HRM in Multinational Companies

Anthony Ferner

INTRODUCTION
CHARACTERISING IHRM AS A FIELD OF STUDY
THE EVOLUTION OF HRM IN MULTINATIONALS AS A FOCUS OF
STUDY
THE SUBSTANTIVE FOCUS OF IHRM
THEMATIC AND CONCEPTUAL CONCERNS
THE ROLE OF THE FUNCTION IN MULTINATIONALS
METHODOLOGICAL APPROACHES TO THE STUDY OF IHRM
CONCLUSIONS: FUTURE DIRECTIONS IN INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
NOTES
ENTRY CITATION

INTRODUCTION
This chapter considers the management of human resources across borders within
multinational companies (MNCs). This will be referred to as international human
resource management (IHRM). The term has been used in a variety of ways in the
literature, and one of the tasks of the chapter will be to clarify the terrain to which it
refers. The chapter first assesses the meaning of IHRM and its evolution as a field of
study. Second, it summarises the conceptual, substantive and methodological
preoccupations of work in this area. Among the issues reviewed is one of the defining
questions of IHRM, the travel of policies and practices between countries: the
conditions under which such diffusion takes place, the nature of the diffusion process,
and the impact of host environments on transferred practices. Also examined is the
nature of IHRM as a management function: how it is structured, how it is evolving,
and the characteristics that distinguish it from HRM in a domestic setting. Finally, the
chapter considers areas where the understanding of IHRM is underdeveloped and
suggests some directions for the evolution of IHRM research in the future.

CHARACTERISING IHRM AS A FIELD OF

STUDY
The definition of IHRM is a vexed question since, as argued below, the focus of the
area has been excessively narrow. A relatively broad perspective on IHRM is captured
in the following definition from Taylor et al. (1996: 960). An MNC's IHRM system is:
The set of distinct activities, functions and processes that are directed at attracting,
developing and maintaining an MNC's human resources. It is thus the aggregate of the
various HRM systems used to manage people in the MNC, both at home and
overseas.

The essence of IHRM, which distinguishes it from HRM in domestic companies, is

that it deals with the management of employees across countries, and hence across
different systems for organising business in general and human resources in particular.
1
For this reason, there is a strong overlap between IRHM and the field of
comparative HRM (see chapters 9 and 28 in this volume). Taylor et al.'s definition
points to a crucial question: what is the relationship between HRM systems within
different national operations of an MNC, and HRM systems within the MNC that
transcend national borders? The fact of operating across borders would not matter if
national systems were highly convergent. But, despite debates about convergence
stemming from globalisation, significant differences remain (and indeed new ones
emerge) in how countries organise business activity and, more specifically, the
management of employees (e.g. Brewster et al., 2004).
Akey question for IHRM is how to conceptualise such cross-national differences.
Until recently the dominant paradigm has been based on cultural values, largely
drawing on the work of Hofstede (1980). This perspective suggests that persistent
differences in cross-national behaviour derive from fundamental divergences in deepseated, long-lasting values. Explanatory models, drawing on Hofstede's dimensions,
have been used, for example, in pay practice (e.g. Newman and Nollen, 1996; Roth
and O'Donnell, 1996; Schuler and Rogovsky, 1998); in employment discrimination
(Lawler and Bae, 1998); in upward appraisal (Adsit et al., 1997); and more generally
in assessing the transfer of HR practices (e.g. Ngo et al., 1998).
The cultural values perspective has had an important role in drawing attention to the
difficulties of one-best-way models of IHRM. The underlying questions (cf. Clark et
al., 1999: 520) are: how can multicultural organisations be managed, and to what
extent are modifications necessary to parent-country culture in an MNC's operations
abroad? Despite its contribution, it is difficult to discern quite why this particular,
essentially idealist, approach to national difference has had such a pervasive impact.
One explanation may lie in the ease with which value dimensions can be reduced to
aggregate scores that allow simple, if less than enlightening, cross-country
comparisons. The methodological basis and explanatory value of the approach have
been questioned, both from within and outside a culturalist perspective (see e.g.
Gerhart and Fang, 2005; McSweeney, 2002). And, as Clarket al. (1999: 521) note,
cultural variables are commonly introduced ex post as explanatory variables without
an a priori explanation of their content and origins. Despite such concerns, the
influence of the culturalist approach is still strong, reflected in the formation of a
new journal in 2000, the International Journal of Cross-cultural Management,
underpinned by concerns with cross-cultural differences in values.
In recent years, writers on IHRM have increasingly adopted a more institutionalist
perspective to understanding cross-national differences (e.g. Edward and Rees, 2006;
Kostova, 1999). The essence of a comparative institutionalist approach (e.g.
Campbell, 2004; Crouch, 2005; Hall and Soskice, 2001) is to seek explanations for
differences in behaviour in the way in which economic activity is structured within
national business systems. This involves the careful analysis of the formal and
informal institutions that have evolved over time to govern business activity. For
example, the way in which firms relatetoeach other in markets, how economies
generate the skills they need, the division of labour and the definition of tasks within
productive activity, the governance of firms, the legislative framework set by national

