Strategy, Structure And HRM Practices In Multinational Subsidiaries:

European Mncs In A Developing Country Context

Monowar Mahmood
1

The paper aims to investigate influence of some important aspects of multinationals (MNCs),

i.e., corporate strategies, structures and international policy orientations on subsidiaries HRM

practices, specifically on recruitment and selection practices. Four European multinational

subsidiaries operating in Bangladesh were selected for the study. In-depth case studies on

those MNCs revealed that HRM practices are guided by the changing nature of strategies,

structures and HQ’s policy orientation towards the subsidiaries. However, it contradicts the

‘born global’ hypothesis and revealed that standardization of subsidiaries are not solely

depended on parent companies, changing capabilities and importance of subsidiaries

determine the subsidiary-HQ relationship and subsequently the standardization of HRM

practices at the subsidiary level.

Keyword: HRM practices, multinational corporations, standardization of HRM

practices, Bangladesh.

1. Introduction
Globalization and economic openness/free market economy continuously opening up

new market opportunities and multinational corporations (MNCs) are continuously

expanding businesses everywhere in the world. As markets in most of the developed

countries are already saturated, MNCs are now looking for developing and emerging

economies. Triple bottom line thesis further reiterated market opportunities in

developing countries. With expansion of MNCs in every corner of the world, far away

from home countries, research on subsidiary-headquarter (HQ) relationship also gaining

importance and momentum increasingly. To identify HQ influence on subsidiary

management, most of the researchers used mainly four streams or perspectives, i.e.,

strategy-structure, headquarter-subsidiary relationship, subsidiary roles, and subsidiary

development (Birkinshaw & Hood, 1998; Paterson & Brook, 2002). In consistent with
previous studies, present study tried to focus only on three main influencing factors that

could have significant impact on subsidiaries HRM practices. Previous research also

revealed influence of those dimensions on subsidiaries HRM practices. However, our

study focuses more on changing position of the subsidiaries and their relationship with

changes in HRM practices. Further, though MNCs are focusing on developing and

emerging economies, research on those countries still appeared to very little. This

research will give some insights about MNCs gradual development in a developing

1Bang College of Business, Kazakhstan Institute of Management, Economics and Strategic Research, 4 Abay
Ave.

Almay 050010, Kazakhstan, contact e-mail: monowar@kimep.kz; mmonowar@hotmail.com

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country context and subsequent policy shifts of HRM practices to cope with changing

need of the subsidiaries. Findings from this study could be used by academicians and

HRM practitioners to initiate further research and policy initiative in other developing and

emerging economies context.

2. Literature Review

2.1. Corporate Structural Configuration and Standardization of HRM

Multinationals have several choices in structuring their international operations, i.e., multi-

domestic, global, international and transnational organisational models (Adler and

Ghadar; 1990; Bartlett and Ghoshal, 1986; 1992; 1995; 2000; Harzing, 1999; 2004;

Hedlund; 1986; Hedlund and Aman, 1984; Phatak, 1992) and these structural orientations

of MNCs indicate control and co-ordination mechanism between the HQs and the

subsidiaries. Almost all studies on HRM practices of MNCs either implicitly or explicitly

revealed relevance of those structural configurations (Harzing, 2004; Edward et. al.,

1999; Bary and Lansbury, 2000; Edwards, 2000; Hannon et al., 1995) and probable effect

of structural attributes on subsidiaries HRM practices (Bartlett and Ghoshal, 1989, 1991;
Edward et al., 1996; Harzing, 1999). Hamill‟s (1984) pioneer study on MNCs in Scotland

observed close associations between organisational structures and decentralisation of

employment relations, and indicated considerable variations of corporate involvement on

different functional areas of subsidiaries‟ HRM practices.

A global structure appeared to have a strongly influence on existence of a world-wide

personnel policy committee, regular scheduled international meetings of subsidiary HR

managers, and movement of senior managers between sites with long-term international

assignments (Bartlett and Ghoshal, 1989; Bechler and Taylor, 1994; Hamill, 1992;

Marginson et al., 1995; Prahalad and Doz, 1987). Study of Japanese multinationals

(Beechler and Yang, 1994; Dedousis, 1991; Pudelko & Harzing, 2008) revealed that

companies with a global structure have greater parent company control of their HRM

activities and the parent companies are more likely to implement Japanese-style HRM

practices in those subsidiaries. Harzing‟s (1999) study on 208 MNC subsidiaries from 22

countries revealed a higher level of interdependence between the subsidiaries of both

global and transnational companies compared to subsidiaries of multi-domestic

companies. However, although a global structure seems to have standardisation effects

on subsidiaries HRM practices, it may be constrained by strategic actions of individual

firms, and researchers urged not to be too much deterministic with such „apriori sense’ at

all the time (Bartlett and Ghoshal, 2000; Edwards and Ferner, 2002; Kogut, 1985).

Sometimes global structure and related standardisation policies appear conflicted with

local policies and practices (Shenkar, 1990; Teagarden and Von Glinow, 1990), and

multinationals followed localisation policies in response to the national differences

(Dedousis, 1991; Prahalad and Doz, 1987) and blend global integration with local

responsiveness (Hannon, et. al. 1995; Taylor and Bechler, 1993). In the face of

globalisation, Bartlett and Ghoshal (1989) argued that the success of multinationals lies in

their balance between global efficiency, local responsiveness and worldwide learning. But

globalisation raises new strains in employment practices for multi-domestic multinationals

 Page 3

as cross-border integration poses questions for local autonomy in the wake of greater

integration of production activities (Schuler et al., 1993; Taylor, et al., 1996). MNCs,

whose subsidiaries previously operated in a semi-autonomous manner, now become

more integrated The changes in MNCs operational direction may require changes in

organizational structures and different modes of control and co-ordination from the HQs.

Most of the research on HRM practices on MNCs was done by survey on real time data

and overlooked the changing process. This study through longitudinal case studies

looked for retrospective information and closely investigated the changed over time,

subsequent control and coordination from HQ, and development of HRM practices in the

subsidiaries.

2.2. Products and Market Integration, and HRM Practices

Research studies on subsidiary HR policies and practices revealed that the parent

company influences are positively related to the resource inter-dependencies of the

foreign subsidiaries (Bjorkman and Ehrnrooth, 1999; Hannon et al., 1995; Lu and

Bjorkman, 1997; Martinez and Ricks, 1989), and this inter-dependency determines

control and co-ordination mechanisms of parent-subsidiary relationship (Edwards, 2000;

Gupta and Govindaranjan, 1991; Harzing, 1999), Subsidiaries part of integrated

production systems have more interdependence than independent production units

(Bartlett and Ghoshal, 1989), and in such cases, within a single MNC, there exist different

levels of interdependence between the parent and its various overseas subsidiaries

(Gupta and Govindarajan, 1991).

Role of subsidiaries as export platforms or part of international production networks make

them integral parts of global operations, and HQs instruct subsidiaries to follow globally

consistent HRM practices. Internationally co-ordinated production systems facilitate

diffusion of inter-subsidiary innovations by identifying „best practices‟ in one part of the

corporation and promoting those in other parts of the world (Ferner and Edwards,
1995:246). A study of 150 Mexican affiliates of US multinationals (Martinez and Ricks,

1989) showed a positive correlation between parent company influences and

subsidiaries‟ resource inter-dependencies for specific HR decisions, especially

recruitment and selection process of higher level managers. The interviews indicated that

the greater the dependency, the greater the influence exerted by the parent company and

the greater its involvement in human resource decisions, especially decisions concerning

selection, compensation and benefits of key affiliate managers (Martinez and Ricks,

1989). Board‟s (1994) case study of a Japanese MNC subsidiary in Wales explained how

the British managers‟ expertise in the local market helped them to convince the HQ of

their ability to run the business profitably, and they have developed their own HR policies.

Sometimes, there might exists a reverse relationship when the parent company relies on

the subsidiary to supply necessary resources (Edwards, 1998), and in that case, the

parent company also needs to control the behaviour of the subsidiary, and consequently,

develop subsidiary HR policies that do not create any problem for control and co-

ordination mechanisms (Beechler and Yang, 1994; Coller, 1996). Such vertically

integrated production systems provide headquarters with the opportunities to follow

common systems of work organisation and employment practices in different plants, and

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to implement standardised HRM practices across the subsidiaries (Edwards et al., 1999;

Edwards, 2000; Schuler, Dowling and DeCieri, 1993; Schuler, Fulkerson and Dowling,

1991).

2.3. IHRM Policy Orientations and Standardization Of HRM Practices

International policy orientation of HQs, i.e., ethnocentric, polycentric and geocentric

orientations (Perlmutter, 1969) have a significant influence on configuration of

subsidiaries‟ HRM practices. MNCs with ethnocentric policy orientation usually follow

„exportive‟ HRM approach, where as polycentric and geocentric orientation follow

„adaptive‟, and „integrative or best practice‟ approach respectively (Kopp, 1994; Pudelko

and Harzing, 2008; Taylor et al., 1996). Research on Japanese MNCs exhibited a

consistent pattern of ethnocentric orientation and related consequential HRM practices

i.e. use of higher number of expatriates and export of home country practices in

overseas subsidiaries and implemented parent company prescribed practices related to

recruitment, compensation, performance appraisal and management development

(Banai, 1992; Perlmutter, 1969; Phatak, 1992; Negandhi, 1980; Negandhi and Baliga,

1979; Shibuya, 1990). However, MNCs with an ethnocentric orientation tried to

introduce home country HR practices in host countries and were considered as

innovators of HRM practices.

Conversely, a polycentric orientation received greater autonomy from HQs and

subsidiaries are likely to be adaptors of host country HR practices (Marginson, 1994;

Porter, 1986). Geocentric corporations adopt a more complex approach although they

basically remain ethnocentric-innovative (Quintanilla, 1998). They try to identify global

best practices regardless of their nationality or country of operations. Therefore,

corporate HRM policy orientations have a direct influence on the behaviour of the

subsidiaries. Although the headquarters HRM policy orientation provided useful

guidelines to assess the transfer vs. adaptation process in the subsidiaries, hardly any

multinationals can be found that provide a perfect fit with those orientations in the

subsidiaries. The headquarters influences depend on the restrictiveness of employment

regulations in the host country, the level of cultural and institutional differences between

home and host country, and the role and function of individual subsidiaries (Harzing,

1995; Myloni et al, 2002; Rosenzweig and Nohria, 1994). Multinationals may change

their HR policy orientations with their stages of internationalisation (Adler and Ghadar,

1990; Banai, 1992). Monks et al., (2001) in their study revealed that Irish multinationals

developed more formal and pro-active HR policies, and appointed a higher number of

expatriates in the overseas subsidiaries with their increased international operations.

3. Methodology
The research objective, i.e., to investigate the influence of corporate strategy, structure,

and HQ policy orientation on subsidiaries on HRM practices (Teagarden, et al., 1995)

and their gradual changes over time guided us towards a qualitative research strategy.

Researchers argued that while a quantitative study may identify incidence of different

HRM practices on real time information of the subsidiaries, but it would be less useful to

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understand and explain development process and changing nature of HRM practices

with retrospective historical and longitudinal information ((Sinkovics, Penz and Ghauri,

2008; Whitfield & Strauss, 2000). This could be due to limited ability of quantitative

approaches to investigate the context as a whole (Miles & Huberman, 1994). Qualitative

methods are suitable in IB where multiple actors and multiple environment impact are

involved (Sinkovics, Penz and Ghauri, 2008). Martin and Beaumont (1999) viewed

quantitative research methods as relatively weaker in providing rich and valid

descriptions of HRM development processes, and argued for in-depth qualitative case

studies to flesh out the insights of HRM development processes in MNCS. The case

study method help to understand behaviour of decision makers and unearth the

historical processes involve a more complicated process where standalone opinion or

simple information cannot provide or explain the whole process. Case studies provide

opportunity to follow sequential questions until researchers get the required/desired

interpretations (Sinkovics et al., 2008).

Four multinational subsidiaries i.e., A Pharma, G Pharma, N Pharma and B Chem) were

selected for the study. At data collection stage, we considered equivalence of research

methods, research methods and equivalence of research administration to rightfully

contrast findings as suggested by other renowned researchers (Sinkovics, Penz and

Ghauri, 2008:694). Retrospective and real-time data were collected on different

occasions to capture process dynamics of gradual evolution and subsidiary-HQ

relationship (Piekkari, Nell and Ghauri, 2010). Review of historical materials and records

helped us to understand the links between macro-environmental factors, HQ-subsidiary

relations and behaviour of subsidiary mangers about HRM practices (Ghauri and Firth,

2009). All interviews were tape recorded on-site. Also written notes were taken on

discussion. After returning from interview sites, recorded conversation were transcribed

and translated immediately. All interview transcripts were shown to the interviewees for

verification. Guided by our theoretical assumptions (Piekkari et al., 2010; Teagarden, et

al., 1995), we grouped our data on broad categories such as related to structural issues,

production integration issues, IHRM policy orientation issues, and interdependency

issues.

We transcribed all interview data in narrative stories. Using the „meaning reduction

approach‟ (Kvale, 1996), we identified useful codes to isolate themes relevant to the

research questions. After decoding all the interviews, we reviewed the narratives and

compared and contrasted the facts of all four cases. We searched for patterns and

connections in individual cases and, finally, explained them with interconnected

evidence within and across the cases. Data from multiple-case studies helped us

develop a general explanation of cause-effect relationship of HRM practices in each

individual case. Prior conceptualization of societal institutions helped us explain the

causal link between them and the organizational factors that contributed to the adoption

of specific HRM practices. While explaining the prevalence of social phenomena—or

causal relationships among the organizational practices and societal institutions—we

tried to use relevant codes to rearrange the evidence into categories that would facilitate

the comparison of evidence within and between cases. We developed a number of

summary tables to display the similarities and contrasts among the cases as a

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companion to explanation building from the findings. Table 1 lists the important
interviews in different organisations.

Table 1: Number of interviews in case study organisations

Organisations Intervie

ws with

HRM

manage

rs

Interviews

with other

line

managers

Interviews with

managerial

employees

Interviews with

non-managerial

employees

Interviews

with Trade

union

leaders

Total

interview

A Pharma

1 key

informant, 5

others
1 key informant,

4 others

22

G Pharma

1 key

informant, 6

others

1 key informant,

4 others

21

N Pharma

1 key

informant, 3

others

1 key informant,

4 others

14

B Chem

2 key

informant, 4

others
1 key informant,

4 others

22

Others

3 government officials, 3 HR consultants, 3 retired employees, 4

academicians, 5 national trade union federation leaders

18

Total

97

4. Findings and discussions: HQ’s influences on Subsidiaries’

Recruitment and Selection Practices

As literature review indicated, MNCs parent company influence on subsidiaries‟ HR

practices varied with corporate strategies, HQs structural configurations, subsidiaries‟

production integration with international operations, and HQs attitudes towards IHRM

practices. The parent company influences on different aspects on recruitment and

selection practices in our case study subsidiaries are shown in Table 2.

