Ferner and Varul

British Journal of Industrial Relations
38:1 March 2000 00071080 pp. 115140
`Vanguard' Subsidiaries and the Diffusion

of New Practices: A Case Study of
German Multinationals
Anthony Ferner and Matthias Varul
Abstract
German companies, used to operating in their distinctive domestic business
environment, have had to learn new `rules of the game' as they have internationalized. There are signs that they are adopting some of the characteristics
of more mature international companies, particularly those from an ÀngloSaxon' tradition. This Ànglo-Saxonization' is seen in international HR policy,
in areas such as training and development and performance management.
Drawing on research into German multinationals, this paper explores the role
of `vanguard' subsidiaries in spreading Ànglo-Saxon' practices to German
companies. It also analyses the impact of such innovations on pre-existing
patterns of behaviour.
1. Introduction
One of the key issues in the study of multinational companies (MNCs)
is their role in the dissemination of human resource and other business
practices across national borders. They have been seen as among the
foremost ìnnovators' for good and ill within national business
systems. In the 1980s and 1990s, the spotlight was particularly on the role of
Japanese companies in spreading new approaches to the organization of
work, employee motivation and involvement. In earlier decades, US
multinationals had played a lead role in the dissemination of systems of
work organization based on Taylorism and scientific management;
subsequently, their innovations in the area of employee relations
productivity bargaining, for example were the object of considerable
study. However, as Edwards (1998a, b) has argued, the `reverse diffusion' of
practices from the subsidiary to the corporate centre and to other
Anthony Ferner is in the Department of HRM, Leicester Business School, De Montfort
University. Matthias Varul is at the University of Tubingen, Germany.
# Blackwell Publishers Ltd/London School of Economics 2000. Published by Blackwell Publishers Ltd,
108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
116
subsidiaries is also important, not least because, in the field of human

resource management and industrial relations (HR/IR), it has the potential
to affect the bulk of a company's employees who tend to be concentrated
within the MNC's home country.
Theoretically, reverse dissemination is important as a mechanism of
`regime competition', whereby the comparative advantages of national
business systems and of the companies operating within them may be
captured within MNCs and transferred to other business systems. Reverse
diffusion within MNCs, in other words, may act as a means of internal
transformation of national business systems. This is particularly apposite
in the case of the German model of business practice, and German
companies. The German model is currently experiencing pressures for
transformation as strong as any in the postwar period, as a result of reunification, the opening of new labour and product markets on its eastern
borders, and the `globalization' of competition.
This paper explores the dissemination of practices from the periphery to
the centre within German MNCs. German MNCs were relatively late in
moving from export-oriented national production to becoming `full-blown'
international companies (Sally 1996). The globalization of competition in
product markets, strengthening regional integration, and the expansion of
market and investment opportunities have accelerated the trend towards the
multinationalization of German companies. However, the ability to compete within globalized product markets depends on `rules of the game' that
are different from those pertaining within their home-country business system.
It is therefore plausible to suggest that German companies will attempt
to `learn' how to operate internationally by absorbing and exploiting
the lessons available to them in the more internationally àdvanced' host
environments in which their subsidiaries operate. There are indeed
significant indications that German MNCs are adopting some of the salient
characteristics of more mature international companies, particularly those
of an Ànglo-Saxon' tradition (especially those from the USA and Britain).
Aspects of this process of Ànglo-Saxonization' include the embracing of
concepts of `shareholder value', moves to international business divisions
with fully devolved `bottom-line' responsibilities, the strengthening of
international management control systems, the development of an international cadre of mobile senior managers, and the implementation of
international HR policy frameworks (Ferner and Quintanilla 1998; see also
Quintanilla 1998 for a case study of a major German bank). Recent casestudy research by Ferner and Varul (1999a) shows that many German
companies in recent years have adopted or strengthened formal systems of
international human resource management in areas that tend to be well
developed in longstanding Anglo-Saxon multinationals. These include
substantive policy issues such as management development, succession
planning, appraisal and reward systems, as well as innovative structures
such as formal international groupings of HR managers, and policy
generation through international working groups.
# Blackwell Publishers Ltd/London School of Economics 2000.
The Diffusion of New Practices in German MNCs
117
This paper focuses on one aspect of this process of adaptation to the

requirements of international operation: the role of `vanguard' subsidiaries
in the UK as access points for German MNCs to innovative practices in
the field of HR/IR and other areas of management. Having outlined the
research on which the argument is based, the paper briefly reviews literature
on the transmission of practices within the MNC, and argues that the UK
could be expected to be the site of `vanguard' practices for German MNCs.
It then reports on the findings from the case studies concerning the content
of reverse diffusion from vanguard subsidiaries in the UK: what kinds of
practices has the corporate centre identified and attempted to exploit?
Subsequently it explores the mechanisms that German MNCs are using to
disseminate practices from the vanguard subsidiary to other parts of the
corporation, and discusses some of the potential obstacles to diffusion
deriving from specific features of the German national business system. The
conclusion addresses some issues concerning the possible outcomes of the
transfer process how innovative practices are absorbed into the prevailing
German framework of regulation and the wider implications for debates
on the convergence of business systems.
2. The study
The argument draws on data from a wider study of German MNCs and
their subsidiaries in Britain and Spain, financed by the Anglo-German
Foundation for the Study of Industrial Society (see Ferner and Varul
1999a). The aim of the study was to explore the internationalization of
German companies, and in particular to ask whether the characteristics of
the German business context influenced these companies' style of HR and
IR management abroad.
The research, which was carried out between 1996 and 1998, looked at
40 UK subsidiaries belonging to 36 German MNCs.1 Work was also carried out with Javier Quintanilla in Spanish subsidiaries of six of the same
companies. (Detailed results from this latter study are reported in Ferner
and Quintanilla forthcoming.) The primary research tool was the in-depth
semi-structured interview. In the vast majority of cases, interviews were
tape-recorded and fully transcribed. The interviews were coded and
analysed using the QSRNud.ist program for analysis of qualitative data.
In 25 of the subsidiaries, belonging to 15 parent companies, it was possible
to conduct interviews at the corresponding headquarters in Germany.
In total, 59 interviews were conducted in UK subsidiaries, 14 in Spanish
subsidiaries, and 20 in German headquarters. Of the 98 respondents,2 twothirds (64) were senior personnel managers; the remainder were mainly
finance managers and controllers (16), production or operations managers
(8) and general managers (8).
Although the case-study companies are not strictly a representative
sample of the population, they were chosen to reflect broadly the key
118

