time. By combining the individualistic elements of

management practices with East Asian (particularly Japanese) management practices, the HRM

paradigm was expected to improve the competitiveness of organizations and the well-being of

both individuals and organizations (Schuler and Jackson, 1987).

In terms of the research issue on the transfer of human resource practices, Kostova and

Roth (2002) note that in institutional theory a key perspective is that organizations sharing the

same environment will employ similar practices. However, many elements of an institutional

environment, such as culture and legal systems, are often specific to a nation organizational

practices can be expected to vary between the countries like Bangladesh and Japan. Transfer

success could also be affected by the degree of national cultural differences of the home country

and the recipient country, with regard to the practice that is being transferred (Hofstede 1993). In

general it is argued that the success of transfer of a practice from a parent company to a

subsidiary is negatively associated with the cultural distance between the countries of the parent

company and the subsidiary (Taylor et al 1996). Transfer success and adaptation are also

impacted by a range of other factors such as the impact of the social, political, economic and

strategic context, the pressures for global integration versus local responsiveness and the

evolving mentality that the MNE is facing (Bartlett & Ghoshal, 2000).

At present the South and East Asian region produces more goods and services than either

North America or the European Union and this trend is likely to speed up in the years to come

(Stehle, 2004). Moreover, many of the important emerging economies are located in Asia.

Further, they attract enormous amount of foreign direct investment (FDI). It is also predicted that

most new members of the newly affluent nations would come from Asia in the 21st century

(Tan, 2002). Anyway, before we proceed further in this framework we need to understand the

complex context of Asia which makes it difficult to conduct a meaningful cross national HRM

analysis. It is very important to acknowledge that each nation within the region (Eastern region

such as Japan and Southern region properly known as “Asia-Pacific” or subcontinent that

includes, India, Pakistan, Bangladesh and Sri Lanka) has an independent set of socio-economic

components (Abdullah, Boyle and Joham, 2010). These differ from nation to nation, arising

unavoidably from the interplay of social relations unique to themselves. Hence, there is a clear

need to see the management phenomena as part and parcel of the distinctive political, socio-

economic, cultural and institutional system of a country in the region (Hasegawa, 2002;

Morishima, 1995).

Emerging economy of South Asia:

The subcontinent consist populous economies like Bangladesh, India, Pakistan and Sri

Lanka are attracting huge FDI (Parikh, 1999).

Bangladesh, India, Pakistan and Sri Lanka all share the common characteristic of being a

former British colony and all inherited the infrastructure, political and administrative structures

left behind by them after gaining independence (Kelegama, 1998). While the colonial era did

leave South Asia in an advantageous position with respect to administrative structures and

industrialization, there were also negative impacts on the colonies, which warrant recognition.

The most significant effect was the “denial of self-esteem” and also the aggravation of ethnic

conflicts amongst different ethnic groups by the ‘divide and rule’ policy. Still suffering from

these effects at the time of gaining independence, these South Asian nations, subconsciously or

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consciously acted to repudiate the policies of the British rule in order to seek out their own

identities and rebuild their cultures (Parikh, 1999).

During the 1950s and 1960s some South Asian countries such as India and Sri Lanka,

were predicted to be the most rapidly growing economies of the future. These nations were

comparable to and in some cases, exceeded their East Asian counterparts in terms of per capita

GDP and the advent of industrialization (Goyal, 1999). The South Asian nations also had a

significant advantage over East Asia in inheriting the modern legal, administrative and political

structures left over from British Colonial rule. However, fifty years hence these South Asian

economies have not been able to live up to popular expectation and are now burdened with low

rates of growth, political instability, poverty and indebtedness, amongst other stifling attributes

(Parikh, 1999). Like another author said, after independence the bureaucrats performed both

roles, despite their relative inexperience in leadership. This has carried on to the present day and

as a result the roles of policy makers and leaders are not distinct in South Asia but fulfilled by

inexperienced bureaucrats (Bardhan 1998).

The story of the four South Asian economies can be described as a case of a promising

beginning that never quite consolidated into sustained economic success. They were – or at least

some of them were – endowed with initial conditions that were, in many ways, better than those

faced by some of the East Asian economies (Hossain, Islam, and Kibria, 1999). Basically the

subcontinent region consists of a single large country, India, surrounded by a number of medium

and small nations such as Pakistan, Afghanistan, Bangladesh, Nepal, Bhutan, Sri Lanka and

Maldives. While India accounts for about 79 per cent of the region’s GDP, Pakistan contributes

11 per cent, Bangladesh, 6 per cent and Sri Lanka, another 2 per cent (Ahluwalia, 2005). Most of

the South Asian economies have made significant economic progress in the last two decades and

are well on track to becoming major regional or even world economic powerhouses (Abdullah,

Boyle and Joham, 2010).

