There are three main theories that exist with regards to HR practice transfers in MNCs (1) MNCs will follow their common practices despite the country they are in due to global homogeneity or ethnocentricity, (2) that they will adjust their policies to the local country (local isomorphism), or as duality theories suggest, the MNC faces conflicting pressures and therefore (3) mix their own practices with that of local practices (Brewster, Wood & Brookes 2008, p. 320) which follows more closely to the contingency model, or model of ‘best fit’ (Khan 2011, p.78). Research suggests that MNCs that incorporate some local responsiveness tend to have more success (Caligiuri & Stroh 1995, p. 494). Often, there are many issues that result in the attempt to transfer a HR practice from headquarters to subsidiary branches (Kostova 1999, p. 308). These issues can be categorized as being either intrinsic (ie. structure of the company) or extrinsic (ie. country, culture, legal framework) to the firm (Gamble 2003, p. 370). However, as stated by Ahvik and Björkman (2015, p. 497), “the ability to transfer organizational practices across multiple locations is a potential source of competitive advantages for multinational corporations (MNCs),” further reiterating the importance of understanding what factors affect HR practice transfers from headquarters to subsidiaries, and to understand the multiple institutional contexts that play a role in the factors that affect HR practice transfers. As stated by Chung, Bozkurt and Sparrow (2012, p. 2333), “the organizational domain of MNCs is characterized by the contestation between actors with competing rationalities from multiple institutional contexts such as transnational, home and host national institutions.” In order to expand on these institutional factors and to expand on central debates in the international management literature, convergence vs. divergence theory and home country vs. host-country effect will be discussed next.
Convergence vs. Divergence
Scholars in IHRM literature have long debated whether convergence or divergence will prevail through the forces of globalization (check for plag) (Paik, Hau-Siu Chow & Vance 2011, p. 648). The convergence approach argues that ‘best practices’ do in fact exist and can be applied universally while being valid and applicable, despite institutional culture or national culture (Pudelko & Harzing 2007, p.536). Convergence theory supports the universal application of MNC practices due to the notion of globalization and the argued diminishing differences between organizations (McGaughey & De Cieri 1999, p.236). Furthermore, convergence theory assumes that managers across the world hold similar attitudes and behaviours despite cultural differences that exist (Khilji 2002, p. 233). The problem with the idea of ‘best practices’ is it is not easily defined and often fails to take into account these cultural differences (Glinow, Drost & Teagarden 2002, p.124), which leads way to the argument for the divergence approach.
The theory of divergence argues the opposite and contends that due to different national management methods, cultural and institutional factors, it is difficult for there to be cross-national learning of ‘best practices’ (Pudelko & Harzing 2007, p.537) and that due to these different factors, management practices tend to differ as a result (Khan 2011, p. 78). Furthermore, divergence theory supporters argue that the degree to which practices can be applied globally is contingent upon a variety of factors including specific contextual factors present in a certain industry and country (Paik, Hau-Sui Chow & Vance 2011, p. 648). The debates between convergence vs. divergence is also related to whether or not a MNC chooses to adapt to the subsidiary environment and localize practices, or if they instead choose to take a standardization approach and apply the ‘best practices’ to all locations (Björkman, Fey & Jeong Park 2007, p.431). Looking critically, it can be argued that whether a MNC chooses to localize or standardize their practices can be influenced by the approach the MNC takes, as well as by home country vs. host-country effects.
Home County vs. Host-Country Effect
Home country and host-country effects are both country of origin effects which simply refers to how the behaviour of MNCs are influenced by and related to their country of origin, characteristics of national business systems, the economy, training and education, as well as culture (Almond et al. 2005, p. 279). The debate between home country vs. host-country effect occurs when discussing the extent to which these effects are influential within globalizing MNCs (Almond et al. 2005, p. 280). Research has suggested that the home country of a MNC is influential on employment practices, and that Western companies operating in Asian countries tend to have HR systems that are more systematic, rationalized and professionalized in comparison to Asian companies (Bae, Chen & Lawler 1998, p.657). Often, MNCs will attempt to apply practices, governance structures and control mechanisms that have been embedded in their country though institutional, social, contextual and environmental factors to subsidiaries (Reiche 2008, p.680)
Opposite to home country effects, host-country effects can be understood as, “the use of host-country-type practices by foreign companies when there are significant practice differences between home and host country” (Kluike 2015, p.2211), which implies that host countries will use local practices when home country practices differ to much from their own. Besides differences in practices of the home country of the MNC, MNCs may be particularly inclined to adapt to local practices due to local regulation or economic pressures (Reiche 2008, p. 681). These varying conditions of the host-country often present specific challenges to MNCs and therefore require MNCs to take an adapted approach to HR practices due to incompatibility issues or local issues (Stepién 2009, p. 58).