TABLE 1
Summary of the UK Case-study Subsidiaries of German MNCs
Pseudonym of
subsidiary a
1. Autodist1
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Autodist2
Autopart1
Autopart2
Autopart3
Autopart4
Autopart5
Autopart6
Autopart7e
Autopart8
Business
Services
12. Chem1e
13. Chem2e
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
Chem3
Chem4
Chem5e
Chem6
Chem7
Distrib1
Distrib2f
Distrib3
Elec1
Elec2
Elec3
Elec4
Elec5
Elec6
Elec7
Food1
Food2
Instruments
Leisure1e
Leisure2
Machinery1
Machinery2
Material
Metal
ManuCo
ResearchCo
Transport
Total
a
Employees b Size of Greenfield Interviews

parent c (G) or
conducted
brownfield HQ Sub. d
(B)/
decade of
entry
Sector
Motor vehicle components

distribution
Motor vehicle distribution
Business services
Chemicals &
pharmaceuticals
Chemicals &
pharmaceuticals
Pharmaceuticals
Pharmaceuticals
Chemicals
Chemicals
Chemicals
Retail distribution
Trading
Timber
Electrical engineering
Communications services
Food products
Food products
Scientific instruments
Leisure products
Leisure services
Industrial machinery
Industrial machinery
Paper products
Metal products
Plastic products
Research
Transport services
2,000
B/1990s
100
300
1,000
300
600
500
200
300
400
500
4
1
4
1
1
2
4
4
1
2
B/1970s
B/1990s
B/1990s
G/1980s
B/1990s
G/1990s
G/1970s
B/1990s
B/1990s
G/1980s
2
1
1
1
1
2
2
3
1
1 [1]
1
1
1,000
G/51970
3 [2]
3,000
G/51970
1 [1]
700
400
700
300
400
5,000
2,000
500
200
200
700
800
200
410,000
300
700
300
200
400
410,000
600
300
400
600
700
400
600
3
2
4
4
2
4
4
4
1
1
4
4
4
4
4
1
1
2
4
3
3
4
1
3
2
4
1
G/51970
B/1970s
B/1970s
B/1980s
B/1980s
B/1990s
B/1970s
G/1970s
G/51970
G/1970s
G/51970
B/1990s
G/?
B/51970
G/1970s
G/1980s
B/1980s
G/51970
G/1980s
B/1990s
G/51970
G/51970
B/1990s
B/1970s
G/51970
B/1990s
G/1970s
1 [1]
2
1 [5]
1
1
2
1
1
1
1
1
6
2
2
1
1
1
1
1 [4]
1
1
2
1
1
1
4
1
54,390
1
2
1
1
2
1
1
2
1
20
59 [14]
`Distrib' includes wholesale and retail distribution (other than motor vehicle distributors), and
trading. Èlec' includes electrical and electronic products. Elec1 and Elec2 are subsidiaries of
the same parent; the same is true of ResearchCo, Elec4, Elec5, and Elec6; and of Autopart6
and Machinery2. `Leisure products' includes sectors such as publishing.
119
Èmployees' include part-time and full-time. To avoid identification, figures for subsidiaries
are rounded to the nearest hundred or thousand.
c
For the parent companies, the following size categories are used: 1 = below 5,000; 2 = 5,000
20,000; 3 = 20,00050,000; 4 = over 50,000.
d
Number of additional interviews carried out in the Spanish subsidiary are indicated in square
brackets.
e
Research was also carried out in Spanish subsidiaries belonging to the parent companies of
these UK subsidiaries.
f
350 of total subsidiary work-force are located in the UK.
characteristics of German MNCs. First, half of the total of 46 subsidiaries

were in the two predominant manufacturing sectors represented among
German companies abroad: chemicals and pharmaceuticals, and engineering. The engineering companies were concentrated in motor vehicle component supply and in electrical engineering. In addition, a broad range of
other manufacturing and service sectors was included. (For a detailed
breakdown of the UK subsidiaries, see Table 1.) Of the six Spanish subsidiaries, four were in the chemicalpharmaceuticals sector, one in `leisure'
and one in metal products. Second, the sample took account of a typically
German peculiarity: the predominance of family-owned medium-sized MNCs,
representatives of the Mittelstand. Just under half the parent companies
were privately owned by a family or a foundation. The selection of the cases
also permitted a comparison of `greenfield' and `brownfield' sites.
An important note of caution must be sounded about the limitations of
the study. The theme of the diffusion of practices from `vanguard'
subsidiaries emerged out of the data in the course of the project, rather
than being a key focus of study from the beginning of the research. For this
reason, it is difficult to make robust statements about such questions as
whether the examples of reverse diffusion are representative of German
companies in general, the range and prevalence of different issues in
companies of different kinds, or whether `clusters' of issues are transferred
together. The arguments must therefore be considered provisional, and
more systematic analysis must await further research specifically tailored to
the issue. None the less, the findings clearly point to the existence and
dimensions of the phenomenon, as well as illustrating some of the specific
pathways through which vanguard subsidiary practices are absorbed into
the wider company.
3. Transmission of management practices within MNCs
Diffusion in MNCs
In the field of HRM, at least, the great bulk of the relevant literature
has focused on factors encouraging the dissemination of practices from an
MNC's country of origin to its subsidiaries abroad and frequently from
there into the wider host business system. (See Edwards 1998a for a review
120
of the literature.) Among the most important are the degree of production
integration, organizational structure, especially the existence of international business divisions, and the nationality of ownership. With regard
to the last of these factors, a number of authors have argued that practices
are more likely to be diffused by MNCs from national business systems that
are hegemonic within the global economy notably Japan and the USA
(Edwards 1998a; Smith and Elger 1994). Certain kinds of practices or
policies are more likely to be diffused than others, particularly those that are
less subject to regulation by the host-country business system.
The role of MNC subsidiaries has been dichotomized as either àdapter',
blending in with the local environment, or ìnnovator', introducing their
corporate home-country practices into the host country (Marginson 1992).
A third possibility is that subsidiaries act as cross-border `reverse-diffusers'
of practices typical of the host environment. However, there is scant
literature on the diffusion of management policies, systems and techniques
from the `periphery' to the centre, certainly in the broad area of HRM
(Edwards 1998a, b). What literature there is has tended to concentrate
heavily on international flows of technical knowledge within MNCs,
particularly with the growing internationalization of research and development functions, and the creation of `centres of excellence' outside the
corporation's home country (e.g. Archibugi and Michie 1997); or on
product and market innovation (e.g. Bartlett and Ghoshal 1989: ch. 7).
None the less, the notion of reverse diffusion is certainly implicit in much
of the literature on the role of subsidiaries within international companies.
For example, Birkinshaw et al. (1998) have looked at the conditions
promoting the establishment of `global mandates' in subsidiaries, giving
them responsibility for activities throughout the international company.
Gupta and Govindarajan (1991), in their discussion of forms of control,
categorize subsidiaries according to the direction of knowledge flows; thus,
the `global innovator' is responsible for a high volume of `knowledge
outflows' to other subsidiaries. However, the authors do not discuss what
sorts of flows occur, nor how they do so. In general, underlying this
extensive literature is the suggestion that, the greater the power and
authority of constituent units of MNCs through the emergence of
`heterarchic' (Hedlund 1986) or `network' MNCs (e.g. Ghoshal and Bartlett
1990), the greater the likelihood of multi-directional flows of influence and
knowledge and hence of practices, rather than `top-down' hierarchical
transmission from the centre (cf. Ferner and Edwards 1995).
As Edwards has argued (1998a; also Edwards and Ferner forthcoming),
there are a number of characteristics that are likely to encourage the
diffusion of practices from the periphery, many of them comparable to those
encouraging forward diffusion. They include such structural factors as the
degree of product integration internationally and the existence of worldwide
product divisions. More generally, the argument about `forward diffusion'
by MNCs from `hegemonic' business systems can be turned upside-down:
backward or reverse diffusion is likely within MNCs whose home business
121
system is not hegemonic in terms of its role within the international

