IHRM

Individual Assignment International Human Resource Management

ASIA PACIFIC INSTITUTE OF INFORMATION TECHNOLOGY IN COLLABORATION WITH STAFFORDSHIRE UNIVERSITY UK

BA (Hons) in Business Administration

Individual Assignment

The Desirability and feasibility of transferring IHRM practices to their new

locations.

International Human Resource Management

Module Code & Title

BLB10025-3 International Human Resource Management

Prepared By

Sathyadasen Jeevan [CB003210]

Date of Submission

01th march 2011

Instructor

Dr.Mahesha Samarathunga

Submitted in partial fulfilment for the

Degree of Bachelor of Arts (Hons) in Business Administration

Word count:2725

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http://apiit.edu.my/


Executive summary.

According to Tayeb (1998, cited in Liu 2004:500) “The Multinational Company (MNC) is a

powerful vehicle or the transfer of not only the capital and other production function but also

managerial and technical knowledge across nations”. According to Bartlett and Goshal et al

(1994.cited in Liu 2004:500) “The effectiveness of human resource management (HRM) has

been seen as the key to success in MNC’s in the 21 centaury”. The MNCs’ always focus on

expanding its subsidiaries into new markets and exchanging best practices within it network to

improve it s competitive advantage through forward and reverse diffusion.

However transfer is not always possible. Due to difference in cultural and institutional factors of

economies. If the host country cultural and institutional factors are stronger than the host country

factors the transfer would be challenge and eventual would be rejected. According to Tayeb

(1996) “national culture, government policies, industrial relations and regulation, power of

pressure groups, membership of regional and global agreements and institutions are examples of

external factors which have direct or indirect bearing on an organization’s HRM”.

Even though the cultural and institutions distance is large some practices may be possible to

transfer due to factors such as dominance effect. The economic condition of the economy may

influence the transfer in major terms. For example a country like China and America the Cultural

difference is be large but transfer of IHRM practices would be possible due to the dominance

effect of America over china. However there are four stratergies MNCs’ can adopt to transfer

IHRM practices and policies across national borders.Multi domestic. Internationalization, global

and transnational models.(Bartlet and Goshal 2000).

.

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AcknowledgementI would like to thank Dr.Mahesha Samarathunga, for her continuous support and guidance in the

preparation of this study. Without her invaluable supervision, all our efforts could have been

short-sighted.

Dr Mahesha Samarathunga, Asia Pacific Institute of Technology, (Sri Lanka) helped us with

various issues during the thesis and we are grateful to her. Besides, a number of friends had

always been around to support us morally.

I owe quite a lot to our families who provided us the chance to fulfill our career objectives and

for the support throughout our studies. I would like to dedicate this study to them as an indication

of their significance in this study.

Finally, I am responsible for any errors that remain this thesis.

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Table of Contents

Executive summary.....................................................................................................................................2

Acknowledgement.......................................................................................................................................3

List of abbreviations....................................................................................................................................6

Section 1......................................................................................................................................................7

Introduction.............................................................................................................................................7

Section 2......................................................................................................................................................8

Theoretical Framework............................................................................................................................8

Section 3....................................................................................................................................................12

Scenario 1..............................................................................................................................................12

Section 4....................................................................................................................................................17

Scenario 2..............................................................................................................................................17

Section 5....................................................................................................................................................21

Scenario 3..............................................................................................................................................21

Conclusion.................................................................................................................................................25

Reference...................................................................................................................................................26

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List of Table

Table 1: sources of country of origin effects...............................................................................................9

Table 2: cultural distance between Japan and UK.....................................................................................13

Table 3:cultural distance between Spain and China...................................................................................18

Table 4:Cultural distance between USA and UK.......................................................................................22

List of Figure

Figure 1:Centralized hub...........................................................................................................................15

Figure 2:decentralized federation..............................................................................................................19

Figure 3: Intergarated Network structure...................................................................................................23

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List of abbreviations

HR-Human Resource

HRM-Human Resource Management

HQ-Head Quarter

IHRM-International Human Resource Management

MNC-Multinational Companies

NBS-National Business Systems

R & D - Research and Development

UK-United Kingdom

USA-United States of America.

