foreign subsidiary perspectives on the mechanisms of global hrm integration

Foreign subsidiary perspectives on the

mechanisms of global HRM integration

Adam Smale, University of VaasaHuman Resource Management Journal, Vol 18, no 2, 2008, pages 135–153

Often in connection with the integration-responsiveness dilemma, research on HRMin multinational corporations (MNCs) speaks more to explaining the appearanceof HRM practices in foreign subsidiaries than to the mechanisms through whichsuch practices are globally integrated. Accordingly, and adopting a subsidiaryperspective, the present study has two main aims. The first is to identify the keymechanisms of global HRM integration, how they are used and by whom, and thesecond is to investigate the factors that explain their usage. The study usesqualitative data from 40 personal interviews conducted with general managers andthe most senior HR personnel across 20 Finnish-owned subsidiaries in China. Basedon the contingency view of organisations, explanations for mechanism usage areattributed to certain internal characteristics of the subsidiaries and to the Chineseinstitutional environment.Contact: Adam Smale, Department of Management, University of Vaasa,P.O. Box 700, FIN-65101, Vaasa, Finland. Email: [email protected]

INTRODUCTION

Sizeable increases in the proportion of foreign employees in multinationalcorporation (MNC) workforces have presented the challenge of attainingglobal consistency while capitalising on workforce diversity (Rosenzweig,

1998). The inherent need for MNCs to establish some degree of integration amongforeign subsidiaries has prompted studies into the types of mechanismsorganisations use (e.g. Ghoshal and Nohria, 1989; Harzing, 1999). One key trend ishow integration mechanisms in MNCs have increased in number and subtlety overtime (Martinez and Jarillo, 1989). Moving away from the more traditional, verticalforms of integration, more horizontal forms are being utilised as a means ofimproving business performance without stifling subsidiary autonomy (Ghoshal andGratton, 2002). Still, MNCs routinely deploy a range of integration mechanisms tovarying extents in order to achieve the desired level of global consistency and localsensitivity without sacrificing the firm’s core competence (Bonache and Cervino,1997; Kim et al., 2003).

In connection with the integration-responsiveness dilemma (Bartlett and Ghoshal,1989), the field of HRM in MNCs has contributed a wide range of factors that helpto explain patterns of HR practice standardisation or localisation in foreignsubsidiaries (for a detailed review see Edwards and Kuruvilla, 2005). However, aneglected issue is the mechanisms through which HRM integration is (or is not)achieved. Those that have incorporated HRM integration mechanisms into theiranalysis have tended to focus either on a select few such as expatriation (Björkman

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and Lu, 2001; Hetrick, 2002) and internal benchmarking (Martin and Beaumont,1998), or on in-depth case-study evidence regarding power relations or politicalexplanations behind their use (Martin and Beaumont, 1999; Ferner et al., 2004). As aresult, our understanding about the types of HRM integration mechanisms deployedby MNCs and their patterns of usage remains somewhat fragmented.

Accordingly, and adopting a foreign subsidiary perspective, the present study hastwo main aims. The first is to identify the key mechanisms through which parentHRM is globally integrated into foreign subsidiaries, how they are used and bywhom, and the second is to investigate the factors that explain their usage. Theseaims are addressed through an exploratory research design using in-depthqualitative interviews with 40 general managers and the most senior HR personnelacross 20 Finnish-owned subsidiaries in China.

The study seeks to contribute to the literature on HRM in MNCs in two ways.First, by exploring the use of multiple mechanisms the study intends to shed somelight on the firm-level processes that lie beneath patterns of HRM in MNCs, whichhave been neglected in prior research in favour of more structural explanations (e.g.country of origin, cultural distance). By investigating a broad range of HRMintegration mechanisms, the study adopts the less common systems approach, whichis argued to reflect more accurately how integration mechanisms are used in MNCs(Kim et al., 2003). Second, by adopting a foreign subsidiary perspective acrossmultiple MNC subsidiaries, the present study seeks to uncover potentialrelationships between the use of different HRM integration mechanisms and factorsrelating to a foreign subsidiary’s internal and external contexts.

The following sections review studies on integration mechanisms in MNCs andhow these have been applied to HRM. The kinds of factors that have been shownto affect the usage of integration mechanisms are then summarised and the Chinesecontext of the present study is introduced. Following the presentation of the study’smethodology and a discussion of the results, suggestions for future research andpractical implications are offered.

MECHANISMS OF GLOBAL HRM INTEGRATION

While control has been defined as any process in which a person, group ororganisation determines or intentionally affects what another person, group ororganisation will do (Baliga and Jaeger, 1984: 26), coordination refers to the meansthrough which the different parts of an organisation are integrated or linked togetherto accomplish a collective goal (Van de Ven et al., 1976; Martinez and Jarillo, 1989).In line with the approach by Kim et al. (2003), the present study views globalintegration as comprising both the above tools of control and coordination that areused to achieve consistency of business activities overseas. An overview of differentmechanisms of HRM integration is now presented. For the purposes of structure andclarity, Kim et al.’s (2003) classification of four global integration modes –centralisation, formalisation, information and people based – is used. While otherclassifications could have been applied (see e.g. Martinez and Jarillo, 1989; Harzing,1999), Kim et al.’s (2003) was preferred because, as they argue, the ‘four categories ofintegrating mechanisms are conceptually independent, collectively exhaustive, and detailed

Mechanisms of global HRM integration

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so as to tap all the important dimensions of integrating business functions across borders’(pp. 329–330).

