Standardization of Human Resource Management Practices: A Case of the Subsidiaries of Nordic Multinational Corporations

Transcription

1 Standardization of Human Resource Management Practices: A Case of the Subsidiaries of Nordic Multinational Corporations Olga Novikova Department of Management and Organization Hanken School of Economics Helsinki 2010

2 2 HANKEN SCHOOL OF ECONOMICS Department of: Management and Organization Type of work: Master of Science Thesis Author: Olga Novikova Date: Title of thesis: Standardization of Human Resource Management Practices: A Case of the Subsidiaries of Nordic Multinational Corporations Abstract: The present study aimed to explain what factors affect the level of standardization of human resource management practices in the subsidiaries of multinational corporations (MNCs). This study was carried out as a part of a large-scale multilevel research project on human resource management (HRM) practices in multinational corporations, with its focus on 12 MNCs with Nordic origin and their domestic and international subsidiaries. The study utilized quantitative deductive research method, whilst the existing theory was used to develop hypotheses, which were subsequently tested. Structured methodology was applied, with an emphasis on quantifiable observations resulting in the statistical regression analysis. The review of the literature revealed that the new institutional, the cultural and the resource-dependency theory could be applied for the explanation of the patterns in the human resource management practices. Such factors as mode of establishment, expatriate presence, formalized control within an organization, resource dependence of a subsidiary from a parent, and culture distance were identified as the factors influencing the level of standardization of HRM practices. Another hypothesis was formed up based on the acknowledgment of the increasing importance of information and communication technologies (ICT) and the use of electronic HRM in operations of current MNCs. The results have shown that most of the variables considered as significant in previous research were not supported in the present study. This could be due to the specificity of the institutional and cultural context of the empirical sample. However, the control variables functional scope and parent company have been identified as significant. One of the interesting findings of the present study was that the use of electronic HRM has proved to be significant in effecting the level of standardization of HRM practices. As a suggestion for future research, the latter result could be explored in a different than the present study context in order to confirm its generalisability. Keywords: Human resource management, practices, standardization, multinational corporations

3 3 Companies are not buildings, machines, or technologies. They are people. Besides managing them, what work matters more? Jack Welch (2005: 117)

4 4 TABLE OF CONTENTS 1 INTRODUCTION THE AIM OF THE STUDY THE FRAMEWORK OF THE STUDY DEFINITIONS OF KEY CONCEPTS LIMITATIONS STRUCTURE OF THE PAPER THEORETICAL BACKGROUND NEO-INSTITUTIONAL THEORY General empirical findings Mode of establishment Expatriate presence Formalized control RESOURCE DEPENDENCE THEORY Resource dependence of a subsidiary CULTURAL THEORY Culture distance USE OF ELECTRONIC HUMAN RESOURCE MANAGEMENT (EHRM) CONTROL VARIABLES Subsidiary age Subsidiary size Functional scope Parent company SUMMARY OF PREVIOUS RESEARCH METHODOLOGY RESEARCH METHOD DATA COLLECTION METHOD Questionnaires Development of questionnaires Telephone interviews TARGET GROUP Sampling criteria Sample characteristics Respondents OPERATIONALIZATION OF THE DATA Dependent variable standardization of HRM practices Independent variables...36 Mode of establishment...36 Expatriate presence...36 Formalized control...36 Resource dependence from the parent...37 Culture distance...37 Use of ehrm Control variables...38

5 5 Subsidiary age...38 Subsidiary size...38 Functional scope...39 Parent company RELIABILITY AND VALIDITY Reliability Validity DATA ANALYSIS RESULTS AND ANALYSIS GENERAL LINEAR MODEL HRM PRACTICES STANDARDIZATION GENERAL LINEAR MODEL STANDARDIZATION OF INDIVIDUAL HRM PRACTICES HYPOTHESES TESTING Mode of establishment vs. Level of standardization of HRM practices Expatriate presence vs. Level of standardization of HRM practices Formalized control vs. Level of standardization of HRM practices Resource dependence vs. Level of standardization of HRM practices Culture distance vs. Level of standardization of HRM practices Use of e-hrm vs. Level of standardization of HRM practices Control variables vs. Level of standardization of HRM practices...48 Subsidiary age...48 Subsidiary size...48 Functional scope...49 Parent corporation SUMMARY OF THE RESULTS DISCUSSION AND CONCLUSIONS SUMMARY OF THE STUDY THEORETICAL IMPLICATIONS MANAGERIAL IMPLICATIONS LIMITATIONS AND FUTURE RESEARCH DIRECTIONS...55 REFERENCES...58 APPENDICES...65 APPENDIX 1: LETTER TO PARTICIPATING UNITS...65 APPENDIX 2: QUESTIONNAIRE ON HUMAN RESOURCE MANAGEMENT FOR PROFESSIONALS AND MANAGERS IN MNC UNITS UNIT GENERAL MANAGER...66 APPENDIX 3: QUESTIONNAIRE ON HUMAN RESOURCE MANAGEMENT FOR PROFESSIONALS AND MANAGERS IN MNC UNITS UNIT HR MANAGER...71 TABLE OF TABLES TABLE 1. VARYING EMPHASES: THREE PILLARS OF INSTITUTIONS...14 TABLE 2. CLASSIFICATION OF CONTROL MECHANISMS ON TWO DIMENSIONS...20 TABLE 3. CHARACTERISTICS OF THE SUBSIDIARIES...34 TABLE 4. MEANS, STANDARD DEVIATIONS, AND PEARSON CORRELATIONS...42

6 6 TABLE 5. GENERAL LINEAR MODEL HRM STANDARDIZATION...44 TABLE 6. GENERAL LINEAR MODEL INDIVIDUAL HRM PRACTICES...45 TABLE OF FIGURES FIGURE 1. MODEL OF FACTORS EFFECTING HRM PRACTICES STANDARDIZATION...29 FIGURE 2. SIGNIFICANT VARIABLES IN THE MODEL OF FACTORS EFFECTING HRM PRACTICES STANDARDIZATION...51

7 7 1 Introduction There were multinational companies worldwide in Thirty-one years later, in 2000, the number had increased ninefold to more than By that year, multinationals accounted for 80 percent of the world's industrial production (Drucker, 2005: online). Today, in 2010, the presence of multinationals is even more profound. These multinational companies act in a global context, therefore influencing everyone s life and attracting interest of management researchers. Multinational corporations (MNCs) aim at achieving competitive advantage and compete among each other globally for scarce resources, with human resource being one of them. Indeed, MNCs success or failure is likely to depend upon the MNCs ability to attract, develop and deploy talented employees in a multinational setting (Rosenzweig, 2006: 38). Therefore the human resource management is an important part of the operations of an MNC. As Michael Porter put it: Human resource management affects competitive advantage in any firm, through its role in determining the skills and motivation of employees and the cost of hiring and training. In some industries, it holds the key to competitive advantage (Porter, 1998: 43). The activities of a multinational corporation may be assessed from a point of integration responsiveness framework. Thus the challenge of an MNC can be seen as a need to pursue global vision while meeting local needs (Prahalad and Doz, 1987). Some authors have introduced solutions for the challenge that multinationals face: simultaneously achieving global integration and local responsiveness, while also facilitating worldwide learning and not merely balancing opposing pressures. Bartlett and Ghoshal (1998) framed it as a transnational solution, which would represent a new model of organizational capabilities, thus referencing with a view of an MNC as nexus of differentiated practices. The integration-responsiveness framework can be applied to the management practices from the point of their standardization or localization. Indeed, the question of localization or standardization of management practices has been seen as important in the management research on multinational corporations. The conceptual view of MNCs subsidiaries implies, that different practices within a subsidiary (e.g. manufacturing,

8 8 marketing, finance, human resources) are subject to the opposing pressures for global standardization and local adaptation. As Rosenzweig and Nohria put it, it is the extent to which MNCs various foreign affiliates (or subsidiaries) act and behave as local firms versus the extent to which their practices resemble those of the parent corporation or some other global standard (Rosenzweig and Nohria, 1994: 229). One of the aspects of global integration is the standardization of procedures, policies and practices within MNC. An important element of standardization is the global consistency of HRM practices. Both researchers and practitioners have pointed out a number of factors in favor of global standardization of HRM. From the perspective of MNC it is important to understand what factors effect standardization of HRM practices. The standardization of HRM practices can be associated with several advantages, e.g. it allows specialization and scale (cost) advantages in the HR function, facilitates the use of IT-based HR tools and processes, enables the transfer of best HR practices and work systems, serves as a control mechanism and facilitates coordination across units (Evans et al, 2010). Therefore it seems to be important to research what factors effect the standardization, and if the previously developed ideas hold in different institutional and cultural contexts. In the present study, the factors that affect the level of standardization of human resource management practices in the subsidiaries of multinational corporations have been explored. The study was conducted as a part of a large multilevel research project, and a case of twelve MNCs with Nordic origin (i.e. Finland, Sweden, Norway) and their subsidiaries served as an empirical foundation of the research. The context of Nordic multinational corporations and their domestic and international subsidiaries represents a novelty factor of the current study. Also the use of dual respondents (HR manager and general manager) in the survey distinguishes this research from most of the previously conducted studies that have used single respondents (HR managers) in the subsidiaries. The dependent variable in this study was the level of standardization of HRM practices in the subsidiaries. In some studies in has been labeled as the level of resemblance, or the level of similarity between subsidiary and parent HRM practices. In the following these terms will be used interchangeably.

