Institutional Compatibility and High-Commitment HR Practices in an Emerging Economy:
A Study of Multinational Corporation Affiliates in China
Wei Zhao
Department of Sociology
University of North Carolina at Charlotte
9201 University City Boulevard
Charlotte, NC 28223
Phone: (704) 687-4506
Email: wzhao1@uncc.edu
Yang Cao
Department of Sociology
University of North Carolina at Charlotte
9201 University City Boulevard
Charlotte, NC 28223
Phone: (704) 687-2403
Email: yangcao@uncc.edu
This paper will be presented at the 2009 American Sociological Association Annual Meeting.
The research reported in this paper is supported by the SHRM Foundation. We are grateful to
Jian Han, Junsheng Hou, Zuoliang Lü, Lilly Meng, Zhiping Ren, Faming Wu, Wenlei Wang, and
Yongtao Zhang for helping with the survey and data collection. We also thank David Askay, Ben
Baran, Katherine Callas, Adrian Goh, and Qunhui Guo for their research assistance.
1
Institutional Compatibility and High-Commitment HR Practices in an Emerging Economy:
A Study of Multinational Corporation Affiliates in China
Abstract
We examine the transfer of high-commitment HR practices and how they affect
organizational effectiveness in multinational corporation affiliates in China by integrating the
diffusion model and the translation model in the institutional theory. We propose that global
“best practices” that are compatible with the host country’s institutional environment are more
likely to be transferred and more effective for improving firm performance. Statistical analyses
of 2007 survey data and qualitative evidence from two case studies support our arguments by
showing that institutionally compatible and incompatible practices differ in both their extents of
adoption and their impacts on HR and organizational performance.
2
Institutional Compatibility and High-Commitment HR Practices in an Emerging Economy:
A Study of Multinational Corporation Affiliates in China
The global spread of “best practices” in human resource management (HRM) and their
impacts on organizational effectiveness have attracted a great deal of attention in recent years
(e.g., Arthur, 1994; Bae, Chen, Wan, & Lawler, 2003; Guthrie, 2001; Huselid, 1995). These best
practices are termed differently in the literature, such as high-performance HR practices, highinvolvement HR practices, and high-commitment HR practices. We adopted the latter to refer to
a set of highly refined HRM techniques that aim to cultivate employees’ commitment, enhance
their involvement, and ultimately improve organizational performance.
The extant literature describes different views on the trend of the international transfer of
HRM practices (Delery & Doty, 1996). On the one hand, some scholars take a universalistic
perspective and suggest that certain HRM practices are always superior to others and should be
adopted by all firms. Consistent with this view, several empirical studies document the global
diffusion of commitment-based “best practices” and the improvement of organizational
performance through the adoption of these practices in countries such as Korea, Taiwan,
Thailand, and New Zealand (Bae et al., 2003; Guthrie, 2001). On the other hand, the contingency
and configurational perspectives stress that both the adoption and impact of HRM practices are
contingent on the organizational culture as well as the broader social environment (see Delery &
Doty, 1996). Studies have shown that multinational corporations adapt their HRM practices to
the host country’s local environment (Rosenzweig & Nohria, 1994) and that the same “best
practice” is not equally effective across different cultures (Newman & Nollen, 1996; Robert,
Probst, Martocchio, Drasgow, & Lawler, 2000).
3
Extending our view beyond the HRM literature, the institutional analysis of organizations
offers divergent theoretical orientations and explanations (see Zilber, 2006). In particular, the
diffusion model (Strang & Meyer, 1993) emphasizes the hegemonic global culture and the
associational process as a crucial external force in shaping the behaviors of local actors such as
states and organizations (Meyer, Boli, Thomas, & Ramirez, 1997). When a particular structure or
practice (e.g., the mass education system, the ISO9000 quality certificate) becomes legitimized
or even taken-for-granted in the world community, it will be widely adopted by the membernations and/or their organizations through coercive, normative, and mimetic isomorphism (Guler,
Guillen, & Macpherson, 2002; Meyer, Ramirez, & Soysal, 1992). This theoretical logic also
sheds light on the diffusion of high-commitment HR practices. The label of “best practices”
implies that they represent the gold standard of HRM and that their meanings are clear and wellshared. The hegemonic global ideology of embracing a free market, the uncertainty related to
intensified global competition, and changes of governmental policies all contribute to
organizational imitations and the diffusion of these practices across countries (Guthrie, 2001;
Bae & Lawler, 2000; Lawler, 2006).
Whereas the diffusion model offers a systematic explanation of the dissemination process
at the macro-level, the more recent translation model provides valuable insights from a microperspective. This model illustrates that when ideas and practices travel globally, they are likely to
be reinterpreted by local actors and transformed by local settings (Czarniawska & Joerges, 1996;
Zilber, 2002). For example, Frenkel’s study (2005) shows that the transfer of the Human
Relations model to Israel after the 1950s was heavily shaped by the institutional power structure
at the state level and that the adoptions of new management models were characterized by
significant adaptations to the local ideology as well as the organization’s self-interest. From this
4
perspective, it is no surprise that multinational corporation affiliates tend to localize their HRM
practices (Rosenzweig & Nohria, 1994) and that the effects of “best practices” are contingent on
the local culture of the host country (Newman & Nollen, 1996; Robert et al., 2000).
Our study integrates these two institutional models and advances the theoretical
understanding of the international transfer of organizational practices in several aspects. First, the
diffusion model usually treats the establishment of an organizational structure/practice (or a set
of them) as evidence of diffusion. This assumes that structure/practice is rigorously reproduced
in each local setting following imported cultural scripts (Strang & Meyer, 1993). But as
Friedland and Alford (1991) point out, this type of analytical framework does not provide the
theoretical tool for understanding either the “institutional content” of the diffusion or “the
conditions under which particular forms are institutionalized or deinstitutionalized” (p.244). In
contrast, the translation model emphasizes that not all ideas are translated into the local setting
and that the very processes of attention and selection warrant careful analyses (Czarniawska &
Joerges, 1996). In this study, we examine the content and conditions of international transfer. In
particular, we seek to answer the question—which components of HRM best practices are being
adopted in China’s emerging economy and why? By reconciling the global perspective of the
diffusion model and the local perspective of the translation model, we contend that highcommitment HR practices that are compatible with local institutions are more likely to be
adopted and institutionalized, whereas incompatible ones tend to be ignored.
Second, according to the diffusion model, structures and practices undergoing diffusion
often become taken for granted and can help organizations to achieve greater legitimacy. It
follows that adopting these structures and practices will exert a positive effect on organizations.
Yet, researchers seldom explicitly examine the actual outcome of such adoptions. In contrast, the
5
translation model suggests that a specific global practice may be reinterpreted and transformed
when introduced into the local environment, and thus it may have unintended consequences and
perhaps even pose detriments to organizations (Doorewaard & van Bijsterveld, 2001). In our
study, we explicitly examine whether or not institutionally compatible and incompatible
practices exert differential impacts on organizations.
Third, methodologically speaking, research following the diffusion model tends to build
on quantitative findings, whereas research advocating the translation model relies more on
qualitative evidence. In this study, we seek to balance and integrate these two methodological
approaches. We begin by conducting a statistical analysis of organization-level data to observe
the general patterns of practice transfers and their effectiveness. We then present two case
studies to provide a more concrete understanding of specific adoption processes inside
organizations.
Our empirical evidence is drawn from multinational corporation (hereafter, MNC)
affiliates in China’s emerging economy. MNC affiliates in China provide an ideal research
setting for evaluating the two theoretical models for two reasons. First, these organizations face
dual institutional pressures from both the home country and the host country. Under such
“institutional duality” (Kostova & Roth, 2002) characterized by the coexistence of alternative
institutional logics, the taken-for-grantedness of “institutional myths” highlighted by canonical
statements of the neoinstitutional theory can no longer be presumed. To the extent that HRM
practices are subject to the influence of cultural and institutional factors, the international transfer
process represents a tug of war between the cultural and institutional forces of the host country
and those of the home country. Second, as the largest emerging economy in the world, China is
characterized by a unique cultural environment and an ongoing transition to market. In this
6
particular context, the driving forces for international conformity and local adaptations are both
salient. On the one hand, China has made a big stride toward a market economy and has become
highly integrated into the global economy. Under the banner of the “open-door” policy and the
popular rhetoric of “getting on track with the international community,” Chinese organizations
are eager to import not only advanced technology but also Western management techniques.
Thus, HRM has become a hot topic in the business world in China, and there is considerable
institutional pressure for conforming to the international standard, particularly after China’s
accession into the World Trade Organization in 2001. On the other hand, China still has its
distinct cultural heritage and a strong socialist legacy which create significant institutional and
cultural barriers for the transfer of Western practices. Consequently, global practices need to be
“translated” to fit into the Chinese environment in order to be appreciated and be effective.
