HRM in Subsidiary Operations: Standardization, Localization, and HR Implications

1. Chapter 8 HRM in the host country context

2. Chapter objectives Discussion of international HRM issues generally tends to be biased in the direction of expatriate management, particularly that of parent-country nationals, partly owing to their strategic importance. In this chapter, we attempt to redress the balance by examining HRM issues in subsidiary operations. We cover the following aspects: • Factors that influence standardization or adaptation of work practices and the role of HR, including host-country culture and workplace environment, mode of operation, firm size, maturity and international experience and subsidiary mandate. (cont.)

3. Chapter objectives (cont.) • Retaining, developing and retrenching local staff. • HR implications of language standardization: HCN selection, training and promotion on the basis of language skills. • Monitoring HR practices used by foreign subcontractors.

4. Subsidiary issues • Approach to subsidiary management a function of: • The nature of the relationship between units and ‘parent’ • The level of equity involved • Factors within host-country environments that facilitate or constrain the transfer of global management practices and business processes

5. Standardization of work practices • Depends on • Receptivity of local workforce to adhere to corporate norms of behaviour • Effectiveness of expatriates as agents of socialization • Whether localization is timely (not just prompted by cost considerations) • Appropriateness to the local environment

6. Factors influencing standardization • Host-country culture and workplace environment • Mode of operation involved • Size and maturity of the firm • Relative importance of the subsidiary

7. Host-country culture • Work behaviour is culturally determined • Whether corporate culture supersedes or supplants other ‘cultures’ is a subject of much debate • Often, what is meant by corporate culture translates into universal work behaviours – standardisation of work practices

8. Figure 8-1: The linkage between culture and behaviour

9. Mode of operation • Choice of mode of operation important in determining standardization of work practices • Ownership and control important factors – wholly owned subsidiaries provide greater opportunities for transferring work practices than in IJVs

10. Figure 8-2: Factors influencing standardization of work practices

11. Work standardization • The size of the firm, maturity and international experience also important • Motorola in China a case in point: • Large size • Wealth of international experience • Management could draw on these aspects when entering China

12. Subsidiary mandate • The position a subsidiary holds within the global ‘family’ is an important aspect when discussing the transfer of work practices • Transferring knowledge and competence is difficult as subsidiary initiatives are often not seen as relevant (corporate immune system) • Staff movements can assist here

13. Global or local work practices? • Not a case of ‘either-or’ • As Huo et al conclude: “While the recruiting practices used in different countries are inching toward global convergence, we expect national cultures to continue affecting the hiring practices. … The best IHRM practices ought to be the ones best adapted to cultural and national differences”

14. Retaining local staff • The paradox – ‘expense of cheap labour’ • Poaching of key subsidiary staff • Access to skilled labour as important as unit cost (eg. attraction of India for the IT industry) • The amount and quality of training is an important consideration

15. Developing staff • Investing in human capital • Providing training and career development can assist in retaining good local staff • A fair environment and good management practices play an important role in countries such as China

16. Retrenching staff • The reverse of the employment ‘coin’ • Strategic decisions regarding foreign operations have HR implications, including retrenchment • Not confined to subsidiary operations but may affect home base - eg. transferring call centres from UK and US to India

17. HR implications of language standardization • Adopting a common corporate language puts pressure on employees to become competent in the corporate language • Affects • Promotion • Ability to attend corporate programs and meetings • Availability for international assignments

18. Figure 8-3: HR implications of language standardization

19. Figure 8-4: Shadow structure of KONE based on language

20. Monitoring host country subcontractors • Outsourcing activities to host-country subcontracting firms requires some monitoring of HR practices • Vocal groups have accused multinationals of condoning work practices that would not be permitted in their home countries

21. HR’s role • Drawing up and reviewing codes of conduct • Conducting a cost-benefit analysis to justify an expatriate as a monitor • Championing local operators as monitors • Being a member of the team who conducts periodic ‘checking’ visits • Overseeing external monitors and auditors where used • Checking rewards and performance systems take compliance into consideration

22. Chapter summary This chapter has focused on issues relating to HRM and work practices in the host-country context. We chose four main areas to examine: • The standardization versus adaptation debate as it relates to subsidiary operations. We identified four inter-related factors that influence the multinational’s ability to impose or transfer its preferred work and HR practices: • The host-country culture and workplace environment. We looked at the interplay between values, attitudes and work behavior and the role of corporate culture in assisting work outcomes. (cont.)

23. Chapter summary (cont.) • Mode of operation. Managerial discretion to introduce its own practices is higher in wholly owned subsidiary operations than in IJVs. Acquisitions may be constrained by the inherited workforce. We also looked at management contracts as a mode of operation that may influence standardization of work practices in foreign operations. • Firm size, maturity and level of international experience. Firms such as Motorola can draw upon experience and resources to an extent not possible for smaller and less-experienced international players. • Subsidiary mandate. The position of the subsidiary in the intraorganizational network and level of interdependence between units for resources can assist in the transfer of ‘best practice’. (cont.)

24. Chapter summary (cont.) • Retaining, developing and retrenching local staff. Aspects such as the paradox of cheap labor, the skill level of the local workforce and training were examined, along with poaching of staff and job-hopping. Although our examples are drawn from Chinese and Indian situations, these issues are not confined to these two countries. We also looked at the impact of strategic decisions on subsidiary operations – such as plant closures and rationalization – that result in employee retrenchments at the subsidiary and in the home-country operations. (cont.)

25. Chapter summary (cont.) • The HR implications of language standardization. The decision to use a corporate language – usually English – has implications for subsidiary staff in areas such as selection for positions, attendance at company training programs and promotion. • Monitoring the HR practices used by international subcontractors. This discussion opened up a somewhat contentious issue for multinationals who are expected to monitor the work practices employed by international subcontractors. Mechanisms used to monitor adherence by these firms to multinationals’ codes of conduct include using internal agents, such as expatriates or ‘flying’ visits by headquarters or regional staff, external agents such as local buyers and auditors. (cont.)

26. Chapter summary (cont.) It should be noted in conclusion that there is a wealth of literature covering comparative management and HR systems. We drew a little on this literature to highlight general HR issues in the host context that multinational firms confront and deal with. However, it was not our intention to cover in detail specific host-country cultures and management practices as that is outside the scope of this book. Our aim has been to raise issues relating to IHRM in the multinational context from the perspective of the subsidiary.