9 9 1.1 The aim of the study Both for a management academic and a practitioner, it is important to understand what factors influence standardization or localization of MNCs practice es, in order to further develop the management theory and optimize the actual management practices implementation. In this paper, I intend to explain what factors affect standardization of human resource management practices, following the previously developed theoretical frameworks, such as institutional theory, cultural theory and resource-dependency theory, and the empirical results of the previous studies, in the particular context of Nordic MNCs and their domestic and international subsidiaries. 1.2 The framework of the study The empirical part of this study has been developed based on the data collected for the research project The Global Leadership Challenge Talent Management in Multinational Corporations. This project was coordinated by a team of researchers from the Department of Management and Organization at Hanken School of Economics in Helsinki and the Department of Management at the Univeristy of Vaasa in 2009 and The project has been focusing on four key talent management related HRM practices: performance management, talent identification, training and development and compensation and rewards. Its aim was to collect data on HRM practices in the selected corporations, to provide benchmarking reports and to develop understanding on different aspects of the management practices. The questionnaire-based telephone surveys on how the HRM practices are implemented and perceived by corporate- and country-level HR and line executives were carried out in foreign and domestic subsidiaries of eight Finnish and four Nordic multinational corporations. I have been actively involved in the data collection process for the project from April to August Definitions of key concepts Multinational corporation (MNC) is a business organization with manufacturing, sales, or service subsidiaries in one or more foreign countries. MNC can exercise control over the policies of its affiliates and implement business strategies in

10 10 production, marketing, finance and staffing that transcend national borders (Helms, 2006). Human resource management (HRM) consists of all the activities undertaken by an enterprise to ensure the effective attraction, development and deployment of employees towards the attainment of individual, group, and organizational goals (Helms, 2006). Performance management is a process that links business objectives and strategies of the firm to unit, team, and individual goals and actions through periodic performance appraisals and rewards (Evans et al, 2010: 58). Training and development is a process that includes training, talent assessment and reviews, succession planning, career management, coaching and mentoring and leadership development (Evans et al, 2010: 57). Recruitment and selection is a process that includes workforce planning, employee branding, recruitment, induction and socialization, selection, international transfers, termination and outplacement of employees (Evans et al, 2010: 57). Compensation and rewards practices comprise fixed and variable monetary and nonmonetary compensation and rewards, as well as intrinsic rewards used to attract, direct and motivate employees (Evans et al, 2010). Talent identification and development comprises activities that firms undertake in order to identify and develop employees with high strategic value for managerial and leadership positions (Evans et al, 2010). MNC HRM standardization refers to a worldwide consistency of HR practices within a corporation and is most commonly originated at corporate headquarters. Standardization of HR practices facilitates control, ensures more consistence performance and supports transfer of an organizational system to a foreign location (Evans et al, 2010: 131). It can be also referred to as HRM parent resemblance or similarity of HRM practices.

11 Limitations The data used in the study has been collected from 12 MNCs with Nordic origin and their domestic and foreign subsidiaries. Therefore the level of generalization of the findings might be limited. Furthermore, only quantitative data were used to measure the constructs. In-depth case studies might be needed to explore the nature of the studied relationships. Also, the current study focused on managers and professionals in the subsidiaries of multinational corporations, excluding rank-and-file employees. Thus, the hypotheses were developed with regard to the managers and professionals and the findings could be limited in terms of their generalisability towards other employees of an organization. 1.5 Structure of the paper The paper is structured as follows. The introductory chapter gives a brief overview and outlines the motivation for studying the subject under scrutiny. The study aim, key definitions and limitations are also presented as a part of the chapter one. In the second chapter, the theoretical background of the study is presented and the hypotheses are developed based on the extant literature. Several theoretical approaches are taken into account in examination of the factors effecting standardization of human resource management practices. In the third chapter, the methodology of the study is discussed and justification for my methodological choices is presented. The data collection process, the data sample and the operationalization of the concepts are outlined. Furthermore, reliability and validity of the study are discussed. The fourth chapter presents the results and offers the analysis of the obtained results, including hypotheses testing. The chapter five contains discussion of the obtained results, theoretical and managerial implications, conclusions as well as suggestions for further research.

12 12 2 Theoretical background Several major theoretical paradigms have been applied to explore the integration responsiveness framework in the field of human resource management. Many researchers have subscribed to (new-)institutionalist approach, others have favored resource-based, cultural or social capital theories (De Cieri and Dowlin, 2006). Oftentimes the complexity of scrutinized phenomena within a research field requires taking into consideration different theoretical backgrounds, thus approaching it from more integrative perspective (Quintanilla and Ferner, 2003). Therefore, this paper attempts to utilize various theoretical perspectives in order to explain factors effecting the level of HRM practices standardization. Firstly, the new institutional theory will be presented, followed by the resource-dependence perspective and the cultural theory. Further, the new emerging field of electronic HRM will be addressed in light of its potential to explain the level of HRM practices standardization. 2.1 Neo-institutional theory The (neo-) institutional theory has been used to explain a variety of organizational phenomena. As mentioned by Björkman and Lu (2001), the institutional theory perspective is instrumental in explaining HRM practices of MNCs foreign subsidiaries. Its explanatory power seems to hold in a variety of geographical settings. Researchers adhering to neo-institutional theory derive their inspiration from influential work of DiMaggio and Powell (1983). The latter viewed organizations as being under pressure to adapt to their institutional environment. They described the process of organizational adjustment, or homogenization, as isomorphism, and identified 3 mechanisms through which an institutional isomorphic change occurs. Thus, coercive isomorphism stems from political influence and the problem of legitimacy, while mimetic isomorphism results from standard responses to uncertainty and normative isomorphism is associated with professionalization (DiMaggio and Powell 1983: 150). In other words, the institutional theory refers to pressures towards management practices of MNCs affiliates. HRM faces coercive isomorphism regarding following

13 13 laws and regulations, mimetic isomorphism regarding benchmarking and imitations of strategies of successful competitors, and normative isomorphism with regard to adoption of policies and practices considered appropriate in a specific environment. The application of the institutional theory to MNCs shows the complexity of their institutional environment. Westney (1993) has summarized two major complementary dimensions of institutional theory. The first focuses on the role of external institutional agencies in organization s environment. The second reflects on company internal processes whereby organizational members come to take certain externally validated organizational structures and processes for granted or to value them as ends in themselves (1993:56). These processes are emphasized by interplay and mutual influence between organizations and their environment. The efficiency of the institutional theory, as emphasized by Westney (1993), is that it allows examination of both individual (micro-) and institutional (macro-level) nature of the processes. As Westney puts it, at the individual level it examines the taken-forgranted character of much of organizational structure and process; at the macro level it examines overarching structures of legitimation and ongoing reinforcement ( structuration ) (Westney, 1993: 58). Moreover, institutional theory deals both with organizational change and organizational stability. Further development of the institutional theory with regard to standardization vs. localization dilemma reflects on range of diverse and often conflicting institutional pressures on corporations, or conflicting isomorphic pulls. These pressures facilitate changes in the boundaries of organizational fields and effect organizations that operate in different industrial sectors and countries (Westney, 1993: 60). Another contributor to the field of institutional theory, Scott, identifies institutions as consisting of cognitive, normative, and regulative structures and activities, that provide stability and meaning to social behavior. Institutions are transported by various carriers cultures, structures, and routines and they operate at multiple levels of jurisdictions (Scott, 1995: 33). According to Scott, theorists identified three pillars that support institutions: regulative, normative and cognitive. These dimensions reflect on the mechanisms for isomorphic change proposed by DiMaggio and Powell (1983).

14 14 Regulative Normative Cognitive Basis of compliance Expedience Social obligation Taken for granted Mechanisms Coercive Normative Mimetic Logic Instrumentality Appropriateness Orthodoxy Indicators Rules, laws, sanctions Certification, accreditation Prevalence, isomorphism Basis of legitimacy Legally sanctioned Morally ignored Culturally supported, conceptually correct Table 1. Varying emphases: three pillars of institutions (adapted from Scott, 1995) According to Scott, coercive mechanisms implying laws and regulations are comprised within regulative framework, normative mechanisms implying adaptation of policies considered as appropriate are comprised within normative dimension, and mimetic mechanisms implying benchmarking and imitation of successful companies are allocated within cognitive dimensions of institutions. Some of these theoretical dimensions could and have been applied to explain the variety of organizational phenomena, also the factors influencing the level of standardization or localization of management practices of MNCs. For example, Rosenzweig and Singh (1991) made an attempt to link institutional theory with studies on multinational corporations. They argued that the degree of headquarters influence towards subsidiaries was shaped by dual pressures: for internal consistency with other subunits of MNC on the one hand, and for adaptation to the local environment on the other hand. In their view, pursuit of internal consistency in an organization was defined by two motivators: firstly, by replication of organizational structure due to ambiguity and uncertainty of operations in foreign country, and secondly, by imperative of control of foreign operations. Some of these considerations have found implications in later empirical studies that will be discussed in the following sections General empirical findings The effects of regulatory, normative and cognitive institutional pressures on human resource practices in MNCs have been studied in different settings and contexts.

15 15 The research on management practices has tried to identify the strength of isomorphic pressures on MNCs foreign affiliates. However, based on theoretical considerations, it seems to be difficult to hypothesize whether pressures for global consistency or local adaptation are stronger. Yet some of the early research has shown that out of management practices human resource practices tended to be more similar to the local ones. E.g. Kobayashi (1982) in a comparative study of Japanese MNCs with the US and European counterparts, found support for a greater level of local resemblance for HR practices, and a greater level of standardization for finance and manufacturing practices. Similar results were obtained by Rosenzweig and Nohria (1994) in a study of the US subsidiaries of foreign-based multinationals. The authors found that subsidiaries HR practices were more similar to those of local competitors than of parent companies, with variations between different human resource practices. Also Beechler and Yang (1994) found support for stronger adaptation towards local HR practices in a study of Japanese subsidiaries in the US. Hannon et al (1995) in a study of Japanese, US and European MNCs subsidiaries operating in Taiwan, also found that subsidiaries HR practices resembled more local practices than those of a home country. All these findings provide support for local isomorphic behavior of foreign affiliates, i.e. their adjustment to practices adopted in local companies. On the other hand, Björkman and Lu (2001) in their study of foreign subsidiaries in China found the opposite: HRM practices were more similar to MNCs practices than to those of local companies. However, this result could have been explained by the sample characteristics, i.e. focus on local professionals and managers, and by Chinese institutional context, i.e. willingness to learn from Western management practices. These empirical studies indicate that there are local institutional pressures towards MNCs subsidiaries that have to be taken into consideration by corporations striving for global standardization of management practices. Some studies have identified the presence of so-called dominance effect among management practices of foreign affiliates. For example, Pudelko and Harzing (2007) investigated the presence of country-of-origin, localization, and dominance effect in a study covering MNCs from US, Japan and Germany and their subsidiaries in two other

