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Country-of-Origin Effects, Host-Country Effects, and the Management of HR in Multinationals: German Companies in Britain and Spain.

A key current academic debate is the interaction between multinationals companies and national business systems, both the parent-country system in which they are embedded, and the host systems in which they operate. This article presents evidence from recent case-study research on German multinationals operating in Britain and Spain. It argues, first, that there are pressures on these companies to adopt many standard 'Anglo-Saxon' business practices in human resources and industrial relations (HR/IR), such as standardized international policies on appraisal, performance, management development, and an explicit, formalized corporate 'culture'. Second, however, significant manifestations of the influence of the Germnan business system persist, including a long-termist orientation, and a management approach based on co-operation. 'Anglo-Saxon' practices are absorbed into this prevailing German managerial culture, and as a result operate in a distinctively 'German' way. Third, the country-of-origin effect is mediated by the institutional constraints of different national host environments. But even in highly regulated contexts, such as Spain, companies were able to create sufficient flexibility to preserve elements of a German style.

A central issue in recent debates concerning multinational companies (MNCs) is the extent to which MNCs reflect the characteristics of the national business systems in which they originate. The proponents of globalization and the 'borderless world' would argue that the question makes little sense: first, because the international dynamics of economic development are making national boundaries increasingly meaningless; and second, because even where national economies remain significant reference points, MNCs have increasingly managed to disengage themselves from national constraints (Ohmae, 1990). A variant of the argument is the claim that even where national differences persist, to focus on them is to miss the wood for the trees: to overlook the overwhelmingly common features of a particular phase of capitalist development driven by common technological and market pressures (Strange, 1997). The counterarguments are equally forcefully put: despite the pressures for convergence, national economies remain distinctive. This is because economic activity is embedded in nationally distinctive institutional arrangements--the role of the state in the economy, the nature of product, labor and capital markets, corporate governance systems, the pattern of skills, the mechanisms governing employment relations in firms. These institutions are the outcome of specific historical pathways, they are interlinked in a complex whole, they persist over time, and they have a critical impact on the behavior of organizations (Berger & Dore, 1996; Lane, 1995; Whitley, 1992). Moreover, MNCs--in many ways the key actors of globalization--are deeply embedded in national configurations of economic institutions (Porter, 1990; Hu, 1992) and their behavior is strongly colored by their national origins.

A considerable body of research has identified a 'country-of-origin' effect showing that MNCs from different home countries behave in distinctive ways in managing HR/IR and more generally (Child et al., 1997; Harzing, 1999). However, few have attempted to explore the reasons for such variation by tracing linkages between national business institutions and patterns of MNC behavior.

This article presents recent research on the national 'embeddedness' of German MNCs. The research aimed to see whether the distinctive features of the German business systems influenced how these companies manage HR/IR. It also explored whether they were responding to the imperatives of internationalization by absorbing ways of operating different from traditional features of German business.

The logic for examining German MNCs is, first, that they have been under-represented in studies of the country-of-origin effect, despite their prominence in the global economy: in 1999 there were 42 German companies among the Fortune Global 500 (Fortune, 1999), third after the U.S.A. and Japan (and just ahead of France and the U.K.). Second, their country-of-origin business system is highly distinctive, differing in many respects from the Anglo-Saxon (predominantly U.S. and U.K.) style of deregulated market-led capitalism (Albert, 1993; Lane, 1995; Streeck, 1997). A synthesis of the main features of the German 'model' would include the following:

* A 'long-termist' approach, reflecting institutionally regulated markets and the stable relationship between companies and 'house' banks, giving relative freedom from Anglo American-style short-term stock market pressures.

* The importance of family ownership among German MNCs of all sizes, and the significance of the family entrepreneur within the German business culture.

* The relative tardiness of German companies, compared with their British or American counterparts, in establishing production and large-scale employment outside Germany (see Sally, 1996; Ferner & Quintanilla, 1998).

* A highly developed system of vocational education and training shaping a technically competent and flexible workforce appropriate to a focus on technologically sophisticated, quality products (Streeck, 1997).

* An emphasis on consensus and cooperative decision-making within firms, reflecting the statutory framework of codetermination and industrial relations, and the German ethos of the 'works community' (the Betriebsgemeinschaft) embracing the whole workforce.

* A distinctive pattern of corporate control in which bureaucratic mechanisms sit alongside personal or in formal controls within companies, with a strongly functional division of labor based on different sorts of specialist expertise but with few rigid demarcations at workplace level.

* A more administrative-legalistic tradition of personnel management than its Anglo-Saxon counterparts, reflecting personnel's role in administering the system of codetermination, and in implementing sector-level collective bargaining agreements; and a slower adoption of a more 'strategic' approach to HRM in which HR policy is closely integrated with broader business objectives.

A number of commentators (notably Streeck, 1997) have argued that the German system is highly suited for a model of economic development focused on national markets. However, it suffers from comparative disadvantages in a world of internationalized competition, because its market-regulating institutions cannot easily be transferred to a supranational level, unlike the market-led Anglo-Saxon model.