economy. Streeck (1997) has argued that the postwar German model of
capitalism has developed within a framework of `politically instituted and
socially regulated' markets. This model has been marked by a pattern of
òrganized cooperation' among competitors and by the shaping of the
ìnternal order' of firms by extensive social regulation through law and
collective bargaining. It has, he argues, been especially suited to product
markets in which firms could compete on the basis of quality, but is called
into question by the demands of globalized competition. Similarly, EbsterGrosz and Pugh (1996) suggest that the long-termist, cautious and heavily
planned style of German management is best suited to markets that are
evolving gradually and predictably, rather than to rapidly changing global
industries. This suggests that as internationalized competition takes hold
German companies will be seeking role models among business systems
better versed in the demands of the global economy.
UK Subsidiaries as a Site for `Vanguard' Practices
There are a number of grounds for expecting that German subsidiaries
located in the UK can serve as vanguard sites for the development of
innovative practices. First, Britain, as one of the most internationalized of
developed economies, is home to a disproportionate number of global
corporations with long-standing international presence in sectors such as
chemicals and pharmaceuticals, food and beverages, and engineering. This
has provided experience of techniques for managing international workforces, of international integrative mechanisms such as explicit company
`culture', and of control and co-ordination mechanisms appropriate for
operating across national borders.
Second, Britain has traditionally been extremely open to foreign direct
investment, playing host to a large number of MNCs from the `hegemonic'
economies of the USA and more recently Japan. As many studies have
shown, Japanese MNCs have transferred to their transplants features of
work organization such as continuous improvement techniques, teamworking and just-in-time production which have in some industries become
standard practice and which tend to be diffused into the host environment
through very interventionist relationships with suppliers.
Third, British-based companies have been in the forefront of the globalization of a number of industries, including telecommunications, financial
services, food and beverages and business services. An important aspect of
this was the deregulatory drive of the 1980s and 1990s (strengthened by
developments at EU level), which encouraged the emergence of extremely
competitive market environments, forcing companies to develop appropriate responses such as `customer-focused' organizational structures and
policies. This too is likely to enhance the UK environment's value to
internationalizing German corporations as a locus of vanguard practices, in
such areas as product innovation and marketing.
122
Fourth, the strong framework of regulation that governs industrial

relations in Germany through industry-level bargaining and statutory codetermination within companies is missing in the UK. As a result, it might
be expected that British subsidiaries could be used as a `test bed' for practices in industrial relations, but also for HR techniques whose introduction
is inhibited in Germany by statutory bulwarks against managerial
prerogative (Muller 1999). As we shall see below, the same is true to a
significant degree with German MNCs' subsidiaries in the former East
Germany, where the official framework of regulation may operate more
weakly in practice.
In short, therefore, Britain could be expected to be the site of leading-edge
management practices, both Anglo-American and Japanese, arising out of
the experience of international operations in increasingly global product
markets; and it is therefore a good site for the observation of processes of
reverse diffusion within internationalizing German MNCs.
4. German MNCs and the vanguard role of the UK subsidiary: what is
diffused?
Table 2 presents the principal examples of vanguard diffusion that emerged
from the research. Bearing in mind the limitations detailed above, it is
noteworthy that some evidence of the phenomenon was uncovered in nearly
half the subsidiaries studied. Examples are provided of diffusion of AngloSaxon models and practices in areas such as customer service, product
innovation, management control systems and business processes. For
instance, the UK subsidiary of a large engineering company adopted the
methodology of the European Foundation for Quality Management for
improving business processes and outputs; subsequently the central board
member with responsibility for European operations adopted the EFQM
approach as a Europe-wide initiative.
Of primary concern in this paper, however, are two areas related to
employment practices: the adoption of HRM policies, and work organization. For both of these, there are a priori grounds for thinking that
British subsidiaries may play a vanguard role. The orientation towards
`human resource management' in Anglo-Saxon business systems is likely
to have generated specific HR techniques which internationalizing
German companies may seek to emulate. This is reinforced by the fact
that US and British companies have had considerable experience in using
formal HRM instruments in an international context and thus are likely
to provide a ready-made model for key aspects of international operations. As far as work organization is concerned, the model provided is
Japanese rather than Anglo-Saxon. But the UK is a likely staging post
for the transfer of Japanese-style work organization approaches because
of the deregulated environment allowing experimentation and the important presence of major Japanese companies which have strongly influenced
123
TABLE 2
Examples of Reverse Diffusion from Vanguard Subsidiaries
UK
subsidiary
Issue
Description
Autodist2
Marketing
innovation
Autopart2
HR: international
graduate
programme
Autopart4
Management
processes (BPR)
. UK subsidiary was seen as having best practice (with

the USA) in the area of `customer relationship
marketing', leading to the creation of a UK-based
project group to develop the concept for the
international company
. HQ looked to the UK subsidiary for support and ideas
about running an international graduate programme
the UK subsidiary supplied the centre with relevant
documents
. Long-standing initiative by UK subsidiary (influenced
by the US joint venture partner) on BPR-type tools
was taken up by German HQ which then attempted to
harness the UK's expertise in the area to develop the
tools on a company-wide basis
. UK personnel manager developing components of a
common `culture' (e.g. defining characteristics such as
speed and customer responsiveness) appointed to an
international working party to develop a corporate
culture for the group
. Diffusion of work organization practices from the
principal (Japanese) customer through close
intervention in operations and management processes
. Introduction by the UK (with Austria and France) of
a new computer system providing support for service
engineers subsequently adopted by Germany
. Teamworking approach pioneered in the UK was
taken up by the company's manufacturing sites in East
Germany, then elsewhere, including one plant in West
Germany
. Diffusion of Japanese-style work organization
practices from the customer
. Adoption by the international company of working
climate surveys pioneered by the US subsidiary
. Piecemeal, ad hoc spread of competency frameworks
in the German operations following the example of the
UK and US subsidiaries
. East German site used as test-bed for development of
teamworking, then incorporated in a Vorstand-driven
project on profit-linked teamwork
. Adoption by HQ of a corporate `vision', drawing
(unacknowledged) on `large chunks' of the existing
UK vision
. HQ adoption of bonus pay system for executives,
following the previous development of a similar
system in US and UK subsidiaries
. Development of global performance-related pay
system with strong input of senior HR managers from
the UK and US subsidiaries which were already
operating such systems
. World-wide organizational and cultural change
programme accompanied by training programme
using Ànglo-Saxon' training concepts which UK and
US HR managers had a hand in `guiding and
introducing'
HR: international
corporate culture
Autopart6
Work organization
Machinery2
Customer service
Work organization:
teamworking
Autopart8
Chem1
Chem2
Work organization
HR: employee
communication
HR: competency
framework
Work organization:
teamworking
HR: corporate
culture
HR: pay &
performance
Chem3
HR: pay &

performance
HR: corporate
culture
124
(Table 2 continued)
UK
subsidiary
Issue
Description
Chem5
HR: international
management
development
. Programme for identifying young high-potentials and

