The transfer of HRM practices from a Greek MNC to developed and developing countries

(1)

Master thesis

The transfer of HRM practices from a Greek

MNC to developed and developing countries

MSc. International Business and Management

University of Groningen

Faculty of Economics and Business

P.O. Box 800, 9700 AV Groningen, The Netherlands

Anna Achladioti

Student number: s1946269

E-mail : A.Achladioti@student.rug.nl

(2)

ABSTRACT

The aim of this paper is twofold: first, to examine if there are any differences on the transfer of HRM practices from a Greek MNC to its subsidiaries located in developed and developing countries and second to examine which are the reasons for these differences. Research will be done by performing a case study of a Greek MNC with subsidiaries in Poland, Bulgaria, United Kingdom and Luxemburg. The theory illustrates that the reasons for the differences on the transfer of HRM practices between developed and developing countries are mainly due to the cultural and institutional distance as also due to the firm’s and subsidiary’s characteristics and the characteristics of some HRM practices. However, the results of the case study are not in line with all the above reasons. The institutional distance and the size of the subsidiaries seem to be the most important reasons for the existence of these differences on the transfer.

(3)

Due to globalization an increasingly number of firms, have developed activities in multiple countries. Looking at business pages of newspapers, one can daily read stories about companies, which have developed activities in international level. Today multinational companies dominate the world’s markets and are playing a vital role in the globalization of economy activity.

Most of the multinational companies, in their effort to dominate the world’s markets and to be successful at a global level, have established subsidiaries, not only in developed countries but also in developing. Subsidiaries can take on various roles to develop and leverage capabilities that are a source of value creation in the subsidiary’s market and possibly in other markets served by the firm. This contributes in the performance of the firm as a whole.

The headquarter-subsidiary relationship is the primary connection through which the headquarters are able to manage the corporation. A theme closely related to the MNC’s operations is the knowledge transfer. A lot of scholars and business people argue that the ability to create and transfer knowledge internally is one of the main competitive advantages of the MNCs. However, as most of the multinational companies own several subsidiaries in countries different from the headquarters’, they have to overcome many problems in order the process of transfer to be successful. These problems may be the differences between home and host countries as also some subsidiary or firm level characteristics.

(6)

1.1 Problem statement

One of the main types of knowledge that the MNCs try to transfer to their subsidiaries abroad are the human resource management (HRM) practices. In the light of an increasingly globalised economy, HRM has evolved from a support function to a strategically important function. Schuler and Rogovsky (1998) argue that HRM is a crucial component of the firm’s overall corporate or business strategy. As a result, many MNCs attempt to transfer their HRM practices to their subsidiaries abroad. Managers are now eager to know how human resources are managed in different parts of the world (Budhwar and Sparrow, 2002). As a result, there are an increasing number of studies on the level of internalization of business, the growth of new markets and the cross- national HRM. However, according to all of these studies there are many obstacles in the process of transfer of HRM practices abroad, mainly due to the complexities involved in employing and managing people from different countries and with different cultural backgrounds.

Additionally the differences between national systems limit the diffusability of HRM practices. This is partly because HRM practices are dependent on the system in which the parent company operates, and partly because their introduction to other countries is subject to the constraints posed by the recipient systems. However, there are the differences between national systems that also create the potential for cross-border diffusion in the first instance, as MNCs seek to gain a competitive advantage through transferring practices perceived as delivering improved performance across their operations.

(7)

A great number of scholars argue that the cultural distance between the home country and the host country will definitely have an impact on the transferability of knowledge and especially on the transferability of HRM practices. The differences between cultures and values in developed and developing countries could act as an obstacle on the transfer of HRM practices. However, there are also researchers who argue that the cultural distance between home and host country may not have a negative result on the transfer of HRM practices. In the same category is the institutional distance. When I refer to institutional distance, I mean the distance in the institutional profiles between home and host country. This institutional profile of each country includes the regulatory, cognitive and normative institutions of each country. According to Kostova and Zaheer (1999), the result of the institutional distance is the ‘institutional duality’, which creates pressure for internal and external legitimacy. As a result this ‘institutional duality’ which every MNC experiences, has definitely an impact on the transfer of HRM practices across countries.

In the second category, there are the factors which are connected with the firm’s operations and which also have an impact on the transfer of HRM practices. In these factors are included the firm level factors. When I am referring to the firm level factors, I mean the characteristics of the firm. For instance, the strategy of the firm, its HRM orientation, the time in international operations and the presence of expatriates. A great number of researchers argue that the firm level characteristics play a significant role on the process of transfer. Additionally, the subsidiary characteristics and the specific HRM practices that a company wants to transfer, have also an impact on the transfer of HRM practices. These subsidiary characteristics may be the method of founding of the subsidiary, its size and its dependence on the MNC. Furthermore, there are many academics who argue that some HRM practices have different levels of transfer than others. Thus, according to them, the HRM practice that the MNC wants to transfer may or may not affect the transfer due to its characteristics.

(8)

1.2 Motivation/Literature gap

Most of research on the transfer of HRM practices have contacted on MNCs which have subsidiaries in developed countries such as U.S, Europe and Japan (Kostova, 1999; Gupta and Govindajan, 2000). There is also a number of studies about MNCs which have subsidiaries in emerging economies (Cooke, 2004; Edwards and Rees, 2006). However, what remains unclear is what happens when an MNC has subsidiaries also in developed and in developing countries and wants to transfer its HRM practices in both of these economies. Additionally, there is any empirical research on Greek MNCs and how these companies transfer their HRM practices in their subsidiaries located in developed and in developing countries.

(9)

1.3 Main research question

From all the above reasons the main research question for this research will be:

Does and how does the transfer of HRM practices from a Greek MNC headquarter to its subsidiaries in developed countries differ from the transfer to its subsidiaries in

developing countries?

1.4 Sub questions

According to Dul and Hak (2008), a literature review will describe what is considered to be known about the subject of study and what is not yet known. As a result, the literature review will give me a description of the current body of knowledge. In order to ensure that all the knowledge and facts from the existing literature are known I will use the next sub questions which cover all the concepts of the research.

