The Adoption of Human Resource Management Practices &Perceived
Performance of Foreign Subsidiaries
Dr Maura Sheehan
Reader
University of Brighton
EU Marie Curie Scholar, 2009-2012
UFHRD Conference Chair, Brighton, 2013
m.sheehan@brighton.ac.uk
Stream 2: Full Paper
Abstract
Set within the framework of institutional theory, this paper examines the implications of the
transfer of Human Resource Management (HRM) practices, including management
development (MD), for perceived performance in subsidiaries of multinational corporations
(MNCs). It is found that the mere presence of HR practices does not fully capture the more
nuanced nature and extent of transfer and the associated relation to perceived subsidiary
performance.
A positive association is found between a greater number of HR practices (the presence of
practices) and perceived subsidiary performance. The interaction of high levels of
implementation and internalisation was very significantly associated with better perceived
subsidiary performance than the presence of more practices. Finally, analysis of the relation
between adoption typologies and perceived subsidiary performance found a positive and very
significant association between ‘active’ adoption and perceived subsidiary performance; a
positive and significant relationship for subsidiaries where adoption was in ‘assent’; and no
significant relationship where there was ‘ceremonial’ or ‘minimal’ adoption. The analysis is
based on data from multiple respondents (a HR Specialist/Manager and a line manager) in
foreign subsidiaries of UK-owned MNCs.
Keywords: Human resource management; implementation and internalisation; transfer of
HR practices; multinational corporations (MNCs); perceived subsidiary performance.
1
Reviews of the human resource (HR) – performance relationship (see, for example,
Boselie, Dietz & Boon 2005; Combs, Ketchen, Hall & Liu, 2006; Guest, 2011) find an
association between a greater number of HR practices and various indicators of
organisational performance.
Despite the vast number of empirical studies on the HR-
performance relationship, few studies have examined whether this relationship applies within
subsidiaries of multi-national corporations (MNCs). A notable exception, Foley, Ngo & Loi
(2010), find that the use of high performance work systems (HPWS) did indeed have a
positive association with the performance of foreign subsidiaries based in Hong Kong. There
remains, however, a dearth in the understanding of how this HR-performance relationship
operates. The process perspective tries to answer this by examining the ‘how’ question, i.e.,
how is organisational performance achieved through HR management? (Sanders & Frenkel,
2011). While this is a relatively new research area in the context of the HR-performance
literature, the importance of process– especially HR practice transfer and adoption - has
already received considerable attention in the international human resource management
literature (e.g., Collings & Dick, 2011; Kostova & Roth, 2002).
Increased globalisation, especially the ever rising flow of foreign direct investment
(FDI) into emerging economies, has been a driving force behind the emergence of the
literature which seeks to understand the extent, determinants and process of, management
practice transfers. Given the importance of human resources for sustained competitive
advantage, MNCs utilise advanced and sophisticated practices and systems. These HR
practices are viewed as valuable resources or competences that managers are likely to seek to
replicate, by transfer, throughout the organisation (Szulanski, 1996). Consistency in HR
practices can also contribute to developing a common corporate culture, enhancing equity
and procedural justice within the MNC (Kim & Mauborgne, 1993), managing external
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legitimacy of the MNC as a whole (Kostova & Zaheer, 1999), and facilitating the transfer of
employees within the MNC - essential for successful global talent management (McDonnell,
Lamare, Gunnigle & Lavelle, 2010).
There is, however, considerable evidence that shows planned transfers of practices (in
particular, their internalisation and implementation) do not always occur in ways anticipated
or desired by corporate headquarters (HQs), with transfer even varying between subsidiaries
belonging to the same MNC (Kostova & Roth, 2002). Theoretical models (e.g., Björkman &
Lervik, 2007) and empirical studies (e.g., Kostova & Roth, 2002) have explored factors that
help to explain why there are differences between MNC subsidiaries in the extent to which
they adopt HR practices that MNC headquarters attempt to transfer.
This paper brings the HR-performance and HR-transfer literatures together.
Specifically, the paper extends the extant literature by examining the potential role of
implementation and internalisation of HR practices, and their associated adoption typologies,
for the perceived performance of foreign subsidiaries of MNCs.
A multi-respondent approach is used to examine these relationships. In particular, the
analysis is based upon responses from the HR Specialist/Manager and line manager based at
a foreign subsidiary of UK-owned MNCs. Since the performance data are self-report, the
term ‘perceived performance’ is used throughout the paper. To control for potentially
significant ‘country of origin’ effects, the study focuses on UK-owned subsidiaries only. All
of the foreign subsidiaries are based within the European Union (EU) and within one region,
Central and Eastern Europe (CEE). During the last decade, and especially since the
enlargement of the European Union (EU) in May 2004, the CEE region has been a significant
3
recipient of FDI flows and is an important emerging region on the global economic landscape
(OECD Statistics 2009).1 Moreover, a focus on one region within the EU enables potentially
important institutional differences to be examined whilst not introducing vast institutional
heterogeneity into the sample.
