Cross-National Transfer of Employment Practices in Multinationals
cross-national transfer of employment practices in multinationals Abstract This paper argues for the systematic incorporation of power and interests into analysis of the cross-border transfer of practices within multinational companies (MNCs). Using a broadly Lukesian perspective on power it is argued that the transfer of practices involves different kinds of power capabilities through which MNC actors influence their institutional environment both at the ‘macro-level’ of host institutions and the ‘micro-level’ of the MNC itself.
The incorporation of an explicit account of the way power interacts with institutions at different levels, it is suggested, underpins a more convincing account of transfer than is provided by the dominant neoinstitutionalist perspective in international business, and leads to a heuristic model capable of generating proposed patterns of transfer outcomes that may be tested empirically in future research. Keywords multinationals; comparative & cross-cultural HRM; conflict; international HRM; strategic and international management; organisational theory.
Introduction Much has been written about the cross-national transfer of management practices in multinational companies (MNCs). A recent conceptual development is the ‘neoinstitutionalist’ contribution of Kostova and colleagues (Kostova, 1999; Kostova and Roth, 2002; Kostova et al. , 2008). In the international business literature, this approach shows signs of establishing a new intellectual hegemony. 1 Given this salience, critical engagement is essential. The neoinstitutionalist approach to practice transfer in MNCs has provided fundamental insights.
It argues that MNCs – or to be more precise, their subsidiaries – operate under conditions of ‘institutional duality’, facing both the institutional terrain of the international firm itself and that of the host environment in which they operate. These institutional spheres exert rival isomorphic pressures which come to the fore when practices are transferred from the parent to host operations. Drawing on Scott’s (2008) institutional pillars, Kostova uses the ‘country institutional profile’ tool to characterize parent- and host-country institutions.
This provides the basis for assessing ‘institutional distance’ (ID), the divergence in institutional arrangements between the parent country and host. In general, the greater the ID, the more problematic is transfer; and the harder is the ‘internalization’ of transferred practices, that is, their full assimilation to host employees’ cognitive mindsets and normative frameworks (Kostova, 1999). However, neoinstitutionalist positions on transfer in MNCs suffer from a neglect of ‘old institutionalist’ questions about power, coalitions, interests and competing value systems (e. . Stinchcombe, 1997), despite increasing attention to such questions in broader neoinstitutionalist theory (e. g. Oliver, 1991; Greenwood and Hinings, 1996; Lawrence, 2008; Lounsbury, 2003; Tempel and Walgenbach, 2007). The key concepts of ‘institutional duality’ and ‘institutional distance’ overlook the ability of actors in MNCs to shape institutions to their needs and thus influence the transfer process. There is little sense of what is ‘at stake’ for actors in the confrontation of cognitive, normative and regulative frameworks that arise when practices are transferred.
This paper discusses how the analysis of power can be incorporated into an understanding of cross-institutional practice transfer. It builds on recent work concerning MNCs as political actors (e. g. Belanger and Edwards, 2006; Dorrenbacher and Gammelgaard, 2011; Dorrenbacher and Geppert, 2011; Edwards and Belanger, 2009; Ferner and Edwards, 1995; Ferner and Tempel, 2006; Levy, 2008; Levy and Egan, 2003). It argues that power and interests of actors shape transfer through processes that draw on institutional resources both at the ‘macro’ level of the host business system and the ‘micro’ level of the MNC.
These processes in turn shape the transformations and adaptations undergone by transferred practices. Power, it is suggested, has to be understood in its institutional context, both in that it is deployed by powerful MNC actors to shape, sustain and activate macro- and micro-level institutions – a process that neoinstitutionalists refer to as ‘institutional work’ (Lawrence and Suddaby, 2006); and in that institutional context provides actors with power capabilities with which to facilitate, block or modify transfer.
The cross-national transfer of practices in MNCs is complex, with an array of possible outcomes. Transfer has several dimensions: the degree of adaptation or hybridization of practices; ‘internalization’; functionality; and directionality. The first of these refers to the fact that transfer is not an either/or issue; there may be degrees of transfer. The transferred practice may be modified in the course of implementation, or it may be ‘hybridized’, that is, combined with host practices (e. g. Becker-Ritterspach, 2009).
Internalization denotes that, even where a practice is transferred in its original form, it may be assimilated to a greater or lesser extent to the working assumptions, cognitive understandings and normative frameworks of subsidiary employees and managers. Functionality refers to the degree to which transferred practices perform the function intended for them by powerful HQ actors, or work in ways that these actors would consider to be unintended or dysfunctional. Finally, directionality indicates that transfer does not occur solely from HQ to subsidiary, but also between subsidiaries themselves, or from subsidiaries to HQ.
Thus various outcomes are possible, and one of the principal aims of this paper is to provide a conceptual framework for understanding how power relations in MNCs influence the outcomes of practice transfer between different institutional ‘domains’. The paper illustrates the argument with empirical examples drawn from human resource and employment practices (HR&EP) in MNCs. The rationale is twofold. First, the cross-national dissemination of such practices is increasingly seen in a knowledge-based global economy as key for international competitive advantage (e. . Lado and Wilson, 1994). Second, however, HR&EP are particularly subject to host institutional influence (e. g. Rosenzweig and Nohria, 1994). Moreover, relations between employers and workforces are characterized by a ‘structured antagonism’ (Edwards, 1986) providing the basis for the ongoing exercise of power and resistance in relation to HR&EP; this structured antagonism is carried into the international sphere, on to the ‘contested terrain’ of the MNC (Belanger and Edwards, 2009). The paper first discusses a conceptualization of power in relation to MNCs.
Second, it examines power capabilities and interests of different groups of actors within the MNC, in particular at HQ and subsidiary level. Finally, it marshals the arguments on power, interests and institutions to explore different transfer outcomes. Power and MNCs MNCs are powerful actors, driving economic activity in many sectors and one of the motive forces of ‘globalization’. They are also complex organizations, marked by the dispersion of power among groups, functions and operating units (e. g.