Stepién’s (2009) model demonstrates how host market institutions and home market institutions interact and influence organizational practices in MNCs. The characteristics of home market and host market institutions influence how and to what degree HR practices are transferred to subsidiaries. A discussion of Stepién’s (2009) model in relation to the case of William Grant & Sons’ Ltd. will be elaborated upon in the Discussion portion of this thesis.
(Stepién 2009, p. 61)
As demonstrated, there are often many challenges with regards to HR practice transfers, and situations in which these transfers do not occur due to local pressures. To explore other challenges related to the transfer of HR practices, headquarter centric perspective and the concept of recontextualization will be discussed.
3.2 Headquarter Centric Perspective and Recontexualization
There is often the perception that organizations, or in MNCs as this thesis is concerned, have one distinct corporate culture, and that the information within the organization and information travelling from headquarters to subsidiaries is understood in the same way by all employees. This is the idea behind a headquarters centric perspective where there is the belief that MNCs share one corporate culture with their subsidiaries (Søderberg 2015, p. 231). This belief follows the idea of values-based leadership, which often takes a top down approach, meaning that information is transferred from top-level management down to lower level employees without consideration for other types of communication (Søderberg 2015, p. 232). Although this seems like a straightforward approach, it does have a number of disadvantages including the fact that information can get misinterpreted and miscommunicated, especially if it is done in a cross-cultural context (Søderberg 2015, p. 232).
In my discussions with Gary Brewer, and in my time at William Grant & Sons Ltd., it became abundantly evident how much effort and emphasis was placed on the company culture. William Grant & Sons Ltd. has a company culture that emphasizes high performance and demands excellence. William Grant & Sons Ltd. also emphasizes the importance of hiring the right people, and look for what they refer to as a “rare” character. William Grant & Sons Ltd. takes pride in being a family-owned company, and that pride is reflected in the fact that the company’s six values were made in partnership with the family. These six values include: Be Proud, Be Responsible, Be Professional, Be Entrepreneurial, Think Long Term, and Be Sustainable. It is the goal of the company for these values to be lived by all employees, and explains why the company focuses a great deal on employee engagement. These six values are also tied to the company’s areas of competitive advantage, which they have identified as: Excellence in Distilling, First Choice Partners, Freedom to Win, and Passion for Nurturing Brands (Company Documents, received during Manager’s Shadow Project). These values and areas of competitive advantage are important to note in relation to this thesis, as they relate to the sub question: What role does company culture and values play in HR practice transfers?
As discussed, headquarter centric perspective is primarily concerned with the idea that one distinct corporate culture exists. However, it does go beyond this and often also ignores the capabilities and resources that subsidiaries have to offer (Sartor, Orzes, Nassimbeni, Jia & Lamming 2015, p.1127). In order to move away from headquarter centric perspective the concept of recontextualization must first be understood.
The concept of recontexualization describes and explores how different agents create and understand certain discursive resources within social contexts (Thomas 2003, p. 776). Although recontextualization is often used in linguistic and discourse research, as well as in studies of semiotics (Peltokorpi & Vaara 2012, p. 810) it is also a concept that is important to both organization and management studies (Thomas 2003, p. 783; Peltokorpi & Vaara 2012, p. 810). Furthermore, recontextualization is a theoretical concept that explains how messages can be misinterpreted from headquarters to subsidiaries, and specifically, it “offers a useful framework for understanding how corporate values and preferred behaviours in a MNC take on other meanings in new institutional and cultural environments” (Søderberg 2015, p. 232).