Centralisation-based mechanisms

Classified by Kim et al. (2003) as the centralisation of decision-making authority atheadquarters, centralisation is generally referred to as the most direct form of controland is widespread in classifications of control in the international managementliterature. In terms of centralisation as a means to integrate HRM, empirical studieshave highlighted the exercise of headquarters authority in determining seniormanagement pay, recruitment and development (Edwards et al., 1996) as well asother financially sensitive HR issues like headcount and salary expenditure (Martinand Beaumont, 1999). However, in qualitative studies, such direct forms ofcentralised parent control are found to be rare compared to other more ‘unobtrusive’forms (Edwards, 1998). Case study evidence suggests that rather than beingdetermined in a purely mechanistic way, centralisation should be viewed as anoutcome of the dynamic parent-subsidiary negotiation process whereby the source ofcentralisation may in fact lie at the regional, not the global level (Ferner et al., 2004).

Formalisation-based mechanisms

Formalisation-based mechanisms refer to the standardisation and thus codification ofwork procedures and policies on a global basis (Kim et al., 2003). Representing alargely impersonal and indirect form of control, formalisation-based mechanismshave been labelled in different ways such as impersonal coordination (Van de Venet al., 1976), often in association with the Weberian notion of ‘bureaucratic’ controlthat seeks to limit subsidiary management’s role and authority (Baliga and Jaeger,1984).

The formalisation, or ‘bureaucratisation’ of HRM in MNCs, characterised byattempts to devise and implement common international HR structures andguidelines, has been shown to be commonplace (e.g. Tempel, 2001). While somestudies depict global HR policies as a means of creating a common language acrosscountries (Hetrick, 2002), others argue that such formalisation efforts are dependenton other less formal ‘social’ control mechanisms for their overall effectiveness(Ferner, 2000). As an extension of centralised control, Ferner et al. (2004) illustratehow policy creation and implementation are also negotiated processes, reportingincreasing subsidiary involvement in the former and some scope for interpretationof the latter.

Information-based mechanisms

In this category, Kim et al. (2003) include those tools that facilitate the internationalflow of information whether it is via simple databases or via more complex electronicdata interchanges. Captured in terms such as ‘vertical information systems’(Galbraith, 1973) or ‘data management mechanisms’ (Prahalad and Doz, 1981),information-based integration has been interpreted as a means for headquarters tocommunicate and regulate information that is central to strategic decision making.

Brewster et al.’s (2005) recent study into the globalising of HRM concluded thatone of the key areas through which the HR function could position itself is in its roleof knowledge management champion. However, while providing organisational

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members with direct access to HR knowledge and information opens upopportunities for a greater alignment of HR, this is also argued to necessitate thee-enablement of HR (ibid.). Although case study evidence indicates that large firmshave been pursuing the implementation of integrated HR information systems(HRIS) (see e.g. Tansley et al., 2001), the findings typically highlight the challengesthat such systems present to designers and users during implementation.

People-based mechanisms

People-based mechanisms incorporate the transfer of managers and the variousforms of committees or taskforces whose mandate is to integrate business operations(Kim et al., 2003). While the use of expatriates has traditionally been viewed as apersonal form of monitoring and supervision, more recent research suggests thatMNCs deploy expatriates for much broader purposes including the fostering ofshared values (Harzing, 1999) and the transfer of knowledge (Riusala and Suutari,2004).

While some studies have demonstrated expatriates’ significance in effecting theresemblance between parent and subsidiary HR practices (Rosenzweig and Nohria,1994; Björkman and Lu, 2001), others describe the multifaceted roles that expatriatesplay in the transfer of HR practices, including ‘role models’, ‘boundary spanners’,‘coaches’ (Hetrick, 2002) and communicators of HR-related knowledge (Gamble,2003). In addition to expatriation, HR practices can also be integrated through theuse of global or regional HR committees and steering groups that bring HRmanagers together to discuss HR-related concerns. The integration of HRM in thisgroup format is suggested to be on the increase in connection with the rise ofinformal networking and knowledge transfer ‘spaces’ such as Centres of Excellenceand Communities of Practice (Sparrow et al., 2004).

Discussion now turns to the factors that might influence the usage of HRMintegration mechanisms in foreign subsidiaries.