Belanger and Edwards, 2009; Dorrenbacher and Geppert, 2011; Ferner and Tempel, 2006). In particular, the respective power of HQ and subsidiaries makes for the negotiation of relationships within the MNC (Ferner and Edwards, 1995). MNC actors manoeuvre among ‘institutional contradictions’ that leave considerable scope for praxis (Geppert and Dorrenbacher, 2011). Transfer can be viewed as a specific instance of HQ–subsidiary relations, in which the power capabilities of actors at each level influence outcomes. How are such capabilities to be conceptualized?
This paper builds on a ‘Lukesian’ perspective (Lukes, 1975; 2005) that identifies three dimensions of power. Each may be related to the behaviour of MNC actors in the realm of practice transfer. The first concerns the nature of decisions that are made, and the deployment of resources to affect them. The second relates to conflicts around ‘non-decisions’, reflecting the ability of powerful actors to shape the agenda, exclude or include issues, and determine the processes and rules by which decisions are arrived at.
The third concerns the way in which powerful actors exercise domination over others ‘by influencing, shaping or determining [their] very wants’ (Lukes, 1975: 27). As Lukes admits (2005: ch3), the notion of power as domination over other actors who may consent to domination requires the imputation of ‘real interests’ to actors (i. e. interests that are masked by the third dimension of power). Given the difficulties of the undertaking, he argues (p148) that ‘what count as “real interests” [is] a function of one’s explanatory purpose, framework and methods’.
Without wishing to get enmeshed in this debate, we would note that the paper is premised on the notion that interests are constructed by MNC actors in ways that are variable and issue-specific, and the process gives rise to bundles of interests that are complex and not necessarily internally coherent (cf. Lukes, 2005: ch3). There may be a hierarchy of interests, with economic security or survival, for example, being a primary and persisting interest for most actors. Beyond that, interests may be more changeable and context-dependent.
Such interests may be collective, emerging, for example, around a particular model of teamworking in a subsidiary that allocates particular roles to different groups of employees, supervisors and managers; or individual, deriving notably from personal and biographical considerations to do with career paths and aspirations within the MNC, rather than from organizational or group affiliations (see e. g. Dorrenbacher and Geppert, 2009a). Hardy (1996) has applied a Lukesian model to a business context, and her terminology is adopted here.
She labels the first dimension ‘the power of resources’, which concerns power derived from the control of scarce resources, such as hiring and firing, rewards and sanctions, and expertise, in order to influence behaviour in the face of opposition. The second, ‘the power of processes’, resides in ‘organizational decision making processes which incorporate a variety of procedures and political routines that can be invoked by dominant groups to influence outcomes by preventing subordinates from participating fully in decision making’ (p7); equally, new groups may be brought, or force their way, into decision-making processes.
The third dimension is labelled ‘the power of meaning’; Hardy explores the way in which organizational groups legitimize their own demands and ‘delegitimize’ those of others through the management of meaning and the deployment of symbolic actions. As a result, H actors may be impeded from exercising agency. As Levy argues (2008; also Levy and Egan, 2003), the control of meaning has important linkages with the Gramscian concept of ‘hegemony’ (Gramsci, 1971), emphasizing that the control of meaning, or the ‘discursive realm’, relates to power relations in the real economic and technological realms.
In other words, in the case of MNCs, the power of meaning is built upon the resource power that derives from the primary economic activity of the firm and its constituent parts. This third dimension of power also provides a crucial link with neoinstitutionalist analysis, by illuminating in particular how the cognitive and normative ‘pillars’ (Scott, 2008) of institutional arrangements embody power relations and serve the interests of powerful actors, and how such pillars may be susceptible to contestation rather than being seen as external givens.
While all three dimensions of power are important for an understanding of cross-institutional transfer, the power of meaning is especially crucial. When institutionalized practices are transferred cross-nationally, this hidden dimension is rendered ‘visible’ (Ferner et al. , 2005) by the collision of two sets of institutional rationalities. Transfer thus creates an important condition for the exercise of agency: that actors become conscious of taken-for-granted institutional processes (e. . Clemens and Cook, 1999; Seo and Creed, 2002). In short, transfer leads to potential conflicts of institutional rationality that are resolved through the deployment of power capabilities. For example, individual performance appraisal and reward is a norm taken for granted and generally regarded as legitimate in ‘liberal market economies’. Even if disliked, it can only be legitimately challenged on grounds of its failure to achieve its performance-enhancing functions.
But cross-institutional transfer allows the shared norms to be laid bare and challenged on grounds of alternative normative frameworks, emphasizing (for example) social equity, solidarity and fairness (e. g. Liberman and Torbiorn, 2000). MNC actors in situations of transfer: Power capabilities and organizational interests To understand transfer outcomes in the context of power relations, two questions must be addressed. First, what power capabilities do actors in MNCs possess?
As an initial approximation, we explore the power capabilities of actors at HQ compared with those of the subsidiary. This reflects the thrust of arguments (e. g. Geppert and Dorrenbacher, 2011; Kristensen and Zeitlin, 2005; Morgan and Kristensen, 2006) that the relationship between the HQ and subsidiary constitute a primary axis of power relations within MNCs. Second, what interests are constructed or present in relation to transferred practices? The answer to this question requires a more nuanced analysis of actors at HQ and subsidiary level.
It determines whether, given respective power capabilities, the subsidiary acts as part of a monolithic MNC bloc vis-a-vis host institutions, seeking ways of overcoming institutional constraints; or opposes HQ’s efforts to transfer. Also possible is some complex configuration of interests where some groups in the subsidiary support transfer, while others oppose it (and the same may be true of HQ actors). In other words, interests determine how power capabilities are deployed in relation to transfer.
We first explore the power capabilities of MNCs as unitary entities with common organizational interests (Morgan, 2011) vis-a-vis the macro-institutional settings in which they operate. We then relax the assumption of unity and analyse separately the capabilities of HQ and subsidiary actors. Finally we examine the array of interests that are likely to be constructed around HR&EP practice transfer. The power of MNCs to shape macro-institutional settings The Kostovian approach to transfer neglects the power of MNCs to shape macro-institutional settings on two key counts.
