Multinational Companies Essay

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Globalisation has presented business organisations with an opportunity to do business internationally. Today, multinational corporations (MNCs) are prevalent, with many commanding immense power in the global marketplace. Nonetheless, operating in the global scene is usually not a straightforward undertaking. The global business environment presents numerous complexities, which MNCs must effectively deal with if they are to be successful (Noorderhaven and Harzing, 2003).

One of the major complexities MNCs face relate to human resource management (HRM). Indeed, managing human resources in the international context can be a daunting task. This is particularly because of considerable cultural, institutional, economic, and political differences across countries (Thite, Wilkinson and Shah, 2012). National (country-of-origin) characteristics tend to influence how MNCs behave in the host country. They influence not only corporate strategy, but also the kind of HRM practices MNCs adopt in the host country (Sethi and Elango, 1999; Yu, Park and Cho, 2007; Cox, 2014; Chung and Furusawa, 2015). For their subsidiaries or overseas operations, MNCs often have to choose between home-country HRM practices and host-country HRM practices. With reference to literature and real life examples, this paper discusses the impact of country of origin on strategic HRM practices in MNCs. The paper specifically demonstrates how national characteristics affect the transfer of HRM practice, how the transfer occurs, and which HRM practices are more likely to be transferred than others.

The Country-of-Origin Effect



While MNCs may be considered 'nationless' organisations, most of them tend to be "strongly rooted in their country of origin" (Noorderhaven and Harzing, 2003: 2). This is referred to as the country-of-origin effect. Defining the country-of-origin effect may be quite problematic, but the concept generally means that firm behaviour largely reflects the characteristics of the firm's home country. This phenomenon is extensively supported by literature (Sethi and Elango, 1999; Ferner, Quintanilla and Varul, 2001; Yu, Park and Cho, 2007; Cox, 2014; Chung and Furusawa, 2015). It is important to note that the home country does not necessarily mean the location of the MNC's headquarters as MNCs may from time to time relocate their corporate headquarters for tax reasons. Rather, the home country refers to the country to which a MNC attributes its historical experiences and institutional foundation (Noorderhaven and Harzing, 2003). IKEA, for instance, the largest furniture retailer globally, is headquartered in The Netherlands, though the firm has a Swedish origin.



The country-of-origin effect stems from three major factors: economic factors (e.g. physical resources and industrial capacity), culture (e.g. values and institutional norms), and political factors (e.g. government regulations and policies) (Noorderhaven and Harzing, 2003). These factors significantly shape the behaviour of firms in the business environment (Sethi and Elango, 1999). They affect how firms strategize, compete, and manage personnel. Cultural theory, particularly Geert Hoftede's cultural dimensions model, demonstrates that significant differences exist between countries in terms of culture (Noorderhaven and Harzing, 2003). Some countries tend to be individualistic (prioritise individual wellbeing) and others collectivist (prioritise group wellbeing). Some are characterised as high power distance societies (accept unequal distribution of power and authority) and others as low power distance societies (promote equality). These intrinsic characteristics influence how individuals within a given society think, behave, and relate with one another (Pudelko and Harzing, 2007). Based on this premise, a lower power distance society is more likely to encourage greater autonomy and participative decision making at the workplace compared to a high-power distance society.



Countries differ in terms of not only culture, but also politics and institutions. This is explained in institutional theory, which asserts that regulatory, normative, and cognitive aspects shape the behaviour and actions of entities within a given society (Noorderhaven and Harzing, 2003). For instance, the U.S., UK, and most Western nations value equality and democracy. This is reflected in the institutions and laws these countries have enacted. As an example, these countries have instituted policies aimed at promoting equality and diversity at the workplace. Such policies have significant implications for firms as they must make HRM decisions that are consistent with those policies. On the whole, cultural and institutional characteristics affect organisational structures, organisational forms, personnel management practices, decision making processes, and virtually every aspect of firm behaviour.



The Japanese manufacturing industry provides a perfect example of the phenomenon of the country-of-origin effect and its implications on firm behaviour, particularly in an increasingly globalised business environment. Against the backdrop of tremendous growth of the Japanese economy in the 1980s, Japanese firms invested in a great deal of foreign direct investment (FDI) (Yu, Park and Cho, 2007).
This background provided an opportunity for Toyota, Honda, and Nissan to expand their presence around the globe. As a result, the transferability of the Japanese style of management attracted scholarly attention from all over the world. Today, Japanese firms remain prominent sources of management lessons for firms in diverse sectors and industries around the world.

Country-of-Origin Effect and HRM Strategy in MNCs



Broadly speaking, MNCs have two choices when it comes to international human resource management (IHRM). One of the options is to transfer home-country practices to the host country. This option essentially involves adopting a uniform HRM strategy internationally -- from the home country to the host countries (Chung and Furusawa, 2015). In other words, HRM practices in overseas operations are deliberately designed to reflect home-country practices. Empirical evidence provides strong support for the influence of country of origin on MNC's HRM strategy in overseas operations, especially for American, European, and Japanese MNCs (Ferner, 1997; Noorderhaven and Harzing, 2003; Yu, Park and Cho, 2007). The evidence shows that country of origin is the foremost predictor of the mechanisms MNCs use to control their foreign subsidiaries. In using the same HRM strategy across the board, MNCs hope to achieve consistency in their global HRM policy.