Bangladesh is strategically located between the emerging markets of South Asia and the

fastest growing markets of Southeast Asia and the ASEAN countries (Abdullah, Boyle and

Joham, 2010). Bangladesh is also one of the pioneers in the region for economic liberalization. It

has adopted the best policies of South Asia to attract Foreign Direct Investment (FDI). Doing

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business in Bangladesh is much easier than most of the developing countries. A recent report

entitled “Doing Business in 2007: Creating Jobs” published jointly by World Bank and IFC

placed Bangladesh in 68th position in terms of ease of doing business among 175 countries

(World Bank, 2007). This places Bangladesh ahead of other countries in the region such as India

ranked 88th and China ranked 128th (Abdullah, Boyle and Joham, 2010).

HRM practices in South Asian Region

The economy of most of the South Asian countries especially; Bangladesh, India and

Pakistan are still based on agriculture while a very small industrial sector employing near about

40 percent of the active labor force (Ernst & Young, 2007). Smallness of industrial sector may

seem to be very affable to the development of a healthy industrial relationship but this could not

be realized even in 21st century mainly because of some historical and traditional cultural

background, some are in fact attributable to the poor administration system and legal system

regarding industrial relations in the country (Ernst & Young, 2007). Although during the British

rule, India, Pakistan and Bangladesh made remarkable headway in terms of industrialization. In

particular, India’s first industrialization experience was in the 1860s when India demonstrated

record levels of growth. By the early 1900s India had large textile and jute manufacturing

industries and, its total exports accounted for 11 per cent of national income (Srinivasan, 1991).

The colonial powers (British rule) did not support the growth of a significant industrial and

efficient HRM practices in the region of the subcontinent (Bangladesh India and Pakistan)

because of their own interest. HRM practices had suffered a relative neglect in most of the South

Asian countries. Largely, this had resulted from a past orientation of management in which HRM

was primarily viewed as the regulation of labor or employees relations (Qureshi, 1986).

Although at present there are some trade unions but most of them are politically biased which

actually hampering the real purpose of trade unions. South Asian trade unions are organized

mostly on the basis of political, regional and even personal loyalties which was encouraged by

the capitalists who often had restored to the policy of buying a fraction of the union or putting up

one of their own to divide the union movement by extending some “under the table favors” to a

group of union leaders (Miah, 2006).

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However, at present many companies have started to reorganize their HRM function on

traditional personnel administration lines. In several large size companies personnel departments

are playing a more active role in areas such as recruitment, selection, training, administrative

functions, welfare activities etc (Shetty and Prasad, 1971). Yet, their key responsibility remains

to be formulating action plans to manage unions, and on how to control employees to minimize

labor costs. Only in exceptional cases, some large business enterprises as well as MNCs have

asked their personnel managers to take up the role of culture builders by bringing management

and employees closer to each other for long-term performance gains. Qureshi, Z. I. (1994)

explained that, many organizations have also started to realize that HR managers must take a

proactive role consistent with two strands of thought in the current literature on HRM. The first

emphasizes the relationships between HRM practices and their short and long run impact on the

employees’ motivation and performance, on the effectiveness of the firm, and also upon the

society as a whole (Scarpello & Ledvinka, 1988).The second underscores the importance of

linking HRM practices and the corporate culture (Ulrich, 1990).

HRM practices in Japan

Among the world’s largest 500 companies, 64 are Japanese. So for the last few decades,

substantial attention has been given to Japan (Collinson, & Wilson, 2006). Though different

scholars have attributed Japan’s economic success to many different factors but it has been

believed that Japan’s secret lies in its approach to management. Human resource management

(HRM) has been argued by many as an important factor in the success of Japanese companies on

world markets when it experienced significant economic growth during the 1980s (Pudelko,

2004). Because of this fact many other nations not only Asian but also Europeans and American

nations tried to learn and apply Japanese style of management to attain success in their countries.

Japanese HRM has attracted a significant degree of attention from the West over the years. With

the relative rise in the economic fortunes of Japanese companies, many have pointed towards the

Japanese style of HRM as a source of competitive advantage (Beechler, 1994).