A key research question, therefore, is whether German MNCs exhibit distinctive traits in their management of HR/IR, reflecting the specific characteristics of the German business system. Or do they attempt to break free of their national-institutional heritage by adopting a modus operandi more akin to those of their main international competitors (American, Japanese)? Relatively little research has focused specifically on the conduct of HR/IR by German MNCs (for exceptions, see notably Beaumont et al., 1990; Dickmann, 1999; Quintanilla, 1998), although a larger body of largely survey-based literature has included German companies in cross-national comparisons (Negandhi, 1983; Rosenzweig & Nohria, 1994). Most studies have failed to find anything distinctive in the German approach to the international management of HRM. Beaumont et al. (1990), for example, found little evidence that the German institutional framework of industrial relations, particularly codetermination, influenced subsidiary behavior in the U.K. Similarly, Rosenzweig and Nohria's study (1994) of foreign subsidiaries in the U.S.A. found that German firms were more likely than Japanese firms to adapt to local practices in benefit policy. However, other surveys have found a distinctive German pattern in the control of international subsidiaries, particularly in the way expatriate managers are used to exert direct control of subsidiaries (Harzing, 1999).

A second research question is how far distinctive country-of-origin traits remain constant across different MNC operations in different host business systems. Much research has shown that MNCs' HR/IR practices are influenced by the national institutions of the host country in which they operate. Certain issues, such as systems of wage determination, models of employee consultation and representation, the regulation of working time, vocational education and training, and the role of unions are likely to highly constrained by local institutional arrangements (Dickmann, 1999; Rosenzweig & Nohria, 1994). As a result, one would expect the 'country of-origin effect to be moderated by the 'country-of-operation' effect. In some cases it may be expected that the host-country effect will override any parent-country effect on the management of HR/IR. Nonetheless, there is also some evidence (Royle, 1998) that even within the most highly regulated host countries MNCs are able to exert a distinctive country-of-origin influence on local HR/IR policy. The research therefore compares findings on German MNCs in Britain and in Spain to assess the variability of 'Germanness' in different business systems.

The article first describes the research on which the argument is based. It then summarizes the evidence for a distinctive German style of operations and assesses how this is changing under the pressures of internationalization. Finally, it examines how far 'German-ness' is forced to adapt to the constraints of the local host environment by comparing HR/IR policy in Britain and in Spain.

THE RESEARCH

The research was financed by the Anglo-German Foundation for the Study of Industrial Society and carried out between 1996 and, 1998. In-depth semistructured interviews were conducted in 46 subsidiaries belonging to 36 German MNCs. The sample is unbalanced as between Spain and the U.K.--40 of the subsidiaries studied were in the U.K. and only 6 in Spain-- which limits some of the conclusions that may be drawn, especially since the Spanish cases covered a much narrower range of sectors (see below). In 15 companies, it was possible to conduct interviews both at subsidiary level and at the corresponding headquarters in Germany. [1] All the Spanish subsidiaries belonged to companies with British subsidiaries in the sample, although in two cases the Spanish and British subsidiaries belonged to different divisions. In the case of three companies, two or more British subsidiaries were studied.

In total, 93 interviews--averaging around 1 3/4 hr in length--were carried out: 59 in U.K. subsidiaries, 14 in Spanish subsidiaries, and 20 in German headquarters. Of the 98 respondents (in some cases two or more respondents were interviewed together) two-thirds were senior personnel managers. The remainder were mainly finance managers, production or operations managers, and general managers. The rationale for interviewing finance managers and controllers was to gain a broader under standing of the context of corporate planning and control in German MNCs, and operations managers were interviewed in order to collect data on work organization issues.

Half the subsidiaries were in the two predominant manufacturing sectors represented among German companies abroad, chemicals-pharmaceuticals and engineering. A range of other manufacturing and service sectors were also covered. Four of the six Spanish subsidiaries were in the chemical pharmaceuticals sector, one in 'leisure', and one in metal products. Just fewer than half the parent companies were privately owned by a family or a foundation, reflecting the importance of private ownership at all levels of German industry. The cases included a mixture of 'greenfield' and 'brownfield' sites. Spanish data are supplemented by findings from a detailed case study of a German bank in Spain, involving 37 interviews at subsidiary and headquarters levels (reported in Quintanilla, 1998: ch. 10).

Data were coded and analyzed using a qualitative data analysis program (QSR Nud.ist), allowing a flexible development of emergent analytical categories. A detailed report of findings was sent to all participating companies for comment, and feedback was also obtained through a one-day workshop for companies, policy-makers and academics.

THE GERMANNESS OF GERMAN MNCS

The overall conclusions of the research (see Ferner & Varul, 1999 and Quintanilla, 1998 for detailed discussion) are, first, that German MNCs are react ing to the pressures of internationalization by adopting many standard 'Anglo Saxon' business practices. Second, however, they are doing so in a distinctively German way, and several elements of the classic German approach to business remain important. We are thus seeing a distinctive 'hybrid' style of international operation in which Anglo-Saxon and German approaches coexist, sometimes uneasily.

The 'Anglo-Saxonization' of German companies

The case study companies--like German MNCs generally--had undergone rapid expansion abroad in recent years in response to new market opportunities and the globalization of competition. From being 'German companies with foreign operations' (Sally, 1996), they were becoming 'international' companies, confronted with issues of managing fast-growing international work forces that in many cases were outstripping the domestic workforce.

