High Performance Work System Practices in
International Affiliates of American MNCs:
Cultural and Institutional Influences
John J. Lawler
Institute of Industrial and Labor Relations
University of Illinois at Urbana-Champaign
Shyh-jer Chen
Institute of Human Resource Management
National Sun Yat-Sen University
Kaohsiung, Taiwan
Pei-Chuan Wu
School of Business
National University of Singapore
Johngseok Bae
College of Business Administration
Korea University
Seoul, Korea
Bing Bai
Institute of Industrial and Labor Relations
University of Illinois at Urbana-Champaign
HR System and Firm Performance
• Competitive advantage from internal
resources--Jeffrey Pfeffer (1994; 1998)
• Competitive advantage from external
resources--Michael Porter (1980; 1985)
• One best way conclusion from Jeffrey
Pfeffer
2008/3/19
2
HR Practices and Firm Performance
• Competitive Advantage from Michael Porter, 1980
• Several fundamental competitive forces that determine the
ability of firms in an industry to earn above-normal returns:(產
業的競爭優勢決定於下列幾個因素）
• the entry of new competitors（新競爭者的進入）
• the threat of substitutes（替代品的威脅）
• the bargaining power of buyers（買者的爭議力）
• the bargaining power of suppliers（供應商的爭議力）
• the rivalry among existing competitors（現有的對手）
• product and process technology（產品的技術）
2008/3/19
3
HR practices and Firm Performance
• Competitive Advantage through People,
Jeffrey Pfeffer, 1994
• Five top-performing firms from 1972 to 1992
• Plenum Publishing (15,689%)
• Circuit City (a video and appliance retailer;
16,410%)
• Tyson Foods (a poultry producer; 18,118%)
• Wal-mart (a discount chain; 19,807%)
• Southwest Airline (21,775%)
2008/3/19
4
HR Practices and Firm Performance
• Resource-based View (Barney, 1991)
--Rare, non-substitutable, valuable,
inimitable.
--causal ambiguity: hard to understand the
link between resource and competitiveness.
--social complexity: culture, interpersonal
relationship, company reputation.
2008/3/19
5
HR Practices and HR System
• The content of HR practices
• Theory-Driven
• Data-Driven (Cluster analysis, Exploratory
factor analysis)
• HR practices—formative or reflective
• HR architecture (Lepak & Snell, 1999)
• Managerial vs. non-managerial
• HR policy, practice, perception
2008/3/19
6
HR Strategies, Subsystems and Practices
HR Strategies
HR
Subsytems
HR
Flow
Work
Systems
Reward
Systems
Employee
Influence
2008/3/19
HRM
Practices
Control-based Work System
Recruitment & Low selectivity;
Selection
short-term needs;
promotion from external
Training &
Limited training efforts
Development
Employment Little security
Security
Tasks &
Clearly/narrowly defined jobs;
Assignment
same tasks for long time
Teams & Job Little autonomy &
Redesign
responsibility
Control
Rules & Regulation
Wage level
Relatively low wages
Performance&
Ability-based
Pay
Performance
Appraisal
Employee
Participation
Employee
Ownership
Culture
High Performance Work
System
High selectivity;
long-term potential;
promotion from within
More extensive & general
skills training
High security
Broadly defined jobs;
Cross-utilization
High autonomy &
responsibility
Values & Mission
Relatively high wages
Seniority-based pay;
Unfair pay practices
Ability/performance-based
; more fair practices
Limited efforts;
administrative purpose
Very little involvement
Extensive efforts;
Developmental purpose
High involvement
Little ownership practices
High ownership practices
Separating people from each
other; low trust & cooperation
Symbolic egalitarianism;
high
7
trust & cooperation
HR System and Firm Performance
• Measure of organizational performance
• HR outcomes (turnover, absenteeism)
• Organizational outcomes (productivity, quality,
service)
• Financial accounting outcomes (ROA,
profitability)
• Capital market outcomes (stock price, growth,
returns)
2008/3/19
8
Study purpose
This study examined the role of
• intra-organizational force (business strategy,
structural features) versus host-country
institutional and cultural forces
• Both above as determines of reliance on
various dimensions of high performance work
system (HPWS) utilization in international
affiliates of S&P 500 companies.