INSTITUTIONAL COMPATIBILITY AND THE OPTIMAL TRANSFER OF “BEST PRACTICES”
Bridging the Global and Local Perspectives: Institutional Compatibility
The two institutional models represent two different theoretical orientations. The diffusion model
focuses on the macro-level process in an institutional field, emphasizing the global hegemonic
culture as the driving force and the institutional isomorphism as the consequence of the diffusion
process. However, the translation model focuses more on micro-level social actors (e.g.,
organizations) and their unique characteristics, emphasizing the local culture and transformations
of global practices and their unintended consequences. For the diffusion model, an
institutionalized structure or practice is taken-for-granted and is simply imitated and reproduced
locally; for the translation model, the meaning of a structure or practice is reinterpreted and
transformed in the local setting. From a translation perspective, “structures and practices are
7
perceived and understood—both consciously and unconsciously—by the members and the
subgroups of organizations” (Zilber 2002: 236). Their meanings and symbolic implications are
not given, but rather are interpreted and shaped by local organizations and their employees with
distinct cultural and institutional backgrounds. Whereas transferred practices are depicted as
being “ready-to-wear” in the diffusion model, they are perceived as being “custom-tailored” in
the translation model (Creed, Scully, & Austin, 2002; Zilber, 2006).
The literature does not address how these two models reconcile the gaps between values,
beliefs, and meanings in the global and local legitimating account. More specifically, the
translation model contends that not all global practices will receive equal attention nor will they
be transmitted as an entity as the diffusion model implies (Czarniawska & Joerges, 1996; Zilber,
2006). Then what kinds of global practices attract greater attention from local actors and are
more likely to be introduced into a specific local setting?
Durkheim (1912 [2001]) claimed that, if new ideas “are not in harmony with other beliefs,
other opinions, … …, they will be denied; minds will be closed to them” (p.333). In the last
century, social scientists have further agreed that actors approach a new idea in terms of what
they already know (Czarniawska & Joerges, 1996). From this perspective, if a new external
HRM practice fails to connect with or even contradicts the already existing knowledge and
framework of the local legitimate account, it may not be understood or appreciated and thus is
likely to be ignored. In contrast, if the external HRM practice is consistent with the local
legitimate account, it can be appreciated and more easily “translated” or integrated into the
existing local framework, making the related practice more readily theorized, legitimated, and
endorsed by local actors. In this light, the alignment or compatibility between values, beliefs, and
meanings embodied in global practices and the local ones is an important filter for international
8
transfer. Formally, we define the institutional compatibility as the extent to which a global
practice’s organizing principles and managerial actions are consistent with the host country’s
institutional environment.
Since MNC operations span across multiple environments, the dissemination of highcommitment HR practices (hereafter, HCHPs) across national boundaries often encounters
cultural and institutional barriers because these practices may embody different principles and
institutional logics than those local ones. Although HCHPs have been widely accepted and
labeled as “best practices” in the global cultural discourse, they originated from the United States
characterized by distinctive culture and values (e.g., individualism), beliefs (e.g., that of free
market), and regulative environments (e.g., the advanced legal system). Therefore, when these
practices are introduced to an emerging economy like China, their meanings and appeal to the
local actors cannot be taken for granted. Under such circumstances, the compatibility of each
specific HCHP with the host country’s environment plays a key role in determining how likely it
will attract attention, be adopted, and become effective in organizations. In this sense, only the
“best practices” that fit in the institutional environment of the host country can be appreciated
and can function effectively.
Several previous studies have focused on the fit between global HRM practices and the
host country’s national culture (Newman & Nollen, 1996; Robert et al., 2000). For instance,
Newman and Nollen (1996) find that practices that emphasize individual responsibilities are
appreciated in countries cherishing individualism but not in those cherishing collectivism.
Accordingly, these practices improve organizational performance only in the former. We further
note that cultural factors are an essential part, but not the whole body, of the institutional
environment, which consists of cognitive, normative, and regulative components (Scott, 1995).
9
Thus, we contend that HRM practice transfer must fit the host country’s broad institutional
environment which includes not only cultural beliefs but also social norms and state regulations.
There are three main reasons why the institutional compatibility of a specific HCHP may
affect its adoption. First, organizations adopting institutionally compatible practices face less
social resistance and fewer regulatory barriers. In contrast, HCHPs that are incompatible with the
local institutional environment tend to lose their positive symbolic meanings, lack legitimacy,
and thus be more difficult to implement. Second, institutionally compatible practices are more
likely to be accepted and appreciated by local managers and employees, who constitute the
majority of MNC affiliates’ workforce. Third, since MNC affiliates rely more or less on
indigenous organizations in their operations, adopting practices that are compatible with local
institutions helps strengthen their inter-organizational relationships and facilitate transactions
with indigenous business partners. For these reasons, we expect MNCs to selectively adopt
practices that are compatible with the local institutional environment.
Hypothesis 1: The more compatible the HCHP is with the host country’s institutional
environment, the higher the degree of adoption by MNC affiliates.
Compatibility and Organization-Level Variations in HCHP Adoptions
Although we contend that practices that are compatible with the host country’s institutional
environment are in general more likely to be adopted, the extent of adoption may vary
significantly across organizations. According to the translation model (Czarniawska & Joerges,
1996), the same practice can have quite different meanings and symbolic significance to different
organizations, depending on their organizational culture, historical background, and links with
the external institutional environment (cf. Edelman, 1992). It follows that for each specific
10
HCHP, some firms should be more likely than others to appreciate, adopt, and benefit from it.
This argument is corroborated by the HRM literature. For example, Baron and Kreps (1999)
argue that there are no uniform policies in HRM; instead, HRM policies should fit not only the
macro-environment, but also organizational characteristics such as workforce demographics and
organizational culture (pp.16-17). As a result of the unique organizational culture and history,
HRM practices are not always imitable across organizations (Barney, 1991). In this light, the
issue of compatibility exists not only at the level of macro/societal institutions, but also at the
organizational level. For MNC affiliates in China, we expect systematic variations in HCHP
adoptions stemming from their differences in organizational culture, historical background, and
workforce composition.
One important source of variation relates to the MNC’s home country. Specifically, the
institutional environment of the MNC’s home country is likely to exert considerable influences
on the affiliate’s organizational culture and managerial orientation. Such influences reflect the
home country’s norms and values and may be transmitted to the affiliate via means such as
headquarter control. HCHPs originated and have been highly institutionalized in the United
States (Arthur, 1994; Huselid, 1995). Later, they became popular in other Western countries
(Martin & Beaumont, 1998), and it was not until recently that they spread to newly industrialized
economies such as Korea and Taiwan (Bae et al., 2003). Therefore, American MNC affiliates
should be most familiar with HCHPs and most likely to be compelled to adopt them. Considering
these cognitive and normative tendencies, we predict that
Hypothesis 2: American MNC affiliates are more likely to adopt HCHPs than MNC
affiliates from other countries or economies.
An MNC affiliate’s connections and identification with the home country’s culture and
11
values are partly determined by the extent to which it depends on its foreign parent company to
gain crucial resources (Pfeffer & Salancik, 1978). When an MNC affiliate relies heavily on its
foreign parent company for financial capital, technology, material supply, and/or sales channels,
it is more likely to conform to normative expectations of the MNC’s home country. Compared
with indigenous Chinese firms, the foreign parent company also tends to interpret “best
practices” more favorably and to pressure its affiliate to conform to these global standards.
Hypothesis 3: The stronger the MNC affiliate’s resource dependency on its foreign
parent company, the more likely that it adopts HCHPs.
How an MNC affiliate interprets and utilizes HCHPs is also determined in part by its
linkages to the host country’s local institutions. In particular, the Chinese parent company of the
MNC affiliate can serve as an important link for channeling the influence of the Chinese
institutions and for shaping the MNC affiliate’s managerial orientation. From the perspective of
path dependence and organizational inertia, an organization’s history will affect its current
behaviors (Barney, 1991). Compared to burgeoning private companies and other types of
Chinese companies, state-owned enterprises tend to inherit stronger socialist institutional legacy
and maintain closer ties with the Chinese government. Consequently, joint ventures between
MNCs and China’s state-owned enterprises may find it especially difficult to connect with and
embrace managerial ideologies and techniques originated in Western market economies.
Hypothesis 4: Compared with other types of MNC affiliates, joint ventures with stateowned Chinese enterprises are less likely to adopt HCHPs.
The type of workforce is another important factor affecting the adoption of HRM policies
(Baron & Kreps, 1999). According to the translation model, employees with different
12
backgrounds can have different interpretations of the same practice (Zilber, 2002). Under
China’s traditional command economy, workers were assigned by the state to companies, and
only until recent years had labor markets emerged in Chinese cities. Today many Chinese
companies no longer rely on the old method of state assignment but instead recruit employees
directly via market channels. Market-based employee recruitment should be more compatible
with market-oriented HRM best practices; while employees recruited through the traditional
channels tend to encounter stronger cognitive and ideological barriers for embracing imported
practices, employees who make themselves available on the labor market should, once hired, be
more open to HCHPs and can adjust to them more easily.