 What is the effect of cultural distance on the transfer of HRM practices? As I described before, there are a lot of cultural differences between developed and developing countries. Thus I will try to find out what is known in the literature about the effect of the cultural distance on the process of transfer from a headquarter located in a developed country to its subsidiaries located in developed and in developing countries.

(10)

known in the literature about the institutional differences between countries and how these differences affect the transfer process.

 Which firm level characteristics can affect the transfer of HRM practices? Definitely, there will be some firm characteristics, which affect the transfer of HRM practices. Thus, I will find out what is known in the literature about these characteristics and why they affect the transfer.

 Which subsidiary characteristics can affect the transfer of HRM practices? As there are some firm level characteristics, which affect the transfer of HRM practices, there will be also some subsidiary characteristics. Thus, in the literature review I will explain which these characteristics are and why they influence the transfer process.

All the above sub questions will help me to answer my research question. The literature review of the cultural and institutional distance will give me a general view of the environments of the developed and developing countries and how these environments could affect the transfer of HRM practices. Thus, I will know what the previous researchers found about the cultural distance and institutional distance between developed countries and between developed and developing countries and their influence on the transfer of HRM practices. As a result, I will know if there are any differences on the transfer of HRM practices from developed countries to developed and developing due to the cultural and institutional distance between countries.

(11)

1.5 Conceptual model

According to Yin (2003), a conceptual model provides a visual overview of the concepts and the directions the variables are heading to. For my research, the cultural and institutional distance is thought to be an important variable influencing the transfer of HRM practices. Additionally, the firm and subsidiary characteristics as the specific HRM practices that are going to be transferred will also influence the transfer of HRM practices. How these variables will affect the transfer of HRM practices to developed and developing countries and make this process different between countries will become clear in my thesis.

Figure 1

Conceptual model

CULTURAL AND INSTITUTIONAL

CONTEXT

 FIRM LEVEL FACTORS

 HRM GROUP

(12)

1.6 Overview of the paper

After this chapter has laid out the theoritical base of this thesis, the remainder of this research paper has been organized in the following way:

Chapter 2 contains the theoritical background of this thesis. Part of this theoritical background are the concepts in the literature which are mainly related with the research of my thesis.

Chapter 3 starts by explaining the methodology of this study. Thereafter, this chapter elaborates on the cases that will be used in this thesis discussing the reasons behind the case study method and analysis and the characteristics of the data. Finally, this chapter gives an overview on how the data will be collected.

Chapter 4 analyzes the the data gathered during the interview and concludes with the results.

(13)

2. THEORITICAL BACKROUND

This chapter of the paper describes the theoretical background for the research presented in this thesis. The theory of this thesis is based on the process of transfer of HRM practices between nations. More specifically, in this part of my thesis I analyze the main obstacles, which an organization of a developed country faces, when it wants to transfer its HRM practices to its affiliates in a developed and in a developing country. As there is not a great number of studies about Greek MNCs and the process of transfer of their HRM practices abroad, I am focused on studies about MNCs from developed countries, as many academics argue that Greece is a developed country and thus the practices of transfer from MNCs from developed countries and MNCs from Greece would be similar.

2.1 Globalization

By the end of the 1980s, the traditional distinction between domestic and multinational companies has started to become blurred. International competition was no longer the preserve of industrial giants. It was affecting everybody’s business. Globalization surfaced as the new buzzword at the turn of the 1990s. Many ingredients of globalization such as the steady dismantling of trade barriers in Western Europe and in North and South America, the increasing availability of global capital, advances in computing and communications technology, and the progressive convergence of consumer tastes, reached a threshold where they became mutually reinforcing (Evans et. al., 2002).

(14)

According to many researchers, one cannot think about business nowadays without thinking about the phenomenon of globalization. Globalization has meant an increasing competition that is felt not just by multinational players who invest overseas to gain or maintain competitive advantage but also by those who operate on domestic markets, threatened by new players from abroad.

2.2 Developed and developing countries

The literature is full of articles describing specific characteristics of developed and developing countries. The term developed country is used to describe countries that have a high level of development according to some criteria. Many scholars refer also to developed countries as advanced countries, industrialized countries or emerged economies. On the other hand, developing country is a term to describe a country, which has not achieved a significant degree of industrialization relative to its population.

Kofi Anan1 defined a developed country as follows: ‘A developed country is one that allows all its citizens to enjoy a free and healthy life in a safe environment’ (www.unescap.org). However, according to the United Nations Statistic Division the designations ‘developed’ and ‘developing’ are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process (www.unstats.un.org).

There are some specific criteria, which have been used in order to classify countries as developed or developing. The most common criterion is the income per capita; countries with high gross domestic product (GDP) per capita would be described as developed countries. Some other criteria are the level of industrialization and the Human Development Index, which combines the national income with other measures such as life expectancy and education.

(15)

Below I represent the most popular lists of classification of countries as developed or developing:

 International Monetary Fund (IMF). The world economic outlook (WEO) database of this institution classifies the world into advanced and emerging economies according to the per capita income level, the export diversification and the degree of integration into the global financial system (www.imf.org).

 United Nations Development Program (UNDP). The United Nation uses the Human Development Index (HDI) which is a statistical measure gauges a country’s level of human development. More specifically, the HDI is a summary composite index that measures a country’s average achievements in three basic aspects of human development: health, knowledge and a decent standard of living. Health is measured by life expectancy at birth; knowledge is measured by a combination of the adult literacy rate and the compiled primary, secondary, and tertiary gross enrolment ratio; and standard of living by GDP per capita. The HDI classifies the countries into very high human development, high human development, medium human development and low human development. The countries with very high human development referred by the UNDP as developed countries while all the others as developing countries (www.undp.org).

(16)

2.3 Knowledge

A theme closely related to the globalization is the extent to which MNC’s knowledge is transferred across nations. Research in the area of knowledge management indicates that the ability to create and transfer knowledge internally is one of the main competitive advantages of MNCs. Bartlett and Ghoshal (1989) argued that the MNC is a ‘differentiated network’ where knowledge is created in various parts of the MNC and transferred to several interrelated units.