The first concerns the broader systemic context within which institutional duality is played out. Smith and Meiksins (1995) argue that the underlying global dynamics of capitalist development create ‘system effects’ that may be distinguished from institutional variations, or ‘societal effects’. The global economic system, and the associated concepts of ‘globalization’, the world market, competition, and so on, are themselves the highly institutionalized outcome of the active agency (e. g. Campbell, 2004: ch. 5) of powerful actors, including states, supranational bodies and MNCs (e. g. Djelic and Quack, 2003; Levy and Egan, 2003).
As Morgan (2011; also Sklair, 2001) argues, an emerging global managerial elite has assumed an important role in international standard-setting and transnational institution building. MNCs have played an important role in building this context. Sell (2000), for example, shows the role of US multinationals in shaping the rules of international commerce on TRIPS (Trade-related aspects of intellectual property rights) and GATS (General Agreement on Trade in Services) (see also Djelic and Quack, 2003). The interrelationship between the global system and national institutional spaces has implications for transfer.
In particular, the world economic system is hierarchically structured by the power of national actors (Smith and Meiksins, 1995). ‘Dominance effects’ allude to the influence of practices developed in leading economies, sectors or firms. They influence all three dimensions of power. MNCs from dominant business systems have greater resource power by virtue of their economic success. They have power over processes that facilitates transfer. Such power can be at a systemic level through their ability to shape the decision-making rules governing international economic activity.
It can also be more immediate, for example through the concentrated presence of MNCs from a dominant economy in a host country, as in the case of the dense networks of US subsidiaries in the UK or Ireland. This presence creates a stratum of organizations familiar with parent-country practices, and a pool of employees and managers with appropriate cognitive and normative expertise. Dominance also shapes systems of meaning as the dominant power becomes ‘hegemonic’. On the one hand, it creates a presumption by actors from dominant countries and firms that their practices have superior efficacy, providing a motive for transfer.
On the other, this view may be shared by actors in the host, including policy-makers, subsidiary managers and workforces, and hence increase receptiveness to transfer. Thus transfer is smoothed because practices are accorded legitimacy by a wide range of MNC actors and are regarded as global ‘best practices’ (e. g. Pudelko and Harzing, 2007). One may therefore expect that where the transferred practice derives from a parent country that is dominant vis-a-vis the host, the inhibiting effect of ID on transfer will be reduced. Dominance effects evolve.
One illustration of this is that the dominant position of US carmakers in the period immediately after the Second World War had been lost by the 1970s and 1980s, with Japanese firms assuming dominant status. Indeed, the Japanese economy as a whole achieved a dominant position in the 1980s, albeit briefly; with Japan’s ‘Lost Decade’ and major corporate bankruptcies, the US regained a position of dominance, although the conditions that underpinned this renewed dominance, such as easy access to cheap capital, also proved transient (Schwartz, 2009), illustrating the dynamic nature of dominance effects.
Dominance, moreover, is felt at sectoral level as well as at the level of business systems as a whole. As the above discussion implies, American MNCs should not be seen as dominant across all sectors. The point that national institutional configurations provide conducive conditions for firms to flourish in some sectors but not in others is central to the ‘varieties of capitalism’ literature (Hall and Soskice, 2001) and also has a long history in economics through the theory of comparative advantage.
The success of US MNCs in sectors like IT and pharmaceuticals, together with the relative decline of American firms in sectors like consumer durables and automotives, confirms this. In short, dominance effects, even of the hegemonic economic power, are likely to be particularly strong in the sectors in which it has a competitive advantage, and weaker or absent in others. Secondly, Kostova and colleagues neglect that MNCs as powerful organizations commonly act as ‘rule-makers’ as well as ‘rule-takers’ (Streeck and Thelen, 2005) vis-a-vis host institutional contexts. Rule-makers’ are actors involved in ‘setting and modifying in conflict and competition, the rules with which [rule-takers] are expected to comply’ (p13). MNCs routinely engage in what Oliver (1991) calls ‘manipulation’ of institutional settings, exerting direct pressures on the sphere of policy-making (e. g. DeVos, 1981, on attempts by US MNCs in Germany to influence reform of codetermination legislation). Sometimes such pressure and rule-making is ‘passive’: in other words, host actors adapt institutional rules to what they see as the preferences of MNCs, without active intervention by the latter.
An example is the move by the Irish authorities in the 1980s away from the previous policy of encouraging incoming MNCs to adopt post-entry closed shop union agreements and to bargain collectively; the change reflected the desire of policy-makers to promote rules they considered attractive to a new wave of largely US direct investors in sectors such as pharmaceuticals, electronics and IT where such provisions were seen as hampering investment (Gunnigle et al. , 2006). Moreover, MNCs may shape institutions in more bottom-up fashion through their distinctive practice (e. g. Djelic and Quack, 2003).
Thus the scope for macro-institutional manoeuvre may exist even in highly-regulated institutional settings such as Germany. MNCs have been able to find space (e. g. Singe and Croucher, 2005; Tempel et al. , 2006) by exploiting weaknesses in formal institutions such as works councils that are quite heterogeneous in their operations (Kotthoff, 1994); and as Streeck and Thelen (2005: 14) argue, there is always ‘a gap between the ideal pattern of a rule and the real pattern of life under it’; thus the rules of codetermination in Germany are characterized by deep ambiguities reflecting the conditions under which they had been drawn up.
MNCs’ power to shape processes and structures through which decisions are made is seen in their ability to engage in what Streeck and Thelen (2005) call institutional ‘layering’ and ‘conversion’, whereby existing structures are bypassed, or subtly changed in function. Singe and Croucher (2005) in their synthesis of research on US firms in Germany suggest these firms adopted a dichotomous approach of formal compliance combined with ‘content avoidance’ towards codetermination institutions, deploying power resources to ‘colonize’ works ouncils and exert ‘high levels of pressure on works councillors to divorce themselves from unions’ (p134). US subsidiaries have moved between bargaining jurisdictions to leverage distinctions in how these operate; in one such firm, the German subsidiary’s deft institutional manoeuvring allowed it to be the first subsidiary in Europe to implement the MNC’s global variable pay model (Tempel et al. , 2006). Even where regulative systems potentially constrain action, regulations need to be invoked and enforced. In Germany or Spain, works-council-style representation has to be triggered by the workforce.