16 16 respective countries. The authors refer to a dominance effect as a process of adopting management practices that are perceived as global best practices, and define it as standardization around American management practices commonly perceived as representing best practices (2007: 540). The study found support for the presence of dominance effect. These findings were coherent with those by Ferner and Quintanilla (1998), who studied two German cases and investigated the effect of so-called Anglo-Saxonization of MNCs practices, i.e. convergence of practices towards patterns typical for MNCs in US or UK. Gunnigle et al (2002) in a study comparing US MNCs subsidiaries with their European counterparts operating in Europe, found that US subsidiaries were less inclined towards localization in comparison to European MNCs. Gooderham et al (2006) in a study of HRM practices in European and US subsidiaries in UK, Ireland, Denmark, Norway, Germany and Australia, found that US subsidiaries adapt to the local HR practices, but still diverge in the level of adaptation from their European counterparts. This result may also indicate that standardization effect within US MNCs is stronger than within European companies. The above-mentioned studies provide support for the inherent interest of researchers towards topics of localization, standardization or even existence of dominance effect with regard to management practices. Having outlined some of the findings and given the general picture of the research domain in the topic of standardization / localization of HRM practices, the following section will focus on some of the specific factors that affect human resource management practice resemblance Mode of establishment As both theoretical arguments and empirical research results suggest, one of the factors affecting the level of resemblance of MNC HR practices is the mode of subsidiary establishment. In accordance to institutional theory, it can be seen as one of the determinants effecting standardization / localization of management practices. MNCs can either establish a greenfield operations in the country, or undergo a jointventure, or acquire already established operations in the country. In case of acquisitions, MNC is likely to leave the existing structures unchanged, transforming only part of the

17 17 operations (Rosenzweig and Singh 1991: 352). This could be due to the potential resistance to the effort of changing practices exerted from the local managers and board members, who bring their imbedded in the local environment and taken for granted views about good management practices. These results are consistent with the view of institutionalization as a process entailing the creation of reality (Scott, 1987). Also theoretically, a greater similarity can be expected between HRM practices of a parent and a greenfield subsidiary, than of a parent and an acquired subsidiary (Rosenzweig and Singh 1991). Similar proposition was put forward by Taylor et al (1996: 976), in an argument implying greater degree of similarity between a parent company HRM system and an affiliate HRM system in case if affiliate is established as greenfield operations. The authors argued, that in case of joint venture or acquisition, MNC affiliates experience greater institutional pressures, due to the embeddedness of local HRM system in preexisting operations. This argument is also consistent with the propositions of the institutional theory about the isomorphic pressures within local operational environment, namely coercive with regard to laws and regulations, normative with regard to established policies considered appropriate in local environment, and mimetic with regard to the taken-for-granted views towards established local practices that managers might have. These hypotheses have been tested in different empirical settings, both for the foreign subsidiaries and for the joint ventures. Rosenzweig and Nohria (1994) found support for the hypothesis suggesting a greater resemblance to local HRM practices for acquired affiliates than for greenfield operations. Björkman and Lu (2001) in the study of Chinese-Western joint-ventures found that mode of establishment was significant determinant of HRM resemblance with MNCs home country practices. They also found support for positive relationship between percentage of equity held by foreign parent company and standardization degree of affiliate s HRM practices. On the other hand, Björkman et al (2008) in the study of foreign-owned subsidiaries in China and India found no statistically significant relationship between the mode of establishment and the extent of HRM practices transfer.

18 18 In order to assert the theoretical assumption about the influence of establishment mode on the level of HRM practice resemblance, the following hypothesis is formulated: Hypothesis 1: The level of standardization of HRM practices is greater for the greenfield affiliates than for the acquired affiliates Expatriate presence MNCs differ in their subsidiaries staffing policies regarding home-country, hostcountry and third-country nationals. The presence of expatriates, both in theory and in empirical research, was seen as a factor influencing management standardization practices in foreign affiliates. Organizational practices are oftentimes transferred with movement of personnel from headquarters to subsidiary. Hence, Rosenzweig and Singh hypothesize, similarity of an MNE subsidiary to the MNE headquarters will be positively related to the prominence of parent-country expatriates in the subsidiary (1991: 351). It has been suggested, that the expatriate managers tend to have taken for granted views towards the management practices considered to be efficient. Thus they may attempt to introduce patterns from a parent organization within foreign affiliates as a response to uncertainty towards management practices that are considered to be efficient in a new environment (Björkman et al, 2008). Edström and Galbraith (1977) in a study of manager transfers from European organizations, viewed expatriates as the means of corporate control with regard to centralization, bureaucratization and socialization. Seen as careers of parent organization practices, expatriates stemming from the corporation home country might be likely to introduce these practices within new environment, thus contributing to the level of management practices standardization of the affiliates. Rosenzweig and Nohria (1994: 236) found support for their hypothesis, that the resemblance to local HRM practices is negatively related to the presence of expatriates. This corresponds to the notion that expatriates often act as cultural carriers and transfer the traits of their parent country culture into the new operational environment. Björkman and Lu (2001) also found support for the hypothesis, that higher amount of expatriates would result in closer resemblance of HRM practices of parent organization.

19 19 Similar results were obtained by Myloni et al (2007) in a study of European and US MNCs subsidiaries in Greece, and by Björkman et al (2008) in a study of foreignowned units in China and India. Based on the theoretical considerations and the previous research findings, the following is suggested: Hypothesis 2: The level of standardization of HRM practices is positively related to the presence of expatriates in the subsidiary Formalized control Formalized control within an organization could be viewed with reference to the institutional theory, as a response to uncertainty and a pursuit for organizational stability. It can be related to the regulative pillar of institutional setting, whereby implied rules, laws and regulations constitute a coercive mechanism ensuring organizational stability and coordination. Martinez and Jarillo (1989) provided an overview of empirical research on the mechanisms of coordination. They divided mechanisms of coordination into two groups: first one comprising formal and structural mechanisms, and second comprising less formal and more subtle ones. Among structural and formal mechanisms centralization, formalization and standardization as well as planning are of interest for the present study. Centralization or decentralization refers to a decision making through hierarchy of formal authority; formalization and standardization involves written policies, rules, job descriptions, and standard procedures, whereas planning includes strategic planning, budgeting, functional plans and scheduling (1989: 491). Harzing and Sorge (2003) developed the discussion about corporate control. They proposed the following classification for the control mechanisms.

20 20 Direct / Explicit Personal / Cultural (founded on social interaction) Centralization, Direct Supervision, Expatriate control Impersonal / Bureaucratic / Technocratic (founded on instrumental artefacts) Standardization, Formalization Indirect / Implicit Socialization, Informal Communication Output Control, Planning Table 2. Classification of control mechanisms on two dimensions (adapted from Harzing and Sorge, 2003) The authors define corporate control mechanisms as the instruments that are used to make sure that all units of the organization strive towards common organizational goals (Harzing and Sorge, 2003: 198). They distinguish between personal and impersonal control mechanisms. The personal or cultural control mechanisms comprise direct elements, such as centralization, direct supervision and expatriate control, and indirect elements, such as socialization and informal communication. The impersonal, bureaucratic or technocratic control mechanisms comprise explicit elements, such as standardization or formalization, and implicit elements such as output control and planning. The formal control mechanisms related to the HR practices resemblance have been tested in several empirical studies. Thus, Rosenzweig and Nohria (1994) hypothesized about negative relationship between corporate control orientation exemplified in the rigid set of formal rules and guidelines and subsidiary s resemblance to local HRM practices, but found no statistically significant support for their hypothesis. On the other hand, Myloni et al (2007) in the study of US and European subsidiaries in Greece, found support for their hypothesis, that the level of HRM practices transfer will be positively related to the degree of formalized corporate control over foreign affiliate. Theoretically, one could expect higher level of practice standardization resulting from higher level of formal control over subsidiary. However, as noted before the empirical results have proved to be inconsistent. The following hypothesis is put forward based on the theoretical consideration and the partial empirical support derived from the previous research.

21 21 Hypothesis 3: The level of standardization of HRM practices is positively 2.2 Resource dependence theory related to the degree of formalized control over the subsidiary Resource dependence of a subsidiary As Westney (1993) pointed out, the institutional theory has been considered as complementary to the ideas of resource dependence. The resource dependence is routed in the proposition that an organization may be unable to generate necessary resources itself and is therefore dependent on other actors. Thus the organization might be inclined to comply with the demands of those actors it depends upon in terms of resources and legitimacy. Pfeffer and Salancik (1978) developed the resource dependence theory and described the patterns of organizational behavior in cases of organizational resource dependence. The resource dependence theory refers primarily to the dependency of organization on external factors, the environment as source of uncertainty and the distribution of power due to resource dependency. However, the patterns described by this theory could be potentially transferred to the case of intraorganizational dependence, i.e. the subsidiary resource dependence on the parent organization. Gupta and Govindarajan (1991) in their article on knowledge flows and structure of control within multinational subsidiaries, describe MNC units as being either receivers or providers of the transactional flows: capital, products and know-how. Following Westney (1993) it might be possible to infer, that the affiliates that are more dependent on inflows of technology, capital or products from either parent or peer subsidiaries would be more willing to adhere to standardized corporate practices, than those subsidiaries that are less dependent. In empirical research Rosenzweig and Nohria (1994) hypothesized that the subsidiaries that are more dependent on their parent company for technical and managerial knowhow would be more influenced by those and would show less resemblance to local HRM practices. Despite the fact that the authors found only marginal statistical support for their hypothesis, they argued that together with other factors related to parent-

