International Human Resource

Management
BUS-1-08-MB

Introductory lecture II: The MNC

and the factors that affect HRM in
an MNC

Prepared by: hiew First Prepared on: 31-01-05 Last Modified on: xx-xx-xx
Quality checked by: hkp
Copyright 2004 Asia Pacific Institute of Information Technology

Last weeks lecture: refresh our

memory .. Ethical and Social Issues

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We explored the concept of PM and how it has evolved to be HRM;

We also explored the IHRM field and why it is important to study IHRM;

We now understand the difference between HRM in the domestic field (local firms) and
HRM in the international field (IHRM and MNCs);

In the subject field of IHRM, the study of MNCs is of great importance. So we study the
HRM of MNCs;

When we say HRM we refer to all practices, polices and procedures related to
human resources (i.e. recruitment and selection, training and development etc);

In the IHRM subject, when we say HRM we are talking about all HR practices and
polices related to international firms /MNCs and NOT local firms;

In assignment questions do not talk about general HR polices of local firms.

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Finally..
We are now ready to study
the IHRM in a Multi
National Corporation
(MNC)!

What else in this week lecture

cont.. Ethical and Social Issues

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So after we learn the three theories we will use our understanding of the
theories to explore the factors that influence HRM practices and polices in
MNCs.(that is the factors MNC HQ take in to account when putting together
HRM for the subsidiaries).

Please remember, when we say HRM in an MNC we are talking about the
Human Resources polices and practices that the MNC puts together for
subsidiaries they have in different countries.

IMPORTANT: When you are answering an assignment question, when the

question says what are the critical factors an MNC needs to take in to account
when putting together an international recruitment and selection strategy? This
questions means the following : MNC means the HQ (parent head quarter) and
they are putting together an international recruitment and selection strategy for
their overseas subsidiaries (subsidiaries in different countries).

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IMPORTANT!!!
Next, we look at some formulas
that will cut a long story short. You
must always remember these
formulas!

The 10 formulas that will tell the story re.

MNC and IHRM Ethical and Social Issues

Formula 1:
HRM policies and practices of a subsidiary = HRM that was formulated at MNC
HQ and was sent/transferred to the subsidiary + HRM practices and policies
that the subsidiary devised locally, inside the subsidiary according to local HRM
practices and policies, culture and labor law

HRM (say training and development strategy/policy) at Nestle Lanka was formulated at Nestle HQ and was sent to Nestle
Lanka for it to be implemented by local HR team. Then the R & S policy at Nestle Lanka was designed locally in Sri Lanka
by the Nestle Lanka HR team according local labor laws etc. so as we can see the HRM at Nestle Lanka is a combination of
locally formulated and MNC transferred polices.

Formula 2
HRM policies and practices of a subsidiary= total of everything that was
designed at MNC HQ and was sent/transferred to the subsidiary.

Example: in other MNCs it may be the following: HRM (Training and development, R&S, performance
development strategy and polices) of Coke subsidiary in India was totally formulated by the parent company
(Coca-Cola MNC HQ in US) and sent /transferred to Coca Cola India. So the local HRM team had to implement
these practices and strategies that were transferred by the parent

Formula 3
HRM policies and practices of subsidiary= total of everything that was
formulated locally by the subsidiary according to local HRM practices, polices,
rules, laws, culture and institutions.
Example: HRM policies and practices (T &D, R&S) in Unilever China was totally formulated by the local HRM team of
Unilever China . Unilever corporate office did not send any HRM to the subsidiary in China and they let the local
subsidiary decide and plan the HRM.
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The 10 formulas cont..

Formula 4
Ethical and Social Issues
HRM policies and practices of subsidiary=HRM that the subsidiary devised
locally , inside the subsidiary according to local HRM practices and policies,
culture and institutions + HRM policies and practices that the parent HQ sent to
subsidiary and subsidiary adapted and changed those polices to suit local
environment.

