THE MYTH OF A GLOBAL WORLD?
A STUDY ON THE PROCESS OF GLOBALIZATION: THE TRANSFERABILITY OF HUMAN RESOURCE MANAGEMENT PRACTICES AND POLICIES OF DUTCH
FIRMS TO SOUTH AFRICAN SUBSIDIARIES
Master thesis by Marloes Bloemert
(University of Groningen)
THE MYTH OF A GLOBAL WORLD?
A STUDY ON THE PROCESS OF GLOBALIZATION: THE TRANSFERABILITY OF HUMAN RESOURCE PRACTICES AND POLICIES OF DUTCH FIRMS TO SOUTH
AFRICAN SUBSIDIARIES
Thesis by Marloes Louise Bloemert Student at the University of Groningen Faculty of Management & Organization Specialization: International Business & Management
First Supervisor: Mr. F. Becker-Ritterspach Second Supervisor: Mr. B. Neuijen
Groningen, 2005
PREFACE
The process of globalization has been a ‘hot topic’, especially from the 1990s on. Thousands of articles have already been written on this process and on the globalization of HRM practices and policies. There are however many different opinions on globalization. Some authors believe that world will be borderless in the future, whereas others believe that globalization is only a myth. These contradictions make globalization a very fascinating topic to research. I was very keen on investigating all the different views on globalization in order to find out which view is most accurate.
The focus in this research is on South Africa. This is not without a reason. Much focus has been placed on developing countries such as China, Japan and India in the courses that I have taken for my specialization International Business and Management. South Africa though, has hardly been discussed during the courses, or in the current literature, while South Africa has become quite attractive for foreign investors. Therefore, research after South Africa seemed interesting and renewing. Furthermore, the Netherlands is a highly developed country, whereas South Africa is still developing. It seemed interesting to compare two (completely) different countries, since the differences would probably be major.
Dutch firms that are planning on investing in South Africa and opening new subsidiaries there can use the results of this thesis. The results and conclusions of this research can be very helpful for them in order to know in advance which institutional- and cultural factors can ease/hamper the transfer of HRM practices and policies and whether institutions across the globe are converging. Furthermore, this thesis has laid a good foundation for further research.
This research could not have been performed without the help of several persons. First of all, my gratitude goes to Mr. Becker-Ritterspach for his continuing support and constructive comments during the process of writing my thesis. Mr. Becker-Ritterspach helped me with keeping me on the right track by providing useful insights and comments. He was always very enthusiastic about my concepts and ideas, which was encouraging. Furthermore, I would like to thank Mr. Neuijen for reading my concept and his comments on this concept. Finally, my parents have supported me during my study at the university and I am very grateful for that.
TABLE OF CONTENTS
SUMMARY…………...………..5
I INTRODUCTION ………8
1.1. Problem statement ………. ..8
1.2. Research objective ………. 10
1.3. Unit of analysis ………10
1.4. Importance of the study ……….11
1.5. Research design ………..11
- 1.5.1. Research Method …...………...11
- 1.5.2. Selection of variables …..…..………...12
- 1.5.3. Data collection method ………...14
- 1.5.4. Criteria for judging the quality of this research ………...15
- 1.5.5. Framework deadlines ………...16
II LITERATURE REVIEW ………..17
2.1. Views on globalization ………....17
- 2.1.1. The hyperglobalist view ………...17
- 2.1.2. The skeptical view ………....19
- 2.1.3. The transformationalist view ………....20
2.2. Globalization and the transferability of HRM practices and policies …………...21
- 2.2.1. Hyperglobalists and Human Resource Management ………...21
- 2.2.2. Skeptics and Human Resource Management ………...22
- 2.2.3. Transformationalists and Human Resource Management ………....23
2.3. Cultural differences ………....24
2.4. Institutional differences ………...27
- 2.4.1. Employment legislation ………....28
- 2.4.2. Industrial relations ………....29
- 2.4.3. Educational system ………...31
III THEORETICAL FRAMEWORK ………...33
3.1. Deductive Research ………....33
3.2. Conceptual model ………...34
3.3. The theory of globalization ………....34
3.4. HRM functions within an organization ………....36
IV THE SOUTH AFRICAN AND DUTCH CULTURE AND INSTITUTIONS…...37
4.1. The history of South Africa and the Netherlands ………...37
- 4.1.1. The history of the Netherlands ……….37
- 4.1.2. The history of South Africa ….………...38
- 4.1.3. Former ties ………....39
4.2. The South African and Dutch culture ………..39
- 4.2.1. Power Distance ………...40
- 4.2.2. Collectivism versus Individualism ………...42
- 4.2.3. Masculinity versus Femininity ……….43
- 4.2.4. Uncertainty Avoidance ……….44
4.3. Institutions in South Africa and the Netherlands ………...45
- 4.3.1. Employment legislation ………....45
- 4.3.2. Industrial relations ………....52
- 4.3.3. Educational systems ……….58
V RESULTS AND CONCLUSIONS ...………..65
VI RECOMMENDATIONS FOR FURTHER RESEARCH …….……….71
LIST OF REFERENCES……….………..72
APPENDICES……….………79
SUMMARY
There has been much academic discussion about the concept of globalization, especially from the 1990s on. Three scholarly perspectives on globalization have developed: the skeptics, the hyperglobalists and the transformationalists. The skeptics believe that there is no such thing as a borderless world. According to them, the process of globalization has been exaggerated and most international activities by MNEs have a very strong home-country base. The hyperglobalists on the contrary believe that there is a single global economy transcending and integrating the world’s economic regions. Country-borders are (becoming) irrelevant for most international enterprises because convergence is taking place. The opinion of the transformationalists lies somewhere in between. They realize that on one hand, the world is getting more global, but on the other hand, they believe that nation boundaries will remain.