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Section 1

Introduction According to Tayeb (1998, cited in Liu 2004:500) “The Multinational Company (MNC) is a

powerful vehicle or the transfer of not only the capital and other production function but also

managerial and technical knowledge across nations”. According to Bartlett and Goshal et al

(1994.cited in Liu 2004:500) “The effectiveness of human resource management (HRM) has

been seen as the key to success in MNC’s in the 21 centaury”.

This report would consist of the following aims and objectives to identify whether transfer of

IHRM practices and policies would be transferable and feasible in the new locations:

Aim 1 - Analyze and critical evaluate the key theories and concept that influence strategies of the

IHRM of the MNC’s

Aim 2 - Demonstrate the problems involved in the transfer of IHRM policies.

Aim 3 - Compare and contrast MNC structure and models, and relate the model s and concept to

modern concepts to modern business problems.

Section two will initially outline the Theoretical Framework focusing on the theories and

academic work relating to this study. The third section will critically analyze and discuss the

Japanese bank setting up a subsidiary in the United Kingdom (UK).The fourth section will

critically analyze and discuss the scenario of a Spanish manufacturing location its production in

China. The fifth section will critically analyze and discuss the transfer of an American high tech

electronics firm opening a new site in Britain. Finally recommend and conclusion on the

desirability and feasibility of transfer HRM practices to their new locations would be stated.

As secondary source of referencing journal article would be used. This report is focused on the

feasibility and transferability of IHRM practices to the subsidiaries of the new locations

considering the differences in the economical and social environment.

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Section 2

Theoretical FrameworkWhen a MNC expands it subsidiaries to new markets and locations across borders, the subsidiary

is managed and controlled by the home county cooperate headquarter, this is well explained by

the embedded theory. The MNC is influenced by many factors and sometime the transfer is not

possible or some policies and practices may be transferred but not all policies and practices can

be transferred. The possibility of the transfer depends on the distance between the environmental

and industrial level factors of the host country.

However cross border economics flows and coordination processes depends overwhelmingly on

national state legal systems, enforcement mechanisms, and institutional arrangements to manage

risks and uncertainty sufficiently to enable strategic decision to be made. When MNCs’

internationalize it, remains highly interdependent with national agencies’ and institutions’

structure and actions, since the host country host countries national business systems affect the

operations of the MNC. As a result, its effect on established systems of economic organization

and firms are greatly guided and limited by variations in these national institutions (whitley

1999, cited in Edwards and Ress,2006:52)

The MNCs’ therefore adhere to the theories of convergence and divergence. If the cultural and

institutional distance between the two countries is large the MNCs’ would take the divergence

approach and if it is narrow the convergence approach would be used and all IHRM policies and

practices could be transferred directly to the host country.

According to Hofstede (1991,cited in wasti ,1998:610) “concluded that national culture had a

major impact on employees’ work related attitudes.Infact culture explained more of the

difference that did age,sex,profession or position in the organization. Hofstede’s four dimension

of culture, along which a comparative analysis of nations can be carried out are ‘power distance’

‘uncertainty avoidance’ ‘individualism/collectivism’ and ‘femininity /masculinity’.”

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However Edward identified four main influences in the transfer of IHRM policies and practices.

In simple terms the four influence frame work explain transfer could take place even there is a

difference in the culture and institutional factors between the home and host county. The 4

influences are ‘country of origin effect’, ‘dominance effect’, ‘international integration’, and ‘host

country effects’.

Country of origin effects

Country Of Origin

Effect

Impact on the subsidiary

Home country

expatriates in the

subsidiary.

In a event of convergence, most of the senior management positions will

be occupied by the home country national, MNCs HQ adopted this

technique to execute the HR practices in an effective way because, they

are influenced by the culture of the home country.( Harzing, 2004)

The way in which

firms are financed

and governed.