22 22 subsidiary flows (i.e. presence of expatriates and communication with the parent company), resource dependence influences the level of resemblance of HRM practices. Kostova and Roth (2002) in their study of quality management practice transfer from US MNC to the subsidiaries in Americas, Europe and Asia expected to find positive relationship between unit s perceived dependence and organizational practice implementation. Their underlying argument was consistent with the institutional theory: the relative power/dependence of an organization affects its compliance with institutional pressures: the more dependent an organization is on legitimating actor, the more it will comply (2002: 219). However, they found that although subsidiary s dependence was significantly related to the implementation of organizational practices, the relational effect was negative. The possible explanation for this result may be due the fact that their hypothesis was based on previous research, which examined the dependence of organizations on external institutional factors. It was possible that the dependence of a subsidiary on a parent organization had different implications in comparison to the dependence of an organization on an external agency. The authors suggested that within an organizational context the dependence could be viewed more as an organizational interdependence and integration, rather than a power-based dependence. Thus the parent company might be also seen as dependent on the subsidiary, with power being distributed within organization. However, this interesting empirical result should lead to further examination of dependency effects in intraorganizational context, since the institutional theory explored foremost the dependence of organizations on the external institutional actors. Some empirical support for the dependency argument was provided by Hannon et al (1995) in their study of Japanese, US and European MNCs operating in Taiwan. The authors developed intraorganizational interdependency indicators and measured the dependence of foreign affiliates on parent resources. They found that the more subsidiary relies on its parent for critical resources, the easier it is for parent to conform the subsidiary s international HR strategies to its own (1995: 548). In light of the mixed empirical results, but robust theoretical foundation for resource dependence argumentation, the following is suggested:

23 23 Hypothesis 4: The level of standardization of HRM practices is positively related to the subsidiary s resource dependence on the parent company. 2.3 Cultural theory Culture distance The cultural values framework developed by Hofstede (1980) has been utilized in the variety of empirical studies (for the review, see Kirkman et al, 2006). Researchers have also investigated the impact of culture on different HRM practices, such as recruitment and selection, performance appraisal, training and development, compensation and rewards (Aycan 2005). Meanwhile the concept of culture has been evolving in the research on culture and international business (Leung et al, 2005). Since lately proponents of cultural theory have also been employing the GLOBE study framework developed by House et al (2004). Hofstede in his influential works identified four dimensions, according to which cultures differ from one another: power distance, uncertainty avoidance, individualism (and its opposite pole collectivism) and masculinity (and its opposite pole femininity). The power distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally (Hofstede 1991: 28). The uncertainty avoidance refers to the extent to which the members of a culture feel threatened by uncertain or unknown situations (1991: 113). The individualism describes relationship between the individual and collectivity which prevails in a given society (1980: 148). The masculinity and femininity refers to the degree of assertiveness or nurture in the societal culture. The cultural dimensions developed by Hofstede have been used in the variety of empirical studies. Various researchers have suggested that within the framework of MNC, the greater similarity between host country and parent country culture enables internally consistent HRM practices, and vice versa. For example, Taylor et al (1996) posited that an MNC would have more difficulties to transfer HRM system abroad given the greater difference between cultural environments of the subsidiary and home

24 24 country. Thus, they proposed that the greater the cultural distance between the host country of the affiliate and home country of the MNC, the less similarity between the parent company s HRM system and affiliate s HRM system (1996: 977). Rosenzweig and Singh (1991), building on Hofstede s work, hypothesized that the cultural distance between a parent company and a subsidiary will be positively related to the reliance of the headquarter on formal mechanisms of control. And as it was suggested earlier, the level of formalized control is related to the level of standardization of HRM practices in the subsidiary. Empirical studies have delivered mixed results with regard to the effect of cultural distance on HRM practice transfer. For example, Beechler and Yang (1994) in their study of Japanese subsidiaries in the US found that the cultural distance between employees of Japanese parent company and the US labor force had effect on the level of the transfer of Japanese-style HRM practices to the US subsidiaries. Rosenzweig and Nohria (1994) in their study of foreign affiliates in the US hypothesized that the resemblance to local HRM practices is negatively related to the Culture Distance between the parent country and host country (1994: 237). They could find support for the effect in the predicted direction, however in their study this effect had only marginal statistical significance of p<0.10. Some researchers have also based their studies on the culture distance measurements developed by House et al (2004). They suggested that the greater cultural distance between subsidiary s country and parent country of origin would result in a smaller degree of adaptation to parent s practices or ideas (Javidan et al, 2005) and found that the cultural distance had negative significant relationship with subsidiary s actual use of common practices (Morris et al, 2009). On the other hand, Morris et al (2009) have also found that the cultural distance didn t have clear effect on the subsidiary s replication capabilities. Thus, the authors have indicated that in the future research both cultural distance and replication capabilities could be examined in order to test whether the practices are locally created or replicated. The review of the literature on international management suggests, that there are very few instances, when researchers would argue that the national culture doesn t have any

25 25 effect (Leung et al, 2005). However, the researchers have also found that the contextual factors, such as organizational culture, alongside with the national culture, had an effect on the human resource management and could be taken into consideration in the research (Gerhart and Fang, 2005). Some empirical studies have indicated that the organizational culture seemed to be more robust than the national one (Meshi, 1997). However, the exploration of organizational culture would require an in-depth study of phenomena, and therefore remains out of scope of the present study. Based on the theoretical and empirical consideration described above, the following is suggested: Hypothesis 5: The level of standardization of HRM practices is negatively related to the culture distance between the subsidiary s host country and MNC parent country. 2.4 Use of electronic Human Resource Management (ehrm) The rapid technological development of the past two decades has boosted the use of information technology in various fields, also in the human resource management delivery. The management scholars in the recent years have increasingly showed their interest towards the different aspects of ehrm (for the review, see Strohmeier, 2007). Electronic Human Resource Management (ehrm) can be defined as an umbrella term covering all possible integration mechanisms and contents between HRM and Information Technologies aiming at creating value within and across organizations for targeted employees and management (Bondarouk and Ruël, 2009: 507). This definition implies the integration of four aspects within context of electronic HRM: the content of ehrm, the implementation of ehrm, the targeted employees and managers and the ehrm consequences. The difficulty of conducting research on ehrm comes from the fact, that the field comprises two academic backgrounds: the studies on implementation of information technology (IT) and the studies on HRM. According to Bondarouk et al (2009a), the studies on implementation of IT usually focus on the usage of IT for HR and such topics as IT acceptance, effectiveness, information security and privacy, leaving out the research on the changes in the HR practices resulting from the use of ehrm. The

26 26 studies on HRM focus on the single ehr practices and changes in HR processes and functions that follow automation, leaving out the issues related to the implementation of IT. Indeed, the researchers have studied different aspects of the IT usage in HRM. For example, Florkowski and Olivas-Luján (2006) have investigated the diffusion patterns of eight information technologies (HR functional applications, HR intranet, employee and manager self-service applications and HR portals among others) in North America and Europe, and thus have contributed to the understanding how technology is transforming the HR service-delivery within and across countries. Other researchers have focused on such topics as impact of certain technologies on HRM of the contemporary companies. Ruta (2009) in a case study of a multinational consulting firm has explored how the alignment of HR portals with the strategy can contribute to the creation of intellectual capital. Farndale et al (2009) have studied how the HR shared service centers support corporate strategy and effect delivery and professional logics of the HR function, however only within a single country framework (Netherlands). Bondarouk et al (2009b) in a case study of a public sector organization in Netherlands have researched the effectiveness of a particular ehrm application, ecareer Development, from the view of different stakeholders. This brief overview shows that the research on ehrm remains rather fragmented. Even fewer studies have been conducted in the setting of MNCs. For example, Smale and Heikkilä (2009) have studied the issues of ehr integration in an in-depth case study of the Finnish subsidiary of a large European owned MNC and have reflected on the issues of global standardization vs. local adaptation of the HR processes using micro-political approach. They have also reflected on ehrm as the facilitator of a greater integration of HRM practices in foreign subsidiaries, as seen from a control perspective. They argued that ehrm could serve as a form of bureaucratic control through procedural standards. Also, e-hrm could be used for an output control through management reporting functions. Finally, ehrm could represent control via centralization through the access rights and levels of authorizations. Thus, ehrm could represent one of the control mechanisms of a parent organization with regard to a subsidiary. As discussed in one of the previous sections, the higher level of HRM practice standardization could result

27 27 from the higher levels of a formal control over subsidiary. Thus, ehrm might be used to effect the standardization of HRM practices in the subsidiaries of MNCs. The concept of ehrm as the facilitator of greater HRM integration interlinks with the notion of e-enabled HR as a part of the strategy transfer, as outlined by Brewster et al (2005). However, as the authors observe, the e-enablement is not automatically, although frequently, associated with the standardization of HR policies across national boundaries. It is worth noting that the researchers have already previously acknowledged the common use of technology as an attribute of the MNC structures. As mentioned by Rosenzweig and Singh (1991: 350), technology transfers not only diffuse specific technology, they also may serve to transfer technology-related patterns of organizational structure. The authors infer that the use of a similar technology in different subsidiaries of MNC may lead to similar organizational structures and processes. One could imply, that the use of similar HR technologies by both MNC parent organization and affiliate would also impact the standardization of HRM practices. In light of the growing importance of ehrm for MNCs operations, and despite the lack of profound theoretical and empirical backup, the following is suggested: Hypothesis 6: The level of standardization of HRM practices is positively related to use of ehrm in the subsidiary. 2.5 Control variables According to the previous research, several control variables were included into the current study in order to isolate their effect on the dependent variable standardization of HRM practices in MNCs Subsidiary age The subsidiary age was used as a control variable in the present study. It can be expected that recently established or acquired subsidiaries would be less exposed to centralized policies, rules and procedures and therefore would be less similar to the parent company HR practices.