Example: HRM policies and practices at Nestle Lanka is a combination of locally formulated and those sent
from Nestle HQ practices. This means for example Nestle Lankas R &S strategy was formulated locally by the
local Nestle Lanka HR team but T&D strategy was sent by Nestle HQ from Switzerland, BUT before it was
implemented in Sri Lanka the Nestle Lanka HR team had to change and adapt it to suit the employees in Sri
Lanka .

Formula 5
HRM/IHRM in MNCs = all international human resources policies and practices
related to the MNC HQ and subsidiary.
Example: All HRM policies and practices (T&D, R&S, performance development, expatriate policy) formulated at
Nestle HQ in Switzerland will be, some for the use of Nestle HQ corporate office and their corporate HRM
needs and others for the use at different subsidiaries of Nestle (Nestle SL. Nestle China, Nestle UK)

Formula 6
HRM policies and practices designed by the MNC HQ at the MNC HQ= what they
plan to transfer to the subsidiary to be implemented by the subsidiary

Example: at the Nestle HQ corporate office in Switzerland there will be teams that are dedicated to drawing up
HRM policies and practices. These policies and practices will then be transferred /sent out to Nestle Lanka,
Nestle Pakistan and Nestle India.

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The 10 formulas cont....

Ethical and Social Issues
Formula 7

Critical factors that MNC need to take in to account when putting together HRM
for an MNC subsidiary= home and host country cultural and institutional factors
+ company level factors+ industry level factors

Example: When the HRM team at Nestle HQ in Switzerland are formulating HRM policies and practices for
Nestle Lanka, they have to take in to account Sri Lankas cultural, legal, political and economic environment,
Switzerlands cultural and economic, political etc. environment (because the polices are made by Swiss People at
Switzerland ). Further, they take in to account specific factors related to Nestle HQ company and Nestle Lankan
company and also take in to account industry factors (Nestle Lanka is operating in the manufacturing industry ,
confectionery)
We will be learning the theories so that we can evaluate the critical factors.

Formula 8

Factors that affect/impact transfer of HRM policies and practices from MNC HQ to
subsidiary= home and host country cultural and institutional factors + company level
factors+ industry level factors.

Example? . We are going to learn about these factors shortly.

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Formulas 9 andEthical
10and Social Issues
Formula 9
MNC (Multinational Corporation )= MNC HQ + MNC subsidiaries around the
world + MNC regional HQs

Example: Nestle SA is a Swiss Company and it has subsidiaries all over the world. Nestle Lanka and Nestle
Pakistan are subsidiaries of Nestle SA. Nestle now operates as regions. They have grouped all their national
subsidiaries in to regions and each region will have a regional HQ that will report to Nestle SA in Switzerland on
behalf of all the reporting subsidiaries. SAR HQ (South Asian Regional HQ) in India is the regional HQ of Nestle
SAR region (South Asian region) Nestle Lanka, Nestle Bangladesh reports to SAR HQ in India. So now for all
purposes Nestle Lanka is part of the SAR region and their HQ is based in India.

Formula 10
Answers in assignment/ presentation = understanding of all 9 formulas + theory +
Practical examples
We come back to these equations later. Now we are going to learn some terms and
theories so that we can understand what

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Based on the formulas we now know..

Ethical and Social Issues

Human Resource Management in MNCs= IHRM.(refer last weeks lecture)

Human Resource Management=all polices, practices, guidelines, rules, ideas and
philosophies that related to the management of employees in a company.
HRM polices, practices and guidelines in a MNC subsidiary is a combination of :
what is developed locally at the subsidiary,
what is transferred directly from the MNC HQ (what the MNC HQ prepares for the
subsidiary)- formulas 1-4
In the next few sections what we are going to do is to understand the reasoning behind why
MNC HQs allow the subsidiaries to produce HRM locally and why sometimes they chose
to transfer HRM to the subsidiary. (formulas 1,2,,3,4)

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Therefore, in order for us to understand this, we have to learn some models and theories.
But they are very simple. Importantly, the theories will allow us to understand IHRM in an
MNC.

