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When in Rome . . .?
Human resource management and the performance of foreign rms operating in India
rkman Ingmar Bjo
Swedish School of Economics and Business Administration, Department of Management and Organization, Helsinki, Finland, and INSEAD Euro-Asia and Comparative Research Centre, Fontainebleau, France, and

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Pawan Budhwar
Aston Business School, Aston University, Birmingham, UK
Abstract
Purpose The purpose of the paper is to examine the kind of HRM practices being implemented by overseas rms in their Indian subsidiaries and also to analyze the linkage between HRM practices and organizational performance. Design/methodology/approach The paper utilizes a mixture of both quantitative and qualitative techniques via personal interviews in 76 subsidiaries. Findings The results show that while the introduction of HRM practices from the foreign parent organization is negatively associated with performance, local adaption of HRM practices is positively related with the performance of foreign rms operating in India. Research limitations/implications The main limitations include data being collected by only one respondent from each rm, and the relatively small sample size. Practical implications The key message for practitioners is that HRM systems do improve organizational performance in the Indian subsidiaries of foreign rms, and an emphasis on the localization of HRM practices can further contribute in this regard. Originality/value This is perhaps the very rst investigation of its kind in the Indian context. Keywords Human resource management, Organizational performance, Multinational companies, Standardization, India Paper type Research paper

Introduction During recent years a large number of studies have found a positive relationship between the use of systems of high involvement (Guthrie, 2001) or high performance (Huselid, 1995) or high commitment (Arthur, 1994) HRM practices and organizational performance (see Katou and Budhwar, 2006, 2007). However, much of the existing research has focused on the relationship between the use of high involvement HRM systems and measures of the (nancial) performance or market value of US corporations only. Less research has been conducted on other levels of analysis, such as global or local business units or individual plants (Rogers and Wright, 1998). Further, relatively little work has been conducted on whether the proposed effects of HRM are universalistic or contingent on the national context of the organization. Although some studies have been published recently on both local non-US rms (Bae and Lawler, 2000; Guest et al., 2003; Den Hartog and Verburg, 2003) and subsidiaries of

Employee Relations Vol. 29 No. 6, 2007 pp. 595-610 q Emerald Group Publishing Limited 0142-5455 DOI 10.1108/01425450710826104

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multinational corporations (MNCs) located outside of the USA (Ngo et al., 1998; Fey rkman, 2001; Bjo rkman and Fan, 2002; Buck et al., 2003), additional research is and Bjo needed on the HRM-organizational performance relationship in international business settings. What kind of HRM practices should multinational corporations put in place in their foreign units should HR professionals advice their rms to implement globally standardized and/or locally adapt practices and strategies to the host country context? While a number of studies have analyzed the degree of global standardization and/or local adaptation of HRM practices in multinational corporations (e.g. Nohria and rkman and Rosenzweig, 1994; Hannon et al., 1995; see also Rosenzweig, 2006; Bjo Lervik, 2007), less is known about the performance implications of global standardization/local adaptation of HRM practices. Arguments can be presented both for and against the implementation of HRM practices resembling those used in the multinational corporations home country operations in its foreign subsidiary and for, as well as against, the adaptation of subsidiary practices so as to t local norms concerning HRM. In this article, we will examine this issue based on an extensive study of HRM practices and the performance of foreign-owned rms operating in India. Why conduct this investigation in the Indian context? India is now considered one of the most important emerging markets and was the worlds third largest recipient of foreign direct investments in 2004, with the USA being the largest investor. At present there are over 20,000 foreign rms operating in India, and this number is rapidly increasing as Indias economy is expanding quickly and the country is becoming an important location for, among others, back-ofce operations and research and development activities (for more details see Budhwar, 2001; Budhwar et al., 2006a, b). To date, only a handful of studies have been published on HRM in foreign investment enterprises in India. As-Saber et al. (1998) examined the role of efcient people management in ensuring success in joint ventures between Indian and foreign partners, whereas Venkata Ratnam (1998) provided an overview of HRM practices in multinational corporations in India. Also, other scholars (e.g. Agarwala, 2003; Singh, 2003) have pointed to the importance of HRM for successful operations in India. However, our research on a sample of 76 foreign-owned enterprises appears to be one of the rst extensive academic studies of HRM and foreign rm performance in the Indian context. The data was collected through personal interviews with HR or general managers in each subsidiary. In this article, we rst discuss theoretically and then examine empirically the relationship between foreign subsidiary use of: . a high involvement HRM system; . globally standardized HRM practices; . locally adapted HRM practices; and . integration of HRM and strategy and the units performance. Qualitative data from the interviews help to shed light on the ndings from the statistical analyses. The article closes with a discussion of implications of this study for HR professionals and researchers. Literature review and hypotheses The eld of strategic HRM has grown steadily since the mid-1980s. Building on the resource-based view of the rm (Barney, 1991), it has been argued that it is the overall

