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Chapter Eight

IHRM In The Host-Country Context

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Standardization and Localization of

HRM Practices

MANAGING PEOPLE

• the most culture-bound resource in an international context

• high level of complexity because of the diverse

cultural environment

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Standardization and Localization of HRM Practices

The challenge of MNEs is to create a

system that operates effectively

in multiple countries by

exploiting local differences and

interdependencies and at the same time sustaining

global consistency.

The Global Mindset and Local Responsiveness

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• The aim of global standardization

– Consistency

– Transparency

– Ease of administration

– Efficiency and effectiveness

– Sense of equity

• The aim of global standardization

– Consistency

– Transparency

– Ease of administration

– Efficiency and effectiveness

– Sense of equity

• The aim of localization

– Respect for local culture and traditions

– Adaptation to local institutional requirements such as legislations and government policies

– Educational system and HR practices

– Workplace practices and employee expectations

• The aim of localization

– Respect for local culture and traditions

– Adaptation to local institutional requirements such as legislations and government policies

– Educational system and HR practices

– Workplace practices and employee expectations

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Balancing the Standardization and Localization of MNE HRM

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Three Cultures Interact to Influence Standardization and Adaptation

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Institutional Effects On MNEs

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Country-of-Origin Effect

• MNEs are shaped by institutions existing in their country of origin, and attempt to introduce these parent-country-based HRM practices in their foreign subsidiaries

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Host-Country Effect

• extent to which HRM practices in subsidiaries are impacted by the host country context

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Home-Country Effect

• extent to which MNEs try to transfer HRM activities shaped by their home-country environment to foreign locations.

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Reverse Diffusion

• transfer of practices from foreign locations to the headquarters

Factors Driving Localization

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Factors Driving Standardization

Host-country Culture

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• Work behavior is culturally determined, contained in role definition and expectations.

• Whether corporate culture would supersede or other ‘cultures’ is a subject of much debate.

• Often, what is meant by corporate culture translates into common practices rather than common values.

• Work behavior is culturally determined, contained in role definition and expectations.

• Whether corporate culture would supersede or other ‘cultures’ is a subject of much debate.

• Often, what is meant by corporate culture translates into common practices rather than common values.

Mode of Operation

• Ownership and control are important factors:– Acquisition may constrain ability to

transfer technical knowledge, management know-how, systems, and HR practices

– Wholly owned subsidiaries provide greater opportunities for transferring work practices than in IJV

– Management contracts provide skills, expertise and training to HCNs, without carrying equity or risks associated with FDI, and may have HC government support. 15

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Impact of the Cultural & Institutional Context on HRM Practices

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Impact of the Cultural & Institutional Context on HRM Practices

Firm size, maturity and international experience

• The size of the firm, maturity, and international experience are important firm level factors.

• Motorola in China is a case in point:– Large size

– Wealth of international experience

– A wholly owned operation in Tianjin, China, 1992

– Centralized IHR programs

– Management could draw on these aspects when entering China

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Subsidiary Roles

Global  Innovators• provide significant knowledge 

for  other units (the IHRM policies and practices are transferred to the MNE affiliates)

Integrated Players• create and receive knowledge

(the IHRM practices and policies of the MNE and subsidiary are similar, characterized by global standardization and localization)

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Subsidiary Roles

Implementers• rely on knowledge from the parent or

peer subsidiaries and create a relatively small amount of knowledge themselves (IHRM policies and practices are mainly made in the parent company and implemented at the local level)

Local Innovators • engage in the creation of relevant

country/region-specific knowledge and have complete local responsibility ( the HRM policies and practices are localized)

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HRM Roles With Global Code of Conduct