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Table 2: Headquarters’ influences on different aspects of recruitment and selection activities

Recruitment

and selection

issues

N Pharma

A Pharma

G Pharma

B Chem

Job
descriptions

Need to follow

HQ provided HR

manuals

HQ provided guidelines,

specialised subsidiaries

provided detailed

manuals

Locally

determined

Uniform Hay

Method, so HQ

influence vital

Job

specifications

HQ provided

manuals, but can

only bring

changes in

educational

qualifications

Specialised subsidiaries

provided manuals, but

local subsidiary can bring

changes in educational

qualifications

Locally

determined

Technical

employees HQs
specified, others

locally determined

Selection

criteria

HQ instructions

and prescribed

selection

procedure

HQ instructions, can bring

change within regional

offices recommendations

Locally

determined

HQs specified

priority criteria and

competencies are

judges

Test

Materials

UK developed

materials

supplied by the

HQ

Regional office developed

within the HQs broad

guidelines

Locally

developed

Use HQs supplied

uniform test
materials

4.1. Structural Orientations and Parent Company Influence On

Recruitment And Selection Practices

In the initial stage, all our case study MNCs subsidiaries in Bangladesh focused on local

market and followed multi-domestic structures with minimum control of HQs on HRM

practices. Respective regional offices maintained contacts with the subsidiaries and

HQs did not show any concern about recruitment and selection activities. But with

changes in local operations and subsequent parent-subsidiary relationships, parent

companies changed control and co-ordination mechanisms of the subsidiaries‟

operations in Bangladesh, and started to influence on recruitment and selection

practices. N Pharma started its business in Bangladesh as a trading office of N Pharma

Inc., in 1963, and used to maintained contacts with HQ through regional office in

Singapore. The parent company usually appointed an expatriate chief executive officer

to oversee only the financial matters and instructed to report those financial issues to

the regional office. HQ or regional office never inquired about subsidiaries HRM

practices.

But now with changed circumstances as they became global outsourcing centre for a

few core products, different functional departments of HQ directly contacts with

subsidiary, and particularly, corporate HRM department inquires about different aspects

of subsidiaries HRM practices. HQ instructed subsidiary HR Director to harmonise work

roles and responsibilities of managerial employees, and maintain consistency with other

subsidiaries to ensure global standard of skills and competencies among the

employees. Now, the HR director always follows HQ-provided HR manuals to

standardize job descriptions and job specifications of all managerial employees. The HR

Director justified rationale of those directives and narrated that N Pharma Inc. use same

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machines and technologies around the world, and therefore, HQ became interested in

standardising production process and relevant work organisation in the subsidiary.

Direct control and co-ordination of HQ explicitly played a coercive role in the

standardisation of recruitment and selection activities in the subsidiary. It has also acted

as a means of controlling or maintaining employees‟ quality standards, i.e.,

competencies required to perform standardised jobs in different capacities. The QA

Officer maintained:

“In our company, sometimes management receive applications through

informal channels, but we are not in a position to honour such requests of

friends and relatives. The subsidiary management cannot create any post

and cannot develop any job description or job specification without the

consent of the HQs. Management also shows extreme cautions in the

selection process as employees need to perform specific duties (job

descriptions) determined by the HQs.”

However, these standardisation efforts vary among different categories of employees

and depend on the nature and levels of the jobs. The HR Director indicated that

technical jobs are more homogenous among the subsidiaries and it is easier to follow

HQs prescriptions in determining the job descriptions and job specifications for those

jobs. HQ can standardise technical jobs more easily and exert direct control on the

recruitment and selection practices. However, subsidiary management can modify some

local market sensitive jobs such as employees working in the marketing department, but

they need to send an explanation of those changes to headquarter. In A Pharma, after

moving towards a more transnational model compared to earlier decentralised multi-

domestic or regional structure, HQ influences on recruitment and selection practices

have increased substantially. Following the mergers of F Pharma and H pharma

(emergence of new corporate A Pharma), parent company moved towards a more

transnational structure and HQ influence increased with these structural changes.

Specialised subsidiaries in different countries now become power centre for particular

products and try to influence recruitment and selection practices by providing detailed

job descriptions for different categories of employees and by supplying various test

materials, especially psychometric test materials for the managerial employees. As the

HR manager in A Pharma explained:

“After the merger, headquarters and the specialised subsidiaries are showing

more interest in our HR activities and increased direct contacts with the HR

department. We now follow the similar job descriptions and selection

techniques prescribed by the HQs. It provides us important guidelines for newly

created departments.”

In G Pharma, the HR Director denied any influence of HQ in designing or determining

job descriptions and job specifications. The subsidiary has no scope to liaise with HQ to

consult on HRM issues, because the multi-domestic structure of the G Pharma plc

persuaded the subsidiaries to develop their own HR policies related to idiosyncratic

circumstances, and we found no evidence of the transfer of HR practices from the HQ

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to the subsidiary, or vice versa. The Ex-GM Human Resources of G Pharma revisited

his own experience and explained the differences between G Pharma and his latest

workplace in another American multinational regarding the parent company influences

on HR activities. He further explained:

“The parent company of the G Pharma was never interested to develop any

consistent HRM practices or employees‟ long-term career advancement in

the group. They always asked for profit maximisation with short-term

objectives. The employee turnover in G Pharma is much higher than any

other multinational subsidiary in Bangladesh. They never asked about our

HRM activities in Bangladesh.”

In B Chem, whilst the subsidiary followed standardised HRM practices for a long time,

recent changes in the corporate structure have increased the parent company

influences in all the subsidiaries‟ recruitment and selection practices. Now the B Chem

subsidiary follows the uniform „Hay Method‟ in developing job descriptions and job

specifications for the managerial employees. The corporate HQ and specialised

subsidiary in Australia make direct contacts with the subsidiary to monitor its

recruitment and selection practices, and ask the subsidiary to submit a personnel

inventory of managerial employees that covers different aspects of their qualifications

and competencies. This direct contact of the corporate HQ and specialised subsidiary

has compelled the Bangladeshi subsidiary to follow strict guidelines in its recruitment

and selection activities.

In a few cases, particularly for the Hi-Flyer „Fast-Track‟ employees, the presence of

foreign experts in the selection process has obliged the subsidiary to follow the

standardised job descriptions and job specifications in recruiting the desired managerial

employees. It is observed that the pressure to standardise job descriptions, job

specifications, and other recruitment and selection activities is linked with the control

and co-ordination process of the multinational headquarters. When the subsidiaries

were managed with a multi-domestic orientation, the HQ had little scope to influence

the subsidiaries‟ activities. The adoption of a multi-domestic structure, however, had a

link with the institutional arrangement of the host and home country, and changes in

global economy and other external factors also drove the parent company to change its

earlier control and co-ordination mechanisms, and move towards more direct contacts

with the subsidiaries. A longitudinal analysis of structural orientations of the subsidiaries

reveals their changed influences on recruitment and selection practices and supports

our argument to include external factors in explaining the organisational HRM practices

in the changing world economic context.

4.2. Production Integration and Increased Influence Of The Parent

Companies On Subsidiaries Recruitment And Selection Activities
The increased production integration of the multinational subsidiaries has changed their

role in the international production network, and increased the parent company

influences on different aspects of recruitment and selection activities. The degree of

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multinationality, i.e., the extent of exports to foreign markets increases the importance of

the subsidiaries to the parent companies and the parent companies become more

concerned about the subsidiaries‟ HRM practices. The A Pharma subsidiary once

served only the local market, but now exports in different foreign subsidiaries and also

co-ordinates the whole Vietnam market from Bangladesh. The parent company

approved a massive expansion programme in Bangladesh and the subsidiary‟s

management hopes to become a supply source for the Asia-Pacific region in coming

years. Integration into the international production network increased the parent

company‟s attention towards the subsidiary‟s HRM practices to ensure the smooth

supply of the quality products from Bangladesh. The HR Director of A Pharma explained

the changed role of the subsidiary and subsequent parent company influence on HRM

practices.

“Earlier the parent company showed less concern about our HRM practices in

Bangladesh. Our market expansion in foreign countries has changed the

parent company attitudes and we now receive more attention from the

corporate head quarters than before. Group HR Director is visiting

Bangladesh on a regular basis and we are also attending regional and group

HR meetings. The parent company wants to see efficient management in the

subsidiary and smooth supply of exports to other subsidiaries.”

Earlier, the B Chem subsidiary in Bangladesh concentrated on the local market and

required little help or guidance from the HQ or other subsidiaries, but after the
substantial investment in electrodes production and exports of those electrodes to the

Pacific markets, the subsidiary became highly integrated with other B Chem

subsidiaries. Now the parent company and the subsidiaries in the Pacific region have

become more aware of the HRM practices in Bangladesh because they want to ensure

the quality of the production in Bangladesh, and for this reason, they influence the

selection process to guarantee recruitment of competent employees in the production

department. The Training Manager at B Chem quoted:

“The parent company asked us to use the „Hay Method‟ to identify the appropriate

job skills of different positions. The „Hay Method‟ helps us to identify the key job

skills and their relative weights in the job analysis. Once these skills have been

identified, we can adopt the proper recruitment and selection process to ensure

that applicants with requisite competencies are successfully attracted, assessed

and placed in the appropriate jobs or positions. HR experts from the HQs and

other subsidiaries frequently visit us to oversee our recruitment and selection

activities.”

The parent company influences on recruitment and selection activities in Novartis have

also increased in recent years, and the subsidiary now receives more attention than its

counterpart of Indian and Pakistani subsidiaries. The establishment of a generic product

plant in Bangladesh increased the visits of foreign HR experts, and management

became more cautious about the quality of employee skills and competencies.

Managerial employees in N Pharma reveal that recent expansion of the company in

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Bangladesh has attracted more attention from the HQ, and they now face more strict

controls by the parent company in HRM issues. It seems that the changing role acted as

a turning point for influencing the recruitment of particular employee groups i.e.

employees directly related to the production and quality control process. The HR
Director describes the increased importance of the quality control process and the need

for specific technical expertise among the production officers, to ensure product quality

for overseas markets. The HR Director explained the importance of quality recruitment

practices as follows:

“Quality is the prime concern for overseas markets. The HQs and other

subsidiaries became highly concerned about the employee competencies in

Bangladesh and directly inquired about employee qualifications and relevant

competencies. Foreign experts now provide training to our managerial

employees and we need to make sure that employees have the capabilities

to receive that training. We feel more pressure to follow group guidelines to

select appropriate quality employees.”

Compared to the production integration of N Pharma, A Pharma, and B Chem

subsidiaries, neither the parent company nor the subsidiary of G Pharma has initiated

any drive to expand the market opportunities in foreign countries. This isolated

production process and exclusive local market orientation of G Pharma subsidiary seem

discourage the parent company from influencing the subsidiary‟s HRM practices. After

losing market share, the parent company of G Pharma became more reticent towards

the business in Bangladesh and has made no substantial investment in recent years.

Instead of exploring new markets in foreign countries, the subsidiary was asked to

concentrate on the local market and compete with the domestic organisations. The

subsidiary has arranged sub-contracting with local manufacturers to produce new

pharma products for the local market, and supervised the quality control process by

seconding a few employees to the local sub-contracting organisations. The parent

company seems to be indifferent about the products quality in Bangladesh and shows

no interest in ensuring any standardisation of employee competencies or skills. It was

observed that the changing market conditions and increased production integration with

the global network have influenced some multinationals in Bangladesh to bring about

more consistency in their recruitment and selection activities. The parent companies
have increased the pressures on the subsidiaries‟ management to comply with

standardised job descriptions and job specifications, and provided detailed selection

test materials to ensure consistencies in employee competencies and skill

requirements. But the extent of standardisation of recruitment and selection activities

depended not only on the production integration of the subsidiaries, but also on the

IHRM policy of the parent company and the HQs‟ attitudes towards the subsidiaries.

4.3. IHRM Policy Orientation and Parent Company Influences

The parent company influences, and the standardisation of different recruitment and

selection activities, depended on the headquarters‟ attitude towards subsidiaries‟ HRM

practices as well as on the scope of employees‟ mobility among different subsidiaries.

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From the very beginning, B Chem headquarters followed geocentric HRM policies

across the world and tried to standardise most HRM practices in Bangladesh. The

recent successful operation of the electrode production as well as exports in foreign

countries further increased the confidence of the parent company and it now counts the

subsidiary as a resource to recruit managerial employees for the entire group.

Headquarters‟ attitudes towards the subsidiary as a resource centre and a base for

recruiting the „Hi-Flyer‟ employees further encouraged the subsidiary management to

follow standardised recruitment and selection activities. The parent company requested

periodic review meetings with the HR Directors of other subsidiaries to assess the

selection process in Bangladesh. The Training Manager of B Chem voiced similar

attitudes as he described:

“We are recruiting two types of managerial employees, some for working in

Bangladesh and the others for working in the group on international

assignments. The HQs provided Job descriptions and specifications are

strictly followed for the international group and they can perform their duties
anywhere in the world.”

For the routine or general employees working in practical positions, applicants with

work-related hands-on experienced are preferred. The IT manager and Training

Manager at B Chem stated that in the selection of an IT officer position, they identified

an Australian graduate as overqualified for the routine IT duties, and saying:

“The overqualified foreign degree holder candidate will feel bored within a few

months. We can not provide him with a career within the limited prescribed

job scope of the company in Bangladesh. But we are selecting same

competent candidates in our ambitious „management trainee‟ positions those

have every possibility to develop an international career in the group.” -

Training manager, B Chem.

Furthermore, when multinationals use employee mobility among the subsidiaries to

develop the managerial cadre, it helps them to train those with high potential in various

locations including the HQ. Employee mobility among the subsidiaries, either short-term

placements or long-term assignments, was considered an important factor in recruiting

managerial employees and the HR director of N Pharma was conscious of this when

recruiting the managerial employees in Bangladesh. He said:

“Our employees frequently receive overseas assignments. We need to be

careful in selecting those employees in Bangladesh. Headquarters supplied us

the HR manuals providing details of employee tasks and responsibilities.

Quality control officers in Bangladesh are doing the same job as their

counterpart of Indian and Pakistani subsidiaries. Our nominees are working

with a very good reputation in different foreign subsidiaries. We never receive

any complaints about the working capabilities of our employees in overseas

assignments.”

Page 13

13
Now the A Pharma subsidiary strictly maintains the HQ‟s prescribed job description for

the „Fast-Track‟ employees whom they select after the successful probation period in

Bangladesh and nominate for further career development in different foreign

subsidiaries and HQ. Recruitment of „Fast-Track‟ employees from the Bangladesh

subsidiary influences the selection criteria, i.e., job specifications of the managerial

employees. The subsidiary management now places more emphasis on the HQ‟s or

specialised subsidiaries‟ job descriptions and relevant job specifications in the

recruitment and selection process. It needs to identify standardised competencies for

the „Fast-Track‟ employees since they are required to perform overseas duties. Contrary

to this, exclusion of the subsidiary from IHRM programme in G Pharma discouraged the

local management from searching for unified or consistent HRM practices among the

subsidiaries of the parent company. They have virtually no employee mobility among

the subsidiaries although previously there was some downward mobility, such as

employees from other subsidiaries being posted in Bangladesh to control the business

activities. Compared to A Pharma, N Pharma, and B Chem, G Pharma showed less

rigidity in recruiting fresh graduates and even sometimes valued experience of

applicants in other local companies since this gave them details of the management

techniques of other local organisations. The HR General Service Manager maintained:

“The headquarters has no interest in our HRM activities. We are not looking

at our foreign subsidiaries. We face competition from the local companies

and we need to know the happenings in those local companies. In the

marketing department, it proved to be quite useful to recruit employees from

other local companies and we have changed our strategies with those

recommendations.”