sending them on international projects first introduced
in USA, subsequently adopted by Germany and then
incorporated into international policy
. Introduction in the UK of new objective-setting
system based on work targets and competences,
subsequently developed by the European personnel
managers for adoption throughout Europe
. Adoption by the centre of US subsidiary's practice of
having separate call centre numbers for orders and
complaints
. UK subsidiary's improvements to aspects of a
company-wide kaizen programme seen as a model to
be reimported into the German company
. UK plant's model of teamworking taken as model for
development of `multi-functional and multi-flexible'
teams in German plants
. Introduction by UK subsidiary of profit and loss
responsibility for business managers at subdivisional
level being picked up by corporate controllers in
Germany
. Innovative integration of sales and service
organization by UK subsidiary seen as model for
possible diffusion to the international division
. UK subsidiary the first to move away from German
system of dual-management responsibility, shared
between technical and operational managers
. UK subsidiary's use of EFQM (European Foundation
for Quality Management) methodology for improving
business processes, taken up by the corporate board as
Europe-wide initiative
. UK pioneered role of group services i.e. centralized
function providing professional services, fleet
management, legal, tax, etc., to operating businesses
being looked at closely as model by Germany
. HQ allegedly exploited example of UK subsidiary's
entrepreneurial approach and profitable performance
to lever change in central R&D function, resulting
in work-force reduction and setting of targets for
independent income generation
. UK subsidiary sees itself as `taking the lead' in the
introduction of PRP systems which only recently were
being introduced in the centre. `They've looked and
said ``has it been successful?'', we say ``yes, you've got
to do it''' (UK MD).
. UK subsidiary provided German parent with
information on the handling of expatriation the
subsidiary was itself a multinational of long-standing,
with experience of moving staff between third
countries, while the parent was newly
internationalizing
. Visit by German personnel manager to learn how the
UK subsidiary handled appraisals, absenteeism,
turnover, etc.
HR: performance
management
Distrib1
Customer service
Elec2
Work organization:
kaizen
Work organization:
teamworking
Elec4
Management
control systems
Customer service
Elec6
Management
control systems
Management
processes
Organizational
structure
ResearchCo
Entrepreneurial
approach
Instruments
HR: pay &

performance
systems
Leisure2
HR: expatriation
Transport
HR: performance
management, etc.
125
practice in the UK, not least through their typically hands-on relationship
with suppliers.
The findings in these two areas are discussed below.
HR/IR Practices
German MNCs have grown up in a home-country environment which has
inhibited the introduction of many of the innovative personnel practices
associated with `human resource management' in UK companies. As
German MNCs internationalize, and as the pressures on them to adopt
Anglo-Saxon HR techniques increase, one might therefore expect them to
look towards `vanguard' subsidiaries in the USA or Britain to provide
models for the design and implementation of such techniques.
In a number of our case-study companies this was indeed the case, as is
summarized in Table 2. It was principally the internationally integrated
companies within the most internationalized product markets (notably
chemicals), rather than the `polycentric' MNCs whose subsidiaries primarily
served national markets, that provided examples of the phenomenon.
British subsidiaries acted as vanguard sites in three main areas of HR:
the management of performance, the management of the careers of key
managers, and the management of `culture'. Performance-related rewards
systems have generally been adopted in continental European countries
significantly later than in the USA or Britain. In Germany, the formal
statutory framework of co-determination has inhibited their development;
for example, performance-related pay and formal appraisal systems require
the approval of the works council in German companies (Muller 1999). As a
result, experimentation with such systems at the corporate centre of German
MNCs has tended to lag behind developments in their foreign subsidiaries
(Ferner and Varul 1999a). Where companies have moved towards a more
performance-oriented culture, therefore, they have had an incentive to draw
on Anglo-Saxon experience.
Table 2 summarizes several examples of the transfer of performance
management systems from the UK subsidiary. One is the propagation of
performance-related bonuses for senior managers in a large manufacturer.
According to a senior UK personnel manager, some three years previously
the British subsidiary had introduced a scheme linking a proportion of
senior managers' pay to performance on a variety of objectives set by the
country managing director and by the managers' product division. (The US
subsidiary had already been running one for some time.) This was achieved
in the face of the scepticism, if not opposition, of Germany. Yet within two
years it had become group policy throughout the world. Senior management
executives in Germany also were now on the variable bonus scheme, and
many of their previous fixed bonuses had been removed.
In other cases, the adoption of Anglo-Saxon performance management
systems was more explicit and less grudging. One company (Chem3), for
example, co-opted English and US managers on to an international working
126
group to design a performance-related pay system for the company worldwide. This was apparently influenced by the need to be competitive in pay
terms in the company's key market, the USA, and to attract more international managers. The system adopted internationally broadly followed
the Anglo-Saxon model already being applied in the UK and US subsidiaries, and was even given an English rather than a German name. In
another company from the chemicalpharmaceutical sector (Chem5),
the UK introduced a new system for appraising performance based on a
combination of objectives and managerial competencies. A very similar
scheme was subsequently developed by the grouping of European HR
managers for adoption throughout Europe. (In the words of the British HR
director, Ì'd like to think the [European HR] Group did it because we did it
here first!')
The internationalization and increasing international integration of
German companies has forced them to confront the issue of managing
managers as part of an international managerial work-force. There was
considerable evidence in the case-study companies of attempts to move
away from their previous approach to management development focused
largely on the German managerial work-force (Ferner and Varul 1999a).
However, many companies were still lacking well-developed systems of
international management development. Even where there existed mechanisms for tracking key senior managers internationally or for identifying and
developing `high potentials' as a key international corporate resource,
subsidiaries tended to regard them as secretive, fragmented and ineffective.
Here too, UK subsidiaries considered themselves (and their US counterparts) to be in the forefront of developments. In one major company,
horizontally divided HQ responsibilities for different groups of managers
impeded the effective identification of young managers with the potential to
move up into the senior tier of management. This fragmentation was
pinpointed as a problem by an international working group of which the
British HR director was a member, and it might be expected that the US and
UK experience would provide the company with pointers for a revision of
its existing systems.
One area where some UK subsidiaries could provide policies was in the
handling of expatriates. In a couple of cases, the British subsidiary was itself
a multinational company of long standing, while the acquiring company was
relatively new to international operations. Thus, the personnel director of a
subsidiary in the leisure sector had been contacted by the central personnel
function in Germany:
They've asked us to send over our expatriate policy, for example. We've had long
experience of trying to do things in different countries, not just sending people
from the UK overseas, but from Australia to the US or from the US to Canada or
Africa or whatever. [The parent company's] expatriates are exclusively Germany
to overseas, so when they try to move somebody from Japan to Australia, they've
no idea how to go about it.
127
The third element of vanguardism in the HR area concerns `corporate