SUBSIDIARY PERSPECTIVES ON GLOBAL HRM INTEGRATION

In their study on HR control in MNCs, Gomez and Sanchez (2005) argue thatdecisions regarding the use of control mechanisms are more heavily influenced bythe foreign host environment than an MNC’s strategy. In agreement with this andother similar arguments in favour of dominant host-country (Gamble, 2003) or weakhome-country effects (Farley et al., 2004) on HRM in foreign subsidiaries, the presentstudy adopts a foreign subsidiary perspective on the use of global HRM integrationmechanisms. While an MNC’s country of origin has been shown to explain the useof control practices (e.g. Harzing and Sorge, 2003), it is argued here that importantinsights can be gleaned from the subsidiary perspective given first, the myriad ofhost institutional pressures that can influence the adoption of control mechanisms(Ferner et al., 2005), and second, our interest in investigating what is ‘implemented’in subsidiaries, not what is ‘intended’ by headquarters (Khilji and Wang, 2006).

The present study draws on the contingency view of organisations in its basicassumption that different sets of internal (i.e. subsidiary characteristics) and externalfactors (i.e. host environmental variables) will determine the organisational responsesby MNCs (Lawrence and Lorsch, 1967), including the kinds of control systems



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employed (Baliga and Jaeger, 1984). However, because empirical findings on whatfactors influence the use of control mechanisms are largely fragmentary andinconclusive (Hennart, 2005), the article does not seek to develop and test specificrelationships. Instead, the next section briefly reviews the relevant literature with aview to investigating these issues through an exploratory research design.

Subsidiary characteristics

Research that has been conducted on control in MNCs suggests that the waysin which MNC subsidiaries differ are likely to influence the control strategies used.For instance, firm size has been positively associated with decentralisation andformalisation (Child, 1973), the use of expatriates, socialisation and networks(Harzing, 1999), and formal control mechanisms (Gomez and Sanchez, 2005). Inreference to arguments for subsidiaries having a life cycle whereby MNCs establishthe competitive position of a foreign subsidiary first before building integrationmechanisms across it (Ghoshal and Bartlett, 1996), the age of a subsidiary might alsoaffect the types of integration mechanisms used. Most commonly studied inconnection with the use of expatriates, MNCs have also been shown to control youngsubsidiaries more closely at the beginning but then reduce expatriate presence overtime (Harzing, 1999). With regard to the mode of establishment, a greater proportionof parent country nationals will be deployed in subsidiaries established as greenfieldoperations than in acquisitions (ibid.).

Although additional structural variables have been shown to be related to the useof integration mechanisms such as the degree of workflow integration (Child andMansfield, 1972) and subsidiary profitability (Roth and O’Donnell, 1996), theexplanatory power of both these and the earlier-mentioned variables has variedgreatly. Furthermore, such studies have tended not to investigate these relationshipsat the business function level such as HR. In essence, therefore, it remains unclearprecisely how the internal characteristics of foreign subsidiaries will influence theuse of mechanisms to globally integrate HRM.

Environmental variables

The ways in which a foreign unit’s external context has been conceptualised andstudied have varied. Based on the seminal work of Lawrence and Lorsch (1967),studies on MNC control have applied various concepts including ‘uncertainty’(Baliga and Jaeger, 1984), ‘complexity’ (Ghoshal and Nohria, 1989) and ‘volatility’(O’Donnell, 2000) in attempts to capture how the external pressures subsidiaries faceaffect the use of control mechanisms. While there is seemingly common agreementthat more complex host environments are associated with less centralisation, there isless agreement, for example, about whether such environments lead to the greater orlesser use of formalisation. Indeed, in Harzing’s (1999) large-scale study on the useof control in MNCs, cultural distance was shown to possess more explanatory poweras an external contingency variable than environmental uncertainty, revealing apositive relationship with direct expatriate control and a negative relationship withboth bureaucratic formalised and output control.

In light of such discrepancies, the present study applies an alternativeconceptualisation of the external pressures facing organisations grounded ininstitutional theory. In reference to Scott’s (1987) three institutional ‘pillars’, Kostova

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(1999) argues that a host country’s national institutional profile differs across threedimensions: cognitive (e.g. interpretations and frames of thought), normative (e.g.values and norms) and regulatory (e.g. laws and regulations). Having proven to beinstructive in explaining the adoption of an organisation practice in foreignsubsidiaries (Kostova and Roth, 2002), the institutional profile is adopted in thisstudy as a framework from which to investigate the external factors that influencethe usage of HRM integration mechanisms.

The next section places the present study in its selected host-country context – thePeople’s Republic of China.

THE CHINESE HOST CONTEXT FOR HRM INTEGRATION

The influx of foreign direct investment into China since the late 1970s has taken placealongside a gradualist approach to institutional and economic reforms. During thisperiod of heightened investment activity, the entry mode strategies, ownership formsand location of foreign-owned units have reflected the need for foreign partners towork with China’s powerful, albeit diminishing institutions (Tse et al., 1997; Childand Tse, 2001). In recent years, the balance of power has shifted towards foreign-invested enterprises that have come to represent the main drivers of both China’smodernisation and rapid export growth. Having conducted business operations inChina for several years, MNCs are now described to have entered the ‘strategicinvestor’ phase, at which point the tighter integration of Chinese operations becomesthe focus of attention (Braun and Warner, 2002). The implications of these trends forthe internal characteristics of subsidiaries in China have been, for example, amovement by MNCs to transform joint ventures into wholly owned operations inorder to expedite decision making (Yang, 1998) and the development of moreprofessional and locally legitimate HR policies in subsidiaries with more localexperience (Farley et al., 2004). Indeed, after having overcome the initial challengesof setting up operations in China, MNCs are increasingly turning to the developmentof HR practices within them.