Human Resource department in Japan play a vital role to harmonize and control the

evolution of all managers and workers, managing their careers according with the company’s

needs (Dalton and Benson, 2002). In opposition to the decentralized nature of most operations in

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Japanese corporations and corporate groups, the function of human resources is done with an

elevated degree of centralization. This duality, operational decentralization- human resources

centralization, constitutes one of the most distinctive characteristics of niponic companies (Miah,

2006). Moreover, decisions regarding recruitment, training and development, succession

planning, career management and retirement are also responsibility of human resource

department to make sure the complete integration of members of the organizational culture.

Given the long-term commitment of Japanese firms to their core employees, it is not

surprising that considerable care is taken when selecting them. The Japanese companies recruit

once a year (Ehsan & Jinnah, 1999). The employees are recruited at the entry level after high

school or graduation. They are recruited not because of some special ability but rather because

they are found to be conducive to the company’s vision (Ornatowski, 1998). The emphasis given

to general ability rather than specific vocational skills during selection reflects a preference on

the part of Japanese employers (Thomas, 1993). People are hired according to their academic

“curriculum” or personal qualities and also because they promise to be loyal employees whose

talents can be adapted to the particular needs of the organization without the vices of previous

experience (Miah, 2006).

Japanese enterprise based unions (kigyo-nai kumiai) have had a positive outlook in

respect to salary negotiations with preference on job security for their members (Selmer, 2001).

These unions assure supportive behavior by their members, in exchange for proper behavior by

companies and with the integration of the firms' training, wage setting, and redundancy systems

(Ornatowski, 1998).

HRM strategies, including an internal labor market, a company philosophy that expresses

concerns for employee needs, and focus on cooperation and teamwork in a unique company

environment (Beecher, 1994). With these three general Japanese HRM strategies, techniques of

open communication, job rotation and internal training, a competitive appraisal system,

importance of group work, consultative decision making, and concerns for employees are

expressed (Dedoussis, 2001).

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It was also noted that Japanese organizations put emphasis on human resources which are

reflected in three HRM strategies, including an internal labor market, a company philosophy that

expresses concerns for employee needs, and focus on cooperation and teamwork in a unique

company environment (Beecher, 1994). Moreover, Japanese firms use careful screening of job

candidates to ensure that the qualifications fit with the value system and corporate culture of the

business firm (Selmer, 2001).

However, Japan's greatest recession since the post-second world war has stressed

relationships among keiretsu members (the cooperation of manufacturers, suppliers and

distributors in closely knit groups) as key firms are forced to end established links with minor

companies (Dedoussis, 2001).The breakdown of the keiretsu system of cross-shareholding and

favored trading among member corporations of a business group has severely harmed the safety

net of supporting the long-term growth strategy of Japanese firms and their ability to protect

employees from downside market risks (Selmer, 2001; Gerlach, 1992). Deregulation is another

force for change and has made Japanese markets more accessible to competitors, both foreign

and domestic. In protected industries such as financial services, distribution and agriculture,

there are only a few firms that are prepared for the challenge of competition and uncertainty

(Lincoln and Nakata, 1997). Changes also have been made in the cultural aspects of Japanese

human resource management. Individual performance and results-oriented performance are

replacing group performance and loyalty due to the new criteria for creating salary levels, with

the principle of ‘freedom and self-responsibility' for the 'independent individual' (Takashi, 2003;

Sanford, 1995). There have also been changes to careers, recruitment and long-term

employment. Formal management and supervisory training is gradually replacing informal on-

the-job training (Selmer, 2001).

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Significance of transferring

Japanese HRM practices in Bangladesh:

Today’s world is becoming more competitive. All want to capture the world market. In

this situation many foreign countries are spreading their business in our country. Japan is one of

them. Many Japanese company are started their business here. Bangladesh can take some

positive HRM practices from them.

As to the reason for transfer, one of the most developed arguments is that competition in

the global economy on the basis of competitive advantages is the incentive for MNCs to transfer

and recombine new knowledge and practices across borders (Bartlett and Ghoshal, 1995;

Kostova, 1999). Hall and Soskice (2001) believe that the existing social system of a nation

generates national comparative advantage. Thus one can expect that MNCs tend to possess those

‘superior’ HR practices that are developed in support of their national comparative advantage

and to transfer them to their subsidiaries worldwide. This can be regarded as a demonstration of

the “country-of-origin” effects (Ferner, 1997; Edwards, 2004). For example, In Japanese HR, all

the decisions are taken by the suggestions of each employee. Each worker and employee can take

part and give suggestion to the decision making process by QC circle (Jun and Muto, 1995: 127).

