Multinational Corporations and Nationality - Essay Example

1.0 Multinational Corporations and Nationality The issue of ownership is central to a number of important policy-related and academic debates in the area of HRM. One line of argument is that, with increasing globalisation, MNCs are becoming stateless players, detached from individual nation states (Economist, 1995). Evidence for this includes, for example, the growth of strategic international alliances and joint ventures and business divisions headquartered outside the 'home' country. However, much contrary evidence suggests that even the most global of companies remain deeply rooted in the national business systems of their country of origin. Hu (1992) and Ruigrok (1995) have argued that MNCs exhibit national characteristics. Very few of the world's largest companies is production highly 'internationalised' as evidenced by very few Fortune top 100 companies have more than half their production facilities or their workforce outside the country of origin. Even though the home base does not account for the bulk of sales, operations and employment, the home nation is almost always the primary locus of ownership and control. Board and senior management positions are staffed disproportionately - often overwhelmingly - by home country nationals, strategic decisions tend to be made in the home nation, and innovative activities are also disproportionately located there. The connection between national culture and MNC behaviour rests on the academic industry generated by Hofstede's analysis (1980) of `culture's consequences'. Wong and Birnbaum (1994), for example, have constructed hypotheses about MNC behaviour on the basis of Hofstede's analysis of 'power distance', that is the perception by individuals of the degree of interpersonal power or influence exerted over them by their superiors in the organisation (Hofstede, 1980: ch. 3). They found that the acceptance of unequal power distances in the bank's home society was 'highly significant in explaining the centralisation of authority in the bank operating in Hong Kong' (Wong and Birnbaum-More, 1994:115). The analysis using Hofstede’s ideas are said to have inconsistencies that make it unreliable. Hofstede came up with his five dimensions and scores with samples taken only from a single company – IBM. McSweeney (2002) points out that generalizing results from IBM employees to a global scale is unthinkable because there are no evidence-based reasons for assuming that the average IBM responses reflected ‘the’ national average. This becomes clearer with the knowledge that the respondents were mostly from the middle class and not representative of the local culture as Robinson (1983) pointed out. What could be our assurance that these respondents were not influenced by the IBM company or philosophy? 2.0 Studies regarding 'Country-of-Origin' effects. There is a relatively small body of research pointing to systematic differences in the ways in which MNCs of different nationalities manage their human resource but there are a number of generalisations which emerge from such studies. First, they provide substantive support for the notion that nationality of ownership is a significant determinant of MNC behaviour. Thus a long series of studies has found US MNCs to be relatively centralised and formalised in the management of HR; their headquarters set or influence policy on wage systems, collective bargaining, union recognition, welfare and training policies (eg Bartlett and Ghoshal, 1989: 161-3; Bomers and Peterson, 1977; Hamill, 1984; Negandhi, 1986; Yuen and Hui Tak Kee, 1993; Young et al, 1985). Other research suggests that they have been consistent innovators in IR, introducing productivity bargaining into Britain in the 1960s, along with fixed-term agreements (Enderwick, 1985: 115-19), and have often tried to avoid union recognition in Britain or Ireland (Gunnigle, 1995), or to resist pressures for sectoral bargaining. US styles of multinational HRM have typically been contrasted with Japanese and 'European' styles. The characteristic of Japanese companies in both survey-based and qualitative studies is the strong but informal centralised co-ordination of their foreign operations, highly reliant on establishing an international network of Japanese expatriate managers (Bartlett and Ghoshal, 1989; Bartlett and Yoshihara, 1988; Johansson and Yip, 1994; Kopp, 1994; Tung, 1982; Lincoln et al, 1995). This 'ethnocentricity' of their international HRM does not necessarily mean that HR/IR policies are standardised; rather, it is frequently reported that they adapt to local conditions (eg Yuen and Hui Tak Kee, 1993).   A second general conclusion from the literature is that nationality manifests itself more in relation to some issues than others, and that for all countries, 'rank-and-file' IR issues are more likely to exhibit 'local isomorphism' (Rosenzweig and Nohria, 1994) - that is, to resemble the practices of the local environment. The argument is that issues such as wage determination, hours of work, forms of job contract and redundancy procedures are highly subject to local institutional arrangements, and are therefore less likely to be stamped with the influence of the parent country. In the more regulated systems, issues such as work organisation, training, and employee participation may also be highly determined by local regulation. Other aspects of HR/IR, such as payment systems, management development, or employee communications are generally less likely to be regulated by the local system and hence more susceptible to the imprint of country-of-origin factors. 