selective imprinting of integration and localization ...--selective imprinting of integration and...

123

BUSINESS REVIEW Vol. 60, No.4 March,2013

Selective Imprinting of Integration and

Localization Logics: a Case of US Subsidiary

HRM practices of a South Korean MNE

Introduction

Chul CHUNG University of Reading

This research aims to contribute to the recent developments in institutional

approach to the studies of MNEs by examining human resource management (HRM)

practices of subsidiaries in the multiple institutional context of multinational enterprises

(MNEs) from a newly industrialized economy- South Korea. A multi-sited case study

of a South Korean MNE, which was conducted at the headquarter in South Korea and

three subsidiaries of different functions in the U.S., shows that subsidiary HRM practices

are shaped by the selective imprinting of integration logics and localization logics at the

headquarter level as well as at the subsidiary leveL With the absence of mature national

HRM practices due to rapid changes in the home country institutional context and the lack of

perceived legitimacy as a firm based in a non-dominant economy, the corporate headquarter

of the MNE tried to impose a global HRM standard to subsidiaries, which defines mandatory

elements of standardization in a highly selective manner based on their integration logics,

and adopts so-called "global best practices" as a basis of the global template. At the

subsidiary level, the mandatory elements of global standardization were implemented with

significant modifications selectively in particular areas of HRM practices by local actors who

drew upon distinctive localization logics based upon their local legal systems or conditions of

local labor markets. The findings of this study support the view that various transnational

124 - BUSINESS REVIEW -

and local institutional contexts influence managerial practices of MNEs selectively rather

than pervasively through the negotiation process in constructing institutions. where various

actors with different power resources are involved. Finally. the research findings call into

question widely held assumptions in the institutional approach to MNEs. including that of the

presence of established practices that are deeply embedded in home countries of MNEs and

a nation as a major boundary of local institutional context.

Institutional approaches to the studies of HRM practices of MNEs from NIE/EM

Institutional theory has provided an important theoretical foundation in the studies

of HRM practices of MNEs (Bjorkman. 2006). Initially. it has been used mostly to explain the

host country effect or the home country effect on subsidiary HRM practices. For example.

Rosenberg and Nohria (1994) claim that as HRM practices of MNEs are subject to strong

pressures from local institutional context. they tend to adhere to local practices. Another

stream of the institutional approach suggests that even MNEs are deeply embedded in the

national business system of their country of origin. and accordingly their HRM practices in

foreign operations are strongly influenced by their home practices (e.g. Ferner & Quintanilla.

1998). Recently. an emerging stream of research in the studies of MNEs tries to extend the

institutional theory by adopting a more dynamic view on the nature of institutionalization.

highlighting the multiple institutional context of MNEs. and paying attentions to the role of

socio-political dynamics among various actors in shaping managerial practices of MNEs (e.g.

Kostova. Roth & Dacin. 2008; Geppert. Matten. & Walgenbach. 2006; Morgan & Kristensen.

2006).

Though the studies of HRM in MNEs have contributed to the applications as well

as further developments of the institutional theory. extant research has mainly focused

on MNEs based in developed economies such as the U.S .. European countries and Japan

(Thite. Wilkinson. & Shah. 2012). However. dominant assumptions in the extant research

largely based on the studies of MNEs from developed economies become problematic in

the distinctive context of new wave of MNEs from newly industrialized economies (NIE) or

emerging markets (EM). because these firms might not be driven by the same assumptions

about or the same pathways to the globalization of their HRM. For example. an MNE from

-- Selective Imprinting of Integration and Localization Logics: a Case of US Subsidiary HRM practices of a South Korean MNE -- 125

a developed country may claim legitimacy in the transfer of parent-company practices

to subsidiaries, as these can more easily be framed as a source of competitiveness, as

corroborated by the global status of the home country, and expect acceptance of these by

local employees as "advanced" practices. In contrast. MNEs from home countries that lack

such claims to legitimacy are likely to be more sensitive to diverse institutional pressures

and more reluctant to transfer home country practices to subsidiaries because of such

perceived shortcomings (Chang, Mellahi, & Wilkinson, 2009; Bartlett & Ghoshal, 2000; Smith