With regard to the external host-country context, there are still many features ofthe Chinese institutional environment that may render HRM integration and thus theusage of certain HRM integration mechanisms problematic. First, referring to thewidely held social knowledge about HRM, the cognitive institutional environment inChina has been characterised by a historical absence of the Western HR concept(Child, 1994), largely because of the old centralised planning and allocation roleof the Chinese government. Although research suggests that the HR function inChina is failing to meet executives’ expectations and is still strongly associated withadministrative work (Mitsuhashi et al., 2000), the longitudinal picture gives a morepositive account of an increasingly strategic role, including the progressiveimplementation of Western-style HR practices (Zhu et al., 2005). The increasingprofessionalism of HRM through improved academic education and corporateinvestment in developing HR managers (Cooke, 2004a) is also shaping the Chinesecognitive environment.

Representing the values, beliefs and norms about human nature, the normativeinstitutional context for HRM in China has been addressed in several studiesapplying cross-cultural perspectives. For instance, Huo and Von Glinow (1995) argue



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that a number of Chinese cultural characteristics such as saving face, the toleranceof complexity and respect for position authority will determine what kind of HRpractices are more desirable. Other research has indicated preferences for sustainingharmonious relationships in how performance appraisals are conducted (Easterby-Smith et al., 1995) as well as tendencies towards familism and guanxi in staffingpractices (Chow, 2004). Compensation preferences among Chinese employees,however, are reported to be converging with the West insofar as they are exhibitingmore signs of a merit-based ‘cash mentality’ (Chiu et al., 2002). Indeed, recentfindings suggest that cultural arguments for persistent differences across HRpractices in China are becoming less convincing given the apparent success someMNCs have had in transplanting their HR practices there (Gamble, 2006).

Referring to laws and rules that promote and restrict various behaviours, theChinese regulatory context for HRM has undergone dramatic changes in recent years.One of the main drivers behind the transition has been the move from a highlycentralised allocation process to a more decentralised, market- and merit-basedsystem under the banner of the ‘three systems’ reforms (Warner, 1996). Althoughstate intervention is still widespread in many facets of business, decentralisation haspresented organisations with more flexibility in how they recruit, develop andremunerate staff. However, the simultaneous downsizing and restructuring of state-owned enterprises, together with large influxes of rural labour, have culminated ina surplus of unskilled labour (Chow, 2004). Nevertheless, the continued reductionin regulatory barriers facing MNCs seems to be characteristic of China’s widerintegration into the world economy.

METHODOLOGY

The data for the study were collected via in-depth, personal interviews with 40general managers and the most senior HR personnel in 20 foreign-ownedsubsidiaries in China (i.e. two respondents per unit). In order to reduce country-of-origin effects, the sample consisted only of units belonging to Finnish MNCs. FinnishMNCs were selected not only for practical reasons, but also because much of ourexisting knowledge about control mechanisms in MNCs is based on the activities ofMNCs from the most developed economies, especially the USA, Japan, Great Britainand Germany (for reviews see Martinez and Jarillo, 1989; Harzing, 1999). Detailsregarding subsidiary and respondent characteristics are presented in Tables 1 and 2.

The data were collected between 2005 and 2006. Contact information for thesubsidiaries was provided through listings from national Chambers of Commerceand the snowballing method. After scheduling interviews via telephone, they werecarried out through personal site visits. The subsidiaries in this study were alllocated in the city of Shanghai or its nearby industrial districts. Interviews wereconducted in English, lasted between 20 and 60 minutes, and were all recorded andverbatim transcribed. The interviews comprised open-ended and targeted questionsrelating to the types of mechanisms used to integrate parent HR practices into therespondents’ unit using Kim et al.’s (2003) broad classification as a guide. Typicalquestions included why the respondents felt that certain methods of integratingHRM were used and which factors they considered important in decisions to usesuch methods.

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The justification for applying an exploratory research design and qualitativemethods in this study was first, the need to explore the complex linkages andprocesses relating to HRM in MNCs in general (Ferner, 1997) and to foreign MNCsin China in particular (Cooke, 2004b), second, to assist theory building andverification in a cross-cultural setting (Osland and Osland, 2001), and third, tofacilitate meaningful data collection in a cultural setting that emphasises trust andface-to-face relations (Harari and Beaty, 1990).