Companies were adopting some of the salient international practices of more mature international companies, particularly those from an 'Anglo Saxon' tradition (Ferner & Quintanilla, 1998). At a general level, companies were rapidly renewing their international structures and systems. First, many were giving greater emphasis to international business divisions with cross-national profit and loss responsibilities. These divisions were increasingly predominating over national subsidiaries and other geographical structures. Second, although the perception of British management was that the subsidiaries were generally managed with a relatively 'light touch', the consolidation of international business division structures brought a toughening of international management control systems through budget-setting and review processes. Third, there was an opening-out of ownership as family owned businesses floated shares to help finance rapid international expansion, and as many larger publicly quoted companies sought listings on foreign stock exchanges. This exposure to stock market pressures reinforced the Anglo-Saxonizing tendencies in structures and systems.

More specifically, Anglo-Saxonization was evident in the area of HRM, both in the development of substantive international HR policy, and in the creation of new international organizational structures for the HR function itself.

International HR policy was emerging on issues of strategic concern such as management development, the identification of high potentials, and the relationship between performance and reward. An emphasis on international management development resulted partly from expansion abroad, particularly in new markets in China and other parts of East Asia, and from the growing integration of activities internationally. There was a trend, especially within more integrated sectors such as engineering and chemicals, towards is suing broad international guidelines on senior management development and to monitor centrally key managers in the subsidiaries. In several large companies, international experience had become an explicit criterion of career ad vancement for senior managers, provoking in some cases a challenge to the German-dominated senior executive tiers. Such systems of development included methods for monitoring 'high potential' managers. In one pharmaceutical company, for example, each subsidiary carried out a review of staff competencies and skills using an evaluation system adapted from the parent company's model. From this review, potential international high fliers were identified and names fed into a corporate database covering the top 10% or so of managers worldwide. Another company, in the engineering sector, established a central database for several hundred young managers with the potential to reach senior executive level; these individuals' careers were managed within their subsidiaries according to broad guidelines laid down at the center. Finally, several companies in the study were introducing corporate graduate programs providing international training and development, including, for example, participation in international project teams.

The model for such practices was of ten explicitly provided by existing policies in the companies' British or American subsidiaries, which acted as 'vanguard' sites from where HR innovations could be diffused to other parts of the corporation through mechanisms such as international HR committees and task forces (see Ferner & Varul, 2000a for a detailed account of the role of vanguard subsidiaries).

A second example of the internationalization of HRM was the introduction of global performance management systems. Such systems have been predominantly associated with the Anglo Saxon business world, and their introduction in highly regulated environments such as Germany has been more recent and tentative. As Filella and Hegewisch show (Filella & Hegewisch, 1994: 102) managers in Germany 'are least likely among the four staff categories [i.e., managerial, professional, clerical and manual] to be subject to performance-related pay' (not least because even at managerial level, the institutional framework of codetermination can limit its introduction--see Muller, 1999). In the majority of our case-study firms some sort of international policy of relating reward to performance had been introduced. In the most of the remainder, the subsidiary had the autonomy to decide whether or not to have performance-related pay. The introduction of such schemes was closely linked to international expansion. One trigger was the decision for companies to float shares on the stock market, and particularly to float in the U.S.A. Another, for firms with a growing presence in the U.S.A., was the desire to compete in the U.S. managerial labor market. Performance-related pay systems were also linked to the strengthening of business division structures with integrated international responsibility for their product areas.

International performance management policies in case-study firms ranged from the broadest of general frame works to highly standardized systems laying down in detail the percentage of variable pay for different levels of manager, the proportion of the performance element allocated for personal, unit and corporate performance, and the system of evaluating performance. The introduction of such schemes was often both recent and still in a transitional phase. The overall tendency, however, was to strengthen schemes by increasing the proportion of variable pay and by formalizing the system of performance evaluation. In general, it was the inter nationally integrated sectors such as chemicals that had the most sophisticated and standardized systems, while more 'multidomestic' firms, primarily serving national markets, tended to be given more autonomy. As with management development, the model for performance management systems was often provided by Anglo-Saxon subsidiaries, with their more extensive experience of operating such schemes.

A third area of 'Anglo-Saxonization' is the use of 'culture' as a formal tool of management through the issuing of 'mission statements', 'credos' and 'visions'. As research has shown, such statements are widespread in large U.S. (and U.K.) companies. They define strategic business objectives (David, 1989 and for Britain, Klemm et al., 1991), often with quantifiable targets for achieving them, and give rise to a cascade of subgoals down through the organization. They are increasingly presented in Anglo-Saxon business rhetoric as an essential ingredient of corporate success, setting a policy framework and providing the cultural 'glue' to hold together the disparate parts of international firms.

In the German business system the notion of 'culture', while strong, has tended to be implicit rather than explicit. The German idea of Unternehmenskultur (the culture of man enterprise) has very different connotations from the American concept of corporate culture (c.f., Eberwein & Tholen, 1993). It signifies a culture that has grown 'organically' within an enterprise over decades, and that is much less susceptible to direct management intervention or to rapid transformation. It has thus been seen in less mechanistic and instrumental terms than has 'culture' within Anglo-Saxon firms. In recent years, however, German MNCs have been following the lead of American and British companies in introducing formal 'cultural' statements along Anglo-Saxon lines. This was particularly evident among companies floating shares on foreign stock exchanges, necessitating a greater attention to 'investor relations'. Statements of corporate mission or values often emphasized growth in markets, shareholder value and profits. For example, one large conglomerate de scribed its mission as 'increasing share holder value over the long term, a task requiring both judicious strategic planning and tight, profit-oriented management with no cross-subsidization'.