This is because there are forces working against globalization, such as political and cultural forces.
A theme closely related to the globalization debate is the extent to which management practices are diverging or converging across nations. The skeptics believe that HRM practices and policies are country specific and that MNEs always have to adjust their practices to the local environment of their subsidiaries. Cultural and institutional differences between countries hamper the transfer of HRM practices and policies. Hyperglobalists think that the transfer is eased, because convergence is taking place between cultures and institutions.
Through this, business systems are homogenizing and therefore, HRM systems can be implemented everywhere without many changes. The transformationalists follow an intermediate way. According to them, some practices can be transferred, whereas other practices have to be adjusted to the local conditions. Organizations need to find a balance between globalization and localization.
The aim of this thesis is to test the theory of the hyperglobalists. In order to do this, the transferability of HRM practices and policies of Dutch firms to South African subsidiaries has been researched. The main reason for choosing HRM is that HRM is often seen as cultural and institutional sensitive. The following research question has been answered in this thesis:
‘What are the driving environmental factors that ease or hamper the transferability of Dutch HRM practices and policies to subsidiaries in South Africa and to what extent are these factors working for or against the process of globalization?’
In order to answer the research question, several propositions have been stated in the literature review, after literature on the hyperglobalist theory, since this theory would be tested. These propositions have been tested in the data analysis. Information, documents, articles and reports on the Dutch and South African culture and institutions have been used in order to research the similarities and differences between South Africa and the Netherlands and the (possible) influence of these differences and similarities on the transfer of HRM practices and policies. Hofstede’s dimensions were used for investigating the cultural differences and/or similarities between South Africa and the Netherlands. The institutions used in this research were employment legislation, trade unions and educational systems. Through this analysis, it was possible to find out whether HRM practices and policies are easy to transfer to South Africa because the institutional and cultural differences are diminishing due to convergence/homogenizing, which is the opinion of the hyperglobalists. On the other hand, whether the transfer is not easy due to cultural and institutional differences, which is in line with the view of the skeptics and transformationalists. The information found on the
similarities and differences between the Dutch and South African situation have been used as evidence for supporting or contradicting the theory of the ‘globalized’ company (hyperglobalist theory).
First of all, the influence of cultural differences between South African and the Netherlands on the transfer of HRM practices and policies has been researched. Proposition 1 has been tested: Cultural differences between countries form very little or no constraint on the transferability of HRM practices and policies.
It was however impossible to conclude whether proposition 1 is accurate. This is because the Dutch and South African culture turned out to be quite similar, which makes it really hard to test. The expectation was that there would be remarkable differences, due to the completely different backgrounds of both countries. This research however has shown otherwise.
Furthermore, if another country had been chosen with many cultural differences, the findings of this research would have been entirely different and, for example, the view of the skeptics would have been most accurate. Proposition 1 could therefore not be tested. Hence, further research has to take place.
The propositions on institutions however could be tested. First of all, proposition 2
‘differences in employment legislation between countries form little or no constraint on the transferability of HRM practices and policies’ has been examined in the paragraph on employment legislation.
By comparing the influence of the Dutch employment legislation on HRM practices and policies with the influence of the South African employment legislation, it could be concluded that proposition 2 is partly true and therefore partly accepted. Altogether, a great part of the South African legal systems shows resemblance with the Dutch system and convergence is definitely taking place. However, the South African affirmative action policies have a larger impact on firms compared to the Dutch affirmative action policies. Hence, the theory of the transformationalists suits best, when focusing on the impact of employment legislation on the transfer of HRM practices and policies.
Furthermore, proposition 3 ‘differences in trade unions between countries form little or no constraint on the transferability of HRM practices and policies’ has been tested, in order to test the hyperglobalist theory.
By comparing the influence of the Dutch trade unions on HRM practices and policies with the influence of South African unions, it could again be concluded that proposition 3 is partly true. Both countries have very strong trade unions, however the role of the South African trade unions seems (slightly) more far-reaching. The influence of South African trade unions on recruitment & selection systems and performance & reward systems is higher compared to the Netherlands. Although confederations in both countries strive for more training and development opportunities for all employees and for recruiting those who might be discriminated against, the situation in South Africa is more far-reaching due to the previous apartheid regime. The influence of trade unions on governmental policies is also larger in South Africa. The theory of the transformationalists seems most accurate in case of the trade unions.
Finally, the influence of differences in educational level has been researched by testing proposition 4 ‘Differences in educational level form little or no constraint on the transferability of HRM practices and policies’.
By comparing the influence of the Dutch educational system on HRM practices and policies with the influence of the South African educational system, it can be concluded that proposition 4 is false and therefore, proposition 4 will be rejected. The data analysis has shown that it is impossible to simply transfer the recruitment & selection systems and training
& development systems, due to enormous educational differences. A simple transfer of Dutch HRM practices and policies is impossible, so the hyperglobalist theory does not hold. There is a major discrepancy between the Dutch and the South African educational system. The skeptics believe that the absence of educational institutions, brain drain and high illiteracy levels form significant problems for transferring practices and policies to developing countries, which is also the case in South Africa and therefore the skeptical view seems most accurate. Furthermore, the AIDS-pandemic in South Africa affects the amount of scholars and teachers. Of course, companies can solve some problems by providing in-house training, which is already happening in South Africa. This costs however much time, effort and money compared to transferring HRM practices to countries with a well-developed educational system.