It seems that inclusion of the subsidiary in the IHRM programme and the headquarters‟

attitudes towards career development of the subsidiary employees have a significant

influence on the standardisation of the recruitment and selection activities of the

multinational subsidiaries. But this standardisation is modified or sometimes redefined

according to the institutional context of the host countries. With the differentiated

institutional contexts, varying types of social institutions emerged to shape nationally

distinctive HRM practices. Although in the Bangladeshi context, it is hard to find any

distinctive HRM model, social institutions may still play some role in the process of

adoption of recruitment and selection practices in multinational subsidiaries.

5. Tensions Between The Parent Company Influences And The Host

Country Effects: Multinationals As Role Models In The Bangladeshi

Context
It was observed in the study that multinational subsidiaries face alternatives either to

follow local chaotic or disorganised practices, or to adopt the parent company

prescribed standardised practices in the Bangladeshi context. The pressures or

tensions among the alternatives vary among the multinational subsidiaries, depending

on the parent-subsidiary relationship and other features relevant to parent company

Page 14

14

operations, as well as on the relative strength of host country societal institutions.

Compared to local organisations, where HRM practices are still hardly at any systematic

form, most of the multinational subsidiaries consider it useful to adopt the parent

company prescribed standardised recruitment and selection practices. In N Pharma, the

question of quality standards dominates in the production process and thus the local

subsidiary, to some extent, enthusiastically accept the HQs prescriptions to safeguard

their responsibility by avoiding uncomfortable situations raised in the production

process. The overt parent company influences actually help them to overcome the

problems arising from the „ineffective’ host country model. The managerial employees of

N Pharma pointed out that standardised job description helps the local subsidiary to

reject the incompetent employees at the initial stage. Recently the top management
fired the IT manager and Project manager after failing to perform the HQ specified

duties. Sometimes it appeared that the HQ provided job descriptions and job

specifications that are not fully appropriate for all categories of employees since the

nature and the duties of the jobs varied among the subsidiaries in different locations.

The HR Director explained the duties of sales personnel and justified their attempt at

modification to meet the local needs.

“The Marketing Department in Bangladesh is working in totally different

ways than its Australian counterpart. Our customers are individual patients

and the sales force has to persuade the medical practitioners to engage in

sales promotion. In Australia and European countries, institutional buyers

like heath authorities and health insurance companies are the main

customers. So employees in the marketing department are doing different

jobs.”

But not all the multinationals responded in the same way when someone modified or

even avoided the instructions in order to adjust to their own circumstances because in

some cases, the adoption of less standardised job descriptions still may be related to an

intention to manipulate the recruitment criteria, as subsidiaries need to recruit applicants

with different educational backgrounds to maintain the social networks in the

Bangladeshi context. The recruitment of a marine science graduate in the quality control

department in Aventis, and a biology graduate in the production department at G

Pharma may be treated as the outcome of less control on their recruitment practices.

Managerial employees in Novartis revealed that they applied to the company after being

given information by the friends and relatives. The informal tadbir (lobbying) factor was

implicit, but easy to understand from the conversation regarding the whole selection

process. The Logistics officer in B Chem also praised the ex-Managing Director who

appointed him as Business Process Re-engineering Officer. This proved his prior link

with the Boss, even after gaining an MBA degree from a British university. In G Pharma,

due to social networks and informal channels, applicants from a particular university
dominated the other university graduates in the production department, and in the A

Pharma production plant, employees from a particular region were much more visible

than from elsewhere.

Page 15

15

The absence of specific job descriptions and job specifications allowed private sector

organisations to consider applications from relatives and friends. In the multinational

subsidiaries, although some employees are recruited through informal channels, they

are still quite aware of the employee competencies, the QC officer of N Pharma

observed. Periodic competency tests, as prescribed by the N Pharma parent company,

helped the subsidiary to find incompetent or disqualified employees and those

employees were requested to improve their skills within a stipulated time period. In A

Pharma, under-performing employees are placed on probation for one year and if the

employees fail to develop the required skills, they are dismissed within the legal

framework of the country. The parent company provides guidelines aimed at helping the

subsidiaries to find those employees with high ambitions and the right qualifications.

Respondents also indicate the presence of expatriates as a control mechanism to check

the rampant nepotism and personal biases, as well as to ensure the development of

systematic HRM practices in the subsidiaries. Changes in corporate structures and

IHRM policy orientations helped the multinationals to maintain direct contacts and

control the subsidiary activities with their own specifications.

“The expatriates are doing mainly two things. First, they try to introduce some

systematic management practices in Bangladesh. You can see that most of the

multinational subsidiaries in Bangladesh were initially run by the expatriate

chief executives. You can observe some distinctive management practices in

different companies initiated by the pioneer expatriates. Their ideas and

philosophies are reflected in company management practices. Secondly, they

are in-charge of developing local management leadership. Headquarters

always instructed to develop local expertise as soon as possible.” Ex-Deputy

Managing Director, BAT.

The case studies revealed that the contents of selection test materials used by the

multinationals vary from those of the local organisations, as the private sector still

considers testing unnecessary, and the public sector uses simple numerical reasoning

and general knowledge related questions. In the selection process, N Pharma use

specific psychometric test materials which are developed by a UK consulting firm for the

group. Aventis also conducts psychometric tests and uses the test kits developed in the

Malaysian subsidiary for the Asian region. In B Chem, they also use test materials

developed in the UK and recruit the „Hi-Flyer‟ managerial employees for the group and

send the selection test scores to the regional office and HQ. It seems that multinational

parent companies have tried to control the indigenous favouritism by providing test

materials and collecting psychometric test scores for further references. The ex-Deputy

Managing Director of BAT revealed that multinationals previously used these

behavioural tests to avoid the bias and undue pressures in Bangladesh, and also

assigned the expatriates at an earlier stage to institutionalise the systematic HRM

practices.

Page 16

16

6. Conclusions
The findings of study indicate that it is not only the internationalization process of parent

companies, but also the internationalisation of subsidiaries contributed/influenced the

development of standardised HRM practices in the subsidiaries. Subsidiaries

internationalization process in somehow sequential and involve a series of stages, HRM

standardization processes are related with those stages (Monk et al., 2001), the study

revealed. The degree of internationalization of parent companies, subsidiaries, and

internationalization of markets guided the HRM policies and practices of the

subsidiaries. Our study supported the findings that MNCs following multi-domestic,

global or transnational should have distinctive IHRM policies and practices (Schuler et

al., 1993; Scullion and Starkey, 2000). So MNCs need to identify fit or match between

corporate strategy, structure and IHRM policies and practices. It seems that in these

cases, the „born global‟ hypothesis was not working. Rather sometimes, subsidiaries

earned the mandate/attention from HQ with their own capabilities or HQ entrusted more

responsibilities with the restructuring in the HQ.

In implementing the standardized IHRM policies and practices, MNCs in Bangladesh

faced very little resistance from societal context. HRM practices of MNCs are treated as

an innovation, or a new model due to their pioneer role in the private sector

management development. Their influential power of MNCs in the host country context

overruled the societal factors, and the parent company‟s prescribed practices have

dominated over the national institutional arrangements. In a developing country context

like Bangladesh, where the unemployment rate is very high and the ability to find a job

is a matter of life or death in most cases, multinationals can implement their recruitment

and selection practices as they wish, but the case studies also revealed that the

development of such practices does not solely depend on the subsidiaries themselves,

because external factors such as parent company control and co-ordination

mechanisms, international integration and IHRM policy orientations, all have substantial

influence on them. It is, therefore, appropriate to consider the factors external to the

micro-organisational levels and distinctive national context in the study of multinational

organisations. This study may contradicts with the „Born Global‟ hypothesis on

international business literature, as the changes in corporate strategy, corporate

structure and even the changing role of subsidiaries appeared to influence the shaping

of HRM practices in MNCs Bangladesh.

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Bracing for MNC Competition

Through Innovative HRM “
Practices: The Way Ahead for
Indian Firms
Ashok Soto W Mg AM an nnnnnnnnnn M _________
Executive Summary
With increasing globalization, firms are entering a elynamic world qf international
basiness that is marked hy liberalization qf economic policies in la large namher of
emerging economies like India. Tb face the challenge cf increasing competition that
has resalteel from liheralizaticn, Indian organizations have initiated adoption cf
innovative human resoarcc management practices hath critically and constructively
tefester creativity and innovation among employees. With the help of ll inwlepth case
staelies, this article tries to nnaerstand how innovative HRM practices are being
adopted by Indian firms to brace fer competition in the postllberalizatien scenario.
© 2006 Wiley Periodicals, Inc.
The decades of the 1980s and the 1990s witnessed an upheavai in economic
thinking and brought about major societal changes. Firms entered a more
dynamic world of international business with globalization of world markets,
marked by the emergence of new international business biocs and economic lib»
eralization of most developed and emerging economies. The dramatic surge in
market reforms tliroughout the developing world meant that more than 75
developing and postsocialist economies, with a combined population of more
than 3 billion people, aimed at integrating themselves into the global market sys-
tem. Dozens of these economies in Asia, Latin America, and central Europe have
*§Ashok Som is associate professor and oo-ohalr in the Management Area at ESSEC Business School,
j'§Pa|~is. He received hie doctoral degree from the Indian Institute of Management {l§M], Ahmedebecl.
1-§Hls resesrct: has been published in Human Resource Management, the International Journal of
ihluman Flesource Development and Management, Keio Business Forum, and the Asia Base
Research Journal. He is ourrentiy the representative of fiance at the International Management Divi-
;§si0n, Aoederny of Meneg_emen_t,_ USA. Wen site: http://w\_mm.aehol_<eom.e0m [s0m@essee.fr'].
Tl111|1c§e:'bil'n§ Intcmational Business Review, V014 418(2) 2.l)7w~237 ' Ma|rch-April 2066
Pnbilslaecl oniine in Wiley InterScicncc (www.intcrsci<::1cc.\\riley.com), QBWILEY _ 6 207
© 2006 Wil Periodical Inc. - DO]: 10.1002/cie.20093 UH? F§§i_@T\C€‘

Page 2
liberalization
gig‘ the Indian
fiironomy created
fiidynamic busi-
that has
ilésuited in
2138
Ashok 80m WWWW _
succeeded in attracting large flows of capitai, and, most strikiugiy,
more than 30 countries have su.cceeded in establishing stock markets
capable of attracting international portfolio investments. These
changes have had profound implications for the entire world econ-
omy and are leading to a reallocation of global savings and invest-
ment. These changes have propelled the most dynamic of the
reforming countries into unprecedented levels of sustained economic
growth and reshaped global capital markets by introducing new
opportunities for both portfolio and foreign direct investment. India,
one of the most important emerging markets in the world, with a
tremendous potentiai for sustained high rates of economic growth, is
increasingly becoming a key player in the world economy.
The iiberalization of the Indian economy created a dynamic business
environment that has resulted in hypercompetition. To face this
hypercompetitive environment, organizational adaptations and alter-
native adaptations of innovative practices have been put in place by
firms for survival and for sustainable corporate performance. This
article attempts to examine how Indian firms have braced for com-
petition through creative and innovative human resource manage-
ment (HRl\/I} strategies and practices in the aftermath of liberaliza-
tion of the Indian economy in 1991 and the HRIV1 adaptations that
have been relatively more effective in this dynamic context. This arti-
cle presents a theoretical framework of aiigning effective innovative
HRM strategies and practices for effective corporate coping in a com-
petitive market. For the purposes of this article, innovative HRM
strategies and practices are defined as:
Any intentional introduction ofH1U\/i program, policy, practice,
or system designed to influence or adapt empioyce attitudes and
behaviors that is perceived to be new and creates current capabil-
ities and competenciesl
In this article, HRM strategies and practices indicate a proactive pro-
cess that has been well accepted and recognized in the literature and
is being used only recently by Indian corporates as part of their over-
all business strategy? The Indian context provides an excellent illus-
tration of the phenomenon oflarge-scale entry of muitinationai cor-
porations (MNCs) and the resultant changes in the competitive
structure of the markets where more creative, innovative HR prac-
tices iteep employees motivatecis This article presents evidence from
11 different in—depth case studies that have dealt with the various
facets of I-IRM practices. The findings reveal how Indian firms are
adopting, aligning, and integrating their strategic initiatives with
Thunderbird International Business Review v DGZ: 10.1902/tic w lviarcli-April20€)6

Page 3
Bracing tor MNE3 Competition Through innovative HRM Practices: The Way Ahead fyorylnciiarififrgs
innovative HRM practices in order to be competitive in a new,
dynamic business environment.
This articie is based on case~based research condncted over a period
of five years (l998—2{)G3) in ll iarge Indian organizations in nine
industries. Each organization, a ieader in its respective industry, has
undergone an extensive restructuring process to equip itself for the
impending cornpetition that arose due to the phased deregniation,
liberalization, and privatization initiateci by the Indian government in
1.991. A number of managers were interviewed from these compa-
nies, and primary, secondary, and archivai data were analyzed. These
organizations were also monitored to record substantial changes in
their business and HRM strategies during the East five years. Frorn
this research, case studies have been written on some of the organi-
zations. The focus of the research was to understand the innovative
HRM practices that can help Indian corporates improve performance
in a hypercornpetitive environrnentfi
India has been identified as one of the largest emerging markets, with
an immense economic potential for sustained economic growth.5 It
has a biiiion customers and one of the wor1d.’s iargest pools of tech-
nical, scientific, managerial, and entrepreneuriai manpower. It is one
of the world’s leaders in the areas of research and development
(R&I)) in information technology, and nuclear, space, and rocket
technologies. It is among the first three countries in the world that
have built a supercomputer (the fourth~generation PARAM) on its
own, with the United. States and Iapan being the other two. India is
among the six countries in the world that have launched their own
satellites. It has the largest set of remote-sensing satellites, the
INSAT. It is aiso one of the world’s largest dianiond-cutting and -
polishing destinations. India is among the six largest industrial
economies and five largest agricniturai economies. it has been grow-
ing for the past 20 years, at an average growth rate of about 6% per
annuin, the rate exceeding 8% in 2003. Yet it has a long way to go.
The journey of India’s iiberalization of macroeconomic policies
started in earnest in 1991 to modernize the economy and actnaliae
its economic potential. It began moving away from a ciosed, regu-
lated “Eicensed” economy to a dynaniie market economy.
'§.'lu:nderbir<i international Business Review ¢ DO]: 10.1002/tie ' Mar-:h-April 2006
India has beelii
identified as one
of the largest
emerging kets, with aii
immense sari-Q
nomir: potentiai
for sustained
grown?
259