Finally, the organization of the HRM function was itself undergoing change (for a detailed discussion, see Ferner & Varul, 2000b). Specialized international structures were becoming more prominent, and the inward-looking focus on the preponderant German workforce was diminishing. In some companies, the central function was undergoing major restructuring to make it less administrative and more responsive to the requirements of international business divisions. More than half the case-study companies had some sort of regular international personnel committee comprising senior HR managers from the center and subsidiaries. The functions of such committees ranged from information exchange to joint HR policymaking.

The continuing 'Germanness' of German MNCs

Beneath the trappings of 'Anglo Saxonization', however, strong indications of the enduring influence of the German business system were also evident.

First, the Anglo-Saxonization of policy was often tempered with more distinctively German elements, particularly in the detailed working through of policies. In the area of management development, for example, several UK respondents believed that the system remained at the level of a bureaucratic paper exercise: information on potential international managers was collected but disappeared into a corporate 'black hole' where it was not acted upon. [2] There was also a detect ably German pattern to the process of creating an international cadre of managers. The flow of international assignments was overwhelmingly from the German center to the subsidiaries. Reverse flows to the center, and flows between non German subsidiaries, were relatively rare (although there were exceptions), a finding that distinguishes German MNCs from their US counterparts (Harzing, 1999). The overall picture confirms the findings of other studies of expatriation which point to the particularly intense use in German companies of expatriates as a control mechanism, compared with, say, U.S. companies which rely relatively more on formal management systems (see notably Harzing's systematic survey analysis, Harzing, 1999).

The same was true of performance-related pay policy. There were still clear vestiges, particularly in the management of managerial performance at the center, of the impact of the German institutional framework. Performance-related pay for all but the most senior managers was regulated by 'target agreements' (Zielvereinbarungen) with the works council in a number of companies (the fact that managerial employees are not governed by the conditions of the sectoral collective pay agreement does not exclude them from works council representation). This in turn influenced international HR policy. Where companies were aiming at a uniformity of approach in performance management systems world-wide, the works council's powers to block initiatives (management bonus systems) in Germany meant in practice that it could impede the introduction of performance-related pay schemes internationally as well. Partly as a result of such domestic constraints, performance-related pay schemes at the center tended to be rather limited in the percentage of variable pay, targets were (in the eyes of U.K. managers) undemanding and evaluation lax, and in some cases the 'variable' percentage did not vary that much in practice. In short, as with management development policies, the approach to performance management was in the process of 'Anglo-Saxonization', but there was still an identifiably German tinge to policies.

It could be argued that this picture is a transitional one, that German influences will gradually weaken over time and the internationalized, Anglo-Saxon approach will become more en trenched. There is some evidence of this, for example, in the consolidation of performance-related pay structures in recent years. Yet other elements of Germanness remain tenacious. In the case of 'culture management', the adoption of the form and frequently the rhetoric of typical Anglo-Saxon-style mission statements often masked deeper differences. Although U.S. mission statements frequently refer to the reward, empowerment and development of employees, German companies still represent employees as 'stakeholders' with a collective interest in the firm, and firms' mission statements are dotted with unAnglo-Saxon references to the need for 'partnership' with the employees, to a 'co-operative style of management', to the importance of corporate 'responsibility towards employees', and to 'socially responsible behavior through efforts to protect jobs in the long run'. Where they refer to 'shareholder value', they often refer not to institutional investors whose commitment is based purely on short-term share price considerations, but to family owners or banks with long-term links to the firm (see Varul, 1999).

Such differences of perspective underlying apparent convergence were manifest in the decidedly 'long-termist' focus of management action, manifested for instance in the willingness to make large investments in newly acquired subsidiaries without demanding a short-term payback. Long-termism was also seen in a more flexible approach to the achievement of budgetary targets, and in less draconian responses to failing managers or units than would be expected in an Anglo-Saxon business environment (c.f., Marginson et al., 1993). This was also related to the lesser reliance in German companies on formal management control systems, and a greater reliance--as in Japanese companies--on personal control through direct contact and trust relations, a characteristic reflected in the typical one-way flow of expatriate management mentioned earlier.

There were of course some areas where German influence was not manifested. These included such defining aspects of the German business model as training and joint consultation. The German dual system of vocational education and training with its emphasis on common certified standards for technical skills only rarely had a direct impact on training policies in subsidiaries, al though it was not unknown (Quintanilla, 1998). As Dickmann (1999) argues, in the UK in particular, the necessary institutional infrastructure to support such a system was lacking, and given the importance of the external labor market, firms had little incentive to increase the transferable technical skills of their workforce in isolation. Nonetheless, many if not the majority of the case-study subsidiaries manifested a strong culture of training, and detailed audits of training activities were often conducted by the center. It was clearly observed as well that the Spanish subsidiaries of German MNCs dedicated more resources to training, both in terms of the money invested and organizational support provided, than their Anglo-Saxon equivalents (see below).