Knowledge transfer has been defined as the ‘process through which one unit is affected by the experience of another’, particularly when this brings about measurable changes in the receiving unit (Argote and Ingram, 2000). Although there is not a specific definition of knowledge, two important distinctions are generally accepted:

 Argote and Ingram (2000) define knowledge as explicit or codifiable knowledge on the one hand and tacit or uncodifiable knowledge on the other. Explicit knowledge is often in written form and can be transferred relatively easily, while tacit knowledge is more context dependent and cannot easily transferred.

 Bgagat et. al. (2002) define knowledge as human, social and structured knowledge. Human knowledge includes both explicit and tacit knowledge. Social knowledge concerns relationships between individual and groups and is largely tacit. Finally, structured knowledge concerns organizational processes, routines and rules and is largely explicit.

2.4 HRM transfer

(17)

of the world ( Budhwar and Sparrow, 2002). Clark (1996) argues that, to study HRM in different countries, researchers need to begin by asking ‘what is meant by HRM?’ Legge (1995) and Clark and Mallory (1996) define HRM as the management of the employment relationship, comprising four central tenets:

1. The integration of managing employees with corporate business strategies 2. The development and enforcement of a strong corporate culture through HR

policies and practices

3. The increasing focus on the individual as opposed to collective employee relations issues

4. The devolution of employee management to the line manager

It has been argued that human assets are an emerging source of competitive advantage for MNCs (Bartlett and Ghoshal, 1991; Sculer and Rogovsky, 1998). HRM is evolving from being just a support function to one of strategic importance (Teagarden and Von Glinow, 1997). Bartlett and Ghoshal (1991) have argued that HRM policies and practices are becoming crucial because they can act as mechanisms of co-ordination and control of international operations. Additionally, HRM practices help to shape organizational culture. For all the above reasons, MNCs attempt to transfer their HRM practices to their foreign affiliates.

However, there are many obstacles in the process of transferring the HRM practices abroad, mainly to the complexities involved in employing and managing people from disparate national and cultural backgrounds. As a result, HRM may also constitute a major constraint when MNCs try to implement global strategies (Adler and Bartholomew, 1992).

2.5 Concepts in the literature

(18)

2.5.1 Cultural distance

Most of the studies about the transferability of HRM practices across cultures includes the dimension of cultural distance. A great number of academics argues that the distance between the cultures of the parent and the host country will definitily have an impact on the transferrability of knowledge and especcially of HRM practices. However, there are contradicticting opinions about the result that the cultural distance will have on the transfer of HRM practices.

Recent research has revealed that companies in different countries differ with respect to their HRM policies and practices (Ferner, 1997). It has also been noted that transferring HRM practices across cultures can be quit problematic (Hofstede, 1980; Yuen and Kee, 1993; Kovach, 1994; Rosenweig and Nohria, 1994; Bae et al., 1998). One of the major problems is related to the host’s country cultural environment. Although the dominance of American management theory has led to the belief in which the universal management practices can be applied anywhere, research has shown that managerial attitudes, values and behaviors differ across national cultures. There is no single way to manage an organization, as differences in national cultures sometimes require differences in management practices.

According to Laurent (1986) and Schneider (1988), of all management practices, HRM practices seem to be the most vulnerable to cultural differences and hence the least to travel across countries. As with most management practices, HRM practices are grounded in cultural beliefs that relief the basic assumptions and values of the national cultures in which organizations are embedded. As a result, an HRM practice may be meaningful and effective in one culture but ineffective in another (Laurent, 1986).

(19)

Khilji, 2003). A great number of them have been engaged in investigating the transfer of HRM practices in MNCs. The surprise of those studies was that they reveal much contradicted results about cultural distance and its impact on the transfer of HRM practices.

Past research has successfully attempted to explain some of the variance in HRM practices across cultures, using Hofstede’s cultural dimensions. Hofstede claims that ‘For those who work in international business, it is sometimes amazing how different people in other cultures behave. We tend to have a human instinct that deep inside all people are the same, but they are not. Therefore, if we go into another country and make decisions based on how we operate in our own home country, the chances are we will make some very bad decisions’ (www.geerthofstede.com).

The popular study of Hofstede (1980) has provided a framework that links the cultural variable to the organizational context. Through his analysis of data collected from subsidiaries from a large multinational organization, Hofstede came to the four following cultural dimensions: power distance, collectivism versus individualism, femininity versus masculinity and uncertainty avoidance. The main result of his research was that subsidiaries do not adapt to the parent company’s values and culture, but continue to reproduce local values. However, many academics argue that Hofstede’s theory may fail to recognize some important elements of national culture, which have a great impact on the transfer of knowledge between nations.

In order to overcome the limitations of Hofstede’s theory, there is a more recent theory, which classifies national cultures according to three dimensions. This is known as the GLOBE cultural dimensions model, which clusters the cultures according to the similarities with each other. Javidan et. al. (2005) argue that the more distant are the national cultures with each other in these dimensions, the more difficult is the transfer of knowledge between these countries. However, it is necessary to mention, that this theory have received a lot of criticism, especially for the method used and also for its results.

(20)

firms across various countries. Using Hoftede’s four dimensions, they found that HRM practices are culturally bound.

In addition to Hofstede’s survey, Kanungo and Jaeger (1990) have provided a fifth dimension, that of abstractive thinking versus associative thinking, which can be useful in understanding cultural differences between developed and developing countries. In associative cultures, the context plays an important role in determining an individual’s perceptions and behaviors. In abstractive cultures, these tend to influenced more by abstract rules and principles applied equally to each situation. Ronsenzweig and Nohria (1994), in their study on the influences on HRM practices in multinational corporations, found that the greater the cultural distance between the parent and the affiliate, the more the affiliate would conform to local practices. Additionally, Shuler et. al. (1993) proposed that the greater the cultural differences between the host and the home country, the more likely it will be that MNCs will permit the development of HRM practices that are unique and adapted to the local interests and diversity.