Hypothesis 5: MNCs affiliates that recruit employees through market channels are more
likely to adopt HCHPs.
Differential Impacts of HCHPs on Organizational Performance
The universal perspective treats all HCHPs as valuable components of the commitment-based
HRM system (Delery & Doty, 1996), and several studies have found that a greater use of the
HCHP system enhances organizational effectiveness in emerging economies (e.g., Bae et al.,
2003; Guthrie, 2001). However, other researchers argue that the HCHP system is not a panacea,
and whether or not “best practices” can fulfill their potential is contingent on the host country’s
institutional context—the specific social, cultural, and legal environments (Baron & Kreps, 1999;
Newman & Nollen, 1996; Robert et al., 2000).
Meanwhile, neoinstitutional theorists have long argued that incorporation of wellaccepted organizational structures and practices enhances organizational legitimacy and fosters
confidence among their constituencies (Meyer & Rowan, 1977). Following this line of thinking,
13
we propose that in the case of MNC affiliates, transferring HCHPs that are compatible with the
host country’s institutional environment, rather than incompatible ones, triggers qualitatively
different responses from various parties and thus produce differential impacts on organizational
effectiveness. Internally, compatible practices can convey strong and positive symbolic meanings,
serve as effective communication channels, and facilitate cross-cultural understanding between
foreign investors and local employees. Externally, these practices can contribute to
organizational legitimacy, help to construct a favorable public image, and strengthen interorganizational relations with indigenous business partners. In contrast, adopting practices that are
incompatible with the host country’s institutional environment risks confusion and antagonism.
Dissonant practices tend to be poorly understood or unappreciated by the local employees, and
they even present threats to employees’ perceptions of their organization’s identity (cf. Elsbach
& Kramer, 1996). Therefore, adoptions of incompatible practices may not produce desired
outcomes. For example, the Portman Hotel in San Francisco had tried to imitate the HRM in East
Asia, but its effort ended up in a complete failure because the practices transferred from East
Asia were incompatible with the American cultural norms and labor market institutions (Baron
& Kreps, 1999: 42). For similar reasons, the implementation of HCHPs in MNCs affiliates in
China is just as challenging. In fact, a recent study of small- and medium-sized enterprises in
China shows that not all commitment-oriented HR practices lead to better outcomes (Zheng,
Morrison, & O’Neill, 2006).
Hypothesis 6: Adoptions of institutionally compatible HCHPs make greater contributions
to organizational effectiveness than adoptions of institutionally incompatible ones.
QUANTITATIVE EVIDENCE
14
Data
To test the aforementioned hypotheses, we conducted surveys in 2007 in China, primarily in the
following four cities: Beijing, Tianjin, Dalian, and Xuzhou. These four cities all house a large
number of MNC affiliates and yet have different characteristics. Beijing is the nation’s capital
and an economic center; Tianjin and Dalian are among the 14 coastal cities first opened to
foreign investment in 1984; and Xuzhou is an inland city which, as a latecomer, has been
successful in attracting foreign investment. Among them, American and European MNCs have a
strong presence in Beijing and Tianjin, Japanese companies concentrate in Dalian, while Taiwan
and Hong Kong account for a high proportion of MNC affiliates in Xuzhou. By selecting these
four cities as the main sites of study, we were able to ensure sufficient representation for a wide
array of MNC home countries.
Given the low response rate to mail surveys in China (<10% per Zheng et al., 2006), we
mainly relied on several research partners in China and utilized their extensive connections with
the local business communities to secure cooperation from MNC affiliates. Similar data
collection strategies have been adopted by many studies of organizations in China (e.g., Akhtar,
Ding, & Ge, 2008; Farh, Tsui, Xin, & Cheng, 1998). We then hired graduate students in local
universities’ social sciences and business programs to conduct face-to-face interviews to
complete our questionnaires. Typically, the chief respondent was the company’s HR director or a
senior HR manager. We also encouraged our interviewers to contact, whenever possible, other
people such as the CEO and vice presidents to obtain or verify information on key organizational
characteristics and firm performance. In the end, we were able to collect data from 442 MNC
affiliates, and after data cleaning 398 of them were retained for the statistical analyses.
In our survey, we presented the chief respondents with 25 global HR practices in four
15
dimensions: compensation, recruitment, training and development, and empowerment (see Table
1). These 25 practices have been widely identified as HCHPs in the HRM literature (e.g., Baron
& Kreps, 1999: 191; Becker & Gerhart, 1996: 785). The respondent was asked to assess on a 7point scale (1=“not at all”; 7=“fully adopted”) the extent to which each practice had been
adopted in his/her company. We call this the company’s “adoption score” for each of the 25
HCHPs. The higher the score, the greater the extent of adoption.
To gauge the compatibility of each practice with China’s institutional environment, we
conducted a second survey where we interviewed 79 local experts. These experts included state
officials overseeing MNC-related affairs and scholars in Chinese universities specialized in
HRM and/or business management. We asked them to consider China’s culture, norms, values,
beliefs, and state laws and regulations and then to rate on a 7-point Likert scale (1=“completely
compatible”; 7=“completely incompatible”) the extent to which each of the 25 HCHPs was
compatible with China’s institutional environment. Cronbach’s alpha for the 79 experts’ ratings
is 0.89, indicating a high degree of inter-rater reliability. We then calculated the mean of the
expert ratings for each practice and use these 25 “compatibility scores” as the measures of
HCHPs’ institutional compatibilities.
Dependent Variables and Models
Our theoretical arguments necessitate two sets of statistical analyses, one examining the
adoptions of HCHPs and the other examining their impacts on organizational effectiveness. In
the first set of analysis, the dependent variable is the adoption score for each practice in an MNC
affiliate. Because the unit of analysis is company-practice, we restructured the data so that each
MNC affiliate in our sample had up to 25 records, one on each practice’s adoption. Because the
adoptions of different HCHPs by the same company cannot be treated as independent
16
observations, we use hierarchical linear models (HLM) to cope with the clustered error terms
within each company.
In the second set of analysis, the unit of analysis is the company. We created four
perceptual measures of organizational effectiveness, three focusing on the company’s HRM
outcomes and one on its overall organizational performance. The first measure, HR advantage, is
whether or not the company has any advantage in the area of HRM over its main competitors in
the same industry. This variable has four response categories: 1=“disadvantaged,” 2=“on par,”
3=“some advantage,” and 4=“major advantage.” The second measure, HR acceptance, is based
on the respondent’s assessment of the extent to which the company’s employees accept and
identify with its HRM. The response categories follow a 5-point Likert scale ranging from
1=“very low” to 5=“very high.” The third measure, management satisfaction with employees, is
constructed by computing the average score of managerial satisfaction with employees in the
following ten aspects (alpha=0.94): general performance, work ethics, skills and abilities,
efficiency, teamwork, initiatives, relationship with management, relationship among coworkers,
obedience, and loyalty. Each of these ten items is measured on a 7-point scale ranging from
1=“extremely unsatisfied” to 7=“extremely satisfied.” Finally, we constructed a measure of
overall organizational performance by computing the average score of the perceived
performance in eight aspects (alpha=0.93): profitability, market share and growth, product
quality, service quality, customer satisfaction, talent management, company reputation, and the
managerial efficacy. We use OLS regression for modeling all four dependent variables.
We adopt these perceptual measures of organizational performance for several reasons.
First, research has found that perceptual measures and objective measures of organizational
performance have a moderate to strong positive correlation (Delaney & Huselid, 1996). Second,
17
it is well established that objective information on the organization’s financial performance is
hard to obtain in East Asian countries (Bae et al., 2003), and China is no exception. Third, our
survey was conducted in the summer of 2007, and although for certain firms we were able to
obtain some financial performance information for 2006, it would be methodologically incorrect
to use this information as our dependent variable because of the issue of timing.
Independent Variables
The key independent variable in the first set of analysis is institutional compatibility, which is
measured by the compatibility score for each of the 25 practices based on experts’ ratings. The
MNC’s home country was measured with a set of dummy variables: the United States (the
reference category), European countries, Japan, New Industrialized Economies (hereafter NIEs,
including Hong Kong, Taiwan, Macao, Korea, Thailand, and Singapore), and a residual category
for all other countries. The MNC affiliate’s resource dependence on foreign parent company is
the sum of four items regarding its reliance on its foreign parent company for raw materials,
technology and equipment, marketing and sales channels, and financial capital, respectively.
Each item is measured on a 5-point scale where 1=“not at all” and 5=“completely”.