& Meiksins, 1995). Additionally, mature practices may not exist in the parent company or

home country because of the more limited heritage and experience in conducting businesses

(Ramachandran & Pant, 2010; Cuervo-Cazurra & Genc, 2008; Luo & Tung, 2007; Dunning,

Kim, & Park, 2008). These distinctive challenges stemming from national origins have been

referred to as the "liability of origin", compared with their counterparts from developed

economies (Bartlett & Ghoshal, 2000; Chang et al., 2009; Ramachandran & Pant, 2010).

In the literature, the disadvantages associated with the "liability of origin" of MNEs

from newly industrialized economies and emerging markets can be broadly classified into

two dimensions: institutional and cognitive (see, e.g., Ramachandran & Pant, 2010; Cuervo

Cazurra & Genc, 2008; Luo & Tung, 2007; Bartlett & Ghoshal. 2000). The institutional

dimension includes a lack of mature and sophisticated institutional intermediaries at the

national level (e.g., under-developed markets, poor access to well-developed financial markets,

scarcity of skilled talent base, lack of intellectual property regimes) as well as the absence

of well-established management infrastructures and practices at the organizational level

(Ramachandran & Pant. 2010; Cuervo-Cazurra & Genc, 2008). The former may be more

salient in MNEs from emerging markets, but the latter can also apply to the relatively well

established MNEs from newly industrialized economies, as they tend to simultaneously

experience an accelerated time frame of internationalization (Dunning, Kim, & Park, 2008).

The disadvantages in the cognitive dimension include adverse judgements by

host country constituencies based upon perceptions and stereotypes imprinted in the firm'

s country of origin (Ramachandran & Pant, 2010) and a lack of self-confidence regarding the

firm's potential for globalization with its own capabilities (Bartlett & Ghoshal. 2000). The

international marketing literature acknowledges that customers can judge a company's


products negatively based on a particular image of their country of origin (Ramachandran &

Pant, 2010). Similarly, employees in a host country may question the legitimacy of managerial

practices originating from non-dominant economies (Chang et al., 2009). Corporate managers

in MNEs from newly industrialized economies and emerging markets may also perceive

constraints on the range of viable actions due to self-doubt regarding the legitimacy of

the managerial practices of the MNE home country, out of a belief that it is in an inferior

position in the "hierarchy of national economies' (Smith & Meiksins 1995).

The purpose of this research is to contribute to the recent developments in

institutional approach to the studies of MNEs by examining subsidiary HRM practices in the

multiple institutional context of MNEs from a newly industrialized economy, South Korea

The main research questions are: 1) how subsidiary HRM practices are shaped by corporate

and subsidiary HR actors; 2) what is the role of institutional contexts of their home country

and host countries in shaping those practices.

Methodology

This research is based on multi-sited case study at the corporate level as well as the

subsidiary level. At the corporate level, the corporate headquarter of a major manufacturing

MNE (AutoCo) in South Korea was examined to identify patterns in their international HRM

strategies and practices and factors that shape those patterns. At the subsidiary level, three

U.S subsidiaries of the MNE were studied to examine actual implementation of international

HRM strategies through their subsidiary HRM practices. Three subsidiaries include a

sales/marketing office, a manufacturing plant, and a research and development centre. The

revenue of the case company was over 55 billion U.S dollars in 2010 and 75 % of the sales

came from foreign markets.

Main sources of data were semi-structured interviews and supplemental documents.

