Chapter 6: Conclusion – Managing People Globally

6

Conclusion

6.1 Introduction

Over the course of this book we have looked at the terrain and the main contours of the key areas of HRM from the perspective of the common tensions inherent within it (see Chapter 1, Figure 1.1). These differences have implications for perspectives in HRM (see Table 6.1).

Table 6.1

Tensions in perspectives in HRM

Tension Perspective
Universal versus contingent Implication for best practice
Short versus long Time frames
Specialist versus line Delivery
Espoused versus actual Reality

This includes the tension between the common desire to seek universal, simple answers to perennial HRM issues versus the contingent and complex reality of working life and the management of people.

There is then the implicit and inherent long-term timeframe of HRM versus the common short termism of many businesses (especially those in an Anglo-American context), some of which have been adopted by some organisations in parts of Asia. For instance, think of the ‘payback’ from sophisticated recruitment and selection, training and involvement.

Furthermore, there is the tension between HRM’s use by specialist practitioners or line managers. This has an impact on areas such as training and time as well as consistency and strategy.

There is a further tension in HRM – between espoused versus actual policies and practices. These tensions can be found both within and between organisations, such as those with a head office in the West and operations in Asia. Thus, the rhetoric of much management is about the value and importance of people as ‘our greatest asset’. Yet, this is combined with a continuance of working systems that do not seem to indicate support in practice of this platitude of valuing people. Again, this can be seen both in the West and in the context of some Asian employers who may constantly look for sources of ‘cheaper’ labour.

Therefore, with these considerations in mind, over the course of this book we have examined the key areas of HRM, along with their issues, theories and practices. This was undertaken in terms of the following broad areas.

Employee resourcing – with particular attention to HRP, recruitment and selection

Employee rewards – specifically, remuneration and performance- related pay

Employee development – principally, training and performance appraisal

Employee relations – with the employee relations system and employee involvement

6.2 Key points

This examination of HRM theory and practice has resulted in a set of key points and conclusions. These include the following.

6.2.1 How is HRM different?

The management of people has a long history, which we broadly traced. It can also be acknowledged that there are Asian views of effective people management systems dating back over millennia. HRM can be seen as either simply the latest twist in this, or a turn that has produced a radically different concept.

Think About/Question 6.1

What, if anything, is different between HRM and earlier people management systems? To what extent is HRM simply the latest incarnation of people management?

There are supporters of both ‘yes’ and ‘no’ camps here. There is the idea of ‘old wine in new bottles’ for some commentators. In contrast, for others, HRM is actually a distinctive approach ‘… which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques’ (Storey, 1995: 5). If we take some credence from the latter camp, how is HRM different? We can attempt to make distinctions in terms of the following three aspects of HRM.

Integration

Strategy

Responsibility

Yet, what is the evidence and likelihood that HRM, conceptualised in this form, is actually in existence or developing? The answer to this, it seems, is ‘not a lot’. For instance, research shows that the take-up of HRM-type initiatives and a strategic quality is not always new or proved. This is for several reasons, which include the following.

6.2.1.1 Conflicts

There are conflicting tendencies and tensions within HRM, some of which may be mutually exclusive and so actually make the adoption of the ‘whole package’ of HRM somewhat difficult. This is so within some Asian organisations undergoing rapid change, which make the tensions even more challenging. To what extent, for instance, can management expect both high commitment and large investment in employee development consistent with high numerical flexibility from the same workforce?

6.2.1.2 Opportunities and constraints

There are HRM-type changes, policies and practices in people management. Yet, these can actually reflect pragmatic responses (as has commonly been the case in the areas of people management) to opportunities and constraints in the socio-economic and political environment (see Legge, 1995).

6.2.1.3 Reasons

The reasons for this failure to develop an HRM approach, as in some parts of Asia, is as a result of a set of factors related to the strategic role of people in organisations and the value that employers place on their effective management. However, it ‘… is not just a question of will or conviction, but of deep-seated features’ (Storey and Sisson, 1991: 174).

Think About/Question 6.2

What might be some of the factors that could help to explain the limited role of HRM in business strategy?

There are several possible reasons, including those noted in Table 6.2. These reasons constitute a group of impediments that are mutually reinforcing. Therefore, ‘[h]opes that HRM would lead to a more strategic approach to the management of human resources have been largely frustrated’ (Sisson, 1995: 105).

Table 6.2

Constraints on the development of HRM

6.2.2 Dynamism

The emergence and development of HRM indicates the inherent dynamism and changeable nature of the area of work and employment and its management. We examined the management of people in Asia, as well as in the West, and considered some of the main practices, methods and implications and the issues and problems that may arise here. This examination indicated the need for a questioning approach as dynamic change continues to impact on organisations. A PEST (political, economic, social, technology factors) analysis shows important influences and impacts on this. Thus, management need to be aware of, and keep up with, changes that impact on HRM. Some of the main types of change in our broad HRM areas include the following.

 Employee resourcing – changes in workforce composition and flexibility

 Employee rewards – levels of performance pay, internal disparities and equal pay

 Employee development – measurement and the need for long-term perspectives

 Employee relations – partnerships and participation

6.2.3 Universal recipes or specific ingredients?

One reason why this dynamic change is important is that it affects ideas of ‘best practice’ in this field of management (Rowley and Poon, 2008). Yet, for one group of commentators the question remains – if we look hard enough, are there universal solutions to some of the key issues and practices in people management? This argument involves the commonality or peculiarity of HRM, the transferability or specificity of its practices to/from/within countries, including those in Asia. While these are not new issues, they have taken on powerful resonance in some rapidly changing Asian economies and societies. Part of this has been due to areas such as developments in the European Union and ideas of ‘common’ employment rights or a ‘level playing field’, and the exporting of such ideas as part of globalisation in business and management ideas. This area has been looked at in two ways.