states, and systems for the management of firmemployee relations all suppose
distinctive institutional arrangements that cannot be deduced from differences in a
handful of cultural values dimensions.
This is not to say that cultural value differences are irrelevant, merely that by
themselves they are inadequate forms of explanation; they do not capture real
differences in the ways in which economic activity is organised in different countries,
and throw little light on processes of change and evolution within business systems.
The real question is how values and norms inform and in turn are shaped by the
evolving institutions that govern economic life as actors with real power and
distinctive interests construct institutional arrangements, modify them and are in turn
constrained and shaped by them.
From this perspective, the core of IHRM as a field may be characterised as how
MNCs manage workforces spread over multiple national-institutional domains,
often with very different ways of organising business activity. Variations between
such institutional domains are generally more significant than those found within any
single domain. This is not to say that national institutional arrangements are
homogeneous. But the national level, coordinated by the actions of an overarching
national state, is key to understanding variations in institutional context faced by
MNCs in different host environments. Many national institutional sub-systems, such
as industrial relations machineries, vocational education and training, or the legal
framework of employee or union rights, have a very direct influence on how MNCs
operate in the terrain of HRM. Other sub-systems e.g. financial markets or firm
governance structures may have more indirect (though still powerful) influence on
how employees are managed.
There is relatively little work on comparative HRM per se. Yeung and Wong (1990)
devised a matrix capturing two dimensions of variation: an emphasis on performance
versus an emphasis on individual welfare; and a reliance on internal versus a reliance
on external labour markets. However, as Schuler et al. (2002: 57) note, the utility of
the model is limited by the failure to consider the role of the state, or to incorporate
macro-level relations between employers, the state and organised labour. More
sophisticated, comparative-historical approaches (e.g. Jacoby, 2004) appear to offer a
fruitful way forward for generating an understanding of the critical variables. Jacoby's
study of the evolution of the HRM function in US and Japanese firms highlights such
factors as state intervention and regulation, the nature of corporate governance, the
degree of labour unrest and the tightness of labour markets as drivers of the HR
function's role.
The existence of institutional differences between countries would not matter if
MNCs were merely collections of quasi-autonomous national subsidiaries orientated
to their respective local markets. Increasingly, however, such a model of multinational
organisation is the exception as firms try to exploit economies of scale or of the scope
for international organisational learning by coordinating their activity across countries
(Bartlett and Ghoshal, 1998; Dicken, 2003). Such coordination may involve, for
example, the international standardisation of processes and products. This may have
profound implications for HRM: in order to provide a standardised product to
customers globally, firms may seek to standardise skills and training across countries.
On this model, local pressures are constraints on the global coordination of MNCs'

activities. However, as Edwards and Kuruvilla (2005) point out, local institutional
variation is also an opportunity for coordinating activity in a segmented way through
an international division of labour or global value chain (e.g. Wilkinson et al., 2001).
In segmented coordination, corporate decision-makers exploit national institutional
differences in order to configure global value chains in the most effective manner, e.g.
by locating low skill operations in countries whose labour markets are poorly
regulated and where labour costs are low.
Some writers have criticised the focus on national difference as a key explanatory
variable. Colling and Clark (2002), for example, stress the importance of sector, and
writers such as Katz and Darbishire (2000) argue that international competition leads
to increasing convergence between firms within global sectors (with similar markets,
technologies, skills requirements, and so forth), and growing divergence between
firms in different sectors within the same country. Nonetheless, the importance of
sector does not undermine a comparative institutional perspective. Sectoral
governance structures are, for instance, often nationally specific (e.g. Hollingsworth et
al. 1994), while MNCs of different nationality tend, for reasons Porter (1990) would
ascribe to competitive advantages rooted in national economies, to concentrate
activities in particular sectors. Competition in the world economy takes place on the
basis of skills, resources and competitive advantages that are located within specific
institutional configurations in different host countries. The question, therefore, is how
national-institutional factors interact with sector, and how such interaction influences
IHRM.

THE EVOLUTION OF HRM IN

MULTINATIONALS AS A FOCUS OF STUDY
As Briscoe and Schuler (2004: chapter 1) have claimed, IHRM is of very recent
development as an area of practice and research; it was only from the 1990s, for
example, that the Global Forum of the US Society for Human Resource
Management (SHRM) became more than a fairly small group of senior IHR
managers from the large US MNEs concerned primarily with expatriates and the
establishment of local subsidiaries (p. 27). Practitioner concern grew in the 1980s and
1990s, in step with the growth in the number of transnational corporations, and in
their transnational-ity index, a measure of the extent of their operations outside their
domestic base (UNCTAD World Investment Report, various years).
Academically, the period was marked by the foundation of the International Journal
of Human Resource Management in 1990. In their valuable review, Clark et al. (1999)
identified 118 articles on IHRM from 29 journals (and 200 more on comparative
HRM) published between 1977 and 1997. Growth subsequently accelerated: over the
following nine years (19982006), the International Journal of Human Resource
Management alone published more than 160 articles primarily concerned with IHRM
(author's categorisation); in 2001 the journal moved from six to eight issues a year,
and in 2005 to 12 issues a year.