The qualitative data was content analysed, coded, and categorised into groupsrelating to the four mechanism types and internal versus external factors. Furtheranalysis within these groups enabled a more detailed identification of the frequencyand patterns of mechanism usage, as well as further clarification of which internaland external factors seemed to affect them. Collecting data from two sources per unitallowed for the comparison of responses and the identification of where responsesconverged and diverged. Enhancing the validity of qualitative research in this wayvia informant triangulation (Denzin, 1978) is regarded as especially important whenusing expatriates or ‘corporate elites’ as sources of data about MNCs (Marschan-Piekkari et al., 2004) and when interpreting data from a culture that is unfamiliar to

TABLE 1 Subsidiary data sample

Category (N = 20)Industry sector Industrial equipment (n = 4) Metals (n = 2)

Electrical equipment (n = 2) Wood, pulp and paper(n = 3)Food (n = 1)

Chemicals andpharmaceuticals (n = 2)

ICT (n = 2)

Other (n = 4)

Average subsidiary size(no. employees)

276 Minimum: 10Maximum: 1900

Mode of establishment Starting from scratch (n = 14)Continuing ongoing operations (n = 5)Partly continuing ongoing operations, e.g. some

employees (n = 1)

Average age of subsidiaryin the MNC (years)

5.32 Minimum: 1Maximum: 15

MNC, multinational corporation.

TABLE 2 Biographical data of respondents

N = 40 General managers (n = 20) HR managers (n = 20)

Gender Male (n = 20) Male (n = 5)Female (n = 0) Female (n = 15)

Nationality Parent-country national (n = 17) Parent-country national (n = 0)Host-country national (n = 1) Host-country national (n = 20)Third-country national (n = 2) Third-country national (n = 0)



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the researcher (Andersen and Skaates, 2004). Extracts from the raw data are used tosupport the interpretations made.

RESULTS

The use of global HRM integration mechanisms

A summary of the findings is presented in Table 3. With regard to the keymechanisms of global HRM integration and how they are used, the overall picture

TABLE 3 Usage of HRM integration mechanisms in the Chinese subsidiaries

Mechanismtype

How used Factors affecting use

People-based Expatriates as decision maker andcommunicator with headquarters.

Normative preference for face-to-face interaction.

Local HR manager as ‘bridge’between i) expatriate, ii) intra-and inter-MNC HR networks,and iii) line managers and shop-floor employees.

Cognitive developments associatedwith increased professionalismand awareness of HRM in China.

Larger and older units more likelyto have HR manager and higherHR profile.

Formalisation-based

More standardisation of global HRpolicy frameworks than of HRpractices and processes.

Chinese regulatory environmentrarely a significant barrier, butencouraged regionalbenchmarking.Monitoring of policy

implementation via internalaudits.

Existence of and participation inintra- and inter-MNC HRnetworks.

Larger, older and wholly ownedunits more likely to use greaterformalisation.

Information-based

More common via email andcorporate intranets than viaglobally integrated HRIS.

Consideration of local needs inHRIS access and design.

Where present, HRIS also used forformalisation, monitoring andcentralisation purposes.

Larger, wholly owned units withgreater HR resources more likelyto use sophisticated HRIS.

Centralisation-based

Headquarters decision making veryrare except in high-levelstructural/resource issues and incases where performance(especially financial) implicationswere significant.

Fierce competition for skilledlabour in a tight Chinese labourmarket and its knock-on effectsfor HR practice effectiveness.

Subsidiary characteristics notshown to impact the use ofcentralisation.

HRIS, HR information systems.

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revealed that while multiple HRM integration mechanisms were usedsimultaneously, they were not used with the same degree of intensity. Morespecifically, people- and formalisation-based HRM integration mechanisms wereused more extensively than information- or centralisation-based mechanisms.

In terms of people-based mechanisms, expatriates (exclusively male) were used inthe most senior management positions in all but one of the subsidiaries, and local(predominantly female) Chinese managers were responsible for HRM in allsubsidiaries (see Table 2). Regarding the latter, the titles of those most responsible forHRM included HR manager (n = 11), HR administration manager (n = 4) and otherssuch as operations manager (all referred to hereafter as HR manager).

The dynamic between the expatriate general managers and the Chinese HRmanagers produced a division of integration-related roles. While the expatriatewould act as the main subsidiary contact person and figure of decision-makingauthority, the local HR manager (typically not in direct contact with headquarters)assumed several ‘bridge’-type roles. When facilitating HRM integration, these rolesinvolved the consultation of three main parties – the expatriate supervisor and voiceof MNC headquarters, line managers and shop-floor employees, and intra- andinter-MNC HR contacts. Although bridging the first two parties was necessary inlearning parent HR practices and translating them into locally meaningful practices,local HR managers’ involvement in various forms of personal HR networks, bothwithin and outside the MNC, was described as an equally important activity:

I need to work with HR managers in different units, so I work throughnetworks. I arrange regular meetings two times per year, so we share all thisinformation and discuss what the policy should be for the whole of China. (HRmanager)

From an institutional perspective on HRM in MNCs (e.g. Björkman and Lu, 2001),the emphasis the local HR manager places on these different bridging activities couldhave significant implications for HRM integration. For instance, consultationbetween the expatriate, line managers and sister units of the same MNC (i.e. seekingMNC legitimacy) seemed to support HRM integration efforts within the MNC eitherat the global or regional level. However, frequent involvement in networks withother foreign-owned units in China (i.e. seeking local legitimacy) came across as apowerful alternative that contradicted global integration rather than supported it.Intriguing in this regard was the differing amount of leverage female HR managerscommanded over the HRM integration process as ‘interpreter’ of the local context(Ferner et al., 2004) in contrast to the authority imposed by the male expatriate.