6.2.3.1 Universalism

For this camp HRM is universal and this can be over time, industry sector and location. It is only a question of learning what these HRM techniques are (for example, the ‘best practices’), and then transfer them and apply them for maximum impact and benefit. Even if these techniques may have varied before, in an increasingly globalised and swiftly changing world they will vary less and less.

6.2.3.2 Contingency

In contrast to this first approach, some view management, especially HRM, as more specific and unique to its location and context. This is neatly indicated in the following quote: ‘Many aspects of management work can be developed into a science: successful personnel management is an art’ (Torrington and Hall, 1998: 696). What underpins this ‘art’ of people management? The factors include both culture (norms, values) and institutions (the state, organisation, trade unions), which retain salience and influence on the HRM system.

We can see the ideas and issues in these areas in the following two text boxes. Text Box 6.1 provides an analysis of ‘best practices’ in Asia in terms of definitions, application and types. Text Box 6.2 covers HRM transfers and business systems.

Text Box 6.1

HRM best practices in Asia?

Approaching the second decade of the 21st century provides a fresh opportunity to think about kinds of possible management. In this regard, the area of human resource management (HRM) has become even more important to business, policymaking and nations, including in the economically dynamic Asia-Pacific region. Most of the Asian economies had rapid growth rates for the past two to three decades, although uneven from year to year, and were then hit by the 1997 Asian Financial Crisis. Interestingly, now the very same HRM practices formerly seen as paragons (and taken as “best practices” by some), partly responsible for such success and emulated and exported around the world (e.g., via “Japanization”), have become seen by some as problematic. In such a milieu, some Asian companies began looking to other countries for exemplars of HRM to import. Such issues raise important questions: Are there any HRM best practices? Can they be transferred? The search for best practice in comparative management research relates to the debate on convergence toward common practices that apply to all countries versus continuing or even growing divergence practices.

Many Asian economies do share common features, for example, fast economic growth, social development, surge in foreign direct investment (FDI), multinational companies (MNCs), and so forth. These factors can provide a strong momentum to practice transference to Asia. Despite common features across the region, however, their specific institutional forms vary from one country to another (Hamilton, 1995) and act as serious constraints on transfer and, hence, convergence and promote continuing distinctiveness or even increasing divergence. Besides, since the transfer of practices occurs in a multifaceted context (between headquarters and overseas subsidiaries: Briscoe, 1995; Dowling, Schuler, & Welch, 1994) and at different stages (from pre-institutionalization to full implementation: Tolbert & Zucker, 1996), the issue of transferability becomes more about “degree,” less about “all or nothing,” and more about “what” practices (Pudelko, 2005) and to what extent.

The aim of this chapter is to examine if there are best practices in HRM that can be transferable to Asia and whether this indicates convergence in HRM. Key HRM practices and policies of employment, rewards, and development will be used to examine these issues.

Theory

Classical management thought and more recent variants assume that a set of “best” management practices, as in HRM, can be valid in all circumstances and help organizations perform better and obtain sustainable competitive advantage (Becker & Gerhart, 1996; Huselid, 1995; Lado & Wilson, 1994).

What are ‘best practices’?

This idea can be traced back for some considerable time. For instance, Taylor’s (1911) earlier “scientific management” implied that there was “one best way” of managing. We can recall, as do Boxall and Purcell (2003), that studies of individual best practices within the major HR categories of selection, training, and appraisal have a very long tradition, such as when much effort was put into improving selection practices for officers and training for production workers during both World Wars. In the 1960s, best practice would have been taken as those associated with an American model (Kerr, Dunlop, Harbison, & Meyers, 1962) and in the 1980s, a Japanese one (Oliver & Wilkinson, 1992). Such universalistic views continued to appear and returned in various forms, as belief held that practices could be applicable across countries. Thus, “in best practice thinking, a universal prescription is preferred” (Boxall & Purcell, 2003, p. 61).

One strand in the area is the development of lists of best practices. Among the most famous are those of Pfeffer (1994, 1998), whose list of 16 (of relevance here included employment security, selectivity in selection, promotion from within, high pay, incentive pay, wage compression, and training and skill development), later narrowed to seven (of relevance here were employment security, selective and sophisticated hiring, high compensation contingent on performance, extensive training and development, reduction of status differentials, and sharing information self-managed teams/teamworking; see overviews of other lists in Boxall & Purcell, 2003; Redman & Wilkinson, 2006). Some take a broad definition that best practices are those that can add value to the business. Others are more specific and pinpoint certain practices in particular situations. For others, they are those present in successful and/or high-profile companies. Indeed, research on best practices including collective issues of work organization and employee voice is rare (Boxall & Purcell, 2003).