Total 25 interviews were conducted including 5 interviews at the corporate headquarter

in South Korea and 20 interviews in three U.S. subsidiaries. Interviewees were selected

from key actors in corporate HR and subsidiaries who were involved in developing

and implementing international HRM policies and practices. Interview topics included

-- Selective Imprinting of integration and Localization Logics: a Case of US Subsidiary HRM practices of a South Korean MNE -- 127

international HRM strategy and activities, rationales of the strategies, subsidiary HRM

practices and influences on subsidiary HRM practices. To examine corporate HRM guidelines

and subsidiary HRM practices in a systematic way to enable comparisons between corporate

guideline and subsidiary practices across the subsidiaries, structured interview instruments

were also used in interviews. Each interview was conducted on one-to-one basis and last

around one hour.

Corporate headquarter's approach:

hybridization between 'global best practices' and local practices

The corporate headquater of the company intended to standardize subsidiary HRM

practices in a highly selective manner based on their distinctive integration logics. From

2007, the corporate headquarter of the company has tried to deploy their newly developed

'Global HR Standard' to each subsidiary, whose HR function had been operated independently

without any formal control from the parent company previously. The 'Global HRM Standard'

is a guideline describing the desired features of the HR systems that their subsidiaries are

expected to adopt Based upon their distinctive integration logics, which were global staffing

logic, cultural integration logic, and performance orientation logic, they carefully selected

and defined mandatory components, which every subsidiary is required to comply with,

and recommendatory components, which were recommended for implementation subject to

subsidiaries' decisions (Table 1.).


Table 1. Summary of headquarter global HRM guideline and subsidiary HRM practices

Component of HRM practices for each HQ US US US subsidiary Guide' Sales Plant R&D

Job & Grade

Job classification: job family MS' @ .' @'

Job classification : job list MS @ • @

Job description: category R' @ @ 0 Job description: content R • 0 0 Grade: number MS • • @

Grade: criteria/definition MS • • @

Grade: title MS • @ 0

j Promotion: requiremenU criteria MS • @ @

Promotion: process R • 0 @

Recruitment & selectIon

Recruiting methods L' 0 0 0 Recruiting message L 0 0 0 Selection: criteria MS • @ 0 Selection: HR interview MS • • 0 Selection: other assessor R • 0 0 Selection: process R @ @ 0 Selection: assessment tools R • 0 0 Learning & development

Succession planning: executive pool MS @ @ @

Succession planning: high potential talent R @ 0 @

Learning program: leader MS @ • 0 Learning program: Common competency MS • • @

Learning program: professionl job related R nla 0 0 Learning deliveryl operation R 0 0 0 Performance management

Performance evaluation factor MS • • @

Performance measurement item R • • @

Weighting of evaluation factors MS @ • @

Performance rating scale MS • • @

Forced distribution R @ 0 0 -Evaluation cyclel frequency MS • • @

Performance management process MS • • @

Performance evaluation assessor R • • @

Performance management form R • @ 0 Linkages to other HR applications R @ • @

Common competency MS • • @

Leadership competency MS • • @

Job skilll competency R @ • @

Competency assessment process MS • • @

Competency assessor R • • @

Competency assessment rating scale MS • • @

CompensatIon & benefit

Pay philosophy - pay for performance MS • • • Employee pay structure R • • 0 Employee base pay range R • @ 0 Employee base pay increase R • • 0 Employee incentive R @ • 0 Employee benefit L 0 0 0

1. HQ GUide. headquarter s global HRM gUideline regarding subSidiary HRM practices. 2. MS: Mandatory Standardization (required to follow globally common standards); R: Recommendatory (the global standard

guideline exists for this area, but allowing subsidiary discretion whether to adopt or modify the standard); L: Localized (local delegation without any guideline).

3 . • : Adopt the global standard guideline; @: Modify the global standard guideline to accommodate local needs; 0 : Utilize HRM practices which were developed locally to accommodate local needs; n/a: Not Applicable (not yet introduced).