The next section reviews the relevant literature which provides the basis for the
paper’s hypotheses; the research methodology and the sample are then described; the results
are presented which is followed by a discussion; the paper concludes with a discussion of its
limitations and directions for future research.
LITERAUTURE REVIEW & HYPOTHESES
Theoretical Background
Institutional theory has been widely used to study the adoption and diffusion of
organisational practices, including HR practices, within, and across organisations (Farndale
& Paauwe, 2007; Kostova & Roth, 2002). By focussing on external environmental forces,
institutional theory helps to explain evidence of homogeneity or convergence of HR
practices, sometimes placed in a framework of universalism or ‘best practice’. According to
the ‘best practice’ perspective, particular HR practices improve the opportunities for
1
The data analysed are part of a wider EU-funded study that examines the determinants of foreign direct
investment(FDI); the role and functions of human resource management; and subsidiary level performance in
three Central Eastern European Countries: Poland, Hungary and the Czech Republic.
With the notable
exception of Morley, Heraty & Michailova (2009), little is known about HR in this important emerging region.
4
workplace participation, motivation and/or abilities, leading to higher work and
organisational performance. Competitive isomorphism (DiMaggio & Powell, 1983) assumes a
system of economic rationality, which emphasises the pressures exerted by market
competition and the need for economic legitimacy, as drivers of similarity. Competitive
isomorphism would predict that corporate HQs of MNCs would seek to transfer ‘best
practice’ HR to their subsidiaries to benefit from associated efficiency gains. Thus, based on
the assumption that there is likely to be a high level of transferred HR practices with the
objective of increasing subsidiary efficiency, the first hypothesis posits:
Hypothesis 1: There will be a positive association between the presence of (more) HR
practices and perceived subsidiary performance.
However, competitive isomorphism,especially if set in a context of ‘best practice’, is
constrained by both its time-limited source of advantage because once a critical mass of
organisations within a given field is doing the same activities, initial competitive advantage
will dwindle, or cease. The ‘best practice’ approach is also widely criticised for being too
prescriptive (Purcell & Kinnie, 2007). Moreover, in the context of the HR-performance
debate, the best practice approach tells us little about the processes that join HR practices to
improved performance.
A less prescriptive approach is provided by the best-fit (or contingency) approach
which focuses on adapting HR practices to the prevailing political, cultural and/or economic
environment. While rooted in institutionalism, it is closely related to DiMaggio & Powell’s
(1983) second type of isomorphism: institutional isomorphism and three associated
mechanisms which may influence decision making in organisations. In the context of HR, the
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first mechanism – coercive - includes the role of social organisations, who may be partners
(e.g., trade unions and works councils), employment legislation and the government. The
mimetic mechanism refers to a firm’s benchmarking strategies and HR practices against each
other, and copying practices which are viewed to deliver desirable outcomes. Normative
mechanisms include the impact of HR professional bodies and employer associations on the
adoption of agendas, terminology, and practices of current importance.
It is essential, however, that these mechanisms are not treated as deterministic, in the
sense that organisations are viewed as passive agents in the interaction with the institutional
environment (Wailes, Ramia & Lansbury, 2003). Indeed, the literature on HR diffusion in
MNCs sees institutionalisation as a ‘contested process’ and subsidiaries of MNCs, as
‘contested space’ (Edwards, Colling & Ferner, 2007). The emerging micropolitical approach
focuses on the role that power relationships within MNCs, particularly between corporate
headquarters and local level managers, play in shaping the HR diffusion process (Edwards et
al., 2007; Ferner, Almond, Clark, Colling, Edwards, Holden & Muller-Carmen, 2004).
Managers in subsidiaries may resist the transfer of some MNC practices that disrupt the
current division of labour, or relations with other agents or stakeholders such as trade unions,
or those that do not fit with the local institutional context.
Managers may use their
embeddedness with the local and/or national context to contest the implementation of
corporate HR policies.
Indeed, there is now considerable recognition of the potential for agency to exist in
the institutional theory of the firm, and its capacity to moderate and mediate the transfer of
employment practices and the process of delivery. Managers have considerable scope for
agency. In particular, they have the ability to spend more time on activities they consider
6
important and/or are reviewed and rewarded on, and less time on those that they find
unimportant, and/or are not reviewed/rewarded on (Konrad, Waryszak, & Hartmann, 1997).