THE SUBSTANTIVE FOCUS OF IHRM

The substantive range of IHRM research has been rather narrow. The single most
significant focus of attention, driven by policy and practice concerns, has been the
theme of expatriates. Nearly 30 per cent of IHRM articles in the International Journal
of Human Resource Management are primarily concerned with expatriates (author's
classification). Questions concerning the selection, training, adjustment,
compensation, repatriation, and failure of expatriates continue to be the standard fare
of this strand of research. Latterly, women expatriates have provided an additional
focus (e.g. Adler, 2002). Sometimes, expatriates have been considered in the broader
context of global staffing issues (e.g. Harvey et al., 2001). A much smaller, and
theoretically more resonant, element concerns the functions performed by expatriates,
going back to the classic work of Edstrm and Galbraith (1977); more recent work
looks at the role of expatriates in knowledge diffusion (e.g. Delios and Bjrkman,
2000; Novicevic and Harvey, 2001) and in systems of corporate control (Harzing,
1999). Expatriates have also been the focus of IHRM teaching, dominating graduate
IHRM textbooks (e.g. Dowling et al., 1999; Briscoe and Schuler, 2004); discussion of
substantive HR issues such as planning, selection, remuneration, and training and
development concentrates on expatriate employees. Even the text by Scullion and
Linehan (2005), which claims to go beyond expatriates, ends up focusing strongly on
the issue. The preoccupation with this group of employees is seen by Schuler et al.
(2002) as reflecting the ethnocentric bias of North American scholars: it is consistent
with efforts by US MNCs to manage foreign operations through parent-country
nationals. In recent years, the balance of the literature has shifted somewhat to
examine what might be termed functional alternatives to expatriates international
task forces, short-term assignments, virtual teams and the like (e.g. Harvey et al.,
2005; Snell et al., 1998; Tregaskis et al., 2005).
While expatriate concerns have dominated the agenda, HR issues such as pay have
received significant attention in their own right. In pay and performance management
there has been concern with the development of culturally sensitive global
remuneration policies (e.g. Schuler and Rogovsky, 1998); Lindholm et al. (1999)
found that performance appraisal systems of European MNCs' Chinese subsidiaries
had to be significantly adapted to local culture. Liberman and Torbirn (2000) looked
at an MNC's supposedly standardised regional performance assessment programme in
eight European countries and found wide variations in implementation across
countries, from total adherence to complete absence of quantitative performance
assessment of individuals among non-managerial staff (p. 47). Much of this work
sees national difference primarily in terms of cultural values (e.g. Newman and
Nollen, 1996; Schuler and Rogovsky, 1998), but other work is more concerned with
institutional differences and their impact on MNCs' pay and performance systems
(e.g. Almond et al., 2006).
Other individual aspects of HRM have less often been the subject of attention, though
there is work on management development (e.g. Evans et al., 1989; Butler et al.,
2006); training (e.g. McPherson and Roche, 1997); recruitment (e.g. Gump, 2006);
and workforce diversity or equal opportunity policy (Cole and Deskins, 1988; Ferner
et al., 2005; McGauran, 2001). In the 1960s and 1970s, there was considerable debate,
largely in IR rather than in the personnel management literature, concerning MNCs'
impactonnational IR systems, particularly collective bargaining and workforce
representation (e.g. Kujawa, 1979; Roberts, 1972). Considerable attention was paid to
the implications of MNCs' strategic advantages for union power (e.g. ILO, 1976).

However, there was little on these aspects of IR from a managerial perspective, as

Clark et al. (1999) note.
The impact of MNCs on IRh as continued to be a major strand of research, although
not in mainstream HR literature. In recent years, the IR literature has engaged with
supranational developments, such as the impact of the European Union on
employment relations in MNCs for example, the workings of European works
councils (e.g. Marginson and Hall, 2004), and the emergence of cross-national
bargaining (e.g. Sisson, 2006). 2 A further strand relates to employee voice, notably
the balance between direct forms of managementemployee communication and
indirect forms through employee representatives and unions (e.g. Tselmann et al.,
2003; Wood and Fenton-O'Creevy, 2005). IR scholars have also continued to examine
how work organisation in MNCs varies between different host institutional settings
(e.g. Edwards et al., 1999; Kristensen and Zeitlin, 2005; Meardi and Tth, 2006),
again a topic largely ignored in HRM (cf. Clark et al., 1999). Of particular interest has
been the international dissemination of lean production and other work organisation
techniques by Japanese MNCs (e.g. Dedoussis, 1995; Delbridge, 1998; Doeringer et
al., 2003; Elger and Smith, 2005). Finally, the influence of labour costs, national IR
systems and employment regulation on locational decision-making by MNCs is an
important theme (e.g. Bognanno et al., 2005; Traxler and Woitech, 2000); it also crops
up occasionally in the mainstream HRM literature (e.g. Cooke, 2001). An important
strand of argument concerns regime-shopping (Streeck, 1997): the extent to which
MNCs are able to exploit low labour standards in host locations to force concessions
from more protected systems, a process characterised as the race to the bottom.

THEMATIC AND CONCEPTUAL CONCERNS

Strategic contingencies and IHRM strategies
Work on IHRM has tended to exhibit a series of unifying thematic and conceptual
concerns. One of the most pervasive, frequently drawing on the work of Bartlett and
Ghoshal (1998 (1989)), explores the tension between the opposing needs for global
coordination of activities within the MNC and for local responsiveness to the
particularities of host cultures, markets and institutions (e.g. Bloom et al., 2003; De
Cieri and Dowling, 1999; Kostova, 1999; Rosenzweig and Nohria, 1994; Schuler et
al., 1993). This is sometimes expressed as the balance between integration through
inter-unit linkages, and differentiation to allow operating units to react to local
environments (Schuler et al., 1993). HR systems staff selection, acculturation,
training, international career management, etc. are seen as cross-national integration
mechanisms, particularly in less traditional MNCs that rely more on integrated
networks than traditional, hierarchical command-and-control structures.
Relatedly, many scholars have modelled the contingencies facing IHRM decisionmakers, often using frameworks based on the integrationdifferentiation
dichotomy (e.g. Schuler et al., 1993; Tayeb, 2005). Writers have typically drawn on
Lawrence and Lorsch's (1967) notions of strategic contingency. Factors as diverse as
firm size, mode of entry, the nature of markets, technology, employee characteristics
and stage of internationalisation have been seen as impacting on strategic IHRM

decision-making (cf. Budhwar and Debrah, 2003). Such work emphasises the need for
fit between IHRM strategy and the internal and external environments of the MNC.
An example of a prescriptive model based on a strategic contingency approach is that
of Bird and Beechler (1995), in their study of Japanese subsidiaries in the USA. They
classify the external environment according to the degree to which competition is
local or global. Competitive strategies can be based on cost leadership or product
differentiation. They argue, for example, that cost leaders with high international
integration should adopt a utiliser HRM strategy, in which HR resources are
deployed throughout the firm as efficiently as possible, with a lean workforce.
However, this strategy is less effective where the firm has to adapt to local markets.
Among the most widely cited models is that of Dowling and de Cieri (1999; see also
Schuler et al., 1993). They outline a series of exogenous factors, such as industry
characteristics and national culture, and of endogenous factors, such as
organisational life cycle, structure, strategy and entry mode. These shape the strategic
role of IHRM in determining which HR functions should be devolved and which
centralised, the level of resources devoted to IHRM, and the overall HRM approach.
While such models usefully draw attention to the range of factors impinging on
IHRM, they may be criticised for a rather abstract and static approach, the
proliferation of contextual variables, and the concern with the management of senior
and international managers rather than the workforce as a whole. They also tend to be
prescriptive in nature, and the evidential basis for their prescriptions is not always
clear.