Representing the most common means of HRM integration, formalisation-basedmechanisms were used both via the standardisation of HR policy frameworks as wellas via the monitoring of their implementation via internal audits. Although degreesof HR policy standardisation varied across the units, distinctions were often madebetween the stricter management-level policies (e.g. on compensation and benefits)and the comparatively more relaxed shop-floor-level policies. Similar distinctionswere made between the tighter integration of policy structures and the more flexibleguidelines regarding their day-to-day implementation.

Information-based integration of HRM was mostly restricted to the use of databasesshared internationally (e.g. corporate intranet) or via electronic communication tools



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(e.g. email). Through these media information was stored on a range of HR-relatedtopics, including employee information, culture surveys, training material andcompany HR policies. Only a handful of the units (n = 6) reported the use of globallyintegrated HRIS; however, several respondents indicated that such systems wereeither under development or operating in other countries and thus expected them toarrive in China shortly. Those using integrated HRIS indicated some clear synergiesof using this tool for integration purposes. Indeed, HRIS were being used as muchfor informational purposes as for formalisation by hosting policies and online forms,monitoring HR outputs via management reporting functions and centralisation bybuilding in electronic authorisation processes:

We have a traffic light system where I can see if they have been done or not,the (annual) Personal Development Discussions between manager andsubordinate. I can also see if the bonus plan has been put in place, what the(bonus) criteria are, and whether they have been met. So it’s very easy for meto control each country. How else would I know what the situation is? (Generalmanager [with Asia region responsibilities]).

Centralisation-based integration was least prevalent. The overwhelming messagefrom both sets of respondents was that headquarters seldom made the final decisionson subsidiary HR matters, with the notable exception of HR issues that carried directfinancial implications such as compensation and headcount. Instead, a carefulselection of vocabulary was used in describing how headquarters do not control but‘guide’ subsidiaries by requiring ‘approval’, ‘feedback’ and ‘confirmation’. A furtherdistinction that was made was that centralised decision making focused more onhigh-level resource or structural issues (e.g. performance appraisal system design),whereas the Chinese unit retained its relative autonomy in HR practice content anddelivery (e.g. appraisal criteria, interviews and outcomes).

Reasons for HRM integration mechanism usage

People-based mechanisms The use of expatriates in all but one of the subsidiariesattests to their key perceived roles in fostering integration in general (Harzing, 1999)and HRM integration specifically (Hetrick, 2002; Gamble, 2003). However, because ofthe multiple roles played by the expatriates and because of the typically low prioritythey seemed to assign to HRM, people-based integration of HRM was limited untilthe appointment of a local HR representative. In their view, integrating Western-styleHR practices into an unfamiliar Chinese host environment without the assistance ofan ‘interpreter’ in the broad sense would be problematic. Indeed, HR managersstressed the need for a people-based approach to integrating HRM to account for thecultural (normative) preferences in communication:

In China people like to have face-to-face discussion, so-called emotioninteraction. So if we are talking about [HRM] integration, no matter what kindof culture or what kind of system we are going to implement, face-to-facediscussion is easier. Even though I sit in the Shanghai office, I travel to Suzhouonce or twice a week, just to have face-to-face discussion. (HR manager)

This preferred means of integration was also justified in reference to the changingcognitive environment surrounding HRM in China (Child, 1994). Described as

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receiving growing appreciation among line managers, the perceived organisationalvalue of Western-based HRM and the increasing professionalism of its localrepresentatives (see e.g. Zhu et al., 2005) supported the people-based approach. HRmanagers were attributed additional legitimacy in light of the mounting HR-relatedchallenges of recruiting and retaining sufficiently skilled employees in a tighteningChinese labour market.

Internal characteristics of the subsidiary that were described to support people-based integration were size and age. While size was sometimes a function of age,larger numbers of employees required dedicated HR representatives but for largelyadministrative reasons. Age, on the other hand, followed the ‘strategic investor’pattern of foreign-owned units in China (Braun and Warner, 2002) insofar as thegrowing strategic activities of HR managers served to reflect the tighter overallintegration of China operations over time:

We established operations in 2000 and I was the first HR person to join in2002. I think for the company the first important thing was to survive in China.Now that the company is a certain size and now that we have a long-termdevelopment plan, HRM has been put on the agenda. (HR manager)

Concomitantly, larger and especially older units also reported that they had morefrequent contact with headquarters’ HR representatives, including mutual site visitsor involvement in international HR forums. For more globally dispersed MNCs thesame story emerged, but at regional level.