Similar arguments may be made of collective relations. Confirming the findings of surveys (Beaumont et al., 1990; Guest & Hoque, 1996; Rosenzweig & Nohria, 1994), there was little evidence of parent-country influence on German companies' approaches to collective employee relations. Virtually no company transferred a German approach to consultation and many British subsidiaries did not recognize unions. Nonunionism almost never reflected--as it frequently does in the case of US MNCs--a corporately driven policy. Rather, it resulted from a headquarters policy of leaving such issues to the discretion of local management. Yet even in areas where German subsidiaries were left to adapt to the local environment, there was often a subtle echo of German traits. In subsidiaries where unions were not recognized, the emphasis was still on cooperative and harmonious relations with the workforce, and aggressive approaches to collective relations were noticeably absent. The apparent adaptation to the local environment masked a deeper correspondence with a German approach. For, although in Germany the pursuit of a cooperative style implied co-operating with the institutionalized employee representation in a constructive way, in the U.K. a cooperative style was conceived more in terms of the attempt to use direct communication with employees as a means of avoiding the need for indirect communication through union or other collective channels. British managers often seemed to regard union recognition as a symptom of their failure to establish a cooperative style.

THE VARIABILITY OF GERMAN COMPANIES IN DIFFERENT HOST BUSINESS SYSTEMS

The second research question was variability of country-of-origin influences across different host environments. Although imbalances in the data prevent systematic comparison of the impact of the Spanish and British host environments, they do point to some key issues in the variability of the country-of-origin effect.

The Spanish Institutional Framework

The logic for a comparison of Britain and Spain as host countries is that the former represents a deregulated, 'liberal' economic environment, while the latter is much more tightly regulated. There is highly legalistic framework of labor regulation covering all spheres of employment and labor activity. For example, labor courts play a major role in areas such as individual and collective grievance settling. This impacts on the management of HR/IR policy in three key areas.

First the organization of the labor market is highly regulated. Stringent regulations have governed areas such as redundancy (as a result, redundancy payments have traditionally been the highest in Europe), and the nature of employment contracts. Although there has been a significant move towards deregulation in recent years, the system has generated a dual labor market structure, with a core workforce linked to a strong internal labor market and enjoying consequent employment stability, alongside a precarious sector of employees on temporary contracts with far fewer rights and little job security (Perez Diaz & Rodriguez, 1995).

Second, following the transition to democracy from the mid-1970s, the rigid and authoritarian labor regulation dating from the Francoist dictatorship has been replaced by a new and comprehensive legal framework governing industrial relations. Under the 1980 Workers' Statute and subsequent legislation, the rights and structures of unions and their representatives are laid down in detail, and as in Germany (but unlike Britain), there is a statutory model of worker representation within companies. In companies of 50 employees or more, the workforce has the right to elect a workers' committee (comite de empresa) with significant powers to consult and negotiate with management (for analyses of the Spanish model, see Martinez Lucio, 1998; Quintanilla, 1998). This has meant that, despite low levels of union membership, unions have been able to exert significant in fluence within firms through the support they receive in workers' committee elections.

Third, as a legacy of labor ordinances under Franco, until recently job and skill classifications and grading structures within firms were tightly regulated by sectoral labor statutes. As a result, work organization tended to be characterized by considerable rigidity. In recent years, however, regulations on such matters have been progressively abolished and replaced with sectoral collective agreements.

The Spanish Framework and Constraints on MNC Policy

Existing research on German MNCs in Spain (Dickmann, 1999; Quintanilla, 1998), based on detailed company case studies, has shown an impact of the Spanish institutional environment on the management of HR/IR. Dickmann's research is of particular interest as it systematically compares German companies in Britain and Spain. He finds that German companies 'had a higher propensity to transfer their investment orientation, vocational training and nonformal management-labor dialogue to Spain than to Britain' (p. 307). He argues that this reflects differences in the Spanish and British institutional environment. For example, the perceived low general standard of skills in the Spanish labor market encouraged the transfer of the dual vocational training system, while the strong internal labor market and consequent low mobility for core employees encouraged a high investment strategy. Dickmann also finds areas in which the Spanish environment leaves considerable freedom for managerial strategic choice. For example, although some of his six companies exploited the potential of the Spanish labor market through the use of temporary and other precarious employment contracts, at least two of them explicitly rejected the prevailing dual approach to contracts. One, a chemical firm, transferred the German 'standard contract' approach, with 93% of its Spanish workforce on standard contracts, as a way of increasing organizational commitment (p. 297).

Our own research in some ways con firms the picture drawn by Dickmann's work. As far as German subsidiaries in Britain are concerned, while a commitment to training was common, the transfer of a German-style system of vocational training was rare, reflecting problems of retaining trained staff in a labor market context that encourages interfirm mobility. But our findings from Spain suggest a slightly more nuanced picture. Thus the precise function of German-style training systems is ambiguous: Spanish subsidiaries with such programs appear to use them more as a selection procedure than as a training system. In one company studied, the only reason for maintaining the vocational training system was to avoid conflict with headquarters (Quintanilla, 1998: ch. 10).