3.0 Links between National Business Systems and MNC Behavior The basic idea of the concept of 'national business systems' is that economic actors in different countries are influenced by the national institutional framework in which they operate. In this section we illustrate some of the possible linkages between elements of national business systems and MNC behaviour, taking examples from the French, German and British cases in particular. 3.1 Managerial careers and management development Comparative studies (Evans et al, 1989; Storey et al, 1991) have shown that there are national differences in the way that managerial careers and management development are organised. Japan and France relies on elite recruitment. The selection of potential managers at the point of entry is regarded as the most important determinant of future careers in the French system (Lawrence 1992). `Getting on' in the organisation is seen as the reward for political skills - the ability to form alliances, get powerful sponsors and flaunt highly visible achievements. The Germanic tradition rests on formal apprenticeship and functional rotation, followed by progression through functional career paths where specialist technical expertise is developed. This contrasts with the increasingly generalist culture of Anglo-Saxon management, exemplified by the prominence of business schools and the MBA qualification, which have no equivalent in Germany. Generalist styles are also predominant in large Dutch and Scandinavian companies. Rapid progress through a variety of jobs in different functions, locations, and businesses produces a cadre of people able to manage a diversified international company. By the same token ... the 'political tournament' which characterises the promotion system in 'Latin' firms such as the French may discourage overseas assignments because the manager is out of sight and therefore less well-placed to compete for attention. One may hypothesise that MNCs develop strategies for reducing the constraints of their national systems: for example, French multinationals might differ from the national stereotype in their modes of career progression and succession planning, in order to encourage expatriation. There is some unsystematic evidence to support this. For example, Barham and Devine (1991: 47-55) detail the systems implemented by Rhone-Poulenc to create a cadre of international managers, from the stage of recruiting graduates onwards. The Jeunes Cadres internationaux programme explicitly offers young high fliers the opportunity of early international experience followed by a senior management appointment in their home country. Problems of career opportunities for returnees following international assignment are eased by the figure of the 'godfather' or mentor, a senior manager in the expatriate's home country with extensive networks of contacts. The godfather advises on future career openings and negotiates on behalf of the expatriate with prospective bosses. 3.2 Structuring and co-ordinating work Comparative research has paid much attention to national differences in how work is organised within firms. Thus French firms are said to divide tasks up rigidly between and within different strata in the hierarchy (Maurice et al, 1986; Poirson, 1993). German firms exhibit more blurred horizontal differentiation of tasks and functions and have a greater overlap of maintenance and production functions and of technical and supervisory work (Lane, 1989; Sparrow and Hiltrop, 1994: 270-3). The Swedes value experience of self-regulated group work and the participation of the workforce in the design and operation of systems. If MNCs are used to working in their home base with a particular set of workforce skills and work organisation, is this reflected in their international operations? There is now a considerable body of literature to suggest that Japanese MNCs pursue the 'enclave' strategy by 'exporting' patterns of work organisation based on a cluster of policies; from careful recruitment and selection of 'greenfield' workforces to continuous vocational training and the systematic integration of quality into work operations (EIRR, 1992; Oliver and Wilkinson, 1992). Much less is known, however, of European MNCs. German and Japanese MNCs, where the organisation of production assumes a central importance, are concerned with the management of the issue internationally than British or French companies. One factor is the availability of systems of control and evaluation capable of identifying and then ensuring the diffusion of practices from the home country. Sewell and Wilkinson (1993: 144) illustrate this in his observations of a Japanese electronics company in Britain: Production managers and team leaders are ... expected, on a monthly basis, to agree to targets with a specified amount of labour. Standard times are produced in Japan ... and are indicated in precise detail. Times are provided to K-Electric [the British subsidiary] for a whole unit of finished goods, for the sections of the factory, for activities within each section, and right down to the level of components to be assembled or inserted in fractions of a second ... Assembly manuals, which include detailed standard times broken down to the level of individual component insertion, are regularly updated in Japan in the light of improvement in methods. Whenever an overseas factory makes an improvement, this fact, and the new method, is relayed back to Japan and the improvement is passed on to all group factories the next time the manual is updated. 