For example. to promote sharing corporate values across subsidiaries. several

components of HRM practices were selected as mandatory standardization components such

as learning program for common competency development and performance assessment on

common competencies based on core values. For the purpose of facilitating global staffing

across different organizational units and locations. the components of practices such as

classification of job families. the number and criteria of grades. succession planning program.

performance evaluation factor. and performance rating scale were defined as globally

common mandatory components. In the performance management system. the majority of

elements were defined as globally common. because the company believed that maintaining

a performance-oriented management style would be a critical ingredient for their business

success.

Another key feature of the corporate headquarter's approach to subsidiary HRM

practices is the utilization of so-called "global best practices". mainly influenced by U.S. MNEs'

practices. as a main reference for standardization. rather than imposing parent company

or home country practices on subsidiaries. The company adopted so-called "global best

practices" as a major source of standardization. based on the information gathered through

benchmarking and work with US-based consultancies. The HRM practices of US-based MNEs

have been widely introduced to Korean companies. including the case company. since the

Asian financial crisis in 1997. However. it was reported that the parent company could not

fully implement these espoused "ideal" practices because of internal constraints in their home

base. such as resistance from labor unions. and thus even their home practices could best be

described as a mix of traditional seniority-based and a newly introduced performance-based

system. When they developed global HRM guidelines. they were not willing to consider

their parent companies' current practices as the major source of standardization and rather

actively adopted "global best practice" as a basis of standardization.

Implementations at subsidiaries:

the selective imprinting of integration and localization logics

From the multi-sited case study of AutoCo. two general observations across the

subsidiaries can be summarized as follows. First. HR managers in the three subsidiaries


demonstrated some knowledge of their corporate-headquarter approaches to subsidiary-HRM

practices as they had been given a corporate guideline regarding subsidiary-HRM practices,

called 'Global HR Standard'. Second, although there are variations across the subsidiaries

and components of HRM practices, the interviewees from the subsidiaries reported that they

implemented the corporate guideline to some extent. As subsidiary HR managers were

expected to implement the corporate guideline in their own subsidiaries, significant parts

of the mandatory standardization components of the corporate guideline were adopted by

subsidiaries (Table 1). A HR director in a U.S. subsidiary reported that:

" So the biggest struggles were getting some of the fUnding to do some of this in the training

area and then that issue with the performance appraisals, which was a really big issue for us

and other countries. I had heard from Canada and my counterparts in Europe who I've met

and I know at AutoCo and they all struggled with some of this change with the performance

appraisal. But some of that has changed now and I think things have gotten better. And like

any new initiative when you come out with something that big and here s the global umbrella

it s going to take a little time to work through it. But other than that I think AutoCo has

done an outstanding job of putting together a process that can be basically utilised around

the world. It s very good work from whoever had put that together." (HR director, US sales

subsidiary)

Although significant parts of the mandatory standardization components of the

'Global HR Standard' were adopted by subsidiaries, it was also found that the mandatory

standardization components were selectively adopted or modified by subsidiaries based

upon their distinctive localization logics which were related to their dynamics of local labour

markets or local legal systems. In the U.S. subsidiaries, the evaluation method of forced

distribution practice, where managers are required to distribute ratings for their employees

into a pre-defined performance distribution guideline, in the performance management area

could not be implemented, even though the U.S. could largely be seen as the origin of such

practice. Local actors could reject the application of the practice based on their localization

logic that highlights legal risk, referring to a lawsuit case against their major competitors on

the ground of discrimination which has been known as a highly sensitive issue in the U.S.


" / understand that but a lot of us companies actually went to court on this ten years ago or so

because General Electric used to have something called the 10-80-/0 System and Ford Motor

Company used it too. And what it said is every year the people who are in the bottom /0%

should leave the company. And sometimes when you force that upon a corporation that means

every year 10% you're going to be pushing out and at some point there s like diminishing

returns meaning it s not always going to be /0% there s going to be less and less because

you've got very good people. So if you're forced to do this ... so / believe what AutoCo just

came back and said it s recommended and you may vary the percentages and we do. Most of

our employees are what s called a 3 here and so we do follow this general curve. But it might

not be zero to five, it could be zero to three down here. So we modify it a little bit. But the

general concept is sound and we understand that." (HR director; US sales subsidiary)