culture'. We refer here to a specific and delimited aspect of the concept of
`culture': the development by corporate strategists of explicit definitions
of corporate values as a management tool designed to give direction and
cohesion to corporate activities. In the international context, this
manipulation of cultural àrtefacts' has been used as what Evans (1992)
calls corporate `glue technology'. The Anglo-Saxon concept of corporate
culture, with its notion of amenability to conscious control and codification,
contrasts with the traditional German model of culture, based on diffuse
and implicit values encapsulated in the notion of the Betriebsgemeinschaft
(the `works community'). This notion is seen as much less susceptible to
managerial intervention, something that pervades work relations and
emerges organically out of the company's history and relationships between
managers and employees as mediated through institutions such as codetermination (Eberwein and Tholen 1993; Varul and Ferner 1999).
The need to orchestrate operations and staff across national borders, a
role for which the context-dependent notion of Betriebsgemeinschaft was
patently unsuited, appeared to be leading to the partial Ànglo-Saxonization' of culture within German MNCs. We found a number of examples
(e.g. Autopart4, Chem2 and Chem3) among our case-study companies in
which this process drew on the experience of UK subsidiaries to develop
more explicit and formalized expressions of `corporate culture' such as
vision or mission statements. In one manufacturing company, the UK
subsidiary was the first to develop its own vision,
very much focused on customer rather than production, on synergies, on
collaboration, on human resources developments for the future all of which
was very new . . . When we'd launched the vision in the UK, [the UK MD] also
then presented the UK vision at his next session of the Vorstand and there were a
number of the Vorstand members who were very interested. We also presented it at
the next [European] works council. . . and that created interest in a couple of
countries. . . . The Vorstand didn't consult with him, but [his presentation] started
the process.
Subsequently the centre developed its own guidelines which borrowed `large
chunks' of the UK vision.
Work Organization
The vanguard role for the subsidiary in the area of work organization may
appear paradoxical, in that German companies have commonly been
characterized as having advanced systems for the management of the
production process, based on a commitment to engineering values and the
use of a highly trained, skilled and relatively flexible work-force (e.g. Lane
1989; Streeck 1996). The vanguard role of the British subsidiary appears
potentially to operate in two areas. The first is in the use of systems of `value
chain' management stemming from US experience of business process
128
re-engineering of various sorts. The second is the application of Japanese

techniques of `lean production' through the use of low stocks, continuous
improvement, teamworking and so on.
An example of the first is that of the adoption of a business re-engineering
programme in an engineering subsidiary (Autopart4) as a result of its close
association with a US joint venture partner which previously owned it. It
had adopted a radical American programme for improving business
performance, while `Germany is still just about getting improvement groups
and small incremental improvements'. This programme our respondent
considered to be `the leading initiative' in major US automotive and
electronics companies. It was a `step-change' programme aimed at radically
reducing error rates in processes, whether operational or other business
areas: `The Europeans haven't cottoned on to it yet, but because we were
American originally, we cottoned on to it. To get world class performance in your key competencies, you use [programme name]' (fieldnotes,
operations manager). According to our UK informant, the corporate
centre eventually took up the programme itself, after considerable
prompting:
They [the parent] were never interested in it because they'd started a TQM
programme. Every time they used to come here for their bi-monthly meetings,
we used to say `forget it, it's a load of crap, this [US programme] is what
you want'. . . . Suddenly over the last couple of months, one of the [parent
company] board members asked our MD to go along to a presentation in Paris. . . .
Two of us went from here. The bloke who was doing the presentation was the MD
of [the US joint venture partner]. . . . Our boss went along, met him and . . .
suddenly all the [parent] board of directors in Munich are saying `blimey, we'd
better have a look at this'. Suddenly they're a bit more alive to [this programme],
and they want us now to go into these [other European] plants and vet them for
their quality.
The second kind of role in innovative work organization stems from the
diffusion of Japanese manufacturing methods from transplants in the UK
over the past couple of decades. In the UK engineering subsidiary
(Machinery2) of a large conglomerate, an experiment in teamworking
began in the late 1980s. This was picked up by East German plants of the
same company: `What happened was that we got a lot of visitors from the
[company] manufacturing sites in east Germany and then there was a trip
organized to go to [the UK plant] to see how it works here, and the works
council came as well' (fieldnotes). Subsequently, the teamworking approach,
modified for the German context, was also introduced in a small West
German plant in which the works council was not as powerful as in larger
sites of the company.
An unusual incidence of diffusion occurred in an engineering subsidiary
(Elec2) whose parent had introduced Japanese-style kaizen continuous
improvement techniques. The contribution of the British plant was to
improve on the techniques adopted for example in the use of a visual
display board carrying data about quality, production and the working
129
environment so that it became a `sort of flagship' for the new methods for
the group as a whole. The German parent sent over a large group of factory
managers for an extended visit in order to see how it was being operated
in the subsidiary plant, and the operations manager was invited by the HQ
head of the kaizen programme to address a meeting in Germany on the
issue.
In some cases, the influence of Japanese work organization methods
is direct, through the extremely thorough and detailed intervention of
Japanese customers in the internal operating systems of the company. In one
subsidiary of an automotive supplier, even though the original production
line and equipment came from Germany, it operated in a distinctive way as
a result of the pressure of the major customer, a Japanese transplant in the
UK. The influence was exerted on the back of relentless pressure to cut the
price of the product. According to the UK personnel manager,
The very first time you say it can't be done [i.e. costs cannot be reduced], they then
send supplier development teams in, start looking at your processes, they start to
look at your business. They'll do a business audit, tell you your processes are
incorrect. They'll look at your costings, what's known as an open-book costing.
They'll say `how much did it cost you?' So what happens, when they're coming in,
and they start to look at your production, they'll say [e.g.] if that person was not
sitting, if those 4 people were standing up, if you took away that and did this, you
would save one person. Which equals 10 pence. You have 5 pence and we have
5 pence. If you change this to that. . . . And that's the way it goes. So you start
developing production facilities that match that concept. All this kaizen,
continuous improvement philosophy. [fieldnotes]
The interesting question is how far such innovations are then reversediffused throughout the German company, a question raised by Streeck
(1996) in connection with the diffusion of lean production techniques to
German manufacturers. Streeck argues that aspects of the German
institutional environment, especially the way skills are defined in relation
to occupations, limits the scope for such imports. However, if diffusion does
occur, then Japanese work organization methods may well pose a considerable threat to traditional German patterns of work organization. As the
UK managing director of another automotive supplier told us, `the Japanese
have taught us that for direct operations skills, you de-skill them, you don't
actually need all those skills [that the Germans deploy], you're paying for
something you don't really need. If you've good work flow practices, if
you've got good machine lay out, etc. . . .' (fieldnotes).
5. German MNCs and vanguard subsidiaries: how diffusions occur
In this section, we examine some of the mechanisms whereby innovative
practices in vanguard subsidiaries were identified and diffused to other
parts of the MNC, as well as the obstacles encountered in the diffusion
process.
130
The Mechanisms of Diffusion