Some unresolved issues and questions muddy what at first sight seems simple and clear. The whole notion of best practices raises several questions (Bae & Rowley, 2001; Thang, Rowley, Troung & Warner, 2007). There may be quite agreement on what “bad practices” are (Boxall & Purcell, 2003), but there is no consensus on what “best practices” are. Their conceptualization, interpretation, and measurement remain subjective and variable among people, countries, and time. Therefore, while some commonalities exist across various lists, there is less of a consensus, and lists vary over time, location, and researcher. The varied use of terms and concepts such as “work systems” for high “performance,” “commitment,” “involvement,” and so on create more uncertainty and opaqueness. Thus, we could quickly agree on and coalesce around sensible HR practices, but “things tend to get out of hand, however, when writers aggregate their favourite practices—and their implicit assumptions—into more ambitious lists and offer them to the world at large. Such models generally overlook the way that context affects the shape of the HR practices that emerge in a firm over time” (Boxall & Purcell, 2003, p. 68).

In addition to the identification and definition are the following issues. First, we can question the extent to which all organizations might wish, or be able, to implement best practices due to costs and/or sectors in business strategy and location. Thus, “lower value-added approaches may prove highly profitable in specific industries and locales” (Redman & Wilkinson, 2006, p. 266), and consideration of cost-effectiveness is important (Boxall & Purcell, 2003). Second, we need to ask, for whom is this best practice: organizations, shareholders, senior executives, managers, or employees? Much literature fudges this (Boxall & Purcell, 2003) or assumes “for all” (Redman & Wilkinson, 2006). Yet, such unitary perspectives are not common throughout the world (Rowley & Warner, 2007), and organizations are composed of a plural and divergent range of interests. Third, to whom are these practices applied, and is a minimum coverage needed of such groups and the organization’s total HR? Fourth, are all best practices equally important, and are single practices or “bundles” of practices needed? If such groups are needed, what about the conflictual tendencies and contradictions best practices can generate? Thus, there may be incompatibility between practices. One example is Pfeffer’s (1994) list which had incentive pay, high wages, and wage compression as three best practices in the rewards area. Are these practices actually likely to occur together? The furor in the media over excessive chief executive rewards and the vast gap in comparison to the pay of other employees, especially in American companies, shows that this is unlikely. Fifth, there has been only limited actual (as opposed to prescriptive or normative) diffusion and take-up, both at individual practice or HRM system level (see Boxall & Purcell, 2003).

An important issue is about global transference of such practices. The theory of take-up of Western practices derives in part from assumptions that they are somehow superior (Bae & Rowley, 2001). Economic dominance has led to diffusion of theory and organizational practice from the United States. While some researchers (see, e.g., Pudelko, 2005) believe that managerial practices in other countries are deviations from the American model, others (see, e.g., González & Tacorate, 2004) argue that competition between dominant countries means that no single “best” model persists. Rather, countries use their unique cultural and institutional frameworks to create distinct national competitive advantage, potentially militating against the diffusion of best practices. Cultural theorists concur that if practices and cultural values are compatible, it will be easier for employees to understand and internalize practices (Rowley & Benson, 2002, 2004). Historical contexts, unique cultural values, and institutional variations all retain their influence over organizations and local workforces in Asian economies and may foster the development of a unique Asian management model (Rowley, Benson, & Warner, 2004).

In summary, there is debate about best practices in terms of precisely what they are and what their universal application is. “Beyond a certain level of obviously sensible practices, managers start to think about their unique context. This naturally engenders diversity rather than uniformity in HRM” (Boxall & Purcell, 2003, p. 63).

Application

Questions arise as to whether theories and frameworks developed in the West apply in different contexts. To apply the HRM concept in other countries it is important to understand its meanings. Legge (1989) and others explain the term HRM by encapsulating its various differences from personnel management (PM): (a) whereas HRM concentrates on the management of teams, PM focuses on the control of subordinates; (b) line managers play a key role in HRM in coordinating resources, but they do not do so under PM; (c) the management of organizational culture is an important aspect of HRM but not PM; and (d) HRM is a more strategic task than PM.

Furthermore, HRM cannot be divorced from its institutional context. HRM (and best practices) are criticized as Anglo-American concepts and culturally bound (Easterby-Smith, Malina, & Lu, 1995). Whether they can, or even should, be replicated in the Asian context is a matter of opinion. Warner (1995) has cast doubt on applying the term HRM in Asia given the cultural differences that exist with the West. He used China as an example to argue that Western notions of HRM were not present in enterprises. The roles of PM were far from the concept of HRM as understood in Western theory. HRM with “Chinese characteristics” (Warner, 1995, p. 145) may be a more appropriate term to use.

Attempts to compare changes of HRM practices in different Asian economies often raise the question of what to include. The literature provides no clear list or model of HRM practices, and different researchers have their own lists. For instance, Rowley et al. (2004) used the common practice categories of recruitment and selection, training and development, and rewards and employment relations to compare HRM across three Asian countries (Korea, Japan, and China). Björkman and Xiucheng (2002) used rigorous recruitment and selection processes, extensive training, and performance contingent compensation systems.

Even if an agreement could be reached upon what to cover in the Asian context, it is difficult to encompass all HRM elements in a single, short chapter. Therefore, key areas where potential developments and changes can be reflected over time must be chosen. The approach taken here is to search for HRM areas where changes have occurred and where it is possible to observe transfer and adoption of best practices.

Huselid (1995) grouped HRM practices into dimensions that augment people skills, motivate employees, and organize workforces. Therefore, the best HRM practices are those that concern employment, rewards, and development. Some studies (see, e.g., Lado & Wilson, 1994; Pfeffer, 1994) show that companies utilizing their human capital as their unique advantage over others place top priority on people recruitment, reward, and development. Accordingly, three HRM practices are identified as best practices: employment flexibility, performance-based rewards, and employee development investment. These commonly appear on various best practice lists (see earlier discussion). These HRM practices will be discussed using examples and evidence from a range of Asian economies including economic superpowers, both existing (Japan) and emerging (China), “little dragons” (Hong Kong, Korea, Singapore, and Taiwan), and developing nations (Malaysia, Thailand, Philippines, Indonesia, and Vietnam). While not totally comprehensive of the Asia-Pacific region, these countries do encompass the major economic and population centers.