Most respondents of the research agreed that one of the defining features of the U.S.

context with regards to HRM is a highly restrictive legal system to protect various minority

groups in the U.S. society. Korean HR expatriates found it surprisingly different from what

they had experienced in their home country. Local managers also understood that the U.S.

legal system is much stricter than those in other countries. It was echoed in the interviews

that companies should consider legal risk seriously when they deal with employment-related

issues in the U.S. as there have been many law-suit cases that even well-known employers

lost and severe penalties were imposed on them.

It was also found that significant variations could exist in the degree of adoption of

the global HR guideline among subsidiaries within a same country according to particular

characteristics of a subsidiary, such as the function and the age. The result of the study

shows that the research and development function were seen as tending to show relatively

low degrees of acceptance of the global HR standard partly due to their distinctive dynamics

of local labour markets (Table 1). A key challenge that was mentioned by the respondents in

the U.S. research and development subsidiary was the difficulty of competing against major

U.S. multinationals in their home labour markets as a subsidiary of an MNE from a non

dominant economy. It was reported that compared with Korean employees in the parent

company, employees in the U.S. are more likely to move across companies to build up their

career. Furthermore, as a major market in auto industry, the U.S. labour markets provide


various job opportunities to move. There are major U.S. car makers as well as foreign MNEs

such as Japanese and European MNEs. These potential employers have been established

much earlier in the U.S. markets and thus are perceived in the US labour markets as

more established firms than AutoCo. Thus, when AutoCo launched its U.S. research and

development subsidiary, it had a difficulty in attracting competent employees from the

local labour markets. After building up its presence in the U.S. market. the company has

also struggled to retain local employees who were beginning to get offers from the major

competitors. The difficulties in attracting and retaining employees in the local labour market

made the research and development subsidiary respond and adapt to local needs more

sensitively, which lead to further variations from the global HRM guidelines.

Discussion and conclusion

Through the in-depth case study of HRM practices of a South Korean MNE, this

study makes several contributions to the recent developments in institutional theory in the

context of MNEs. First. the results of the study, which was conducted at the headquarters

in South Korea, and three subsidiaries of different functions in the U.S., generally supports

the 'actor-centred' institutionalist view that various transnational, home and local institutional

contexts influence managerial practices of MNEs selectively rather than pervasively through

distinctive modes of integration as well as localization, which are enacted by multiple actors

who are involved in the process of establishing and changing institutions with various

resources available to them, such as authorities given by corporate hierarchy or distinctive

local institutional context (Geppert. Matten, & Walgenbach, 2006; Morgan & Kristensen, 2006).

As shown in this study, the corporate headquarter of the MNE tried to impose a global HRM

standard to subsidiaries, which defines mandatory elements of standardization in a highly

selective manner based on their modes of global integration and local responsiveness, and

adopts so-called "global best practices" as a basis of the global template. At the subsidiaries,

the mandatory elements of global standardization were implemented with significant

modifications selectively in particular areas of HRM practices by local actors who drew upon

distinctive mode of local responsiveness based upon their local legal systems or conditions of

local labour markets. These findings provide empirical support to the emerging view on the

institutionalization of managerial practices in MNEs, which emphasizes multiple-institutional


context and role of actors.

Second, this study provides an important methodological implication to the study

on the institutionalization of managerial practices of MNEs. Contrary to the dominant

assumption that standardization (or institutionalization) might occur at the overall function

level or the practices level. this study shows that MNEs could also attempt to standardize

their managerial practices highly selectively at the finer level within a practice area Thus,

analyzing at the entire function level or overall practice level may have serious limitations

in adequately revealing the complex patterns of standardization or institutionalization in

managerial practices of MNEs.