According to O’sullivan (2000) cited by Harzing (2004) Britain

executives maintain a distend relationship between shareholders in

United state of America (USA) and on the other hand maintain a close

relationship with the Germany. Due to the distance in the NBS. And as

cited by Doremus et al (1998) MNCs will have a close relationship with

financial institutions contrast to the host countries.

Concentrate key

activities in the home

based.

Activities which are required innovation like, Research and

development(R&D) and training and development will be imposed by

the MNCs HQ on the subsidiary in maintaining the nature of the

innovation of the MNCs (Harzing, 2004)

Institutional

configuration

The way in which he firm adopts in managing its international

workforce, for instant the way in which trade unions are treated

(Edwards & Ferner, 2001)

Table 1: sources of country of origin effects

Source: group project 2011

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Host country affects

The host country affects refer to the cultural and institutional factors of the host country, cultural

and institutional factors of the host country affect the transfer of the MNCs.So practices are

rejected by the host country due to the variance in the host country. According to Tayeb

(1998,cited in Myloni 2004:520) “Failure to adopt HRM practices to the host countries’ culture

can lead to negative consequences that inhabit a subsidiary’s performance”.

Dominance effect

According to smith and Meiskins (1995:255-256 Cited in Harzing2004:396) dominance effect is

“a key factor in this respect is their perceptions of the strengths and weaknesses of economic

performance across countries. Strong performance in one country gives rise to interest in the

‘borrowing’ of elements of that business system by firms in other countries”. The MNCs’

originating from a developed country would have a dominance effect over the host countries

cultural and institutional factors, transfer would be possible even there are differences between

the home and host countries ,this is due to developing economies are in favor of practice and

policies from developed countries. However, According to Edward ( 2000, cited in Harzing

2004:398) “Reverse transfer does not occur and that is it is shaped by the notion of dominance

effect”. Reverse transfer would be mute.

International integration

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According to Edward (2000, cited in Harzing 2004:400) International integration is the “extent to

which MNCs are internationally integrated, defined as the generation of inter-unit linkages

across borders”. Even though MNCs operate off national borders all the subsidiaries are

controlled by the cooperate headquarter, all polices practices are share among all the

subsidiaries.

Since MNCs face multiculturalism Bartlet and Goshal introduced four approaches and structures

the MNCs can adopt to transfer their IHRM policies, ‘Multi-domestic’, ‘Global’, ‘international’

and ‘transnational’, strategy .And the structure used in on each strategy is known as

‘Decentralized federation’, ‘a centralized hub’, ‘a co-ordinated federation’, ‘an integrated

network’, structure. (Bartlet and Goshal, 2000).In the argument of local adaptation vs. global

integration .However perlmutter categories into four strategies which are Ethnocentric,

polycentric, Geocentric, Regiocentric strategies.

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Section 3

Scenario 1Critically analyze and discuss the transfer of a Japanese bank setting up a subsidiary in the UK.

Cultural distance

The social norms, Gender equality, and working pattern between Japan and UK are large. This

means the cultural distance between Japan and UK is large.

As stated above in section one.Hofstede has analyzed and graded these cultural distance

according to, four cultural distances in accordance to the individual countries, Japan and UK.

Which are well explained bellow.

Characteristics Japan(home country) UK(host country)

Power distance

Values 54 35

Analysis High Low

The power distance in Japan is high and UK is considerably low so the gap between the managerial level and lower level staff is less and when the Japanese bank operates in UK these practices may not be accepted, these practices will have to change according to the UK culture.

Individualism and collectivism

Values 46 89

Analysis moderate High

Asians are more collective and work on a team based structure and prefer working in groups when the Japanese bank operates in UK, UK individuals prefer working Individually.

Masculinity and felinity

Values 95 66

Analysis masculine Feminine and masculine

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The Asian culture is more toward male domination ,the female participation is less in the managerial position .

Uncertainty Avoidance

Values 92 35

Analysis High Low

The measures taken to avoid possible future risks and to dominate possible future competition the Japanese companies take into account risks that are possible in future and the act to it now.

Table 2: cultural distance between Japan and UK

Source: Authors work.

