HRM Transfers in Multinational Corporations: Key Challenges

Introduction: HRM in a Global Context

Human resource management is quickly becoming a contentious issue for multinational corporations, irrespective of their home country. Talent and competition now know no boundaries. Companies that once dominated particular regions or demographic territories must now compete on both a global and local level, presenting an interesting dynamic as it relates to HRM practices. Larger corporations must now compete at a granular level, creating complexities within the overall HR function itself. Countries have different rules of law, customs, societal norms, and regulations. What may be acceptable in the United States may be entirely unacceptable in China or Germany. Therefore, multinational corporations must be especially careful when attempting to utilize HRM practices at a local level. This is particularly true for subsidiaries that often possess specialized market knowledge that the parent company may not have.

Bjorkman and Lervik note in their opening remarks that HRM transfers are often unsuccessful. They state that the reasons for such failures can be distilled into three categories: implementation, internalization, and the over-integration of HRM practices. Much of the literature on this issue confirms Bjorkman and Lervik's assessment of the overall transfer of HRM practices.

Implementation Challenges and Subsidiary Strategies

HRM practices are transferred to expand "best practices" throughout the firm. It is believed that spreading these practices will enable the firm to better compete on both a global and local level for talent. This consistency is thought to help establish a strong corporate culture while eliminating deviations from the desired HRM outcome. The problem, as outlined by Bjorkman and Lervik, is that overall implementation does deviate substantially with respect to each subsidiary. In fact, two identical subsidiaries could produce completely different results, due almost entirely to how they implement the corporate HRM system. This is often because subsidiary strategies differ significantly.

The range of multinational corporation subsidiary strategies is described in Perlmutter's (1969) and Bartlett and Ghoshal's (1989) well-known classifications, outlined as follows:

• Ethnocentric, global strategy: control is centralized and subsidiaries resemble the parent company.
• Polycentric, multi-domestic strategy: control is decentralized and subsidiaries conform to local practices.
• Geocentric (or regiocentric, as added by Perlmutter & Heenan, 1974), transnational strategy: subsidiaries adhere to regional standards as part of the overall organizational network.

As a result, the overall implementation of HRM practices may vary depending on whether the firm is ethnocentric, polycentric, or geocentric. Based on this classification, subsidiaries can take on differing roles, such as the local adaptation of products within their respective jurisdictions. For example, a subsidiary of General Motors may provide specialized expertise for the company, or it may operate under a worldwide mandate to deliver a particular product or service (Dicken, 2003). Consequently, the overall HRM strategy of multinational corporations can vary based on the extent to which firms want or need to adapt practices to local conditions. This standardization is often highly coveted by multinational organizations (Almond, Edwards, & Clark, 2003). However, standardization is not without its drawbacks. For instance, it can lead to conflict between a company's practices and the prevailing conditions of the local markets in which the subsidiary operates, including national cultural phenomena, institutions, and business systems.

The Role of Culture in HRM Transfer

Another significant challenge to the effective transfer of HRM practices is culture (Bird & Beechler, 1995; Ferner, 1997). This encompasses both the individual corporation's culture and the culture of the society in which it operates. Culture, although intangible, has a profound impact on how HRM practices are actually implemented throughout a global corporation. What works effectively in one region of the world may have the opposite effect in another.

This can be largely attributed to deeply embedded cultural values. For example, United States corporations are often centralized, more formal, and tend to emphasize avoiding union recognition. In contrast, Japanese MNCs typically feature strong but informal centralized co-ownership, managed through a network of Japanese expatriate managers. They are collectivistic by nature and frequently emphasize the group over the individual, whereas the United States tends to celebrate the individual who stands out among peers. As a result of this stark cultural contrast, HRM practices will inevitably be implemented differently across these contexts.

These core values are strongly embedded within their respective regions. Americans hold a core value of individuality and the pursuit of personal happiness. If an organization attempts to impede this core value, a clash arises that may adversely affect the overall HRM practices of the MNC. Cultural values are closely tied to an organization's ability to achieve legitimacy within the society in which it functions, accomplished by adhering to those core values. HRM practices will be under threat wherever congruence with these core values is not achieved.

Conclusion

HRM transfers within a multinational context are very difficult. They require not only knowledge of the parent company's culture and priorities, but also a thorough understanding of local markets. As discussed, culture can have a very large impact on the overall implementation of HRM practices, further complicating the issue through potential conflicts between the parent company's core values and those of the subsidiary. Beyond the company itself, the firm must also contend with the prevailing culture of the area in which it operates, adding yet another layer of complexity to HRM transfer.

Finally, the firm must compete with prevailing macroeconomic factors within the subsidiary's market. Unfortunately, these factors are often beyond the control of the parent company yet can still have an adverse impact on HRM transfer. However, a strong understanding of the desired outcomes can substantially improve the results of HRM transfer. By employing the strategies outlined above, a multinational corporation will be better positioned to effectively transfer its HRM practices across borders.

References

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