The travel of ideas

The most widely examined of the factors generating differentiation and local
responsiveness is national difference. A fundamental question, widely addressed in the
literature, is the nature of cross-national transfer of HR policies and practices within
MNCs, or to use Czarniawska and Joerges' (1996) resonant phrase, the travel of
ideas. Under what conditions and with what rationale does transfer take place? What
kinds of HR tend to be transferred (and which do not)? What are the mechanisms
through which HR practices are disseminated from parent to foreign affiliates (or vice
versa)? What happens to such practices on implementation in different nationalinstitutional contexts?
The conditions under which practices are transferred can be said to rest on two
fundamental factors: the value that corporate policy-makers perceive in transfer; and
the feasibility of transfer or to put it simply, motive and opportunity. Taylor et al.
(1996) draw on the resource-based view of the firm to delineate motive in terms of
the desire to attain competitive advantage through the deployment of resources that
are rare, valuable and difficult to imitate. They establish a typology of IHRM
strategies according to whether firms have an exportive, adaptive or integrative
HR orientation. The first seeks to export parent-country practices to foreign affiliates,
the second to let local operations adapt to their environment, and the third to take the
best approaches and use them to create integrated world-wide systems. In exportive
and integrative strategies, senior policy-makers see the cross-national dissemination
of HR practices as a source of international competitive advantage. Other things being
equal, one may predict, as Edwards and Rees (2006: chapter 5) argue, that MNCs

whose global coordination is based on standardisation of operations are likely to see

a competitive advantage in diffusion. Conversely, in MNCs with an internationally
segmented division of labour (e.g. Dedoussis, 1995), there may be little perceived
advantage in disseminating standard global HR practices to operations whose
function, skills and resources are quite different from those of other parts of the MNC.
In terms of opportunity, Taylor et al. (1996) refer to the context-generalisability of
HR practices, that is to say, the degree to which they are capable of operating
effectively outside their original context. Such conditions may vary according to the
role of the subsidiary within the wider MNC, and to the employee group involved
the parent's desire to exert cross-national control over an employee group will, for
example, depend on the extent of company-specific specialist skills and knowledge
within the group. Factors such as mode of entry may also affect contextgeneralisability: greenfield sites may favour transfer because there is no entrenched
heritage of practices capable of resisting the importation of novel practices; the
reverse is true of acquired brownfield operations (e.g. Guest and Hoque, 1996).
There is extensive literature examining the specific factors that underlie these two
conditions (e.g. Doeringer et al., 2003; Edwards and Ferner, 2003; Edwards and Rees,
2006: chapter 5; Kostova, 1999). National-institutional factors play an important role.
MNCs are likely to draw competitive advantage, not merely from company-specific
factors, but from the specific institutions of their parent-country business system (cf.
Hall and Soskice, 2001; Porter, 1990). They are likely to seek to be innovators abroad
in such areas. In the field of HR, US MNCs have traditionally sought to innovate in
such areas as payment systems (performance-related pay, performance appraisal,
equity-based pay, productivity bargaining, etc.) (e.g. Bloom et al., 2003; Buckley and
Enderwick, 1985).
A central element in the international competitive advantage and context-generalisability of practices has been the status of the originating business system in the
hierarchy of economies within the global economic system. The strength of
dominant economies, such as the USA, creates a belief in the efficacy of its HR
practices and a dynamic of emulation that Smith and Meiksins (1995) refer to as
dominance effects, facilitating transfer. Thus there is considerable evidence that US
MNCs propagate standardised international HR practices and exert control over
subsidiary HR to a greater extent than do MNCs of other nationalities (e.g. Edwards et
al., 2007).
However, context-generalisability depends on the extent to which national
innovations for example, in skills systems can be detached from their domestic
context. If practices rely on dense inter-relationships between a range of stakeholders
and specific institutions, their ability to function outside these settings is questionable.
Such arguments have been made about the German dual system of vocational
education (e.g. Dickmann, 2003) and about the Japanese system of lifetime
employment(Gill and Wong, 1998). Transferability likewise depends on the host's
receptivity, which is influenced by the degree of regulation of HR and employment
issues, the existence of appropriate institutional supports for transferred practices, and
so on. There have been attempts to assess the distance between different national
settings as a prime explanatory factor in the transfer of HR practices. Writers have
used the notion of cultural distance (e.g. Kim and Gray, 2005) to explain the

presence or absence of transfer, normally based on differences in aggregate scoreson