We classify all MNC affiliates into four groups based on the ownership of the MNC’s
Chinese partner: joint ventures with state-owned enterprises (the reference category), joint
ventures with private firms, joint ventures with other types of Chinese firms (e.g., collective
firms and township and village enterprises), and wholly foreign-owned companies (i.e., having
no Chinese partner). The variable market-based recruitment system is calculated as the sum of
three items regarding the extent to which the MNC affiliate relies on the following major labor
market channels for employee recruitment: open interviews and testing, employment agencies,
and talent exchange center. Each item is measured on a 4-point scale ranging from 1=“rarely
18
used” to 4=“being used as the main method.”
In the second set of analysis where we examine the differential effects of HCHP
adoptions on organizational effectiveness, we divided the 25 practices into two groups of
comparable sizes (see Table 1). The first group consists of 13 practices whose compatibility
scores are considerably higher than the overall mean (4.83) of experts’ compatibility ratings on
all practices. The second group includes the other 12 practices whose compatibility scores are
either around or below 4.83. Treating the first group as institutionally compatible practices, we
calculated the average adoption score for the 13 HCHPs for each company and used it as a
measure of the adoption of institutionally compatible HR practices. We then calculated the
average adoption score for the second group of 12 practices and use it as a measure of the
company’s adoption of institutionally incompatible HR practices.
In both sets of analyses, we control for several potentially relevant organizational
characteristics. Firm age is calculated by subtracting the company’s founding year from 2007,
i.e., the year of the survey. Firm size is measured as the logarithm term of the total number of
employees. Trade union is a dummy variable (has=1) indicating the presence of this important
organizational structure promoted by the Chinese government. According to the literature,
adopting a differentiation or cost reduction strategy can significantly affect a company’s HRM
policies (Arthur, 1992). While our data do not contain direct measures of strategy, we construct a
proxy measure for the labor cost reduction strategy based on the MNC’s principal incentive for
choosing to invest in China. This proxy measure is a dummy variable where 1 indicates that the
principal incentive was the vast, cheap labor source in China. Finally, we include two sets of
dummy variables to control for industries, including heavy, light (the reference category), hightech, and service, and for city locations, including Beijing, Tianjin, Dalian, Xuzhou (the
19
reference category), and a residual category for all other cities.
Results
Table 1 reports the average expert rating of institutional compatibility and the average firm
adoption score for each of the 25 practices. As plotted in Figure 1, there is a clear positive
association between the compatibility score and the level of adoption (Pearson’s r = 0.56). For
example, “compensation tied to individual performance” received the highest compatibility
rating from the experts, and its average adoption score also ranks high (3rd among the 25). The
high adoption score is no surprise because this practice is highly consistent with China’s state
policy—the government has sought to promote the merit system and has implemented policies to
compel Chinese enterprises to move in this direction. In contrast, “involve employees in solving
management-related problems” and “give employees significant autonomy and discretion in their
work” contradict the authoritarian style of management and the strict control over employees
under China’s traditional command economy. Not surprisingly, these practices aimed at
employee empowerment were rated as the least compatible, and their adoption scores were also
low. Also worth noting is the fact that both the compatibility scores and the average adoption
scores vary considerably from one practice to another. This suggests that although these practices
are all labeled as “best practices” in the global discourse, they do not receive equal levels of
acceptance and adoption in China’s institutional environment.
[Table 1 and Figure 1 about here]
Table 2 provides the descriptive statistics and correlation matrix for all variables included
in the statistical models.
20
[Table 2 about here]
Next we estimated a series of hierarchical linear models to examine the determinants of
HCHP adoptions. As reported in Table 3, the results show that firm-level errors consistently
account for about one-fifth of the total variance, indicating that firm characteristics are important
determinants of HCHP adoptions. As for control variables, we find that larger companies are
significantly more likely to adopt HCHPs, whereas those following a labor-cost-reduction
strategy are significantly less likely to do so. Compared with those in Xuzhou, MNC affiliates in
Beijing tend to have higher levels of HCHP adoptions, while those in Dalian tend to have lower
levels of adoptions. These patterns are generally consistent across all three models.
[Table 3 about here]
Model 1 includes control variables and independent variables aimed at capturing the
effects of foreign influence on MNC affiliates. Neither the MNC’s home country nor the
affiliate’s resource dependence on its foreign parent company has any discernible effect on
HCHP adoptions. Hypothesis 2 and Hypothesis 3 are thus not supported.
Model 2 adds independent variables measuring the MNC affiliate’s linkages with the host
country’s local institutions, and these variables significantly improve the model fit over Model 1.
As predicted by Hypothesis 4, we find that joint ventures with state-owned enterprises (the
reference category) are the least likely to adopt HCHPs and their average adoption level is
significantly lower than wholly foreign-owned enterprises and joint ventures with privately
owned Chinese companies. Not surprisingly, foreign-owned companies register the highest
degrees of HCHP adoptions, and joint ventures with burgeoning private companies come in
second, presumably due to their weaker imprints of the socialist legacy and ideology compared
21
to joint ventures with state-owned enterprises. There is also a strong positive association between
market-based employee recruitment and HCHP adoptions. Overall, both Hypothesis 4 and 5 are
supported. These findings indicate that HCHP adoptions in MNC affiliates in China are
significantly shaped by how they are connected to the Chinese local institutions. This stands in
sharp contrast to our null finding that neither the MNC’s home country nor the affiliate’s
resource dependency on its foreign parent company seems to matter much.
In Model 3, we add the variable of primary theoretical interest—the compatibility score
for each practice. This addition dramatically improves the model fit over Model 2. Clearly, each
practice’s idiosyncratic compatibility with China’s cultural and institutional environment exerts a
tremendous effect on its adoption: other things being equal, on average a one-unit increase in the
compatibility score increases the firm adoption score by 0.561.
The second part of our statistical analysis examines the differential impacts of adopting
institutionally compatible versus incompatible practices on organizational effectiveness.
According to regression models presented in Table 4, MNC affiliates with higher average
adoption scores for the 13 institutionally compatible practices perform significantly better in
terms of gaining advantages in HRM, securing employee acceptance of the HRM system,
achieving managerial satisfaction with employees, and excelling in organizational performance.
In contrast, a higher level of adoption of the 12 incompatible HCHPs has significant effects only
on the first two dependent variables. Moreover, as shown at the bottom of Table 4, the
differences between the two variables’ effects are significant (p < 0.05) for all measures of
organizational effectiveness except for HRM advantage. Overall, these findings render strong
support to our final hypothesis that MNC affiliates benefit more from adoptions of institutionally
compatible HCHPs than from adoptions of institutionally incompatible ones.
22
[Table 4 about here]
The high correlation between the two measures of HCHP adoptions (one for compatible
practices and one for incompatible practices) raises the concern of multicollinearity. To address
this concern, we checked the tolerances and variance inflation factors (VIF). The tolerances of
these two adoption measures are above 0.4 and their variance inflation factors (VIF) are below
2.5 (see Allison, 1999), indicating that multicollinearity is not a serious problem in these models.
Another issue pertains to whether or not our main finding in Table 4 depends on this particular
way of dividing the 25 HCHPs. To test for robustness, we estimate the same four models using
alternative thresholds (e.g., strictly using the overall mean of experts’ ratings, 4.83, to divide two
groups) as well as three-group divisions (“compatible” vs. “neutral” vs. “incompatible”). The
results are qualitatively the same, although they are not presented here due to space limits.
QUALITATIVE EVIDENCE: TWO CASE STUDIES
To complement survey data with richer, qualitative evidence, we conducted case studies
in seven MNC affiliates in Beijing and Dalian during our 2007 trip to China. For each company,
we made at least one on-site visit and interviewed its HR director, other managers, and
sometimes a few employees to collect information on the adoptions of global HRM practices, the
motivations behind them, and their impacts on organizational effectiveness. Whenever granted
permission, we would tape the entire interview; otherwise, we transcribed the interview notes
within 24 hours. These semi-structured interviews shed further light on the processes and
mechanisms of HCHP adoptions inside MNC affiliates in China.
In this paper we focus on two companies, both of which are located in Beijing and
23
operate in the high-tech electronic industry. We contrast their organizational backgrounds and
cultures, the style of HCHP transfer, and the effects of adoptions. Here we highlight how these
practices and their meanings were perceived and interpreted differently by Chinese employees
inside these organizations.
Case 1: The Sweeping Transfer of “Best Practices” and Its Failure in a Joint Venture
Company 1 was originally a subsidiary of a Chinese high-tech company established by a
prestigious local university. The majority of the company’s employees came from that university,
and many of its research scientists either used to or continued to serve as faculty members in the
university. Its HRM followed the traditional Chinese model of personnel management. The
personnel department occupied a marginal role in the company and its functions were limited.
Nonetheless, the company enjoyed high profitability in the early 1990s and was widely regarded
as an exemplary Chinese enterprise in the high-tech sector.
In the mid-1990s the company became a joint venture controlled by Hong Kong capital.