The above diagram shows a high cultural distance between Japan and UK, since the company

culture is similar and linked to the national culture.

Dominance effect between Japan and UK.

The Japanese economy was widely perceived to be dominant power (Hazing and Rusysseyeldt,

2004:397).Therefore the Japanese MNCs has the ability to transfer IHRM practices and policies

to UK even there are differences in the cultural factors of UK. Forward diffusion would take

place in the scenario, the reverse diffusion would be muted. No transfer would take place from

UK to Japan.

Institutional distance between Japan and UK.

A national business system (NBS) perspective incorporate both cultural an d institutional

influences on HRM(ferner & Quintanilla,1998,cited in Elkassrawy n.d)Thus difference in the

NBS encourages instinct HR stratergies,structure and practices that distinguish companies

originated from different national context(.Dickman 1999).The institution factors consist of

legal, political and educational system of the home and host country. The institutional distance

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between Japan and UK is large. Japan is a developing country and UK is a developed country the

NBS of the countries are different.

Nature of Individual HRM practice

According to Huang (2000,cited in Elkassrawy n.d) “Japanese companies rely on ‘life time

employment’ so it is very seldom to hire outside for high level position as they rely more on their

senior employee. Therefore, it gas been widely claimed that Japanese have strong commitment to

internal promotion and job filling”. Therefore more expatriates would be in the host country

subsidiaries .this shows are more of a country of origin effect. Hover ever these practices may be

rejected by the UK HRM practices since UK HRM practices differ from Japanese individual

HRM practices. Recruitment and selection is mainly done on the individual qualification and

skills acquired by the individual.

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Subsidiary Subsidiary

Subsidiary

Subsidiary

Subsidiary

Subsidiary

HQ


Strategy and structure.

Factors Details

Industry Banking

Organizational structure A centralized hub

Strategy The global form

Figure 1:Centralized hub


The Japanese MNC is operates on a structure of a centralized hub and the corporate headquarter

controls and creates HRM policies and practices in each and every individual subsidiary. (bartlet

and Goshal 2000).Therefore the convergence approach is taken to transfer IHRM practices and

policies to the subsidiaries. However this structure would not be accepted by the UK company

level factors and transfer would not be possible. The possible solutions would be discussed in

recommendations below.

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Recommendations

As analyzed on this report the social and economic difference between Japan and UK is high. As

seen by hofstede the distance between the senior level and lower level of the organization is lager

this sort of hierarchy would not work in UK since UK cultural practices are different so a

different approach would have to be taken to the organizational model in the set up of the

Japanese Subsidiary Bank in the UK.

The employees in UK prefer working individually that the Asian way of working in groups

therefore when aims and objectives are formulated. It will have to be focused on individual

achievements and goals will have to be formulated to individual targets.

The Japanese rely more on senior level employees and the high post will be awarded to the

employees who are there in the business or a long period of time. However this will not suit the

UK culture because the individuals are chosen according to the qualification and skill of the

individual itself to suit the task.

The NBS of China and UK are totally different and the Japanese Bank will have to totally adopt

the NBS in UK. Also the structure the Japanese Bank uses to connect to its subsidiaries does not

suit the UK .The Japanese Bank uses a one best way approach to transfer it IHRM policies so

therefore it does not consider differences in the host country, so therefore the transfer would be

rejected. The Japanese MNC could adopt a multi-domestic strategy which would make this

transfer a success.

There are many problems and differences between the two countries, so therefore there are

number of problem in the transfer in the transfer of IHRM practices and policies from the

Japanese headquarter to the UK subsidiary. This transfer would be possible f the Japanese MNC

re-strategizes its total structure and policies. However, this report does not recommend this

transfer to be feasible.

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Section 4

Scenario 2 Critically analyze and discuss the scenario of a Spanish manufacturing location its production in

China

Cultural distance.

The cultural distance between Spain and china is large. This is due the difference is social and

economic conditions of the two countries.

Characteristics Spain (home country) China(host country)

Power distance

Values 57 80

Analysis moderate high

The power distance in Spain is moderate and china is high, this indicates that there is slight similarity in the power distance between the two countries.