28 28 Several studies have included subsidiary age as a factor potentially influencing HRM practice resemblance. For example, Gooderham et al (2006) distinguished between firms that have existed for more than 20 years and recent establishments. Myloni et al (2007) also included subsidiary age, measured as years of operation in a host country, as one of the control variables in their study. In another study of HRM practices transfer in MNC subsidiaries and local firms located in Greece, the age of subsidiary was also used as statistically significant control variable (Myloni et al, 2004) Subsidiary size The subsidiary size represents another control variable included in the present study. The researchers on HRM practices in MNCs have controlled for the subsidiary size in their studies (Björkman et al, 2008). Also Myloni et al (2004) and Myloni et al (2007) have used subsidiary size as a control variable. The subsidiary size can be viewed as an important determinant of the management practices transfer, since a parent company may want to ensure the implementation of certain practices in the subsidiaries viewed as important for its operations Functional scope Several research studies have used the industry type as a control variable, dividing the sample of observations into e.g. industry types manufacturing and service (Hannon et al, 1995). Others have also added industry characteristics as a control variable (Björkman and Lu, 2001). In the present study the functional scope of operations was controlled for. This deviates from the reference to the industry type by focusing on the internal division of operations, but reflects on the above-mentioned typology of division into manufacturing, sales, service and research and development Parent company Finally, the control variable parent company was included in the present study. It can be argued that the organization itself with its implied organizational policies and strategies can have an effect on the level of management practices transfer and specifically on the degree of standardization of human resource management practices in the subsidiaries. 2.6 Summary of previous research Several factors potentially effecting the standardization of MNCs HRM practices have been identified based on the previous research and the propositions of neo-institutional

29 29 theory, resource-dependence theory and cultural theory. These factors include mode of establishment, expatriate presence, formalized control, resource dependence from the parent company and culture distance between host and parent country. Also the use of technology in HRM delivery has been identified as a potential factor influencing the standardization of HRM practices. Based on the previous research, several control variables have been included in the analysis. Therefore, the following model can be presented (Figure 1). Formalized control Resource dependence from the parent Culture distance Expatriate presence Use of ehrm Mode of establishment Level of standardization of HRM practices Control variables: Subsidiary Size Subsidiary Age Functional Scope Parent Company Figure 1. Model of factors effecting HRM practices standardization

30 30 3 Methodology The purpose of the current study is to explain what factors effect standardization of human resource management practices in foreign subsidiaries of MNCs, following the previously developed theoretical frameworks in the particular setting of Nordic MNCs and their subsidiaries. The study was carried out as a part of a large-scale multilevel research project on HRM practices in multinational corporations, with focus on 12 MNCs with Nordic origin. 3.1 Research method The study applies quantitative deductive research method, shaped by the principles of positivist research philosophy. Thus, existing theory was used to develop the hypotheses, which are subsequently tested. The structured methodology was applied with emphasis on quantifiable observations resulting in statistical analysis. The quantitative data is based on the meanings derived from numbers, thus the data collection resulted in numerical and standardized data (Saunders et al, 2007). A purpose of a study can be exploratory, descriptive, explanatory or emancipatory (Robson, 2002). The goal of the current study is to explain relationships between independent and dependent variables and to describe what level of variance of dependent variable - standardization of MNC practices - can be explained by the effect of independent variables. Therefore, with its aim in establishing of causal relationships between variables, the study is explanatory. 3.2 Data collection method As indicated by Sanders et al (2007), researchers can employ a number of research strategies. They include experiments, surveys, case studies, action research, grounded theory, ethnography and archival research. Survey represents a suitable option for the current study. Surveys can be carried out in form of face-to-face interviews, postal / Internet-mediated questionnaires and telephone surveys. Survey features include the use of fixed, quantitative data, collection of relatively small amount of data in standardized form from relatively large number of individuals and selection of representative samples of individuals from a known population (Robson, 2002: 230).

31 31 Given the characteristics of the current study, i.e. its focus on quantitative data and a relatively large amount of individuals that needed to be approached for the purpose of data collection, a questionnaire-based survey was considered to be an appropriate method for primary data collection Questionnaires Questionnaires can be self-administered or interviewer-administered. Self-administered questionnaires are filled-out by the respondents. They comprise Internet-mediated questionnaires, postal (mail) questionnaires and delivery and collection questionnaires. Interviewer-administered questionnaires comprise telephone questionnaires and structured interviews (Saunders et al, 2007). The choice of a questionnaire depends on a number of factors related to the research question and study objectives, namely: type of respondents, sample size, types and number of questions. Given the geographical dispersion of respondents for the current survey, telephone questionnaires were considered to be an appropriate type of data collection. The advantage of a telephone questionnaire in comparison to e.g. a postal questionnaire is that the right person responds to a questionnaire. Also the likely response rate is estimated to be higher for telephone questionnaires (50-70% reasonable) in comparison to Internet- or Intranet- mediated (10-30%), or postal questionnaires (30%) (Saunders et al, 2007) Development of questionnaires A good questionnaire should provide a valid measure of the research questions, facilitate co-operation of the respondents and reproduce accurate information (Robson, 2002). The questionnaires used in the present study were developed during the spring 2009 for the project The Global Leadership Challenge Talent Management in Multinational Corporations. The research team consisted of six researchers and three project assistants who were located in Helsinki, Vaasa and London. The questionnaires were developed through multiple rounds of iterative discussion process. The questions selected for the questionnaires were based on the extensive literature review and previously established empirical studies. After pilot interviews were conducted with two external managers in the positions comparable to those of the respondents, a few

32 32 questions were reworded, but no major changes in the questionnaires have been made. As a result of a questionnaire development process, two separate structured questionnaires were created: one for the subsidiary general manager, and another for the subsidiary human resource manager. The questionnaires were compiled in English, since English was used as official headquarter-subsidiary communication language. English was also used as predominant interview language. However, in some cases Finnish, Swedish, German and Russian were used for the purposes of terms clarification Telephone interviews The actual data analyzed in the current study was collected between April and August The potential respondents in the subsidiaries have been suggested by corporate HR representatives in the headquarters who have been key contact persons for the project. An introductory letter with the description of the project aim was sent to the respondents HR and general managers of the subsidiaries - per . They were asked to reply with an indication of dates and times possible for an approx. 30 min. long telephone interview. In most of the cases, the respondents replied relatively promptly. In cases of initial non-responses, a reminder was sent per after approximately a week time and the interviews were subsequently scheduled. On average interviews lasted between 20 and 45 minutes. They were conducted in a manner, that interviewer and respondent went through the questionnaire together over the telephone. The interviewer filled in the responses, whilst respondent answered the questions having questionnaire in front of him/her to facilitate the interview process. The questionnaires have been sent to the respondents in advance, so that they could have made themselves acquaintant with the questions. 3.3 Target group The large-scale multilevel research project has targeted domestic and international subsidiaries of Nordic multinationals. First, twenty largest Finnish MNCs in terms of number of employees were identified. The scope of their international operations served as additional choice criterion. The aim was to gain access to ten subsidiaries in ten MNCs. Eight Finnish MNCs agreed to participate in the project. Then, additional

33 33 Swedish and Norwegian MNCs of a similar size were approached for the purpose of the project collaboration, and one Swedish and three Norwegian companies joined the project Sampling criteria The size of an MNC measured according to the number of employees has been identified as a sampling criterion. Also the international scope of MNC operations and the geographical location headquarters in one of the Nordic countries: Finland, Sweden, Denmark or Norway served as a sampling criterion Sample characteristics The total of twelve Nordic MNCs representing a variety of industries and ranging in size from to employees with subsidiaries in approx. 30 different countries constitute the sample for the present study. The subsidiaries were selected with the help of HR representative from the corporation s headquarters. It is worth noting that both domestic and foreign units of the corporation were included in the sample. The characteristics of the participating subsidiaries are presented in Table 3. The total number of the subsidiaries used for the analysis amounted to 122. The subsidiary size in terms of number of employees ranged from less than 100 to over 1000 employees. The subsidiaries with the number of employees from 101 to 500 constituted the largest group in the sample 38.5%. With regard to the subsidiary age, subsidiaries with over 20 years of operations presented the largest group in the sample 39.3%. The presence of expatriates was measured as a number of foreign managers that came from the headquarters or another unit in the corporation s home country. In over a half of the subsidiaries (51.7%) there were no expatriate managers, and in 40.7% of the subsidiaries the number of expatriate managers ranged from 1 to 5. With regard to the mode of establishment, almost a half of the subsidiaries in the sample has been acquired (49.2%). Concerning the functional scope, the majority of the subsidiaries were involved in sales (73%) and service (74.6%). With regard to the equity of the subsidiaries, 92.6% of them were fully owned.

34 34 N=122 Category % Subsidiary size (number of employees) Subsidiary age Expatriate presence (number of foreign managers from HQ or another home country unit) Acquisition Functional scope Wholly-owned (100%) <= >1000 <=5 years 6-10 years years >20 years >10 excluded (subs. country=hq country) Yes No Manufacturing Sales Service R&D Yes No Table 3. Characteristics of the subsidiaries Respondents In order to address the concern that single respondents can be potentially a source of common method bias resulting from a fact that predictor and criterion variables are obtained from the same person (Podsakoff et al, 2003), the data was collected from multiple sources, including subsidiary HR managers and subsidiary general managers identified as key contact persons by the corporate HR representative. The respondents

35 35 were expected to be one of the most reliable sources of information about the management practices due to their position in the subsidiary. 3.4 Operationalization of the data Both questionnaires used for the present study for the subsidiary general manager and for the subsidiary HR manager contained the variety of questions related to more aspects, than current study intends to cover. Therefore a number of questions was selected and combined in order to create constructs that were effectively used in the study Dependent variable standardization of HRM practices The dependent variable in this study was the level of standardization of HRM practices in MNC subsidiaries. In some studies in has been labeled as level of resemblance, or level of similarity between subsidiary and parent HRM practices. In the current study these terms are used interchangeably. The operationalization of the construct was adopted from the previous research (Rosenzweig and Nohria, 1994; Hannon et al, 1995; Björkman and Lu, 2001; Myloni et al, 2007). Both the subsidiary general managers and subsidiary HR managers were asked to evaluate the level of similarity of HRM practices used in subsidiary, compared to company s headquarters in the following question: To what extent do you perceive that the current HRM practices for managers and key professionals in your unit are similar to the ones used in corporate headquarters? Hereby respondents were asked to evaluate four HRM practices: performance management, training and development, compensation and rewards, and talent identification and management (talent referred to a core group of managers and key professionals considered as important for future operations). Seven-point Likert scale ranging from 1 = very different to 7 = very similar was used to rate the questions. The Cronbach s alpha value, a reliability coefficient assessing the consistency of a scale most widely used in research, was 0.82 for HR managers and 0.72 for general managers. According to Hair et all (2010), it is generally agreed upon lower limit of 0.70 for Cronbach s alpha, with some exceptions allowed towards value of In order to produce a more reliable measure for the construct and address the reliability