There is thus a terrain of action for management to deploy power to avoid macro-institutional coercive pressures. Managers can use power over resources to raise the costs for the workforce of invoking statutory rights; thus the Spanish subsidiary of a US MNC threatened to offer only minimum statutory redundancy pay if the workforce activated its right to union representation during the redundancy process (Colling et al. , 2006). Therefore, actors are involved in a process of deploying power capabilities more or less creatively on a particular institutional terrain.
MNCs are able to engage in ‘institutional arbitrage’ (Morgan et al. , 2003), manoeuvring between institutional variations within a given host setting, assembling and reassembling institutional elements in a process of ‘bricolage’ to create new variants. In sectors most exposed to global competition, such as finance and business services (Morgan, 2009), or in periods of institutional instability, MNCs may have greater freedom to create innovative institutional arrangements within the dominant host framework, leading to what Thelen (2009) calls the ‘segmentation’ of business systems.
The ability of powerful ‘institutional entrepreneurs’, including MNCs, to shape institutional settings is a key factor in a current strand of comparative institutionalism that questions the monolithic character of national-institutional configurations and emphasizes internal heterogeneity (e. g. Almond, 2011; Crouch et al. , 2009; Lane and Wood, 2009; Saka, 2002). For Crouch (2005; Crouch et al. , 2009) intra-model variety is the norm rather than an anomaly, hence firms may be less bound by national constraints than much theory suggests.
In practice, institutional elements are more ‘loose-coupled’, and the national model less determinant. Heterogeneity has substantial implications for the Kostovian concepts of institutional distance and ‘country’ institutional profile. While multiplicity in institutional settings has been discussed by neoinstitutionalists (e. g. Clemens and Cook, 1999; Delmestri, 2009; Oliver, 1991) and is acknowledged by Kostova et al. (2008: 997), the implications for transfer have not been thoroughly assimilated (cf. Phillips et al. , 2009).
Chief among them is that MNCs’ rule-making capacity within institutional configurations may facilitate the transfer of practices – even to institutionally ‘distant’ hosts. The overall ‘country institutional profile’ may not be the appropriate level of analysis, and more fine-grained examination of local host arrangements may be needed. An alternative instrument, based on constructing the institutional profile of the subnational variant, would seem to offer a conceptual way forward, although practical problems may be foreseen of access to adequate subnational data on institutional arrangements.
Power capabilities of MNC actors Turning now to classify the power capabilities2 of MNC actors in situations of transfer, these capabilities may be derived from the micro-institutional domain of the MNC itself, or from macro-institutional arrangements in the host (and beyond). Crucially, MNCs may use power to shape macro-level institutions, affecting the processes whereby they are established, maintained over time, revised in function or scope, or replaced by other arrangements (e. g. Knight, 1992; Lawrence, 2008; Lawrence and Suddaby, 2006). Agency is not confined to HQ policy-makers.
Actors in the subsidiary have their own sources of power. Where power capabilities of different kinds are disseminated across organizational levels, groups and individuals within a MNC, pressures to adopt transferred practices are susceptible to deflection, avoidance, negotiation or challenge by subordinate actors (cf. Oliver, 1991). In order to predict transfer outcomes, it is therefore necessary to assess the balance of capabilities between the centre and the subsidiary (Dorrenbacher and Geppert, 2009b). However, while there has been much discussion of the decentred or ‘networked’ nature of contemporary MNCs (e. . Andersson and Holm, 2010) an authoritative central HQ remains the norm. As Egelhoff (2010) argues, network structures provide inadequate ‘vertical specialization’, which is required to perform functions such as providing accountability to shareholders and imposing ‘tight-coupled’ coordination on units where careful synchronization of operations is required. Thus, the overall power of HQ positions it as a ‘field dominant’ (e. g. Levy, 2008) in relation to the organizational field constituted by the MNC. The power capabilities of headquarters actors.
HQ actors have specific capabilities relating to each of the dimensions of power. The first aspect of HQ micro-institutional power is control of the allocation among subsidiaries of key organizational resources, such as finance, investment, and knowledge and expertise, through budgeting and management control processes. Decisions over resource allocation have critical impacts on the economic security and survival of subsidiaries. HQ also controls career opportunities and rewards of key subsidiary actors; recalcitrance may jeopardize remuneration or career advancement, particularly where aspirations are international (e. . Dorrenbacher and Geppert, 2009a). However, as discussed below, power resources are unlikely to be monopolized by HQ. Moreover, the ‘big guns’ at HQ’s disposal, such as the threat of closure or investment allocation, may be disproportionate weapons for resolving ‘downstream’ conflicts over the transfer of HR practices; and the threat of closure may be unavailable if an MNC’s investment is ‘market-seeking’ or ‘resource-seeking’, rather than ‘efficiency-seeking’. If a subsidiary is performing well economically, it is less likely to be penalized for not adopting transferred HR practices.
Conversely, poorly-performing subsidiaries are more vulnerable to pressure from HQ to conform (e. g. Tempel et al. , 2006). Thus there is considerable scope for HQ–subsidiary negotiation (cf. Ferner and Edwards, 1995). Turning, second, to power of processes, within the MNC there is a transnational authority structure that legitimates the exercise of power by hierarchically senior actors (units, groups, individuals, etc. ). Formal hierarchical authority shapes the way decisions are made and resources allocated within the firm (cf.
Hardy, 1996). HQ’s role as apex of the authority structure gives it the power to determine mechanisms for transferring practices to subsidiaries abroad. In particular, it can specify which actors at which level are able to intervene in decisions, for example on the introduction of a new global HR policy. Decision-making rules frame how practices are codified into policy and transferred to subsidiaries. Generally, HQ can define formal policies for subsidiaries with a prima facie expectation that subsidiaries comply.
It can impose enforcement and monitoring mechanisms and benchmark practice across subsidiaries, facilitating transfer. Finally, HQ has power over meaning. It can influence cognitive and normative aspects of the micro-institutional frame of action by shaping corporate cultures, codes of practice and standard operating procedures, which then become institutionalized. This ‘third face’ of power helps shape the mindsets of those in subsidiaries whose job it is to implement transferred policy.