There is some evidence that well established MNCs adopt a proactive,
formalized approach to the identification and propagation of best practice
(e.g. Coller 1996: 166). In our case-study companies, diffusion often took
place casually as a result of informal information flows. Thus, the centre
might be sent a copy of a UK policy on appraisal, or a mission statement,
and use it, explicitly or not, as the basis for its own policies; the subsidiary's
senior managers might make presentations to the Vorstand in Germany,
which then got picked up; or periodic visits by senior German managers to
the UK could lead to the centre hearing about recent innovations. But we
also came across a small number of examples of more formalized, centrally
driven mechanisms, which could be used to identify vanguard practices in
subsidiaries and to diffuse them to other parts of the corporation.
One company, for example, made use of a systematic management audit
of operations in different parts of the world. The team, composed of
permanent staff of the central HQ audit unit and of seconded managers
from operations around the world, conducted a thorough examination of
management practices, processes and structures in subsidiaries. It then made
recommendations in consultation with subsidiary management, and laid
down a timetable for their implementation. Although primarily intended as
a form of oversight and a way of driving improvement in the subsidiaries,
audits were also a systematic means whereby innovative developments in the
periphery could become known in the centre and diffused outwards from
there. According to the managing director of a UK subsidiary, `where they
see good things happening [in one country] they would make recommendations about things that could improve [another] country's set up or business
structure'. Their findings were diffused back to the centre, from where they
`rippled down' to the business divisions. Thus, the central audit had moved
away from its traditional top-down inspection role to more of a two-way
conduit for best practice.
Two other mechanisms both widely reported in the literature as forms
of cross-national corporate integration appear to play a crucial role in the
dissemination of practices from vanguard subsidiaries. The first is the crossnational flow of personnel. This is stressed by Bartlett and Ghoshal (1989:
ch. 7), although they are concerned primarily with product and market
innovations. Their case studies of international companies seem to imply
that the effectiveness of managerial mobility in diffusing innovation depends
not only on the quantity of movements, but also on the degree to which they
are `bi-directional' (from subsidiary to HQ or to other subsidiaries, as well
as from the centre outward).
Our case-study companies provide only relatively rare examples of key
managers from the subsidiaries being transferred to Germany. However,
movement from the centre is also relevant for reverse diffusion: when
secondees return to HQ, they may have become partially Ànglo-Saxonized'
by their experience. At the least, they may take with them knowledge of
131
developments in the periphery which they are in a position to drive through

at the centre. For example, in one company the head of the group dealing
with management development and succession planning had worked in
the USA; in another, German managers returning from spells in the USA
were said to have brought with them competency frameworks which they
introduced piecemeal in central departments. Such movements of people
could also facilitate flows of ideas between different subsidiaries. In a UK
manufacturing subsidiary the (German) finance director, who had
experience of working in the USA, introduced the concept of crossdivisional `corporate controllers', modelled on a system that had first been
adopted in the US subsidiary. Sometimes the flow of personnel is specifically
geared to the transfer of knowledge from a vanguard subsidiary. In
Autodist2, for example, German managers were leading a team working
within the favourable UK market environment to develop the concept of
`customer relationship marketing', with a view to importing the lessons back
to the centre. Moreover, several instances were reported of visits by German
managers to learn about innovations in UK sites.
The second mechanism is the use of more or less formalized international
networks of functional managers. These predominantly take the form of
international HR committees which periodically bring together personnel
managers from the centre and from different subsidiaries (see Ferner and
Varul 1999b). Marginson et al. (1993: table 5.7) found that the majority of
overseas-owned companies in the UK had some form of regular international meeting of personnel managers, a finding echoed in our own case
studies: 19 of the 36 firms for which we have data had or were about to
introduce some sort of periodic international HR meeting. Such committees
were more common in larger companies and sectors such as chemicals where
international integration was significant; they were less common in
`polycentric' companies whose subsidiaries primarily served local markets,
in smaller family-owned companies and in highly diversified conglomerates.
Where they existed, however, international HR committees, and their
associated working groups, were a key mechanism for transmitting the
policies of vanguard subsidiaries to other parts of the company. They were a
forum for the exchange of information about developments taking place in
different subsidiaries. A characteristic description is given by a headquarters
respondent from Autopart7:
Personnel directors. . . meet four times a year and everybody presents a report
about his highlights, what developments were made, how he's getting on, e.g. if
somebody had interesting experiences on how to bring down sick-leave or
somebody else has interesting experiences with the recruitment process or has
found a new kind of wage system somewhere which would fit into the basic
framework but then goes a step further. . .
In some companies the venue for committee meetings rotated between

subsidiaries. This allowed the UK subsidiary to `showcase' its own policies
when it hosted meetings.
132
Moreover, such committees were frequently used to devise policy for the
group as a whole. Managers from subsidiaries were co-opted on to working
groups to help draw up specific policies in their area of expertise. In a
number of companies, British and American managers were prominent in
the development of international performance management systems, the
design of expatriate contracts or the management of high potentials, since,
as discussed above, their subsidiaries had often implemented such policies in
advance of the international company. In one company (Chem3), for
example, a performance-related pay system for the MNC was designed in
àn international project group on which Germany was represented but
which in fact in the initial phases I led' (UK personnel manager). Similarly,
the UK personnel manager of Autopart4 reported to the international HR
meeting on the British subsidiary's initiatives in the area of company culture
and was subsequently brought on to an international working group to
design elements of a new corporate culture.
In some companies, the initiative and drive to innovate through international HR committees rested with the subsidiaries rather than the centre.
For instance, in one company, regional European working groups met for
a period without a central German presence, while the major Germany
subsidiary decided to have its own meetings. `Within three meetings, [the
German subsidiary] had returned because the European countries were
starting to agree things on movement of young potential candidates, on
exchange of information about competency frameworks, development
centres, etc. and [Germany] was being left behind' (UK personnel manager).
As this suggests, the role of HR forums as a conduit for innovations was
not always actively driven by the centre. Sometimes the conduit role was
not planned but emerged gradually. As a UK respondent from a chemical
company told us,
When they started it was very much us going along there and basically being told
everything that was happening in Germany on HR. It only started with me being
asked to present on what we were doing on our vision so that the balance of
that has progressively changed now and they've been looking to get a greater input
from what's happening in the different countries. . . . Then moving on I was asked
to talk about what we were doing in the UK on management development,
performance management, pay. So I've almost had a regular session. Colleagues
have also been asked to present on what's happening in Italy or France or
Spain. . . . For the last year they've also invited the head of personnel from the
States. So it has developed and become more internationally focused from its
original [style] of listening to all the good work that's going on in Germany.
In sum, therefore, the research identified various channels of diffusion

through which vanguard practices made their way from UK subsidiaries to
the centre. These channels were a mix of routine, formal systems and more
ad hoc or informal mechanisms. In some companies diffusion was
proactively encouraged and co-ordinated from the centre; in others it
occurred despite central indifference or even resistance, practices filtering
through in a rather hit-or-miss, piecemeal and gradual way.
133
Factors Predisposing to and Inhibiting `Vanguardism' in German MNC