Page 4
I -an
world is
éiqiliaking up to
s crucial
jgjfpsition as the
iéiirgest demea-
and as a
iiivnamic econ-
y, if still a
glow-income one
ca-e
270
Ashok Sam _ i _ WW
The 1980s in India witnessed a rather limited deregulation in indus-
tries such as cement. By contrast, the reforms of the 1990s in the
industrial, trade, and financial areas, among others, were much wider
and deeper. The most significant steps in the liberalization process
were rationalization of taxes; selective and phased lowering of excise
duties; setting up of the national stoclt exchange with eiectronic oper-
ations; opening up of the insurance, petroieurn, and retail sectors;
reform of India’s labor iaws; and dereservation of small-scale indus-
try products. All these changes have contributed significantly toward
higher productivity in the economy. Reai GDP growth, which had
dipped to 0.9% in 1991-1992, recovered to 5.1% during 1992-1993,
representing one of the fastest recoveries from a macroeconomic cri-
sis. Growth rates have risen considerably since then. Foreign currency
reserves, which had fallen to almost U.S.$l billion in mid-1991
recovered swiftly and stood at U.S.$6.4r billion in March 1993,
U.S.$rl2 billion in March 2000, and U.S.$lO4 billion at the end of
2003. The proportion living below the poverty line has fallen from
36% to 27%. These resuits and possibilities have generated consider-
able interest in the Indian economy on the part of the international
business community, international institutions, and scholars.
A decade of opening of the economy has produced new dynamism,
most dramatically in the information technology sector, as in others.
The new technoiogies, especially information technology and biotech-
noiogy, have provided fresh opportunities for economic and social
development. The current positive trend has been witnessed in most
sectors of the economy such as the manufacturing sector (automobiles,
auto components, textiles, building materials, electronics, foods, and
cosmetics) the service sector (IT software, business processing, bank-
ing, insurance, consulting, merchandising, and retailing), and R8cD-
intensive sectors (pharmaceuticals and software development). Demo-
graphic trends, especially a slowing population growth rate and a rising
share of people of working age, are contributing to the rising income.
The world is waking up to India’s cruciai position as the iargest democ-
racy and as a dynamic economy, if still a low-income one.
It is important to note that despite the giobal slowdown in
1997-1998, the average growth rate during 1994-1998 was 7%, sig-
nificantly higher than the growth rate of 5% achieved during the
1980s. Moreover, the growth in the 1980s was not sustainable, as the
lack of export dynamism brought the infamous baiance~of-payments
crisis at the end of that decade.
'I'l1underbird International Business Review v DOI: 103002/tie I Marcl1—Aprii2()06

Page 5
firaeing for i\/INC Competition "Borough innovative HHM Practices: Tli§_§'lfe_1_y§ij§§Qlt:r' lndian Firms
The Indian economy’s response to liberalization appears, by and
large, to be effective. Critics of the liberalization. process were con-
vinced that “opening the economy before giving it a chance to
become competitive was parallel to throwing the industry to the
wolves” (Sorn, 2002). Results show quite the opposite of what skep-
tics believed. The success in exports, in fields such as information
technology, in which competition is fierce and technological change
rapid, and success in auto components and pharmaceuticals shows
that the industrial sector overall has responded positively to the inten-
sified competitive pressures. For example, in the automobile industry,
I5 of the world’s major automobile manufacturers are now obtaining
components from Indian firms. In 2002, the value of exports of auto
components was U.S.$375 million. In 2003, it was close to U.S.$l.5
biiiion. Estimates indicate they wiil reach U.S.$15 billion within the
next six to seven years. Hyundai Motors India (HMI) is about to
become the parent Hyundai Motors Corporatiorfis (HMC) global
small car hub. In 2003, HMG sourced 25,000 Santros from HMI’s
plant in India. By 2010, HMI is targeted to supply half a miiiion cars
to HMC. It was oniy in 1999 that HMI got its first outsourcing
contract, and already, in 2003, 20% of its sales worldwide came from
this outsourcing hub. It is exporting cars to Indonesia, Aigeria,
Morocco, Columbia, Nepal, Sri Lanlca, and Bangladesh. Ford. India
got its first outsourcing contract in 2000. Within three years, out-
sourcing accounted for 35% of its sales. Ford India supplies to Mex-
ico, Brazil, and China. The parent Ford is sourcing close to $40 mi!-
lion worth of components from India and plans to increase this in the
coming years. Ford India is already the sole manufacturing and sup-
ply base for “Ikon” cars and components. These are being exported
to Mexico, China, and some African countries. Toyota Kirlosltar
Motors chose India over competitive destinations like the Philippines
and China for setting up a new proiect to source transmissions.
Europe’s leading tractor maker, Renault, has chosen International
Tractors (ITL) as its sole global sourcing hub for 40~to-85-horse:
power tractors.
In other industries such as retail, textiles, and cheinicals, Wal Mart
sources U.S.$1 billion worth of goods (i.e., half of its apparel) from
India. GA]? sources U.S.$500—60O million worth, While Tommy Hil-
figer sources U.S.$100 million Worth from India. Asian Paints has
production facilities in 22 countries spread across five continents. It
has recently acquired Berger International, which gives it access to 11
countries, and SCIB Chemical SAE in Egypt. Asian Paints is the mar-
Tlizindcrhird International Business Review = DOI: 10.1002/tic I March-April 2006
The Indian
omys responszfqif
to liberalization
appears, by
large, to
effective}?

Page 6
to tap into
Effie vast Indian
entry sf
ifljore and more
illiarkez‘ has
iplfranged the
iflynamics of
fining business
India.
E372
Ashok Sam ,___
ltet leader in II out of the 22 countries in which it is present, includ-
ing India.
In the R&D sector, more than '70 MNCs, including Delphi, Eli Lilly,
General Electric, Hewlett Packard, Heinz, and Daimler Chrysler,
have set up R8cD facilities in India in the last five years. In 1998, Intel
had I0 people working in India; today, it has over 1,000. Eli Liliy’s
research facility at Gurgaon is its largest in Asia and the third largest
in the world. GE’s Iohn F. Welch Technology Center in Bangalore is
the company’s largest outside the United States. With an investment
of U.S.$60 million, it employs 1,600 researchers. The Indian center
devotes 20% of its resources to fundamental research with a five-to-
ten—year horizon in areas like nanotechnology, hydrogen energy, pho-
tonics, and advanced propulsion. GE Medical in Bangalore has devel-
oped a high-resolution irnaging machine for angiography to meet:
GE’s entire global requirement. Two-thirds of GE Plastics’ 300-
mernber research team in India is involved in fundamental research
on molecules. GE Plastics has contributed to the development of a
family ofpolycarbonates of engineering plastics that is being used in
auto headlamps and CD3. It has also developed heat—resistant
monomers for applications in aircraft bodies and high~end rnedicai
equipment. GE Motors India has developed an almost noiseless
motor for GE’s most sophisticated washing machine lines in the
United States; it is aiso the sole sourcing point for a million of these
motors every year. Monsanto has been in India for more than 50
years; it set up its first non-U.S. research facility in Bangalore in 1998.
This facility is responsible for M0nsanto’s RSCD for Asia. T he com-
pany is involved in research on “promoters”—--acceierators that
improve crop productivity. Whirlpool’s Pune Research Lab develops
refrigerators and air conditioners for Asia (including China) and Aus-
tralia. Forty percent of this facility’s resources are devoted to global
projects. The Daimler Chrysler Research Center in Bangalore is
engaged in fundamental and applied research in avionics, simulation,
and software development. HP Labs India has built a prototype that
can scan handwritten mail through a small handheld device instead of
a scanner. It has also built the prototype of a computer for unsophis-
ticated users.
As shown, the vast opportunities thrown open by liberalization have
attracted many MNCs to India. The entry of more and more MNCS
to tap into the vast Indian market has changed the dynamics of doing
business in India. Consequently, the environment has become hyper-
coinpetitive and turbulent for Indian organizations, which operated
in a protective environment before. India has slowly become a com-
Thunderbird International Business Review ¢ DOI: 10.1002/tie Q Marci:-April 2006

Page 7
petirive battleground. for more than 15,000 MNCs. In order to face
this competition, several Indian firms undertook significant organiza-
tional changes during the late 1990s. They tried to adopt new strate-
gies to cope with the ever-changing and turbulent environment.
These firms were able to successfiilly adapt to the dynamic corporate
scenario because of their foresightedness, technical expertise, and
marketing abilitiesi’ For example, Hero Honda is the largest manu-
facturer of motorcycles in the world-—With an output of 1.7 million
motorcycles a year. A hundred thousand Indica cars of Tata Motors
are marketed in Europe by Rover, UK under Rover’s brand name.
Tata Indica has been designed, developed, and produced ingeniously
in India. Bharat Forge has the world’s largest single-location forging
facility. its client list includes Toyota, Honda, Volvo, Cummins, and
Daimler Chrysler. It has been chosen as a supplier of small forging
parts for Toyota’s global transmission parts sourcing hub in Banga-
lore. Hindustan Inks has the world’s largest single-stream, fully inte-
grated ink plant, with 100,000 tonnes per annum capacity, at Vapi,
Gujarat. It has a manufacturing plant and a 100% subsidiary in the
United States. It has another 100% subsidiary in Austria. For the past
two years, General Motors has awarded Sundaram Clayton its Best
Supplier Award; the volume it sources from India is growing every
year. Essel Propack is the World’s largest laminated tube manufac-
turer. It has a manufacturing presence in 11 countries, including
China, and a global manufacturing share of 25%, and caters to all of
P8cG’s laminated tube requirements in the United States, arid to 40%
of Unilever’s. Marnti has been the preferred supplier of small cars
under the Suzuki brand. for Europe. Suzuki has now decided to make
India its manufacturing, export, and research hub outside Japan. Tata
Iron and Steel Company is today the lowest-cost producer of hot-
rolled steel in the world. TVS Motor Company has been awarded the
coveted Deming Prize for Total Quality Management. Inci.ia’s phar-
maceutical industry has earned a worldwide reputation like the
infotech industry. It is already worth $6.5 billion and has heen grow-
ing at 8-10% a year. It is the fourth-largest pharmaceutical industry
in terms of volume and 13th in terms of value. its exports have
crossed $2 billion, and have increased by 30% in the last five years.
India is among the top five manufacturers of bulk drugs.
India’s liberalization has had one major implication for the corporate
world-—creation of a hypercompetitive environment due to the low-
ering of barriers to entry and the opening up of opportunities for
growth through the removal of regulations. However, very iittle
work in general has been done on the response of Indian corporates
to the liberalization process and practically none on how they are
Thuntlerbird International Business Review ~ DOI: 10.1002/tic ~ March-A;>1"il 2006
For the past ti/iii;
years, General
Motors
awarded
daram Clayton;
its Best Suppliéii
Award; the
uma it sources
from India
growing as/sly
reéri
273

Page 8
the developed
glefpuntries, align-
and adopting
strategy for
-iiipmpetifive
iifirantage is
idsmmon but not
slliif

ff) emerging
India.
274
bracing for competition from MNCs through innovative HRM prac-
tices. In the developed countries, aligning and adopting HRM strat-
egy for competitive advantage is cornmon7 but not so in emerging
countries such as India. In light of the progress made by Inciia’s
reforms and the growing worldwide interest in India, this article tries
to bridge this gap with an analysis of 11 corporates (Table 1 summa-
rizes the demographics of the ll firms) that are believed to be iead-
ers in their business sectors. It is envisaged that this article will go a
long way for both managers and academicians toward developing a
deeper understanding of the recent developments in India and of the
innovative HRM strategies adopted by Indian firms for superior per-
formance.
For this study, a contingency-based theoretical framework was
adopted that took into account the contextual factors while measur-
ing the impact of those. The core adaptations to iiberalization by
Indian corporates represent a strategic choice. The adaptations cover
both strategic and systemic organizational responses. Strategic
responses relate to vision, mission, goals, values, and business strat-
egy of the organization. Systemic responses are those related to struc-
tures, fianctions, cultures, and processes. This study focuses on the
main systemic responses (i.e., innovative HRM practices that Indian
organizations have adopted to face competition in the Indian mar-
ketplace). Figure 1 summarizes the theoretical model. Further detaiis
on the research design, methodology, and data are provided in the
Appendix.
512
i
The findings from the 11 case studies are discussed with reference to
the theoretical model.
Hypothesis 1: The more HRM practises synergies with changing
husihess strategies", the more they will create social networks within
the organization, which will prshahly necessitate the expansion of
the HR ralepsrrts/:¢em’s role fi/om administrative experts to strate-
gic partners, change agents, and employee champions.
As firms debate the role of HRM as a change agent, a strategic part-
ner, an employee champion, or an administrative expert, it is clear
Thrinderbirci International Business Review = DOI: }.0.1002/tie ' Mar<:h~April 2006
w

Page 9

Page 10
Ashnk ______ ___ _ __
Figure 1. Drivers of Family Conglomerates
Liberalization and Globalization of Indian Economy
Dynamic, hypercompetitive, turbulent business environment
- Opportunities for growth due to deregulation of industries

i it
eeeeeeeeeeeeeee
eeeeeeeeee
Innovative HRM Practices l
- HR synergizing with
changing business strategies, creating social 1
networks by playing the
role of strategic partner,
change agent, and
employee champion
- Professionalized
recruitment, selection, and
career development
practices to prepare a
knowledge
woflcforce that develops,
coaches and harbor leaders
for tomorrow
- Proactive performance
management systems to
build, retain, retrain, and
redeploy talent
- Rightsizing, delayering,
and clecentralizing for
increasing organizational
effectiveness

ll
l
1--
Relatively Superior Corporate Performance it kn
215
that HR professionals must become key players in the design, devel~
opment, and delivery of a c0mpany’s strategyg Organizations still
debate the measurable worth of the HR department. They often treat
this function as secondary and, on several occasions, redundant. Sev-
eral companies, while trying to rationalize their workforce, do away

Page 11
Bracing for %\/INC Competition Through Innovative HRM Practices: The Way Ahead liQE_§l1£igEi_Q_Ei?mS
with the HR department, on the premise of outsourcing nonessential
functions. In today’s environment, where the need for nurturing
human capital has been recognized as precious, this decision might
be to the detriment of the company in the iong run.. An example sup-
porting this point is that of Maruti Udyog Ltd, a ieading company in
the Indian automobile industry, which started as a joint venture with
Suzuki of Iapan. Maruti revoiutionized the automobiie and compo-
nents industry in India and set high standards for its products and
services. Wltll the dereguiation of the automobile industry in India,
Maruti went from being the undisputed leader, controlling about
84% of the market until 1998, to seeing its market share reduce drasw
tically with increasing competition from both the local players like
Telco, Hindustan Motors, and Mahindra 8: Mahindra (M&:M) and
the foreign players like Daweoo, PAL, Toyota, iiord, Mitsubishi, and
GM. The industry structure changed dramatically during
1998—20{)2. To face this intense competition, the company launched
new models that could cater to different market segrnents. Maruti
also shifted. its bu.siness focus from a production-oriented company to
that of a customencaring, se1'vice~ oriented company prioritizing
aggressive marketing. During the same time, a change in leadership
took piaee. Prior to this change, when there was negiigibie competi-
tion and Maruti sold what it produced, HRM was considered a
“paper pusher” and a “time keeper.” It played a marginal role, was
given no targets, and was not accountable to top management. The
HR department was not involved in the strategic decisions, and there
were times when there Was no head for the HR department. Man»
agers considered a posting in the HR department as a punishment. A
new managing director appointed in 1998, however, decided to
professionaiize the HRM function and to link 1-IRM strategies to the
business strategy of the Whole organization. As a result, professional
HR rnanagers were hired. New initiatives in performance appraisals,
competency mapping, and job rotations were undertaken. HRM was
made responsibie for the ciarity and transparency in COi11FI1111'iiC9.TIiOi'1
Within the organization and for negotiations with the union. The
role of the HR department was reactivated and they were held
accountable for defining job profiies and simpiifying procedures.
The significant improvements impiemented by the HR department
have led Maruti to develop excellent teamwork, and its compensa-
tion system was recognized as the best in the industry. Turnover,
employee morale, commitment, and job satisfaction increased Within
the organization.
Synergizing distinctive HRM strategies helps to create unique com-
petencies that differentiate products and services and, in turn, drive
Thunderbird Internationai Business Review ° DOE: 10.2002/tic = Ma1‘c§1—-Ap1'il 2006
. . . when there
was competition arid,
it produced;-§
HEM was corn;
sidered a pusher” andiag
"time keeper?-’i
277