On the other hand, Kogut and Singh (1988) in their study used a composite index of Hofstede’s four dimensions as a proxy for the overall distance between the home country and host country and found that as affiliates face a dual pressure to resemble both local practices and parent practices, if there is a high cultural distance their practices will be less likely those in the local environment. Moreover, Beechler and Yang (1994) suggest that the greater the cultural distance between the home and the host country, the less affiliates will conform to local practices.

(21)

Kanungo and Jaeger (1990) developed a framework that identifies the cultural differences between developed and developing countries. This table is summarized in Table 1.

Table 1

Dimensions on which organizations in developed and developing countries differ

CHARACTERIZATION OF SOCIO-CULTURAL ENVIRONMENT

Dimensions Developed countries Developing countries

Uncertainty avoidance Relatively low Relatively high Individualism-collectivism Relatively high individualism Relatively low individualism

Power distance Relatively low Relatively high

Masculinity-femininity Relatively high masculinity Relatively low masculinity Abstractive- associative Relatively high abstractive/ Relatively high associative/

low associative thinking low abstractive thinking

Source: Kanungo and Jaeger (1990)

(22)

that MNCs can provide to managers (Edwards and Rees, 2006), and the resource dependences and coercive comparisons the can draw to engender local conformance with them.

As a result, the cultural distance between countries could have two contradicting influences in the process of transfer. On the one hand, because of the great cultural distance, the company will prefer not to transfer its HRM practices to its subsidiaries located in countries with great cultural distance with the home country, but to adopt the local practices in order to conform to the host environment. On the other hand, the company may choose to transfer all its HRM practices to the host country, even the cultural distance between the home and the host country.

2.5.2 Institutional distance

In the previous unit I discussed the effect that the cultural distance will have on the transferrability of HRM practices. However, there is also another factor which will have a great effect on this transferrability and which a lot of academics argue that it will have greater effect than the cultural distance. This factor is the institutional distance between the home and the host country.

(23)

When academics referring to the institutional distance they mean the distance in the institutional profiles between the home and the host country. According to Kostova (1999), Busenitz et. al. (2000) and Kostova and Roth (2002) the institutional environment can be decomposed into the regulatory, cognitive and normative institutions in a given country. Scott (1995) called these components of institutional profile, pillars.

The regulatory component of an institutional environment ‘reflects the existing laws and rules in a particular national environment that promote certain types of behaviors and restrict others’ (Kostova, 1999). The normative pillar reflects the values, beliefs, norms, and assumptions about human nature and human behavior held by the individuals in a given country. These values and norms specify how things should be done with characterizations of the preferred or desirable (Kostova, 1999). Finally, the cognitive component reflects the widely shared social knowledge and cognitive categories (for instance, schemata, stereotypes) used by the people in a given country (Markus and Zajonc, 1985) that influence the way a particular phenomenon is categorized and interpreted.

While theoretically it can be argued that HRM practices are shaped by equally compelling counteracting logics, previous empirical research has shown that of all functions, HRM tends most closely to adhere to local practices (Kobayashi, 1982). This is because HRM practices are often mandated by local regulation or shaped by strong local convections. One of the strongest influences by local institutions comes from labor unions. Rosenzweig and Nohria (1994) argue that if a union represents subsidiary employees, subsidiary HRM practices will be very close to those of local firms. Moreover, these practices can be politically sensitive and affiliated will prefer to conform to the local system.

(24)

cohesive, integrative and have generated a distinctive business system, it is more likely that MNCs will have to adapt to local practices (Gooderham et al., 1999). As I mentioned above, the transfer of HRM practices will depend on the institutional distance between the home and the host country. It is obvious that the institutional distance between two developed counties will be smaller that this of a developed and a developing country. This is because the former may have similar institutional systems while the latter will be very different in terms of regulations, political systems, values and norms.

A great number of business, legal or academic experts have tried to understand the political and legal issues in developing countries (e.g., Johnson 1996; Kalterheuser 1997). In countries where a strong political party is still the norm, like China or Vietnam the impact that party decisions and politics can make is dramatic. As a consequence, this political conditions can influence the MNC’s operations and make their decisions more or less difficult (Vanhonacker, 1997). Moreover, for an affiliate in a country that is widely different from a parent, such as China and the US, legal regulations limit the ability of the MNC to hire and fire (Taylor et al. 1996).

(25)

2.5.3 Subsidiary factors

According to a great number of studies, the difference in the HRM practices across countries is also due to some factors related to the subsidiary. These factors include the method of founding, the size of the affiliate, the dependence on local inputs and also on the MNC and the industry. These factors may be different across countries and especially between developed and developing countries, as each of these countries have some specific characteristics that could have an impact also on the subsidiary’s characteristics.

The method by which an MNC has grown can have a significant impact upon the likelihood that it will engage in cross border diffusion (Edwards and Rees, 2006). When a company decides to invest to other countries, it has the choice of founding a Greenfield or an acquisition. Rosenzweig and Nohria (1994) found that foreign affiliates established through Greenfield investments were more likely to adhere to the parents operations than those of establishing through acquisitions. Gamble (2003) argues that Greenfield operations do not face existing highly institutionalized practices and thus headquarters can transfer their practices without great difficulties. On the other hand, Edwards and Rees (2006) mention that in acquisitions the firms inherit a pre-existing set of practices that may prove difficult to change, and also that it may create suspicion and resistance among employees in the acquired units.

(26)

environment, and may be more dependent upon hiring local employees, placing them under greater pressure to adhere to local practices. Additionally, Muller (1997) found that in Germany, the degree of freedom for foreign transplants to import practices from their parent company is cleared linked with the employment size, as there is more pressure on larger subsidiaries to comply with local labor and IR institutions. Many academics have mentioned the extent to which the dependence to local inputs has on the transfer of HRM practices. Affiliates receive inputs, such as knowledge of technology, manufacturing components and managerial know-how, from other units of the MNC, as well as from the local environment. Rosenzweig and Nohria (1994) argue that if an affiliate depends heavily upon the local environment for needed inputs, it may be more likely to adopt management practices characteristic of the local environment. Furthermore, Hannon et. al. (1995) mention that if a subsidiary relies heavily on host country organizations and local suppliers in terms of technological and managerial expertise, is likely to be affected by these actors in terms of its HRM practices.