Altogether, it can be concluded that the transfer of Dutch HRM practices and policies to South African subsidiaries is not as simple as the hyperglobalists claim. This study has shown that there are quite some obstacles hampering this transfer, especially the differences in educational systems between South Africa and the Netherlands and the strict affirmative action policies in South Africa. The South African situation is however improving in many ways. Furthermore, both South Africa and the Netherlands are member of international organizations and global agreements, which implies convergence in standards and norms of trade unions and employment legislation. Within a few decades, the transfer could become easier and maybe, the hyperglobalist view will become more accurate in the future. The South Africa educational system however is too different from the Dutch system and convergence seems not to be taking place yet.
I: INTRODUCTION
1.1. Problem statement
• The phenomenon of ‘Globalization’
Many researchers believe that the significance of globalization has increased tremendously the last decades. According to these researchers, one cannot think about business nowadays without thinking about the phenomenon of ‘globalization’: globalization seems to be the keyword in most management articles and books. These authors claim that one day there will only be one market; boundaries of countries do not matter anymore in business (Levitt, 1984;
Held & McGrew, 1999). They strongly believe in ‘globalized’ companies and a new global capitalist order. By this, they mean a business that is not tied down by particular locating factors (Held et al., 1999). Country borders are irrelevant at finding the right location when extending one’s enterprise. These researchers are called hyperglobalists (Held et al., 1999).
There is however much academic discussion about whether globalization is a real phenomenon or only a myth (http://encyclopedia.laborlawtalk.com). Opponents of the hyperglobalist theory believe that there will be no such thing as a global world in the future, due to huge differences between countries such as cultural, political and economical differences. Many note that those features that make people believe we are in the process of globalization, including the increase in international trade and the greater role of multinational corporations, are not as deeply established as they may appear (http://encyclopedia.laborlawtalk.com). These researchers are called skeptics (Held et al., 1999).
The third group of researchers, the ‘transformationalists’, follow an intermediate way. They are not as pessimistic about the concept of globalization as the skeptics are and not as positive as the hyperglobalists are. They recognize that recent decades have witnessed a considerable intensification of international interdependence, but that the world is not globalized (yet). Rolf Hackmann (2005) states that ‘globalization is usually defined in economic and financial terms such as foreign investments, trade, income flows, industrial development, employment, and the production of value added. However, cultural, political, demographic, and other forces that receive less attention, because they are beset with difficulties of precise definition and measurement, also drive globalization and these forces can actually work against globalization’.
This thesis will investigate the hyperglobalist-, the skeptic- and the transformationalist view on globalization. The aim of this paper is to find out whether the hyperglobalist view on globalization, in which many researchers believe, is accurate. In order to test this, the globalization of Human Resource Management (hereafter HRM) practices and policies will be analyzed. This will be done by analyzing the transferability of HRM practices and policies of Dutch firms to South African subsidiaries. This will be further explained in the next two sub paragraphs.
• Globalization and Human Resource Management
A theme closely related to the globalization debate, is the extent to which management practices are converging or diverging across nations. The increased amount of studies on the level of internationalization of business and the growth of new markets has resulted in an increase of cross-national HRM studies (Budhwar & Sparrow, 2002). Managers are now eager to know how human resources are managed in different parts of the world.
Skeptics believe that international enterprises always have to adjust to a country’s specific environment, including HRM practices and policies. According to them, the globalization of HRM practices and policies does not exist, due to cultural and institutional differences between countries.
The transformationalists see the transfer of HRM practices as following: ‘Corporations operating in a variety of national environments are faces with a bewildering variety of cultural and institutional specificities that make managing in a multinational context especially complex (Morley & Collings, 2004). They believe that only a part of the HRM practices and policies can be transferred from home to host country.
According to the hyperglobalists however, favored by many authors, the HRM practices of a company can easily be transferred to its subsidiaries in foreign countries. The multinational enterprise (hereafter MNE) is viewed as the vehicle by which HRM policies and practices are transported across national boundaries (Morley et al., 2004). They argue that powerful MNEs can implement standardized employment practices in every country, which host their subsidiaries, due to the convergence between the institutions and culture of countries.
However, is it that easy to transfer HRM practices and policies from home to host countries, in this case from the Netherlands to South Africa, or are there also many obstacles? There are many pros and cons on the theme of globalization and many different views on this subject. It is therefore a scientific challenge to research to what extent the world is globalizing by examining to what extent HRM practices and policies are globalizing. The data-analysis will show whether the hyperglobalists are right, or whether the skeptical- or the transformationalist view on globalization and the globalization of HRM practices and policies is most accurate for this particular situation.
• Globalization and South Africa
Foreign direct investment (hereafter FDI) is a common entry mode for many MNEs (Harrison, Dalkiran & Elsey, 2000: 249). In the past, most investments went into developed countries. Whereas the developed countries still do most of the investing and receive most of the investments, the proportion of total FDI to developing countries has increased significantly since the 1990s (Gardiner, 2002). One in five workers in developed countries is employed by MNEs (Pinnington & Edwards, 2000).