3.3 Nature of the personnel function The question now is how far national patterns of personnel management translate to the international level. The organisation of the personnel function in the country of origin has been used to explain differences in the HR/IR management policies of MNCs. One of the most developed arguments is to be found in Yuen and Hui (1993). In their comparison of US and Japanese MNCs in Singapore, they focus on differences in the personnel function in the two home-country business cultures. In the US, they argue, the management of labour is posited on an `economic-contractual' model of hiring and firing, market-determined wages, and high labour mobility. Personnel departments have evolved into large legalistic bureaucracies applying formalised and standardised personnel policies. The preoccupation with compensation, labour market and wage surveys is reflected in the HR/IR priorities of US subsidiaries in Singapore. By contrast, the Japanese model of HRM is a 'human capital model', based on 'multidimensional employment relations', social as well as economic aspects, the predominance of internal labour markets, and a consequent concern with recruitment, selection, training and development. These characteristics are reflected in Japanese MNCs' Singaporean subsidiaries. Similar links may be made between differences in European styles of HRM and MNC behaviour. In the German model (described by Lawrence, 1991), sectoral negotiations mean that personnel managers' role in pay bargaining is limited to interpretation and implementation. The statutory system of works councils conditions the content and style of personnel managers' work, encouraging a modus operandi that is overwhelmingly legalistic, reactive, short-term and operational. Accordingly, the job is of relatively low status in the hierarchy of management functions. This model is likely to have consequences for international HRM in German MNCs. First, it raises questions about the capacity of German MNCs to manage their international labour force in a strategic fashion, to develop international pay and performance management systems, to play a role in the construction of international corporate 'culture', and so on. Second, the personnel function's experience of 'shared authority' through the German co-determination system will colour managerial HR decision-making in a multinational context, notably in respect of employee participation and involvement. Although Beaumont et al (1990) found a reluctance of German MNCs in Britain to replicate German forms of employee involvement such as works councils (also Guest and Hoque, 1996), it is noteworthy that German MNCs have been in the vanguard of experiments with European works councils from the mid-1980s all et al, 1995). 4.0 Conclusion This article has attempted to clarify some of the issues surrounding the 'country-of-origin' effect in multinationals. A considerable body of evidence exists to suggest that MNCs of different national origins behave in significantly different ways, specifically in respect of the cross-national management of personnel and IR issues. MNCs are anchored in a set of nationally-specific characteristics which together make up national business systems. These characteristics are likely to influence the way in which MNCs manage HR internationally. However, the correspondence between features of national business systems and MNC behaviour is likely to be incomplete: first, because not all elements are 'exportable', being too rooted in native cultural assumptions; and second, because to varying degrees host countries present obstacles to the 'import' of elements of foreign business systems, and colour the operation in practice of those which are transferred. Further research could explore and explain differences in relation to the dynamics of national systems. One line of argument is that international competition and the globalisation of production systems are likely to lead to increasing convergence between MNCs of different national origins. Indeed, MNCs themselves, by transmitting practices across national borders, may be seen as key actors in the homogenisation of national systems and thus the erosion of country-of-origin differences. On the other hand, there are also grounds for anticipating the persistence of national differences in MNC HR behaviour, since the characteristics of the national systems in which they are based reflect long historical processes of cultural and economic development. Moreover, the emergence of common trends in MNCs may paradoxically favour the perpetuation of national differences between them. For example, Marginson and Sisson (1994) have pointed to the trend towards Europe-wide business divisional structures in large MNCs. These business divisions could be expected to follow business-specific (rather than national-subsidiary-specific) HR policies. At one level, therefore, one is seeing a convergence of corporate forms. 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