HRM best practices

Employment flexibility

Ideas of sophisticated recruitment and selection (Pfeffer, 1994) slightly metamorphosed into selective and sophisticated hiring (Pfeffer, 1998). Also, Pfeffer (1994) earlier had put forth promotion from within.

Seen as a Western HRM prescription, employment flexibility allowed for easier matching of labor to demand than was possible with former Asian lifetime employment models. Employment flexibility has various dimensions to it—not only numerical (dealt with below) but also financial and functional. The numerical flexibility in employment arrangements, for instance use of nonregular employees (i.e., part-time workers, casual workers, temporary employees, etc.), allows the organization to increase or decrease employment quickly in line with fluctuations in business demand without the costly overheads associated with full-time, permanent employees.

Contradiction and tension, however, exist between security and flexibility (numerical). For people like Pfeffer (1998), employment security was fundamental and underpinned other best practices. This is because HR outputs such as increased performance and motivation require some expectation of employment stability and concern for future careers and links to notions of the “psychological contract,” “mutuality,” “reciprocity,” “partnership,” and so on. This presents a dichotomy in the treatment of HR as critical assets for the long-term success of organizations and not as variable costs (Marchington & Wilkinson, 2005).

Performance-based rewards

Expectancy theory suggests that individuals are motivated to perform if they know that their extra performance is recognized and rewarded (Vroom, 1964). Consequently, companies using performance-based pay can expect improvements. Performance-based pay can link rewards to the amount of products employees produced. As such, attraction, retention, productivity, quality, participation, and morale may improve. Yet, for best practice gurus such as Pfeffer (1998), rewards had twin elements and needed to be not only performance-related but also higher than average.

Employee development investment

Extensive and quality (with focus and delivery) development is one of the most widely quoted aspects of best practice HRM (Marchington & Wilkinson, 2005). For several authors, training and development play a crucial role in international competitiveness (see, e.g., Finegold & Soskice, 1988). Investment in employee development is valuable to meet the needs of economies and organizations with increasing demands for higher levels of skills. Besides, training is often regarded as a benefit offered by organizations to reinforce employee dependence on the organization. Completion of training can lead to promotion. As such, training plays an important role in social mobility and acceptance. Thus, substantial and continuous investment in employee development can be seen as a best practice.

What type of development should companies invest in? And, for whom in the companies should it be offered? Does it need to be job specific or general?

These three best practices are very different from traditional practices predominately used in Asia (i.e., lifetime employment, seniority-based pay, and organizational specific/technical skills training) (see Table TB6.1.1).

Table TB6.1.1 Comparison between Asia traditional practices and West best practices

HRM practices Asia (traditional practice) West (best practice)
Employment Recruitment at fixed times to low level entry from trusted sources
Strong internal labour market Lifetime employment Emphasis on technical skills, education, credentials or relationships
Seniority (age and tenure) Promotion
Recruitment on demand at all levels from open market Rigour in recruitment and selection techniques Emphasis on ability
Rewards Seniority (age and tenure) Group based
Egalitarian distribution of income
Performance-based (ability and competency)
Use of performance appraisals
Development Extensive socialization and on-the-job training
Technical and vocational Often organizational-specific
Continuous learning General skills
Sophisticated needs analysis and assessment Encourage team building

Comparison

A discussion of the three HRM best practices using examples of Asia- Pacific economies follows.

Employment flexibility

Companies in different countries have taken different approaches to fit in with their institutional context. Some argue that national cultures affect hiring practices in various countries (Yuen & Kee, 1993). The restructuring of Asian economies due to globalization and industrialization, however, has led to a number of consequences including factory relocations, cutbacks and lay-offs, unemployment and subsequent retraining, and so forth (Warner, 2003) because businesses are looking for changes and adjustments in workplace HRM practices. After the Asian Crisis, companies realized that seniority-based systems and lifetime employment were costly; they needed flexibility in headcount adjustments to enable quicker responses to market fluctuation and competition.

Classic lifetime employment was found is Japan. In recent years, however, a new group of workers known as “job-hoppers” has evolved. Opposed to seeking out a reliable company after graduating from university and staying until retirement, some younger Japanese have chosen to change jobs every few years (Benson & Debroux, 1997). According to a survey in Japan Statistics (2002), 18% of high-school graduates left their first job within a year. In addition, large companies employ flexible employment policies that relied on nonregular workers. This indicates change in traditional Japanese employment practice.

Lifetime employment is also changing in Korea. In 1999, the terms of the post-1997 Crisis International Monetary Fund (IMF) bailout forced the government to legalize layoffs, weakening this traditional concept. The general direction has moved away from lifetime employment toward easier employment adjustments. Consequently, permanent, full-time workers markedly declined and were replaced by part-time or nonregular employees (Rowley & Bae, 2004).

Nevertheless, the type of organization remains important. For example, public sector organizations, SOEs in countries like China and Vietnam, and government-linked firms in countries like Malaysia all retain greater lifetime employment.