Moreover, the influence of an MNC on its affiliate is directly related to the dependence of that affiliate on the parent’s resources. Power/dependence, dependence and vertical dependence all represent the extent to which the subsidiary relies on, and is contingent on, the support of the headquarters to fulfill important needs and providing major resources, such as technology, capital, managerial expertise and so forth (Kostova, 1999; Kostova & Roth, 2002; Hewett et. al., 2003). The extend of the dependence is determined by the importance of the resource and the lack of the availability of this resource from other sources (Hickson et al. 1971; Jacobs 1974; Pfeffer and Salancik 1978). Kostova (1999) mentions that parent MNCs can use subsidiary resource dependencies to motivate staff to become internally legitimate and isomorphic with desired management practices and support their transfer.

(27)

across countries, where there are strong forces for worldwide integration, and where competition is among global players, the affiliate will be less concerned with following local custom and will adopt the HRM practices of its parent. On the other hand, in multidomestic industries, where national responsiveness is a key factor for doing business and when one must confront strong local competitors, it is more likely that an affiliate will embrace local practices.

It is obvious that all the above subsidiary characteristics will differ between developed and developing countries. Thus, the transferability of HRM practices may also differ across those countries.

2.5.4 Firm level factors

As the subsidiary will have an effect on the transferability of HRM practices, in the same way one could expect that there will be also some MNC factors that will have an effect on this transferability. In the next paragraphs I analyze the impact of the strategy that the MNC follows, its strategic HRM orientation, the length of time in which it has been involved in international operations, the control that it has on its affiliates, the presence of expatriates and finally the communication with each affiliate.

(28)

organized and managed as the majority of German companies are. Finally, in the Global strategy, the company would devise and implement a universal company policy, fostered through its organizational culture and philosophy. A well-known example of a company, which uses this strategy, is Mc Donald’s.

Furthermore, Phatak (1989) defines three main sources from which managers can be recruited to staff both headquarters and the various subsidiaries, according to the strategy of its company. There are the Parent Country Nationals (PCNs), the Host Country Nationals (HCNs) and the Third Country Nationals (TCNs). In an ethnocentric strategy all key positions in the MNC are filled by PCNs, in a polycentric strategy HCNs manage subsidiaries in their own country, while in a global strategy the best people are utilized for key positions throughout the MNC regardless their nationality.

Taylor et. al. (1996) also indentify three generic strategic HRM orientations that firms may choose to follow when they establish a new operation abroad. According to them, a firm can adopt HRM systems from affiliates to reflect the environment of the host country, it can also export wholesale the parent firm’s HRM system to its affiliates or it can attempt to integrate the best practices from both local and home country and use them throughout the organization. Ferner (1997) indicates that in some cases a firm can use a combination of the above operations.

(29)

A considerable body of literature documents the impact of the control of the parent over its subsidiaries. Control can be categorized into four areas: bureaucratic formalized control that includes written rules and regulations, personal centralized control, which depends on the role of the head office, control by socialization and networks and finally output control, which includes performance measurements. Egelhoff (1988) argues that the MNCs, which exercise tighter control over their subsidiaries, influence more directly, decision making in strategy, marketing and other functions including HRM. Thus, if the parent exercises tight control over the affiliate, it is more likely that the affiliate will be less likely to adopt local practices. The presence of expatriates is generally argued to have an effect on the transfer of HRM practices. Affiliates with a high presence of expatriates will more closely adhere to the management practices of the MNC (Rosenzweig and Nohria, 1994). Expatriate managers typically serve a key control function in areas such as setting overall strategy and in finance management (Gamble, 2000). They also fulfill a crucial role in the transfer of firms’ administrative heritage (Bartlett and Ghoshal, 1998). The role of the expatriate managers captures two elements of control: direct and indirect. Direct control is defined as the direct involvement in decision-making, selection and promotion of local employees. Indirect control is exercised through the transmission of values, attitudes and ways of doing things, or by being ‘cultural carriers’ (Edstrom and Galbraith 1977; Jaeger 1983; Lu and Bjorkman 1997). Many researchers have argued that the higher the number of expatriate managers, the more likely the subsidiary is to adhere to management practices of the MNC (Rosenzweig and Singh, 1991; Rosenzweig and Nohria, 1994; Lu and Bjorkman, 1997).

(30)

From all the above, you could see that the firm level characteristics play a vital role on the transfer of HRM practices. According to these firm characteristics, the transfer will be different among firms.

2.5.5 Group of HRM practices

Until know, I have examined the level of transfer of HRM practices as one block without discussing that individual group of practices may have important differences with each other during the process of transfer. In fact, it is evident that different groups of HRM practices show different levels of transfer. A great number of previous research studies have found that different HRM practices face distinct pressures for global integration and local legitimacy (Rosenzweig and Nohria, 1994; Bae et al., 1998).

Rosenzweig and Nohria (1994) hypothesized and found that practices such as time off, benefits and gender composition, significantly resembled local practices as there are specific regulations, norms and local systems which the company must follow. On the other hand, HRM practices concerning executive bonus, training and participation were less similar to local practices. The authors argued that this was because local norms tend to be diffuse and broad, leaving the MNC with greater responsibility to respond to the need for internal consistency.

Moreover, Lu and Bjorkman ( 1997) and Schmitt and Sadowski (2001) found in their studies that performance appraisal and training practices are the one with the highest level of transfer within an MNC, while practices related with compensation were the less transferrable (Martinez and Ricks, 1989; Schuler and Rogovsky, 1998).

2.6 Conclusion

(31)

developing or from a developed country to a developed. I chose to focus my literature review on MNCs with headquarters in developed countries because Greece is referred as a developed country in all published lists about developed and developing countries and also because of the limit number of articles about Greek MNCs and their transferred practices.

The outcomes of the theoretical background show that there are some specific factors which influence the transfer of HRM practices and may be the reasons of the differentiate transfer of HRM practices across countries. Both cultural and institutional distance, which is the result of the differences of the home and the host environment, may affect the process of transfer. This could lead to the differences on the transfer between countries with great cultural and institutional distance and countries with small cultural and institutional distance. Additionally, the subsidiary characteristics and the firm characteristics have also an influence on the transfer of HRM practices and one should take them under consideration when he wants to transfer practices among the MNC. Finally, each of the HRM practices could have its own level of transfer.