The relationship between HR managers/specialists and line managers in MNCs is a complex
one because both are ultimately agents of HQs. Not only is there scope for individual
agency, scope also exists for ‘inter-agency’ conflict (e.g., between HR, IT, marketing, and
line managers) - especially in the periphery and, even more so, when the periphery operates
in an institutional environment that is different from, or unfamiliar to, the principles based in
the core (Regner, 2003).
Thus, while the pressures of distinct institutional frameworks may exert strong forces
for the transfer of practices and processes, the indeterminacy generated by the inter-play of
the micropolitical environment of foreign subsidiaries, the potential scope for considerable
agency and inter-agency conflict - are likely to influence the implementation and
internalisation of transferred HR practices - which is likely to result in a divergence between
intended practices and the reality of the processes associated with their delivery.
The HRM-Performance Relationship and links to Practice Transfer and Adoption
The link between HRM and firm performance has been a dominate theme within
much of the HRM literature since the mid-1990s and while the HRM-performance
relationship has been examined in many different national contexts, few studies have
examined the relationship between HRM and performance within subsidiaries of MNCs (see
Foley et al., 2010 for a notable exception). However, a simple count of HR practices (often
estimated by an index) is likely to be a highly inadequate way to explore the relationship
between HRM and subsidiary performance. As noted by Purcell & Hutchinson (2007: 3): “It
is often observed that there is a gap between what is formally required in HR policy and what
7
is actually delivered...” This potential gap between the rhetoric and reality of HR is of
particular relevance in the context of MNCs, given complex issues associated with transfer,
already discussed. Thus, while a particular HR practice may formally be recorded as ‘in
place’ by corporate HQs and even by the subsidiary, if it is not implemented, or only
minimally so, then its’ association with performance may be negligible. In addition, if a
practice is not implemented, it is unlikely to be internalised. Thus, it will be important to
examine whether there is a relationship between each of the two types of transfer and
perceived subsidiary performance.
Indeed, the concepts of implementation and internalisation are central to
understanding the process of transfer. Implementation is the empirically observable
behaviours constituting the enactment of the transferred practice (Kostova & Roth, 2002). For
example, if the transferred HR practice was 360 degree feedback, one would observe it being
operationalised which would be reflected in associated behaviours and actions of all
employees to whom the practice was intended by HQs to apply (e.g., all managerial
employees). Importantly, the concept reflects the extent to which HQs prescriptions, arising
from desired efficiency, coordination and/or legitimacy in the MNC as a whole, are enacted
by subsidiaries. Internalisation reflects the degree to which externally imposed rules become
internalised in the recipient unit. Specifically, the transferred practice, e.g., variable pay, is
taken for granted and accepted by employees. If internalisation has taken place employees see
the value of using the practice and are committed to sustaining its delivery (Kostova, 1999).
In other words, the mere presence of HR practices does not necessarily mean that they have
been implemented and/or internalised - both of which are likely to be key processes that will
affect the strength of the HR-performance relationship. Thus, hypothesis 2 posits that:
8
Hypothesis 2(a): The implementation of practices will have a greater association with
perceived subsidiary performance than the presence of (more) practices; and
Hypothesis 2(b): The internalisation of practices will have a greater association with
perceived subsidiary performance than the presence of (more) practices; and
Hypothesis 2(c): There will be a positive interaction between higher implementation
and internalisation and perceived subsidiary performance.
The analysis of the interaction between the types of HR transfers can be extended by
examining adoption typologies. Kostova & Roth’s (2002) adoption typologies which
reflected the interaction between implementation and internalisation are used in this analysis
(see Figure 1).
Insert Figure 1 around here
Where there is minimal implementation and internalisation the adoption is ‘minimal’; where
implementation is high but internalisation is low then there is likely to only be ‘ceremonial’
adoption; where there is low implementation but high internalisation, the adoption of the
practice is likely to be in ‘assent’; and where there is both a high level of implementation and
internalisation there will be ‘active’ adoption. The adoption typology present in a subsidiary
reflects a key process of HR delivery and is also likely to influence the ‘strength’ of the HR
system (Bowen & Ostroff, 2004).
It is expected that where there is ‘active’ HR transfer - the full benefits of HR
practices should be realised which is likely to be positively associated with performance. In
contrast, where transfer is ‘minimal’, the benefits associated with HR practices are likely to
be low and the costs associated with minimally adopted practices may actually result in a
9
negative association with performance. While ‘ceremonial’ and transfer that is in ‘assent’
indicate that HR practices have not been fully transferred, which is likely to mean that
practices are not utilised to their full potential, these two typologies may reflect the forces of
institutional dualities and some compromise between local and global tensions (e.g., Collings
& Dick, 2011). Such types of transfer may be appropriate, at least in the interim, especially if
they help to minimise any perceptions of coerciveness among subsidiary employees.