As a result of intensified market competition, toward the end of the 1990s Company 1 began to
experience financial difficulties and negative growth. In trying to turn things around, the
company’s board of directors decided to restructure its internal management in order to improve
market performance. Under the rhetoric of “importing paratroops,” the company hired a vice
president of a large American MNC as its new CEO. Under his leaderships, Company 1
overhauled its HRM system. The personnel department was transformed into a HR department.
Both its size and functions were expanded dramatically, giving the department greater power and
a much higher status. The CEO divided the company’s operation area into 6-7 districts and
appointed a senior HR director for each district. The whole set of “best practices” was introduced
as the global standard. As a result, performance appraisal, employee training, and teamwork now
24
received much greater emphasis than they used to previously. To facilitate these changes, the
CEO hired HRM experts from abroad to assist by designing specific standards and measures and
by giving seminars on “best practices.”
Nevertheless, the extensive introduction of “best practices” did not yield the expected
positive effects. These new practices were at odds with the old system and organizational culture
that the employees were accustomed to. Previously, the relationships among the employees were
similar to those among colleagues in an academic department or a research lab in the university;
research scientists were addressed as “professors.” With the introduction of “best practices,” this
type of collegial relationship was disrupted by the new emphasis on individual job performance,
which was explicitly and strictly defined according to the logics of market and profit. This
caused confusion and upset many old employees.
Overall, there was a considerable gap between the transferred “best practices” and the
company’s unique history and organizational culture. Because of this gap, these imported
practices presented a “cultural shock” to local employees, and their original positive meanings in
the Western culture were either lost, distorted, or reinterpreted negatively by local employees—
most of whom were recruited through the traditional non-market channels from the university.
As the employees were alienated by these imported HR practices, their morale dropped and
turnovers increased dramatically. Tension and frustration erupted in a fierce political struggle
between the new CEO and old senior managers supporting the more traditional way of
management. Eventually, the new CEO, who was mocked by the other side as “being
unaccustomed to the climate of a new place” (shui tu bu fu), resigned. The imported HR system
that he put in place was abandoned entirely as the company decided to “return to the tradition.”
Reflecting on the trajectory of the HRM reform, a senior manager in market operation concluded
25
that “every firm needs to find the right HRM model that fits its own organizational
characteristics, and it would be a disaster to remodel the system in a radical way.”
Case 2: Positive Effects of “Translated” Best Practices in a Swedish MNC Affiliate
Company 2 was a solely foreign-owned subsidiary established by a large, prestigious Swedish
MNC in the early 1990s. From the very beginning, Company 2 introduced a number of HCHPs.
For example, its compensation standard was set 50% above the industry average. Six to seven
percent of the employee’s income was directly tied to individual performance. Due to policy
restrictions imposed by the Chinese government, Company 2 could not offer its employee a
stock ownership plan as in the MNC’s affiliates in other countries, but it was able to implement a
“local cash program” which provided Chinese employees with cash allowances based on the
company’s stock performance.
One of our main informants in Company 2 was the deputy director of the HR department.
According to him, even though some adjustments were required by China’s laws and regulations,
overall the company’s HR system closely followed the blueprint of the Swedish parent company
and its style was unequivocally “foreign.” Yet, another main informant, a senior engineering
manager mentioned that new recruits were often surprised by the way Company 2 treated its
employees. A common reaction among them was that Company 2 appeared more like a domestic
Chinese firm and the company’s atmosphere made them feel right at home.
These seemingly contradictory accounts reflected a high degree of compatibility between
Company 2’s HR system and the values and beliefs of the Chinese employees, enabling foreign
practices to be successfully translated into this subsidiary. Unlike several American MNC
affiliates where we found an overwhelming emphasis on individual performance and tangible job
contributions, Company 2 focused more on cultivating the employee’s affection and commitment.
26
The company’s HR system was underpinned by a unique organizational culture originating from
Sweden’s welfare socialist tradition. Specifically, various practices it imported from the parent
company were framed around the notion of “respecting and caring for people.” These practices
emphasized the construction of trust and cooperation between employees and managers. The
core messages embodied in these practices were highly akin to cherished socialist ideals and
resonated well with the socialist rhetoric (e.g., workers as “masters of the house”) which had
been popularized, albeit much less materialized, under China’s socialist system.
Upon entering the company’s main building, many visitors would be impressed by its
bright and open working environment. In contrast to the large public spaces (e.g., the employee
lounge), even senior managers did not have private, enclosed offices but rather worked in
cubicles just like ordinary employees. Employees were encouraged to take broad initiatives in
their work. They could also decide when to take a lunch break, and timecards were not required
to record their working hours. Moreover, the company sought to cultivate a sense of family and
belongingness among its employees. For example, while it was not uncommon for MNC
affiliates in China to throw welcoming parties for new hires, Company 2 also regularly hosted
farewell parties to say thank-you to those departing the company. Together these efforts and
activities helped to create an atmosphere with strong symbolic meanings where employees felt
they were respected and trusted by the company.
The deputy HR director, who previously worked for a company owned by a worldrenowned American MNC, noted that despite some similarities in the formal procedures,
performance appraisal and employee training were conducted differently in these two companies.
Specifically, performance appraisal in the American MNC affiliate focused on individual
performance and the results were used primarily for determining economic compensation. In
27
contrast, in Company 2 performance appraisal moved beyond its evaluative purpose and was
carried out as an additional channel for two-way communications. The process emphasized
identifying how managers might assist employees with their development and addressing
employees’ issues and concerns with the company. As for employee training, the company
offered a number of in-house training programs, including MBAs and seminars preparing
ordinary employees for managerial positions. To be sure, these kinds of practices were no
strangers to many American and European corporations, yet Company 2 was able to integrate
them well to the employee-centered organizational culture and thus earned a high level of
acceptance from Chinese employees.
Despite the “foreignness” of its origin, the resulting HR system in Company 2 proved
highly compatible with the mentality of Chinese employees which was heavily influenced by
China’s socialist values and rhetoric. Throughout our visit, several themes had emerged with
regard to how people in the company understood and evaluated those imported practices. First,
our two main informants made repeated references to the notion of “harmony” in describing the
manager-employee relationships. This was not only rooted in the traditional Chinese culture but
also strongly emphasized by the current Chinese government in its attempt to ameliorate
conflicts and to strive for a “harmonious society” (he xie she hui). Second, our informants spoke
gratefully about what the company did to “take care of” its employees, which was highly valued
as a defining attribute of an exemplary employer under China’s traditional welfare system.
Finally, practices aimed at creating trust, respect, and a sense of belonging were connected to
entrenched socialist values, particularly the ideal that workers were “masters of the house.”
These translated “best practices” apparently achieved a great success. For example, every
year the company administered a satisfaction survey to all employees. Although participation
28
was voluntary, the response rate had always been high and reached 98% in 2006. In a public
survey of companies operating in China, Company 2 was ranked among the top five in both
employee satisfaction and human capital index. During the past few years, it had also been
named as one of “the best companies to work for in China” and one of “the most admired
company in China.” As the senior engineering manager told us proudly, the company had a very
low turnover rate, largely because the company “cultivates employees’ loyalty by affection.” He
further compared Company 2 with its major rival in China, a MNC affiliate headquartered in
Canada but having strong bases in the U.S. The latter had tried hard to reproduce the same HR
practices as in its parent company. The resulting HR system characterized by strong emphases on
individual performance, monetary compensation, and market profitability was not well received
by its employees. Morale was low, and the turnover rate was high. Not surprisingly, Company 2
outperformed its major rival in the fierce market competition in China.
DISCUSSION AND CONCLUSION
This study reconciles two distinct views in the institutional analysis—the diffusion model
and the translation model. We agree with the diffusion model that organizations are subject to
strong institutional pressures which compel them to conform to certain structures and practices
(DiMaggio and Powell, 1983; Meyer and Rowan, 1977). However, we also concur with the
translation model that individual organizations and their employees often play an active role in
interpreting and transforming the meanings of imported practices (Czarniawska & Joerges, 1996;
Zilber, 2002, 2006).
Bridging the diffusion model’s macro-perspective and the translation model’s microperspective, we advance the literature by analyzing the content and conditions of the
29
international transfer of organizational practices and the outcomes of such transfers. We propose
that the extent of compatibility between a global practice and the local institutional environment
is an important factor affecting its adoption and impact on organizational performance. More
specifically, those global practices (e.g., HCHPs) that are compatible with the local institutional
environment are more likely to be adopted and that they are also more effective in improving
firm performance. Our empirical evidence is drawn from MNC affiliates in China, the world’s
largest emerging economy characterized by a distinct culture and a strong socialist legacy. We
employ both statistical analyses of original data from a recent organizational survey and two case
studies to reach a deeper understanding of the general patterns of practice adoptions, the impacts
on organizational performance, and the actual processes and mechanisms operating within
organizations.