2008/3/19
9
HR System and Firm Performance
• American Context vs. International Context
Huselid (1995)
AMJ special issue in 1996
IJHRM
• Convergence vs. Divergence
Universalistic perspective
Contingency perspective
2008/3/19
10
HRM practices of
MNC affiliates
Organizational factors
Strategic factors
•Country-of-origin effect
•Company-of-origin effect
Cultural factors
Institutional factors
Host-country effect
Duality of International Firms
• Global integration
Economy of scale, serving global customers,
competitive platforms, global branding
• Local responsiveness
Host government regulations, customer needs
• Taylor et al. (1996) AMR
Exportive, adaptive, integrative model
2008/3/19
12
4 Perspectives
•
•
•
•
HR Strategy Perspective
Cultural Perspective
Institutional Perspective
Organizational factors
2008/3/19
13
HR Strategy Perspective
• Firms seek to achieve fit between organizational
strategy and HR strategy.
• A parent company will influence an international
affiliate to pursue a HPWS approach at the local level
will depend on the overall commitment of the parent
company to such an approach and the degree to
which the affiliate and parent company are highly
integrated.
• There are several arguments supporting this
contemporary version of the convergence hypothesis
(Rowley and Benson, 2002).
2008/3/19
14
Hypotheses-1/4
• 1a: HPWS practices will increase in an international affiliate to
the extent that the parent company’s strategy stresses product
differentiation.
• Hypothesis 1b: HPWS practices will decrease in an international
affiliate to the extent that the parent company’s strategy
stresses cost leadership.
• Hypothesis 1c: HPWS practices will increase in an international
affiliate the greater the outflow of knowledge from the affiliate
to the parent company.
• Hypothesis 1d: HPWS practices will increase in an international
affiliate the number of employees in the affiliate.
• Hypothesis 1e: HPWS practices will increase in an international
affiliate the greater the munificence of the external labor market.
2008/3/19
15
Cultural Perspective
• Firms need transference to integrate HR policies and
practices across international operations.
Host country institutional and cultural environments
are of only limited significance in shaping affiliate HR
policies and practices.
• Institutional theory is concerned environmental forces
promote homogeneity among organizations.
This is central to understanding tendencies of
international affiliates to be like, or different than,
indigenous companies (i.e., for HR systems to be
more or less homogeneous).
2008/3/19
16
Hypotheses-2/4
• Hypothesis 2a: HPWS practices will decrease in an
international affiliate the greater the value of Hofstede’s
power distance scalefor the host country.
• Hypothesis 2b: HPWS practices will increase in an
international affiliate the greater the value of Hofstede’s
individualism scale for the host country.
• Hypothesis 2c: HPWS practices will decrease in an
international affiliate the greater the value of Hofstede’s
uncertainty avoidance scale for the host country.
• Hypothesis 2d: HPWS practices will increase in an
international affiliate the greater the value of Hofstede’s
masculinity scale for the host country.
2008/3/19
17
Institutional Perspective
• Much diversity in employment laws and regulations
across countries
 reduce the ability of management at the affiliate level
to implement changes and enforce policies consistent
with HPWSs.
• The strength of law and comprehensive societal
institutions is highly relevant to a firm’s HRM
practices.
 Firms are less concerned about incomplete legal
issues in handling business matters and are less
worried about labor-related problems, they are not so
highly restricted by the local political/legal
environment.
2008/3/19
18
Hypotheses-3/4
• Hypothesis 3a: The utilization of HPWS
practices will decrease in an international
affiliate the more restrictive host country
labor legislation.
• Hypothesis 3b: The utilization of HPWS
practices will increase in an
• international affiliate the greater the level of
state efficiency.