Page 12
gifo keep abreast
ififinns, Indian
the dynamic
condi-
iifijrms have
ts 1

in/amped their
strategies
iind now incor-
{iibrate part-time
ii/Pork, outsourc-
fifig, and tempo-
fiiary workers.
eshek Sam .. _......_-____ _
competitiveness.9 Senior managers remain aloof to the fact that
HRM practices extend to nearly ail the activities of an organization
and are not just restricted to one or few department(s). Well-orga-
nized HRM practices are a prerequisite for a successfui strategic
change. HRM plays a pivotal roie in redefining new strategies so that
they can suit the changing environment. At times, I-IRM not only
complements the new strategy, but also becomes the deciding and
defining factor in pursuing a particular strategy. To keep abreast with
the dynamic business conditions, Indian firms have revamped their
HRM strategies and now incorporate part-time work, outsourcing,
and temporary workers. This represents a drastic shift from the tradi-
tional personnel rnanagernent polices. However, implementing such
modern HRM strategies is not an easy task for senior management,
since changing the mindset and motivating workers to agree to the
change process is an uphill task by itself. An interesting example of
this case was Mahindra Sr Mahindra Ltd, the flagship company of the
Mahindra Group. The M&l\/i Ltd Tractor Division was suffering
from manufacturing inefficiencies, low productivity, an overstretched
production cycle, and poor output. The primary reason behind this
inefficiency was the underproductive and excessively unionized labor
force. The situation was further aggravated by the changes taking
place in the external environment due to the modifications in the
business environment and government policies. The company had to
adopt a new strategy in order to survive. In 1995, the company intro-
duced business process reengineering (BPR), focusing on a totai
overhaul of the styie in which the company was organized. Instead of
improving or changing procedures, the scheme focused on reformati-
lating the way the company carried out its business. This initiated sev-
eral changes in the organizational structure, which enabled the com-
pany to realign itself with the BPR mechanism. T he introduction of
BPR was opposed by the labor union. Prior to BPR, the HR depart-
ment was not part of the strategyatnalcing process at M8cM Ltd. BPR
adopted innovative HRM practices, such as group work, that used
the “churning effect” to change the traditionai rnind~set of the
employees and enforced concrete HRM policies and practices. First,
from a inultilayered structure, the company adopted a flat structure,
which reduced the disparities existing in the different ievels. It
brought together people from different departments that encouraged
cross-functional teamwork. Regular meetings with workers were
encouraged to enhance the company’s belief that “HR cannot func-
tion in cabins.” Furthermore, the company repositioned existing
peopie in key ranks and placed emphasis on training programs. It fol-
lowed a simple recruitment philosophy by refusing to hire highly
qualified people who had a history of leaving the organization for a
Tliunclei-bird International Business Review v DOI: 10.3002/tie *1 March-Aprii2006

Page 13
competitor MNC. Instead, it beiieved in hiring professional consul-
tants to take care of advanced work practices and simultaneousiy cap-
itaiized on its existing employee taient through intensive retraining
and redeployment strategies. The company aiso began outsourcing
noncore manufacturing activities. After eight years, in 2003, the
resuits of impiementing BPR in synergy with new, innovative HRM
practices within the organization were spectacular, as it ailowed the
company to maintain steady profits, reduce working capitai levels,
and rationaiize the manufacturing process. Redesigning innovative
HRM strategies and expanding the HRIVI practices became an effec-
tive method to reengineer the firm’s plants. It created. a social net»
work within the organization and led to the effective team building
lacking before.
Competency—based strategies are dependent on people, and when
peopie are regarded as a key strategic resource, the creation of sociai
networks within the organization is an effective way of managing
people. HRM policies differ depending on. the rapport an employee
shares with the company and how this rapport is co-opted with other
stakeholders of the organization. Hiring of external consultants can
piay a key role in implementing strategies decided by a company as it
tries to strengthen the networks within the organization by providing
tools to adopt innovation. Tara Iron and Steel Company (TISCO), a
Tata flagship company and Iridia’s most cosheffective steei plant,
provides an example. TISCO undertook a management restructuring
program with the objective of transforming TISCO into a high~per—
forming, high-growth organization. The key strategic drivers to
achieve this goal were to focus on current growth, enhance the
degree of profit and accountability, provide exciting career opportu~
nities, and build a team of high-performing professionals. Mclfinsey
Sc Co. was appointed to assist the company in achieving these objec~
tives. Mcliinsey started with an organizational restructuring program
by creating a lean and a fiat strategic business unit (SBU) structure
with enriched iobs, greater accountability, and autonomy. Accordw
ingly, unit teams were formed comprising unit leaders and faciiitators.
In the beginning, Mcliinsey provided the faciiitators who would
coordinate a unit’s performance. Each team had to set targets and
work toward achieving them. The Performance Ethic Program (PEP)
was introduced to promote young dynamic personnei to higher posi-
tions to replace the policy of seniority~based promotions and to ere»
ate new sociaiiy vibrant networks. The PEP institutionalized and tai-
iored the management development programs for officers. A new
performance management system (PMS) was institutionalized to sup-
port the new innovative practices that McKinsey impiemented. The
Redesigning
innovative HBWZ
strategies
expanding
HRM practicgg
became
effective methaiii
to reengineer firm s planfslfi
21.9

Page 14
igjganizations
jars recruiting
selecting
Ejofofessionais
can com~
ipjjrenend a com-
organization
ifiruoture and the
Jigifiquiremsnts of
{aicompany in a
dynamic busi-
ness environ-
220
PMS inciuded alignment of key result areas (KR!-ks) with business
strategy at all levels and clear career paths to enable the company to
identify and reward the strong performers and provide them with
growth opportunities. The compensation and rewards were linked to
performance and pegged to the market. This program made perfor-
mance and reward systems transparent and fair within the organiza-
tion, boosting the employees’ initiative to succeed.
Hypothesis‘ 2: The more tho organizations follow profksrioiializccl
and iiiiiovoitivc HR practices (rccriiitinci/it, sclcctioii, cotrccr
development), the more likely is the ilcvclopio/iciit of oi pool of
kiiowlcil_gc"1/workforce and the more likely is the creation of leiirlcrs
for tomorrow within the organization.
With the demand for knowledge workers increasing in a competitive
market, enhancement of profitability depends on recruiting, select-
ing, and retaining them in the organization. Until recently, access to
technology was considered as the prime area of focus for many Indian
firrns. With increasing competition, knowledge workforce (i.e., peo-
ple) have become competitive differ-entiators.1° The HR executives
are under pressure to stretch their capabilities and provide vaine-
addecl services by professionalizing the HRM practices. Organiza-
tions are recruiting and selecting professionals who can comprehend
a complex organization structure and the requirements of a company
in a dynamic business environment.
A remarkabie example is that of an internationaliy renowned IT com-
pany, Infosys Technology Limited. Infosys is one of the biggest
Indian exporters of software and offers IT consulting and software
services to many of the Fortune 1000 companies. The determination
and the effective management skills of the chairman, Narayan
Murthy, were the driving force behind the success of the company.
His strong belief that Indian professionals have the capability to han-
dle complex projects ied the company to establish a name for itself in
the foreign markets. He implemented the best reward system in the
industry to ensure that his employees were taken care of. According
to him, they represented the company’s most powerful wealth. He
encouraged them to communicate with each other and to interact
with the managernent through meetings. He set up a Leadership
Institute in Mysore to prepare the Infosys employees to face the chal-
lenges of a dynamic market scenario and to groom them to be effi-
cient ieaders. The CEO’s profound faith that human resource is the
most valuable asset of the company ccrtainiy motivated the employ-
ees to strive for excellence.
'Z‘lnmderl>irci Intematioztal Business Review Q DUI: 10.1002/tie ' Mai-eh-April 2006

Page 15
Bracing for MNE3 Competit,i,nn,Ih[ougl3,Innovative i-iFiiV¥ Practices: The Wayfihaad for Indian Firms
The rapid expansion of this software export and information tech-
nology company from 42 in 1987 to 23,000 in 2003 called for
redefining an.d innovating its recruitment, selection, and career devel-
opment practices. For about 700 advertised positions in 2003, the
number of appiicants exceeded 160,000. The sheer number of appii-
cants requires a tough recruitment process, which is tollowed at
Infosys Technologies Ltd. Infosys carries out a rigorous interview
process for selecting candidates, the primary selection criteria being
capacity to learn. After diligently scanning the curricnia vitae of the
potcntiai candidates, Infosys selects a small number of applicants for
further tests. These tests include a set ofpuzzies and math algorithms
in order to evaluate candidates’ learnability. The exact siciiis required
are not tested for during the screening process, as Infosys trains
employees to acquire those. The candidates that pass the test stage
have to further undergo an interview round, which determines their
jobs at Infosys. Prospective candidates are tested primarily for analyt-
icai, problem-solving, and coniniunication skills to enhance a
dynamic learning environment, the key to success in an industry
where technology changes rapidly. Tiiis strict and thorough seiection
process ensures that the company manages to attract the most skilled
people availabie in the job market. The chairman is confident that as
iong as the company innovates, it will survive and succeed. in his
words: ‘
T he biggest challenge is to build a first-class company in a third-
world country. To become a global firm, we need not only the art
of selling internationaily but also the art of recruitment, compen-
sation, training, and the art of teanwvorlt across borders. The
quality of people is a survival imperative.
A similar philosophy was foiiowed at Wipro Corporation, the other
ieading IT firm in India. Wipro Corporation is a large, diversified,
famiiy~owned business, with business interests in many unrelated sec-
tors. One of the most profitable of 'El1€i11 is Wipro Systems, a com-
pany dedicated to computers, inforrnation technology, and software
deveioping. Wipro believes in employing the best people and invest-
ing in their career development. Wipro prides itseif on being “Peopie
Business, Business People.” Wipro recruits from the ieading Indian
educational institutes, such as the Indian Institutes of Technoiogy
(IITs) and the Indian Institutes of Management (IIMs) through the
campus placement programs. For any new business it enters into, the
first chance for promotion is aiways given to its own employees. If
internai taient is not found, the company recruits the hest from the
competitive labor market. Each employee is meticulously trained and
groomed to respond effectively to the business’s requirements. In the
Thunderioird Internationai Business Review 1 DOI: 10.1002/tie - March-April 2006
The chairman
confident that as
long as the
pany innoi/arasg
r Wm surwvé;
and succeedli
227

Page 16
iiiinovative HEM
iitiiactices can
a crucial role
changing the
§§;m'tude of the
gigpmpanies and
3118 employees in
fiiider to facilitate
and pres-
iihce in the for-
feign markets.
222
words of the chairman, Azim Premji, “The key to success in all our
efforts, as always, is our people.”
Wipro believes that they are in the business of leadership and the real
worth of an organization is powered by people who work for it. Mr.
Premji believes that:
in today’s dynamic environment the ieaders that they nurture will
lead them into the filturc. The attitude to nnrture the potential
capabilities of employees, coupled with sensitive and innovative
people practices, has resulted in a deep pool of talent in the orga-
nization. It is this ciepth of leadership that has fueled Wipro’s sus-
tained growth and success.
Many Indian companies that perform weii in the domestic market
have not yet expanded to the international arena. Several factors, such
as lack of confidence, technicai know-how, and resources, inhibit
leading Indian groups to expand their area of activities to other parts
of the world. Innovative HRM practices can play a crucial role in
changing the attitude ofthe companies and its employees in order to
faciiitate entry and presence in the foreign markets. This is effectively
illustrated by the case of the Indian pharmaceutical giant Ranbaxy,
which succeeded in expanding its business internationally cine to the
singlohanded determination of its past CEO, Dr. Parvinder Singh,
and the manner in which he strived to change the mind-set of his
employees. Ranhaxy found itself at the bottom of the pharmaceutical
curvell in spite of being active in the export market for 18 years. For-
eign markets had stringent quality requirements in terms of raw
materials, packaging, and physicai properties of pharmaceutical sub-
stances. This irnpiied heavy costs in research and development and
careful organization of distribution and marketing activities. Despite
entering the foreign markets at the bottom rung of the value chain,
Ranbaxy inched upward because the employees shared their CEO’s
beliefs and dreams that they were in a position to harness their
resources and capabilities to be successful in foreign markets.
Together, they developed continual cross-border learning programs
to enrich their ways of working and functioning. Their board
attracted managers from different parts of the world. This step
enabled them to catalyze their globalization process. Moreover, the
CEO led the company to integrate backward, to enter new markets,
and to develop novel drugs. This provided Ranbaxy with the edge to
succeed in the global marketplace.
In this age of intense competition, the examples of Infosys, Wipro,
and Ranbaxy show that Indian companies realize that the differentia-
Thunderblrd Internatioxlai Business Review ~ DOI: 'i0.lG{)2/ric ~ March~April 2006

Page 17
Egagiggjg;,M§§iQ,[;gmpetition Through Innovative HHM Practices: The Way Ahagd”fo{fjgti%gn"Eirms
tor for superior performance is people. Intelligent and slcilled
empioyees are a prerequisite for companies that wish to climb the iad-
der of success. As more companies acltnowiedge the worth of
employees in India, the competition for the iimited and precious
human resource wiil get fiercer. The chalienge is not just to attract
human capital and enhance its skills and competencies to suit a corn-
pany’s needs but also to retain it within the company. This is certainly
not an easy task given the increasing mobility and flexibility of the
workforce. As the battle to win and retain a taiented and itnowiedge
workforce intensifies, the HRM department has to step in to piay an
important roie in the conception, formulation, and execution. of a
company’s strategy.
Hypothesis 3: The mere organizations practice proactive perfin/~
lnnnee management systems, the relatively easier it is to build,
retain, retrain, and reeleploy talent.
Organizations need to incorporate country-specific institutionai fac»
tors that affect patterns of organizational practices like HRM.
National institutionai embecidedness of firms plays an important role
in shaping HRM practices.” With competition, the responsibiiities
and the domain of the personnel management need to expand to
become proactive and innovative HRM. The HR department not only
has to deveiop new skills regarding recruitment and selection proce~
dures but also has to craft innovative compensation and integration
schemes for the employees in order to retain taient in the organiza-
tion. An interesting example is that of Arvind Mills. Arvind Mills,
which belongs to the Laibhai Group of companies, is a familyeowned
business, producing textiles, ready-to—wear apparel, agro-chemicals,
and dyestuff. In the iate 1990s, it was the third-largest producer of
denim in the world. However, with the change in fashion trend from
denim to gabardine and corduroy, the company was adversely
affected. The threat from powerlooms, the need to increase exports,
and the growing demands of consumers led the company to introduce
a new strategy. HRM played a crucial role in this business plan. The
company created a Manpower Planning and Resource Group to take
charge of the selection and recruitment procedure, to organize the job
structure, and to define the task description of various employees. The
group absorbed fresh talent from top management and technical
schoois and established a compensation system that matched the
industry standards. Innovative new methods of recruiting were
adopted such as the Selection Information System (an online recruit-
ment system) that provided facilities from generating call letters, fix-
ing interviews, and evaluating online interviews. This program was
'i"hunclcrbird International Business Review ' DOI: 10.1002/tie ¢ l\l1arch~Aprii2.0U6
As more "
nies acknomjlli
edge the Wofiili
of employees India, the
petition for
limited and claus huméijl
resource will gig;
223