Research suggests that formal policies need shared understandings in order to function effectively (Ferner, 2000). HQ actors control the creation of ‘legitimatory rhetorics’ (Suddaby and Greenwood, 2005) concerning, for instance, ‘competitive advantage’, profitability, or site closures (Erkama and Vaara, 2010). This is important where there is ‘causal ambiguity’ about the impact of a transferred practice in the subsidiary (Szulanski, 1996), which may be the case particularly for ‘downstream’ activities such as HR (Boxall and Purcell, 2011).
HQ actors can also shape meaning systems in subsidiaries by, for example, recruiting key host individuals whose mindsets are less typical of host norms and more in tune with organizational norms (Evans and Lorange, 1989); this allows them to bypass barriers to ‘internalization’ and helps create alternative micro-institutional settings within the host institutional context. The power capabilities of subsidiary actors Subsidiary actors have the capacity to challenge transfer and protect host institutional arrangements.
There has been much work in recent years conceptualizing subsidiaries as active strategizers within the wider MNC (e. g. Belanger et al. , 1999; Bouquet and Birkinshaw, 2008; Dorrenbacher and Geppert, 2009b; Dorrenbacher and Gammelgaard, 2011; Kristensen and Zeitlin, 2005; Morgan and Kristensen, 2006), rather than passive transmission belts for HQ policies and practices. The ability to strategize depends on power capabilities stemming from both the micro-level of the MNC and the macro-level of the host institutional environment.
Considering first the micro-political power of subsidiary actors, subsidiaries may achieve power over resources from the competent performance of their productive activities (e. g. Andersson and Forsgren, 1996). For example, they may generate a substantial proportion of the MNC’s profit,3 offer access to key markets, create competitively significant knowledge or expertise, or perform functions that are critical to the success of the firm’s value chain (Dorrenbacher and Gammelgaard, 2011). Possession of resources allows subsidiaries to negotiate to some degree its relationship with HQ.
Power over processes is primarily the province of HQ and the hierarchical authority structure, but not exclusively so. Subsidiaries may use their bargaining power deriving from control of resources to achieve a modification of decision-making processes, with an impact on transfers. For example, in a US engineering firm, HR managers from subsidiaries generating a large proportion of global revenue won a revision of the policy-making process that accorded them a greater role in the definition of global HR policies (Edwards, T. et al. , 2007).
In terms of transfer, the exercise of process power is likely to result in policies that are more sensitive to host institutions, and hence more easily transferable. HQ is also likely to dominate power over meaning, yet subsidiaries again may have some influence at least to contest dominant systems of meaning within the organization. The transfer of practices and their associated meaning systems across institutional spaces makes visible taken-for-granted normative and cognitive frameworks and hence renders them susceptible to purposive action.
One example is the transfer of workforce diversity policies to the UK subsidiaries of US MNCs. Transfer exposed underlying discourses concerning the ‘business case’ and ‘equal employment opportunities’, through the collision of very different diversity rationalities in the US and the UK (Ferner et al. , 2005). Another instance is an attempt by an American business services firm to implement a global performance-related pay scheme for professional consultant staff in the German subsidiary.
These employees strongly opposed the new system which clashed with normative frameworks of fairness and was seen as leading to culturally unacceptable pay differentials (Almond et al. , 2006: 138-9). MNC’s micro-institutions are beset with ambiguities, complexities and inconsistencies, particularly when applied to real choices in a complex business world. These give actors room for idiosyncratic interpretation of norms and rules. Even if subsidiaries do not have the power to shape micro-institutional frameworks of meaning, they can selectively respond to ifferent parts of a complex configuration. In short, rival micro-institutional norms provide alternative rhetorics legitimating – or de-legitimating – particular courses of action (Suddaby and Greenwood, 2005). Within the HR function, whose activities are largely ‘downstream’, one source of ambiguity is that they may be only partially ‘nested’ within ‘upstream’ strategic objectives related to competition, profitability and growth. In other words, they may have ‘relative autonomy’. HR&EP norms may be at odds with upstream norms concerning economic performance, and can be deflected on that basis.
Where transferred HR practices are seen as disrupting existing relationships or practices regarded as functional for subsidiary performance, subsidiary actors may deploy what Suddaby and Greenwood (2005) term ‘ontological rhetorics’ asserting the existential incompatibility of economic goals and transferred HR practices. Even within the HR domain, there may be contradictions within highly complex normative frameworks; for example, between principles of pay determination and approaches to union recognition.
Thus UK subsidiary managers in one US MNC resisted a global pay freeze on the grounds that it conflicted with a competing corporate norm of favouring non-union employee relations (Almond and Ferner, 2006). In short, subsidiary actors can exploit rival appeals to legitimacy within the MNC, and are likely to do so when they oppose transfer. Turning to macro-institutional resources, subsidiary actors derive power capabilities from their status as skilled negotiators of the host institutional context, both of the overarching national-institutional framework, and the subnational niches and variants in which they are located.
Where the subsidiary operates essentially as the willing local agent of the wider MNC, these powers may be used to promote transfer. However, where conflicts of interest exist between subsidiary and HQ, the same capacities may be used to block or amend transferred practices. First, subsidiaries derive power resources from the ‘institutional complementarities’ (Hall and Soskice, 2001) of the host business system that generate certain competitive advantages.
Given the increasing importance of intra-model variants, subsidiaries’ local embeddedness is often crucial for the generation of resources such as scarce knowledge and expertise of value to the economic activity of the MNC, and that the MNC cannot otherwise access (Andersson and Forsgren, 1996; Dorrenbacher, and Gammelgaard, 2010; Sorge and Rothe, 2011). Almond (2011) points to the significance of locally embedded ‘flexible high-skills ecosystems’ that drive innovation and provide actors with power resources for shaping practice transfer.
Second, the regulatory framework of the host gives subsidiary actors some purchase over the ‘power of process’ by exerting coercive isomorphic pressures, for example in employment relations and the workings of the labour market. Thus German codetermination legislation gives employees rights to representation on company supervisory boards, and to set up works councils with statutory rights over a range of work-related issues. Changes to payment systems resulting from transferred pay and performance practices are subject to codetermination.