Hofstede's value dimensions (Kogut and Singh, 1988). More recently, writers have
tried to incorporate a wider range of national differences through the concept of
institutional distance (e.g. Kostova, 1999; Xu and Shenkar, 2002). Kostova has
operationalised the country institutional profile to capture elements of regulatory,
cognitive, and normative institutions within the country of origin and the host country
respectively. This has been applied in relation to the use of expatriates (e.g. Gaur et
al., 2007), and to expatriate adjustment (e.g. Ramsey, 2005). One problem with such
measures is that the implications of distance are ambiguous, as Kim and Gray (2005)
point out: some speculate that greater distance reduces transfer of HR practice, while
others argue that parent companies' desire to control for uncertainty in culturally or
institutionally distant locations leads to greater transfer in such cases.
There is an abundance of literature detailing the obstacles to transfer of HR practices
between countries. Tung and Worm (2001), for instance, point to the problems of
centralised control of foreign subsidiaries in China: such control impedes attempts to
link into the personalised networks (guanxi) that typify Chinese business relations.
Similarly, Lind holmetal. (1999) found that performance appraisal systems transferred
to Chinese subsidiaries could not function as they did in the global company: goals
had to be achievable because of the risk of loss of face; there was little joint agreeing
of objectives, reflecting the strength of hierarchical relations; and it was difficult to
make direct criticism of appraisees.
HR practices have been assessed in relation to their susceptibility to local institutional
(or cultural) influences. For example, an international consortium of scholars
(Geringer et al., 2002) investigated whether there were distinctive categories of
context free HR practice, that is, practices [that] may generally be applicable and
effective across different nations, regardless of the societal and organizational
contextual conditions (p. 6). In general, for a given host location, Rosenzweig and
Nohria (1994) suggest that practices for non-managerial staff are more likely to be
subject to local regulatory and other constraints. Other areas of HR, such as
management development and payment systems, are seen as less constrained and
hence more likely to be subject to the influence of the MNC's global policy
frameworks. Similarly, Morton and Siebert (2001) found that local managers possess
quite wide freedom concerning recruitment/retention outcomes in matched UK and
continental European plants of MNCs (p. 524). Rosenzweig and Nohria's argument
may have been shaped by the fact that the USA was the host location, and its
generalisability to other contexts may be questionable. Nevertheless there does seem
to be significant support for the notion that some HR/ER practices are more
susceptible than others to cross-national transfer. Large-scale survey-based research
on MNCs in the UK (Edwards et al., 2007) suggests that higher organisational levels
are less likely to influence the content of subsidiary policy on employment
representation than on pay and performance or management development; issues of
employee involvement are in an intermediate position.
While most studies focus on HR transfers by the parent to foreign subsidiaries, the
rise in interest in MNCs as sites of cross-national organisational learning (e.g. Bartlett
and Ghoshal, 1998), has generated investigation of the direction of transfer. In MNCs
that are increasingly integrated networks rather than top-down hierarchies, it is argued
that flows of knowledge including HR practices may proceed in any direction,

including from subsidiary to headquarters. Edwards (1998; Edwards et al., 2005) has
argued that such reverse diffusion depends on a variety of conditions internal and
external to the firm, such as the degree of international integration of the MNC and
the power relations between its constituent parts.
An innovative approach to transfer is taken by Schmitt and Sadowski (2003), who
examine transfer by US and UK MNCs to their subsidiaries in Germany in terms of a
model of fiscal federalism borrowed from public policy debates. Transfer takes place
where net benefits of transferring policy to the subsidiary outweigh net costs of
transfer. The costs of centrally diffusing policy include costs of monitoring,
overcoming resistance in the subsidiary, and infringing local custom and practice, if
not legal regulation. The costs of decentralisation include the loss of economies of
scale, equity issues arising from treating similar groups of employees differently in
different countries, and a loss of control and influence over the subsidiary. Schmitt
and Sadowski (2003) suggest that in the areas of collective bargaining and employee
representation, the German system imposes costs of centralization for MNCs that
outweigh costs of decentralization; MNCs therefore adapt to local practice.
The approach provides a flexible and powerful overall model that can accommodate
factors such as institutional differences as well as power relations within the MNC
(see below). However, it is limited in that it assumes that transfer is an either-or
process. In fact, there is considerable research showing that HR practices may be
transferred in a modified form, or undergo translation to the new context (cf.
Czarniawska and Joerges, 1996). As mentioned above, Lindholm et al. (1999) found
evidence that nominally standardised performance appraisal systems functioned
distinctively in Chinese subsidiaries. Similarly, examining innovative working
practices in the car industry, Scarbrough and Terry (1998) reported an adaptation
model of transfer in which the practice is adapted creatively to local circumstances
through the interactions of local unions and management. More radically, Boyer et al.
(1998) argue, on the basis of a study of work organisation in the automotive industry,
that transfer inevitably involves creative hybridisation, whereby an original practice
undergoes dynamic modification in order to work within a new institutional setting.
Kostova's work has thrown useful light on such modification processes. Working from
a new institutionalist perspective she distinguishes the implementation of a
transferred practice from its internalisation. The latter refers to the full assimilation
of the practice to the recipient employees' cognitive and normative frame so
freference (see also Saka's (2002) study of the internalisation of new working
practices in Japanese subsidiaries in the UK).
Underpinning concepts of HR hybridisation and similar notions are often implicit
perspectives on power. In reaction to the models of the corporation implicit in much
of the international business literature, writers have been concerned to characterise the
MNC as the site of intense micropolitics (e.g. Ferner and Edwards, 1995; Geppert
and Williams, 2006; Kristensen and Zeitlin, 2005). A key argument here is that
subsidiary actors are often able to derive power resources from their knowledge of
and embeddedness within the local institutional culture. Actors may influence whether
imported policies are adopted wholesale, paid lip service to, adapted, hybridised, or
even resisted and rejected by the subsidiary. It should be noted that local actors can
use their power resources to facilitate policy adoption rather than to block it. Local
knowledge allows MNCs to explore the gaps in the institutional context in order to

evade constraints; for example, MNCs operating in the highly regulated German IR
context have been observed to shift from one bargaining unit to another in order to
win more pay flexibility (e.g. Almond et al., 2006). As Bloom et al. (2003: 1363)
observe in relation to international compensation policies, Managers in our focal
organizations acted as pragmatic experimentalists: they conformed when necessary [to
local constraints], resisted when feasible and crafted strategic responses whenever
possible. The transfer of HR policies is seen, in short, as an essentially political
process.
The implications of the foregoing arguments for practice within MNCs are profound:
implementation involves far more than the propagation of a standard international
policy. One question concerns the mechanisms for ensuring the transfer and
implementation of policy. A commonly observed mechanism is the supplementation
of formal policy with person-based transfer, relying on the presence of expatriate
managers to disseminate practice and to oversee and monitor compliance. Another
mechanism involves the cooption of subsidiary managers into the policy-formulation
process, so that they feel they have a stake in the ensuing policy (e.g. Tregaskis et al.,
2005). Finally, MNC headquarters generally have sources of power at their disposal
with which to invite or compel compliance. International benchmarking and coercive
comparisons, with their explicit or implicit threat of sanctions, have been widely used
to propagate standard working practices in the face of local resistance (e.g. Coller,
1996; Mueller and Purcell, 1992). Moreover, personal rewards and promotion
opportunities of senior local managers are in the hands of higher-level decisionmakers.