Nevertheless, the presence of these two typologies is likely to weaken the HR-performance
relationship. Based on this analysis, hypothesis 3 examines the relationship between HR
adoption typology and perceived subsidiary performance:
Hypothesis 3(a): High levels of both implementation and internalisation (an ‘active’
transfer typology) will have the most positive and significant association with
perceived subsidiary performance compared to other transfer typologies; and 3(b):
Low levels of implementation and internalisation (a ‘minimal’ transfer typology) are
not expected to be significantly associated with perceived subsidiary performance and
the relationship may indeed be negative. No a priori assumptions are made for the
typologies of‘in assent’ or ‘ceremonial adoption’.
Thus, while competitive isomorphism suggests that there is likely to be a high number of HR
practices transferred to MNC’s subsidiaries, with the objective of enhancing efficiency,
institutional isomorphism - especially if active agency and inter-agency conflict is present suggests that the process of HR delivery is likely to differ from how the practices were
intended to be delivered by HQs. Any difference between transfer and the process of
delivery is likely to affect any HR-performance relationship that may be found.
10
METHODS
Research Framework
Given the potential for a divergence of perspectives, especially about perceptions of
HR transfer, input was from two respondents - the HR Specialist/Manager and a line manager
- within the foreign subsidiary of the sample organisations. The use of a multi-respondent
approach helps to address the well-documented evidence of low reliability of single-rater
responses (Gerhart, Wright, McMahan & Snell, 2000; Guest & Conway, 2011). Moreover, the
use of multi-respondents should help to ensure that any common method variance bias –
especially in relation to perceived subsidiary performance - will be reduced (see Wall,
Michie, Patterson, Wood, Sheehan, Clegg & West, 2004).
In order to explore the relationships outlined above, it was important to generate a
sample size that could be statistically and econometrically interrogated. The method used to
collect such data was a large-scale telephone survey conducted by a professional survey
company.The interviews ranged in duration from 30-50 minutes. All of the data were
collected between 2009 and 2010. The method required translating the survey instrument into
multiple languages (specifically, Czech, Hungarian and Polish). The translation effort was
guided by two key objectives: achieving construct equivalence and word equivalence.
Construct equivalence refers to preserving the exact meaning of the question asked, and at the
same time, adapting the questions to the particular language and culture (Cascio, 2012;
Mullen, 1995).
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The following procedures were used to try to achieve these objectives: (1) initial
translation of the survey from UK English to the local language by a bilingual and native
speaker of the local language; (2) reverse translation of the survey from the local language to
UK English; (3) comparisons of the originals with the double-reverse-translated English by
subject-expert native speakers; (4) resolution of discrepancies by the translators and
development of revised instruments; and (5) extensive piloting of the telephone survey
conducted by native speakers with HR Specialists/Manager and line managers - in the
presence of the principal researcher - which resulted in further revisions of the instruments
and the ordering of several of the questions.
Population & Survey Sample Characteristics
The population was provided by the Dun and Bradstreet’s (D&B) Global Reference
Solution (GRS) database.The GRS database is the most comprehensive and detailed source
for information on complex organisations, specifically MNCs (see Henriques, 2009 for
detail). The sample was drawn from the GRS database using the following criteria: 1. the
‘global ultimate parent company’ was in the UK (the UK ownership criteria was used to
eliminate potential ‘country of origin’ effects); 2. employed at least 200 people overall (this
criteria was used so that the data could be compared with other such surveys – e.g., Cranet –
which also uses this size criteria); 3. and it had a subsidiary in at least one of the three study
countries (i.e., Czech Republic, Hungary and Poland).
Three-hundred and seventy-eight organisations met the selection criteria. The analysis
presented in this paper is based on data for the organisation’s foreign subsidiaries only.
Completed ‘matched’ interviews were achieved in 163 foreign subsidiaries (representing a
12
response rate of 43.1% and 326 completed interviews among these respondents). Sixty-two
of the study subsidiaries were based in Poland; 53 in the Czech Republic; 48 in Hungary. A
minimum quota of 40 responses per country was set. A two stage Heckman test was used to
test for response bias. The results were not statistically significant.2
Measures
HR practices. Following a thorough review of the literature and pilot interviews, HR
practices were measured using 42 items that divided into eight groups covering: recruitment
and selection; training and development, in particular management development; appraisal;
compensation and financial flexibility; job design; two-way communication; employment
security and the internal labour market; and quality/involvement. The emphasis was placed
on what the literature would identify as ‘high performance’ or ‘high commitment’ as opposed
to traditional practices (Guest & Conway, 2011). Data on all 42 HR practices were collected
only from the HR managers. In order to measure the HR system as a whole, and consistent
with common practice, a mean score across the practices is used as the indicator of the
presence of HR (see Becker & Huselid, 1998; Guest & Conway, 2011). As the number of
items in each of the eight areas of HR differed, the scores were standardised to ensure that
equal weighting was given to each.