- Insert Figure 1 about here –
South Africa is one of those developing countries, which is getting more important and attractive for foreign investors. For many years, this was not the case. Although South Africa is one of the richest and economically most important countries on the African continent, for decades, the apartheid system prevented South Africa from achieving its potential (World Bank, 2005). The South African market is however improving and some view South Africa as one of the most sophisticated and promising emerging markets globally. The unique combination of a highly developed first-world economic infrastructure and a huge emergent market economy has given rise to a strong entrepreneurial and dynamic investment environment. (www.dti.org ). Although South Africa seems very interesting for investment, there can be factors working against foreign investment in South Africa and therefore against the transfer of HRM practices and policies.
1.2. Research objective
This thesis will examine to what extent the globalization process has actually taken place in South Africa by means of a study on the transferability of Dutch HRM practices and policies to South African subsidiaries. The aim of this paper is to research whether the hyperglobalist theory, in which many authors believe, holds for this transfer or whether the transformationalist or skeptical view is more accurate. Can Dutch HRM practices be easily implemented in South Africa or are there factors that form a constraint on the transfer? In order to research this, the following research question will be examined:
‘What are the driving environmental factors that ease or hamper the transferability of Dutch HRM practices and policies to subsidiaries in South Africa and to what extent are these factors working for or against the process of globalization?’
The subsequent investigative questions are stated for examining the research question.
• What does the concept of globalization mean and how do hyperglobalists, skeptics and transformationalists see the concept of globalization?
• How do hyperglobalists, skeptics and transformationalists see the globalization of HRM practices and policies, with the focus on the influence of cultural and institutional differences?
• To what extent does the cultural environment of South Africa ease or hamper the transferability of HRM practices and policies of Dutch firms to (their) subsidiaries in South Africa?
• To what extent does the institutional environment of South Africa ease or hamper the transferability of HRM practices of Dutch firms to (their) subsidiaries in South Africa?
• Does the hyperglobalist view hold for the transfer of HRM practices and policies of Dutch companies to South African subsidiaries?
1.3. Unit of analysis
One of the most important ideas in a research project is the unit of analysis. The unit of analysis is the major entity that will be analyzed in a study. It is necessary to define this unit, in order to research whether the hyperglobalist view is accurate for South Africa. Without defining a unit, the research will become too broad and unrealizable. The focus in this thesis will be on the transferability of Human Resource Management (hereafter HRM) practices and policies. The investigation will be on whether HRM practices and policies can be easily transferred from Dutch companies to subsidiaries in South Africa (hyperglobalist view) or whether HRM is ‘culture- and institution bound’ and cannot be transferred, due to institutional and sociocultural differences between South Africa and the Netherlands.
The main HRM functions of an organization are recruitment & selection, training &
development and performance & reward systems (Budhwar et al., 2002; Papalexandris &
Panayotopoulou, 2004; Harzing, Mirza, & Myloni, 2004). These dimensions will also be used in this research. There are three reasons for this. First, these three HRM functions can be influenced by the institutions and cultural background of a country. Secondly, these dimensions are researched most in studies on HRM practices and policies, since they represent the core HRM practices and policies. Many researchers view these dimensions as most important. The third reason is related to the accessibility of information. Since most
researchers use these three dimensions, there is much information on this theme.
The reason for choosing the transfer HRM practices and policies, and not for example production systems, is twofold. First, when testing the hyperglobalist theory, it is good to have labor at the center of analysis. Within the literature, labor is accorded an important role, since many view labor as a critical constraint on unfettered market regulation (Radice, 2000).
Labor forms a key economic arena where markets, interest associations and states meet in complex regulatory sub-systems: training, work organizations, worker representation in firms, trade unions etc. (ibid.). A firm can export its products to foreign countries rather easily, but when it comes to overseas subsidiaries, it has to take into account many aspects of the environment of the subsidiary. HRM practices and policies form an important aspect in that environment. Secondly, HRM practices and policies are viewed by many as (very) sensitive to local conditions. Even some hyperglobalists admit that certain dimensions of HRM-systems have to be adjusted to some extent to the local environment. If HRM practices and policies are sensitive to local conditions and some practices and policies can still be transferred, the hyperglobalists make a strong case.
1.4. Importance of the study
The importance of this study is twofold. First, many researchers (hyperglobalists) assume that a company can invest abroad without many difficulties. The so-called global company is not restricted any more by boundaries due to a globalizing world and practices can be transferred from home to host country easily. These researchers however, do not pay much attention to cultural and institutional differences, which can cause problems. Especially in developing countries, the business environment differs for a great deal from ‘western countries’.
Companies can face problems when investing abroad and these obstacles should not be undermined.
Secondly, an important reason for focusing on HRM practices and policies is the recognition of the increase in importance of employers for the performance of a company. The contribution of HRM in improving firms’ performance and to the overall success of any organization (alongside other factors) is being highlighted in the literature (Budhwar &
Debrah, 2001). Given the increasing standardization of technological equipment, production processes and concurrent shortening of product life cycles, organizations are increasingly turning to the unique contribution provided to organizations by their human resources as a source of competitive advantage (Wright, 2001, as cited by Morley et al., 2004).
1.5. Research Design
In order to perform this research in a logical way, a research design is needed. A research design is a plan that ‘guides the investigator in the process of collecting analyzing and interpreting observations/data. It is a logical model of proof that allows the researcher to draw inferences concerning causal relations among the variables under investigation’ (Yin, 2003:
19).