Page 18
the advent
a new ware
thinking, sev-
firms have
to break
from the
iiifensarvative
iiiiodel and adept
and
meth-
fmm their
coun-
gftprpans. . .
224
linked to the Compensation Information System and the Training
Information System. A Management and Organizational Develop-
ment Group was incorporated to look into the training of the employ-
ees. It provided three kinds of training programs: functional, behav-
ioral, and global. Another innovative concept (in the Indian context)
developed at Arvind Mills was the Management by Objectives
(MBO), which focused on producing results desired by the manage-
ment in keeping with the satisfaction of the employees. Arvind Mills
succeeded in finding a harmonious balance between the top manage-
ment and the industry workers. Uelann, a lcite-flying competition
between the management team and the operations team, is a perfect
example of building healthy relations between the two. In addition,
programs such as Boeboes (rock show) and Umnng (forum) were
introduced to create synergies among worlters. These were some of
the ways that Arvind Mills adopted to build and retain talent.
Most Indian companies still follow age-old practices and customs.
Consequently, their HRM strategies are also based on the traditional
“industrial model,” which involves several features hke seniority-
basecl promotions, strong union influence, and strict job classifica-
tions. With rhe advent ofa new wave of thinking, several firms have
decided to break away from the conservative model and adopt new
and dynamic methods from their Western counterparts that were
more in sync with the changing industry standards. Clariant (India)
Ltd is one such example. With the demerger ofSandoz (I) Ltd, a new
autonomous company called Clariant was born. Clariant develops,
manufactures, and markets dyes, pigments, chemicals for textiles,
leather, plastic, paints, and inks. A new company meant that man-
agers had new responsibilities to handle. A special program called
Clariant Participation to Improve Profitability Through Performance
and People (CLAY) was put into place to efficiently guide the transi~
tion. The unique feature of this program was that managers who had
handled multidivisional responsibilities earlier were able to remark-
ably unlearn their experiences and adapt their learnings to new situa-
tions. The program aspired to “change the mental process” by intro-
ducing several changes in the company’s way of functioning. The
company moved from “top-down close communication” to “up-
down open communication,” from “we and they” to “do it
together,” from “control” to “leading and managing.” All these
efforts enhanced the communication process. Task forces and cross-
functional teams increased employee participation and involvement.
Furthermore, the company introduced a “goal-setting” program that
increased motivation among the employees. The personnel depart-
ment of Sandoz, which was mostly involved with administrative activ-
Thunderbird international Susincss Review ~ DOE: 10.2002/tic I Marcii—April 2006

Page 19
ities, expanded its role as a cataiyzer, supplier of information, facilita~
tor, and developer, thus trying to develop and retain talent.
On the other hand, Infosys designed its performance management
system to build, retain, retrain, and redeploy talent. Since employees
are considered as the prime assets at Infosys, the HRM practices arose
from the belief that the employees stayed with Infosys because the
management was able to satisfy the threefold needs of the workforce:
learning value-added, financial value-added, and emotional value-
added services.
In the words of Chairrnan Narayan Murthy of Infosys:
If there is one chailenge that indian software industry faces, it is
how to recruit, enable, empower, and retain the best and the
brightest professionals.
On the learning aspect, Infosys provided its employees with an
opportunity to accept responsibilities at an eariy stage in their careers.
On the financial side, Infosys provided stock options and low—inter-
est and zero-interest loans to its employees. On the emotional side, a
friendly, open, and transparent atmosphere within the company kept
the ernpioyees motivated and involved. As a consequence, Infosys
developed an ambience that fostered the overall growth and well-
being of its employees. Infosys built a campus that was a set of rnul~
tifloored buildings constructed on a sprawling five-acre land that pro-
vided banking facilities, an ATM, volleyball and basketball courts,
shower rooms, bus facilities, and housing if employees needed to
work overtime. Respect for people enabied the company to create a
leading position for itself in the Indian market and to gain estecrn in
the international arena.
This is the same story as Azim Premji, CEO of Wipro Corporation,
who managed to exploit the talent of his employees. The biggest
challenge faced by his company was holding on to its skilled employ-
ees. For new local entrants and MNCs like IBM, Microsoft, Oracle,
and Texas Instruments that wanted to recruit talented people from
well-rnanaged Indian companies, Wipro became a prime target. Aaim
Premji realized this problem and tool: necessary steps to retain his
skilled workforce. Human resource managers considered employees
as “talent investors” and treated them as partners to be rewarded as
other investors are. Wipro, as Infosys, was one of the first Indian
companies to launch enipioyee stock ownership, which they called
the Wipro Equity~Li11l<ed Reward Program.
Thzandcrbircl international Business Review ' DOI: 10.1002/tic ' March—April 2006
Respect for
pie enabled
are a loading;
position for
in the Indian
market and
gain esteem
the international
arenaié
225

Page 20
vast work-
ihat was
Tfefiiee regarded
one of $B!’s
gtrongest assets
bbcame a liabil-
ity following the
ioomputerization
‘iii the bank.
225
Aahatfism oooooooooooooooooooo .__ _ oooooooooooooooooooo ..
Hypothesis 4: I ieriovative HRM practices (ire general and those
afieetiiig rghtsiziiig, delayeriiig, and deeentralizing in partisan
liar) are positively related to organizational effeetivereess and rel-
atively superior performance.
The new concept of HRM calls for segmenting the workforce accord-
ing to different criteria like age, educational background, and busi-
ness background. Policies need to be tailorenade according to the
needs of each group, in order to optimally utilize the resources
offered by each segment. In the wake of liberalization, the State Bank
of India (SBI), India’s largest public-sector bank decided to under~
take an intensive restructuring program. With the entry of foreign
and private-sector banks, SBI faced competition from both the
Indian private as well as foreign banks. It turned to business consul-
tants McKinsey St Co. for suggestions and improvements. Accord-
ingly, the business was divided into eight major functions, Personnel
and HRM being one of the five most iinportant divisions. The HRM
department was divided into four branches in order to serve the var-
ied needs of the organization: Corporate Office, Local Head Office,
Zonal Branch, and Individual Branch. The Corporate Office handled
most of the HRM activities; each branch was delegated specific
responsibilities, which made the management and decision-rnaking
process in the bank simpler and effective. The HRM strategy placed
special attention on the policies carved by the top management,
which were subsequently implemented by the middle managers. Care
was taken to ensure that the new strategies that were designed for the
middle managers corresponded to their needs. But the implementa-
tion of the restructuring program had its share of difficulties.
When 2. company is undergoing a restructuring phase, it is likely to
uncover many problematic areas that hinder its smooth functioning.
At such times, innovative HRM practices enable the company to
improve its efficiency. This was the situation encountered by the SBI,
when it introduced the Voluntary Retirement Scheme (VRS), or the
“Golden Handshake” system. With the advent of new technologies
like ATMs and Internet banking, the dynamics of banking had
changed dramatically in the late 1990s. SBI found itself faced with
the problem of a redundant workforce. The vast workforce that was
once regarded as one of S'BI’s strongest assets became a liability fol-
lowing the computerization of the bank. In order to protect its deal-
ings and to remain profitable, SE1 realized that it would have to
undertake rigorous cost cuttings and the VRS. The VRS deal pro~
posed 60 days’ salary for every year of service or the salary to be
drawn by the employee for the remaining period of service,
Tlmncicrbird Ilitcrnationai Business Review ° DUI: 10.1002/tie ° Mnrclt-~Aprii 2006

Human Resources Management at McDonald’s

Introduction
             McDonald’s is a company which has a colorful history and developed

the culture associated with the Fast Food Chain today. In 1937, the McDonald’s

brother Richard and Maurice opened the first McDonald’s restaurants in America; it

was a freestanding business that offered until then an unthought-of concept. The

main items they then sold were beef or pork burgers, fries and drinks. Their

restaurant were set up differently to the restaurants of those times, with open

kitchens the customers could see right through, and counters with many operational

cash registers. Under a high degree of customer satisfactory contributed for

business expansion, McDonald today has over than 30,000 restaurants over than

100 countries in the world and it has maintained the top position in the Fast Food

Industry for the past 50 years.

McDonald’s has been pursuing a growth strategy for the last decade.

McDonald’s foreign operations amount for more than half of the company’s revenue

today and all have been marked by ’s (1995) basic vision of selling the maximum.

However, in the late 1990s and early 2000s, the giant experienced problems owing

to external environment changes. In 2002, the company experienced huge

embarrassment with law suits, negative media coverage, and 15 percent drop in its

stocks making it the third biggest loser in the Dow Jones Industrial average. This

roller coaster ride has largely been attributed to the leadership of , who has instituted

strategic changes and made the Company soar once again.

Among the blows that McDonalds took was the obese-causing and loser-

employer issues. McDonalds has been hammered for providing people with

unhealthy food that makes them obese and is an indirect contributor to other health
problems (, 2004). Based on figures rising in US and UK, the cultural changes are

also taking place, the anti American sentiments in the rest of the world has had

negative impact on McDonald’s sales. The biggest challenge that managerial level

faced was changing the mind set of the people from being a loser to employees of a

growing Company. Even the company strategy announced, not many people were

influenced by the ’s confidence.

To battle it out, a growth of 6-7 percent annual growth which was not much

considering the huge size of the food chain was pursued. The challenge was to

increase the sales and revenues of the Company and retain its status back.

However, the growth had to be reengineered as well, i.e. not from new restaurants

but from the improvements in the existing restaurants. Moreover, another factor

which drives ’s attention is the destruction of the food market. Due to the growing

number of immigrants, the variety of tastes was also increasing and the exotic

cuisines from Asia and Latin America were attracting consumer preferences rather

than McDonald.

As stated by  (1997) in her article, "What McDonald's need to do is

consistently drive same-store sales.” , a Natwest Securities analyst, counters it with:

“The only way in which they can do that is take a long, hard look at their product

line." The organizational development focused upon generating revenues from the

existing operations. The biggest change is the expansion in the menus based upon

the product development strategy and market expansion strategy that  wants to

follow ( , 2003). The menus now responded to the consumer behavior and included

more healthy food items like Happy Meals for adults like salads and fruits.

McDonald’s also went on to acquire a few sandwich and coffee chains in UK and
Australia. Though these changes were a positive step towards incorporation of

consumer demands, but it also put the burger giant in competition with a different set

of restaurants like Subway offering fresh salads and sandwiches. In order to

increase the market share in mature markets, McDonald’s has innovated ideas like

the introduction of gourmet coffee in Australia with coffee lounges and net cafés-the

message, a place for high-teens spend their money.

A strong organizational management can build up a good well between

strategy and culture, as lead successful corporate strategy implementation; and build

up a common goal between employees and organization reaching high level of

motivation.  &  (1997) states that “the mission must determine the basic goals and

philosophies that will shape its strategic posture.” This fundamental purpose that

sets a firm apart from other firms of its type and identifies the scope of its operations

in product and market terms is defined as the company mission” Mission is essential

for organization to create cohesion, which makes employees have clear direction to

meet requirement and loyalty.

A strong organization is an intangible force to maximize the contribution from

each member and makes organization going to success. In this article, we will

discuss a well-known organization “McDonald Corporate”, how its managerial role

plays in their organization, and how their management strategies lead them into

businesses.

Importance of HRM

So what is the importance of HRM in business strategies and decision-making

processes within an organization? The new competitive reality facing organizations

calls on new and different capabilities. How can one create an organization which

adds value to its clients, investors and employees? And how can HRM help to

realize this? What is the role of HRM in the organization of tomorrow? When the

importance of flexibility and productivity is emphasized, how can HRM add significant

value to the strategic decision-making process? Is there a role for HRM at this

strategic level? Or is its added value rather situated at the level of the

implementation of these strategic decisions?

             (1995) clearly favours the strategic role of HRM in the organization. But this

does not mean that other HR domains have to be neglected; for example, the

outsourcing of administration should not mean a neglect of this area. Personnel

administration remains an important area of responsibility for HRM. Furthermore, the

facts and figures provided by personnel administration form an important base from

which to develop HR policies in other domains and to evaluate their effectiveness.

Another model for the added value of HRM is provided by  (1997),  (1995) and .

(1995). They distinguish four key roles for the HR professional. HR has to deliver

results in each of these domains, since the four of them are equally important. The

focus may be short term or long term: HR professionals have to be operational and

strategic. Their activities vary from managing processes (HR tools and systems) to

managing people. The combination of the two results in four HR roles:

1.      Management of strategic human resources: this role is focused on the

synchronization of HR strategies and practices to the business strategy. In

this role, the HR professional is a strategic partner who helps realize the

business strategy by translating it into concrete HR practices.

 2.      Management of transformation and change: a second key role in which

HR professionals can deliver value to the organization. HR professionals

have to assist in the identification and implementation of change

processes, being catalysts as well as guards of cultural transformations.

3.      Management of the employees: this role refers to the daily problems,

expectations and needs of employees. HR professionals have to stimulate

the employees’ contribution to the success of the company by

understanding their specific needs and ensuing that these are met.

4.      Management of the administration of the organization: the HR

professional has to ensure that the administrative processes concerning

hiring, rewarding, training and evaluation, promotion, etc. are designed

and delivered efficiently and correctly.  (1997) emphasizes the importance

of this role. Although many organizations and HR professionals tend to

underestimate it due to a growing focus on strategic HRM, the successful

deliverance of administrative aspects of HR will prove to be an added

value for the organization.

Human Resources Management in McDonald’s

McDonald’s Organisation

 and  (1987) suggest that different types of organisations adopt different

approaches to the control of their workforce, depending on how they compete. They

argue that there are three main bases for competitive advantage-innovation, quality
and cost-whereas strategies revolving around quality and innovation are usually

associated with a committed workforce. For organisations where costs are the most

important part of the question, control is likely to be a more important factor than

commitment. Although some level of consent is always necessary, control is high on

the agenda at McDonald's. Control at McDonald's is not merely achieved by direct

supervision, machines, the physical layout of the restaurant and the detailed

prescription of rules and procedures but also through recruitment.

Even unskilled workers have some power to disrupt the efficiency of the

operation by withdrawing co-operation from the production process, disrupting the

process or by simply leaving the organisation. Employees may submit to the

authority of the employer, but are always likely to retain a strong interest in the use of

their labour. Employees and management are, therefore, to some extent

interdependent; management cannot rely solely on coercion or even compliance to

secure high performance, management also needs to secure active employee

consent and co-operation.