2
The full database contains a matched sample whereby the UK HR Director and two HR managers/specialists
and two line managers in the organisation’s UK and foreign subsidiaries completed interviews (5 respondents
per organisation). This paper only utilises the foreign subsidiary data. The contact with the headquarters in the
UK greatly facilitated access to the overseas subsidiaries.
13
Implementation. Refers to the empirically observable behaviours constituting the
enactment of the transferred practice (Kostova & Roth, 2002). It reflects the adoption of
formal rules and/or practices. For each of the eight HR practices listed above, respondents
were provided a five-point scale which asked whether the practice was implemented ‘not at
all, in practice’ (1) to ‘always used, in practice’ (5). Factor analysis confirmed one clear factor
(alpha 0.82 for HR Specialists/Managers and 0.78 for line managers). For the subsequent
analysis, the mean scores on these scales are used.
Internalisation. Refers to the subsidiary’s overall commitment to the HR practice.
Internalisation involves attaching symbolic meaning and value to the practice in question.
Drawing upon Kostova & Roth’s definition of internalisation (2002: 217), for each of the
eight HR practices listed above, respondents were asked whether they ‘viewed the practice as
valuable for the subsidiary and were committed to the practice’ with responses ranging from
‘not at all’ (1) to ‘very much so’ (5). Factor analysis confirmed one factor (alpha 0.79 for HR
Specialists/Managers and 0.75 for line managers). For the subsequent analysis, the mean
scores on these scales are used.
Control measures. A number of standard control variables which have been found to be
significant in previous analysis of the HR-performance relationship were included.These
control variables included size (the number of employees in the subsidiary); sector (1 =
services, 0 = manufacturing); age; capital intensity (total assets/total employment, past 3
years [obtained from D&B database or corporate HQ]); sales growth (average change in
annual sales turnover, past 3 years [obtained from D&B database or corporate HQ]); the
proportion employees who were trade union members (i.e., 1 = 0%; 2 = 1-25%; 3 = 26-50%;
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4= 51-75%; and 5 = 76 – 100%); and country where the subsidiary is located (0 = Poland; 1 =
Hungary; 2 = Czech Republic). Poland is the omitted category in the estimations.
Perceived subsidiary performance. (Dependent Variable): To derive a quantifiable
measure of perceived subsidiary performance for each subsidiary, an index modified from
Delaney & Huselid (1996) was utilised. The index used includes eight items: 1. the firm’s
quality of products/services; 2. success at developing new products/services (innovation); 3
and 4. the efficiency of factors of production ((a) labour and (b) capital); 5 and 6.
customer/client (a) satisfaction and (b) retention; 7. relative financial performance; and 8.
whether overall subsidiary performance has exceeded forecasts/expectations. Respondents
were asked to rate their organisation’s outcomes over the past 3 years compared with their
main competitors in their sector. Factor analysis confirmed one factor (alpha 0.83 for HR
Specialists/Managers and 0.80 for line managers). For the subsequent analysis, the mean
scores on these scales are used.
Data Analysis
Aggregation of individual ratings in the estimations, where applicable, is justified
using standard thresholds for the interclass correlation analysis (ICC) 1 and (ICC) 2 measures
of greater than 0.20 (Judge & Bono, 2000) and 0.70 respectively (George & Bettenhausen,
1990).The data were subjected to a series of hierarchical regression analyses to the
hypotheses.
Aiken & West’s (1991) recommendations for testing interaction were followed.
Specifically, the interaction term was created by multiplying the mean-centred values of the
15
two variables (implementation*internalisation). Mean-centering reduces multi-collinearity
between the interaction term and its components (Aiken & West, 1991).
The final hypothesis concerns the relationship between the typologies of adoption
(whether ‘active’; ‘assent’; ‘ceremonial’; or ‘minimal’) and their association to perceived
subsidiary performance, controlling for the number of HR practices in place. To examine
these relations, the subsidiaries were classified by standardising the implementation and
internalisation measures and then K-means clustering was used to determine group
identification (see also, Kostova & Roth, 2002). Based on these clusters, each subsidiary was
assigned an adoption typology. The omitted category in the estimations is ‘minimal’ adoption.
RESULTS
Insert Table 1 around here
The means, standard deviations and inter-correlations are given in Table 1. The intercorrelations are positive and significant for the key study variables – the relationship between
perceived subsidiary performance and the number of HR practices present (p<0.05);
implementation (p<0.001); and internalisation (p<0.10) of HR practices.