Whereas MNCs make deliberate choices regarding their HRM strategy in foreign countries, the decisions tend to be driven by subconscious values and beliefs largely influenced by cultural and institutional factors (Noorderhaven and Harzing, 2003). Generally, MNCs operate in the home country prior to internationalisation. Being setup in the home country means that a firm has to make organisational decisions that mirror the culture and institutions of the home country. In other words, the firm's decision makers are inherently driven by the cultural and institutional environment in which they have grown up. For instance, since the U.S. and the UK as societies are characterised by low power distance as per Hofstede's cultural dimensions model, American and British managers are likely to favour autonomy and decentralised decision making at the workplace. This orientation has a significant impact on remuneration practices, training and development procedures, unionisation, working arrangements, work conditions, participation, and other HRM aspects (Yu, Park and Cho, 2007).



Even when acting in the international environment, American and British managers are likely to behave in the same way they behave in the home country -- they are inherently wired to act in a certain manner. MNCs like Standard Chartered, PricewaterhouseCoopers (PWC), Unilever, and Procter and Gamble are good examples. A closer look at these firms' HRM strategies across their international operations -- from recruitment to training and development and performance management -- reveals significant similarities between practices in the home country and practices in foreign subsidiaries.



On the contrary, Chinese or Korean managers are likely to favour bureaucratic and hierarchical procedures since China as a society is characterised by high power distance. Based on this premise, it would not be unusual for Samsung and Lenovo executives managing the firms' subsidiaries in Europe or North America, for instance, to make and enforce managerial decisions that exemplify the characteristics of a high-power distance society. In other words, as Samsung and Lenovo are strongly rooted in the Asian culture, their HRM practices in their foreign subsidiaries are likely to reflect home-country practices.



Literature has extensively demonstrated the influence of the country-of-origin effect on HRM strategy in MNCs. In a study of 419 American, European, and Japanese subsidiaries operating in Korea, Yu, Park and Cho (2007) found that the country-of-origin effect significantly influenced the MNCs' choice between transplantation and localisation strategies. The study specifically established that American and European MNCs were more likely to use a mixture of the two strategies, while Japanese MNCs tended to use the localisation strategy. Transplantation involves transferring home-country HRM practices to the host country, while localisation involves adapting the HRM strategy to the local environment. Some firms may choose to use both transplantation and localisation -- a mixed strategy. The impact of the country-of-origin effect on MNC HRM strategy has also been reported elsewhere (Ferner, 1997; Ngo et al., 1998; Zhang and Edwards, 2003; Ferner, Quintanilla and Varul, 2001; Pudelko and Harzing, 2007; Hussein and Kachwamba, 2009; Thite, Wilkinson and Shah, 2012; Chung and Furusawa, 2015).



Whereas there is overwhelming evidence that the country-of-origin effect influences the type of HRM strategy MNCs implement in their foreign subsidiaries, some studies have reported conflicting.....

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References

Chung, C. and Furusawa, M., 2015. The HRM of foreign MNCs operating in Europe. Discussion Paper No. JHD-2015-04, The John H. Dunning Centre for International Business.

Cox, A., 2014. Human resource management in multinational companies. In H. Hasan (Ed.), Being Practical with Theory: A Window into Business Research (pp. 159-167). Wollongong, Australia: Theori.

Ferner, A., 1997. Country of origin effects and HRM in multinational companies. Human Resource Management Journal, 7(1), 19-37.

Ferner, A., Quintanilla, J. and Varul, M., 2001. Country-of-origin effects, host-country effects, and the management of HR in multinationals: German companies in Britain and Spain. Journal of World Business, 36(2), 107-127.

Hussein, A. and Kachwamba, M., 2009. The influence of country-of-origin on human resource strategy of multinational companies in developing countries. Computer Science and Information Technology -- Spring Conference, 2009.

Ngo, H., Turban, D., Lau, C. and Lui, S., 1998. Human resource practices and firm performance of multinational corporations: influences of country of origin. The International Journal of Human Resource Management, 9(4), 632-652.

Noorderhaven, N. and Harzing, A., 2003. The "country-of-origin effect" in multinational corporations: sources, mechanisms and moderating conditions. Management International Review, 43(2), 47-66.

Pudelko, M. and Harzing, A., 2007. Country-origin, localisation, or dominance effect? An empirical investigation of HRM practices in foreign subsidiaries. Human Resource Management, 46(4), 535-559.

Sethi, S. and Elango, B., 1999. The influence of "country of origin" on multinational corporation global strategy: a conceptual framework. Journal of International Management, 5, 285-298.

Thite, M., Wilkinson, A. and Shah, D., 2012. Internationalisation and HRM strategies across subsidiaries in multinational corporations from emerging economies -- a conceptual framework. Journal of World Business, 47(2), 251-258.

Yu, C., Park, W., and Cho, Y., 2007. MNCs' HRM strategy and country of origin effect: Do North American, European and Japanese firms really differ? Management Revue, 18(4), 392-409.

Zhang, M. and Edwards, C., 2003. HRM practice and the influence of "the country of origin" in Chinese MNC's operating in the UK. Paper for IIRA 13th World Congress, Berlin, September 9-12, 2003.

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