Moreover, recontextualization refers to how people, such as those working at subsidiaries internationally, have a shift in the understanding of values and interpret these values differently to how these values were formulated and designed to be interpreted in the first place by people such as those at the headquarters of a MNC (Søderberg 2015, p. 232; Gertsen & Zølner 2012, p. 105). The only way in which a subsidiary can fully understand these values is to have a thorough knowledge of prevalent systems (Gertsen & Zølner 2012, p. 105). Misinterpretation of these values is usually a result of different sociocultural contexts (Søderberg 2015, p. 232) and without this understanding, different meanings can be attached, often resulting in failure to find commonalities among meanings (Gertsen & Zølner 2012, p. 105). As discussed by Brannen (2004, p. 603), recontexualization enables us to track these shifts in meanings from headquarters to subsidiary (or from one culture to another).
Understanding recontextualization and taking a departure from a headquarters centric perspective, managers can form a strategic concept in partnership/negotiation with other offices and subsidiaries using their cultural experiences and strategies (Søderberg 2015, p. 232). This not only allows for managers to get a greater understanding of how information from management can be transferred from headquarters to subsidiaries in a sociocultural context, but also how meanings are attached to values and behaviours when they travel from headquarters to subsidiaries (Søderberg 2015, p. 243). To summarize, the concept of recontextualization explains how information can be miscommunicated and reiterates the importance of headquarters working in partnership with subsidiaries. However, in order to understand how meanings are formed during communication and in interactions, the concept of sense making will be explored.
3.3 Sense Making
Linked to recontextualization is the concept of sense making. Sense making describes the process of organizational situations becoming narrated, framed, or categorized through both verbal and non-verbal communication, context, and perceptions (Holt & Cornelissen 2014, p. 525). Often, sense making is retrospective in nature in order to make sense of an event or situation (Weick, Sutcliffe & Obstfeld 2005, p. 409). During this process, structuring is used for learning purposes and to break down situations into smaller, less detailed conceptual structures using environmental cues in order to guide senses, inferences and behaviour, and to make sense of their environment (Holt & Cornelissen 2014, p. 525-526). Furthermore, sense making is considered to be an extremely influential perspective in management and in the study of organizational structures due to its focus on how people construct their ‘realities’ (Brown, Colville, & Pye 2015, p. 265-266), with communication being central in the process (Weick, Sutcliffe & Obstfeld 2005, p.413). Sense making is used in various situations such as processing change, learning, and in the formation of organizational culture (Brown et al. 2015, p. 267). Finally, as stated by Weber, Thomas and Stephens (2015, p. 70), “sense making is a process that embodies both individual framing and interaction with others through social networks.”
Although sense making is important in how employees construct their ‘realities’, it is also related to how employees perceive and accept HR practices. The less that employees accept or are satisfied with HR practices, the more difficult employee outcomes are to achieve (Stirpe, Trullen & Bonache 2013, p. 3794). Therefore, it is important to examine the context in which HR practices are implemented, as employees look for environmental cues when anticipating change as well as when they make sense of the event and shape their responses accordingly (Stirpe, Trullen & Bonache 2013, p. 3796). If the sense making process is not efficiently managed, outcomes that are unexpected or problematic to the organization could result (Greenberg 1995, p. 184).
Sense making also plays an important role in subsidiary integration in a MNC, as social actors perceive and make interpretations of the conduct of other social actors in the organization, ultimately impacting their understanding of the subsidiary, and the degree of integration that occurs (Clark & Geppert 2010, p 399). As Clark and Geppert (2010, p. 398) state, “subsidiary integration therefore involves (re)building institutions through processes of acquisition, implementation, and internalization that legitimize organizational practices.” Without proper subsidiary integration, HR practice transfers from headquarters to subsidiaries can be difficult to implement. One of the ways in which MNCs can support subsidiary integration is through the use of social capital.
