Divergence approach to IHRM

Introduction

Since the globalization emerged in the 1950s, it has exerted profound effects on the development of businesses around the world. The rapid growth of internationalization and the introduction of advanced technologies have facilitated the expansion of industrialized organizations, resulting in an increase in the number and significance of multinational companies (MNCs). Research on MNCs, especially on how they have managed their people in different countries to improve economic performance and the implications of this on managerial behaviour, as a consequence, have been of interest to many academics and practitioners. This has led to the emergence of international human resource management (IHRM) as ‘a branch of management studies that investigates the design and effects of organisational human resource practices in cross-cultural context’ (Peltonen, 2006 cited in De Cieri et al., 2007, p. 283). Although the recognition of the importance of human resource management (HRM) to the success or failure in international business has been growing quickly overtime, there is still a lack of consensus about whether there is one best way to manage human resources in international context or not. Several researchers advocating convergence approach claimed that HRM would be converged and universalized under the impacts of environmental changes such as globalisation and technological improvement while others following the divergence approach stated that there were many variables acting as constraints on implementing ‘best practice’. This paper firstly will critically discuss these two perspectives. Then, it will analyse a case study of the transfer of HRM practices from a UK retail firm – StoreCo to its Chinese subsidiaries to answer this question.

Convergence approach to IHRM

Convergence theory, so-called ‘universalist paradigm’ (Girgin, 2005), has its roots in the standpoints of management practices in the middle of the twentieth century, and has gained widespread acceptance in the United States (US). One of the earliest contributions to the thesis of convergence was the theory of bureaucracy and rationalization of Max Weber. However, the convergence perspective was actually propagated until the book entitled Industrialism and the Industrial Men: The problems of labour and management in economic growth written by Kerr et al. was published. According to Kerr et al., the technological and economic forces, as ‘a logic of industrialism’, would result in greater similarities in structures and work organization, therefore, produce progressive convergence towards the most efficient pattern of management practice, namely the US model (Girgin, 2005; Gooderham et al., 2004). It was because the widespread adoption of advanced technologies into operations required firms to seek a more effective way of management and labour organization. Meanwhile, the US was the industrial and technological leader, currently being considered the best in management practices. Consequently, it could be inferred that other nations would attempt to imitate the US and thus ‘patterns in other countries were viewed as derivative of, or derivations from the US model’ (Locke et al., 1995 cited in Gooderham et al., 2004, p.19).

Since the convergence point of view was introduced, it has gained much support from both globalization and transaction economic theories. Based on convergence thesis, the proponents of the globalization perspective also claimed that under the forces of globalization, a ‘borderless world’ was created, which in turn made international firms become ‘transnationals’ and separated from their original nationalities (Girgin, 2005). When nationality elements are overshadowed, MNCs would then tend to apply a new ‘best model’ and as stated even stronger by transaction economic theorists, there would be one best way to manage people at any period of time (Williamson, 1975, 1985 cited in Gooderham et al., 2004).

Although convergence thesis appeared to be reasonable especially in the international economic integration process, the fact that it laid too much stress on the impact of technology and market, and only sought similarities in business in general and IHRM in particular made it strongly criticized. As Rowley and Benson (2000) asserted, such views were too simplistic to assume that all organizations can produce competitive advantage to compete with each other by operating in the same way. Furthermore, the fact that Japanese MNCs with different organisational structure and management method have operated successfully in the world market and challenged the industrial leader position of those in the US, have led to the development of another viewpoint – divergence approach.

Divergence approach to IHRM

Contrary to convergence point of view which assumed that the differences of local practices in HRM were only the reflection of different stages of development and will be ultimately replaced by ‘one best way’, advocates of divergence outlook agreed that there were significant gaps in the context acting as constraints on convergence trend. They were mainly argued and examined by two strands of divergence approach – culturalist and institutional perspectives.