system of HRM practices that may contribute to the rm generating a competitive advantage. Investments in internally consistent HRM practices that aim at the acquisition, development and motivation of the employees of the rm may produce human assets that are valuable and rare (Becker and Huselid, 1998). Furthermore, while other rms may observe and fairly easily imitate individual practices, the whole HRM system is much more difcult to imitate (Barney and Wright, 1998). Empirically, a number of studies have adopted a systems view where either bundles of HRM practices or most commonly the whole system of HRM practices have been hypothesized to impact on organizational performance. The empirical results published to date have typically showed a positive relationship between high involvement HRM practices and organizational performance outcomes or nancial performance/market value (for reviews, see Becker and Huselid, 1998; Boselie et al., 2005; Wall and Wood, 2005; Katou and Budhwar, 2007). Although there is no undisputed list of high involvement/performance/commitment HRM practices (Becker and Gerhart, 1996; Guest, 1997), it has been claimed that rigorous recruitment and selection processes, performance-contingent compensation systems, extensive development and training activities and commitment to employee involvement are generally considered parts of high performance work systems (Becker and Huselid, 1998). Given the differences in culture and institutional settings between India and the USA, where most previous work on HRM-rm performance has been carried out, is a system of high involvement HRM practices, as dened by Western academics, likely to have positive effects on foreign-investment enterprises also in the Indian setting? We argue that there is no a priori reason to conjecture that this would not be the case. While differences are to be expected in how HRM policies are implemented in India as compared with Western settings, and some HRM practices might be particularly important for rms in the Indian context, we see no reason to believe that the use of an HRM system aiming at the acquisition, development and engagement of the employees would not have a positive impact on rm performance also in India. Hence, the following hypothesis is forwarded: H1. There will be a positive relationship between the extent to which the rm uses a high involvement HRM system and organizational performance. As extensive comparative research has shown, HRM practices tend to differ across countries. There are a series of factors which operate at the national level that provide a metalogic that guides HRM in a certain country. A number of scholars have argued that national culture, national institutions, and the business environment are key factors that inuence HRM practices and policies in the focal nation (e.g. Budhwar and Sparrow, 2002a; Paauwe and Boselie, 2007), and that these factors are likely to inuence also how people are managed in foreign investment enterprises (Rosenzweig and Nohria, 1994; Gunnigle et al., 2002). On the one hand, to adapt HRM practices to resemble the practices of local rms allows the multinational corporation to better respond to local socio-economic and institutional considerations. Adopting practices that are seen as appropriate in the local context may enhance the external legitimacy of the corporation and increase the commitment of host country employees, both factors likely to improve rm performance. The HRM practices of local rms are likely to be compatible with societal norms, such as the hierarchical nature of the Indian society