THE ROLE OF THE HR FUNCTION IN

MULTINATIONALS
The organisational challenges of managing cross-national work forces in evolving
circumstances and across varied national contexts are central to both practitioner and
academic concerns. As noted above, the link between IHRM and business strategy has
been a preoccupation of prescriptive model-building in the field (e.g. Adler and
Ghadar, 1990; Perlmutter, 1969). Scullion and Starkey's study (2000) of 30 UK
MNCs identified an emerging corporate HR agenda focusing on senior management
development, succession planning, and developing a cadre of international managers.
Others have pointed to a role in setting strategic performance and reward frameworks
(e.g. Evans and Lorange, 1989). More recently, writers have been concerned about the
role of the HR function in the development of unique firm resources as a source of
competitive advantage (e.g. Taylor et al. 1996). This has led to exploration of HR's
contribution to knowledge networking (Tregaskis et al., 2005) and the building of
social capital (Taylor, 2006).
But, curiously perhaps, the structural form of the IHRM function has been somewhat
neglected by researchers (Scullion and Starkey, 2000). Relatively little work has been
conducted on the structural evolution of the HRM function in response to such
changes in MNC structure as: the development of discrete international businesses
with considerable business autonomy within the global MNC; the evolution of
supranational regional structures, partly reflecting the consolidation of regional

markets such as the EU and NAFTA; and the importance of matrix forms, usually
combining business-division and geographical structures (Marginson et al., 1995).
Evidence suggests that the mode of organising the HR function varies considerably
between MNCs of different national origin (Edwards et al., 2007; Ferner and Varul,
2000; Wchter et al., 2006). A large-scale representative survey of MNCs in the UK
(Edwards et al., 2007) found that the degree of centralisation of HR policy-making,
the extent of higher-level scrutiny of subsidiary HR metrics, and the use of
technologies of IHRM such as global electronic information management systems
for HR (HRIS), all varied. For example, though subsidiaries generally have a
relatively high degree of discretion over the formulation of their HR policies,
subsidiaries of American MNCs have systematically less discretion on a range of HR
issues than firms of other nationalities. They are far more likely than others to have
international HRIS, suggesting that the availability of the technology may be a factor
in centralised control.
There appear to be a number of trends in how the function is evolving. First, the locus
of HR capability above subsidiary level is changing with the increasing use of
regional- and business-based international organisational structures. Second, more
fluid, informal mechanisms of HR coordination appear to be growing in importance.
This can be related to the rise in the integrated network model of MNCs in which
expertise is disseminated throughout the firm's operations rather than being
monopolised by headquarters. As a result, the identification and diffusion of
knowledge and practice in the HR field has become of increasing importance for
competitive advantage (e.g. Taylor, 2006). Third, new technologies have enabled a
variety of developments that are used to drive cost efficiencies and enhance central
oversight of HR across global operations (Sparrowetal., 2004: chapter 4). These
include HRIS based on standard software programmes allowing MNCs to monitor
and deploy personnel for competitive advantage (Hannon et al., 1996). A related
development is increasing use of corporate intranets to deliver global HR services to
internal customers (e.g. Ruta, 2005).
Technology has also driven the taylori-sation of HRM operations at regional or
global level by allowing the separation of routine, repetitive and procedural work
from the more strategic work of HR executives. Routine work may be delegated to
HR shared service centres, often working remotely through call centre operations
serving a range of subsidiary operations in different countries. A significant
proportion of MNCs up to half of large MNCs appear to make use of such
international HR service centres (Edwards et al., 2007). An example is IBM's location
of its international shared services centre, including HR activity, in Budapest in the
early 2000s. Moreover, such off-shoring of HR activities has sometimes been
accompanied by outsourcing as specialist BPO (business process outsourcing) firms
take over responsibility for off-shored HR and other business functions (e.g.
Hoffmann, 2005). This evolution reflects the challenge involved in maintaining
specialist shared service centre skills, and the high technological infrastructure costs
incurred (Kidman, 2005). However, such emerging trends have not yet been subject to
sustained academic analysis.

METHODOLOGICAL APPROACHES TO THE

STUDY OF IHRM
Ironically, in view of the dominance of the cultural values paradigm from the 1980s,
much work on IHRM is US-centric (see Brewster and Harris, 1999), carried out
from an American perspective, performed by American (or American-trained)
researchers, and mostly done in the top industrialized or developed countries (Briscoe
and Schuler, 2004: 131). Clark et al. (1999: 526) categorise around three-quarters of
the IHRM research outputs they examined as being ethnocentric in nature, that is to
say, designed by researchers in one culture and subsequently replicated in another
culture. The remaining studies used more locally rooted frameworks of interpretation
and explanation; or were comparative in the sense of trying to identify both
universalist and culturally specific elements. The significance of this lies in doubts as
to whether researchers have been careful enough to identify functional equivalence
in translating concepts developed within one national business context to other
countries (p. 521).
Surveys and case studies have been the predominant methods in IHRM research.
Clark et al. (1999: 5267) found that 41 per cent of IHRM articles identified used
surveys, and 27 per cent case studies. Surveys have been used in a wide range of
geographical settings. However, drawing up a representative sample of MNCs on the
basis of an accurate population listing is beset with difficulties of definition and data
accuracy (e.g. Edwards, T. et al., 2007; Rugman, 2005).
Less commonly, existing data from published, notably governmental, sources have
been used; an example is the work of Bognanno et al. (2005) examining the influence
of wages and IR environments on the investment decisions of US MNCs, using
surveys of US direct investment abroad conducted by the US Bureau of Economic
Analysis. Survey work has also drawn on existing academic datasets, as in studies
based on company-level and workplace employment relations surveys in the UK (e.g.
Marginsons et al., 1995), Ireland (e.g. Geary and Roche, 2001), and Australia (Walsh,
2001). Other work (e.g. Fenton-O'Creevy et al., 2008) draws on the Cranet crossnational survey of HRM in a range of companies. Such work has tended to be limited
by the fact that the original surveys were not designed as studies of MNCs.
Particularly problematic are attempts to compare populations of MNCs operating in
different hosts. Issues of functional equivalence loom large, compounding difficulties
of studying single-country MNC populations, and data collection methods appropriate
for research in one national context may not work in another. Postal surveys are well
accepted as a mode of data collection in the USA or Canada, but poorly accepted in
countries such as Mexico where personal contacts are more significant (Geringer et
al., 2002). The study by Geringeret al., reported inaspecial issue of Human Resource
Management, purports to be about the identification of best international HRM
practices, but is in fact a cross-national comparative analysis of HR practices using
widely differing data collection methods and, crucially, units of analysis in the
different countries surveyed. For example, the sample of managerial respondents in
Japan came from a mere three organisations. National surveys varied in the inclusion
or exclusion of public sector organisations, sectoral coverage, and firm size. It is hard
to see what kind of comparative sense may be made of such heterogeneous datasets,