Third, this study shows that it is important to examine the institutionalization state

of a home country in a particular domain of interest and key actors' cognitive aspects in

order to understand MNE's approaches (specially, those of MNEs from NIE/EM) to their

managerial practices across countries, rather than to assume the existence of established

practices that are strongly embedded in a home country and parent company's willingness

to transfer those practices to subsidiaries as an appropriate way. The empirical result

highlights that the institutional instability and the perceived weak legitimacy of being a non

dominant economy could play a significant role in shaping a parent company's managerial

approach, such as that of adopting "global best practices" as a foundation of standardization.

Finally, the research findings challenge the significance of a nation as a major

boundary or unit of analysis in identifying local institutional context as there were significant

variations across subsidiaries of different functions (or local labor market) within a same host

country. It would be necessary to examine specific local contexts and their influences more

carefully even in a same host country.


References

Bartlett, C. & Ghoshal. S. (2000) Going global: lessons from late movers, Harvard Business

Review, 78:132-142.

Bjorkman, 1. (2006) International human resource management research and institutional

theory, In G. Stahl & 1. Bjorkman (Eds.), Handbook of Research in International Human Resource

Management, (pp.463-473). Cheltenham: Edward Elgar.

Chang, Y., Mellahi, K, & Wilkinson, A (2009) Control of subsidiaries of MNEs from emerging

economies in developed countries: the case of Taiwanese MNEs in the UK International

Journal of Human Resource Management, 20: 75-95.

Cuervo-Cazurra, A, & Gene, M. (2008) Transforming disadvantages into advantages:

developing-country MNEs in the least developed countries, Journal of International Business

Studies, 39, 957-979.

Dunning, ]. H., Kim, C., & Park, D. (2008) Old wine in new bottles: a comparison of emerging

market TNCs today and developed country TNCs thirty years ago. In K P. Sauvant (Eds.),

The Rise of Transnational Corporations from Emerging Markets: Threat or Opportunities? (pp. 158-

189). Cheltenham: Edward Elgar Publishing.

Ferner, A, & Quintanilla. ]. (1998) Multinationals, national business systems and HRM: The

enduring influence of national identity or a process of "Anglo-Saxonisation"?, International

Journal of Human Resource Management, 9: 710-73l.

Geppert. M., Matten, D., & Walgenbach, P. (2006) Transnational institution building and the

multinational corporation: An emerging field of research, Human Relations, 59: 1451-1465.

Kostova. T., Roth, K, & Dacin, M. T. (2008) Institutional theory in the study of multinational

corporations: A critique and new directions, Academy of Management Review, 33: 994-1006.

Luo, Y., & Tung, R. L. (2007) International expansion of emerging market enterprises: A

springboard perspective, Journal of International Business Studies, 38, 481498.

Morgan, G. & Kristensen, PH (2006) The contested space of multinationals: Varieties of

institutionalism, varieties of capitalism, Human Relations, 59: 1467-1490.

Pudelko, M., & Harzing, A-W. (2007) Country-of-origin, localization, or dominance effect?

An empirical investigation of HRM practices in foreign subsidiaries, Human Resource

Management, 46: 535-559.


Ramachandran. J .. & Pant. A. (2010) The liabilities of origin: an emerging economy

perspective on the costs of doing business abroad. In D. Timothy. P. Torben. & T.

Laszlo (Eds.). The Past. Present and Future of International Business & Management, Advances in

International Management. Volume 23. (pp.231-265). Bingley: Emerald Group Publishing.

Rosenzweig. P.M. & Nohria. N. (1994) Influences on human resource management practices in

multinational corporations. Journal of International Business Studies, 25: 229-25l.

Smith. C .. & Meiksins. P. (1995) System. society and dominance effects in cross-national

organisational analysis. Work. Employment & Society, 9.241-267.

Thite. M .. Wilkinson. A.. & Shah. D. (2012) Internationalization and HRM strategies across

subsidiaries in multinational corporations from emerging economies-A conceptual

framework. Journal of World Business. in press.

selective imprinting of integration and localization ...--selective imprinting of integration and...

Documents