Performance-based rewards

Some Asian managers believe that performance-based rewards of various forms (commissions, bonuses, profit-sharing, share options, etc.) are Western best practices because they tie rewards to job performance as opposed to traditional Asian “seniorityism” of compensation based on age and/or tenure. Companies offering such plans try to be more attractive than their competitors in recruiting and retaining the best talent. The earlier Asian Crisis and global competition, however, have made companies more conservative in making increases to all employees and more likely to take the form of performance-based incentives. The spread of Western compensation systems and performance appraisals through FIEs in China has been significant since the 1990s (Björkman & Xiucheng, 2002). Variable compensation in the form of stock options, employee shareholding, and the like have also seemingly spread and exerted influence over Asian compensation schemes.

We can, however, question the spread of such schemes across both sectoral types and with organizational hierarchies. Also, instilling a performance-based culture, a shift in HRM system architecture, demands consistent policy mixes and practices. Indeed, some companies are reverting to seniority-based systems as companies struggle to effectively assess work and productivity. According to one report, over 75% of Japanese companies that had introduced performance-based pay systems experienced difficulties in managing them (Japan Institute of Labor Policy and Training [JILPT] 2004). The major difficulties were (a) lack of a performance rating system to assess performance, (b) insufficient training for managers to make them commit to the system, and (c) feelings of a lack of job security and company loyalty. It seems that the transfer of a practice is one thing, but making it effective is another. If the transfer is not followed by a deeper level of internalization, both managers and employees will have difficulty in commitment and ownership of the practice (Kostova, 1999; Rowley & Benson, 2002).

Employee development investment

A well-trained and educated labor force is considered a major contributor to the economic performance records of Asia (Cooke, 2005). The need for skilled professions and high-quality executive training have created a boom for managerial training courses, MBA programs, and higher education opportunities in Asia. While an attractive choice for larger corporations, not every company has the resources to establish in-house training schools. Therefore, some large companies may send employees abroad to foreign universities for training. Small-and- medium-sized enterprises (SMEs) need to rely more on governments. China and Vietnam have only recently joined the WTO (2001 and 2007, respectively), strengthening international educational exchange and helping distribution and application of new knowledge.

Nevertheless, not all Asian countries employ a Western approach to development, but blend practices with Asian characteristics and institutional needs. The focus of management training in Korea, especially in large companies, is somewhat different than in the West. In Korea, emphasis was placed on team spirit and commitment to the company and coworkers (Drost, Frayne, Lowe, & Geringer, 2002). Companies took a more holistic approach to incorporate company value and business practices in people development.

Again, however, the sectoral and hierarchical coverage and spread of such practices can be questioned. It is a common finding that the most senior HR in organizations receive the most development expenditure.

In sum, our overview of these three HRM practices shows that it seems that HRM change involves gradual experimentation, and best practices cannot simply be adopted. As with most experimentation, the final outcomes may be difficult to predict and, hence, pose challenges in management research in such area.

Source: Rowley and Poon (2008: 209; 210–212; 214–215; 216–217)

Text Box 6.2

Transferring HRM policies and practices

This chapter aims to examine the interaction between ‘country-of-origin’ and ‘country-of-operation’ effects in determining human resource management (HRM) policies and practices in multinationals (MNCs) in the context of globalisation. As national institutional patterns can penetrate a firm’s internal operations, this study investigates the transmission and adaptation of the home country’s HRM policies and practices within the MNC subsidiaries in the developing host country. Based on an investigation of the reward systems and performance management practices of a sample of US and Japanese companies based in Vietnam, this chapter argues that while ‘low power’ environments pose little in the way of formal constraint mechanisms, they can facilitate the penetration of novel HRM practices. Findings also suggested a complex and challenging situation exists for MNC operations, requiring a very high level of adaptation and flexibility on the part of the host country firm.

Introduction

Recent trends concerning regional integration, the removal of trade barriers, deregulation, the opening of previously closed national markets to international competition, the rise of Asian countries and the integration of Central and Eastern Europe and China into the world economy have inevitably provoked speculation in relation to a globalised world. This has led to a renewal of the debate on the identity of firms and the convergence/divergence of their behaviour patterns. Despite the strength of the globalisation phenomenon which supports the theory of a ‘borderless world’, stateless firms (Ohmae, 1990) and the homogeneity of firms’ structure and behaviour (Bartlett and Ghoshal, 1989), many authors argue that the nation state continues to be a key element in the understanding of MNCs’ management practices across borders (Porter, 1990; Whitley, 1992; Lane, 1995).

Globalisation is not a homogeneous process. Instead, it increases inequality across countries, especially between developed and developing countries (Guillén, 2001). It emphasises the dependency of peripheral developing countries on investment from centre economies. In this context, the features of capitalist development are not simply expressed in a uniform fashion across borders. They are, in many respects, refracted in a distinctive fashion within specific national states. For example, even though developing economies have become increasingly internationalised and integrated into the global system, their firms are, like those in East Asia, in a weaker position in the ‘global commodity chains’ (Gereffi, 1996). Japanese transplants in Malaysia, for instance, produce mature goods which compete in world markets mainly on price, engage in relatively low value activities, particularly mass assembly, undertake limited product design work, and engage only in highly limited ways in process innovation (Wilkinson, Gamble, Humphrey, Morris and Anthony, 2001). The globalisation processes of uneven development, interdependence between equals and those who are less equal alongside interactions of conflicting and common interests, within which national state institutions are embedded, do not simply sustain a single and homogenous pattern of firm behaviours.