Even where the MNC deploys resources to mitigate this loss of process control (see above), it nonetheless increases the costs for MNCs of shaping decisions, and necessitates some degree of negotiation with local actors and/or the application of power resources. Thus the power of process provides subsidiary actors with a capability to resist practice transfer. Third, subsidiary actors are able to exploit host institutional settings to challenge dominant actors’ power of meaning in the MNC.
In particular, significant macro-institutional capabilities derive from subsidiary actors’ competence as skilled interpreters of the host institutional frame. In other words, they can shape the normative and cognitive understandings of what is possible, desirable and contextually rational. Even the most highly regulated and juridified systems leave spaces for interpretation based on expert institutional knowledge. More subtle and tacit cognitive and normative elements of institutional frameworks are even more subject to insider exegesis.
While subsidiary actors may use such institutional expertise to further transfer, in situations of interest conflict with HQ, they may equally draw on such capabilities to construct a rhetoric legitimating opposition to transfer. Naturally, subsidiary actors’ interpretations of the viability of transfer are liable to challenge and counter-interpretation, notably by expatriate managers, and sceptical HQ actors may demand that local managers’ claims be thoroughly tested. This may especially be the case where dominance effects are present, notably in US MNCs which may have a strong presumption of the efficacy of HQ practices (e. . Almond et al. , 2006; Tempel et al. , 2006). Again, therefore, the host institutional context provides a ‘contested terrain’ (cf. Edwards and Belanger, 2009; also Geppert and Dorrenbacher, 2011), in which interest groups at different levels within the MNC struggle to further their agendas. A final point concerning the power capabilities of subsidiary actors is that their ‘issue-scope’ of power (Lukes, 2005: 74-5) – the range of issues over which an actor can determine outcomes – is likely to be limited because of the overall power of HQ.
As a result subsidiaries are likely to have to prioritize the issues over which they expend capabilities that are scarce relative to those of HQ actors. Moreover, their power is likely (again using Lukes’ terminology) to have a lower ‘contextual range’, to be largely restricted to the specific institutional setting in which they operate; whereas that of HQ is likely to be more ‘context-transcending’, deployable under a wider range of circumstances, especially where dominance effects come into play.
A possible exception to this is where the subsidiary is located in a host that is more ‘dominant’ in the global economy than is the MNC’s country of origin. This may provide greater context-transcending capacity to the subsidiary, leading for example to additional possible transfer outcomes such as ‘reverse diffusion’ (Edwards and Ferner, 2004) in which practices are transferred from subsidiary to HQ. These arguments are summarized in Table 1. [Table 1 about here] MNC actors and interests in the context of HR&EP transfer
We are now in a position to examine HQ and subsidiary interests in relation to transfer. Together with the power capacities of HQ and subsidiary explored above, the constellation of interests will determine the ‘stance’ of subsidiary actors towards transferred practices. Who are the relevant MNC actors in situations of institutional duality and transfer? A first approximation is to divide actors into those associated with the headquarters perspective and those in the subsidiary.
In reality, finer-grained distinctions may become necessary to include for example actors at regional or business-unit headquarters with interests and power capabilities distinguishable both from those of corporate headquarters and national subsidiaries. Moreover, HQ is not a homogeneous block but comprises different groupings (e. g. by management function and level) with potentially different interests in relation to transfer. At subsidiary level, a core distinction is between managers and workforce (Edwards and Belanger, 2009).
There may be both common and divergent interests. Managers and workforce may both have an interest in the site’s survival, for example. In contrast, particularly where the impact of a transferred practice on the site’s performance is ambiguous or contested, interests may diverge. Depending on the practice, further disaggregation may be appropriate; for example, subsidiary operations managers may see the transfer of practices such as teamworking as useful for efficiency while HR managers may oppose transfer on the grounds that they disrupt existing accommodation with employees.
An important distinction is between managers whose career ambit lies within the host country and those whose careers trajectories and aspirations are international in scope (Dorrenbacher and Geppert, 2009a; Morgan and Kristensen, 2006). The former may engage in ‘subversive strategizing’ (Kristensen and Zeitlin, 2005), acting counter to HQ norms and prescriptions in order to strengthen the effectiveness of the subsidiary; while the latter may have less stake in the site’s survival, and see it as in their career interest to overcome local obstacles to transfer.
Nor is the subsidiary workforce necessarily homogeneous. There may be differences of interest between high-skilled workers with core competences and lower-skilled workers with more generic competences, and transferred practices may differentially impact on such interests. Whether subsidiary actors deploy capabilities to resist or promote transfer will depend on how the practices affect existing interests. Resistance or contestation is likely to emerge under conditions of ‘criticality’, that is where the issue is seen as critical to the interests of actors in the subsidiary.
For example, resistance may be expected where a transferred practice embodies institutional norms or requirements that disrupt accommodations seen as vital to the effective conduct of the economic function of the subsidiary, and hence to the economic security, rewards and career interests of groups and individual actors in the subsidiary. Where a transferred practice disrupts workforce interests but not those of managers (or vice versa), there is likely to be an ‘internalization’ of the clash of rationalities within the host.
In the area of HR&EP, it is more likely that interests in the subsidiary will be differentiated, with say employees and their representatives resisting transfer, while managers promote it. This may be manifested in management–workforce conflict, or as Tempel et al. (2006) suggest, subsidiary managers may function as a ‘Trojan horse’ for imported practices such as global performance management systems, working to neutralize institutional obstacles. Transferred practices may selectively disrupt interests of particular management groups, or particular workforce groups, or both.
In such cases coalitions of support for and opposition to transfer may be complex and cut across the management–workforce divide. However, where transfer disrupts a wide range of subsidiary interests, a subsidiary-wide oppositional coalition may emerge. Power, institutions and transfer outcomes These arguments are now synthesized into a model of transfer outcomes, in which constellations of institutional distance, macro- and micro-level power capabilities, and actors’ interests determine the fate of transferred practices.