Clearly the impact of the culture and regulatory framework of IR in Spain sets limits to managerial policy-making. Coming from an essentially cooperative culture of employment relations, for example, German managers found hard to understand a union culture based on extracting concessions from management 'using all available weapons', as one management respondent put it. In one company, a decision was made to build a production site in Spain to serve the company's worldwide needs for a particular product line. Management complained that the unions, rather than seeing this as a chance to secure a major source of skilled jobs in the long term, used it as an opportunity to extract maximum short-term financial benefits from the company.

In other respects, however, and in common with Dickmann, we found that host country differences were much less determinate, and that their impact was variable and muted. Our Spanish case studies suggest that even highly regulated areas of the institutional frame work allow scope for management choice, and this in turn permits a German influence to shine through. Writers such as Streeck (1997) and Waechter and Muller (1999) have pointed to the way in which the statutory framework of codetermination encourages German companies to develop a cooperative strategic relationship with the works council. Although the existence of employee representation imposes constraints, it also creates opportunities to pursue what have been termed 'productivity coalitions' (Windolf, 1989) aimed at strengthening the position of the firm in the interests of both management and workforce.

We found evidence that some German companies were able to transfer this creative mindset to dealing with the Spanish framework of worker representation. In one company, for example, the Spanish subsidiary fought success fully to keep open a plant scheduled for closure under an international rationalization program. As a Spanish informant told us: 'We set to work saying "let's see if we can save [the plant],we're going to try to reduce costs, reduce the workforce"'. In this campaign to save the plant, the comite de empresa played an important role:

The [employees] saw things were serious, so then things started happening in a different way--trying to make sure everyone participated, communication with the employees was good...., all the people and departments involved went into action, everything pulled in the same direction. The employees saw that was happening, they opened themselves up, working parties were set up and became part of the program of improvements. The Comite' de Empresa helped all this to happen, becoming involved in making the improvements. The gentlemen of Comisiones Obreras [3] were on the working parties.

(Operations manager, manufacturing subsidiary; translated from the Spanish)

Although managers in this company were aware of the constraints, they did not see the existence of workers' committees as ruling out, for example, a management agenda of teamwork in the plants. Indeed they saw delegation to work groups as part of defining a new model of organization in the company which would marginalize 'some of the trade unions' classic assumptions'.

A similar emphasis on the importance of management strategies in negotiating paths through the institutional constraints emerges from our detailed case study of a German bank in Spain (Quintanilla, 1998: ch. 10). The bank was faced by a strong union movement that over time became even stronger. But this reflected as much the IR strategy adopted by management as the inevitable outcome of the institutional framework. The company--in contrast to other foreign banks entering Spain at the same time--adopted a paternalistic approach to personnel and failed to develop a constructive negotiating or consultative relationship with the unions. This posture reinforced the power and authority of the unions, which used their rights under the legal framework to further legitimize their position with the workforce--for example, by pursuing a strict interpretation of labor law requirements. The outcome was tense relations and a 'juridification' of IR (frequent recourse to labor courts to settle grievances). The poor relationship also made the introduction of new HR practices more difficult. A new HR team and a new approach led to a subsequent improvement in relations from the mid-1990s, and in 1999 the company reached a pioneering flexibility agreement over working time with its unions, demonstrating that the formal framework permits considerable leeway when the system is operated skillfully by HR management.

More generally, in sectors such as automobiles in which production is highly integrated internationally, it may be argued that added flexibility within the Spanish context is achieved through international 'investment bargaining' (Mueller, 1996). The competition between subsidiaries in different countries to secure production and investment puts added pressure on managers and employees in Spanish subsidiaries to come to an appropriate accommodation within the constraints of the legal framework. Thus the Spanish subsidiary of a major German vehicle manufacturer launched a comprehensive 'cooperation project' with the unions, including a four-year collective agreement. The aim was to introduce both more workforce flexibility and greater employment stability, improving the subsidiary's chances of winning the mandate to produce a new model in the coming decade (Capital Humano, 1999: 18-26).

Thus, German subsidiaries appeared to succeed where they were able to adapt the German orientation to cooperative employment relations to the peculiarities of the Spanish context. The way in which the formal framework of IR and the country-of-origin management approach interact to produce complex outcomes is further shown by comparing the approach of German companies with that of U.S. MNCs being studied as part of research in progress. [4] U.S. firms operated the Spanish machinery in the spirit of their own management style. Thus, one company, in the packaged consumer goods sector, applied in Spain a de facto policy of union avoidance. A comite de empresa existed but it had no external union links, and attempts by some employees to involve unions, on redundancy issues, were skillfully rebuffed by the firm by holding out the prospect of redundancy payments well in excess of the legal minima as long as the unions were kept at bay. ('My greatest failure', said the HR director 'would be not to keep the unions away.') This company's global preference for nonunionism produced a determination to find ways round even the toughest environmental constraints. Such behavior--reported by other research on US MNCs in Germany itself (see Royle, 1998)--would be rare in German companies abroad.

