Dual effects of subsidiary and parent organizations’ human resource practices
on employee responses
The rise of multinational corporations (MNCs) over the past few decades has raised the
interest of scholars and executives in understanding the sources of MNC effectiveness (e.g,
Morley & Collins, 2004).Several researchers have investigated how MNCs manage the dual
pressures of adhering to local values of their subsidiary units while maintaining their core
corporate identity (e.g., Brewster, Wood, & Brooks, 2008). While standardization of technology
and production processes has generally increased efficiency across all units, researchers have
also recognized the potential contribution of HR practices adapted to the different subsidiary
local contexts in which the MNC operates (e.g., Siegel & Larson, 2009). The literature has
generally suggested that subsidiaries in MNCs tend to adhere to local HR practices because of
local institutional constraints or facilitating factors (e.g., laws, rules, cultural values, and norms)
that legitimize such practices and enhance their effectiveness in the local subsidiary. Similarly,
MNCs support or approve localization of HR practices to achieve and maintain legitimacy across
their multiple local environments, which, in the aggregate, contribute to overall corporate
success (e.g., Geppert, Matten, & William, 2003). This pattern can be summarized by the
corporate management mantra of “think globally, act locally” (Morley & Collins, 2004).
The prevailing view in the literature emphasizes the advantages of adopting HR practices
that suit the local culture and that reflect accepted local practices. Here, we challenge this view,
suggesting that it oversimplifies reality. We propose that employees’ responses to their local
(subsidiary’s) HR practices may be influenced not only by the characteristics of these local
practices, but also by the employee reactions to the characteristics of the HR practices of the
parent organization. Thus, understanding employees’ preferences for, and reactions to, HR
practices in the MNC context requires a research approach that focuses on the individual as the
unit of analysis. This contrasts with the prevailing research practice of relying on the MNC or the
Dual effects of subsidiary and parent organizations’ human resource practices on employee responses
subsidiary unit as the unit of analysis (e.g., Kostova & Roth, 2002; Morley & Collins, 2004).
Understanding how employees react to the HR practices in their local subsidiary, while being a
part of the MNC, is important, because HR practices affect employees’ work performance, which
in the aggregate affects the performance of the unit and the organization at large (e.g. Guest,
2002).
In essence, in this study we aimed to fill in the “black box”—employee reactions to
subsidiary HR practices in the MNC context—as a necessary step in helping to explain
performance at the higher unit and organizational levels.
In this study we draw on the institutional theory perspective (e.g., Kostova & Roth, 2002)
and person-environment (P-E) fit theory (e.g., Edwards, Cable, Williamson, Lambert, & Shipp,
2006) to develop our model and hypotheses. In brief, we propose that subsidiary organizational
culture, as an important ingredient of the subsidiary institutional environment, affects employee
preference for HR practices. Employee preference for HR practices, in turn, contributes to
employee satisfaction with the HR practices, contingent on whether the preferred HR practices
were implemented. However, at the same time, employee satisfaction with the HR practices is
also affected by the distance between the subsidiary and the parent organization in organizational
culture and HR practices. At the next stage, employee satisfaction with the HR practices affects
job satisfaction and organizational commitment. However, this effect is also contingent on the
distance between the subsidiary and the parent organization on organizational culture and HR
practices. Finally,job satisfaction and organizational commitment affect objective outcomes
(absenteeism, turnover, revenue, profit and cash flow).
Data for the study were collected from eight global private-sector MNCs. Six of these
companies were high-tech (i.e., were involved in the development of advanced technology and
advanced information processing) and two were low-tech (i.e., were involved in basic
Dual effects of subsidiary and parent organizations’ human resource practices on employee responses
commodities or the manufacturing of well-established products). The sample included 1,571
employees and 58 HR managers from 58 subsidiaries located in 18 countries (Australia,
Argentina, Czech Republic, France, Germany, Italy, India, Ireland, Mexico, the Netherlands,
Poland, Romania, Russia, Serbia, Spain, Switzerland, USA, and Uruguay). The headquarters of
all eight companies were located in Israel.
Multilevel path analysis was used to simultaneously estimate the hypothesizedmultilevel
relationships using Mplus 7.1 (Muthen & Muthen,2007).
Overall, the results, based on multilevel analysis, supported our hypotheses.
Our study contributes to the literature by demonstrating the complexity by which
employees in MNC subsidiaries react to their locally-based HR practices. While prior literature
suggests that locally-based HR practices would contribute positively to the subsidiary unit, our
results suggest that under certain conditions, employees in the subsidiary may react less
positively to locally-based HR practices. This occurs because employees appear to take into
account not only the subsidiary organizational culture and related HR practices (as can be
expected), but also simultaneously the parent organization’s culture and HR practices. This
further suggests that the institutional duality that subsidiaries must confront (e.g., Kostova &
Roth, 2002) is also experienced at a psychological level (within the “black box”) by employees
working for the subsidiaries. This is an interesting phenomenon, because it calls into question the
assumption that because employees focus primarily on their careers in their subsidiary
organization, they strongly prefer HR practices adapted to the local environment and supported
by the subsidiary’s organizational culture.
Dual effects of subsidiary and parent organizations’ human resource practices on employee responses
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