2008/3/19
19
Organizational Factors
• Training and the transmission of professional
standards of conduct as a principal mechanism in the
propagation of normative controls through
organizations and groups of related organizations
(Scott, 1995).
• Much of the professional general management and
HR training and education is rooted in the standard
American curriculum.
• Labor union involvement affects beliefs and norms
within the affiliate.
• Expatriate employees from the US parent company
may serve as conduits for enhancing and expanding
HPWS practices in the affiliate.
2008/3/19
20
Hypotheses-4/4
• Hypothesis 4a: The utilization of HPWS practices will
increase in an international affiliate as the ratio of HR
professionals to total employees in the affiliate
increases.
• Hypothesis 4b: The utilization of HPWS practices will
decrease in an international affiliate as the percent of
union members in the affiliate increases.
• Hypothesis 4c: The utilization of HPWS practices will
increase in an international affiliate as the percent of
American expatriate employees in the affiliate
increases.
2008/3/19
21
Research Methods- Sampling
Procedures
• Companies were randomly selected from the
Directory of American Firms Operating in
Foreign Countries (2003)
• International subsidiaries of American MNCs.
• Production and service (P&S) 100-500
companies
• Six regions: East Asia (China, Korea, Japan,
Taiwan), Southeast Asia (Thailand, Vietnam,
Singapore), South Asia (India), Africa (South
Africa, Kenya), Western Europe (Germany,
Italy), and Eastern Europe (Russia).
2008/3/19
22
Research Methods- Data Collection
• Two different questionnaires:
1. Company’s senior HR manager: focused on some general
characteristics of the affiliate’s workforce and HR practices.
2. Senior business manager in the affiliate: dealt with such issues
as parent company-affiliate relationships, affiliate organizational
performance, organizational business strategy, and related
issues.
• The questions and date collection procedures were
reviewed and approved by the University of Illinois
Institutional Review Board.
• A general protocol for data collection was developed
for collaborators in each country,
• Separate sections --2 groups of employees: middle
and upper managers and production and service
(P&S) workers-- dealing with training and
development, staffing, compensation, and teamwork
and empowerment.
2008/3/19
23
Table1 Number of Cases by Region and Host Country
• Europe 25
Germany 9
• Southeast Asia 55
Italy 10
Southeast Asia Singapore 26
Russia 6
Southeast Asia Thailand 18
• East Asia 101
Southeast Asia Vietnam 11
China 18
• South Asia 18
Japan 12
India 18
Korea 43
• Africa 26
South Africa 26
Taiwan 28
• TOTAL 225
2008/3/19
24
2008/3/19
25
2008/3/19
26
Results
Results
Independent
Variables
Constant
Staffing
(Managers)
1.327 (2.594)
Differentiation
Strategy
Cost
Leadership
Strategy
Knowledge
Outflow
Number of
Employees
(log)
Labor Market
Munificence
Age of
Company
Greenfield Site
0.080 (0.090)
2008/3/19
-0.065
(0.074)
-0.017
(0.019)
0.635***
(0.126)
-0.012
(0.043)
-0.002
(0.004)
0.153 (0.160)
Staffing
(P&S)
6.961**
(2.753)
0.128
(0.094)
0.006
(0.080)
Compensation
(Managers)
-2.747 (2.691)
Compensation
(P&S)
-2.846 (3.264)
Training
(Managers)
-1.200
(2.676)
0.095 (0.093)
0.082 (0.091)
0.037 (0.108)
-0.008 (0.076)
-0.064 (0.091)
-0.061
(0.077)
-0.001
(0.020)