There are positive and significant relationships found between perceived subsidiary
performance and half of the control variables: firm size (positive at p<0.10); capital intensity
(positive at p<0.05); sales growth (positive at p<0.05); and Hungary (negative at p<0.05),
reflecting, at least in part, the country’s deep recession and related IMF bail-out during the
survey period.
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Insert Table 2 around here
Estimation of hypothesis 1 (Model 2, Table 2) finds a positive and significant
relationship between a greater number of HR practices – the presence of practices - and
positive subsidiary performance is found (at the p<0.05 level). Thus, hypothesis 1 is not
rejected.
Hypotheses 2(a) and 2(b) propose that the implementation and internalisation of HR
practices will be more strongly associated with perceived performance than the presence of
the practices. Considering the effects indicated by changes in R-square, greater
implementation and internalisation of HR practices, is indeed more strongly associated with
perceived subsidiary performance than the presence of HR practices only (Model 2 compared
to Model 3, Table 2). The results for implementation (hypothesis 2(a)) are very significant
(p<0.001); while the results for internalisation (hypothesis 2(b)) are significant but only at the
p<0.10 level. The interaction of higher implementation and internalisation is found to be very
significantly associated with performance (p<0.001) (Model 4, Table 2). Changes in the Rsquare and F-statistics between the non-interacted and interacted models are also significant.
These findings, therefore, provide strong support for hypothesis 2(c) that these two HR
transfer processes, when taken together, have an important influence on perceived subsidiary
performance and have a stronger association with perceived performance outcomes than the
presence of HR practices, or the presence of one transfer process only.
Insert Table 3 around here
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The final hypotheses examines whether there is an association between HR adoption
typologies and perceived subsidiary performance. In these estimations, the number of HR
practices is treated as a control variable, so that the effects of the typologies can be isolated.
‘Active’ adoption is positively and very significantly associated with perceived subsidiary
performance (p<0.001) (hypothesis 3(a)). The association between a typology of in ‘assent’ is
positive and significant (at the p<0.05 level). In subsidiaries where transfer was ‘ceremonial’,
the relationship with perceived subsidiary performance was positive but not significant. The
results presented in Table 3 use ‘minimal’ HR as the omitted category to provide insight into
how higher implementation and internalisation are associated with perceived performance.
However, separate regression results were run entering ‘minimal’ into the regression and the
results were consistently negative but not significant.3 This supports hypothesis 3(b) which
proposed that the association with perceived performance in subsidiaries where the transfer of
HR practices was minimal was unlikely to be statistically significant and may be negative.
DISCUSSION
Set within the framework of institutional theory, this paper brought together two
strands of HR discourse: the HR-performance and HR-transfer literatures. It also contributes
to each of these literatures individually. While the HR-performance relationship has been
tested in many national contexts, there is little evidence of whether the relationship is found
in organisations’ subsidiaries, specifically the overseas subsidiaries of MNCs. Thus, the
context of this study – a focus on foreign subsidiaries - has considerable value. A limitation
of the HR-performance literature is a lack of understanding of how the relationship operates,
in practice. Researchers have been filling this gap by focussing on how HR processes – e.g.,
3
These estimates are available from the author upon request.
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the effectiveness of HR systems (Guest & Conway, 2011); the ‘strength’ of the HR systems
(Bowen & Ostroff, 2004); line manager’s role in the delivery of HR (Björkman, Ehrnrooth,
Smale & John, 2011; Maxwell & Watson, 2007) – mediate the HR-performance relationship.
Guest & Conway (2011) show that the process of delivery – that is whether HR is effectively
delivered – has a stronger impact on performance than the presence of HR practices alone. In
contrast to the HR-performance literature, the HR transfer and practice adoption literature by
the nature of its very remit, examines HR processes – the extent to which intended HR
practices are implemented and internalised in foreign subsidiaries. This paper drew upon the
HR processes inherent in this literature and applied it to an investigation of how
implementation, internalisation, and their associated adoption typologies may affect any HRperformance relationship found.
The mean number of HR practices in the sample subsidiaries was 26.4; and 15.5% of
subsidiaries reported that 90% or more of all possible practices examined (42) were present;
whereas only 8.3% had less than 10% of the practices present. These findings suggest that
transfer of HR practices to this sample of foreign subsidiaries was high. This is consistent
with competitive isomorphism and is likely to reflect, at least from the perspective of
corporate HQs, the transfer of ‘best practice’ HR into their foreign subsidiaries. The positive
association found between a greater presence of HR practices and perceived subsidiary
performance suggests that there are indeed efficiencies associated with the transfer of ‘best
practice’ (hypothesis 1).
Low implementation and internalisation suggests that while a practice may be present,
it may have little impact in practice, and thus have a minimal association with performance.