1.5.1. Research method
In order to test the hyperglobalist theory, the transferability of HRM practices and policies of Dutch firms to South African subsidiaries will be investigated. In case this research shows that these practices can be transferred easily, one could state that the theory of the
hyperglobalists holds. In case the results of this research show that the transfer is not easy (at all), the transformationalists or skeptics have a stronger argument.
Several factors can influence this transfer in a positive or negative way. The major constraints, according to the skeptics and transformationalists, are cultural and institutional differences between the home- and host countries. Hyperglobalists however believe that convergence is taking place across the globe and as a consequence the institutions and culture of countries are homogenizing. This eases the transfer of HRM practices and policies.
In the literature review, chapter III, material will be provided with the three different views on globalization (skeptics, transformationalists and hyperglobalists) and the influence of culture and institutions on the transfer of HRM practices and policies according to them. Since the hyperglobalist theory needs to be tested, propositions will be stated in the literature review after their view on the influence of institutional and cultural differences on the transfer.
These propositions will then be tested in chapter IV, the data analysis. Information, documents, articles and reports on the Dutch and South African culture and institutions will be used in order to research the similarities and differences between South Africa and The Netherlands and the (possible) influence of these differences and similarities on the transfer of HRM practices and policies. Through this, one can see whether HRM practices and policies are easy to transfer to South Africa because the differences are diminishing due to the convergence/homogenizing of the institutions and culture, or whether the transfer is not easy due to cultural and institutional differences. The information found on the similarities and differences between the Dutch and South African situation will be the evidence for supporting or contradicting the theory of the ‘globalized’ company (hyperglobalist theory).
Altogether, this is in line with the essence of what Baarda and De Goede (2001) call evaluation research or test research. The aim of an evaluation research/ test research is to see whether the propositions, which are derived from the theory, are true or false (ibid.). With this kind of research, it is on one hand often too early to develop a completely new theory, but a researcher does not start from scratch either. Since this thesis wants to research the macro- environmental factors, which influence the transferability of HRM practices and policies, (and by this testing the hyperglobalist theory), an evaluation study is the right research method.
1.5.2. Selection of variables
The variables ‘transferability of HRM’, ‘South African subsidiaries’, ‘Dutch firms and subsidiaries’ will be used in order to test the theory of the hyperglobalists and their view on the transfer of HRM practices and policies. There are several reasons for the choice of these variables.
Transferability of Human Resource Management
The reason for choosing the transferability of HRM practices and policies instead of for example production systems, is that managers of multinational firms and researchers are increasingly realizing the significance of people management practices in ensuring profitability and viability of their business operations (Morley et al., 2004). At present, the contribution of HRM in improving firms’ performance and to the overall success of any organization is being highlighted in the literature (Budhwar et al., 2001).
Subsidiaries
Building subsidiaries by means of FDI is one of the most important strategies for enterprises.
The reason for focusing on subsidiaries is that the transfer HRM practices and policies can take place in subsidiaries (and not in e.g. export). Subsidiaries force a company to take into account not only the internal factors they can influence, but also the (environmental) factors they cannot influence, such as institutional and cultural factors. Research after subsidiaries can tell more about the influence of culture and institutions on the transfer of HRM practices and policies and therefore it is possible to test the theory of the hyperglobalists.
Furthermore, traditionally investment flows have been concentrated in developed countries.
However, recent years have shown a shift toward investing in developing countries. This has major implications for HRM in these countries, since most of these countries (South Africa included) are attached to the old centralized economy. ‘Western’ enterprises are faced with a number of challenges, when implementing HRM systems, due to differences in culturally and institutionally contexts (Morley et al., 2004).
Dutch firms
There are two explanations for choosing Dutch firms. Convenience, access and geographic proximity can be the criteria for selecting the cases (Yin, 2003: 79). These criteria also count for this research. Living in The Netherlands means that information on the culture and institutions in The Netherlands and Dutch HRM practices and policies is easy accessible and already known for a great part. Furthermore, the Netherlands has always had strong ties with South Africa, which makes it interesting to research.
South Africa
The reason for choosing South Africa is twofold. First of all, much research has already been done on emerging markets like China and India, while South Africa has hardly been investigated. South Africa is a rather unknown (emerging) country for many researchers and investors. There is a literature gap on the subject of investing in South Africa and the HRM practices and policies in South Africa, which needs to be closed. South Africa’s economy and investment opportunities have been growing rapidly in the last years and South Africa can therefore be an interesting market for investment. The success of the first democratic election in 1994 put the economy on a growth path and created a good environment for both domestic and foreign investment (Castelnau, 2003).
Secondly, South Africa is the best performing country of the continent Africa. (..) ‘South Africa’s outlook for FDI in 2004 and beyond is promising, given the region’s natural-resource potential, buoyant global commodity markets and improving investor perceptions of the region. Policies at all levels have improved and economic factors are favorable. As a result, the continent’s FDI inflows are expected to increase again this year’ (www.unctad.org). Since South Africa could be an interesting country for investment, it is important to know, to what extent the South African culture and institutions differ from the Dutch system and to what extent the Dutch HRM system can be transferred.
Finally, South Africa is a developing country, whereas the Netherlands is a (highly) developed country. One would expect that the institutions in these countries differ (tremendously). Since the Netherlands is more developed, it seems logical that the institutions are also more developed compared to South Africa. A strong case can be made for the hyperglobalists if, although the institutions are very different, the HRM practices and policies
can still be transferred easily. It could also be that the institutions used to be very different between these countries, but that convergence has taken place, which eases the transfer. This would also support the hyperglobalist argument.