36 36 threat resulting from the use of single source respondents, responses from both general manager and human resource manager were combined and used as a measurement. The Cronbach s alpha value for the construct was Independent variables Mode of establishment The variable mode of establishment has been used in the variety of previous empirical studies (Rosenzweig and Nohria, 1994; Björkman et al, 2008). In the present study, respondents were asked if their unit was established through acquisition or not. Answers were coded using dummy variable, where acquired units received value 1 and greenfield subsidiaries received value 0. Expatriate presence The respondents were asked about the total number of foreign managers in the unit, as well as about the number of foreign managers that came from a corporation s headquarter or home country. Adapting operationalizations from the previous research (Rosenzweig and Nohria, 1994; Björkman and Lu, 2001), expatriate presence in the current study was measured as total number of foreign managers that came from the headquarter or another unit in the corporation s home country. Formalized control The measures for control over subsidiary have been captured in some of the previous empirical studies (Rosenzweig and Nohria, 1994; Myloni et al, 2007). The HR managers were asked to state the level of influence of corporate headquarters over the unit in the questions using seven-point Likert scale ranging from 1 = not at all to 7 = to a great extent. Following statements were offered to their judgment: 1. Headquarters places emphasis on standardized HRM processes and procedures, 2. Headquarters enforces formalized HRM rules and policies. 3. Headquarters uses reporting system to continuously evaluate this unit s HR performance (e.g. in areas such as stuff turnover, employee satisfaction and workforce diversity), 4. Headquarters is involved in HR planning for this unit (i.e. decisions on unit resourcing and goal setting). The Cronbach s alpha for the construct was 0.77.

37 37 Resource dependence from the parent The dependence measure was adopted from the previous research (Kostova and Roth, 2002). Respondents were asked to evaluate dependency of their unit on parent company for the following types of resources: 1. Technologies, products and/or processes, 2. Managerial expertise, 3. Overall (in general). Seven-point Likert scale ranging from 1 = do not agree to 7 = agree entirely was used to assess these questions. Cronbach s alpha value for this construct appeared to be somewhat low (0.62), but according to Hair et al (2010) some exceptions were allowed towards value of Therefore the construct was used in the hypothesis testing. Culture distance Some of the previous studies have applied the culture distance construct (Rosenzweig and Nohria, 1994; Javidan et al, 2005). In this study the culture distance between countries has been measured on nine dimensions suggested by House et al (2004): power distance, in-group collectivism, institutional collectivism, uncertainty avoidance, future orientation, gender egalitarianism, assertiveness, humane orientation and performance orientation. These dimensions to a great extent feature those developed by Hofstede (1980). The culture distance measure has been assessed using the index created by Kogut and Singh (1988). They have based their index on Hofstede s cultural dimensions, therefore the number of dimensions in the present study was substituted by nine according to the dimensions developed by House et al (2004) in the GLOBE study. For those countries absent in the GLOBE study (Chile, Estonia, Latvia, Lithuania, Norway), the values obtained for the countries in a close geographical proximity were used (Argentina, Finland, Sweden, Poland, Denmark). CD j = 9 # i=1 {( I ij " I iu ) /V i }/9 2 Where I ij index for ith cultural dimension and jth country (host) I iu index for ith cultural dimension and uth country (home) V i variance of the index of the ith dimension CD j cultural distance from jth country to home country

38 38 Use of ehrm The operationalization of the construct was roughly similar to the one used in the previous research (Florkowski and Olivas-Luján, 2006). The HR managers were asked to what extent they use certain HR-related technologies in their units. Seven-point Likert scale ranging from 1 = not at all to 7 = to a great extent was used to evaluate the questions. Following technologies were included into the operationalization of the construct: 1. HR applications (software used in carrying out specific HRM practices, e.g. performance appraisal systems, recruitment systems). 2. HR intranet (HR resources on an internal website within the larger corporate intranet, e.g. online publishing of employee handbooks, company policies, job postings). 3. Employee Self-Service (ESS) (employees can e.g. directly update their individual records, register for training, or input performance data). 4. Managerial Self-Service (MSS) (managers can e.g. directly update records, register for training, or input performance evaluations for their team). 5. Integrated HR software platform (a system that provides access to larger databases through a variety of HR modules, e.g. SAP HR or PeopleSoft). 6. HR portals (a personalized, web-based access point to all information resources, tools and systems needed to effectively use HR services offered via the Internet). The Cronbach s alpha for this construct was Control variables Subsidiary age In accordance to the previous research (Myloni et al, 2004; Myloni et al, 2007), the respondents were asked when did their unit become part of the global corporation or was founded by the global corporation. The age of the units varied substantially; therefore a natural logarithm of the subsidiary age (in years) was calculated in order to obtain normal distribution of this variable. Subsidiary size The respondents were asked about the total number of employees in their units. Due to the great variability in unit size, natural logarithm of subsidiary size was calculated in order to obtain more normal distribution of the variable (Björkman et al, 2008).

39 39 Functional scope The respondents were asked to indicate the functions of their units: manufacturing, sales, service or research and development. The answers were coded using a dummy variable, whereby the units received value 1 or 0, depending on the applicability of the function to the respective unit. Parent company The parent company measure was assessed as a categorical variable and recoded into the dummy variable for the analysis. 3.5 Reliability and validity In order to reduce the possibility of inaccurate study results, two facets of the research study design have to be addressed: reliability and validity Reliability Reliability refers to a consistency of the findings through data collection or analysis procedures and achievement of similar observations or conclusions by other researchers (Saunders et al, 2007). According to Robson (2002), there are four threats to reliability, two of which are related to subject or participant of the study, and two to the observer. Subject or participant error refers to a risk, that questions will be answered differently depending on the time of survey accomplishment and a respondent s state of mind. However, in the present study questions didn t refer to the respondents emotions or feelings, hence the probability of this threat can be considered as relatively low. Subject or participant bias refers to a threat that interviewees might respond in a way they are expected to respond, especially in a case of authoritarian management organization and employment insecurity. In order to reduce this threat, anonymity of responses was ensured. Observer error refers to a threat that the interviewer state of mind might influence the interview and data collection process. Increase in the degree of structure in the interviews can diminish this threat. In the current study, interviews were carried out through structured questionnaires; hence the probability of this threat is relatively low.

40 40 Finally, observer bias refers to a potentially different interpretation of the obtained results. Possibility of this threat can be diminished through the use of structured questions and scale-based responses. Another threat to reliability refers to a use of single-source respondents. As noted before, both general manager and HR manager from the participating units were interviewed for the purpose of current research Validity Validity refers to the extent of measurement accuracy and the extent to which research findings correspond to what they intended to conceive. Validity of a questionnaire refers to content validity, criterion-related validity, and construct validity. Content validity refers to the extent to which questions provide appropriate coverage for what is intended to measure. Content validity can be improved by thorough review of literature and discussions with other researchers, as it has been done in the case of current research project. Criterion-related validity, also called predictive validity, refers to ability of questions to make accurate predictions. Construct validity refers to the extent to which questions measure the presence of the constructs they were intended to measure (Saunders et al, 2007). One of the threats to validity is generalisability of the findings, also referred to as an external validity. It is related to the question whether research findings are applicable to the whole population. This threat to validity can be assessed in light of limitations of the current study with its focus on subsidiaries of Nordic multinationals. Another threat to validity refers to the ambiguity about causal directions between the variables. This threat can be addressed by thorough study of theoretical and empirical literature related to the research questions of the study. 3.6 Data analysis The data was analyzed using statistical program PASW Statistics First, the correlations between variables were measured in order to identify the significant relationships between them. Also the descriptive statistics of the variables used in the current study was assessed. Further, the regression analysis was conducted

41 41 in order to analyze the relationships between several independent or predictor variables and a dependent or criterion variable level of standardization of HRM practices in the current study. Multiple regression was considered to be an appropriate statistical procedure for the current study, since it allows to assess a general question: what is the best predictor for a dependent variable (Hair et al, 2010). Specifically, a general linear model has been used in order to test the hypotheses. This procedure has enabled the use of categorical blocking factor characteristic of the sample that is often used as a control variable in order to reduce within-group variability by becoming an additional factor in the analysis (Hair et al, 2010). In case of the present study the categorical blocking factor was the variable parent corporation.

42 42 4 Results and Analysis In order to proceed with the testing of hypotheses, correlations between dependent, independent and control variables have been identified. Further, the correlation matrix has been studied with regard to the issue of multicollinearity. According to Hair et al (2010), presence of high correlations (0.90 and higher) is first indicator of substantial collinearity. However, as correlation table indicates, correlations between variables have not exceeded Collinearity may also result from multicollinearity, which represents a combined effect of two or more independent variables. In order to assess multicollinearity, two common measures for both pairwise and multiple variable collinearity were utilized: tolerance and its inverse, a variance inflation factor (VIF). Higher tolerance values, as well as lower VIF values indicate towards smaller degree of multicollinearity. Variables with VIF values greater than 10.0 or tolerance values smaller than 0.1 are considered to be unsuitable for further analysis (Lind et al, 2008). In the current study, the values for tolerance ranged from to 0.888, and the values for VIF ranged from to These values suggest that the current analysis does not suffer from the problem of multicollinearity. Table 4. Means, standard deviations, and Pearson correlations

43 43 Table 4 presents descriptive statistics and correlations between variables. The table indicates that there are some statistically significant correlations between independent and dependent variables. The statistically significant (p < 0.01) negative correlation between acquisition and resemblance of HRM practices indicates that the subsidiaries established through acquisitions would demonstrate less standardized HRM practices. The statistically significant (p < 0.01) positive correlation between formalized control and a dependent variable suggests that the enforcement of standardized rules and procedures has a positive effect on standardization of MNCs HRM practices. Also the variable that has captured the use of ehrm was positively and statistically significant (p < 0.01) correlated with the variable HRM similarity, indicating the positive effect of ehrm use on the level of HRM practices standardization. The positive correlation (p < 0.05) between subsidiary age and standardization of HRM indicates that the older subsidiaries would have a higher degree of practice standardization. The statistically significant (p < 0.01) negative correlation between functional scope manufacturing and HRM similarity indicates that the units involved in manufacturing activities would have less standardized HRM practices. The same effect could be suggested for the subsidiaries involved in sales activities (negative correlation with p < 0.05). To sum up, some of the correlations indicated towards the presence of the statistically significant relationships between the variables. 4.1 General Linear Model HRM practices standardization As indicated before, a general linear regression model with the fixed factor blocking the effect of variable parent organization has been used in order to test the hypotheses. The collected data represented a nested dataset, i.e. the observations were located within the clusters of twelve MNCs. Thus, it seemed appropriate to apply a multilevel analysis with a general linear model, controlling for the effect of a parent organization (Hair et al, 2010). Two models have been created using a general linear model procedure. The first model has incorporated only the control variables, and the second one has comprised both independent and control variables. Thus, first the control variables were tested in the regression analysis. Than other potentially influencing factors were added to the model, and the model became somewhat better in explaining the variability (Table 5).