(32)

3. METHODOLOGY

To be able to explore if there are any differences in the transfer of HRM practices between developed and developing countries from a company located in Greece, the theoretical foundations had to be exposed to the real world. To find out if the cultural distance, the institutional distance, the subsidiary factors, the firm level factors and the group of HRM practices have an influence on the transfer of HRM practices between developed and developing countries and in what way, I will perform an empirical analysis.

In my opinion, the best way to do this is to ask someone who is responsible for this process in a Greek company which has subsidiaries not only in a developed country but also in a developing. Therefore, I will use a Greek MNC of the bank industry, which has subsidiaries in developed and in developing countries. This empirical research is the methodology part of my thesis. With the use of an interview a presentation of the real situation between headquarter and subsidiaries located in developed and developing countries will be reproduced.

3.1 Case study

This paper is an explanatory paper, as is little known about the transfer of HRM practices from Greek companies to their subsidiaries abroad and especially the differences in the transfer process between developed and developing countries. Therefore, the research will mainly be qualitative, in the form of a comparative case study between different subsidiaries in one company.

(33)

Additionally, Hartley (2004) argues that the aim of case studies is to provide an analysis of the context and processes which illuminate the theoretical issues being studied. The fact that this research contains all the above-mentioned features shows the appropriateness of case study for this research.

3.2 Data collection

This thesis is a combination of desk and field research. Desk research is a collection of secondary data. The literature used in this thesis is the result of the desk research. Field research is collecting data that has not been collected before. According to Yin (1994) one of the most important sources of case study information is the interview. Thus, I decided to use an interview in order to collect the information of the field research.

In order to find individuals willing to participate in my research a letter explaining the main subject of my thesis and the information I needed was send to a great number of companies. Together with this letter, the person who was initially contacted in the firm was asked to assess which person within the company would be most suitable and willing to participate into this research. After a period of one month, one company which had the characteristics that I needed for my study, agreed to give me the information I needed.

3.3 Research object

The research object of my study is an international Greek company named EFG Eurobank group2. For my thesis I will study four subsidiaries of this company, two

2

(34)

located in developed countries (the U.K and Luxemburg) and two located in developing countries( Poland and Bulgaria).

3.4 Country characteristics

Before the analysis of the characteristics of its subsidiary, I will present you some economic characteristics of each country, including Greece, and the reasons for including the country where its subsidiary is located, in developed or developing countries.

3.4.1 Country information

Poland

Poland is a post-communist country and a member of NATO, the United Nations, the World Trade Organization and the Organization for Economic Co-operation and Development (OECD). As of May 2004 is a member State of the European Union. Poland is considered one of the healthiest post-communist countries and is now one of the fastest growing economies in the EU. In 2009, Poland had the highest GDP growth rate in the EU. In 2008 GDP (current US$) was estimated at $527.8 billion. The privatization of small and medium private companies and a liberal law on establishing new firms have allowed of the development of an aggressive private sector. Therefore, many foreign investors showed their interest in this country and hold a great percentage of the private firms in Poland.

(35)

are most active in attracting FDI projects (www.paiz.gov.pl). According to the data released by the National Bank of Poland (NBP), the value of Foreign Direct Investment to Poland in 2008 was EURO 9.972 billion. The most investments were located in the given sectors: financial intermediation, real estate and business services, trade and repairs, manufacturing, electricity and gas supply (www.nbp.pl).

Bulgaria

Bulgaria is a member of the European Union, NATO, the United Nations and the World Trade Organization. Bulgaria has an industrialized, open free market economy with an advanced private sector and a number of state-owned enterprises. Bulgaria has experienced rapid economic growth in the recent years, even though it ranks as the lowest income member state of the EU. The economy relies primarily in industry, although the service sector increasingly contributes to GDP growth. In 2008, GDP (current US$) was estimated at $49.9 billion.

Bulgaria has a very strategic geographic location. Its position on the European continent allows investors to reach the entire market of the EU and the markets of Central and Eastern Europe, which represent a total population of 850 million. Thus, foreign direct investment is so massive and dynamic in the last 15years. In the last five 10 years Greece has the first place between the countries which invest in Bulgaria (www.bnb.bg).

Luxemburg

(36)

2008 GDP (current US$) was estimated at $53.7 billion. Luxemburg is the worlds’ second largest investment fund center, the most important private banking center in the Euro zone and the Europe’s' leading center for reinsurance companies. Luxemburg offers a favorite climate to foreign direct investment. The recent European Union (EU) directive on services supplied electronically has caused a number of companies to look to Luxembourg, with its relatively low value-added tax (VAT) rates, as a possible location for directing their European operations. U.S companies are the first foreign investors in Luxemburg, with nearly $72 billion in 2005 (www.state.gov).

United Kingdom

The U.K is a member state of the European Union, a permanent member of the United Nations Security Council, a member of the Commonwealth of Nations, G8, G20, NATO, OECD and the World Trade Organization. It is a developed country, with the world’s six largest economy by nominal GDP and the six largest by purchasing power parity. In 2008, GDP (current US$) was estimated at $2.674 billion.

Manufacturing is a significant part of the economy with the British motor industry holding the main part of this sector. The U.K service sector makes up about 73% of GDP. The service sector is dominated by financial services, especially in banking and insurance. London is the world’s largest financial center and a major center for international business as it has the largest concentration of foreign bank branches in the world (www.bankofengland.co.uk).

Greece

(37)

developed country with a very high Human Development Index and standard of living. The economy of Greece is the twenty-seventh largest economy in the world by nominal GDP and the thirty-third largest by purchasing power parity, according to the data given by the International Monetary Fund for the year 2008. In 2008 GDP (current US$) was estimated at $355.8 billion. However, the last two years the country suffers from high levels of political and economic corruption and low global competitiveness compared to its EU partners.