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(Kakar, 1971; Budhwar and Sparrow, 2002b), another factor that may facilitate efcient implementation of the practices. Partial support for this assertion is a study by Newman and Nollen (1996) in which they found a positive relationship between management practices that were aligned with the cultural values of the host country (based on Hofstedes (1980) cultural dimensions) and foreign subsidiary performance. Thus, based on contingency theory arguments it is conceivable that MNC units with HRM practices resembling those of local rms may exhibit superior performance. On the other hand, the HRM practices of local rms may not be effective and to imitate how local rms manage their employees may in spite of a possible effect on local legitimacy therefore not necessarily be benecial for foreign-owned units, especially not for MNCs with globally integrated operations. For instance, in China local rms have during recent years been looking at foreign MNCs as role models of how to manage people in China and have attempted to adopt their HRM practices accordingly (Cooke, 2004). Surprisingly, little research exists on the performance implications of local adaptation of HRM practices to help us to arrive at a clear hypothesis concerning the relationship between local adaptation of foreign subsidiary HRM practices and performance. The arguments for global standardization of HRM practices across MNC subsidiaries are well known: global standardization, among others, facilitates the collaboration and integration of MNC subsidiaries across countries, enhances the internal equity perceived by MNC employees, and enables the MNC to transfer HRM practices that have proven successful in one part of the corporation to other organizational units (Evans et al., 2002; Schuler et al., 2002). While large-scale rigorous research into the performance effects of global standardization of HRM practices and policies appears to be almost entirely missing (Rosenzweig, 2006), Zaheers (1995) study on foreign trading rooms in multinational banks showed that the replication of parent company practices was positively related with unit performance. However, practices copied from the foreign parent corporation may clash with local institutional norms, lead to criticisms of corporate colonialism, and therefore resulting in negative reactions from current and potential employees. A focus on the degree of similarity between foreign subsidiary HRM practices and those found in local rms (local adaptation) and the foreign parent corporation (global standardization) allows us to examine in detail how the practices are carried out. For instance, although both the focal subsidiary and its parent company may put considerable emphasis on employee training and development, the actual methods that they use may differ considerably. Due to the divergent theoretical arguments and a lack of clear research-based ndings concerning the performance effects of MNC standardization and localization of HRM practices, we will in this study test the following competing hypotheses: H2a. There will be a positive relationship between the extent to which the rm uses globally standardized HRM practices and organizational performance. H2b. There will be a negative relationship between the extent to which the rm uses globally standardized HRM practices and organizational performance. H3a. There will be a positive relationship between the extent to which the rm uses locally adapted HRM practices and organizational performance.

H3b. There will be a negative relationship between the extent to which the rm uses locally adapted HRM practices and organizational performance. Much debate in the strategic HRM eld concerns whether the effectiveness of a HRM system is dependent on how well it ts the business strategy of the rm (Guest, 1997; Boxall and Purcell, 2000; Katou and Budhwar, 2006). Proponents of the strategic t school have persuasively argued that superior organizational performance can be expected when the HRM system supports the strategy of the rm/unit. Given a certain organizational strategy, HRM practices should be designed so as to produce employee behavior that enables the rm to implement the competitive strategy that has been chosen (Schuler and Jackson, 1987). In empirical research designed to test the effect of strategic t, the Miles and Snow (1978, 1984) or Porter (1980) strategic types have often been used to classify rm strategies. In spite of the compelling theoretical logic of the arguments presented by HRM scholars, and although there are some notable exceptions (e.g. Youndt et al., 1996), there is only relatively limited empirical support for the hypothesized effect of strategic t on performance (Becker and Huselid, 1998; Boxall and Purcell, 2003; Wall and Wood, 2005). The disappointing support for the alleged impact of strategic t on organizational outcomes should perhaps come as no big surprise. First, the use of simple classications of strategy may not be ne-grained enough to account for strategic differences across rms (Boxall and Purcell, 2003). Second, it is very difcult to specify what constitutes good t in research across rms and industries (Becker and Gerhart, 1996). Third, to the extent that researchers have examined the effect of strategic t on rm performance, they have discounted the strategy differences that tend to exist across business units and different geographical units within each corporation. Therefore, instead of examining the statistical relationship between HRM practices and measures of rm generic strategies as has been done in some previous work, it may be more appropriate to analyze the degree to which companies actively engage in the integration of the actual strategy and its HRM practices (Becker and Huselid, 1998). This approach enables us to collect data on the process of alignment of HRM policies and practices with rm strategy. This may be particularly important for foreign-investment enterprises in India because foreign rms are still likely to go through a learning process concerning the efciency of HRM policies and practices in India. It can also be noted that a study on the strategic HR orientation of local Indian rms that in part focused on the extent to which the rms HR function was engaged in integrating HR plans with business strategy found a positive relationship between strategic HR orientation and rm performance (Singh, 2003). The following hypothesis will be tested: H4. There will be a positive relationship between the extent to which the rm integrates HRM and strategy, and organizational performance. Methodology Sample A mixed methodology comprising a questionnaire survey and in-depth interviews was used to conduct this research in foreign rms operating in India. The data was collected during 2003. Access to the foreign investment units was secured through one of the researchers previous research undertakings and other contacts, and with