Formalisation-based mechanisms The regulatory environment in China wasrarely described to inhibit the parent-driven formalisation of HRM. However, ratherthan adopt global HR policies, subsidiaries engaged in internal and external HRnetworking in order to benchmark their HR policies and practices. Respondents wereespecially knowledgeable about what other foreign-owned firms in China weredoing in specific areas of HRM and described the routine application of suchknowledge into the HR policy development process:

In Asia-Pacific there is a 3–4-person team, including me, which actually triesto benchmark Asia-Pacific; how to do everything from salary increases andbonuses to company car policies etc. China is no different in that respect.(General manager)

Consequently, the more active the subsidiary was in developing and participatingin these networks, the less they seemed to adhere to parent-driven formalisation.This form of local legitimacy seeking and spreading of ideas about effective HRpractices has been found to be common in China (Björkman and Lu, 1999), and herewas also shown to provide the subsidiaries with stronger bargaining positions fromwhich to resist parent control (see also e.g. Ferner et al., 2004). As a result,headquarters was described to shift its emphasis from formalisation via prescriptionto formalisation via monitoring.

Other reasons cited for the use of formalisation mechanisms were associated withinternal characteristics of the units. Here, the size of the unit was deemedparticularly influential:



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Earlier there was no transfer of HRM policies; that was all left to be developedby yourself, which when talking about 40 persons, can be done pretty ad hoc.But no one in their wildest dreams thought that this would grow to a facilityof 600 people. After you reach over 120 people, it’s impossible to control.(General manager)

Global HR policies were described to increase over time and were easier toimplement in wholly owned as opposed to joint-venture operations. However, itis important to note that these may not be rival explanations because ownershiphas shifted towards more wholly owned forms over time (Yang, 1998). Thisnotwithstanding, these explanations again fit the ‘strategic investor’ pattern ofmanaging foreign operations in China mentioned earlier.

Information-based mechanisms The external environment was seen to affect theuse of information-based mechanisms in three main ways. First, the inadequateconsideration of basic local needs such as language was reflected in thecomparatively low uptake of information-based integration systems despite theirexistence:

We have an email system and an intranet, but they are totally useless! I getweekly information updates, but they are only delivered to my computer, notany others. They are in English, the intranet is in Finnish and SAP is also inFinnish. Later they are also planning to run this system in Chinese, but I thinkit’s essential to have some integrated system to report to headquarters. (Generalmanager)

Second, while the Chinese units appreciated what they considered to be an openapproach to communication by the Finnish parent, the parent was concerned thatthis approach might exacerbate confidentiality infringements. This was particularlythe case in the area of employee compensation that was frustratingly reported to be‘public information’. Third, IT access among Chinese staff was very limited, not onlybecause of simple linguistic and IT literacy reasons, but also because access was oftenrestricted to white-collar employees whose tasks required access to a PC.

The subsidiary characteristics of size, the amount of local HR resources and entrymode were described to influence the use of information-based means of integration.Regarding the latter, in greenfield sites, implementing parent HRIS was described aseasier because it meant no complicated integration between old and new systems.In terms of size and HR resources (themselves partly related), information-basedintegration raised serious concerns among smaller subsidiaries with fewer HRresources about who was going to cover the high costs not only of the system itselfbut also of those associated with implementation, training and maintenance. Indeed,the costs associated with using a certain type of integration mechanism onlyappeared as a relevant factor here.

Centralisation-based mechanisms Representing the least utilised form of HRMintegration, centralisation over decision making was frequently described asinappropriate given the specific challenges associated with the Chinese institutionalenvironment. Lesser use of centralisation in uncertain external environments is

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perhaps the most consistent finding in the control literature (e.g. Ghoshal andNohria, 1989; O’Donnell, 2000) and was voiced in a number of ways by respondents.Most often it centred on the growing struggle to attract and retain a sufficientlyskilled workforce and on the knock-on effects this was having on the effectivenessof HR practices, especially recruitment, training and compensation. Reflected incomments like “the recruitment process is obviously different from anywhere else in theworld” and regarding training “we usually have to start from zero”, the institutionalcomplexities of operating in China led to most respondents asserting thatheadquarters did not possess sufficient local contextual knowledge to make decisionsabout the best way to conduct HRM. The answers, in their view, were best foundthrough networks and benchmarking with several different parties including sisterunits, consultancy firms, and most of all, other foreign-owned units.

The use of centralisation was not generally discussed in association with theinternal characteristics of the subsidiaries except for some indication that rapidgrowth and increases in size required more direction from headquarters.Nevertheless, it seemed that the lack of fit between centralised decision making andthe external Chinese host environment dominated explanations based on subsidiarycharacteristics.

CONCLUSIONS

The aims of the present study were first to identify the key mechanisms of globalHRM integration and how they are used, and second, to investigate the factors thatexplained their usage. The study’s results broadly correspond with earlier findingsin that multiple integration mechanisms were found to be used in combination andat differing strengths (Ferner, 2000; Kim et al., 2003). More specifically, people-basedintegration enacted through distinctive expatriate and local HR manager roles, aswell as formalisation-based integration via global policy frameworks andmonitoring, were more commonly utilised than information- and centralisation-based mechanisms. In terms of identifying the reasons behind their usage, both theChinese institutional context and the characteristics of the subsidiaries have beenshown to be instructive, albeit to varying extents. The findings would thus seem toconfirm the value of adopting a contingency approach as well as a host-countryperspective.