particularly in research on comparative behaviour of populations of MNCs in

different countries. For such reasons, there appear to be few comparative surveys of
populations of MNCs in different countries. 3
Partly as a result of the bias towards surveys, most work is cross-sectional: only 6 per
cent of the works studied by Clark et al. (1999) used longitudinal methods. Case
studies have varied widely in ambition and focus. While many restrict themselves to
one host environment, others compare MNCs across two or more hosts (e.g. Almond
et al., 2005; Geppert et al., 2003; Meardi and Tth, 2006; Quintanilla, 2002). In some
instances, richly detailed case studies of single enterprises conducted over a period of
years have captured the evolution of IHRM. Two prominent examples, whose
concerns range far wider than HRM, are Blanger et al.'s (1999) study of ABB across
several countries in Asia, Europe and North America; and Kristensen and Zeitlin's
(2005) dissection of the UK multinational, APV, in Britain, Denmark and the USA.
What is notable about these studies, and rather exceptional in the literature, is that
they explore multiple organisational levels, rather than restricting themselves either to
a subsidiary or an HQ perspective.

Geographical concentration of studies

Observers have commented on the concentration of studies on relatively few
countries. Clark et al. (1999: 526) found that the UK, US, Japan, France and
Germany were the most frequently studied countries, accounting for 48 per cent of all
cases. Beyond these, a relatively small group of countries featured strongly, including
Australia, Singapore and Malaysia in Asia, Sweden, the Netherlands and Spain in
Europe, and Canada and Mexico in North America. It was not uncommon for studies
to lump together companies from a disparate range of European countries into one
European category (e.g. Kopp, 1994).
More recent work has shown signs of a shift in geographical emphasis: China's
economic development has stimulated a rapidly increasing volume of research on
HRM in the subsidiaries of foreign firms and in joint ventures (e.g. Bjrkman and Lu,
2001; Gamble, 2003; Goodall and Warner, 1997; Tung and Worm, 2001); China also
figures prominently in recent IHRM texts and pedagogic case studies (e.g. Bjrkman
and Galunic, 2004; Zhang et al., 2006). The collapse of the Soviet bloc has also
provided impetus to studies of MNCs' subsidiaries in eastern Europe and (to a lesser
extent) in Russia. Themes have included firm relocation and regime-shopping,
particularly by German MNCs, and the transferability of HR practices to the
institutional contexts of these emerging states (e.g. Bluhm, 2001; Kahancov and van
der Meer, 2006; Meardi and Tth, 2006). Major gaps remain, however. Despite India's
emerging status, relatively little research has been conducted on MNCs operating
there.
Given the concentration of MNCs in the developed world, it is unsurprising that the
focus is still on a narrow range of parent countries: the USA, Germany, Japan, and the
UK. MNCs based in other European countries, including France, Finland, Sweden
and the Netherlands, have been the subject of occasional study, as have firms from
emerging countries such as China (e.g. Shen, 2006).

CONCLUSIONS: FUTURE DIRECTIONS IN

INTERNATIONAL HUMAN RESOURCE
MANAGEMENT
Developments in the field of IHRM over the past two to three decades may be
summarised as follows. First, for much of the period, the conceptual emphasis has
been on understanding cultural differences between the host and parent locations of
the MNC, and the barriers and opportunities these present for the cross-national
transfer of HR policies. Cultural difference has been conceived in terms of cultural
values, although more recently a more sophisticated comparative institutionalist
perspective has enriched the field.
Second, there has been a preoccupation with modelling the external environmental
and internal organisational determinants of IHRM strategy and practice, and with the
relationship between IHRM and broader business strategy as the latter has evolved in
response to new technologies and the intensification of international competition.
Third, the substantive focus has been rather narrow. Expatriates and their international
assignments have absorbed much of the energy of researchers. The staple issues of
HR have been studied, notably pay and performance management, and often from
an industrial relations analytical perspective employee involvement, workforce
representation, and work organisation. On the whole, the emphasis has been on
managerial rather than rank-and-file employees. The changing structure and role of
the IHRM function has received rather less attention than might have been expected.
Fourth, methodology has used both case study and survey methods extensively, but
the latter have predominated, as has a cross-sectional approach. Only rarely have
studies given equal weight to both the subsidiary level and to corporate headquarters
within a firm; rarer still have studies investigated intermediate structures such as
global business divisions, geographical regions, or global business functions from an
HR perspective (cf. Clark et al., 1999: 531). Geographically, the range of studies has
been limited, with disproportionate concentration on a small group of countries, both
as parents and as hosts.
This brief summary of the main features of work in the area suggests a number of
avenues for future research. Conceptually, researchers need to develop increasingly
sophisticated understandings of the variables that differentiate one host country from
another in terms of HR practice and constraints. Such factors are likely to vary with
the HR issue and with the employee group being considered. Much recent workin
comparative institutional theory (e.g. Djelic and Quack, 2003) is concerned with how
MNCs as institutional actors shape their institutional environment, rather than being
passively shaped by it. This is a particularly important concern for researchers, and
practitioners, in countries where MNCs dominate the economy; a vigorous debate in
Ireland, for example, has examined the extent to which MNCs have influenced the
Irish employment relations agenda rather than being constrained to adapt to it (Geary
and Roche, 2001; Gunnigle et al., 2006). Similarly, work has looked at the impact of
MNCs on the German institutional framework (e.g. Schmitt, 2003; Williams and
Geppert, 2006).