A second finding from the Spanish data concerns the malleability of the general business system. Despite the constraining framework of institutions in areas such as IR and the labor market, management styles and traditions in Spain have not gelled into a highly defined business model such as is evident in Germany, France or the U.S.A. This reflects a very distinctive dualist pattern of economic development. On the one hand, Spanish business has been characterized by an extensive sector of small-medium domestic firms in which traits such as conservatism, a lack of professionalization, centralized decision-making and paternalism under family ownership predominate (Costa, 1996). On the other hand, the driving force of economic development since the 1960s has been foreign capital. Foreign companies dominate major sectors of production, and the proportion of industrial output in the hands of foreign enterprises is exceptionally high at 42% (Buesa & Molero, 1996). One result is that while a Spanish 'national' managerial style may be evident in the small firm sector, the influence of foreign styles of management has been predominant in larger firms and more modern sectors, and innovations in HR/IR--in areas such as work organization, payments systems, and management training--have largely stemmed from this influx. In parallel, business education is dominated by U.S.-style business schools and their MBA program.

This malleability and openness of the Spanish system brings it in some ways closer to the deregulated British model. We observed two contrasting impacts of this context in German MNCs. First, a lack of managerial confidence was sometimes visible, stemming from the relative weakness of the business tradition in Spain and from the fundamental asymmetry of the relationship between Spain and foreign investors (Spain is parent to relatively few important MNCs). This was particularly manifest in the relationship between Spanish subsidiary and German headquarters. In two large chemical companies, for example, the Spanish subsidiary was much more likely to follow a model of HRM propagated from the center, and much less likely to challenge the center's vision of HR policy, than was the case with its British counterpart. The attitude, as expressed by the Spanish HR director in one of the companies (referring to the use of an international job evaluation scheme) was: 'Germany wrote us a letter saying "We recommend.... ". When Germany "recommends" something, I do it!' By contrast, the British subsidiary of the same company asserted a degree of autonomy and looked for the flexibility to adapt global policy to local circumstances. As a senior British HR manager put it:

Our Spanish colleagues rigidly follow everything they put out in Germany in order to make sure they're in line. There's a wish to be fairly obedient, to be followers there, which I detect. They're very keen for their structures for performance and for bonuses and business-related payments to mirror as closely as possible what they would like in the central function in Germany. We know what they [the Germans] are trying to do but we haven't been slavishly following what their systems are, nor is there an edict that we should.

Second, however, precisely because of the interplay of influences resulting from the influx of foreign capital, Spain functioned as a kind of cross-roads on the international 'trade routes' for management styles and practices. This put Spanish subsidiaries in a position to be a point of access to innovation for German MNCs seeking to absorb established models of international operation. Many of the managers in the subsidiaries had an American-style business education, either in Spanish business schools or in the U.S.A. itself (see Quintanilla, 1998: ch. 10 on the German bank in Spain). They also commonly had had active business experience in the U.S.A., or had worked in a range of other MNCs in Spain. Typical was one senior HR manager in a chemical-pharmaceutical company who had previously worked for the large Spanish subsidiary of an American chemical giant.

Spain's role as a point of access to innovation was manifested in a number of ways. Firstly, in some of the case study companies, the Spanish subsidiary fulfilled a strategic function on behalf of the corporation as a whole. Thus, a pharmaceutical subsidiary had a worldwide mandate for the production of a range of end products as well as for some of the company's intermediate chemicals. The same subsidiary had an international center of excellence on data processing issues. A subsidiary of a chemical company had global responsibility for coordinating R&D issues for a particular product range, and had recently won the company's international innovation prize for the development of a new compound. (This incidentally confirms the argument that the rigid institutional IR framework was not a determinant factor in management decision-making; had it been, such international centers would not have been located in Spain since they were primarily serving world, or international corporate, markets rather than the local market.) Secondly, there was some evidence that corporate centers were willing to exploit key individuals, especially those with Anglo-Saxon business credentials, by bringing them to the center (although, as seen above, flows of expatriates were primarily from the center outwards). Thus one Spanish manager became a senior executive at corporate HQ, responsible for international human resource planning and development. His experience included six years in an American car company where his responsibilities brought him into close contact with American and British managers. Thirdly, the American-style business education system, combined with managers' career mobility between multinational subsidiaries of different nationality, exposed managers to American HR techniques. In one company, the Spanish HR director was a member of an international working group developing corporate policy on competency frameworks, bringing to bear his own experience in developing and applying similar policies within Spain (using American consultants).

CONCLUSIONS

This article may be seen as a contribution to the rapprochement between the literature on the evolution of international management in MNCs and that on the comparative study of national economic systems, called for by Westney (1999). It has attempted to explore the subtle interplay between the country-of-origin business system, the host-country business system, and the international HRM policies and practices of MNCs. The first major conclusion of the research is that MNCs are embedded in their parent national business system that influences their behavior and in particular their conduct of HR/IR issues at an international level. Although much research has pointed to differences between say Japanese and U.S. MNCs in the conduct of HRM, German MNCs have been much less studied. The picture from our qualitative case studies provides a useful complement to existing survey-based work. It shows that the exertion of country-of origin influence may occur in quite subtle ways. The nationally embedded culture of cooperative relations between workforce and management, for example, is not transferred through formal institutional arrangements such as works councils, but is specifically adapted to the constraints and opportunities of the host environment.