We argue, first, that there is a need to revise the Kostovian idea (e. g. Kostova, 1999) that MNCs operate between fairly fixed institutional entities, as implied by the notion of ‘institutional distance’. The impact of ID upon transfer is modified by the power of MNCs in two ways. In the first place, dominance effects, where they exist, smooth transfer by providing MNCs with abundant power over resources, power of process over the rules of the game, and power to manage meaning by reducing normative opposition to dominant-country practices in the host.
In the second place, the power of MNCs as active rule-makers, engaging in ‘institutional work’ to construct institutional variants or niches within the host setting, mitigates the constraining impact of institutional distance. In order to incorporate these considerations, we therefore propose that Kostova’s notion of institutional distance, which we refer to as ‘raw’ ID, be replaced by the concept of modified ID, (mID). Here, the predictions of our framework are significantly different from those of Kostova’s.
Second, transfer outcomes depend on the specific configuration of power capabilities and interests of actors at different levels of the MNC. Where interests of subsidiary and HQ actors are broadly concordant, the power capabilities of the subsidiary are likely to be deployed in a manner supportive of transfer, for example by removing or circumventing host institutional obstacles to transfer. However, where there are strong interests within the subsidiary in conflict with those of HQ, the outcome is likely to be an oppositional stance.
This does not necessarily entail overt resistance (cf. Oliver, 1991). Power capabilities may be deployed to resist, modify, neutralize, or ‘quarantine’ the transferred practice through ritual observance that does not affect real practice. Which of these oppositional outcomes occurs is likely to depend on the homogeneity of interests within the subsidiary, and the power capabilities of the subsidiary (or at least of oppositional actors) relative to those of HQ.
An outcome of ceremonial compliance in which nonconformity is masked by a ‘facade of acquiescence’ (Oliver, 1991: 154) is likely where opposition is high due to a collision of normative/cognitive frameworks (e. g. concerning what will promote unit profitability in the subsidiary), but where subsidiary actors’ control of resources and/or processes is relatively low, precluding overt resistance. Alternatively, opposition may lead to adaptation or ‘hybridization’ (e. g. Becker-Ritterspach, 2009; Szulanski and Jensen, 2006) in which the practice acquires elements characteristic of the host setting.
In some cases, this may make a practice more effective within the host, or allow it to be internalized by subsidiary employees. Survey evidence suggests that it is common for MNCs to disseminate practices by means of broad framework policies, with local adaptation being expected in HR&EP areas such as performance management, variable pay, and employee involvement (Edwards, P. et al. , 2007). This may be termed ‘functional hybridization’. In other cases hybridization may divert a practice from its normal function and hence subvert HQ’s intention.
For example, a supposedly standardized employee performance appraisal system in a US MNC operated with major variations in practice: thus in the German subsidiary the works council was able to reject individual assessment, minimize quantification, and reduce the scheme to occasional informal, unrecorded evaluations (Liberman and Torbiorn, 2000). Such ‘resistive hybridization’ is likely where transfer disrupts internal accommodations and/or is seen as dysfunctional for subsidiary performance, and where subsidiary actors have sufficient power capabilities, such as interpretive control of local meaning frames.
Third, the three ‘dimensions’ of power are likely to affect transfer outcomes in different ways, other things being equal. Where a subsidiary has significant power of resources, this is likely to facilitate a bargaining process in which the terms of entry of a transferred practice are negotiated between subsidiary and HQ. Where a subsidiary has significant power of process, it may use it to influence how global policies or practices are designed within the MNC, for example by contributing to central policy-making bodies.
This provides it with the opportunity to ensure that the transferred practice is from the start compatible with the cognitive/normative (or indeed regulatory) frames of the host. Finally, a subsidiary may be skilled in the management of meaning, whether in highlighting – or concealing – normative/cognitive discrepancies provoked by the transfer of a practice, or by mobilizing appropriate legitimatory discourses within the micro-institutional sphere of the MNC. This power may affect transfer outcomes in different ways.
Where the subsidiary’s stance is oppositional, it may evoke host macro-institutional impediments, drawing on its skilled interpretation of ‘institutions-in-practice’. Equally, where its other power capabilities are relatively weak, it may use its skills in managing meaning to construct the ‘ceremonial’ aspects of the practice without impinging on the subsidiary’s core activity. Where the subsidiary’s stance is supportive of transfer, the power of meaning may be brought to bear to secure the ‘internalization’ (Kostova, 1999) of transferred practices.
Returning to the outcome parameters outlined in the introduction, we can synthesize the above arguments (see table 2) in terms of typical scenarios, based on differentiation of functionality, internalization, adaptation and directionality. The table indicates that the conditions most conducive for successful transfer in which functional practices are internalized are where: HQ actively wants to transfer practices, ID is low, dominance effects are high, institutional space is high, HQ’s power capabilities are relatively strong, HQ and subsidiary interests are concordant and the interests of subsidiary actors are homogeneous (model 1).
To take a stylized example, a US business services firm – i. e. an MNC from the hegemonic business system, in a sector in which that business system is internationally dominant – transfers a performance appraisal system to its professional employees in its non-unionized Irish subsidiary as part of the global dissemination of standardized HR policies. Many of the employees have worked for American firms before – US MNCs predominate among foreign employers in Ireland – and have studied or worked in the US.
Their cognitive/normative frames are attuned to American performance-management systems, especially since there is a strong values-based corporate culture, and there are unlikely to be discordant interests with regards to the policy, so the practice is likely to be easily ‘internalized’. There are few macro-institutional constraints to the introduction of such policies and few variant constraints stemming e. g. from the presence of trade unions. This can be contrasted with five other scenarios.
As ID increases and capabilities, particularly resources, controlled by the subsidiary grow, the prospect of transfer taking the form of functional hybridization increases (model 2). To illustrate, a US electronics MNC attempts to transfer a performance-related pay system to the more constrained and institutionally distant context of Germany. 4 There is a perceived disjunction between the policy and cognitive/normative frames of employees, i. e. the cross-institutional transfer reveals the cognitive/normative underpinnings of the system.