The results presented in Table 2 clearly illustrate the risks in considering the presence of HR
19
practices without taking into account the process of delivery – whether the practice was
implemented and internalised. The results for the relationship between implementation and
perceived subsidiary are particularly significant, which is consistent with Björkman &
Lervik’s (2007) theoretical assertion that implementation is the ‘first’ stage of transfer – a
necessary but not sufficient condition – for subsequent and more institutionally embedded –
stages of transfer, including internalisation (and integration).
While the relationship between internalisation and perceived subsidiary performance
was only significant at the p<0.10 level (lower than the p<0.05 level for the number of
practices and perceived performance), when implementation and interaction were interacted,
the significance level of the interacted coefficient was very high (p < 0.001) and the overall
explanatory power of the model increased significantly. This suggests that there are very
positive synergies for perceived performance associated with transferred HR practices that
are implemented and internalised within foreign subsidiaries. There is, therefore, evidence to
support hypotheses 2(a); (b); and (c).
Developing the framework further, adoption transfer typologies were then examined.
The percentage of subsidiaries in each of the typologies was as follows: ‘active’ (23.2%);
‘minimal’ (12.2%); ‘assent’ (30.2%); ‘ceremonial’ (34.4%). The finding that in 76.8% of
subsidiaries, the transfer of HR practices was not as HQ is likely to have intended (i.e., the
transfer was not ‘active’), does question the extent of realised competitive isomorphism
associated with transfer. Does this matter for perceived performance, especially where
ceremonial adoption may, given specific institutional contexts, be appropriate and may even
reflect a tacit ‘understanding’ from corporate HQs?
20
The results suggest that the type of HR transfer has significant implications for
perceived subsidiary performance (hypotheses 3(a) and 3(b)). Positive and significant
relationships were found between perceived subsidiary performance and transfer that was
‘active’ (p<0.001) and in ‘assent’ (p<0.05). No significance was found where transfer
was‘ceremonial’ and a negative was found where transfer was‘minimal’.
The estimations also show a decline in the significance of the presence of HR
practices for perceived performance when treated as a control variable and the process of
delivery – categorised by HR adoption typology – is estimated (Table 3). Thus, while the
presence of HR practices make a necessary contribution to perceived performance, it
certainly does not appear to be a sufficient contributor to the relationship. This study suggests
that the sufficiency of HR to perceived performance requires implementation and
internalisation of HR practices. In other words, the complex processes associated with the
delivery of HR in foreign subsidiaries is an essential link in the HR-performance relationship.
CONCLUSION
These findings resonate with Truss’ (2001) study of the dynamics of the HRMperformance relationship in Hewlett-Packard which highlighted the importance of context
and the role of agency. In terms of the time that it can take for organisational initiatives to
become embedded, the significant moderating role of culture, structure, administrative
heritage and the role of each individual manager as an agent, who can choose to focus his or
her attention in varying ways, was emphasised. Truss concluded her analysis by emphasising:
“Problems of implementation and interpretation occur alongside people’s sometime
unpredictable responses and actions” (2001: 1146).
21
This study also contributes to the growing literature which acknowledges the pivotal
role of understanding processes associated with the delivery of HR and how processes are
likely to interact with, and mediate, the HR-performance relationship. While it is found that a
greater number of HR practices have a positive association with perceived performance - the
extent to which practices are implemented and internalised by employees in subsidiaries - has
an even greater impact on subsidiary performance than just the presence of HR practices.
Research Implications and Limitations
While this paper makes important contributions to both the HR-performance and
practice transfer literatures, it is, of course not without its limitations which provide rich
material for future research. While analysis of quantitative data provides important insights
into patterns found between the variables examined, it cannot provide insight into the
complex institutionally specific factors that have generated the relationships found. Case
study work will be used to explore these processes, especially issues pertaining to the role of
national context, the influence of corporate HQs, and the role of the subsidiary within the
overall MNC’s network of subsidiaries.
The potential significant role of divergence in perceptions about transfer between HR
Specialists/Managers and line managers and the implications of divergence between these
key agents was not examined - rather their perceptions were aggregated and averaged to
temper the potential for common methods variance bias. This critical issue will be examined
in future analysis.
22
While access to MNCs and especially access to multiple responses from within these
organisations is increasingly challenging for researchers, it will be important to examine how
processes associated with the delivery of HR and any associated implications for subsidiary
performance applies to other regions of the world. This will be especially important where
cultural and institutional divergence between corporate HQs and foreign subsidiaries is larger
than that examined here – which was set within the EU.