1.5.3 Data collection method
Evidence for explorative research may come from several sources: documents, archival records, articles, books, company reports, governmental reports and so on. The use of multiple sources of evidence, which is called triangulation, is very important when collecting data (Yin, 2003: 97). Triangulation, the rationale for using multiple sources, can help to deal with the problems of establishing validity and reliability of (research) evidence (ibid. 97). Any finding or conclusion in a study is likely to be much more convincing and accurate if it is based on several sources of information, following a corroboratory mode (ibid. 98). For each chapter it will be explained, which data collection methods will be used.
1. Literature review
The literature review will be sited in chapter II. In the literature review, several sources will be used to gain general information on what globalization implies and literature on the different views on globalization will be reviewed. Furthermore, the opinion of researchers (of the three different streams) on the transferability of HRM practices & policies and the influence of culture & institutions on this transfer will be elaborated. The sources for the literature review are:
• Dictionaries/encyclopedias for definitions of globalization
• Supporting Textbooks
• Articles from periodicals/magazines/journals on globalization
• Articles from periodicals/magazines/journals on the influence of culture on HRM
• Articles from periodicals/magazines/journals on the influence of institutions on HRM
• Previous studies by other researchers on the transfer of HRM practices and policies.
The literature review will be the starting point for the theoretical framework of this thesis. The variables in the conceptual model will be derived from the literature review. After the literature review, propositions will be made for the testing of the theory of the hyperglobalists.
2. Theoretical framework
The theoretical framework will be sited in chapter III. In this framework, the theories will be placed, which have led to the conceptual model of this research. The variables within this model will be tested in the data analysis. The following sources for the theoretical framework, on which this research is based, will be used:
• Theories in (management) articles on globalization and the transfer of HRM practices and policies.
• Theories in textbooks on globalization and the transfer of HRM practices and policies.
3. Data analysis
The data analysis will be sited in chapter IV. In this chapter, information and data on the cultural and institutional environment of South Africa and the Netherlands will be placed, as well as information on HRM practices and policies in South Africa and the Netherlands. The chapter will show to what extent the institutions and culture differs between the Netherlands and South Africa and what influence this has on the transferability of HRM practices and
policies. The propositions from the literature review will be tested in the data-analysis. The sources that will be used are:
• Supporting Textbooks on the institutions and culture of South Africa and the Netherlands.
• Periodicals/Magazines/Journals on the institutions and culture of South Africa and the Netherlands.
• Reports and documents on Africa’s and the Dutch macro-environment (institutions) from several institutions.
• Government publications: publications from the South African and Dutch government.
• Previous studies by other researchers on the transfer of HRM practices and policies to South Africa.
• Reports (from the Internet) of several companies with their experiences in South Africa.
4. Results and Conclusions
The results and conclusions will be sited in chapter V. In this chapter, the findings of the data analysis will be compared with the findings in the literature review and with the propositions coming from that literature review. In case the cultural- and institutional differences between South Africa and the Netherlands are not very large/significant or when convergence has taken place, a company can probably transfer its HRM practices and policies rather easily and one could say that the hyperglobalist theory is most accurate. In case there are significant differences, which have a (major) impact on the HRM practices and policies, the transfer could be hampered by these contrarieties and the skeptic- or transformationalist theory is most accurate.
1.5.4. Criteria for judging the quality of this research in terms Gill & Johnson
In order to make sure that the outcomes of this research are creditworthy, several criteria for judging the quality of this research design will be tested. Since a research design is supposed to represent a logical set of statements, the quality of a research design can be judged to certain logical tests (Yin, 2003: 34). With regard to the validity of the research findings, it is possible to distil the following criteria used in evaluation (Gill & Johnson, 2002: 162):
internal validity, external validity (population and ecological validity) and reliability. These three tests are common to all social science methods.
• Internal validity: this research will be mediocre in internal validity. It might be hard to see whether the ‘cause’ actually produces the ‘effects’. The institutional- and cultural differences between South Africa and The Netherlands are probably not the only factors influencing the success or failure of the transferability of HRM practices and policies. It is quite possible that there are other institutional and cultural differences between South Africa and the Netherlands, which are not mentioned/treated in this thesis. It is impossible to take all the (institutional and cultural) factors into account though. In addition, by developing an operational set of measures for the estimation of institutional- and cultural differences and by explaining why these variables are most important for this research, the internal validity will be increased.
• External validity
- Population validity: the population validity in this research is high. This paper tries to
research the factors, which influence the transferability of HRM practices and policies in general. It does not focus on one single industry. The results of this research will be applicable to most Dutch companies investing in South Africa. The results can therefore be generalized to a wider population with a high degree of confidence.
Companies do however have to take into account firm- and industry specific variables.
- Ecological validity: the ecological validity is relatively low in this research. Since only information and data from reports, articles, books, journals and so on will be reviewed, its social contexts and settings do not influence the data gathered. However, the results will be on the cultural- and institutional environment of South Africa and are therefore not applicable to other countries. The information on the cultural- and institutional environment of South Africa on the other hand can be useful for firms outside the Netherlands, which want to invest in South Africa.
• Reliability: this study will be high in reliability, since the results obtained in this research will be consistent. Other researchers could replicate the original research for a great deal.
This is because all the information can be found in articles, reports, documents and so on, which can be found on the Internet and in libraries. The list of references will show all the used books, articles and websites. Therefore, other researchers are able to verify and repeat this study.