Subsidiaries
The discussion above suggests that a number of general factors are likely to
predispose subsidiaries to playing a vanguard role. Although our sample of
firms is not appropriate for statistical analysis, some impressionistic conclusions may be drawn. First, some of the structural factors identified by
Edwards (1998a) are important. The vanguard role is more likely to emerge
in larger subsidiaries that are closely integrated into international business
operations; it is less likely to emerge in smaller, more autonomous subsidiaries
orientated to national markets. The reason for this is that the former are
more likely to be linked to the circuits of diffusion discussed above, such as
international flows of personnel, international committees and task forces.
It is no surprise, for example, that many of the most striking examples of
vanguardism occurred in internationally integrated chemical companies in
which operations outside Germany were becoming increasingly important.
Second, Edwards suggests that diffusion is more likely to take place from
brownfield subsidiaries than from greenfield. As we have argued, the
requirements of internationalization are forcing German MNCs to adopt
practices that are more likely to be found in Anglo-Saxon and Japaneseinfluenced business environments. In acquiring subsidiaries embedded in
these environments, they may consciously or accidentally be acquiring
access to innovative practices. This is particularly evident in the case-study
companies where the acquired companies are themselves MNCs, or parts of
MNCs. This was the case in a significant number of subsidiaries (around a
third of the total). Such companies often had longer and more extensive
experience in the management of international work-forces than did the
acquiring German MNC; this was true in such areas as the operation of
international graduate recruitment programmes, international management
development and the management of expatriates (as mentioned earlier).
They were also sometimes centres of excellence in their own right, and their
acquisition could shift the centre of gravity within the global company,
facilitating the diffusion of practices towards the centre.
A special case of vanguardism occurs in joint ventures, of which there
were a small number among our cases. In such instances, the influence of
previous practices and management cultures is ongoing following acquisition. This was most visible in the engineering company whose American coowner strongly influenced the dissemination of a state-of-the-art approach
to business re-engineering.
This is not to say that greenfield sites are excluded from a vanguard role.
Some greenfield sites did play such a role by virtue of the management
culture that their British managers had introduced in respect of
performance management systems, for example (e.g. Chem3). Moreover,
greenfield sites may in principle be especially appropriate `test beds' for
practices that the MNC has been unable to implement in the centre, possibly
because of statutory constraints on implementation. Inter-plant competition
134
for investment may then be used by the MNC to `persuade' its German
work-force to accept practices developed elsewhere (cf. Mueller 1996). One
would expect to find such greenfield vanguardism in certain areas of
working practice in internationally integrated companies, in sectors such
as vehicles whose production is organized around a number of closely
comparable sites in different countries.
A final factor concerns the strategic choices of management in both the
centre and the subsidiary. The vanguard potential of the subsidiary is more
likely to be identified where the centre plays a proactive, co-ordinating role,
aggressively `scanning the horizon' for useful practices in subsidiaries.
Where the centre is more passive, knowledge about new practices may `filter
through' only haphazardly, by means of various more diffuse and informal
communication channels. One may thus see a picture of pragmatic, uncoordinated `grassroots' diffusion from the subsidiary what one of our UK
respondents referred to as `bush-fire' diffusion:
If you take something like the competency framework back to a site the size of
[key German site]. . . with [tens of thousands of] people, 50 or 60 different [business
units] and all the issues to do with culture and consultation, how the hell do you
actually put that idea into operation? The only way is to allow it to be like little
bush fires, so that a particular [business unit head] or an HR person or even a line
manager saw this, liked this and was prepared to agitate enough to get it. So
what's actually happening is you're getting little pockets of competency
frameworks popping up around the businesses. [fieldnotes]
The micropolitics of the centre may play an important role in determining

whether it assimilates vanguard practices easily. One recurrent theme of the
case studies is the way in which the innovation process accompanying
internationalization has been slowed or contested by groups in the centre. A
common scenario was to have a group of very senior managers committed
to radical transformations, and a stratum of managers below them resistant
to change which they would see as threatening their organizational position
and their traditional modes of operation. Central resistance was sometimes
strengthened by the sheer weight of German operations, which meant that
corporate administrative groups were predominantly focused inwards rather
than towards international operations.
In some instances, senior HQ managers were able to use innovations in
the subsidiaries as a lever to overcome central resistance to change. One
example is that of an acquired UK research subsidiary (ResearchCo). Its
very market-oriented, responsive and entrepreneurial approach allowed it to
make a profit from the sale of its technology to third parties. According to
UK respondents, its success gave HQ management the leverage to secure
change in the allegedly over-sized, slow and bureaucratic central R&D
function which was subsequently reduced in size and set targets for
independent income generation.
A further factor inhibiting the central adoption of practices from the
subsidiaries, especially in areas of HR and work organization, was the
135
statutory framework of co-determination, giving works councils the ability

to resist in many cases the introduction of new reward systems, forms of
teamworking and so on; hence the initial introduction of innovations in
work practices in smaller plants, or plants in eastern Germany, with less well
organized works councils (cf. Streeck 1996). (Such resistance was especially
understandable when, for example, innovations challenged the high-skill,
high-cost labour traditions of production organization in Germany through
the introduction of Japanese `lean production' methods less dependent on a
highly qualified work-force.)
As mentioned earlier, the subsidiary may sometimes take the active role in
pushing for the diffusion of its ideas. However, some of the case-study
companies revealed an important lesson for subsidiary management: in
order to influence the centre, they had to understand and even assimilate the
management style and thought processes of the German company. It was
almost as if the subsidiary had to `Germanize' itself before it could ÀngloSaxonize' the parent. One way this was achieved was through individuals
who had an intimate knowledge of how the centre worked, perhaps because
they were German themselves, or had spent time there. This allowed them
to innovate successfully without falling foul of the micropolitics of the
subsidiaryHQ relationship. In one instance, the UK MD (a third-country
national) introduced a significant structural change against the opposition
of business divisions in Germany; as the UK personnel director commented,
ìt was a significant achievement by the MD and was more because of his
own personality and his contacts in Germany and his adeptness in handling
that that got it through. He's a long-term [company] person, and he knew
how to play the game' (fieldnotes).
Failure to play this game made a vanguard role difficult. One UK
subsidiary, for example, regarded itself as the most efficient and productive
of the company's plants in Europe. But `What we didn't understand was
culturally what was going on', according to a senior UK respondent. The
subsidiary àlienated' the Germans through the way in which it continued
to identify culturally with its US joint venture owner. `The culture barrier
was so great that decisions were made that we didn't influence one little bit,
and we could have done if we'd understood the European way of doing
things.' It failed to network effectively with the German managers: òur
functions weren't talking to these functions [in Germany]'. When the crunch
came, and the company rationalized its network of plants in Europe, it
was the UK plant that lost out, despite its superior performance and
profitability.
6. Conclusions
According to Streeck's (1997) reading, the German model of economic
organization is too rooted in a specific set of national-level accommodations
136
to be able to operate effectively when confronted with the twin shocks of