44 44 Table 5. General Linear Model HRM standardization Both models were statistically significant, with F = 2.921, p < for model 1 incorporating only control variables, and F = 2.813, p < for model 2 incorporating all the independent variables. The adjusted R square of the model incorporating only control variables is adj. R 2 = 0.213, and of the full model - adj. R 2 = Thus the full model could explain about twenty six percent of the variability of the dependent variable HRM practices standardization. In the first model, the variables subsidiary age (B = 0.149, p < 0.05) and scope manufacturing (B = , p < 0.001) have appeared as statistically significant. Also the variable scope research and development was marginally statistically significant

45 45 with B = and p < 0.1. In the full model variables use of e-hrm (B = 0.156, p < 0.01) and functional scope manufacturing (B = , p < 0.001) were statistically significant. The variable scope research and development was marginally statistically significant with B = and p < 0.1. An interesting result of this regression analysis is the significance of the variable use of ehrm. The model has shown that the use of ehrm could explain about 15 % of the variance of the dependent variable standardization of HRM practices. Another interesting finding is the significance of the variable functional scope - manufacturing. Finally, the control variable parent company has appeared to be highly statistically significant in both models. Thus, one could infer that the organization itself has a substantial influence in effecting the levels of HRM practices standardization in the subsidiaries of MNCs. 4.2 General Linear Model standardization of individual HRM practices In light of the obtained results, it seemed viable to assess the effect of the independent variables on the level of standardization of individual HRM practices combined in the construct standardization of HRM practices : i.e. performance management, training and development, compensation and rewards and talent identification. The results of the general linear regression model with the fixed factor blocking the effect of the variable parent organization are presented in Table 6. Table 6. General Linear Model individual HRM practices

46 46 All four models were statistically significant, with F = and p < 0.05 for the model with dependent variable similarity of performance management practices, F = and p < for the model with dependent variable similarity of training and development practices, F = and p < 0.05 for the model with dependent variable similarity of compensation and rewards practices and F = and p < for the model with dependent variable similarity of talent identification and management practices. The results indicate, that the use of ehrm has appeared to be statistically significant with regard to the practices of training and development (B = 0.159, p < 0.05) and the practices of compensation and rewards (B = 0.206, p < 0.05). It also appeared to be marginally statistically significant with regard to the practices of talent identification (B = 0.150, p < 0.1). Thus, from 15 to 20 percent of the variance in the levels of standardization of these practices could have been explained by the use of ehrm. Another statistically significant variable was the functional scope manufacturing, which appeared to be statistically significant (p < 0.01) in the models assessing performance management, training and development, compensation and rewards practices and marginally significant (p < 0.1) in the model assessing talent identification practices. The control variable parent corporation has appeared to be highly statistically significant in all four models. This result corresponds to the findings of the model 2 assessing HRM practices standardization as a dependent variable. Thus, the corporation itself has a substantial effect on the levels of individual HRM practices standardization in the subsidiaries. 4.3 Hypotheses testing The following analysis of the hypotheses has been based on the results of the full model obtained with the help of a general linear model procedure. The hypotheses have been tested in order to evaluate the effect of independent and control variables on the dependent variable standardization of HRM practices Mode of establishment vs. Level of standardization of HRM practices Hypothesis 1 posited that the level of standardization of HRM practices was greater for the greenfield affiliates than for the acquired subsidiaries. The measure was coded as a

47 47 dummy variable, where the acquired units received value 1 and the greenfield subsidiaries received value 0. The hypothesis didn t find support in a general linear model (B = , p > 0.05), and thus must be rejected Expatriate presence vs. Level of standardization of HRM practices Hypothesis 2 suggested that the level of standardization of HRM practices was positively related to the presence of the expatriates in the subsidiary. The expatriate presence was measured as a total number of foreign managers that came from the headquarters or another unit in the corporation s home country. The hypothesis didn t find support in the present study (B = 0.006, p > 0.05) Formalized control vs. Level of standardization of HRM practices Hypothesis 3 implied that the level of standardization of HRM practices was positively related to the degree of formalized control over subsidiary. It was operationalized through the assessment of a headquarters emphasis on standardized HRM processes and procedures, formalized HRM rules and policies, reporting system implemented to evaluate unit HR performance, and headquarters involvement in HR planning for the particular unit. The results of a general linear model couldn t provide support for this hypothesis (B = 0.045, p > 0.05). Thus, the hypothesis must be rejected Resource dependence vs. Level of standardization of HRM practices Hypothesis 4 suggested that the level of standardization of HRM practices in a subsidiary was positively related to the subsidiary s level of resource dependence from the parent organization. It was operationalized through a construct comprising respondents evaluation of their unit dependency on a parent company in terms of technologies, products and/or processes, managerial expertise and overall dependency. The results of the current study didn t provide support for this hypothesis (B = 0.052, p > 0.05) Culture distance vs. Level of standardization of HRM practices Hypothesis 5 posited, that the level of standardization of HRM practices was negatively related to the culture distance between subsidiary s host country and MNC parent country. In this study culture distance between countries was measured on 9 dimensions, following the GLOBE study (2004): power distance, in-group collectivism, institutional collectivism, uncertainty avoidance, future orientation, gender

48 48 egalitarianism, assertiveness, humane orientation and performance orientation. In order to calculate the actual culture distance, an index created by Kogut and Singh (1988) has been adopted. This hypothesis didn t find support in the current study. The results were not statistically significant and offered only marginal support in explanation of the variability in the level of standardization of HRM practices. The following values can be reported: B = and p > Thus, hypothesis 5 must be rejected Use of e-hrm vs. Level of standardization of HRM practices Hypothesis 6 suggested that the level of standardization of HRM practices was positively related to the use of ehrm in the subsidiary. The construct for this hypothesis was operationalized through the questions related to the use of the following technologies in HR matters within subsidiaries: HR applications, HR intranet, Employee Self-Service, Managerial Self-Service, integrated HR software platform and HR portals. This hypothesis was supported in the current study. In fact the analyses conducted with a general linear model procedure resulted in B = and p < Thus, the model suggests that approx. 15 percent of variability in the level of standardization of HRM practices in the subsidiary could be explained by the use of electronic HRM systems Control variables vs. Level of standardization of HRM practices Subsidiary age One of the control variables used for the analysis was subsidiary age. This variable was operationalized as a natural logarithm of a subsidiary age (in years). In the full general linear model this variable was not significant (B = 0.086, p > 0.05). However, in the partial general linear model that incorporated only the control variable, this variable was significant (B = 0.149, p < 0.05). Subsidiary size The size of the subsidiary was operationalized as a natural logarithm of subsidiary size in order to obtain a more normal distribution of the variable. This control variable has appeared to be not statistically significant, both in the baseline (B = 0.076, p > 0.05) and in the full general linear model (B = 0.071, p > 0.05).

49 49 Functional scope The measurement of a third control variable functional scope has been split into 4 groups: manufacturing, sales, service and research and development (R&D). Respondents answers were coded using dummy variable, where units received value 1 or 0, depending on the applicability of the respective function. The variables for the functional scope sales (full general linear model B = , p > 0.05), service (full general linear model B = , p > 0.05) and R&D (full general linear model B = 0.269, p > 0.05) have appeared to be not statistically significant. However, the variable functional scope manufacturing has appeared to be highly statistically significant both in the baseline regression model with B = and p < and in the full general linear model with B = and p < This result indicates that the functional scope manufacturing has impact on the variability of the dependent variable standardization of HRM practices. The relational direction between the variables is negative, implying that the subsidiaries involved in manufacturing activities would resemble parent HRM practices to a lesser degree. Indeed, one could argue that the subsidiaries involved in manufacturing are more imbedded in the local environment and hence would tend to have practices that are more similar to those of the local companies (Rosenzweig, 2006). Parent corporation The categorical variable parent corporation was used as a blocking factor in order to isolate effects of individual parent organizations on the dependent variable. This variable has appeared to be highly significant in the full model with p < Moreover it has appeared to be statistically significant in the models that have assessed individual HRM practices (p < 0.001). This result could indicate that the affiliation to a certain organization can substantially effect the levels HRM practices standardization in the subsidiaries. 4.4 Summary of the results Based on the previous research on human resource management in multinational corporations, a number of hypotheses with regard to the factors affecting the level of standardization of HRM practices in the subsidiaries has been derived and tested using regression analysis and in particular the general linear model.

50 50 The full model created with a general linear model procedure with a fixed factor blocking the effect of a parent organization has been able to explain 26.3 percent of the variability of the dependent variable standardization of HRM practices. The model was statistically significant with F = and p < Further, the posited hypotheses have been tested. The first hypothesis related to the mode of establishment of a subsidiary was not supported in the current study. Also the hypothesis 2 with regard to the presence of expatriates in the units did not find support in the current study. The hypothesis 3 that addressed the formalized control has proved to be not statistically significant in the study. Also the hypothesis 4 that evaluated the influence of subsidiary s resource dependence on the level of HRM practices standardization didn t provide evidence of a significant relationship between dependent and independent variables. The hypothesis 5 assessing the influence of a culture distance on the level of HRM standardization has appeared to be not statistically significant in the present study. The hypothesis 6 that suggested positive relationship between the level of HRM practices standardization and the use of electronic HRM in the subsidiary has appeared to be statistically significant in the study (B = 0.156, p < 0.01). This variable has appeared to have a relatively high explanatory power regarding the dependent variable. Among the control variables, the subsidiary age has appeared to be statistically significant in a partial general linear model incorporating only control variables (B = 0.149, p < 0.05). The functional scope manufacturing was found as statistically significant in the general linear model (B = , p < 0.001). The variable parent company has appeared to be statistically significant in all of the tested models. The results are summarized in Figure 2 with the statistically significant variables being marked in bold.