3.4 Social Capital Theory
Social capital theory has emerged as one of the strongest theories from the social networking perspective paradigm (Kaše, Paauwe & Zupan 2009, p.617). Although many different definitions of social capital exist (see Sen & Cowley 2013; Portes 2000) social capital can be defined as, “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet & Ghoshal 1998, p. 243). Building social capital is paramount to the success of MNCs as it increases the creation and sharing of knowledge across firms (Yamao, De Cieri, & Hutchings 2009, p. 532), and it allows for more effective communication, coordination, and cooperation between headquarters and subsidiaries despite their geographic location or cultural context (Taylor 2007, p. 337). Furthermore, as stated by Gomez and Sanchez (2005, p. 2190), ”from a globalization standpoint, social capital serves as an informal mechanism that allows MNCs to deal with the globalization-localization dilemma.” Not only can HR practices help in the formation of social capital, but they can also act as a precursor to social capital in the sense that social capital can be built by fostering employee relations and knowledge sharing and from learning from actors outside of the firm (Yamao, De Cieri, Hutchings 2009, pp. 533-534). Increasing and fostering social capital will only aid in the sense making process and allow for information and HR practices to be communicated and implemented more effectively.
The three dimensions of social capital, structural, relational, and cognitive (Nahapiet & Ghosbal 1998, p.244; Taylor 2007, p.338), are integral to trust and a shared vision influencing resource exchange among MNC business units (Tsai and Ghoshal 1998 as cited in Björkman and Lervik 2007, p. 326). It has been found that subsidiaries with a higher amount of trust in headquarters can identify with the parent organization more closely (Björkman & Lervik 2007, p. 326), and that a higher amount of trust tends to make the transfer of organizational practices more successful (Kostova & Roth 2002). Moreover, a high amount of social capital fosters knowledge integration (Xiang, Lu & Gupta 2013, p. 1027).
The structural dimension of social capital theory concerns the properties of the system (i.e. organization), the position of the network, and the network of relations as a whole. The relational dimension focuses on the relations between people, trust and how these relations influence behaviour. Finally, the cognitive dimension refers to shared resources regarding interpretations and systems of meaning, and facilitates common understanding (Nahapiet & Ghosbal 2008, p. 244; Matthews & Marzec 2012, p. 7082).
In their discussion on the integration, implementation and internalization of HR practices in MNCs, Ahlvik and Björkman (2015) focus on both structural and relational social capital in their study. This thesis also focuses on relational and structural social capital and uses the definitions provided by Ahlvik and Björkman (2015). Ahlvik and Björkman (2015, p. 499) define structural capital as, “the interaction ties between key actors responsible for HRM at the headquarters and the subsidiary,” and relational social capital as, “the personal relationships, friendships, and relations of mutual respect individuals have developed through a history of interactions” (Ahlvik & Björkman 2015, p. 2015). In this thesis, structural and relational social capital was examined through the interviews by looking at subsidiary autonomy, trust, and interaction ties. These factors can were taken from the model used in the framework of Björkman & Lervik (2007, p.324). Unlike Ahlvik and Björkman (2015) this thesis touches on cognitive social capital, both with regards to the discussion of recontextualization, and how shared resources regarding interpretations and systems of meaning are important in avoiding misinterpretations. The extent to which subsidiaries and MNCs headquarters share language, vocabulary and narratives is also examined. A common language and vocabulary facilitates better communication, a higher degree of information sharing, and the transfer of knowledge between headquarters and subsidiaries (Björkman & Lervik 2007). The next portion of this thesis will discuss cultural differences and the role they play in the transfer of HR practices.
3.5 Cultural Differences Theory
The role culture in the transfer of HR practices is well documented. For example, in a study by Berman, Sabharwal, et al. (2013), the researchers specifically examined the role that societal culture plays in affecting bureaucratic processes, and in organizational practices relating to performance in South Korea, Mainland China, Taiwan, Malaysia, India, and the United States. Because this thesis is concerned with factors that affect HR practice transfers from headquarters to foreign subsidiaries, an examination of cultural differences and theory surrounding these differences is relevant.
One of the most well known researchers in the area of cultural differences is Hofstede. Not only does he discuss the relationship between culture and organizations (Hofstede, 1980), but he also discusses the differences between national cultures themselves. In terms of the relationship between culture and organizations, Hofstede (1980, pp. 22-29) argues that culture affects the operations of an organization in a multitude of ways including the distribution of power, the setting of organizational goals and objectives, in decision-making processes, in the shaping of organizational structure, and in reward systems.