0.454**
*
(0.135)
0.042
(0.046)
-0.006*
(0.004)
0.303*
(0.170)
-0.002 (0.019)
0.041* (0.023)
0.013 (0.020)
0.734***
(0.130)
0.107 (0.158)
0.730***
(0.131)
-0.096**
(0.044)
-0.004 (0.004)
0.002 (0.004)
0.051 (0.044)
-0.119 (0.192)
0.003 (0.004)
0.060 (0.162)
-0.027 (0.244)
0.147 (0.164)
Training
(P&S)
3.698
(2.725)
0.128
(0.094)
-0.031
(0.079)
Empowerment
(P&S)
1.388 (2.655)
0.017
(0.020)
0.752***
(0.134)
0.037* (0.019)
0.027
(0.045)
-0.007*
(0.004)
0.182
(0.167)
0.130***
(0.044)
0.001 (0.004)
0.042 (0.091)
-0.048 (0.077)
-0.033 (0.130)
-0.268 (0.163)
27
Joint Venture
Industry:
Computer
Hardware and
Software
Industry:
Banking and
Finance
Industry:
Electronics
Industry:
Chemicals
Industry:
Industrial
Manufacturing
Industry:
Consumer
Products
2008/3/19
0.217 (0.204) 0.065
(0.217)
-0.179
-0.117
(0.209)
(0.219)
0.082 (0.207)
0.247 (0.251)
0.300 (0.211) 0.103
(0.215)
0.206 (0.211) 0.133
(0.214)
-0.144 (0.210)
0.088 (0.208)
0.291 (0.316)
0.016 (0.266) -0.025
(0.279)
0.114 (0.270)
0.134 (0.241)
-0.112
(0.284)
-0.309
(0.278)
0.080 (0.271)
-0.244
-0.372*
(0.197)
(0.210)
0.199 (0.254) 0.022
(0.266)
-0.646*
-0.407
(0.335)
(0.352)
-0.010 (0.203)
0.112 (0.300)
0.077 (0.400)
-0.242 (0.342)
-0.127 (0.302)
-0.420**
(0.205)
-0.139
(0.265)
-0.174
(0.350)
0.235 (0.200)
0.217 (0.257)
-0.130
(0.201)
0.447*
(0.263)
0.062 (0.348)
0.120 (0.259) -0.187
(0.276)
-0.144 (0.256)
-0.008 (0.053)
0.463*
(0.262)
0.046
(0.267)
0.361 (0.260)
0.052 (0.208)
0.126 (0.258)
0.471 (0.341)
28
Power Distance
-0.043**
(0.019)
Individualism
0.011 (0.008) -0.006
(0.009)
Masculinity
-0.020***
-0.016**
(0.006)
(0.006)
Uncertainty
-0.009 (0.009) -0.031***
Avoidance
(0.009)
Difficulty of
0.024***
0.022***
Hiring
(0.006)
(0.006)
Rigidity of Hours 0.013* (0.007) 0.017**
(0.007)
Rigidity of
-0.045***
-0.054***
Employment
(0.013)
(0.014)
State Efficiency -0.057 (0.047) -0.145***
(0.050)
Union Density
-0.007***
-0.008***
(0.002)
(0.003)
HR Professionals 10.510***
7.799**
per Affiliate
(3.131)
(3.695)
Employee
Expatriates per -1.016 (0.751) -0.362
Affiliate
(0.791)
Employee
F-Ratio
4.006***
2.901***
AdjusteR²
0.259
0.183
2008/3/19
0.002 (0.018)
0.016 (0.019)
0.010 (0.023)
0.026*** (0.009) -0.004 (0.010)
-0.014** (0.006) 0.000 (0.007)
0.005 (0.009)
0.005 (0.011)
0.025*** (0.006) -0.004 (0.007)
0.016** (0.007)
0.000 (0.009)
-0.040*** (0.014) 0.015 (0.016)
-0.003 (0.019) -0.032*
(0.019)
-0.001 (0.009) -0.002
(0.009)
-0.010 (0.006) -0.014**
(0.006)
-0.019**
-0.027***
(0.009)
(0.009)
0.004 (0.006) 0.011*
(0.006)
0.013* (0.007) 0.011
(0.007)
-0.008 (0.014) -0.033**
(0.014)
-0.001 (0.003) -0.005**
(0.003)
-0.039 (0.049) -0.088*
(0.050)
8.552**
10.031***
(3.267)
(3.697)
-0.039** (0.018)
-0.024*** (0.009)
0.022*** (0.006)
-0.011 (0.009)
-0.036*** (0.006)
-0.001 (0.007)
0.033** (0.014)
0.044 (0.049)
0.048 (0.059)
-0.002 (0.003)
-0.005* (0.002)
-0.004 (0.003)
10.026***
(3.177)
1.503 (4.174)
0.302 (0.760)
0.066 (0.892)
0.735 (0.779)
0.474
(0.788)
-0.057 (0.768)
4.085***
0.264
0.724
-0.035
3.191***
0.201
3.015***
0.190
3.583***
0.231
-0.060 (0.049)
6.546* (3.602)
29
Summary of Findings
Hypotheses
Staffing
(Managers)
Staffing
(P&S)
Compensatio
n(Managers)
Compensatio
n(P&S)
Training(Ma
nagers)
Training(P&S)
Empowermen
t(P&S)
1a-b) Business
Strategy
1c) Knowledge
Outflow
1d) Affiliate size
(log ofnumber of
employees)
1e) External
labormarket
munificence
2a-d) National
Culture
3a) Restrictive