Kim et al.’s (2003) classification of integration mechanisms served as a usefulframework from which to identify the different types of mechanisms used; however,the study’s findings also revealed some limitations. First, the classification does notacknowledge that certain mechanisms can be used in more than one way. Forinstance, HRIS might not only be used as a tool of information-based integration, butcould also be used to enforce centralisation (e.g. through authorisation procedures)and to replicate people-based communication (e.g. virtual forums). Second, thecategory of people-based integration does not explicitly include the use of expatriatesor the roles played by host subsidiary/HR managers – two particularly importantactors that emerged in this study.

From an institutional perspective, while the Chinese regulatory environment hasafforded foreign-owned subsidiaries greater freedom in how they conduct HRM,cognitive and normative dimensions still appear to present certain challenges when



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deciding how best to integrate parent HR practices. Indeed, this greater freedom inregulatory aspects of HRM, combined with increasing uncertainty regarding, forinstance, the most effective way to recruit and retain skilled labour, has contributedto the emergence of strong inter- and intra-MNC personal networks in the search forideas and local legitimacy (Björkman and Lu, 1999). In turn, these networks arebecoming powerful bargaining platforms (Ferner et al., 2004) and convincingalternatives to parent-driven integration, especially via those mechanisms such ascentralisation and HRIS that are less likely (or able) to account for local needs.

The subsidiary characteristics that seem to influence the use of integrationmechanisms in particular are size and the extent to which it has entered the ‘strategicinvestor’ phase (Braun and Warner, 2002). It is perhaps a logical finding that largernumbers of subsidiary employees present a greater need for integration and thusmore HR resources. However, while larger unit size was associated with the greateruse of all four mechanism types, it seemed to relate more to the tighter integrationof administrative HR practices (e.g. payroll). The characteristics of age andownership, and the degree to which the subsidiary was integrated into the rest of theMNC also influenced mechanism usage patterns. These characteristics were mosthelpful in explaining the greater use of people- and formalisation-based mechanisms,and often related to the closer integration of strategic HR practices (e.g. strategy-based performance appraisals) as well as to an elevated HR status.

The interpretations of the study’s results may partially reflect the study’slimitations, but nevertheless point towards some fruitful areas for future research.For instance, the subsidiaries were all located in Shanghai. In the same way thatthere are argued to be important regional differences relating to HRM in China andacross different Chinese societies (Chow, 2004), within-country as well as across-country differences should be considered before generalisations are made. Furtherresearch is therefore warranted on the use of HRM integration mechanisms in otherhost-country contexts, both institutionally near to and distant from an MNC’scountry of origin, in order to corroborate these findings. Furthermore, all subsidiarieswere Finnish owned. It is therefore possible that distinctive characteristics of theNordic management style such as the preference for autonomy, lack of hierarchy,informal rather than formal rules and friendship with subordinates (see e.g. Lindelland Arvonen, 1996; Smith et al., 2003) partly explain the MNCs’ choice of integrationmechanisms. While the literature finds support for country-of-origin effects onmechanism usage in general (e.g. Legewie, 2002; Harzing and Sorge, 2003), thereremains scope for testing whether these effects exist in HRM integration specifically.

Particular integration mechanisms that would benefit from further research arelocal HR managers and integrated HRIS. In their capacity as a ‘bridge’ between keyparties and as local ‘interpreters’ in the HRM integration process, local HR managerscan exert a potentially significant influence on the direction of integration efforts.Research that uncovers the motivations behind their various integration andpersonal networking activities could be a constructive point of departure. IntegratedHRIS were described to offer useful potential synergies in establishing subsidiaryintegration, yet its uptake was disappointing. Given the institutional embeddednessof HRM (Rosenzweig and Nohria, 1994) and the myriad of practical barriers to HRISaccess and use (particularly in host countries such as China), research on theeffectiveness of this increasingly popular integration mechanism is also merited.

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For global HR practitioners the findings suggest that the means of HRMintegration will need to take into account the external environments in which foreignsubsidiaries operate as well as the structural characteristics of the subsidiariesthemselves. Integrating HRM throughout the MNC will therefore likely require thetailored use of different mechanisms at different levels of intensity in each subsidiaryin order to achieve the desired degree of global consistency. Global HR managersalso face difficult choices about the most effective tools of integration given HRM’sinstitutional sensitivity and its relative absence in certain transitional economies.Under such circumstances where centralised decision making and HRIS-basedintegration are not always feasible options, attention should then turn to people-based integration and the motivations of key actors, especially the expatriate andlocal HR managers given their pivotal roles in the global HRM integration process.One risk associated with this approach, however, is that by handing over moreresponsibility for global HRM integration to subsidiary personnel, headquarters willhave to rely more heavily on local interpretations and on locally benchmarkedsolutions, which could result in greater adaptation, not integration.

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foreign subsidiary perspectives on the mechanisms of global hrm integration

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