Values 51 20

Analysis moderate Low

Asians are more collective so therefore individualism is low in China and moderate in Spain due to its European nature.


Values 42 66

Analysis Masculine and feminine masculine

China is more towards masculinity and all the top decision making managerial positions are being held by the male employees; however is Spain there is a mix of both genders.


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Values 86 40

Analysis High moderate

Spain is more concerned on future risks, so the management decisions are based on future unlike the chine’s culture.

Table 3:cultural distance between Spain and China


Dominance effect between Spain and China.

China has a dominance effect. Chinese companies are highly culture rooted to its national

culture. The companies in china has a Chinese way of doing this, any external different practice

would be rejected by the Chinese culture. So therefore China is dominate over Spain so much

transfer of practice and policies from Spain would not be possible.

Institutional distance between Spain and China.

The institutional difference between Spain and China is large. China is a developing country and

Spain is a developed country. Most of the institutional practices such as the legal framework and

the political system is different from one another.


According to moriones (2002) “Training directly geared to the job is by far the most frequent

form of training given in Spanish firms, since it takes up almost half the total training time.”

Spanish firm mostly concentrate on training and development of the employees. The cooperate

headquarter would tend to transfer theses practice to the subsidiaries also. Training and

development would be transfer in the Spain manufacturing.

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Subsidiary

Subsidiary

Subsidiary

Subsidiary

SubsidiarySubsidiary

HQ


Recruitment and selection.

The Spanish manufacturing plant depends on more of the internal labourmaket, which are feature

in many firms; allow these to map out carriers for their workers. They do this by providing a

series of entry points at which to take on workers, usually on the lower rungs of the

organizational ladder. Later using a process of promotion to fill posts at the higher level.

(moriones 2002)The Chinese also do have a similar way of recruitment and selection techniques.

So therefore transfer of recruitment and selection practices to the Chinese subsidiaries would not

be a problem and the transfer would be accepted in China.


Factors Details

Industry Manufacturing

Organizational structure A decentralized federation

Strategy Multi-domestic form

Figure 2:decentralized federation


However the structure of the Spanish manufacturing firm shows decentralized federations , there

are loss operational controls by the corporate headquarter and the subsidiaries act as individual

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firms in the host countries. There is less transfer taking place from the Home to Host country

subsidiary and the divergence approach of taken.

Recommendations

However the social and economical distance between Spain and China is large, Hofestedes’

model shows a power distance exists in both the countries at a moderate level. China is more

toward masculinity, most of the senior level managerial positions would be granted to the male

gender, this would a problem when the Spanish manufacturing plant is established in China

because the Spanish operate equally so when a female is in a higher rank and when orders down

the line the male lower level male employee in china would have unwilling attitude.

Chinese employees are not used to work individually according to the Spanish system of

individualism. When tasks are assigned in the Chinese subsidiary, it will have to be formulated

according to group achievements.

The institutional factors as widely different between Spain and china. The Spanish manufactory

will have to hire or outsource the legal setup of the company since the factors vary from Spain.

However the Chinese companies are deeply culture rooted to it NBS so external influences for

outside MNCs’ such as the Spanish MNC entering the Chinese market would be heavily

challenged.

So basically there are small differences between the social and economical factors between Spain

and China. However these Variances could be overcomes by the use of a deviance approach. So

this report recommends this transfer to be feasible.

Section 5

Scenario 3Critically analyze and discuss the transfer of an American high tech electronics firm opening a

new site in Britain

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Cultural distance.

The cultural distance between USA and UK is narrow. There is less differences between the

home and host social and economical factors.

Characteristics USA (home country) UK (host country)

Power distance

Values 40 35

Analysis Moderate Moderate

The power distance in USA and UK is more or less similar.


Values 91 89

Analysis High High

Individualism in both countries are the same .Employee like to work on an individual basis.


Values 62 66


participation of female employees are moderate in both the countries, there is no domination in the economy by one gender


Values 46 35


The uncertainty avoidance measures taken in both the countries are more or less similar.