Also Management and subordinate relationship in Japan is very cordial. This make a good

relationship between senior and junior and it is an outstanding feature of Japanese HR practice.

Conversely, in Bangladesh the decision making process is very centralized (Ehsan, 1999).

Through the transfer of Japanese HR practices such Bangladeshi system may change. Such

practice can help to improve the total condition of the company, individual performance as well

as Bangladeshi economy.

Edwards (2004, p.401-402) distinguishes between two forms of international integration:

standardization and segmentation. He argues that “In those sectors in which MNCs have

developed standardized operations, the transfer of employment practices is likely to be more

attractive to management”; whereas “in MNCs which have segmented their international

operations”, even where the degree of integration is high, “there will be little incentive to transfer

practices across borders”. This is evident in many relevant studies. Examples include Japanese

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MNCs in Asian subsidiaries making low value-added products, which exhibit no transfer of

Japanese employment relations (Dedoussis, 1995).

Another approach explaining the incentives for MNCs to transfer HR practices looks at

political relationships within organizations (Edwards, 2004; Kostova, 1999). Edwards (2004,

p.393) terms this explanation “the political approach”, indicating that “actors in organizations

can be willing to engage in the process of transfer as a way of obtaining legitimacy and to

advance their own interests”. Furthermore, Kostova (1999, p.319) bases this approach on

resource dependence theory and institutional theory. She argues that MNC subsidiaries “may

develop perceptions of dependence on the parent” due to various resources such as technology,

capital, and promotion of the subsidiary staff, etc. She suggests that “under such conditions of

dependency and intra-organizational competition”, a subsidiary will try to implement parent

company’s practices as a way of gaining internal legitimacy.

Transferring the HRM practices is very important. It helps to change and modify our

MNC’s HRM practices. The bureaucracy of our country is hazardous. It is noteworthy that

transfers of HR practices can occur in various directions within the MNC, including transfers

from parent companies to foreign subsidiaries, from subsidiaries to parent companies, or from

one subsidiary to another (Taylor et.al., 1996; Kostova, 1999). However, According to the

culture and values of host country some practices can be taken. Like, Japanese are very sharing.

They love teamwork and want to do this. This is their uniqueness. This is practiced by all the

Japanese companies. But this practice is impossible to some other countries to implement.

Countries that are homogeneous and individual can never practice this (Szulanski 1996, Kostova

& Roth 2002).

So transferring has an effect to the emerging economy in the MNC in Bangladesh. There

is thus a need for closer attention to process dynamics in the design and implementation of

SHRM, given the more likely hybrid of human resource systems and practices in the South Asian

context, and the allied concept of reverse diffusion, where host-country practices may influence

those of the parent company (Miah et al., 2003, 2004, 2005, 2006).

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Theoretical framework

Home country characteristics:

Talking about home country characteristics is indicating the cultural and corporate local

environments of Japan. The first and the most important management system of Japanese

companies is the adaptation of convergence theory. Its management model and in particular its

HRM model has, at least until recently, been frequently depicted as very different from Western-

style management, yet competitive (Vogel, 1979; Ouchi, 1981; Dore 2000; Kono & Clegg,

2001). Deep-rooted and unique cultural and institutional characteristics are usually cited as the

key reasons for these differences (Inohara, 1990; Ballon, 2005; Pudelko, 2006b).

Japan is distinguished as a vertical society, one in which all human relationships are

based on a person’s hierarchical position, status, educational background, seniority, and gender

(Jun and Muto, 1995:126). Japan is nowadays moving very much forward to cross-national

convergence of management policies and practices. Authors following the convergence approach

assume that in management ‘best practices’ can be defined which are universally valid and

applicable, irrespective of national culture or institutional context. Efficiency imperatives and an

increasingly similar global competitive environment are perceived to force Japanese companies

to adopt such best practices in order to increase their competitiveness (Inohara, 1990).

The cultural tradition leans heavily on the work of Geert Hofstede, and in particular the

indices of national cultural dimensions he developed who has shown that there are five

dimensions of culture that influence a wide range of business and market behaviors; these

dimensions appear to be closely related to a variety of economic, political, and social

characteristics that develop in different cultures (Toncar, Alon, and McKee, 1999). Hofstede’s

(1980) research shows that Japanese are moderately high on power distance, moderate on

individualism, very high on uncertainty avoidance and high on masculinity.

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Host country characteristics:

For the case of successfully transferring HRM activates from overseas affiliates to host

country Bangladesh, the characteristics of that host country explicitly plays very important role.