51 51 Formalized control Resource dependence from the parent Culture distance Expatriate presence Use of ehrm Mode of establishment Level of standardization of HRM practices Control variables: Subsidiary Size Subsidiary Age Functional Scope Parent Company Figure 2. Significant variables in the model of factors effecting HRM practices standardization

52 52 5 Discussion and conclusions 5.1 Summary of the study The present study aimed to explain what factors affect the level of standardization of human resource management practices in the subsidiaries of multinational corporations. The study was carried out in the framework of a large-scale multilevel research project on HRM practices in multinational corporations, with its focus on 12 MNCs with Nordic origin and their domestic and international subsidiaries. The origin of the MNCs headquarters in the Nordic countries and the inclusion of both domestic and foreign subsidiaries constitute the novelty factor regarding the empirical context of the study. The use of dual respondents both the HR managers and the general managers in the subsidiaries for the purpose of data collection represents another novel element of the current study. Finally, the study goes beyond the existing research by assessing the individual HRM practices in the subsidiaries of MNCs. In order to address the phenomena in question, this study utilized a quantitative deductive research method, whilst the existing theory was used to develop the hypotheses, which were subsequently tested. Structured methodology was applied, with an emphasis on quantifiable observations resulting in the statistical analysis (Saunders et al, 2007). The starting point of the discussion was a growing importance of multinational corporations (MNCs) for the world economy and population. It has been observed, that MNCs operate within the integration responsiveness framework and strive to achieve the optimal trade-off between the local adaptation and the global standardization of their practices, in order to optimize these practices and achieve the desired outcomes (Rosenzweig and Nohria, 1994). The human resource management (HRM) practices in MNCs as a focus point of the current study were among others considered to be a subject to the dual pressures for both local adaptation and internal consistency. This study has focused on factors effecting standardization of human resource management practices. This focus is feasible from the point of view of both an interested management researcher willing to gain understanding about the patterns that

53 53 shape practices of MNCs, and a manager in a multinational corporation striving for the optimization of the actual practices and for the internal consistency of a management system through standardization. The review of the literature has revealed that several theories could be applied in order to explain the patterns and forces shaping the human resource management practices. Thus, the new institutional theory, the cultural theory and the resource-dependency theory were studied and used in the development of the hypotheses. Such factors as a mode of establishment, expatriate presence, formalized control, resource dependence of the subsidiary from the parent organization, and culture distance have been identified as the factors influencing the level of standardization of HRM practices. The thorough review of the previous empirical studies has provided support for the importance of the identified influencing factors. Another hypothesis was formulated based on the acknowledgment of the increasing importance of the information and communication technologies (ICT) for operations of the current multinational organizations. Also the researchers in the field of human resource management forwarded their attention towards different aspects of electronic HRM (Strohmeier, 2007). Finally, the control variables such as subsidiary size, subsidiary age, functional scope of operations and parent corporation have been integrated into the conceptual model. After the dependent, independent and control variables have been operationalized and the potential threats to validity and reliability have been acknowledged, the data was analyzed using the statistical program PASW Statistics First, the correlations between the variables have been measured in order to identify significant relationships. Further, the regression analysis has been conducted in order to test the relationships between the variables and measure their strength. Specifically, the general linear model has been used in order to test the hypotheses. This procedure has enabled the use of categorical blocking factor characteristic of the sample that is often used as a control variable in order to reduce within-group variability by becoming an additional factor in the analysis (Hair et al, 2010). In case of the present study a categorical blocking factor was the variable parent corporation.

54 54 The regression analysis was conducted in order to assess the strength of an overall model under consideration of all variables simultaneously, and in order to separate between the effects of control and independent variables. Further, the models were tested with regard to the individual HRM practices: i.e. performance management, training and development, compensation and rewards as well as talent identification and management. The tested models have proved to be robust in terms of their statistical significance (e.g. p < for the full general linear model). However, the results have shown that most of the variables considered as significant in the previous research were not significant in the present study. Thus, the hypotheses concerning mode of establishment, expatriate presence, HR control orientation, resource dependence from the parent, and culture distance were not supported in the current study. Among the control variables, the functional scope manufacturing had a significant effect on explaining the variability of the dependent variable standardization of HRM practices. The variable subsidiary age was significant in the partial general linear model incorporating only control variables. Also the control variable parent organization has appeared to be statistically significant in both the baseline and the full model and in the models testing for the effects of the independent variables on the standardization of individual HRM practices. An interesting finding of the present study is that the use of ehrm has appeared to be significant in explaining the variability of the dependent variable standardization of HRM practices. Moreover, it could explain over 15 percent of the variability in the full general linear model. 5.2 Theoretical implications The study contributes to the understanding of the factors effecting the standardization of management practices in several ways. Theoretically one could argue for a solid foundation in explaining the role of certain factors on the level of standardization of HRM practices. However, the results of this study did not yield statistically significant support for most of the hypotheses derived from the theory and supported by the empirical studies. These results could indicate,

55 55 that the Nordic MNCs imbedded in diverging from the previous research institutional and cultural contexts demonstrate different patterns of organizational dynamics. Indeed, the results have indicated that a corporation itself had a significant impact on the level of standardization of management practices. The study has showed that other factors rather than established in the previous research could have a high explanatory power. Thus, functional scope had a significant influence on the level of standardization of management practices. To my best knowledge, the effects of a functional scope have not been studied in detail in the previous empirical studies. The study has also indicated that the use of electronic HRM had an effect on the level of standardization of HRM practices. This result could imply that in the current technologically advanced environment it may be feasible to pay attention to the new explanatory factors for the already researched phenomena. 5.3 Managerial implications The results of this study indicate that the use of software platforms, applications and portals in the HR domain of the corporations contributes to the level of standardization of HRM practices. One could suggest, that a multinational corporation should implement the same software programs throughout the organization in order to achieve internal consistency. The managers could also assess the functional scope of operations as one of the determinants of the standardization of practices. Based on the results of the current study one could imply that the standardization of the practices could be achieved easier in the subsidiaries that are involved in the activities other then manufacturing. 5.4 Limitations and future research directions The findings of this study should be assessed in light of its limitations. First, other explanatory factors could contribute to the understanding of the phenomena. For example, the social capital theory (Nahapiet and Ghoshal, 1998; Tsai and Ghoshal, 1998; Adler and Kwon, 2002) remained out of scope of this study. It is possible that

56 56 factors related to the structural, relational and social capital could explain the level of standardization of HRM practices in the subsidiaries of the MNCs. Further, the domestic and foreign subsidiaries of Nordic multinational corporations constituted the empirical context of the current study. It is possible that different drivers effect the level of standardization of RM practices in the companies stemming from different institutional and cultural contexts. Also, following the previous research (Rosenzweig and Nohria, 1994; Hannon et al, 1995; Björkman and Lu, 2001), the dependent variables were operationalized using perceptual data. Indications of actual practices in the subsidiaries and the parent corporations would potentially give better measures for the degree of standardization of HRM practices (Björkman et al, 2008). It terms of the future research directions, it could be feasible to test if the relationship between the use of ehrm and level of standardization of HRM practices will hold in different context rather than that of Nordic multinationals and their subsidiaries. Thus the generalisability of the finding could be addressed. Referring to the significance of an organization in influencing the standardization of management practices, further research could imply an in-depth case study of e.g. how the organizational culture influences certain practices and hence standardization or localization of those. Further these management practices could be explored on the level of employees within the organization. It can be plausible to suggest, that both for an interested management practitioner and a theorist, the discussion on the standardization or localization of management practices has a certain importance. In light of the current study findings, it seems that the identification of the new explanatory factors effecting standardization of HRM practices can be an interesting venue for the future research, such as the effect of the use of technology and applications on the origination and development of the social capital within corporation. Also the applicability of the social media as a new way of communication within organizations in terms of sharing information and collaboration could be explored.

57 57 As Bartlett and Ghoshal have noted, current corporations cope with the complexities of their environment while trying to implement third-generation strategies through second-generation organizations with first-generation management (2002: 35). The world is changing rapidly, and so do people working in the organizations. In light of that, both managers and researchers might want to inspire themselves by new exploratory fields that might contribute to the success of their managerial and scientific endeavors.

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65 Appendices Appendix 1: Letter to Participating Units Dear Madame/Sir, Ref: THE GLOBAL LEADERSHIP CHALLENGE PROJECT: TALENT MANAGEMENT IN MULTINATIONAL CORPORATIONS You will be contacted shortly about a short telephone interview meeting in relation to the Global Leadership Challenge project that your company is working on with a number of leading Nordic multinationals. Please find below some information about the project and the upcoming interview. The Global Leadership Challenge is an advanced R&D project on talent management in multinational corporations. The project will deliver detailed knowledge and benchmarking data on the effectiveness of four key talent management related HRM practices (performance management, talent identification, training & development, and compensation & rewards) in 17 leading Nordic multinationals. The project is coordinated by Hanken School of Economics, based in Helsinki, Finland. The focus of the project is on the above HRM practices for managers and key professionals in a number of units in each organization. As a next step in the project, we will conduct a brief telephone interview (max. 30 minutes) with the general manager and one key HR person responsible for each unit. Your corporate HR representative has chosen your unit as being among those that will participate in the project. Therefore, we kindly ask you to respond to the address below by suggesting a suitable date/time for the interview. We will then confirm this date/time back to you. Please also note that the project will continue towards the end of this year with a second round of data collection. We will return to this in due course. We greatly appreciate your participation in this project and are looking forward to hearing from you. Sincerely, Name / of the researcher