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snowballing techniques that utilized contacts of contacts. Less than 10 percent of the companies that were contacted declined to take part in the research. The foreign investment enterprises were located in several locations in India, with a majority in North India (Delhi and surrounding area). Summary statistics of the 76 foreign investment enterprises included in this research are presented in Table I. Data for the hypotheses testing were obtained through questionnaires completed by one respondent per unit. The questionnaires were lled in during a personal visit of one of the researchers to the focal company. During the visits, the respondents also provided qualitative data on the rms HRM practices and elaborated on their experiences with these practices. The interviews lasted between 45 and 90 minutes. The most senior HR specialist of the unit or someone who had good understanding of the HR functions provided data for the study. The tape-recorded interviews were transcribed and later content analyzed. Useful quotes are provided in the analysis of the results. The most commonly used job designations of the respondents were HR manager/director and general manager. As the same person provided data on all variables, following Podsakoff and Organ (1986) we used Harmans one-factor test to examine whether the data suffered from common method bias. The emergence of multiple factors (Podsakoff and Organ, 1986) indicates that common method bias was not a serious problem in this study[1]. Measures Questionnaire construction. Based on a review of the HRM literature, a list of items was compiled to describe HRM practices that rms used. The questionnaire was to a large extent drawing on the questions in the 1996 survey reported by Becker and Huselid (1998).
Categories Parent nationality Asian US European Other non-Asian , 50% 50-95% . 95% , 100 100 , 500 500 , 1,000 1,000 Percentage 17.1 42.1 39.5 1.3 16.0 33.4 50.6 6.6 30.2 34.3 28.9 3.9 11.8 6.6 10.5 9.2 14.5 3.9 39.5

Ownership of the (main) Western Number of employees

Table I. Sample prole

Industry Transport and industrial equipment Chemical and pharmaceuticals Wood, pulp and paper Electrical equipment Automobiles Food, tobacco and textile Metal, rubber, stone, glass and leather Others (services, information technology, telecommunications)

Independent variables. These are: (1) High involvement HRM system. The high involvement HRM system construct refers to the extent to which a rm uses a variety of high involvement HRM practices. Following Becker and Huselid (1998) and Guthrie (2001), an important feature in our design of the questionnaire was to obtain a continuous measure of the intensity of HRM practices in use rather than to rely on a dichotomy to indicate the presence or absence of a certain practices. In our study, the construct consisted of 13 different items, covering items on recruitment and selection, training and development, performance appraisal, performance based compensation, and information sharing in the focal unit. Z-scores for each of the items were included in the composite high involvement HRM system index. The Cronbachs alpha for this scale was 0.61, slightly lower than the 0.69 in Guthries (2001) study, where he used a similar approach[2]. (2) HRM MNC standardization and HRM local adaptation. During the interviews, the respondents were asked to answer the following questions concerning the degree to which the units HRM practices resembled those of the foreign parent organization: Compared to the MNCs home country operations, the [units HRM practices] are very similar (1) . . . very different (7). The same question was asked concerning the degree of similarity with the operations of local companies. The questions are similar to those used in previous studies (Rosenzweig and Nohria, 1994; Hannon et al., 1995). The same question was asked for: . the methods used when recruiting new local managers and professionals; . the criteria used when recruiting new local managers and professionals; . the amount of management and professional training; . the content of management and professional training; . the methods used to appraise managers and professionals performance; . the criteria used to appraise managers and professionals performance; . the criteria used to select people for promotion within the subsidiary; . the methods used to determine performance based pay for managers and professionals; and . the criteria used to determine performance based pay for managers and professionals. We ran factor analyses of the MNC standardization and local adaptation items. Whereas all nine MNC standardization items loaded on the same factor, we had to omit three of the local adaptation items before arriving at two-factor structure without cross-loadings[3]. For the statistical analyses, overall measures of the units MNC standardization and local adaptation were computed as the average of the respondents estimate of the different HRM practices. In other words, the dependent variables were measured with multiple item, seven-point scales from 1 (very similar) to 7 (very different). The reliability measures for the constructs were 0.89 for MNC standardization and 0.83 for local adaptation.