Partly as a result of the actions of MNCs, national-institutional environments for HR

policy and practice are dynamic and evolving. Moreover, the national level of
regulation is not the only one that impacts on MNCs. To what extent is the crossborder management of HR shaped by engagement with institutions and institutional
actors below national level e.g. at the level of the sub-national region or locality in
which an MNC's operations are located, in relation to such issues as skills supply or
employee representation? How far, too, is IHRM shaped by MNCs engagement with
institutions at supra-national, e.g. EU, level?
Related to the conceptualisation of MNCs as actors within institutions is the question
of power. How may issues of organisational power be taken into account in the
analysis of IHRM? Power and a political perspective both at macro- and microlevels are often curiously absent from discussion of corporations that are among the
most powerful actors in the global economy. Despite a growth of interest in recent
years, there is relatively little on the way in which the corporation deploys power
resources to shape its HR institutional environment at the macro level for example,
by influencing the framework of labour regulation or the terms on which it is applied.
Nor is much known about how the cross-national transfer of HR practices is
constrained by the power and interests of a range of actors at different levels within
the MNC. Bringing power and politics into the analysis may also provide an
opportunity to reintegrate cultural values not as some idealist, disembodied
cultural emanation, but as part of the contested institutional terrain that MNCs inhabit.
The substance of IHRM research could be expanded in a number of ways. First and
foremost, the focus on managerial staff could be widened to include non-managerial
employees. As Marginson et al. (1995: 702) report from their survey, it is striking to
observe the extent to which MNCs are actively engaged in the management of nonmanagerial employees at international level. MNCs routinely collect information
internationally on the pay, productivity, training, ethnic diversity, and work attitudes
of these employees (Edwards et al., 2007). One aspect of the issue is how employees
respond to IHRM initiatives. With few exceptions, this is a neglected topic in the
literature, despite its increasing importance in relation to the travel of ideas, and to
the internalisation of internationally diffused practices (Kostova, 1999; Saka, 2003).
How, in short, are employees affected by the policies to which they are subject, and
how do they perceive them?
A second substantive area of investigation is, as mentioned above, the evolving nature
of the IHRM function itself. This seems potentially fruitful, both for its practical
ramifications and for the light it can shed on the relationship between structure and
strategy of the function. The ongoing search for a strategic role is intimately bound up
with the internationalisation of the pursuit of organisational efficiencies within the
function, notably through the increasing, and internationally structured, separation of
routine from higher-level HR processes in MNCs.
Third, while IHRM has taken on board the importance of international joint ventures
as an organisational form, and has considered issues of off-shoring and outsourcing, it
has been less prompt to reflect in such work the theoretical developments of the
global value chain literature (cf. Clark et al., 1999: 531) that, implicitly, questions the
relevance of organisational boundaries for understanding the cross-national
structuring of human resources. Some work already exists in this area and shows the

potential for development. For example, Lane and Probert (2006) have investigated
the national differentiation of labour management and the structuring of skills within
global supply chains in the clothing industry (see also Bair and Ramsay, 2003;
Frenkel, 2001). With the continuing evolution of forms of cross-national production
networks, such research seems likely to become of increasing importance.
Finally, methodologically, there are a number of challenges. First, good, detailed
longitudinal studies are rare. In a field evolving so rapidly and dynamically as IHRM,
such studies of key cases are needed to map the evolution, and to trace the linkages
between contextual driving forces and IHRM processes and practices. Case studies
remain a key method of accessing the subtle and complex processes underlying the
management of IHRM. There are particular problems in researching categories of
cases of considerable practical and theoretical interest for example, low road firms
whose IHRM is premised on low-skill and low-cost strategies. Second, surveys have
been the dominant method in the field, but there are considerable difficulties in
identifying robust populations from which to draw reliable representative samples.
Moreover, surveys have tended not to generate large comparative datasets, allowing
the systematic analysis of the IHRM practices of MNCs in different sorts of host
environments. Third, the variety of methods deployed in the field of IHRM has been
relatively restricted. A range of innovative methods might prove fruitful. For example,
formal network analysis (e.g. Gould, 2003) might be used to track career moves of
international managers, power and influence flows within the international HR
function, or cross-national learning networks. Such methods could well reach aspects
of IHRM unobservable through more conventional means. Finally, the range of
geographies covered by research has been limited, and could usefully be expanded.
More sophisticated understanding of the institutional dynamics of a wider range of
MNC hosts is required, both among developed and developing countries. The latter
are also increasingly the source of emerging MNCs that merit study in their own right.

NOTES
1 It should be noted that the broader study of IHRM goes beyond the multinational
companies with which this chapter is primarily concerned: it includes, for example,
bodies such as the United Nations, or international charities.
2 The establishment of the European Journal of Industrial Relations in 1995 provided
another outlet for such work.
3 An exception, currently in progress, is work by a consortium of researchers in the
UK, Canada, Ireland, Spain, Mexico and Australia using a common core instrument to
research HR in populations of MNCs in the respective countries (Edwards et al.,
2007; Murray et al., 2006).
Further Readings

Entry Citation:

Ferner, Anthony. "HRM in Multinational Companies." The SAGE Handbook of

Human Resource Management. 2009. SAGE Publications. 15 Apr. 2010.
<http://www.sage-ereference.com/hdbk_humanresourcemgmt/Article_n32.html>.
Chapter DOI: 10.4135/978-1-8570-2149-3.n32