1.5.5. Framework deadlines
Literature review 15th of May, 2005
Theoretical framework 30th of May, 2005
Data analysis 15th of July, 2005
Results & Conclusions 30th of July, 2005
Finishing up 15th of August, 2005
II: LITERATURE REVIEW
This literature review will first provide information on the process of globalization and the three main views on globalization: the hyperglobalist-, the skeptical- and the transformationalist view. For each three views, the opinion of researchers on how they think about globalization and their opinion on the transferability of HRM practices from home to host countries will also be discussed. In case the HRM practices and policies are easily transferable to foreign countries, it could be said that the theory of the hyperglobalists holds.
In order to investigate this, literature will be reviewed on the influence of the sociocultural- and institutional environment of a country on the transferability of HRM practices and policies.
2.1. Views on globalization
The world is changing rapidly and it is hard to imagine a world without international business.
Virtually every nation, from the smallest to the largest, has business firms engaged in various types of international business activity (www.globalization.com). International competitively firms are constantly growing into new markets, which show great potential for success (Mendenhall, Punnett & Ricks, 1995). A large proportion of business management is international and managers face a complex and uncertain environment. Not just the national market, but the whole world is the playfield of many corporations nowadays.
The globalization of capitalism has been a ‘hot topic’, especially from the 1990s on. Not only economists and political scientists, but also geographers and sociologists were particular interested in the globalization (Radice, 2000). Globalization is a complex phenomenon, which is getting more in the nature of a process than a state of affairs (Ietto-Gillies, 2002). Most definitions boil down to the fact that globalization is both a process of geographical/spatial outreach and of an increased degree of interconnectedness and interdependence between people, groups and institutions based in different countries of the world (ibid.). Others dispute the concept of globalization and its existence and do not believe that the world will become
‘globalized’.
Researchers, who investigate the process of globalization, can be divided into three groups:
the hyperglobalist-, the skeptical-, and the transformationalist view. These views define the conceptual space of the current intensive debate about globalization (Held et al., 1999). In this paragraph, the three views on globalization will be discussed.
2.1.1. The hyperglobalist view
The hyperglobalist view is a view shared by many authors and researchers. These researchers strongly believe in the ‘globalized’ company. The ‘globalized’ company is the term used to describe a business that is not tied down by particular locating factors. It can more or less set up its business anywhere the firms wants (www.thetimes100.co.uk).
What distinguishes the present era from the past, argue the hyperglobalists, is the existence of a single global economy transcending and integrating the world's economic regions (Held et al., 1999). The conviction of the benefits of free trade is deeply rooted. David Ricardo showed already in 1817 his ‘theory of comparative advantage‘. Ricardo laid the foundation of trade theory, which is seen as the underlying foundation of globalization. He claims that ‘in a perfect global setting where goods, people, data and money flow freely, companies can adopt
an integrated and coordinated approach to their operations and the competitive battlefield would be the world’ (Lassere, 2003: 24).
Levitt claimed two decades ago, in 1984, a modern version of this trade theory: ‘The worldwide success of a growing list of products that have become household names is evidence that consumers the world over, despite deep-rooted cultural differences, are becoming more and more alike or ‘homogenized’. Gone are accustomed differences in national or regional preference. The globalization of markets is at hand. The global organization operates with resolute constancy, as if the entire world were a single entity’
(Levitt, 1984). He strongly believes that one day the world will be a ‘global village’.
Nowadays, many other authors (Lasserre, 2003; Ohmae, 1990; Held & McGrew; 1999) claim that one day soon there will only be one market; boundaries of countries do not matter anymore in business. The emphasis is upon footloose capital and a new global capitalist order (Held et al., 1999). These researchers (frequently) use terms like ‘turbo-capitalism’ or ‘supra- territorial capitalism’. This strong conviction seems to be a trend. Hyperglobalists argue an irresistible imperative towards the de-nationalization of strategic economic activities. Global markets can escape effective political regulation (Held et al., 1999). Enterprises view the world as their stage; production is shifted freely round the globe, in response to changes in product and factor markets, and money capital in particular moves freely in search of the highest returns (Radice, 2000). The hyperglobalists believe that the forces working against globalization have diminished enormously, due to the process of convergence between countries. The world is getting more homogenous and the world economy forces countries to reduce the scope of their political institutions and the nation-state.
The process of globalization has quantitative and qualitative aspects, according to Ietto-Gillies (2002). The qualitative aspects are:
• Breadth of change – the changes involve many fields ranging from economy and society in general to politics, the environment and culture.
• Political basis – The process has been reinforced by the economic and social policies of deregulation and liberalization now involving most countries in both developed and developing countries.
• Financial domination of the economy – the intensity of financial activities in relation to the size of economies and in terms of number of countries involved in financial transactions has increased.
• Social and organizational changes – The organization of production and business in general has undergone considerable changes.
• Technological basis of globalization – the rapid spread of the information and communication technologies (ICT) affects the movement of people, products and resources.
There are also three qualitative aspects of globalization:
• There has been an increase in the number of mechanisms of interconnectedness across borders: from traditional trade flows to FDI and other types of business ventures.
• The extensity or geographical reach of interconnectedness has increased.
• The intensity of cross-border flows has been increasing. This means the ratio between cross-border transactions.