When workers' efforts are extracted through an elaborate systems of rules,

including rules about grounds for promotion and for punishment, employers arguably

establish more control over workers' personalities and values than when their efforts

are extracted through direct exhortation or force or through the design of equipment

(, 1979).

 (1983) argues that questions of subjectivity are not separable from the

analysis of actual work practices in interactive service work because employers

actively manage workers' identities. Workers and customers vie with management in

a three-way contest for control and satisfaction.  (1983) emphasises the distress felt
by workers subjected to organisational exploitation of their feelings and personalities;

however,  (1993) argues that not all workers resist the extension of standardisation

to their inner-selves. Rather, many attempt to construct interpretations of their roles

that do not damage their conceptions of themselves.  (1993) also argues that in

some situations service routines provide workers and customers with benefits which

help account for their frequent acquiescence in managerial designs. However, 

(1993) does not suggest that the routinisation of service work and the

standardisation of personality are benign, nor do workers, customers and employers

necessarily benefit from these processes in a happy congruence of interests. These

manipulations are often invasive, demeaning and frustrating for the workers and

sometimes for the customers who experience them.

The importance of emotional labour in interactive service work, even of the

limited kind found at McDonald's, should not be underestimated. Employers who

standardise the service interaction exert a cultural influence that extends beyond the

workplace.  (1983) and  (1989) argue that when workers are estranged from their

own smiles the company is laying claim not just to physical motions but also to their

emotions. Their organisational control strategies reach deeply into the lives of

workers, encouraging them to take an instrumental stance towards their own

personalities and towards other people. McDonald's employees working on a till, for

example, although only involved in limited service interactions, are expected to

control themselves internally by being pleasant, cheerful, smiling and courteous to

customers, even when customers are rude and offensive. This applies to all

McDonald's workers and their relations with fellow workers and supervisors, with

whom they are expected to show obvious pride in their work and employment.
 When asked how they motivated employees, both UK and German managers

at restaurant and senior management level stressed the importance of good

communication. Managers are encouraged to apply and concentrate on 's (1966)

'motivators': 'achievement', 'responsibility', 'growth' and 'recognition'. This may take

the form of 'employee of the month' awards, day trips and cash bonuses or of

encouraging workers to strive for promotion and take on responsibility.

On the one hand, the striving for promotion locks managers' and employees'

loyalty into the system; on the other, it may offer real opportunities for advancement

which may be hard to come by for those with poor academic backgrounds.

Managers are encouraged to discount the importance of 's (1966) 'hygiene' factors,

such as pay and conditions of work. Managers have no control over these issues

because they are dictated by the system. Training reinforces the view that pay and

conditions do not really matter; what really does matter is their 'positive'

management style and leadership. Job satisfaction is thus defined as a phenomenon

determined through the area of psychological concepts, not through good pay and

conditions. A good manager will therefore 'solve' the problem of resistance or

discontent through good communication. Managers in the UK refer to the three Cs

(in Germany, the three Ks), co-ordination, co-operation and communication, as the

basis of the solutions to all problems.

Identification with the restaurant and other crew members is fostered through

the creation of a new form of collective. If 'us and them' is still recognised, it is

reinterpreted to mean 'us' as the management and crew and 'them' as the customer.

Workers are encouraged to think of themselves as part of a team and managers are

encouraged to equate restaurant management with coaching a team. The result of

this form of 'teamwork' seems to be that individuals are often loath to be seen by

their peers as making extra work for other people by not doing their share. Even the

more resentful employees, who had what management saw as 'negative' attitudes,

would still work hard to keep the respect of their peers. A typical feature of

management style was the repeated use of certain kinds of language, with

paternalistic expressions such as the 'McDonald's family'. Management and

employees in both countries used the term to describe their work environment. Many

responses reflected the strongly paternalistic nature of the employment relationship

which management worked to foster.

Conclusion

We examined the organisation and the nature of the work in the McDonald’s

restaurants, the employment relationship and the characteristics of the workforce in

various countries. The detailed study of the German and UK operations and

additional evidence from other European countries suggests that virtually the same

kind of restaurant hierarchy and organisation is in use in every country. Although

there appeared to be some differences in the numbers of workers employed in

restaurants in different countries and differences also in labour turnover, this could

be explained by a broadly similar employment 'strategy'.

Various authors suggest that all of these workers have something in common;

they are unlikely to resist or effectively oppose managerial control. In effect,

McDonald's is able to take advantage of the weak and marginalised sectors of the

labour market, in other words, young workers who lack the previous experience,

maturity and confidence to challenge managerial authority and foreign workers who

are very concerned about keeping their jobs. Furthermore, employees in all
'categories' may have no long-term interest in the company, in which case contesting

management prerogative may simply 'not be worth the trouble'. Many of the foreign

workers in Germany and Austria have a lot of previous work experience and come

from a wide variety of backgrounds, and many have qualifications from their country

of origin. However, these workers are effectively marginalised in the labour market

and find it difficult to find other work elsewhere for several reasons: first, because of

problems with language; second, because of problems with the recognition of their

qualifications; third, because these labour markets are extremely competitive in

terms of qualifications; and, fourth, because the number of foreign and other migrant

workers in Germany and to some extent Austria is increasing and unemployment

remains relatively high.

The work offered by McDonald's may have some positive elements, but

workers are often choosing employment at McDonald's in the context of having few

other attractive options. Almost regardless of what people think of the work itself,

working at McDonald's could be said to offer advantages for some employees who

want flexible hours and are engaged in other activities and responsibilities. For those

marginalised in the labour market who have few chances of a job elsewhere,

McDonald's offers much needed work.

However, the employees' dependence on McDonald's and/or their tendency

to see their employment as a short-term strategy makes them vulnerable to

management manipulation. Those with minimum interest simply leave if they do not

like it, and this is clearly reflected in high labour turnover. Perhaps they are attracted

by the combination of fairly secure employment, familiar 'family' surroundings

created by a highly paternalistic approach to management and lots of employees of

similar age or temperament. This may help to explain how the corporation

sometimes retains individuals who could probably obtain better paid and more skilled

work elsewhere. As  (1986) puts it, it is 'recruiting as means of control'. As already

suggested, however, whether this is a deliberate 'strategy' or something else is not

clear (, 1994).

The employment relationship at McDonald's is managed by a complete

spectrum of controls, from simple, direct and bureaucratic controls to the

management of subjectivity. At one end of the spectrum, restaurant managers are

disciplined to accept tough work schedules and must prove themselves 'up to the

challenge' of punishing schedules. Long hours and loyalty are locked in, with young

managers being persuaded not only to accept as the norm many hours of unpaid

work but also to gain a perverse satisfaction from surviving these tough and

uncompromising work routines. In addition, young managers who may or may not

get similar 'opportunities' elsewhere in the labour market are romanced by offers of

promotion and career development. At the other end of the spectrum, more direct

methods are used to maintain control. However, this still leaves unanswered the

question of how the corporation has managed to sustain the uniformity of its

employee relations practices despite major differences across societal cultures.

Reference List

 
Read more: http://ivythesis.typepad.com/term_paper_topics/2009/07/human-resource-
management-at-mcdonalds.html#ixzz1GON46yix

The Singaporean community is a very diverse community with four official

languages. As for business and politics, English is the official language. The
structure of society is built on fundamental values such as group harmony, loyalty
and respect. This also applies in the world of business for Singaporeans as
organizations within are very group oriented. The organizational structure is
hierarchical and has a very strict chain of command. As for doing business, the
cornerstone is building and nurturing relationships and when doing so, one has to be
careful with one’s approach as the different ethnicities have very different customs
and etiquettes.

Great Britain consists of four different countries – England, Scotland, Wales and
Northern Ireland – who all have very strong identities and sense of nationalism.
Britain has no core fundamental values like those stated for Singapore, but her
society still has a strong class system to some extent where different norms apply to
each class. Even though organizations in Britain have a more ‘flat’ structure, the
class system still exists. Britain is also known for its status as a welfare state. There
is a proper way to act in most situations and the British are sticklers for adherence to
protocol. The British have been historically known for their stiff upper lip. This ‘grin
and bear’ attitude in the face of adversity lives on today. The British are very
reserved and private people. Privacy is extremely important. When it comes to doing
business, it is not as important to establish long lasting relationships as in Singapore
(UK – Language, Culture, Customs and Etiquette, n. d.). The concept of the learning
organization is an outgrowth of British management culture, which spearheaded the
development of learning as an experiential activity that occurs as part of the
management process in order to develop valuable human resources (Jackson,
2002).

As has been often stated, Singapore is generally regarded as having a human

resource (HR) culture that is rather weak and the HR department is often regarded
as a largely ‘sideline’ and administrative job that has no real practical business use.
This is however very much unlike the HR function in Britain, which places a higher
emphasis on learning and development of the individual through the management
process, representing a philosophy that believes in a higher sense of purpose for
human resource management (HRM) rather than Singapore’s straightforward, profit-
oriented judgment of HRM.

It would therefore be pertinent to question why this is so because of their potential

similarities, which partly stems from Singapore once being a colony of Britain, and
how Singapore’s HRM culture can be improved. We will do this by comparing HR
practices between Singapore and Britain under the context of culture, followed by an
analysis and some recommendations.

Comparison of HR Practices Between Singapore and Britain

Recruitment and Selection

When employing HR planning techniques in Britain, 63% of organisations recruit to

maintain adequate personnel, 83% do sales and business forecasts, while slightly
more than half of organizations analyze labour markets. Almost all organizations in
Britain do a forecast of skills requirements at 94% (Dany & Torchy, 1994).

65% of British organizations experience recruiting problems, with the recruitment of

qualified professionals the most significant challenge (Dany & Torchy, 1994). Britain
often resorts to training and re-training programmes to circumvent its recruitment
problem, with 67% of organizations engaging in these programmes (Dany & Torchy,
1994). This is especially so given Britain’s learning organization model and valuing of
experiential learning, where the training and development of their workforce is a vital
component of any worthwhile form of HRM (Jackson, 2002). Aside from this, 53% of
British organizations also turn to hiring more part-time employees and employees on
short term contracts. More specifically, British employees are more favourable with
part time employment than short term contractual employment, with women making
up more than half of these part time employees (Eurostat, 2002). Employment
problems have also led Britain to lower age requirements, posing a potential child-
labour problem.

Regardless of size, almost all organizations in Britain (97%) use applications forms.
References are also one of the most popular means of selecting employees, with
92% of organizations using it. The next most commonly used method of selection,
with endorsement from 71% of organizations, is through the interview.

British employers are keen to do interviewing because it serves a valuable

information function. It facilitates a communication process between employers and
candidates regarding important job characteristics and expectations of both parties.
Furthermore, it fills gaps from other information sources, such as curriculum vitae
and targets valued characteristics which can only be assessed in person, such as
appearance or interpersonal skills (Arvey & Campion, 1982).

Larger British establishments are more likely to use systematic methods, particularly
psychological and personality tests for management and technical staff, and work
samples for clerical staff. There is a greater use of work samples for clerical, skilled
and technical staff, reflecting the general perception of their usefulness for assessing
easily measurable work involving criteria such as accuracy and competency in using
equipment. Additionally, the larger the firm size, the more useful a structured form
becomes for filtering large numbers of applicants, which reflects differences in
methods of attracting applicants for managerial positions and differences in relevant
labour markets. Larger British firms may view application forms as a useful
marketing tool, which allows them to portray a particular organisational image and
culture in order to attract high calibre candidates (Campbell, Lockyer & Scholarios
1997).

In Singapore, local daily newspapers have extensive classified ads for job vacancies.
The print media is used most widely to recruit all levels of employees such as
operators, supervisors and managers. With the exception of executive search firms
(the second most frequently used method for managers), companies use the
following methods regardless of job levels: employee referrals, walk-ins, employment
agencies and rehires. Other innovative methods include career fairs, electronic
media and campus drives (Campbell and Campbell, 1997).

Chew and Goh (1997) found that weighted application forms, reference checks,
interviews and medical examinations were also frequently used. However, there are
some differences for specific types of employees. Reference checks were more
commonly used to select managers (58%), compared with supervisors (40%) and
rank-and-file (37%). Performance tests, work samples, job ability tests and physical
ability tests are more frequently used to select rank-and-file employees. Among the
numerous recruitment methods, pamphlets, signs and bus advertisements, and radio
and TV advertisements were among the least popular, with less than 20% of
companies using any of these methods.

Compensation and Benefits

Compensation levels in Britain are influenced and determined by various laws, acts,
and regulations.

The practice of having government-mandated minimum wages was first

implemented in 1999 and has continued since. Under the National Minimum Wage
(NMW), minimum wage rates vary according to age, falling approximately between
£3.00 and £3.60 per hour (Duane, 2001). Hence, the NMW sets the lower limit for
compensation, and wages in Britain will not end up at any value below this rate.

Britain’s Equal Pay Act was passed in 1970 to ensure that all employees had “equal
pay for work of equal value, regardless of gender” (Duane, 2001). After amendments
had been made to the act, it now states that regardless of whether a job evaluation
plan exists in an organization, if a woman can prove that the work she did was equal
in value to that of a man employed by the same organization “in terms of effort, skill,
and decision-making”, she would have a valid case against her employer to fight for
equal pay. However, as this procedure involves a lot of red-tape and is relatively
ineffective, it has been reported by the Equal Opportunities Commission in 2000 that
woman are paid an average of 20% less than men. This difference is even larger in
the financial sector where women are paid 55% less than men (Duane, 2001).

Britain’s average wages for employees are only at a moderate level in comparison to
the other European countries. However, more than half of the British organizations
have made variable pay a more significant part of their compensation structure: 63%
of public-sector organizations offer variable pay of some sort to their managerial
employees, and 23% have included clerical workers in this program (Duane, 2001).
With regards to variable pay programs in Britain, employee-sharing programs and
group bonus programs are most commonly used. It is the trend in Britain to place an
“emphasis on employee share ownership schemes”, where employees can own a
share in the company’s stocks (Duane, 2001). Using merit pay to compensate
managers and professionals is also growing in popularity in the United Kingdom,
where pay is linked to employee performance based on merit (Duane, 2001).

In terms of benefits, Britain provides universal health care to its citizens, regardless
of their status of employment. Funding for this health care service comes from two
sources: 82% comes from general taxation, while the other 18% comes from the
national insurance payment, which consists of contributions made by both employers
and employees. In order to make health care cheaper and more efficient, the United
Kingdom passed the National Health Service (NHS) and Community Care Act of
1990, which allows hospitals and other health service centers to autonomously
control funding that they receive from the government, to encourage competition
within the industry (Duane, 2001).

Most European countries have regulations mandated by the government, that

“guarantee workers generous paid leaves, including holidays and vacations” (Duane,
2001). The UK is an exception to this, as it does not have any extra mandated
vacation time beyond the typical eight bank holidays. However, British paid leave is
still, on average, 22 days a year, which is high in comparison to other countries
without additional mandated holidays.

Although there are trade unions that fight for workers’ rights, especially regarding
compensation levels, these unions are gradually losing their influence in Britain
(Communal, 2004).