reunification and globalization: it is impossible to reproduce at supranational level an appropriate sustaining framework of market regulation
such as has existed in postwar Germany.
On this analysis, the advantages of the German system are not
translatable to the wider international arena unlike the Anglo-Saxons,
with their exportable advantages deriving both from long international
experience and from the ability to operate in deregulated environments; and
unlike the Japanese, with their transferable advantages associated with
innovation in mass production techniques. Therefore, as German companies
move beyond their classic export platform strategy to become international
players, they are much more likely to absorb the prevailing business
cultural practices of companies well versed in the deregulated rules of the
international economy than they are to transmit their own peculiarities to
others.
In some respects our evidence supports the assumptions of the Streeckian
analysis. Although our data do not permit firm conclusions as to the extent
of reverse diffusion, they clearly show that in many areas, such diffusion
takes place within German multinational companies from `vanguard'
subsidiaries to the corporate centre. The data also indicate some of the
specific pathways of reverse diffusion. Our interpretation of the phenomenon is based on the argument that the Anglo-Saxon subsidiary may
provide a model of practices to be adopted by the corporate centre in its
attempt to operate effectively in international markets.
This suggests a more general conclusion about the nature of reverse
diffusion: the kind of diffusion described here may be seen as strategic
in that it involves late internationalizers learning how to operate internationally. Thus, in the absence of their own well developed tradition of
strategic international HRM, German MNCs appear to be adopting
significant elements of an Anglo-Saxon model. By contrast, much of
the diffusion described by Edwards (1998b) and others (e.g. Coller 1996)
may be seen as a more tactical and pragmatic type of organizational
learning, in that practices are smoothly incorporated into a pre-existing
structure and international modus operandi, rather than changing fundamentally the way in which MNCs function internationally. (For extended
discussion of the issue, see Edwards and Ferner forthcoming.) Indeed,
the use of institutionalized procedures for reverse diffusion seems to be
a settled characteristic of US MNCs, reflecting the tradition of a formalized, procedure-based way of international operation (e.g. Negandhi
1983).
However, the evidence is not altogether clear-cut in relation to the
Streeckian thesis. First, looking beyond our case studies, companies
embodying the German model have proved extremely successful. A number
of the more global players in sectors from manufacturing to mass media to
retail distribution are closed family companies whose success is built on a
strong, German-flavoured corporate ethos of partnership or co-operation
137
(see Ferner and Varul 1999a). This suggests that, in some respects at least,
Germanness is an exportable commodity.
Second, and connected, it is questionable how far reverse diffusion
even where it is `strategic' is fundamentally eroding the nationally
distinctive character of MNCs. Although our data concerning the impact of
vanguard practices on the corporate centre are limited, there is some
evidence that the practices disseminated from vanguard subsidiaries of
German MNCs may become transmuted into elements within a managerial
repertoire that remains basically German. For example, as we report
elsewhere (Varul and Ferner 1999), components of the Anglo-Saxon notion
of business `culture' are being adopted (sometimes enthusiastically) by
German MNCs; but they are being assimilated in such a way as to change
their significance. Thus, many companies have adopted that linchpin of the
Anglo-Saxon corporation, the `mission statement', and such statements
often retain the typically Anglo-Saxon obeisance to `shareholder value'. But
its significance is very different where shareholders are family members
and house banks, rather than arm's-length institutions and individuals
looking to maximize short-term returns. In other words, one may be witnessing a process of Ànglo-Saxonization in the German manner' (Ferner
and Quintanilla 1998), rather than the radical weakening of the German
model that Streeck predicts.
This finding has wider implications for debates about the prospects for
convergence on a homogeneous international model of HRM in MNCs.
International borrowings may not necessarily erode national differences,
since elements of practice acquire a different meaning when located within a
different business context. To appropriate the terms of cultural anthropology, borrowed elements may be regarded as objets trouves, whose
original purpose is transformed as they are inserted into a pre-existing set of
structures and values. This is the business equivalent of Levi-Strauss's
notion (1966) of `bricolage' using ready-made elements to construct
very different cultural artefacts. Other familiar developments in international HR/IR may plausibly be read in the same light. For example,
it may be argued that the Japanese `lean production' techniques adopted
by US MNCs in motor manufacturing and other industries have not
fundamentally `Japanized' work organization in these companies but,
rather, have helped revitalize a pre-existing US business culture rooted in
traditions of standardized mass production and the predominance of
external labour markets. And, as Streeck (1996) himself shows in his
analysis of the prospects of lean production in the German car industry, the
German model of work organization may well assimilate such practices into
its existing ethos, rather than be fundamentally changed by them.
In short, international MNCs' `borrowings' from different business
systems do not necessarily prefigure homogenization and convergence
among national models. A distinctive national business system may learn to
adapt to the demands of internationalized operation while retaining and
even consolidating its distinctiveness.
138
Acknowledgements
The study on which this article is based was funded by the Anglo-German
Foundation for the Study of Industrial Society and by the ESRC. It was
conducted by the Industrial Relations Research Unit of the University of
Warwick and the Institute for the Study of Labour Law and Labour
Relations in the European Community (IAAEG), Trier. The Spanish part of
the study was carried out by Javier Quintanilla of IESE business school, and
by Anthony Ferner. We would like to thank Paul Edwards, Tony Edwards,
Paul Marginson and Dieter Sadowski for helpful comments on an earlier
draft. We have also received invaluable advice on improving the piece from
Ed Heery of the BJIR and from a BJIR reviewer, Martin Behrens. We are
most grateful to the many managers in Germany, Britain and Spain who
agreed to be interviewed for the project.
Notes
1. In addition, three interviews were conducted in headquarters of a further two
companies for which access to subsidiaries was not granted.
2. The number of respondents and the number of interviews do not tally, since in
some cases more than one respondent was present at an interview (and, conversely, some respondents were seen more than once).
Final version received 7 October 1999.
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British Journal of Industrial Relations

38:1 March 2000 00071080 pp. 115140

`Vanguard' Subsidiaries and the Diffusion

British Journal of Industrial Relations

subsidiaries is also important, not least because, in the field of human

The Diffusion of New Practices in German MNCs

This paper focuses on one aspect of this process of adaptation to the

British Journal of Industrial Relations

Employees b Size of Greenfield Interviews

Motor vehicle components

The Diffusion of New Practices in German MNCs

characteristics of German MNCs. First, half of the total of 46 subsidiaries

British Journal of Industrial Relations

The Diffusion of New Practices in German MNCs

system is not hegemonic in terms of its role within the international

British Journal of Industrial Relations

Fourth, the strong framework of regulation that governs industrial

The Diffusion of New Practices in German MNCs

. UK subsidiary was seen as having best practice (with

HR: pay &

# Blackwell Publishers Ltd/London School of Economics 2000.

British Journal of Industrial Relations

. Programme for identifying young high-potentials and

HR: pay &

# Blackwell Publishers Ltd/London School of Economics 2000.

The Diffusion of New Practices in German MNCs

British Journal of Industrial Relations

The Diffusion of New Practices in German MNCs

The third element of vanguardism in the HR area concerns `corporate

British Journal of Industrial Relations

re-engineering of various sorts. The second is the application of Japanese

The Diffusion of New Practices in German MNCs

British Journal of Industrial Relations

The Mechanisms of Diffusion

The Diffusion of New Practices in German MNCs

developments in the periphery which they are in a position to drive through

In some companies the venue for committee meetings rotated between

British Journal of Industrial Relations

In sum, therefore, the research identified various channels of diffusion

The Diffusion of New Practices in German MNCs

Factors Predisposing to and Inhibiting `Vanguardism' in German MNC

British Journal of Industrial Relations

The micropolitics of the centre may play an important role in determining

The Diffusion of New Practices in German MNCs

statutory framework of co-determination, giving works councils the ability

British Journal of Industrial Relations

to be able to operate effectively when confronted with the twin shocks of

The Diffusion of New Practices in German MNCs

British Journal of Industrial Relations

Final version received 7 October 1999.

The Diffusion of New Practices in German MNCs

and Ferner, A. (forthcoming). `Multinationals, reverse diffusion and national

British Journal of Industrial Relations

# Blackwell Publishers Ltd/London School of Economics 2000.

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