However, even the financial crisis in the country, the outward foreign direct investment increased the last years. Greek investors have expanded not only in the Balkans and Turkey but also in many developing countries and countries in transition. Indicative, 6% of the private firms in Turkey and in Alaska and 2% of the private firms in South America, South Africa and Asia are subsidiaries of Greek MNCs (www.kathimerini.gr).

3.4.2 Categorization in developed and developing

(38)

International Monetary Fund

The world economic database of this institution classifies the countries into developed or developing according to the per capita income level, the export diversification and the degree of integration into the global financial system. In Table 2, you could see how the International Monetary Fund classified these countries for the year 2010.

Table 2

Classification according to the International Monetary Fund

COUNTRY CLASSIFICATION

Greece Developed economy

United Kingdom Developed economy

Luxemburg Developed economy

Poland Developing economy

Bulgaria Developing economy

Source: International Monetary Fund

United Nations Development Program

As I analyzed in the literature review, that the United Nation uses the Human Development Index in order to measure a country’s level human development according to the aspects of health, knowledge and decent standard of living of each country. This statistical measure classifies the countries to those with very high human development, high human development, medium human development and low human development. The countries with very high human development referred by the United Nations Development Program as developed countries, while all the others as developing. In the next chart, you could see the HDI rank of each of the five studies of my case study for the year 2009.

(39)

Table 3

Human Development Index

Source: United Nations Development Program

As you could see from the above chart, the HDI for Greece, the U.K and Luxemburg is above 0.9 and thus these countries are in the list of countries with very high HDI and are referred by the UNDP as developed countries. On the other hand, Poland and Bulgaria had an HDI below 0.9 and thus are characterized as countries with high HDI and are referred by the UNDP as developing countries.

World Bank

The World Bank classifies the countries according to the gross national income (GNI) per capita and thus there are the high-income countries, the middle-income countries (lower middle and upper middle) and the low-income countries. Low income and middle-income economies are referred by the World Bank as developing countries. In the next chart, I present you the GNI of Greece, the U.K, Luxemburg, Poland and Bulgaria for the years 2006 to 2008 according to the World Bank’s database.

(40)

Table 4

Gross National Income

Source: World Bank’s Database

As you could see from the above chart the GNI per capita of Greece, U.K and Luxemburg was above US$11.906 for the period 2006 to 2008, thus, these countries are in the category of the high-income countries, and we can refer them as developed countries. On the other hand, Bulgaria and Poland had a GNI per capita lower than US$11.906. More specifically, for the year 2008 the GNI per capita of Bulgaria was US$5.490, which means that this country is an upper middle-income country and thus a developing country. Poland is also included in the upper middle-income countries and thus developing countries. I have to mention, that as the GNI per capita of Poland was 11730 in 2008, we could expect that its GNI today is above the US$11.906 and thus we could include this country in the developed countries. However, the specific GNI for the year 2010 was not available by the World Bank database.

3.5 Company information

EFG Eurobank group

Eurobank EFG group is a European banking organization with its headquarter located in Greece, with total assets of €85.9 bn, employing over 23.000 people and offering

(41)

products and services through a network of more than 1.600 branches, business centers and points of sale, as well as through alternative distribution channels.

The Bank provides a wide range of banking and financial services, capital markets and advisory services, treasury activities and other financial services to retail customers, private banking clients and business customers. The Bank is one of the largest retail banking service providers in Greece in terms of deposits, loans and branches. The Bank's operations also include the largest domestic private banking service in Greece. The Bank offers additional financial services, including brokerage and insurance, through several of its subsidiaries.

The bank was established in December 1990 under the name of ‘Euromerchant Bank S.A’, offering mainly investment and private banking services. The bank changed its strategic focus in the mid- 1990s, in view of the deregulation of the Greek retail banking sector. Since then, EFG Eurobank group has followed a successful course based on dynamic organic growth and today holds the leading position in the fastest growing and most profitable banking segments in Greece.

EFG Eurobank group has a systematic presence in 10 countries: Greece, Bulgaria, Serbia, Romania, Turkey, Poland, Ukraine, the UK, Luxembourg and Cyprus.It is a member of the EFG Group, an international banking group present in 40 countries (www.eurobank.gr).

Eurobank EFG Private Bank Luxemburg

(42)

Eurobank EFG Group –U.K

Eurobank EFG Group – U.K is a branch of EFG Eurobank group and it is located in London. It is a Greenfield operation and it was established in 2000. It has 18 employees and a Greek General Director. This subsidiary provides a wide range of banking and financial services to its private banking clients and business customers. (www.eurobank.gr).

Polbank EFG

In 2006, EFG Eurobank group entered Poland with a Greenfield operation and established the Polbank EFG. Polbank EFG is a leading Polish bank with a brand network of more than 330 locations and more than 2000 employees including a great number of expatriates. . It is the best bank for medium enterprises in Poland and was voted as employer of the year 2009. (www.polbank.pl).

Eurobank EFG Bulgaria AD

(43)

(44)

4. DATA ANALYSIS AND RESULTS

This chapter discusses the differences in the HRM transfer between developed and developing countries according to the interview that I had with the employee of EFG Eurobank group.

4.1 Interview

The interviewee, Mr. Sitaropoulos, is the Personnel Line Manager Wholesale Banking of EFG Eurobank group and he is responsible for the Human Research Management of the subsidiaries abroad. Since the organization under study is located in Greece, the interview was done in Greek language and it was face to face with duration of about 1.30 hours. This interview was recorded and the relevant parts were transcribed. After this, it was translated to the English language.

The interview was semi-structured, signifying that the specific questions and answers were not determined in advance, but the topics were. The topics were based on the literature review of my thesis and were introduced by open questions. This way of collecting data provides richest data than answers of a questionnaire as the interviewee can give us his experiences and opinions and not just specific answers. The interview consisted of three parts. The first part was an introduction of the topic of the thesis and the structure of the interview. In the second part of the interview, the topics were addressed with an open question and follow-up questions were asked according to the first question of each topic. At the last part of the interview was asked to answer the research question of my thesis and to include any other information which were important for the study and which were not included in the previous questions.