Finally, the analysis has important implications for HR practitioners – where
attempted HR transfer is only minimally or ceremonially adopted, the efficiencies associated
with HR transfer are negligible, and in the case of the former, may even have negative
implications for performance. It is therefore important that when HR practice transfer is
attempted – and practitioners, of course, need to be very cognisant of the potential of
perceived coerciveness and cultural inappropriateness, and in such cases it is likely that such
transfer will not be attempted - but where transfer proceeds, the findings from this study
suggest that in order for transfer to have a positive influence on performance, it must occur in
tandem with policies to ensure higher levels of implementation and internalisation.
23
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30
FIGURE 1
Adoption Typologiesa
Level of implementation of HR
Practices
Level of
internalisationof HR
Practices
a
High
Low
Low
Ceremonial
Minimal
High
Active
Assent
:Based on Kostova and Roth (2002)
.
31
TABLE 1
Means, standard deviations and correlations for study variablesa
Mean
S.D.
V1
V2
V3
V4
V5
V1
Ln (Age)
2.103
0.66
V2
Ln (Size)
2.252
0.54
0.073
V3
Services
0.314
0.467
0.078
0.065
V4
Ln (Capital Intensity)
2.586
1.006
0.132
0.227**
-0.023
V5
Ln (Sales growth)
0.695
0.654
0.066
0.218***
-0.055
0.152*
V6
Trade Union Density
1.150
0.257
0.055
0.102
-0.054
0.025
-0.026
V7
Country (Poland
V6
V7
V8
V9
V10
omitted)
V8
HR practices
0.264
4.133
0.145
0.223**
-0.032
0.142
0.140*
0.025
0.089
V9
Implementation
3.266
0.591
0.156
-0.067
-0.024
0.089
0.158*
0.021
0.026
0.215**
V10
Internalisation
3.117
0.612
0.137
-0.126
-0.020
0.071
0.143*
0.019
0.012
0.199*
0.588***
V11
Perceived subsidiary
3.185
0.793
0.142
0.181*
-0.049
0.218**
0.316**
0.114
-0.213**
0.203**
0.229***
0.182*
Performance
a
: * significant at 10%; ** significant at 5%; *** significant at 1%. Based on matched sample of HR manager and a line manager (total possible
responses for multiple-respondent variables = 326 (163*2)). Variables 1-5 were obtained from the D&B Global Reference Solution database; N
for V6 = 163, based on responses from the HR manager; N for V7-V10 ranges between 302 and 326 depending on missing values.
32
TABLE 2
Regression results examining associations between the presence of HR practices,
implementation, internalisation and perceived subsidiary performancea
Variables
Model 1
Model 2
Model 3
Model 4
(H 1)
(H 2a and 2b)
(H 2c)
Step 1: ControlVariables
Ln (Age)
0.106
0.109
0.111
0.114
Ln (Size)
0.152*
0.150*
0.151*
0.153*
Services
-0.052
-0.051
-0.054
-0.056
Ln (Capital intensity)
0.211**
0.213**
0.216**
0.212**
Ln (Sales growth)
0.218**
0.219**
0.220**
0.223**
Trade Union Density
-0.057
-0.053
-0.055
-0.051
Czech Republic
-0.132
-0.130
-0.133
-0.135
Hungary
-0.203*
-0.205*
-0.207*
-0.210*
0.208**
0.202**
0.192*
Implementation
0.387***
0.378***
Internalisation
0.146*
0.151*
Country (reference category:
Poland)
Step 2:
Number of HR Practices
Step 3:
Step 4: Interaction terms
Implementation * Internalisation
2
Model R
2
Adjusted R
Model F
2
∆R
N(subsidiaries)
a
0.285***
0.118
0.109
4.116*
0.286
0.235
6.113**
0.406
0.392
11.272***
0.691
0.656
16.271***
162
0.126**
160
0.157***
158
0.264***
158
: * significant at 10%; ** significant at 5%; *** significant at 1%.
33
TABLE 3
Regression results examining associations between HR transfer typologies and
perceived subsidiary performance
Variables
Model 1
Model 2
(H 3)
Step 1: ControlVariables
Ln (Age)
0.113
0.111
Ln (Size)
0.155*
0.152*
Services
-0.054
-0.050
Ln (Capital intensity)
0.215**
0.217**
Ln (Sales growth)
0.222**
0.223**
Trade Union Density
-0.058
-0.058
Czech Republic
-0.139
-0.138
Hungary
-0.213**
-0.214**
Number of HR Practices
0.220**
0.189*
Country (reference category: Poland)
Step 2: Adoption Typologies
Active
0.427***
Assent
0.226**
Ceremonial
0.109
2
Model R
2
Adjusted R
Model F
2
∆R
N(subsidiaries)
a
0.286
0.235
0.602
0.585
6.113**
160
15.031***
0.350***
158
: * significant at 10%; ** significant at 5%; *** significant at 1%.
34