Likewise for Singapore, the Singapore Employment Act sets the basic terms of
employment and compensation. It is also possible for an employer and a union to set
additional terms and conditions between them, but this has to be certified by the
Industrial Arbitration Court (IAC). The purpose of the employment act is to protect
employees, who may have weak bargaining power against their employers, from
abuse or exploitation. Any term of employment that is less favorable than those
stipulated by the Employment Act is “illegal, null and void” (Tan, 2004). The act only
covers workers who are non-managerial employees.

Singapore has a National Wages Council (NWC), consisting of representatives from

the government, employer associations and trade unions. The NWC makes
recommendations on guidelines for annual wage adjustments, and although these
are not mandatory, these guidelines are generally accepted and adopted by most
organizations and trade unions (Tan, 2004). Unlike Britain, Singapore has no
mandated minimum salary, and wage rates are purely dependent on the private and
mutual agreement reached between an employer and an employee (The
Employment Act: Payment of Salary, 2008). The Employment Act was amended in
1988 to give companies more flexibility to pay employees wage increases and
variable bonuses, that were mostly performance-based (Tan, 2004)

The Employment Act also covers other forms of compensation such as entitlement to
overtime pay, and extra pay for holiday work. Overtime cannot exceed 72 hours per
month without prior approval from the Commissioner of Labor (Tan, 2004).
Singapore’s 11 public holidays, employees’ entitlement to paid sick leave for 14 days
a year and terms for terminating contracts also have to be observed by employers
under the employment act. Under the act, employees are only eligible to receive
retrenchment benefits after three years of service in a company. However, this
entitlement would only be valid if the retrenchment benefits had already previously
been included in the original employment contract (Tan, 2004). Otherwise, no
retrenchment benefits will be offered.

Additionally, Singapore has a Worker’s Compensation Act which makes certain that
workers receive compensation for any injuries suffered at the workplace. Singapore
also has a compulsory savings scheme for all citizens, called the Central Provident
Fund (CPF), which employees may only withdraw funds from during their old age or
for specific investments such as buying a home. This fund comes from both
employers and employees, both of whom need to contribute a “specified percentage
of individual employees’ wages” into the employee’s CPF account (Tan, 2004).
Singapore does not provide free health care for its citizens, but citizens can use their
CPFs to pay for some forms of medical care.

Performance management and appraisal

Around 86% of British organizations operate a systematic approach in evaluating

employee performance, and at least 20% of organizations had a formal performance
management programme (Bevan & Thompson, 1991). The focus of British
organizations is often on bottom-line delivery, and it was initially felt that performance
appraisals might add to the pressures on managers’ time, and they might be a
source of disappointment or discontent for employees who feel they are treated
unreasonably.

However, a study revealed that annual appraisals encourage employees to feel

valued, engenders a sense of personal and career development and increases
organizational commitment (Strebler et al., 2001). Employees who receive appraisals
are also not only more positive about their jobs but more competent at them as well
(Borrill et al., 2001). Performance appraisal flourished in Britain due to a political
climate that favoured an individualistic competitive philosophy (Anderson, 1993), with
emphasis on the importance of lifelong learning in British culture.

Performance appraisal is widely used for managerial and white-collar staff in Britain,
more so than for other categories of employee (Roomkin, 1989). The identification of
training and development needs and evaluating individual performance are the main
reasons performance appraisals are used in Britain’s private sector, with most large
organizations appraising all employees (Rosemary, 2004).

This is in contrast with Singapore’s lesser interest in performance management and

appraisal. In a 1990 survey done by the Singapore Institute of Personnel
Management and the National Productivity Board, performance appraisal was
ranked fourth out of a list of thirteen common HR functions done by companies. In
general, appraisals were done once a year, with the likelihood of rank-and-file and
supervisors being appraised more frequently. About nine out of ten companies with
HR departments had appraisals compared to seven in ten companies without a
separate HR department.

Mills (2003) stipulated that the most commonly used performance management and
appraisal system design of companies in Singapore is the trait-based approach with
35.6% of companies doing so due to the difficulty of setting ‘objective’ performance
goals for non-technical/sales positions. In smaller companies, where management
staff has to handle their own paperwork, trait systems are less in evidence.

This is followed by performance management, with adoption by 26.7% of

Singaporean organizations. It is more likely to be used by Western companies that
have PM/A policies. Because of performance management’s linkage to performance-
related pay, it is not favoured in unionized environments.

19.8% of companies utilize the hybrid system. The hybrid system is in a transitional
phase – if Singaporean companies see the value of linking business strategy to
individual responsibility and the benefits of cultural change, then they will side step
the hybrid approach and upgrade to performance management. This is followed by
management by objectives at 6%, and team performance management with 2.9% of
companies adopting it. Team performance management is relatively new in Asia. As
it frequently involves multi-rater feedback, which often requires specific training in
qualitative feedback and suffers from administrative issues, it is yet to take hold in
Singapore.

Government policies have far-reaching implications for HR practices at the

organizational level for Singapore. When the National Wages Council recommended
a flexible wage policy, the government pushed for the introduction of performance
appraisal so that performance-based bonus payments could be implemented
smoothly. In addition to the government, other forces which affect HR practices
include headquarters influence on MNCs’ level of technology, organization size, and
sectoral differences in HR (Yuen, 1998). With continual education, the systems are
likely to become more refined although the wholesale adoption of western models,
such as the open appraisal, is unlikely, especially with Singaporeans’ concern for
‘face’. In a culture were trust and relationship remain important, appraisal will include
trait and personality variables (Mills, 2003).
Training & Development

In Britain, training has been considered important for many years, and is often
“central to HRM in addressing performance issues and managing change” (Jackson,
2002). However, in spite of this, employees in Britain receive a moderately limited
amount of training, with approximately only 10% of British organizations offering ten
or more training days for managers per year (Duane, 2001). In a survey conducted
by the Cranet Network from 1999 to 2000, it was reported that only 18% of
organizations in Britain spent more than 5% of their wage bill on training, which was
relatively low in comparison to the other European countries being surveyed
(Communal, 2004). In general, compared to other leading economies, Britain’s
practices in HRM are actually low in expenditure on training (Tayeb, 2005).

The standard method used for training managers in Britain is formal career planning,
where managerial careers are planned carefully, and selected employees are trained
to eventually become high-level managers. Performance appraisals, where
managers are given feedback on how they can improve their own performance, and
succession plans, where good performers are “selected to begin preparation for
replacing key personnel, who for whatever reason are expected to leave the
organization”, are also relatively common methods of management development in
Britain (Duane, 2001).

Before designing a training program, it is essential to first complete a detailed

assessment of employees’ needs, in order to determine an area of focus. According
to data analysis, Britain has shown to be quite satisfactory in this aspect, with 80% of
organizations engaging in some form of needs analysis before heavily investing in
any employee training. The most common method of needs assessment in Britain is
the use of performance appraisals. On the other hand, it has been suggested that,
along with a majority of the European countries, British organizations seldom
incorporate employee requests into their needs assessment for training programs
(Duane, 2001).

The focus of training programs in British organizations has been on performance

appraisal, staff communication and tem building, with a significant portion of British
managers having been trained in these aspects. However, there has been a general
lack of interest in and focus on foreign language training. This is a relatively pressing
issue because following the unification of Europe, business opportunities in the
region have been growing and this lack of foreign language training could act as a
handicap for British organizations. Formal evaluation conducted immediately as well
as some months after training, which is suggested to be the most informative means
of assessing effectiveness, is quite commonly used in Britain as a method of
monitoring the effectiveness of an organization’s training program (Duane, 2001).

Although Singapore is far from a leading practitioner of HRM, there has been
increasing emphasis placed on the importance of training and skill upgrading for
employees. Government ministers and leading unionists constantly remind
Singaporean workers that they should “constantly upgrade their skills, accept
changes and prepare to work for more than one employer in their lifetime” (Cappelli,
1999).

Management education, particularly management development programs, is offered

by the three main universities in Singapore: Nanyang Technological University,
National University of Singapore, and the Singapore Management University (Tan,
2004).

Most civil servants in Singapore receive their training at the Civil Service College
(CSC), which is Singapore’s main public sector training institute. Seminars are also
conducted and available at the Institute of Policy Studies (Tan, 2004)

Most workers in Singapore undergo on-the-job training (OJT) at some point in their
careers. The Standard Productivity and Innovation Board (SPRING) estimates that
40% of the Singapore workforce undergoes some form of OJT every year. It has
been reported that over 90% of the companies in Singapore do practice OJT (Tan,
2004).

In 1990, SPRING collaborated with a Japanese company to develop a “self-

instructional OJT package” (Tan, 2004). This was implemented in the hope that more
companies will engage in training their employees, and the package shows step-by-
step and serves to guide companies on how structured OJT can be developed and
implemented by an organization. Over 3,500 packages have been sold to 1,500
companies, and have trained over 10 000 employees on how to develop and deliver
OJT (Tan, 2004).

However, while this sounds promising for the future of HR training in Singapore,
there is evidently still much room for improvement. A study by Chew and Teo (1991)
compared the HR practices in local firms and MNCs based on survey
questionnaires. Some of the companies surveyed were locally owned, while others
were jointly or fully foreign-owned. From this study, the local companies were found
to have higher turnover rates, reflecting their inability to retain employees. This was
attributed to their “comparatively ineffective selection function, the lack of training
programs and less favorable pay and working conditions” (Chew, 1991).

Analysis

We will be using the cultural dimensions developed by Hofstede (1984) to conduct

an overarching analysis of the two countries.
Power distance

British organizations are flatter, while Singaporean organizations have greater

hierarchy and tolerance for the unequal distribution of power. Culturally,
Singaporeans are more accepting of a top-down and directive management style
within the organization than the British, and acknowledge that power is often
concentrated at the top. In Asian cultures, authority figures are generally given due
respect and readily adhered to. Therefore, it is unsurprising that Singaporeans
accept this unequal distribution of power as a fact of life and seldom consider
changing it. This is evident, for example, in the small role that unions play in
Singapore, where few Singaporeans actually want to actively fight for various issues,
such as higher wages and compensation. However, since Britain is much lower in
power distance, many citizens are intolerant of any practices which they deem to be
unfair, and often actively join unions to promote change.

Individualism

As shown in the chart, the business culture in Britain is based much more on
individualism, contrary to Singapore's collectivist culture. It might be interesting to
note and wonder why the more individualistic country (Britain) is a welfare state,
while the more collectivistic country (Singapore) is not. Collectivistic cultures are
more characteristic of welfare, in which people have a natural disposition to look
after one another. It is plausible that Singapore has come a long way and worked
hard to become the nation it is today, overcoming many obstacles in the process.
Many Singaporeans, especially the older generation, acknowledge the importance of
industriousness, and are aware that many things can be taken for granted if they are
easily obtainable. Therefore, Singapore is not a welfare state and will not completely
provide for the unemployed because it does not want them to free-ride and be a
burden on the rest of the nation. However, the government still provides other
subsidies for welfare areas such as medical care.

Uncertainty avoidance index

Interestingly, Singapore scores extremely low on this ranking. It would be commonly

assumed that a country with such strict rules and regulations would be more averse
to change and view new ideas more negatively, with a low inclination towards risk.
Britain has a high score which implies that they are more skeptical to change and
averse to taking risks. This is interesting as the western part of the world is more
known to be risk-taking in order to generate profit. Britain’s risk-aversion could be
linked to its likelihood of engaging in needs assessment before implementing any
training programs. A needs assessment will help to ensure that the training will be
effective with as little loss as possible. On the other hand, training in Singapore
seems to be implemented on a more casual and flexible basis.

Masculinity

Both countries score somewhat similarly on this point. However, although both
countries lean towards a feminine business culture, Singapore’s culture is slightly
more masculine. This implies that Singaporean organizations create a more
competitive working environment and that Singaporeans have a higher live-to-work
mentality than the British. Singaporean firms’ strong focus on profit and the bottom-
line could be a factor contributing to its more masculine competitiveness. On the
other hand, with Britain’s rich history, its people tend to be more self-actualizing. This
is demonstrated by British organizations’ greater willingness to implement PM, which
would be seen as a waste of time and resources to many Singaporean companies.

Long term orientation

Britain’s business culture is more short-term oriented than Singapore’s. This is

common for western countries as individualism stands strong and the focus on short
term profits are high. It is worth noting that cultures with low uncertainty avoidance
would be more short-term oriented, but when we compare these two cultures, it is
not the case. Britain has demonstrated its short-term orientation through its TD,
which are heavily lacking in foreign language training. As explained earlier in our
comparisons, Britain’s lack of interest in foreign language training programs is
evidence of its short-term orientation, and its inability to foresee the long-term
advantages of such training. On the other hand, Singapore has more long-term
orientation, with its leaders constantly reminding Singaporeans to upgrade their skills
and be prepared for any future changes.

Recommendations

Singapore HRM essentially loses out to Britain in the arena of self actualization as
an underlying philosophy. With the importance of learning in mind, Singaporean
organizations should especially target improvement to its HRM in the areas of TD
and PM/A.

Organisations should establish the mindset that training is essential, consisting of

skill-based modules to include performance planning, tracking, feedback and
coaching and appraisal as well as a consistent approach to a mid-year review. The
involvement of line managers in the training process may prove to be beneficial as
well. Performance indicators should be developed to ensure the success of TD, such
as reaction (proof of effectiveness of training), learning (do staff now understand the
system?) and application (can staff utilize new skills learnt?).
PM/A needs to be explicitly linked to the strategic focus of the organization and has
to be seen as a developmental process, with employees being able to give feedback
without fear and objective data to support ratings. Competencies, not just traits,
should be used to direct job performance, forge a stronger corporate culture and be
completely strategically focused. Appraisals should also be properly documented,
with a second person ratifying the results. Avoid discussing pay during appraisal, as
it can relegate the PM/A into a pay delivery system. Performance indicators should
be developed to ensure the success of newly implemented PM/A systems, such as
productivity measures and other tangible benefits.

Above this, members of the organization also need to know the importance of
implementing such recommendations for it to translate into positive acceptance and
results. A handbook describing the purpose, policies and processes for the PM/A
system will be useful, especially in clearly conveying the benefits of the system and
helping those new to it along.

Aside from TD and PM/A, Singaporean organizations should also relook recruitment
and selection practices. While Singapore is low on prejudice compared to Britain,
some degree of discrimination still exists which can prove to be a hindrance to
recruitment. Some recommendations to overcome this is to be more open to
possible labour markets, such as enticing foreign talent to one’s company. Part-time
jobs can be offered to retirees and housewives, especially in the light of the
increasing retirement age, and providing more training opportunities.

The Singapore government considers quality education and life-long learning crucial
for national competitiveness. Because of the emphasis on competition and
excellence, the country is slowly transforming itself from a society that endorses
traditional Asian values to one that focuses on individual success. As such, the
educational curriculum is being reviewed and revamped. Independent thinking,
creativity and entrepreneurial spirit are increasingly emphasized. Furthermore, with
the recent influence of western management practices, many local companies have
employed foreign professionals. Many locals are studying management in
universities abroad. Upon returning, western management practices get introduced,
which have implications especially for more traditional Singaporean organizations
(Tan & Torrington, 2004). Organizations should capitalize on this transformation
which represents a broader, more open and liberal way of perceiving the world,
business and HR.