In terms of difference between national cultures, Hofstede (1983) compares nations according to four dimensions: power distance, uncertainty-avoidance, individualism-collectivism, and masculinity-femininity. Based on Hofstede’s (1983) research and analysis, Asian countries are typically classified as being collectivist in nature, having a higher power distance (i.e. being more hierarchical), and being more ‘feminine’ in comparison to the United Kingdom. Although Hofstede’s model is a useful tool in discussing the general tendencies of national cultures, it does need to be viewed critically as it is a dated model that makes very large generalizations that are based in a western perspective. For example, in discussing Korean culture, Hofstede (1983) has described Korea as being one of the most collectivist cultures in the world (Cho and Yoon 2015, p.70). However, Japanese researchers have been quick to critique this conclusion, suggesting that the Japanese culture is far more collectivist in nature (Cho and Yoon 2015, p. 71). Furthermore, in my discussions with Gary Brewer, he also commented that there are large generalizations made about Asian culture, and that Asian countries often get discussed as having one distinct culture when in fact, Asian countries have significant cultural differences between them. This is an important point to consider when discussing the South Korean and Chinese branches of William Grant & Sons Ltd.
To reiterate, it is important to be critical of Hofstede’s model as it is a rather dated model in looking at differences between cultures. However, it is just as important to be aware of the term “globalization.” Globalization makes the argument that the world is becoming increasingly nationless and borderless (Brewster, Wood, & Brookes 2008, p.321), and thus, has some academics arguing that the world is “flat” (Feiock, Moon, & Park 2008, p. 24) meaning that differences between countries and cultures are becoming less important and that standardization is possible (Kustin 2010, p.100). This is an important argument to be aware of in the context of this thesis, as cultural differences between the UK and two Asian branches could be a potential factor that affects the transfer of HR practices. Echoing the statement posed by Easterby-Smith, Malina, and Yuan (1995, p. 33), “the increasing internationalization, and globalization of business makes it more pressing than ever to understand how to establish HRM procedures which can deal with considerable cultural and national differences. Underlying all of this is the question about which elements of HRM are, or are not, culture-sensitive.” Likewise, as companies have become increasingly more global in nature, the role of national culture in the international business environment has become increasingly more complex and globalized (Fu & Kamenou 2011, p. 3272), demonstrating the reasoning behind investigating potential cultural differences between home branch and subsidiary branches in order to see the role that national culture may play. Both the South Korean and Chinese national cultures in relation to the business environment and particularly HR practice transfers will be discussed next as national culture typically plays a role in HRM practices (Bae 1997, p. 86). Other factors contingent to the braches (i.e. institutional factors, government, and legislations) will also be explored.
South Korea:
Korean corporate culture is often complex and is influenced by a variety of factors including traditional cultural values that are embedded in Confucianism, social climate and a history of paternalistic (‘chaebol’) leadership that is often authoritative in nature (Cho & Yoon 2001, p. 71-72). Korean culture has certain characteristics known as, Kibun and Inhwa that play a role in local business practices (Hakimey & Yazdanifard 2015, p.445). They are an important consideration in the Korean business context, as these words do not have literal translations in the English language (Hakimey & Yazdanifard 2015, p.445) demonstrating how it can difficult for branches based in different cultures to have shared meaning and understanding. Perhaps one of the biggest differences between Korean and western cultures is the Korean seniority system. The seniority system has a tremendous influence on HR systems and the role seniority plays within these systems, especially in terms of promotion and salary increases (Bae 2007, p.88). Typically the longer someone has been with a company, the higher their pay grade and the more easily they will be promoted (Bae 1997, p.88). This is of particular interest of this thesis, as William Grant & Sons’ Ltd. pay and bonus system was discussed with the participants in the interviews and identified as an area of concern for the HR team.
As mentioned previously, the South Korean branch of William Grant & Sons Ltd. was added as a joint owned venture and did not formally join the company until November 2013 as a wholly owned subsidiary. As a result the branch is currently still in a state of transition. This is important to note, as it adds another element to the factors affecting HR practice transfers between headquarters and the South Korean subsidiary of William Grant & Sons Ltd. Joint ventures are often conflicted and face institutional pressures in their local environment, which can create difficulties with the parent company (Björkman & Lu 2001, p. 491). Unless an effort is made to internalize skills and capabilities from the parent company, it can be significantly difficult for the joint venture to absorb and utilize external knowledge (Park, Oh & Choi 2012, p. 1080). Other factors crucial to the success of a joint venture include and are not limited to: trust between partners, efficient communication, human capital, and compatibility in organizational culture (Park, Oh & Choi 2012, p. 1079-1083).