Main Findings and Theoretical Implications
In this study we explicitly measure the compatibility of each “best practice” with China’s
institutional environment. The quantitative evidence shows that there are significant variations
among HCHPs in their level of compatibility with the local institutional environment and that
institutional compatibility is a crucial determinant of the extent of adoption, which also varies
tremendously across HCHPs. Moreover, whereas an MNC affiliate’s connections with its home
country exert no discernible effects on its patterns of practice adoption, its links with the host
country’s institutional arrangements affect its adoption of HCHPs. For each HCHP, there is an
issue of compatibility not only with the host country’s institutional environment at the societal
level, but also with each individual organization’s culture, history, and workforce composition.
While the former helps to explain the average extent of adoption, our analysis also demonstrates
the importance of the latter in the adoption process. Specifically, we find that compared to
30
wholly foreign-owned firms and joint ventures with private firms, joint ventures with stateowned firms are the least likely to embrace HCHPs; and that MNC affiliates that recruit
employees through market channels are more likely to adopt these global practices. In this light,
firms do not behave as “institutional dumps” that dogmatically reproduce the entire set of
HCHPs; instead, they strategically select those practices that are compatible with the societallevel cultural and institutional environment as well as their organizational cultures and
backgrounds at the micro-level.
We further examine how institutional compatibility mediates the effects of HCHP
adoptions on organizational effectiveness. As opposed to extant HRM studies which focus on the
impact of the entire HR system, we propose that the adoptions of institutionally compatible
HCHPs versus those of institutionally incompatible ones may have different consequences for
organizational legitimacy, employee consent and support, and relationships with external parties.
Our statistical analysis lends support to this hypothesis. We find consistent evidence that MNC
affiliates benefit from the adoptions of institutionally compatible HCHPs. In contrast, the effects
of adopted incompatible HCHPs are much weaker and much less systematic.
The qualitative evidence based on two case studies complements the general patterns
depicted by the quantitative findings and deepens our understanding of internal processes and
mechanisms affecting their adoptions and their consequences within organizations. These two
cases show dramatically different patterns in the adoption of HCHPs and their impacts on
organizational effectiveness. Under the new CEO’s leadership, Company 1 resorted to a
sweeping transfer of the whole set of HCHPs. This simple imitation of global practices alienated
Chinese employees who had become accustomed to the traditional HRM style. In contrast,
Company 2 transferred those “best practices” that were compatible with the local environment
31
and employee mentality. Through successful “translation,” Company 2’s HR practices were well
received by local employees and improved firm performance. Overall, the qualitative evidence is
consistent with the quantitative evidence and renders further support to our key hypotheses on
the important role of compatibility in determining HCHP adoptions and their impacts on the
organization.
Although our empirical evidence is drawn from China, a country characterized by a
distinct institutional environment, the relevance of our findings is by no means limited to this
country alone. During our conversation with the Vice President of a large American MNC who
oversaw the company’s HRM, we asked whether the MNC would try to transfer well-established
American practices to all of its foreign subsidiaries or if it would adapt them to the local culture
and institutional environment. Her response was illustrating:
“This company generally keeps 80% of established practices in the home country
but is willing to change the other 20% that are more culturally sensitive. For
example, if 360-degree evaluation is not acceptable to local employees or the
local culture, we are willing to adjust it. It seems that other MNCs tend to adopt
the same 80-20 strategy.” (research notes, April 2008)
Another example is the strikingly different HRM practices across subsidiaries of HewlettPackard (HP). Although HP, a pioneer in adopting the HCHP system, has systematically
implemented HCHPs in the U.S., it used metal detectors to screen production workers at some
facilities in East Asian countries (e.g., in Singapore). An apparent deviation from the standard
HCHP was nevertheless compatible with the local institutional environment characterized by the
extensive governmental control over the society (Baron & Kreps, 1999).
Bridging the diffusion model’s macro-perspective and the translation model’s micro-
32
perspective, our research findings have important theoretical implications for advancing
institutional analysis. We highlight the interactions between normative pressures permeating an
institutional field (e.g., the global community) and local actors such as the state, organizations,
and employees inside organizations. Despite the potency of the institutional pressures, local
actors are not passive responders. Instead of transferring a whole set of global practices, they
selectively adopt those practices that are consistent with the local cultural and institutional
environments. When transferring a practice from an external field to a local setting, meanings are
not taken for granted, but rather they are contested; and the original connotation, symbolic
significance, and image of a practice are often transformed (Zilber, 2002).
Because of varying degrees of institutional compatibility among practices and various
institutional and organizational barriers in different local settings, the international transfer
process is unlikely to lead to worldwide homogenization as the neoinstitutionalism and the
diffusion model imply. Rather, the alignment and filtering mechanisms during the transfer
process can result in divergent adoption patterns which may be further reinforced by differential
consequences of practice adoptions. In this sense, our study sheds new light on the interactions
between external pressures in an institutional field and internal organizational dynamics that
result in organizational change (Greenwood & Hinings, 1996).
Practical Implications
A fundamental issue in international HRM pertains to whether MNC affiliates should try their
best to implement all HCHPs or if they should adopt a contingent approach that takes into
consideration the host country’s local environment. Our perspective integrating the diffusion
model and the translation model provides theoretical reasons in favor of the latter. Our empirical
study also shows that institutional compatibility plays a significant role in determining the effects
33
of HCHPs on organizational performance. This finding suggests that HRM practitioners in
MNCs need to make a conscious effort to understand the host country’s culture and institutions,
selectively transfer HCHPs based on their compatibilities with local institutions and the
affiliate’s culture, history, and workforce characteristics. Our cases studies further show that
organizations are indeed “infused with value” (Selznick, 1957: 17). Therefore, during the
transfer process, companies need to align new practices with existing values and beliefs. They
can do so by reframing the practices’ meanings and reinventing their symbolic significance to
capture the hearts and minds of local employees. This may be especially important in China and
other emerging economies where their markets and legal systems are still underdeveloped and
their social and cultural fabrics remain resilient.
More broadly, our study challenges the universal perspective on “best practices” in HRM
and similar global practices in other areas of management. Unconditionally transferring “best
practices” in a wholesale manner might improve organizational performance, yet it is not likely
to be the optimal strategy because it neglects the crucial issue of compatibility. The inclusion of
institutionally incompatible practices in the adoption package may alienate local employees,
threaten their identities, and yield negative consequences. Bridging global practices with the
local culture and aligning them with cherished local values are the keys to realizing the full
potentials of these practices. Our study suggests that there should be no uniform, one-size-fits-all
HRM practices or systems; instead, each firm needs to transfer those “best practices” that are
compatible with the external environment and the firm’s characteristics.
Limitations and Future Research
Although our results show clear and plausible patterns, they should be interpreted with caution
due to several methodological limitations. First, our organizational effectiveness variables were
34
all perceptual measures. Although these measures confer certain advantages for comparing firms
across industries and markets, studies in the future should try to complement them with more
objective measures (e.g., returns on asset and market share growth) in order to better assess the
effects of HRM practices on organizational performance.
Second, the cross-sectional research design of our study raises the potential issue of
reverse causality. For instance, one might suspect that MNC affiliates with higher organizational
performances are more likely than others to adopt HCHPs due to the availability of slack
resources. Issues as such can be best addressed with longitudinal data which future studies
should try to collect. On the other hand, as shown in Table 4, the different associational patterns
between organizational performance and compatible and incompatible HRM practices,
respectively, give us greater confidence in the main findings of this study.
Third, in a majority of the MNC affiliates we surveyed, most of the information came
from a single informant—the HR director or a senior HR manager. This raises the concern that
some data may be prone to the problem of common-source biases. Nevertheless, the measure of
our key variable of theoretical interest, institutional compatibility, is directly based on experts’
ratings from a separate survey. Thus, our key findings on how institutional compatibility affects
practices’ adoptions and their effectiveness are unlikely to be affected by common-source biases.
Finally, our study is limited to a single country and a single area of management. With
sufficient resources, researchers should try to collect data on the compatibilities of other
organizational practices and structures, their degree of adoption by indigenous companies, and
organizational performance in multiple countries. Such data will provide the most conclusive test
for the arguments presented in this paper and generate more empirical evidence on the complex
patterns in the international transfer of global practices.
35
REFERENCES
Allison, P. D. 1999. Multiple regression: A primer. Thousand oaks, CA: Pine Forge Press.
Akhtar, S., Ding, D. Z., & Ge, G. L. 2008. Strategic HRM practices and their impact on company
performance in Chinese enterprises. Human Resource Management, 1: 15-32.
Arthur, J. B. 1992. The link between business strategy and industrial relations systems in
American steel minimills. Industrial and Labor Relations Review, 45: 488-506.
Arthur, J. B. 1994. Effects of human resource systems on manufacturing performance and
turnover. Academy of Management Journal, 37: 670-687.
Bae, J., & Lawler, J. J. 2000. Organizational and HRM Strategies in Korea: Impact on Firm
Performance in an Emerging Economy. Academy of Management Journal, 43: 502-17.