The relationship between national features and firm distinctiveness has been highlighted by the institutionalist school of thought. Institutionalists argue that firm activities bear the imprint of specific national institutional arrangements (Orrù, Biggart and Hamilton, 1997; Hollingsworth and Boyer, 1997; Lane, 1995; Whitley, 1999), as they ‘gravitate towards the mode of coordination for which there is institutional support’ (Hall and Soskice, 2001: 9). Firms are also likely to reflect their national origins with regard to behaviour in their foreign operations (Ferner, 2000). This is because, to varying degrees, the particular features of the home country become an ingrained part of an MNC corporate identity influencing their international orientation as the general approach. Furthermore, in some cases, the particular configuration of the home system can give MNCs an advantage when competing outside their home countries (Taylor, Beechler and Napier, 1996).

Many authors have attempted to answer the research question: how far do national states influence the international transfer of MNCs’ management practices? The literature on MNCs and the transfer of HRM practices across countries suffers from a lack of research on the application of these issues in developing countries. One key question is centred on the formation and implementation of HRM systems in subsidiaries within weak host countries. This chapter addresses the transfer of HRM practices in relation to how institutional differences (distance) operate to mediate the transfer of such practices. It aims to investigate the transmission and adaptation of the home country’s HRM policies and practices at MNCs’ subsidiaries in a low-power host country.

In exploring the question of the effect of nationality on multinationals’ behaviour, the literature reviews an analysis of the transfer of HRM policies and practices between different national business systems. The empirical study is based on eight main case studies of US and Japanese MNCs operating in Vietnam in automotive and fast-moving consumer goods (FMCG) industries. The chapter discusses two different yet related HR issues – the reward system and performance management practices of the sample firms. It argues that developing and transitional economies, such as Vietnam, may facilitate the penetration of novel forms of economic organisation. Then again, they suggest a complex situation for MNC operations and require from them a very high level of flexibility, and in some cases compromise, when forming and implementing transferred managerial practices.

The transfer of HRM policies and practices between different national business systems

Comparative institutionalism theory has been widely used to study the diffusion of organisational practices across countries. Operating in more than one country, MNCs confront a multitude of different and possibly conflicting institutional pressures (Ferner and Quintanilla, 1998; Westney, 1993). Since it is vital for MNCs to establish and maintain organisational legality in all their host environments, they need to conform to the legal environment, particularly on labour issues as well as be responsive to the cultural environment. Furthermore, as argued by Birkinshaw and Hood (1998), subsidiaries possess their own capabilities and resources such as consumption market, resources, and efficiency, which are desirable to the parent company. MNCs therefore are under pressure to adopt local practices in the host countries (Kostova and Zaheer, 1999; Ghoshal and Barlett, 1988; Taylor et al., 1996). At the same time, an important source of competitive advantage for the MNC is the utilisation of organisational capabilities worldwide (Ghoshal and Barlett, 1988; Nohria and Ghoshal, 1997). Hereby lies the central question in the literature on MNCs: the extent to which their various foreign subsidiaries act and behave as local firms (local adaptation) versus the extent to which their practices resemble those of the parent firm (global integration). This is the core research question addressed in this chapter.

There is some evidence that the home country exerts a distinctive influence on the way labour is managed in MNCs. Ferner (1997, 2000) argues that the parent company is embedded in an institutional environment located in the home country. To varying degrees, the particular features of the home country become an ingrained part of each MNC’s corporate identity and shape its international orientation as the general philosophy or approach taken by the parent company in the design of the HRM systems used in its overseas subsidiaries. Thus, “ethnocentricity’ and ‘polycentrism’ have been seen as traits characteristic of multinationals of different national origins: thus Japanese and American companies tend to be more ethnocentric than their European counterparts, other things such as sector of operation being equal’ (Ferner, 1994: 88; see also Bartlett and Ghoshal, 1989; Johansson and Yip, 1994; Kopp, 1994; Dicken, 1998; Berggren, 1999).

Taylor et al. (1996) assert that business system differences, including cultural distance and institutional distance, are the most important constraints on the ‘context generalisability’ of HRM practices. Kostova and Zaheer (1999) argue that each subsidiary of the MNC is faced with the task of establishing and maintaining both external legitimacy in its host environment and internal legitimacy within the MNC. As suggested by institutional theorists, organisations may achieve legitimacy by becoming ‘isomorphic’ with the institutional environment (DiMaggio and Powell, 1991). However, they do not necessarily adapt to the local environments, but, rather, manage their legitimacy through negotiation processes with their multiple environments (Kostova and Zaheer, 1999; Doz and Prahalad, 1984). Adaptation and hybridisation result from these processes. ‘Hybridisation’ refers to the mixing of two or more different practices. For example, if a Vietnamese subsidiary (a joint venture between a Japanese partner and a Vietnamese partner) has a salary policy which is based on that of the Japanese parent company (the nenko system) while their benefit policy is the same as that of the Vietnamese parent company, their reward system would be considered a ‘hybridisation’.

Almost all empirical studies that look at the cross-border transfer of HRM come to the conclusion that a certain amount of change is always necessary to successfully implement a HRM system that has been developed in the home business system. Ferner and his colleagues, for instance, have observed that, in recent years, elements of Anglo- American business practices are being incorporated into the German business system. The authors term this process ‘Anglo-Saxonisation’, but argue that it occurs ‘in the German manner’ (Ferner and Quintanilla, 1998; Ferner and Varul, 2000).