(45)

In the next paragraphs, I analyze the results of the interviews according to the next topics: transfer of HRM practices to developed and developing countries, cultural distance, institutional distance, firm level factors, subsidiary factors, group of HRM practices and concluding questions.

Transfer of HRM practices to developed and developing countries

I agreed with Mr. Sitaropoulos to separate the subsidiaries to subsidiaries from developed countries and subsidiaries from developing countries as the group of the developed countries are very similar with each other like the group of the developing countries. Mr. Sitaropoulos states that ‘ We separate our subsidiaries to subsidiaries

located in Central Europe and to subsidiaries located in South Eastern Europe, as the countries of these two parts of Europe have a lot of similarities, legal and cultural, which enable us to manage them better’.

The main discussion on this first topic of our interview was on the transfer of HRM practices from the headquarters to these four subsidiaries. It became clear that it is a policy of the company to transfer all its HRM practices from its headquarters to its subsidiaries abroad. The statement of the interviewee is that: ‘It is our policy to

transfer the HRM practices from our headquarters to all of our subsidiaries in other countries. As a result, we try to use all these practices in all of our subsidiaries without many differences. However, you could imagine that there are cases that the HRM practices cannot be transferred as they are or they cannot be transferred at all because of some differences between countries. I have to admit that the goal of our company is to transfer them as they are from our headquarter and to be as similar as possible with our practices in Greece’.

(46)

Cultural distance

One of the main issues stated on the part of the literature review of my thesis was the impact of cultural distance on the transfer of HRM practices. On the discussion of this topic, the interviewee made it clear that according to his experience we could say that the cultural distance between Greece and the U.K and Luxembourg is smaller than the cultural distance between Greece and Poland and Bulgaria. ‘As the U.K, Luxembourg

and Greece are parts of the European Union for a long period and we could include them in the developed countries it is obvious that their cultures are more similar than with the countries of South Eastern Europe. These two countries in most of the cases have the same norms and values, especially in terms of HRM practices. On the other hand, Poland and Bulgaria have their own culture which is quite different from this of Greece’.

However, even though that it is obvious that there are great cultural differences between Greece and the subsidiaries located in developing countries and thus there is a great cultural distance, it was surprising to find out that this distance had little impact on the transfer of HRM practices. According to Mr. Sitaropoulos the cultural differences are a part of the transfer that they take under consideration but it is not common to change the HRM practices that they want to transfer because of these cultural differences between Greece and the host countries. The interviewee further

(47)

The answers on the questions on this topic show that even the cultural distance between the home and the host country, the company sticks to its own policies and practices in most of the times.

Institutional Distance

As I mentioned in the theoretical background of this thesis, the institutional distance between the home and the host country could play a great role in the process of transfer, as every subsidiary is subject to ‘institutional duality’. According to the interviewee ‘Our Company, as every company with international operations is subject

to institutional duality. As I mentioned before, our goal is to transfer our HRM practices to our subsidiaries abroad without any changes. However, the institutional distance between Greece and the countries in which we have our subsidiaries is something that we take under great consideration’.

Mr. Sitaropoulos further strengthened this statement saying that the laws and regulations of every foreign country have a great impact on the transfer of HRM practices. He explains that there is a specific process that they must follow in order to transfer their HRM practices abroad. ‘Our goal is to send every HRM practice to our

(48)

For instance, in our company we have a policy on the employment of relatives3. There is a specific number and job positions of relatives who we can hire every year. Thus, we ask from our subsidiaries to send us the information about the future employees and if they have any relatives working in the company in order to show us if they are eligible to work in our company. However, our subsidiary in Poland cannot conform to this policy because of specific laws and regulations in Poland that not allow us to get such information from our future employees. Thus, it is impossible for us to transfer this practice to Poland as it is against the regulations of the country’.

Thus, from this statement it is obvious that the institutional distance is one of the reasons of the differintinization of HRM practices between developed and developing countries, as the regulatory profiles between the countries have great differencies.

Subsidiary Factors

According to a great number of studies mentioned in the literature review of this thesis, the difference in the transfer of HRM practices across countries is also due to some factors related to the subsidiary. As a result, it was necessary on the interview to discuss about the method of founding of the affiliates, their size, their dependence on local inputs and on MNC and the industry and their impact on the transfer of HRM practices.

As I mentioned before, EFG Eurobank group acquired its subsidiaries in Luxembourg and Bulgaria from local banks in these countries, while the subsidiaries in the U.K

3

(49)

moreover, in Poland are Greenfield operations. However, Mr. Sitaropoulos cannot see any relation of the method of founding and the transfer of HRM practices. According to him, the method of founding of its of the subsidiaries has not any impact on the transfer of HRM practices as it is a group policy to transfer the HRM practices from Greece to all of their subsidiaries abroad without taking under consideration the method of founding. ‘We transfer our HRM practices to all of our subsidiaries. From

my experience, the method of founding does not play a role to the transfer of HRM practices as we have the full management of our subsidiaries even if they are Greenfields or acquisitions’.

From his statements, it is made also clear that the size of its of the affiliates definitely plays a role on the transfer of HRM practices. ‘The size of its of our subsidiaries

abroad definitely has an impact on the transfer process. Our subsidiaries in the U.K and Luxembourg are much smaller than our subsidiaries in Poland and Bulgaria. We have the full management of these subsidiaries but it is obvious that the larger subsidiaries need more attention than the smaller. For instance, when we have a new HRM practice that we want to transfer to our subsidiaries it is easier for me to transfer it first to the U.K and Luxembourg as these subsidiaries have less employees than our subsidiaries in the other two countries. Thus, we need less time and effort for the transfer and the implementation of this practice as it is only for a few employees. One the other hand, this same process takes more time for subsidiaries with thousands of employees and as you could think, there are times than we need to differentiate our practices because of this reason, as there is more pressure on larger subsidiaries to comply with local labor institutions’. I have to conclude that from our

discussion on this topic it became clear that larger subsidiaries mean larger requirements from the headquarter and other procedures for the transfer of HRM practices and in many cases adaptation of these practices because of the great number of employees of the affiliates.

The transfer of HRM practices from a Greek MNC to developed and developing countries

Master thesis