The culturalist perspective

The culturalist approach is mostly based on Hofstede’s concepts of national culture and its dimensions, and focuses on the influences of culture when explaining the distinction of MNCs’ managerial behaviors. In the book Culture’s consequence: International differences in work-related values, Hofstede (1984, p.21) defined culture as ‘the interactive aggregate of common characteristics that influence a human group’s response to its environment’. Therefore, in order to manage personnel effectively in international scale, MNCs must be aware of the effects of various cultural-based norms and social values, existing learning styles and response styles and attempt to adapt management practices from one culture to another (Ferris et al., 1999). This has been substantially supported by a variety of comparative studies conducted by several experts such as Tayeb (1994, 1998), Nam (1995), Gill and Wong (1998). For instance, in a case study research of Japanese multinational subsidiary in Britain, Tayeb (1994) found that the differences in perception of leadership style of British and Japanese employees were consistent with their cultural backgrounds. Consequently, in order to successfully transfer Japanese practices in the United Kingdom (UK) subsidiaries, Japanese managers had to be very selective in the adoption of the original management systems and had to modify some of them to adapt to local conditions. As Kamoche (1996) insisted, it was the cultural differences between countries that produce a degree of ‘differentiation’ in the management of human resources in international context.

Although there is no doubt that the variations in national cultures are currently more or less influencing the variations in managerial behaviours, there are several convincing reasons why this theory needs to be assessed. Firstly, the literature of Hofstede, the cornerstone of the culturalist approach, was criticized to have methodological flaws and weak conceptualization of culture, which simply attributed national level actions/ institutions to national culture without any theoretical grounding (McSweeny, 2002). Secondly, this approach, because of concentrating too much on history and individual perceptions, merely viewed national values and norms as deep-seated factors and overlooked any changes in values that may arise over time (Girgin, 2005). Accordingly, it might be difficult to explain a trend towards individualism among younger generation in some Asian countries such as Japan and Korea, which usually emphasise on collectivism, and its effects on HRM of MNCs (Sano, 1998 cited in Rowley and Benson, 2000). Last but not least, the theory of Hofstede was unable to provide complete explanation for the implications of its behavioural indices, including power distance index, masculinity and long-term orientation, for the change of work organisation and managerial behaviour in various countries (Girgin, 2005).

The institutionalist perspective

Compared to culturalist strand, the institutionalist point of view is considered to be a more comprehensive approach as it gives a clearer definition of social institutional environment and system as a basis to expound the organisational behaviour. The national (or regional) ‘business system’ – or ‘social systems of production’, called by Hollingsworth and Boyer, was defined as a set of ‘interlocking structures and institutions that fundamentally shape the nature of markets, competition and business activity in general’ (Ferner, 2000). Besides that, this perspective also represents itself as the strongest challenge to convergence theory when it contended that personnel management systems were embedded in their own national institutional environments, including ‘the state, regulatory structures, interest groups, public opinion and norms’, rather than driven by the economic and technological forces (Gooderham, 2004). According to Ferner (2000), despite the fact that there has been an increasing trend in borrowing and disseminating practices in MNCs due to the intensified competition in the world market, it would not necessarily lead to convergence. It was because borrowings would be more or less modified to adapt to the existing complex national business systems (Ferner, 2000). Since there are different national development paths, there will be different forms of business organisation and HRM practices respectively.

Some opponents might criticise that institutional approach focused too much on the socially constructed organisational forms while downplaying the significance of organisational agency, especially, in the early work ,merely considered institutional contexts as stable elements without taking into account institutional changes (Bjorkman, 2006; Edwards and Kuruvilla, 2005). Nonetheless, articles on this theory published in several famous journals recently have shown that academics and practitioners have begun to lay more stress on the processes of deinstitutionalisation as well as pay more attention to the influences of interest, agency, organisational phenomena, social fields, industries both at the national and international levels (Bjorkman, 2006). Moreover, institutional theorists also stated that they did not regard the evolution of national business system as the determinant of future organisational choices rigidly. Their principle objective, as stated by Ferner (2000), is to provide a conceptual framework to the comparative study of distinct ‘social systems of production’. Then, understanding of how the behaviours of MNCs in host countries are different from those in their countries of origin will be revealed and analysed.