LaborLegislation
3b) State
Efficiency
4a) HR
Professionals
4c) Union
Membership
4c) Expatriate
Presence
not supported
not
supported
not
supported
supported
not supported
not supported
not supported
not supported
not supported
not supported
not supported
not supported
not supported
supported
supported
not supported
supported
supported
not supported
not supported
not
supported
contradicted
not supported
not supported
not supported
supported
contradicted
mixed
results
mixed
results
not supported
not supported
supported
mixed results
not supported
contradicted
mixed result
not supported
not supported
contradicted
mixed
results
mixed
results
not supported
supported
mixed
results
mixed
results
contradict
ed
supported
supported
not supported
supported
supported
supported
supported
supported
supported
not supported
not supported
supported
not supported
not supported
not
supported
not supported
not supported
not supported
not supported
not supported
2008/3/19
not supported
supported
mixed
results
not supported
30
Discussion and Implications
Strategy and Organizational Characteristics
• That Hypothesis 1c was supported: knowledge
outflow from an affiliate to its parent organization
would indicate that the affiliate is a knowledgegenerating entity and workplace empowerment.
• Labor market munificence (Hypothesis 1e) was
positive: workplace empowerment is also reasonable
indicates empowered increases in situations where an
affiliate has a ready supply of quality employees.
• Hypotheses 1c and 1e are relevant to understanding
this one aspect of HPWS practices, but not to a
general understanding across HR subsystems.
2008/3/19
31
Discussion and Implications
Host-Country National Culture
• US MNCs’ HPWS are not specifically linked to most of
the internal organizational characters of international
affiliates except for organizational size.
• Hypothesis 2a-2d suggest very much that cultural
forces matter with regard to HPWS implementation.
• Masculinity was significant in five of the equations,
but only Hypothesis 2d was positive sign:
more feminine cultures
-cooperative nature of more feminine cultures
-less likely to be interpersonally competitive
-more likely to be motivated by the psychic rewards
that also might accompany HPWS activities, might
facilitate effective implementation.
2008/3/19
32
Discussion and Implications
Legal and Regulatory Environments
• State efficiency had only limited effects on HPWS
utilization and the results contradicted Hypothesis 3b.
• Indicators of the host-country’s regulatory
environment for labor were generally significant, not
always positive sign (Hypothesis 3a).
• That employment rigidity is negatively related to both
variables indicates HPWS efforts are more apt to
occur in situations where employers can adjust the
total labor force
2008/3/19
33
Discussion and Implications
Normative Constraints
• The concentration of HR professionals exerted
positive effects for six of the HR subsystem scales
 introduce HPWSs practices in firms emerges from the
prevalence of professional HR managers, not
organizational strategic considerations.
• HR professional norms are represented in an MNC
affiliate is a principal driver of HPWS adoption.
• Unions are often suspect of management motives in
implementing HPWSs, the normative forces at work
here would stand in oppositionto HPWS
implementation.
2008/3/19
34