China:
Over the years, China has had some changes with regards to their economy, gradually shifting from an economy based on Maoist principles, to shifting to one of central planning, and finally to one based on market economy with continued government regulation (Fu & Kamenou 2011, p. 3273; Gao, Liu & Lioliou 2015, p. 108). Central to business culture in China is the concept of Guanxi, which has to do with personal relations and developing trust (Milićević, Lovric & Markovic 2012, p. 7). Moreover, Confucian traditions are central to the root of Chinese culture (Fu & Kamenou 2011, p. 3273; Milićević, Lovric & Markovic 2012, p.5). Increasing in economic power over the years combined with the fact that it is home to one of the largest markets in the world (Feldman 2014, p. 7), understanding the Chinese culture has become significantly more important for businesses, especially as values have changed alongside the changing Chinese economy (Zhang & Jinhui Wu 2014 pp. 307-311). Some examples of this include a more equal power distribution between employer and employees due to the introduction of a social security system, as well as an increase in higher educated individuals resulting in higher rates of individualism, risk-taking, aggression and job-hopping (Zhang & Jinjui Wu 2014, pp. 311-312).
Often western-based businesses face difficulties when working in China not only due to cultural elements but also due to the authoritative role that Chinese government takes in business. The Chinese government makes many demands on businesses (Feldman 2014, p. 7). This can create unique challenges for MNCs operating in China. Combined with external factors, language barriers can also come into play. In many western-based MNCs English is the main language of business. English is not as prevalent in China, resulting in increased barriers to mutual understanding and efficiency in communication (Zhang 2011, p. 18). Thinking critically, we can see how culture, as well as factors such as government and language can make HR practice transfers from headquarters to subsidiaries challenging. MNCs may be limited in what they can do with regards to policies, and may face miscommunication and misinterpretation as a result of language barriers.
Company Culture
As mentioned, Hofstede (1980, pp. 22-29) argues that culture affects the operations of an organization in a multitude of ways including the distribution of power, the setting of organizational goals and objectives, in decision-making processes, in the shaping of organizational structure, and in reward systems. Because corporate culture is often seen as creating cohesiveness in an organization, MNCs often try and promote corporate culture, “to improve control, coordination and integration of their subsidiaries” (Schneider 1988, p. 231). However, due to different national cultures, different management practices often exist (Newman & Nollen 1996, p. 753) and company culture is not always accepted due to cultural differences (Schneider 1988, p.232). Moreover, national culture effects the way in which organizations operate, how employees understand their work and expect to be treated, and if management practices tend to line up with national culture, employees tend to be more satisfied (Newman & Nollen 1996, p. 753).
In organizations, it is important that not only the HR department, but also senior executives define and guide a company’s culture as company culture is seen as being central to individual and organizational performance (Benedetto & Thompson 2013, p. 13). Furthermore, a defined set of core values are central to company culture and contribute to an organization’s identity, reputation, and acceptable behaviours and practices (Benedetto & Thompson 2013, p. 13).
William Grant & Sons Ltd. has a company culture that emphasizes high performance and demands excellence. The company emphasizes the importance of hiring the right people, and look for what they refer to as a “rare” character. The company’s six values: Be Proud, Be Responsible, Be Professional, Be Entrepreneurial, Think Long Term, and Be Sustainable are related to their company culture and emphasis on performance (Company Documents).
In the literature, there seems to be a lack of research on how company culture and values affect HR practice transfers. Studies have been more concerned with the link between corporate culture and performance/performance management (Kotter 2008; Ogbonna & Harris 2000). However, Chan, Shaffer, and Snape (2004, p.21) argue that a ‘necessary’ and supportive organization is required in order for HR practices to result in advantage-creating capabilities. A supportive environment was found at William Grant & Sons Ltd. The next part of this thesis will focus on the methodology used to determine if the culture and values at William Grant & Sons Ltd. play an important role in the transfer of HR practices and in order to answer the other research questions.