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Table 4:Cultural distance between USA and UK


Therefore however the above table shows a narrow and almost no cultural and institutional

distance between USA and UK.

Dominance effect between USA and UK .

America is dominating country with a dominating culture. The American culture is a way such;

Americans are fond of dominating markets all around the globe and transferring and dominating

practice and policies to all its subsidiaries on the other hand other economies are in favor of the

transfer of these practices and policies due to it dominating cultural itself. Other countries tend to

learn from these practices and policies created by America. However the American culture is not

a one way learning stratergy, policies and practices are also transferred from other countries to

the MNC headquarters in America. The culture is in such, the thirst for new ways and creation of

new strategies and practices are always welcomed.

Institutional distance between USA and UK .

However the US and UK culture and institutional distance in the electronic market is small, its

more or less similar except for the fact that the American legal system is a very highly complex

structure than UK.But most of the factors explained by Hofstede is similar .So therefore the one

best way approach would be used in the process of transfer of IHMR practices.


Recruitment and selection

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Recruitment is totally based on the individual qualification and the individual skill. The

recruitment practices of both the countries are similar. The same techniques are used to recruit

employees to the firm. Promotions are based on the individual performance of the employee.

The hierarchy of the organization is low in both the countries there is less power distance too.


Factors Details

Industry high tech electronics firm

Organizational structure An integrated network

Strategy Transnational firm

Figure 3: Intergarated Network structure

Source: Google images(2011)

Since the American culture is fond of transfer in practices and policies, it takes the deviance

approach to transfer it practices and policies across national borders,Practises which are not

possible to transfer directly would be reformulated according to match the host country NBS and

then transfer back. On the other hand reverse diffusion would take place as well. As explained on

the above diagram ,the American firm uses an integrated network structure to connect and

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transfer it practices and policies to it subsidiaries .This system is unique since this system will

consist of a regional headquarter as well.

Recommendations

The cultural distance between USA and UK is more likely narrow. There is less power distance

in USA and UK more or less similar in both the economies. Employees prefer to work on an

individual basis. Participation of female employees are moderate in both the countries, there is

no domination in the economy by one gender. America is dominating country with a dominating

culture so more transfer would take place from USA to UK but this would not be a problem due

to the indifference in the culture. However the US and UK culture and institutional distance in

the electronic market is small. Recruitment is totally based on the individual qualification and the

individual skill so there is no problem when this practice is transfer to UK because the

recruitment policy in UK is similar. The American MNC uses a transnational strategy and an

integrated network structure to transfer the IHRM practices and policies from host to host, this is

a good structure to transfer across -borders since it takes into account host country cultural and

institutional variances.

So basically there is no problem in the transfer in the transfer of IHRM practices and policies

from the American MNC to the UK subsidiary so, this report recomends this transfer to be

feasible.

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Conclusion The objectives of this report was to identify and advice the client of the three scenarios which is

well analyzed and provided with a clear and critical recommendation on whether the transfer

would be desirable and feasible of transferring IHRM practices and policies to its new

subsidiaries in locations. The author of this report has critically identified the significant cultural

and institutional difference between the home and host countries according to each and every

three scenarios.

The report identifies the scenario one to be unsuccessful in transfer if IHRM practices from

home to host. Scenario one due to the direct approach taken by the Japanese MNC.The transfer

would not be possible due to the high differentiation in the cultural and institutional factors of the

home and host country.

The second scenario however consisted of few mismatches between Spain and china but

however due the multi-domestic structure and the divergence approach taken by the Spanish

manufacturing plant the transfer would be Successful.

The third scenario has no problem with the transfer taking place between America and UK since

the there is no difference in culture, but however there is a slight difference in institutional factor

which would nut influence the transfer of IHRM practices and policies.

So therefore it conclusion the three scenarios have been critically analyzed and recommendations

are provided on each and every individual scenario on the desirability and feasibility of the

transfer of IHRM practices and policies from home to home country.

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IHRM

Documents

ihrm practices

host country factors

dr mahesha samarathunga

host country cultural

best practices

cultural difference

examples of external

instructor dr