Discussion of characteristics most preferably includes HRM practices and other philosophies that

actually signify any country’s overall cultural or traditional framework of Bangladesh. A widely

applied and validated approach to values is that of Hofstede (1980, 2001), developed a model

that identifies four primary Dimensions: Power Distance, Individualism, Masculinity and

Uncertainty Avoidance. Geert Hofstede added a fifth Dimension after conducting an additional

international study based on Confucian dynamism is Long-Term Orientation.

Power Distance Index (PDI) that is the extent to which the less powerful members of

organizations and institutions (like the family) accept and expect that power is distributed

unequally (Hofstede, 1984). Most of the Asian countries under the survey of Hofstede are found

having large power distance. The PDI scores found in India, Pakistan, and Japan are 77, 55, and

54 respectively (Hofstede, 1994:28). The position of Bangladesh would be the average of the

highest and lowest of these three scores (Ehsan & Jinnah, 1999). Most of the Bangladeshi

companies maintain a hierarchical organizational structure along with high power distance. In

Bangladesh is observed a large power distance due to colonial legacy of hierarchical power

structure, differences in family status, inequality in socio-economic conditions of the people

(Abdullah, Boyle & Joham, 2010).

According to Hofstede (1984) Individualism (IDV) on the one side versus its opposite,

collectivism, that is the degree to which individuals are integrated into groups. India, Japan and

Pakistan are referred as collectivist having 48, 46, and 14 respectively (Hofstede, 1994: 51). The

position of Bangladesh will be nearer with the scores of India and Japan (Ehsan & Jinnah, 1999).

Bangladesh tends to have quite a larger degree of collectivism than individualism.

Masculinity (MAS) versus its opposite, femininity refers to the distribution of roles

between the genders (Hofstede 1984). Japan, India and Pakistan all fall within the masculine

category having scores of 95, 56 and 50 respectively (Hofstede, 1994: 82). Bangladesh definitely

falls in the masculine category (Ehsan & Jinnah, 1999).

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Hofstede mentioned that Uncertainty Avoidance Index (UAI) deals with a society's

tolerance for uncertainty or ambiguity. Pakistan and India are labeled as medium to low

uncertainty avoidance countries having 70 and 40 UAI scores respectively. The position of

Bangladesh in UAI is expected to be in between India and Pakistan (Ehsan & Jinnah, 1999).

Usually Strong uncertainty avoidance in Bangladeshi culture as a result of widespread poverty in

the country, high unemployment rates, difficulty in finding a new job, uncertainty in economic

progress, latent fatalism because of religious influence (Abdullah, Boyle & Joham, 2010).

Finally, Values associated with Long Term Orientation (LTO) are thrift and

perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling

social obligations, and protecting one's ‘face (Hofstede, 1984) In Bangladesh short term

orientation is more popular than the long term orientation.

The scenario of cultural dimension in Bangladesh almost resembles Japanese cultural

dimension. Japanese are more collectivist and they prefer hierarchical organizational structure. In

order to proper transfer of HRM activities from parent country to host country, commonalities

regarding cultural factors are essentially need to be ensured. The smaller the cultural distance

between two countries, the more success can be expected in terms of adaptation of HRM

practices and philosophies. Above discussion eventually leads to the following proposition:

Proposition 1: Japanese MNCs, because of the smaller cultural distance between

Japan and South Asia, will be more likely to transfer the parent’s HRM system to their

overseas affiliates.

Miles and Snow (1984) suggest that two strategic fits must be managed: an external fit

and an internal fit. Inside any organization proper HRM systems can only be conducted when

these two fits are acquired. The importance of fitting structure, systems, and management

practices to an organization's stage of development is widely accepted (Davis, 1981; Kimberly,

Miles, & Associates, 1980; Meshoulam, 1984).External fits leads to several HRM philosophies

like Life Cycle and Hierarchical Models, Evolutionary Models, Stage Models, Metamorphosis

Theory, Stages of Human Resource Management etc. In case of internal fit, Woodward (1965)

and Burns and Stalker (1961) suggested that organizational success is determined by how well

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structure, technology, human resources, and so forth, both fit with and support each other. In

terms of the first research issue on the transfer of human resource practices, Kostova and Roth

(2002) note that in institutional theory a key perspective is that organizations sharing the same

environment will employ similar practices Therefore, both home country and host country should

have same corporate business culture and that is the way how parent country HRM system can

be transferred and well executed in host country’s local culture. This discussion eventually can

form a following a proposition:

Proposition 2: When the HRM system of the overseas affiliate fits with the

characteristics of the MNC and its local environment, the affiliates will enjoy higher levels

of performance than when the HRM system does not fit with these internal and external

environments.