Bae, J., Chen, S., Wan, T., Lawler, J., & Walumbwa, F. 2003. Human resource strategy and firm
performance in Pacific Rim countries. The International Journal of Human Resource
Management, 14: 1308-1332.
Baron, J. N., & Kreps, D. M. 1999. Strategic human resources: Frameworks for general
managers. New York, NY: John Wiley & Sons, Inc.
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management,
17: 99-120.
Becker, B., & Gerhart, B. 1996. The impact of human resource management on organizational
performance: Progress and prospects. Academy of Management Journal, 39: 779-801.
Creed, D. W. E., Scully, M. A., & Austin, J. R. 2002. Clothes make the person? The tailoring of
legitimating accounts and the social construction of identity. Organizational Science, 13:
475-496.
Czarniawska, B., & Joerges, B. 1996. Travels of ideas. In B. Czarniawska & G. Sevón (Eds).
Translating organizational change: 13-48. Walter de Gruyter.
Delaney, J. T., & Huselid, M. A. 1996. The impact of human resource management practices on
perceptions of organizational performance. Academy of Management Journal, 39: 949969.
Delery, J. E., & Doty, D. H. 1996. Modes of theorizing in strategic human resource management:
Tests of universalistic, contingency, and configurational performance predictions.
Academy of Management Journal, 39: 802-835.
DiMaggio, P., & Powell, W. 1983. The iron cage revisited: Institutional isomorphism and
collective rationality in organizational fields. American Sociological Review, 48: 147160.
36
Doorewaard, H., & van Bijsterveld, M. 2001. The osmosis of ideas: An analysis of the integrated
approach to IT management from a translation theory perspective. Organization, 8: 5576.
Durkheim, É. 1912 [2001]. The Elementary forms of religious life. Oxford University Press.
Edelman, L. B. 1992. Legal ambiguity and symbolic structures: Organizational mediation of civil
rights law. American Journal of Sociology, 97: 1531-1576.
Elsbach, K. D., & Kramer, R. M. 1996. Members’ responses to organizational identity threats:
Encountering and countering the Business Week rankings. Administrative Science
Quarterly, 41: 442-476.
Farh, J. L., Tsui, A. S., Xin, K., & Cheng, B. S. 1998. The Influence of relational demography
and guanxi: The Chinese case. Organization Science, 9: 471-488.
Frenkel, M. 2005. The politics of translation: How state-level political relations affect the crossnational travel of management ideas. Organization, 12: 275-301.
Friedland, R., & Alford, R. R. 1991. Bringing society back in: Symbols, practices, and
institutional contradictions. In W. W. Powell & P. J. DiMaggio (Eds). The new
institutionalism in organizational analysis: 232-63. Chicago, IL: The University of
Chicago Press.
Greenwood, R., & Hinings, C. R. 1996. Understanding radical organizational change: Bringing
together the old and the new institutionalism. Academy of Management Review, 21:
1022-1054.
Guler, I., Guillén, M. F., & Macpherson, J. M. 2002. Global competition, institutions, and the
diffusion of organizational practices: The international spread of ISO 9000 quality
certificates. Administrative Science Quarterly, 47: 207-32.
Guthrie, J. P. 2001. High-involvement work practices, turnover, and productivity: Evidence from
New Zealand. Academy of Management Journal, 44: 180-190.
Huselid, M. A. 1995. The impact of human resource management practices on turnover,
productivity, and corporate financial performance. Academy of Management Journal, 38:
635-672.
Kostova, T., & Roth, K. 2002. Adoption of an organizational practice by subsidiaries of
multinational corporations: Institutional and relational effects. Academy of Management
Journal, 45: 215-233.
Lawler, J. J. 2006. Cultural and institutional determinants of HR systems in international
affiliates of American multinational corporations. Final report to SHRM Foundation.
Martin, G., & Beaumont, P. 1998. Diffusing “best practices” in multinational firms. The
International Journal of Human Resource Management 9: 671-695.
37
Meyer, J. W., & Rowan, B. 1977. Institutionalized organizations: Formal structure as myth and
ceremony. American Journal of Sociology, 83: 340-63.
Meyer, J. W., Boli, J., Thomas, G. M., & Ramirez, F. O. 1997. World society and the nationstate. American Journal of Sociology, 103: 144-81.
Meyer, J. W., Ramirez, F. O., Soysal, Y. N. 1992. World expansion of mass education, 18701980. Sociology of Education, 65: 128-149.
Newman, K. L., & Nollen, S. D. 1996. Culture and congruence: The fit between management
practices and national culture. Journal of International Business Studies, 27: 753-779.
Pfeffer, J., & Salancik, G. 1978. The external control of organizations. New York: Harper &
Row.
Robert, C., Probst, T. M., Martocchio, J. J., Drasgow, F., & Lawler, J. J. 2000. Empowerment
and continuous improvement in the United States, Mexico, Poland, and India: Predicting
fit on the basis of the dimensions of power distance and individualism. Journal of
Applied Psychology, 5: 643-658.
Rosenzweig, P. M., & Nohria, N. 1994. Influences on human resource management practices in
multinational corporations. Journal of International Business Studies, 25: 229-251.
Scott, W. R. 1995. Introduction: institutional theory and organizations. In W. R. Scott & S.
Christensen (Eds.). The institutional construction of organizations: xi-xxiii. Thousand
Oaks, CA: Sage Publications.
Selznick, P. 1957. Leadership in administration. Evanston, IL: Pow, Peterson.
Strang, D., & Meyer, J. W. 1993. Institutional conditions for diffusion. Theory and Society, 22:
487-511.
Zheng, C., Morrison, M., & O’Neill, G. 2006. An empirical study of high performance HRM
practices in Chinese SMEs. International Journal of Human Resource Management 17:
1772-1803.
Zilber, T. B. 2002. Institutionalization as an interplay between actions, meanings, and actors:
The case of a rape crisis center in Israel. Academy of Management Journal, 44:234-254.
Zilber, T. B. 2006. The work of the symbolic in institutional processes: Translations of rational
myths in Israeli High Tech. Academy of Management Journal, 44:281-303.
38
Table 1: Compatibilities of 25 high-commitment HR practices with the Chinese institutional
environment and their adoptions by MNC affiliates, 2007
Average expert rating
of compatibility
Average score of firm
adoption
Compensation tied to individual performance
Selection is based on the overall fit with the company
Invest a lot in employee training
Try best to select and recruit the best employees
Recruitment emphasizes candidate potential for learning/development
Employees routinely participate in group discussions on production
Compensation tied to company or business unit’s performance
Create conditions that allow the employees to take initiatives
Design formal job descriptions
Use performance appraisal to set goals for employee’s development
Ensure employee job security
Emphasize the development of general skills in training
Addresses the skill needs of future positions in training
5.62
5.29
5.28
5.22
5.16
5.14
5.13
5.10
5.00
4.99
4.92
4.92
4.92
4.93
4.67
4.36
5.20
4.73
4.35
4.42
4.43
4.61
4.81
5.08
4.32
4.26
Mean of 13 compatible practices
Standard deviation of 13 compatible practices
5.13
0.20
4.63
0.31
Use job rotation to develop employee skills and careers
Involve employees in solving production-related problems
Offer long-term incentives plans (e.g., profit-sharing)
Have formal procedures for performance appraisal
Notify all eligible employees of internal promotion opportunities
Share business information with employees in a timely manner
Offer higher compensation than main industry competitors
Give preferences to internal candidates for new job openings
Minimizes status differences among employees
Involve employees in solving management-related problems
Compensation tied to seniority (reverse)
Give employees significant autonomy and discretion in their work
4.84
4.78
4.78
4.73
4.62
4.59
4.53
4.48
4.44
4.13
4.11
3.96
3.70
4.21
3.16
4.76
4.67
4.06
3.63
4.64
4.52
3.68
4.21
3.79
Mean of 12 incompatible practices
Standard deviation of 12 incompatible practices
4.50
0.29
4.09
0.50
Overall mean of 25 HCHPs
Standard deviation of 25 HCHPs
N
4.83
0.40
79
4.37
0.49
327-398
High-Commitment HR Practices
Practices categorized as institutionally compatible:
Practices categorized as institutionally incompatible:
39
Table 2: Descriptive statistics and correlations
Variables
mean
s.d.