There is no one best way but…

Based on what stated above, it could be confirmed that there is no one best way in managing human resource in international context. Although no one could deny the increasing convergence trend among national economies because of the pressures of globalization and the widespread adoption of advanced technologies, national business system and culture remain highly significant factors which could greatly hinder the implementation of convergence. In order to clarify this issue, a case study of the transfer of HRM practices from a UK MNC named StoreCo to its subsidiary – DecoStore – in China will be carefully analysed.

StoreCo was a British-owned retailer established in the late 1960s. In June 1999 it built the first purpose-built decorative materials warehouse store in Shanghai named DecoStore. Then, it expanded its operation by opening the second store also in Shanghai in May 2000 (Gamble, 2003). During the process of building up its subsidiaries in China, a basic approach this corporation used was imitating its UK practices in all aspects from supply chain management to marketing, store layout and HRM. The overall business strategy of DecoStore was decided by the parent company in the UK and expatriate managers were sent to DecoStore to facilitate the diffusion of standardized MNC practices. Expatriates were not only in charge of spreading out standard operating processes but also of initiating HR procedures such as selection, recruitment, training and promotion. Additionally, StoreCo organized training courses to improve and standardize training for both shopfloor and managerial staff of its subsidiaries. Table 1 below starkly illustrates how HRM practices were transferred to DecoStore.

Based on the above table, DecoStore’s HRM practices appeared to be rather similar to the model of its UK parent corporate. Namely, both of them had the same non-hierachy organisational structure and an in-house employee representative consultation system called ‘Grass Roots’. However, there remained some remarked differences between StoreCo and its subsidiaries. Firstly, in terms of communication with workforce, while StoreCo tended to be open about supplying employees with detailed information from corporate strategy to daily sales figures, DecoStore seemed to be less communicative to its staff which was fairly similar to Chinese state-owned enterprises. This, according to Gamble (2003), could be caused by the influence of host country nationals, especially DecoStore senior Chinese director who required keeping company secret for security in an intensely competitive marketplace. Secondly, in terms of work pattern, due to the impact of local business system, namely the low-cost labour market, DecoStore were able to employ all full-time employees and that were completely contrasted with its UK parent firm where a large proportion of labour force worked part-time. In addition, since there were no tradition of do it yourself (DIY) service in Shanghai and great concern of expartriate managers about poor working habits among older workers, DecoStore preferred to hire younger generation and provided more extensive and systematic training-courses than those of its UK parent-country enterprise. The impacts of national business system were also clearly reflected by the existence of trade union and reimbursement policy of medical care costs and meal subsidy in the reward system of Chinese subsidiary which were not offered in StoreCo payment levels. Consequently, it could be concluded that even though StoreCo tried to apply consistent people management methods it considered the best to its subsidiaries, there remained a divergence in HRM practices between StoreCo and DecoStore due to the effects of host country nationals, national institutional contexts and cultural factors. This means that although national economies are indeed become increasingly converged under the implications of advanced technologies and globalisation, national differences continue to be major intervening and moderating elements affecting how organizations operate, and therefore, there would be no one best way in managing human resources in international context.

Conclusion

In conclusion, since IHRM was emerged, there has been a wide debate between convergence and divergence perspectives about whether there is one best way in managing people in international context. Convergence theorists believed that under the technological and economic forces, structures and work organization would become similar and converge towards the most efficient pattern of management practice, namely the US model. In contrast, divergence approach offered several empirical studies to prove that cultural or national institutional business system would act as constraints on the implementation of ‘one best practice’ across various countries. It might be true that national economies are indeed becoming increasingly converged in the international economic integration process. Nonetheless, based on the analysed case study, this paper has suggested that even though MNCs will seek to apply a controlling method they considered the best to their subsidiaries in order to secure benefits from the consistency in human resource (HR) practices in individual MNCs across countries as well as contribute to the implementation of a global business strategy, there would be no one best way in personnel management. IHRM, instead, might be the combination of both model of parent company and particular features influenced by local institutional environment and cultural elements.

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