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(3) HRM-strategy integration. The construct consisted of the following three items adapted from Becker and Huselid (1998): . To what extent does your company make an explicit (conscious) effort to align business and HR/personnel strategies? . To what extent is the HR/personnel department involved in strategic planning processes? . To what extent are HR/personnel managers viewed by those outside the function as partners in the management of the business and agents for change? Cronbachs alpha for this scale was 0.70. Dependent variable. Subsidiary performance was measured with two ve-point subjective managerial assessments of the foreign parent companys satisfaction with the rms overall performance, and the overall performance compared with other foreign-owned rms in the same industry in India. This measure was used since foreign companies operating in India have diverse goals (e.g. gain market share, learn about the market, make short-term prot, etc.) and it is therefore inappropriate to compare the short-term nancial performance of rms with differing goals. A subjective measure of rm performance enables managers to factor the rms goals in when assessing the rms performance. While it is true that perceptual data may introduce limitations through increased measurement error and the potential for common method bias, the benets outweigh the risks. Further, there is precedence for using such measures in similar research (e.g. Delaney and Huselid, 1996; Youndt et al., 1996). Additionally, prior research has shown that subjective measures of rm performance correlate well with objective measures of rm performance (Geringer and Hebert, 1991; Powell, 1992), and recent ndings suggest that only limited biases are associated with self-reported rm performance data (Wall et al., 2004). The Cronbachs alpha for this scale was 0.68. Control variables. As industry characteristics in one study (Datta et al., 2005) were found to moderate the relationship between HRM systems and organizational effectiveness, it was deemed necessary to control for industry. Separate variance analyses with the sample divided into ten different industry sectors revealed no signicant differences for the main constructs, and data on rms in all sectors were therefore combined. Additional analyses were also made to control for whether or not MNC ownership share, home country (Asian or non-Asian MNCs) or rm size (operationalized as the log of the number of employees) would have an impact on rm

1 1. 2. 3. 4. 5. High involvement HRM MNC standardization Local adaptation HR-strategy integration Subsidiary performance 1 0.35 * * * 0.29 * * 0.18 0.21 *

2 1 0.05 0.11 2 0.09

Table II. Correlation matrix

1 0.14 0.19 *

1 0.19 *

Notes: Signicance in two-tailed tests: *p , 0:10; * *p , 0:05; * * *p , 0:01

Independent variables HRM system HRM MNC standardization HRM local adaptation HRM-strategy alignment Training Performance appraisal Performance-based pay Information sharing systems R2 Adjusted R 2 F

Model 1 0.36 * * * 2 0.24 * * 0.29 * * 0.11

Model 2 2 0.25 * 0.28 * * 0.17 0.11 0.29 * * 0.09 2 0.06 0.159 0.072 1.84 *

Model 3 2 0.23 * 0.25 * * 0.15 0.28 * * 0.135 0.086 2.77 * *

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0.177 0.130 3.81 * * *

Notes: aStandardized regression coefcients are shown. Signicance in two-tailed tests: *p , 0:10; * *p , 0:05; * * *p , 0:01

Table III. Regressions on rm performancea

performance. As none of these variables was signicant, in order to save degrees of freedom they are not included in the analyses reported in this paper.

Analyses and results A correlation matrix (Table II) indicates no risk of multicollinearity. Table III shows the results of an OLS regressions analysis of the hypothesized model (Model 1). The regression model (Model 1) is statistically signicant. The high involvement HRM system construct was positively related at p , 0:01 with rm performance (double-tailed test), supporting H1. Whereas MNC standardization was negatively related with subsidiary performance (at p , 0:05), local adaptation of HRM practices was positively associated with rm performance (at p , 0:05). Hence, H2b and H3a received support while H2a and H3b have to be rejected. Although the sign for the HRM-strategy integration construct was positive as expected, it was not found to be statistically signicantly related with rm performance, and H4 thus failed to receive support. Most recent research on HRM and organizational performance has analyzed the entire HRM system rather than individual HRM practices. Although many scholars argue that an HRM systems view is appropriate, it has also been argued that to arbitrarily combine multiple [HRM sub-]dimensions into one measure creates unnecessary reliability problems (Becker and Huselid, 1998, p. 63). Furthermore, an analysis of individual HRM practices may shed light on the practices that at least for a given sample and in a certain context are particularly strong predictors of organizational performance. Therefore, we carried out a post hoc analysis of four different sets HRM practices: (1) employee training; (2) performance-based compensation; (3) performance appraisal; and (4) information sharing.