1
2
3
4
5
6
7
8
9
10
11
12
1
HRM advantage
2.52
.78
2
HRM acceptance
3.35
.75
.49
3
Mgmt. satisfaction with employees
3.57
.59
.44
.57
4
Organizational performance
5.18
.85
.32
.38
.43
5
Firm age (log)
1.63
.88
.07
.04
.04
.14
6
Firm size (log)
4.93
1.63
.22
.17
.05
.19
.28
7
Trade union
.44
.50
.21
.09
.05
.14
.21
.40
8
Strategy of labor cost reduction
.29
.45
-.00
-.05
-.14
-.25
.01
.08
-.03
9
Heavy industry
.27
.44
-.01
-.10
-.06
.05
-.05
.04
.07
.00
10
High-tech industry
.10
.29
.08
.06
.11
.08
.05
.01
-.05
-.04
-.20
11
Service industry
.25
.43
-.03
.01
.11
.04
.07
-.17
-.11
-.15
-.35
12
City location – Beijing
.17
.38
.05
.07
.19
.21
.10
-.17
.16
-.17
-.22
.22
.41
13
City location – Tianjin
.11
.31
-.01
.04
.04
-.03
-.00
.13
.15
-.08
.01
-.00
.06
-.16
14
City location – Dalian
.24
.43
-.14
-.12
-.10
.00
.01
-.03
-.08
.13
.24
-.08
-.15
-.25
15
City locations – others
.07
.25
.02
-.04
.01
.02
.08
.10
-.08
-.02
-.05
.08
-.04
-.12
16
Home country – European
.17
.37
.03
.05
.06
.25
-.06
.01
-.07
-.08
.05
-.08
.05
.08
17
Home country – Japan
.22
.41
-.17
-.11
-.05
-.15
.09
.00
-.02
.13
.15
-.07
-.12
-.09
18
Home country – NIEs
.38
.49
.05
.04
-.07
-.07
-.02
-.00
.06
.00
-.14
-.04
.08
-.04
19
Home country – others
.06
.23
.07
-.02
.03
.07
-.06
-.04
-.04
-.01
-.05
-.04
.07
.04
20
Dependence on foreign parent company
7.79
3.79
-.02
-.05
-.05
-.03
.06
.19
.07
.22
.23
.01
-.18
-.22
21
CHN partner – no (wholly frgn-owned)
.51
.50
-.09
.03
.08
.06
.01
-.13
-.21
.04
.04
.08
.01
.23
22
CHN partner – private firm
.19
.40
.06
.07
-.06
-.04
-.19
-.04
.00
.05
-.04
-.09
-.10
-.17
23
CHN partner – other types of firm
.15
.36
.08
-.04
.01
-.08
.07
.07
.04
-.00
-.08
-.02
.07
-.06
24
Market-based recruitment system
6.77
2.05
.04
.02
-.09
-.05
-.01
.25
.20
.17
.20
-.15
-.15
-.34
25
Adoption of compatible HCHPs
4.52
.80
.39
.49
.44
.38
.07
.11
.13
-.20
.00
.09
.07
.17
26
Adoption of incompatible HCHPs
4.11
.81
.40
.48
.38
.30
.06
.13
.14
-.10
-.04
.10
.08
.15
-.19
Note: N ranges from 359 to 398 for each variable; Correlations greater than 0.10 are significant at p<0.05.
40
Table 2 continued:
Variables
1
HRM advantage
2
HRM acceptance
3
Mgmt. satisfaction with employees
4
Organizational performance
5
Firm age (log)
6
Firm size (log)
7
Trade union
8
Strategy of labor cost reduction strategy
9
Heavy industry
13
14
15
16
17
18
19
20
21
22
23
24
10
High-tech industry
11
Service industry
12
City location – Beijing
13
City location – Tianjin
14
City location – Dalian
-.19
15
City locations – others
-.09
-.15
16
Home country – European
-.01
-.09
.04
17
Home country – Japan
-.11
.49
-.07
-.24
18
Home country – NIEs
.03
-.23
-.01
-.35
-.41
19
Home country – others
-.08
-.03
-.07
-.19
-.13
-.11
20
Dependence on foreign parent company
.27
.20
-.02
-.12
.27
-.02
-.17
21
CHN partner – no (wholly frgn-owned)
-.03
.27
.04
-.03
.26
-.21
.06
.16
22
CHN partner – private firm
-.13
-.14
-.11
.18
-.15
-.07
.02
-.19
-.50
23
CHN partner – other types of firm
-.01
-.15
.06
.15
-.15
.06
-.10
-.04
-.43
24
Market-based recruitment system
.05
.16
.12
.05
.11
-.09
-.02
.28
-.05
.04
-.10
25
Adoption of compatible HCHPs
-.02
-.16
.01
.06
-.14
.07
-.03
-.09
-.01
-.02
.06
.10
26
Adoption of incompatible HCHPs
-.04
-.16
-.01
.02
-.15
.11
-.02
-.06
.03
.02
.01
.12
25
-.20
.75
Note: N ranges from 359 to 398 for each variable; Correlations greater than 0.10 are significant at p<0.05.
41
Table 3: Hierarchical linear models of high-commitment HR practice adoptions in MNC
affiliates in China, 2007
Covariates
Intercept
Control variables:
Firm age (log)
Firm size (log)
Trade union (has=1)
Strategy of labor cost reduction
Industry: (ref=light industry)
Heavy industry
High-tech industry
Service industry
City location: (ref=Xuzhou)
Beijing
Tianjin
Dalian
Other cities
Variables of theoretical interest:
MNC home country: (ref=US)
European countries
Japan
NIEs
Other countries
Dependence on foreign parent company
MNC Chinese partner: (ref=state-owned enterprise)
Wholly foreign-owned (no Chinese partner)
Private firm
Other types of firm
Market-based recruitment system
Institutional compatibility of the practice
Model 1
3.792***
0.033
0.073**
0.152
-0.251**
0.097
0.192
0.146
Model 2
3.307***
0.069
0.059*
0.161
-0.297***
Model 3
0.321
0.070
0.058*
0.164
-0.295***
0.079
0.283
0.157
0.075
0.283
0.150
0.374**
-0.291
-0.148
-0.149
0.368*
-0.292
-0.223*
-0.295
0.361*
-0.288
-0.223*
-0.296
0.048
-0.172
0.140
0.070
0.010
0.102
-0.215
-0.002
0.048
-0.0002
0.098
-0.220
-0.003
0.049
0.0004
0.371**
0.320*
0.222
0.090***
0.372**
0.320*
0.224
0.090***
0.561***
Number of firm-practices
Firm-level variance (j )
Practice-level variance (ij)
7721
0.424
1.594
7721
0.391
1.595
7721
0.390
1.544
-2 Log-likelihood
AIC
BIC
26206
26210
26217
26193
26197
26205
25958
25962
25970
* P < 0.05 ** P < 0.01 *** P<0.001 (two-tailed tests)
42
Table 4: Differential impacts of adopting compatible versus incompatible high-commitment HR
practices on organizational effectiveness in MNC affiliates in China, 2007
Covariates
Intercept
Firm age (log)
Firm size (log)
Trade union (has=1)
Strategy of labor cost reduction
Industry: (ref=light industry)
Heavy industry
High-tech industry
Service industry
City location: (ref=Xuzhou)
Beijing
Tianjin
Dalian
Other cities
MNC home country: (ref=US)
European countries
Japan
NIEs
Other countries
Dependence on foreign parent company
MNC Chinese partner: (ref=state firm)
Wholly foreign-owned (no CHN partner)
Private firm
Other types of firm
Market-based recruitment system
HCHP adoption:
Adoption of compatible HCHPs
Adoption of incompatible HCHPs
Advantage of
HRM system
Acceptance of
HRM system
Satisfaction w/
employees
Organizational
performance
0.261
0.017
0.066*
0.154
0.096
0.818**
-0.001
0.067*
-0.013
0.062
2.103***
-0.007
0.020
0.053
-0.060
2.934***
0.035
0.091**
0.127
-0.280**
-0.007
0.044
-0.097
-0.139
-0.065
-0.041
-0.052
0.102
0.065
0.120
0.119
0.049
0.074
-0.017
-0.003
0.017
-0.072
0.157
-0.013
-0.188
0.041
0.123
-0.033
0.039
0.284
0.109
0.354**
0.208
0.041
-0.175
0.054
0.432*
0.008
0.004
0.003
-0.007
-0.175
-0.017
-0.002
0.032
-0.077
0.072
0.003
0.564***
-0.074
0.093
0.458*
0.012
0.128
0.233
0.229
-0.019
0.262*
0.262
0.025
-0.026
0.156
0.106
0.046
-0.032
0.067
0.152
-0.087
-0.051*
0.208**
0.194*
0.380***
0.163*
0.258***
0.068
0.390***
-0.037
d.f.
Number of firms
R2
Adjusted R2
22
325
0.262
0.209
22
318
0.356
0.308
22
336
0.244
0.191
22
320
0.333
0.283
Difference btw coefficients of compatible &
incompatible HCHP adoptions
t-value
p-value (one-tailed)
0.014
0.217†
0.190†
0.427†
0.10
0.460
1.71
0.044
1.83
0.034
2.81
0.026
* P < 0.05 ** P < 0.01 *** P<0.001 (two-tailed tests)
† P < 0.05 (one-tailed tests)
43
Figure 1: Institutional compatibility and the adoptions of 25
high-commitment HR practices in MNC affiliates in China, 2007
5.5
Adoption score
5
4.5
4
3.5
3
3.5
4
4.5
5
5.5
6
Institutional compatibility rating
44