MNC strategy:

The field of strategic management has increased its focus on the development of

typologies as a means of studying the concept of strategy (Porter 1980). Currently there are a

number of identifiable business strategy typologies being developed, each involving a different

pattern of competitive position objectives and competitive advantage. Business strategy typology

developed by Miles and Snow (1978) is, by far, the most popular and frequently cited (Parnell

2000). This typology developed from the theory of strategy, structure and process, typifies

organizations by their adaptive decision patterns, ranging from being a prospector, analyzer, and

defender to the least adaptive category, that of a reactor. Porter (1980) also argues that the nature

and extent of competition within an industry is dependent on the business strategies used by the

organizations to compete.

There are two world famous business strategy of differentiation and cost leadership

strategy. The cost leadership strategy requires the sale of a “standard or no-frills” product

(Porter, 1985: 13) combined with “aggressive pricing” (Porter, 1980: 36). Thus, the strategy

involves making a “fairly standardized product and under pricing everybody else” (Kiechel,

1981b: 181). Porter’s (1980: 37) differentiation strategy calls for a product or service that is

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“perceived industry-wide as being unique” (italics in the original). In a differentiation strategy, a

firm seeks to be unique in its industry along some dimensions that are widely valued by buyers.

It selects one or more attributes that many buyers in an industry perceive as important and

uniquely positions it to meet those needs. Compared to firms following a differentiation strategy,

MNC following a low cost strategy are more concerned with output measures, particularly

productivity (Porter, 1986). As cost leadership is a quality strategy or scheme adopted and

implemented by MNCs that are adopting measures for lean manufacturing, which is known as a

process of minimizing production costs to boost overall valuation of a MNC. Cost leadership

strategy might not be appropriate in every part of the world because cost effectively production

needs certain demographic, environmental and technological factors those are not available or

substantially difficult to transfer from home country to overseas MNC subsidiaries. On the other

hand differentiation strategy calls for the unique and creative management, business policies,

idea generation and implementation, effective ways of decision making in terms of establishing

effective HRM policy in the organization. That is why home country HRM systems can be

transferred and executed comparatively more easily in host country than the transfer of factors

regarding firm’s cost leadership strategy. Therefore, from the perspective of MNCs, the

following proposition can be provided:

Proposition 3: MNC following a differentiation strategy will be more likely to

transfer the HRM system of the parent company to their overseas affiliates than will MNCs

following a cost leadership strategy.

MNC Business Strategy:

A general model is employed to conceptualize linkages between environment, business

strategy, HRM strategy and performance. Business strategy can be thought of as a set of

decisions about the direction of a firm. Firms select business strategies in accordance with

evaluations they make about their distinctive competencies and the environment in which they

wish to compete (Mintzberg, 1990). Implementation of a business strategy necessitates breaking

it down into smaller, manageable components. Functional units within an organization establish

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underlying strategies which provide a foundation that helps to guide them in the development

and implementation of policy (Beechler, Schon and Bird, 1994).

Another concept which is very much important for the proper transfer and the

sustainability of HRM and other business activities is the level of interdependence between home

and host country affiliates. Interdependence is determined by both the volume and the direction

of resource flows between organizational subunits (Gupta & Govindarajan, 1991).When

managing interdependence, international managers must go beyond general issues of social

responsibility and deal with the specific concerns of the MNC subsidiary and host-country

relationship. Numerous conflicts arise between MNC companies or subsidiaries and host

countries, including conflicting goals (both economic and noneconomic) and conflicting

concerns, such as the security of proprietary technology, patents, or information. Overall, the

resulting trade-offs create an interdependent relationship between the subsidiary and the host

government based on relative bargaining power. The power of MNCs is based on their large-

scale, worldwide economies, their strategic flexibility, and their control over technology and

production location. The bargaining chips of the host governments include their control of raw

materials and market access and their ability to set the rules regarding the role of private

enterprise, the operation of state-owned firms, and the specific regulations regarding taxes,

permissions, and so forth.

The nature of the resource flows between the parent company and its overseas affiliates is

important in understanding the transfer o HRM overseas because resource flows determine the

need for coordination and control mechanisms to manage the resulting interdependence (Pfeffer

1998). According to Bartlett & goshal (1995) , interdependence is greater in firms which are

following global strategy rather than multi-domestic and there are level of interdependence in

every organization. So, we can develop the following proposition based on overall discussion.