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The range of practices is rather similar to those examined in previous studies on international HRM (e.g. Rosenzweig and Nohria, 1994; Hannon et al., 1995; Bae et al., 1998). In Model 2, high involvement HRM system intensity was substituted for the individual HRM practices. MNC standardization remained (marginally) negatively and HRM localization positively related with subsidiary performance, while the relationship between HRM-strategy and rm performance remained unchanged. The use of performance appraisal was positively related with organizational performance, while no other HRM practice was signicant. As can be seen in Table II, Model 2 is only marginally signicant and the model is only signicant at , 0.05 even when removing the non-signicant HRM practices (see Model 3 in Table III). These results indicate that it is the high involvement HRM system that is signicantly related with foreign subsidiary performance rather than one or some particular sets of HRM practices (cf. Wall and Wood, 2005). Discussion Our study of foreign-owned units in India offered support for the hypothesized positive effects of a system of high involvement HRM practices on organizational performance. Together with previous research on HRM and rm performance our results indicate that extensive use of a system of high involvement HRM practices pays off in terms of their effect on rm performance, and the results appear to hold both at the corporate and foreign subsidiary levels of analysis. In the Indian context, it would be of interest to further corroborate these results in a study of domestic Indian companies that so far have received only limited research attention (cf. Singh, 2003). Among the Indian MNC subsidiaries in this study, those that had implemented HRM practices similar to those of the MNC in its home country exhibited inferior performance. In contrast, our results indicate that a high degree of local adaptation of HRM practices in India leads to substandard performance on the part of foreign subsidiaries. Adopting HRM practices seen as appropriate in the local context may enhance the rms external legitimacy, increase the commitment of host country employees, and may translate into HRM practices likely to be compatible with societal norms. The interviews that we conducted with HR and general managers shed further light on these ndings. Several interviewees stressed the need to make adjustments to HR practices to suit the local Indian environment. The comments of a HR manager of a US-based software company sums this up:
The day Indian operations were started; we were required to follow certain norms. However, they have been localized as per the Indian needs and the results of such an approach are signicant.

A number of global HR practices are being modied to t Indian conditions. For example, managers in some US rms stated that it was much more important to provide convincing explanations when removing someone from a job in the Indian unit than in their parent company. Similarly, some Japanese respondents argued that both the career development system and the compensation practices had to be different in India from how they were in the Japanese operations. For instance, the HR manager of Honda Scooters commented that:

In Japan we recruit people based on their qualication, and there is not much difference in terms of salaries. If we look at India, your starting salary would depend a lot on your education. This is something that we try to match. And Indian companies would like to have an hierarchical structure. In Japan, our organization is very at, and we do not have much difference between a guy who is working on the line and the guy who is an engineer. People can advance to any level, which is hardly accepted in India. You know, a worker here in India generally retires as a worker.