The subsidiary is large, successful and powerful, giving it power over resources with which to negotiate with HQ a modification of the practice – for example, by reducing the amount of pay at risk, to make it more acceptable within the host context (e. g. Tempel et al. , 2006). Where dominance effects weaken, institutional space is more constrained, the subsidiary possesses significant power of resources and process relative to HQ, and has divergent interests from HQ, then the likelihood of resistive hybridization and low internalization rises (model 3).
For example, Lindholm et al. (1999) show how performance appraisal systems in Nordic MNCs in China were subverted because the systems provoked extensive clashes with cognitive/normative frames, e. g. with regards to the priority given to performance rather than seniority, and issues around loss of face and around managerial authority in setting targets. If dominance effects are absent, ID is high, and subsidiary interests clash with HQ’s, transfer may fail altogether (model 4).
To illustrate, a British MNC seeks to internationalize a policy of outsourcing support functions to reduce labour costs. It pressurizes foreign subsidiaries where the ratio of outsourced workers to internal employees is significantly lower than in UK domestic operations. This is the case in the German subsidiary, one of the largest in the company and with important production facilities for key products.
Subsidiary managers are sceptical as to the efficiency of outsourcing and the HR manager uses his detailed knowledge of German employment law to circumvent the need to outsource functions (e. g. Tempel, 2002). Where institutional space is moderate, the subsidiary is not particularly powerful (in resource or process terms) in relation to HQ, and has quite different interests to actors at HQ, the prospects for ceremonial adoption are at their highest (model 5). To take a stylized example, a British MNC attempts to internationalize its comprehensive diversity management practices.
In its medium-sized production facilities in Germany, there is considerable scepticism among managers and primarily male employees as to the business case for diversity management. Lacking power of resources or process to openly block HQ practices, managers go through the motions of introducing diversity management measures, for example by organizing social events under the label of diversity management, but do not implement real changes in recruitment processes to encourage more female applicants or introduce diversity awareness training for employees.
Finally, where interests are concordant and where the subsidiary’s power capabilities are considerable – especially when its institutional embeddedness allows it to develop scarce resources of value to the wider MNC – conditions exist for ‘reverse transfer’ (model 6). That is to say, practices operating in the subsidiary are transferred to headquarters (Edwards and Ferner, 2004). These conditions are heightened in situations of ‘reverse dominance’, that is where the subsidiary’s host system is more dominant than the MNC’s parent system.
For example, a German chemical company developed a global system of bonus pay for executives that was modelled closely on schemes already developed in the US subsidiary of the company (Ferner and Varul, 2000). These models are not, of course, exhaustive: other outcomes are possible; and the same transfer outcome may be obtained through different combinations of variables. But they illustrate the heuristic value of the approach. It should be noted that a certain degree of interaction of explanatory variables is likely.
For example, MNCs from dominant parent countries are likely to be able to influence subnational variety because of their greater capacity for rule-making rather than mere rule-taking behaviour. [Table 2 about here] Conclusion This paper has argued for a revision of the Kostovian approach to practice transfer in MNCs in two key respects: systematically incorporating actors’ power capabilities, and taking account of how power ‘problematizes’ ID by rendering it more susceptible to the purposive action of MNC actors.
We have argued for an analysis of power that incorporates both macro-institutional and micro-institutional capabilities of MNC actors in which these are able to a greater or lesser extent to manipulate and construct elements of the institutional settings in which they operate. The implications of the argument are methodological as well as conceptual. First, there is a need to develop credible measures of the variables in the model. The concept of mID implies the need to assess dominance effects, for example, and these will vary according to the pairs of parent and host business systems in play; dominance may also vary e. . by sector. Much work needs to be done on measuring notions such as institutional space, and to map the dimensions that characterize institutional variants. This has to be accomplished at a disaggregated level: notions of ‘country institutional profile’ may be too crude where MNCs’ power allows them to construct niche institutional ‘micro-climates’. One of the most difficult tasks is to operationalize actors’ power capabilities and to empirically assess different levels of capabilities in relation to resource, process and meaning.
Moreover, empirical tools capable of identifying and distinguishing interests are needed, a task complicated by the fact that while some underlying interests may be long-term and durable – for example, around organizational survival – others may well be issue-specific, constructed anew around each instance of transfer. These points suggest a critical role for in-depth case studies. They allow deeper exploration both of the process of transfer and of how transferred practices are implemented in the routine life of the subsidiary.
They are more suited than surveys to developing nuanced operationalizations and unpicking the complexities of power, how different kinds of power capabilities are deployed by different actors in the transfer process, and how configurations of interests are constructed around different transfer cases. They are more appropriate for exploring in depth the way transferred practices operate in reality. Finally, there is the question of the generalizability of these arguments to other areas of management activity.
Inasmuch as transfer provokes challenges to existing modes of action and to institutional frameworks, much of the same processes of power are likely to be observed in other areas. The cross-national transfer of technical know-how, for example, exposes underlying cognitive assumptions about how the production of knowledge and development of products should be organized (e. g. Lam, 1997; Szulanski and Jensen, 2006). It is also likely to create conflicts of interest over control of knowledge as a resource, or concerns about the impact of transferred knowledge on the structuring of activities and actors’ roles in the recipient unit.
Beyond that, however, HR&EP may have distinctive characteristics, relating partly to the structured antagonisms between capital and labour (Edwards, 1986). More immediately, as a ‘downstream’ business activity, HR&EP is particularly prone to the normative principles that may be at odds with the prescriptions of upstream strategy, increasing the space for actors to exploit micro-institutional ambiguities between, for instance, directives on growth, profitability or efficiency on the one hand, and principles of employee management on the other. Funding statement
This research was supported by funding from the Economic & Social Research Council, grant numbers R000-23-8350 and RES-000-230305. Notes [? ] According to Scopus, the number of citations for three of Kostova’s articles concerning transfer (as at 15th September 2011) are as follows: Kostova, 1999: 321; Kostova and Zaheer, 1999: 329; Kostova and Roth, 2002: 281. 2 The term ‘capabilities’ is preferred to ‘resources’ since power over resources constitutes only one dimension of power (one that is the focus of resource-based views of power that predominate in the business literature). Perceptions of profitability in an MNC can be shaped