Proposition 4: The higher the interdependence between the parent company and the

overseas affiliate, the more likely the parent company will transfer its HRM system to its

overseas affiliate.

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MNC HRM Strategy:

Japanese HRM systems are quite based on traditional pattern of practicing and managing

human resource. Choudhury (2000: 4) stated that while some Japanese style management

practices are easily implemented in other countries, there are also others that are conditioned by

the local condition. Then, there are the three treasures; lifetime employment, seniority-based

wage system and enterprise unions- which some researchers claim are unique to Japan while

others claim that these exist in different forms in other countries. Choudhury’s model considers

these to be unique to Japan. Values and HR system help to shape organizational culture and the

people who operate within and influence that culture; and MNCs therefore attempt to transfer

their HRM practices abroad. On the other hand, it is also been argued that HRM constitutes a

major constraint when MNCs try to implement global strategies (Adler and Bartholomew,

1992).Although MNC may face similar environmental constraints, use similar technologies, and

have equivalent experience in international operations, the companies’ HRM competencies,

because they are reflective of the firms’ administrative heritage and unique past, are to some

extent firm-specific (Bartlett and ghoshal,1989).Eventually, based on the above discussion we

can have the following proposition.

Proposition 5: The greater the MNC’s experience in successfully transferring its HRM

systems overseas, the more likely the parent firm will transfer its HRM systems to its

overseas affiliates.

Like business organizations, public organizations in Japan try to promote a harmonious

working environment, one in which the individual members can satisfy most of their life’s needs

(Jun and Muto, 1995: 127). A high level commitment to a particular organization makes the civil

servants more loyal to organizational policies and its overall objective. Another major

characteristic of the Japanese management system is the seniority system. For core employees,

advancement within the hierarchy is automatic at the lower levels but becomes more competitive

once the ranks of management are reached (Thomas, 1993:138). Another important component

of the administrative heritage of a firm is the strength of its corporate philosophy and

management's belief that the MNC's overseas subsidiaries should adopt the parent company's

16

management philosophy (Beechler, and Taylor, 1992). Apart from the transfer of these policies

to host country; MNC needs to develop strong belief that these HRM policies should be adopted

by the host country as well. Without the urgency and the feeling of inevitability regarding

adopting HRM strategies over MNCs subsidiary, management cannot ensure proper practice of

parent country’s HRM strategies in host country. Discussion of these facts leads us to following

assumption:

Proposition 6: The stronger the parent company management’s belief that the firm’s

HRM system represents a distinctive competency, the more likely the parent firm will

transfer its HRM system to its overseas affiliates.

17

Conclusion & Implication

So from the prior research we have understood that the HRM practices in South Asia are

traditionally very poor and sometimes autocratic in managerial style. Given the competitive and

future environment surrounding both domestic and foreign subsidiaries/joint venture companies,

which are highly dependent upon the abundant and low cost human resources, establishing

effective human resource management (HRM) constitutes a major challenge for gaining potential

viable improvement in South Asian human resources( Miah, Wakabayashi &Takeuchi 2003).

Subcontinent is trying to professionalize management practices in recent years. Despite of such

efforts, emloyees’ indiscipline, politicized labor unions, low individual productivity, and

unsatisfactory enterprise performance are some of the commonly observed realities in most of

the organizations. Because of the prevalent socioeconomic conditions, these countries are placed

at a competitive disadvantage even when they have huge reservoirs of technically competent

human resources (Qureshi, 1994). In contrast, Japanese HRM practices are standardized based

on advanced industrial and managerial expertise with a global applicability (Miah, 2006). In this

report we try explore how it is possible for a developing country like India, Pakistan and

Bangladesh to develop positive beliefs and to improve effective firm performance. In South

Asia, there remains a need to develop a sort of national plan in order to establish an efficient

management practices of local human resources (Abdullah, Boyle and Joham, 2010). The result

of the present research is expected to make contributions by providing valuable information that

will explain the incompetence in the use of human resources in South Asian domestic companies

as compared to Japanese firms operating in South Asia (Miah et al., 2003, 2004, and 2005).

HRM is increasingly viewed as a crucial component of the firm’s overall strategy

(Schuler & Rogovsky, 1998). Some have even identified it as the glue that holds global

organizations together (Teagarden & Von Glinow, 1997), and hence many MNCs attempt to

transfer their HRM practices to their overseas subsidiaries. As a matter of fact many previous

reports have discussed about the transferability of Japanese HRM in to South Asian countries.