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However, to portray the design of the HRM system as a simple choice between local adaptation and global standardization is potentially dangerous. First, the notion of HRM systems, and the HRM practices that they consist of, may require some clarication. At the level of guiding principles (such as the extent to which employees are seen as resources rather than costs, or the extent to which employee performance is valued and rewarded) and even HR policies (e.g. that all employees are to be included by a performance appraisal system), there are unlikely to be serious negative aspects associated with global standardization. Concerning the actual implementation of HRM tools and processes, however, there may be advantages in adapting to local cultural values and norms and the way in which local rms manage their work force. HR professionals need to carefully consider the different levels of analysis within an HRM system and how they are implemented in foreign subsidiaries. Second, companies with extensive operations in India have to decide whether or not to standardize their HRM system across their different units in the country. India is a large country with distinct regional differences cultural, economic and political. Accordingly, the employment conditions (such as the availability of labor, cost of living, compensation levels, and state taxes) vary signicantly. Hence, there may be serious drawbacks in establishing strict nationwide policies for compensation and benets such as housing and travel. On the other hand, if a multinational company has many units in India, it might be useful to have India-wide policies at least for professionals and managers in areas such as career development and compensation that facilitate transfer of personnel across units. The majority of the multinational rms with multiple units in India included in our study had appointed an HR manager with responsibility for the whole country. One of the key responsibilities for these managers was to manage the tension between expectations from corporate headquarters for a global approach to HRM and the need to adapt practices to the (micro) local conditions facing a specic unit while bearing in mind the advantages associated with national integration and standardization of HRM practices. Our research indicates that the whole high involvement HRM system is a more signicant determinant of subsidiary performance than any particular practice. A separate analysis of different HRM practices revealed that only the use of performance appraisal was positively associated with MNC subsidiary performance in India. A system whereby specic individual goals are set and subsequently followed up may thus constitute an important part of how successful foreign investment enterprises ensure a performance- and development-focused orientation among their work force. The vast majority of rms that we studied had introduced a periodic appraisal for all their employees, most had linked their performance appraisal system to individual rewards, and many rms also reported that they developed an individual training and development plan annually for their employees. However, several rms reported considerable resistance among their employees towards providing negative performance feedback and low levels of subordinate involvement in goal setting

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(reecting the hierarchical nature of Indian society; cf. Kakar, 1971). Firms may be wise to show persistence in selling the performance appraisal system to employees, offer training of appraisers and appraisees, and accept some adaptation in how goals are set and feedback provided to their employees. Over time, companies may succeed in increasing the participation of individual employees in goal setting and encourage more direct feedback on performance. The advice provided by the managers interviewed for this study notwithstanding, one of the tasks ahead for both HRM scholars and practitioners is to further develop our understanding of how to best structure and implement such systems in the Indian context. Conclusions Perhaps the most novel and intriguing nding of our research was that local adaptation of HRM seems to pay off, while the introduction of practices from the MNC parent organization does not. The extent to which local adaptation and global standardization of HRM practices have similar results in other contexts must obviously be examined in future studies of subsidiaries located in other countries. The analyses reported in this paper were based on data on HRM practices and rm performance, not on the mechanisms through which these are linked. A remaining task for international HRM scholars is to shed additional light on how HRM is related with organizational performance (cf. Roehling et al., 2005), indicating how contingency factors may moderate this relationship. Although it has been recognized that additional research is needed on the intervening variables between HRM practices and rm performance, only a few such studies exist (Wood, 1999; Hitt et al., 2001).
Notes 1. Although we made sure that the respondent was the most knowledgeable person in the rm about its HRM practices and most of the rms were small to medium-sized, and a recent study using single respondents reported acceptable degrees of rating agreements in their sample rms with multiple responses (Datta et al., 2005), the use of one respondent per rm may still be associated with measurement errors (Wright et al., 2001). Conducting longitudinal research and/or gathering data from multiple informants would help researchers avoiding this common method bias problem; the former would also corroborate the direction of causality, which is always a problematic issue in cross-sectional studies. 2. However, it should be noted that the high involvement HRM system may be seen as a theoretically driven construct. The correlation of the measures of different HRM practices is more or less contingent and depends on the extent to which different organizations have invested in each practice. This is one reason for mixed factorial outcomes of exploratory factor analyses (Den Hartog and Verburg, 2003; Huselid, 1995; Huselid and Becker, 1996; McDufe, 1994) and limited t of conrmatory factor analyses (Whitener, 2001). Since there is no intrinsic reason that the different practices should be highly correlated, the HRM system construct may be conceived of as an aggregate level construct (Law et al., 1998) or what Bollen (1989) calls a causal indicator construct. 3. The nal local adaptation construct contained the following items: the methods and the criteria used when recruiting new local managers and professionals, the amount and the content of management and professional training, the methods and the criteria used to appraise managers and professionals performance, and the criteria used to select people for promotion within the subsidiary.

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