A second general conclusion is that nationally determined patterns of MNC behavior are not static but evolving-at times rapidly. Thus, German MNCs, which turned relatively late to the inter nationalization of production and employment, have been seeking ways of accommodating to the pressures of the competitive international environment, borrowing from pre-existing models of international operation. In the realm of international HRM, the model has been primarily Anglo-Saxon. A key question is whether this process of assimilation is making German MNCs less 'German'. Elsewhere (Ferner & Varul, 2000a) we have argued that new practices are subtly adapted, becoming absorbed into the distinctive German 'way of doing things'. This is illustrated by the way the superficially Anglo-Saxon innovation of the mission statement is imbued with familiar German reference points such as acknowledging the workforce as collective stakeholders in the enter prise.

Third, these cases reveal that 'Germanness' manifests itself in different forms in different host environments. Cooperative relations in Britain may in volve bypassing the unions; in Spain it invariably means a modus vivendi with the comite de empresa. MNCs are forced to adapt to the constraints imposed by the institutional framework. What it also shows, however, is the importance of management choice and orientation in determining how regulatory constraints impact on HR/IR policy-making in practice. The impact of the formal machineries of the host environment can be negotiated by man agement choices of HR/IR strategy. Within limits, the same structures can function in very different ways. By working with the grain of the system, companies were able to recreate an approach and set of employment relation ships with which they felt familiar and comfortable.

The Spanish/British comparison also shows that the overall characteristics of a business system need to be disaggregated since their impact on MNC choices is differential. For example, the Spanish system is seen as generally more 'regulated' than the British, and this is certainly true with regards to the legal (and legalistic) framework of industrial relations. But in other ways the Spanish management model is far more open and indeterminate than the British. With few strong management traditions of its own, it has been the site of confluence of styles and practices of different national systems, transmitted to an important extent through the operations of MNCs originating in those systems. For German MNCs, this quality increases the degree of managerial choice in their subsidiaries, and also provides a source of learning about international operation.

The more general conclusion that flows from that is that MNCs act as a two-way vector of dynamic change within national business systems--both bringing to host countries their own nationally distinctive ways of doing things, and taking from the host environment lessons for adoption at home (c.f., Edwards & Ferner, 2000). As suggested above, this international flow of practices does not necessarily entail a convergence of business systems, since innovations may well be assimilated into a strong pre-existing business culture in which their significance is subtly changed.

For practitioners, the first and most obvious implication emerging from the research is that managers' freedom of maneuver is not unlimited in different institutional contexts. Even deregulated host environments impose constraints that must be addressed. Familiar policies--as with the example of vocational training--may not be transferable from the home business system if the supporting conditions are not present in the host system. Second, managers can achieve more scope for choice and policy innovation by conforming to the spirit of host institutions, for example in the style of their relations with the workforce. In many cases, a 'hybrid' approach, which adapts a home-country ethos to local realities, appears possible and effective; thus a German cooperative style of industrial relations could be retained, albeit in very different guises, both in the deregulated British environment and the institutionally constrained Spanish one. Third, a strictly ethnocentric approach, imposing home-country practices and policies in the face of institutional constraints, may be possible, but it comes at a price. If, for example, subsidiary management wish to bypass host-country institutions and cultures of workforce representation, they must expect to invest heavily in doing so by providing employees with material and other incentives to forego recourse to existing institutions. By the same token, host-country institutional systems provide employees and workforces with an element of bargaining power in their relations with multinational employers. Finally, while host institutions may act as constraints, they also paradoxically provide subsidiary management with a bargaining lever in its dealings with corporate HQ. By emphasizing the constraining effect of the local environment, local managers may be able to win the right to interpret and adapt global policies; in short, they may be able to negotiate more freedom of action with respect to the center.

Acknowledgments: We are most grateful to an anonymous JWB referee for clear and helpful suggestions for improving the piece, and to participants at the International Industrial Relations Association World Congress in Tokyo, April-May 2000, for their comments on an earlier version of this article presented at the Congress. We greatly appreciate the support of the Anglo-German Foundation for the Study of Industrial Society in carrying out the research on which this article is based.

Antnony Ferner, Professor or International HRM Department of HRM Business School, De Montfort University, The Gateway, Leicester LE1 9BH, U.K. [less than]afhum@dmu.ac.uk[greater than].

Javier Quintanilla, IESE, Spain.

Matthias Z. Varul, University of Tuebingen, Tuebingen, Germany.

(1.) In addition, three interviews were conducted in headquarters of a further two companies for which access to subsidiaries was not granted.

(2.) As the JWB's reviewer notes, the 'black hole' phenomenon is not unknown in large corporations regardless of nationality. Nonetheless, in the perceptions of respondents, this 'bureaucratic' manifestation was something identified as distinctively German.

(3.) Comisiones obreras (CCOO) is one of the two major unions in Spain. Comisiones had strongly links to the Spanish communist party and emerged out of the workplace struggles of the 1960s and 1970s against the Francoist labor regime. (The other main union is the General Union of Labor, UGT, linked to the Spanish socialist party PSOE.)

(4.) This is a 3-year, four-country study of the management of HR/IR by U.S. MNCs, coordinated by the Department of HRM, De Montfort University, U.K., and involving the Universities of Trier (Germany) and Limerick (Ireland), and IESE business school in Spain. The research is funded by the U.K. Economic and Social Re search Council and by the Anglo-German Foundation for the Study of Industrial Society.

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Author:Anthony Ferner; Javier Quintanilla; Matthias Z. Varul
Publication:Journal of World Business
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Date:Jun 22, 2001
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