Japanese subsidiaries/joint ventures and South Asian domestic companies are culturally very

different, but it is interesting to note that Japanese joint venture and subsidiaries are strongly

influenced by the Japanese parent country corporate culture, resulting in creation of a hybrid

HRM strategy (Miah, M.K., 1995, 2001, 2003, 2005). It is clearly demonstrated that human

18

resource management is not a monolithic function, but consists of practices which differ in their

relative resemblance to local practices and to parent practices (Jaeger & Kanungo, 1990). Now

taking the results together, there is a significance similarity between Japanese and Bangladeshi

firms. Overall we have found that the company performance is higher for both Japanese joint-

venture/subsidiaries and Bangladeshi local firms when the companies putting more concentration

on knowledge creation and execution of knowledge properly, group activities or collectivism and

long-term employment relationship. Bangladesh is a developing country with significant

socioeconomic development opportunities. To maximize the outcome from those opportunities,

business organizations need to attract, retain and manage their human resources effectively by

managing their expectations effectively (Abdullah, Boyle and Joham, 2010). Furthermore, as

stated above, a belief in the parent's HRM competence seems related to high levels of HRM

transfer from the parent company to the joint-venture/subsidiaries. This finding certainly

confirms the numerous reports of the ethnocentric approach of Japanese firms to their overseas

operations (Fucini and Fucini, 1990), in which there is an attempt to mold the overseas

subsidiary into as close a replica of the home plants as possible, at least with regard to

management practices (Beechler, Schon & Bird 1994).

Cultural context plays a significant role in managing an organization’s Human Resources

effectively as management practices can be influenced by a country’s historical, social and

political difference (Tanure & Duarte, 2005). As such, HR practices can lead to long-term

competitive advantage for the organization only when they are aligned with these cultural and

other contextual factors (Ahmad & Schroeder, 2003; Guest 1997). Japanese management is

entirely centered on men. Although women account for nearly half the nation’s workforce, only a

few are on the career track. Most of the female have part-time jobs offering with little long-term

security or opportunity for advancement (Yamguchi, 1999: 2). On the other hand, In Bangladesh,

though job opportunities remain equal and special quota is reserved for women in both public

and in some cases private sectors, participation of women is far below their male counterparts.

Masculine observed in Bangladesh because of wide gender differences, assertiveness of the

people for money and other things because of poverty (Abdullah, Boyle & Joham, 2010).

Through the research it is found that the company performance will be better in both Japanese

subsidiaries/joint-venture and Bangladeshi local firms when practices high power distance,

masculinity and long term orientation.

19

Whereas HRM practices are most strongly influenced by local isomorphism, it was found

that marketing and manufacturing practices also tend to resemble local practices, although to a

distinctly lesser degree than HRM, but that financial control practices more closely adhere to

parent practices, and are therefore shaped mainly by a need for internal consistency in the MNC

(Rosenzweig & Nohria 1994). The research also found that, both Japanese

joint-venture/subseries and local firms in Bangladesh when companies can successfully “offering

something more and selling it at an attractive price” (best cost provider strategy) having positive

relation with company performance. That clearly indicates that the companies that follow best

cost leadership strategy in this country context have more opportunity to succeed.

Decision making in Japanese system is considered to be more time-consuming and

because of the degree of participation, examination of details and speed of implementation is

much faster. Each employee at individual level participates through the Quality Control Circle

(QCC) and the Suggestion system (Ehsan & Jinnah, 1999). Alternatively, decision making in

Bangladesh is highly centralized in most cases. Private organizations do have a system of

consensus building with labor union members, but authorities prefer to take management

decision at the top of the hierarchy keeping the members of the lower level away which reflects

the top-down approach of decision-making. In South Asian based Japanese Company both

managers and employees’ teamwork relationship and rely on a sense of unity and a flat

organization system (Miah, 2006). However, the study shows that in Bangladeshi context both

local firms and Japanese subsidiaries/joint-venture gain better company performance when

decision flow from top to down.

In this new stage, the focus of Japanese corporate strategy will shift away from the

localization of production to an emphasis on balancing localization and global integration

(Bartlett and Ghoshal, 1989). A complex and sophisticated HRM system which can effectively

utilize the human resources in the organization, regardless of their nationality, and create not

only global products but global mind sets, will be an essential competency for the transnational’s

which leading the way into the 21st century (Beechler and Taylor, 1992).

20

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