The transfer of HRM/IR policies and practices between two economies needs to be seen as part of the global economy. Smith and Meiksins (1995) argue that ‘countries can be slotted into [global] commodity chains relative to societal endowments, and have their comparative superiority and inferiority reinforced’. The ‘dominance’ (Elger and Smith, 1994) or inferiority of a business system strongly determines what and how the HRM system is transferred from one business system to another. From the home country perspective, Elger and Smith (1994) argue that the dominance, largely in economic terms, of a home system itself is one mechanism of diffusion. Dominant states are more able to exert or invite dissemination and adoption of their version of capitalism in other national systems. ‘Firms from strongly integrated and successful economies may carry over national character to subsidiaries when locating abroad, and transfer home country practices rather than adopt the practices encountered in the host country’ (Smith and Meiksins, 1995: 262). For example, the post-war era witnessed American economic and political dominance of the international political economy. This period saw a dissemination of American managerial and production techniques in the world; while the1980s witnessed the transitory dominance of Japanese companies and the ‘Japanisation’ of production and management systems in the US and other parts of the world.

From the host country perspective, the superiority/inferiority of the host system determines its relative openness or receptiveness to dominant ‘best practice’ (Whitley, 1992). In a permissive/open host country environment which poses fewer constraints on firms, the introduction of country of origin practices is easer (Whitley, 1992). In contrast, MNCs may be prevented from transferring country-of-origin practices into a constraining/closed host country environment which is highly regulated and distinctive (Whitley, 1992). Moreover, the subsidiaries can utilise their resources (expertise about local environment and market, specialist knowledge, culture and so on) to block diffusion (Edwards, Ferner and Sisson, 1993).

The literature on MNCs and the transfer of HRM practices has concentrated overwhelmingly on the Triad of the European Union, America and Japan and the interactions amongst firms which are of those nationalities and located within these locations (Bartlett and Ghoshal, 1989; Guest and Hoque, 1996; Tempel, 2001; Evans, Lank & Farquhar, 1989; Quintanilla, Ferner & Varul, 2001; Edwards, Chris and Coller, 1999; Schmitt and Sadowski, 2003, to name but a few). This reflects the heavy concentration of FDI amongst the Triad (Hirst and Thompson, 1999). Meanwhile, little is known about the same phenomenon in developing economies, which are located in weak and disadvantageous positions in the global commodity chains. There are a series of related analytical questions to be answered in this niche: What are the possible constraints and opportunities placed by a low power host country on the operation of MNCs coming from dominant economies? Are MNCs from dominant countries less likely to adopt local practices in weaker host countries and more likely to transfer their own practices? Or are many aspects of their progressive systems lost when firms work in permissive environments? What mechanisms do MNCs develop to cope and adapt to constraints and take advantage of opportunities? These are the research questions that this chapter attempts to answer.

Conclusion

The aim of this research study was to examine the transmission and adaptation of the host country’s HRM policies and practices within MNC’s subsidiaries in a developing host country, in this case Vietnam. Overall some important conclusions were reached.

Primarily this research confirms that the globalisation process does not simply sustain a single and homogenous pattern of firm behaviour and that greater economic efficiency in work systems within a country does not automatically lead to the dispersal of these practices to other countries. Even if it can be demonstrated that a particular set of HRM practices contributes significantly to superior performance in home country operations, a MNC has to determine whether it wishes to transfer these practices. This research argues that MNCs may consider that the transfer of HRM policies and practices is not necessary for successful operation within a Vietnamese context. In the case of JP FMCG, they basically decided to stop the transfer of their home practices to the Vietnamese subsidiaries. Instead, there was a high degree of localisation of managerial practices (even though the same conclusion cannot be drawn for transferring production technology). The first few attempts to copy home practices (the nenko system) quickly disappeared in the Vietnamese environment. The argument is strengthened when some attempts to compare their practices with regard to other subsidiaries are made. Elsewhere, JP FMCG is described as a ‘classic global company’ where international operations are largely formulated and controlled by headquarters. Their global strategy seeks to build competitive advantage by treating the world as a single, largely undifferentiated market. Instead of home-grown methods, the company seeks to use fairly universalistic forms of ‘common sense’ management, experimenting, learning and copying pieces from other firms in a haphazard and eclectic manner. Thus, the low degree of transfer might be attributed to the perceived lack of necessity and assumptions concerning the importance of particular management practices.

It is argued that a developing country poses a minimal formal mechanism of constraint to the design and implementation of MNCs’ remuneration and PM practices. The Vietnamese government has been conscious of the necessity to keep the base level of salary in foreign invested companies at a minimum level and to reduce personal income tax rates. In this context MNCs are allowed to design and/or implement suitable rewards and performance management systems. That said, companies are faced with an informal mechanism of constraint in the form of a default labour market and job-hopping practices. This encourages the implementation of attractive and effective reward systems. The combination of these factors might explain the transfer of well- developed and standardised reward and PM systems in the sample firms.

The home country effects were also evident in this study. For example, MNCs kept tight control of the reward systems in the Vietnamese subsidiaries. A well-defined salary position, permitted salary ranges, and the practice of variable pay which strongly emphasises individual performance were exercised. There were also instances of adaptation to local situations as seen in fixed bonuses, allowances and benefits practices. These practices were very similar in the studied firms and resemble those found in Vietnamese SOEs. Gaps in legislation and weak law enforcement mechanisms have seen companies develop practical tactics to reduce labour costs, such as the ‘70/30’ salary package.