Many consider (transnational) corporations and their activities abroad as most important, when thinking about globalization. The interconnectedness across countries manifests in a variety of transactions and flows, foreign direct investment included (Ietto-Gillies, 2002). One of the main factors, influencing globalization and convergence, has been the development of free trade. Many global institutions try to improve the international trade and investment. The World Trade Organization (WTO) for example, deals with the rules of trade between nations:
their goal is to help producers of goods and services, exporters, and importers conduct their business (www.wto.org). The IMF works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty, especially in developing countries, which all foster globalization (www.imf.org). There are many more international institutions and they all organizations set global standards and rules for their members, which leads to convergence.
2.1.2. The skeptical view
Although the 1990s have seen a flood of academic and popular writing on the globalization of capitalism, there are also quite some opponents, who strongly believe in the national political arena. Already in the 80s, there were opponents of the ‘hyperglobalist- theory’. These researchers are called the skeptics. The skeptical position is much more cautious about the future of globalization. They believe that the spatially concentrated nature of actual patterns of economic interdependence suggest that globalization is primarily a phenomenon largely confined to the major OECD states (Held et al., 1999). They do not believe in the idea of a unified global economy and the skeptical position concludes that the world is breaking up into several major economic and political blocs, in which very different forms of capitalism continue to flourish (Held et al., 1999). According to Gordon (1988), as quoted by Radice (2000), the extent of global economic integration had been much exaggerated and the growth of trade and capital flows reflected crisis and stagnation within the main industrialized economies, rather than the emergence of a new, dynamic global economy. Furthermore, they claim that the globalization process has been exaggerated and that, in reality, most international activities by MNEs have a very strong home-country base (Ietto-Gillies, 2002).
Skeptics believe that there are several reasons for why there is no such thing as a globalized world. The most common reason in the literature is first of all, that there is nothing new about a global economy, in that many indicators of transnationalisation have in recent decades only recovered the levels reached already before 1914 (Radice, 2000). Secondly, there are political and legal restrictions to the free movement of capital. Thirdly, the global economy remains extremely, maybe even increasingly, unequal, with trade, investments and technology concentrated in a handful of rich industrial countries and extending to a limited degree to a small number of aspiring newly industrializing countries (ibid.). Truly transnational corporations are rare and global trade is only concentrated in the Triad of Europe, Japan and North America (Morley et al., 2004). Furthermore, there has been economic and political integration, but this is predominantly on a regional basis (Radice, 2000). Finally, Hall and Soskice (2001) believe that firms will not automatically move their activities to other countries, just because of cheaper labor or other advantages, since firms derive competitive advantages from the institutions in their home country that support specific types of inter- and intra-firm relationships.
Whitley is a prominent skeptic, who does not believe in the phenomenon of globalization. He states that the extent of internationalization is less than often claimed, especially when compared to the late nineteenth century, and the processes by which it will lead to the so-
called convergence remains obscure (Whitley, 1998). Much of the ‘globaloney’ literature is rather vague about what globalization actually means and what evidence there is to support these sorts of claims (ibid.). According to Whitley, there are several factors, which contradict the theory in the ‘globaloney’ literature. First, the changes to take place in the nature and behavior of firms because of their expansion of their operations abroad are so stringent that present patterns of internationalization are unlikely to generate step changes in the characteristics and strategies of leading firms in most economies (ibid.). Secondly, in case the host business system is (very) cohesive, it is very unlikely that national institutions will change due to the presence of foreign firms. This is because the influence of foreign international firms is weakened by the local conditions. Finally, Whitley (1998) claims that
‘the internationalization of managerial coordination and capital markets has increased competition between business systems and their institutions, rather than establishing a radically new cross-national system of economic coordination and control’.
2.1.3. The transformationalist view
The ‘transformationalists’ follow an intermediate way. Supporters of the transformationalist theory, see globalization as a process of global transformations similar to other historical processes of a global reach, but far more advanced in geographical extensity and intensity (Ietto-Gillies, 2002). They agree that there has been a considerable intensification of international interdependence, but that the world is not globalized (yet).
Michael Veseth (1998) for example believes that ‘the “globe” is experiencing real and important change, but it is not globalization: globalization is badly misunderstood. The popular hyper globalization images of seamless global markets and a borderless world are not correct’.
Rolf Hackmann (2005) shares the opinion of Veseth: ‘Despite its daily appearance in the media, official pronouncements, and publications of all sorts, globalization is a poorly defined concept. Globalization is usually defined in economic and financial terms such as foreign investments, trade, income flows, industrial development, employment, and the production of value added. However, cultural, political, demographic and other forces that receive less attention, because they are beset with difficulties of precise definition and measurement, also drive globalization. And these forces can actually work against globalization’.
Bartlett and Ghoshal (1989: 6) also claim that economic and financial terms were not the only force driving companies to integrate their operations globally. They believe that consumer tastes and preferences, which once differed widely from one national market to the next, began homogenizing. Even the customs of consumers were converging. This has however not let to a ‘globalized world’. Companies can have very different strategies when expanding their business abroad. According to Bartlett and Ghoshal (1989), the three key strategies used to be multinational, global and international. Bartlett and Ghoshal believe that the multinational, global and international strategies are inappropriate for the rapidly changing business environment. Multinational companies are companies, which build strong local presence through sensitivity and responsiveness to national differences (ibid.15). This strategy would be in line with the opinion of the skeptics. The multinational can respond to local needs, but it is however not efficient due to the fragmentation of activities (ibid.58). Global companies are companies, which built cost advantages through centralized global-scale operations (ibid. 15). This strategy fits best with the view of the hyperglobalists. The global company is very efficient. However, the central groups responsible for innovation often lack