The distinctiveness of the US and Japanese traditions of rewarding and appraising employees was also evident in their Vietnamese subsidiaries with some minor adaptations. In the US firms, the PM process was closely linked with financial measurements and individual performance. The companies also applied a wide range of advanced PM tools and techniques, including the use of 360-degree feedback and forced distributions of performance. Conversely, the Japanese nenko system was transferred to Vietnam in the form of an age-linked payment. Some adaptations of the nenko system were apparent, such as a greater weight being given to individual merit and a higher starting salary.

Finally, although it was not a focus of this research, this chapter acknowledges certain cultural influences with regard to the practices of PM. However, the successful implementation of the US 360-degree feedback and forced distribution system and the limitations of the Japanese top-down appraisal process illustrate the transience and indeterminacy of national cultural traits. In opposition to Hofstede (1980) and other culturalists who see some unchanging national differentiation with regard to culture, this chapter illustrates that cultural values can actually evolve in some situations. The transitional period in Vietnam, which witnessed the fall of the centrally planned system and its promises, is receptive to new and seemingly contrasting practices. It remains to be seen how these develop over time.

Source: Vo (2007: 197–202; 216–218)

6.3 Comparisons

These points were discussed and highlighted when we looked at HRM comparatively and internationally. There are many differences in the use of HRM internationally between different countries as we have seen (and can be seen in, for example, Rowley, 1998; Rowley and Benson, 2000 and 2004; Rowley et al., 2004; Zhu et al., 2007).

Think About/Question 6.3

For management, what might be some of the uses of knowledge of HRM practices in other locations?

Comparative views are useful for a range of reasons. These include those noted in Table 6.3.

Table 6.3

Usefulness of comparative views

Think About/Question 6.4

How would you explain variations in HRM practices between countries?

These differences may result from several factors. These can be explained by the reasons noted in Table 6.4.

Table 6.4

Reasons for differences in HRM

Think About/Question 6.5

How would you go about examining HRM practices in different countries?

Several options are available to look at HRM internationally. These can be seen in Table 6.5.

Table 6.5

Discovering HRM in other countries

6.4 The future of HRM

Several organisational trends will have impacts on the development of HRM. These include the following.

6.4.1 HRM as a subject

HRM as a subject faces a healthy future in terms of academia, teaching and research – partly driven by the increasing popularity of business and management qualifications at different levels. Within these qualification courses, the study of people management is covered in a variety of ways and from various aspects. Much research in the area is durable and is continuing, although the exact focus of this continues to change and develop. Thus, there is less work on ‘conflict’ and more on the contributions by HRM to the performance of businesses and economies, for instance.

6.4.2 HRM as a function

As a function, HRM faces a different set of issues. For some commentators, it may lead to a decline, although others see some greater continuity functionally. A range of developments will have different impacts on the HRM function.

Think About/Question 6.6

What might be some of the impacts on the decline or continuity of HRM as a function?

The impacts are numerous and varied, as can be seen in Tables 6.6 and 6.7. While the management of people will remain, it seems that who does it, and where, may change. One of the more recent trends in countries such as the US and UK is to outsource either the whole of the HRM function or certain aspects of it, such as recruitment, to specialists. Yet, what is the likely impact of such outsourcing for ideas of HRM and consistent universal frameworks?

Table 6.6

Impacts on HRM as a function

Source: Adapted from Sisson (1995); Hall and Torrington (1998)

Table 6.7

Decline and continuity of HRM

Decline Continuity
In recession, fewer people resourced, rewarded, developed In recession, still deal with redundancies, retaining even recruiting
Trade unions more docile, less ‘trouble-shooting’ Trade unions remain, alternative sanctions (i.e. overtime bans, PR campaigns)
Routine administration reduced with automation (i.e. pay, records) Increasingly heterogeneous workforce requiring managing diversity
Subcontracting out aspects (i.e. resourcing, rewards, development) In economic boom, attract/retain sufficient quality key HR
‘Macho management’ reasserting managers ‘right to manage’ Myriad laws require consideration (i.e. need to consult over changes)

6.5 Conclusion

The area of people management is not new and we have seen that directions for managing people have existed, even in Asia, for thousands of years. In the modern era, management of people has evolved and been labelled and relabelled in several ways. However, for some people HRM is different and marks a break with this past as HRM contains some elements that ‘old’ PM simply did not possess, or even claim that PM was interested in such topics. This sort of hard distinction is less proven in some parts of Asia where PM is currently stronger than HRM. Nevertheless, that should not distract businesses and managers from the fact that HRM remains critically important.

Furthermore, while HRM is important, the introduction and use of ‘text book’ practices varies between Asian organisations. We have examined this through a prism of context that has shown variability, and we have explored some of the many reasons (country, culture and sector) why this may be so. This variability in HRM needs to be remembered when faced with the often naïve nostrums and platitudes of many proponents of the latest ‘fashion’ to solve the HRM problems and issues of all organisations in Asia and elsewhere. If only managing people was simple, organisations would have solved their HR issues already! The management of people needs to be put in context and viewed through this lens.

End of chapter tasks/questions

Based on the bank and airlines case studies in Appendix 3, using and applying information within this chapter

1. What are likely to be the major obstacles to using US and UK methods of managing HR in Asia?

2. Analyse why there might be tension between line and HR managers.

3. Why are there differences between head offices in the West and operating units in Asia when it comes to valuing people?

4. To improve business practices what can Asian ways of managing people teach those in the West?

5. The twenty-first century will belong to Asia – discuss why some commentators think this will be true.

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