When you do your assignments and projects you should be able to relate your
examples and real life experiences to the theories and models and critically question
the validity of the model (to get that extra marks)

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MNCs unique?
Ethical and Social Issues

MNCs have the unique capability of developing

HRM practices in the home country and
transferring those practices to a subsidiary in a
foreign country.(transfer of knowledge and knowhow)
Sometimes they will allow the subsidiary to
develop their own HRM practices and not
transfer. (Formula 3)
MNCs can also transfer capital and technology.

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Example: factors that impact HRM in an

MNC subsidiaryEthical and Social Issues
Work practices
and culture of
Sri Lanka firms

Sri Lanka
cultural
factors

Potical climate
and economy
of Sl
Social
practices
and beliefs
of SL

Labor laws in SL

HRM in a MNC
subsidiary in Sri
Lanka.
(Unileaver
Lanka)
Cultural,social,political and law
of parent country of MNC HQ
(Netherlands and UK)

HRM practices of
local firms

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Pick your brain

Ethical and Social Issues

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We learned what national competitive advantage means

We learned why some countries have competitive advantage and

other countries do not.

We learned about Porters Diamond model which explains how a

country can have competitive advantage.

Home work : We have to read how an MNC gains competitive

advantage

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Remember!Ethical and Social Issues

Before we learn the models/theories we have to know some background

information and the meaning of some terms!
Please note: theories that are developed by academics are called academic
theories.
From these theories some academics develop models.
The end result : we students should be able to use these theories and
models to explain and understand IHRM in MNCs.
So your assignment answers/presentations have to have both theory and
practical examples

The cleaver students go further and question these

theories and argue certain points. (CRITICAL
THINKING!!)
WE ALL HAVE TO DISPLAY CRTICAL THINKING IN
OUR ASSIGNMENT/EXAM ANSWERS
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Why learn the theory and

models? Ethical and Social Issues
To understand the 10 formulas!!!
That is :
To understand IHRM in MNC and the nature of IHRM polices and practices that an
MNC HQ formulates for a subsidiary (formulas 1-4)
To understand CRICAL FACTORS BOTH EXTERNAL AND INTERNAL MNC neeeds
take in to account when putting together HRM polices and practices. (formula 6)
To understand why some MNC HQs allow some of their subsidiaries to develop IHRM
policies and practices locally and some for some subsidiaries they formulate and sent
IHRM polices and practices from the parent. ( formulas 2 and 3)
And also to understand how IHRM differs from country to country and MNC to MNC
To understand how a countrys culture, society, way of live. Social beliefs or law can
influence the MNC subsidiary in that country
To understand all this we have to learn a few theories and know the meaning of some
words so first we look at culture and MNC

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What do we know about culture

and MNCs?Ethical and Social Issues

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We know each country has its own culture, social norms and way of doing things!
Each country and its culture is very different to the other country and culture.
What is accepted in the US and UK may not be appropriate in south Asian cultures.
Example? On a Friday having a beer after work at the office may be normal in the UK
but may not be appropriate in an Indian company.
When an MNC originates from a certain country we say that the MNC has that
nationality. For Mc Donalds is a US MNC. So the McDonalds in the US would have a
US way of doing things, their approach to people management, the way they
organise the company and manage the company would be rooted in their cultural
norms, way of living and attitude towards people and society.
For example US people have direct , detached style of management. Chinese people
consider the work place like a family environment where the boss is like a father and
the employees respect the boss as they would a father.
In sri lanka work place is like a community but in the US work place it is hard to find
the community life.
The differences are bec of culatur and way of life.

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Main theories we have to learn in order understand where HRM

policies and practices come from to the subsidiary

Ethical and Social Issues

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To understand where HRM comes from to the subsidiary(factors that affect HRM in
the subsidiary; whether locally created or sent from the MNC parent HQ) we have to
now look at the following theories in the field of IHRM. (formulas 1-4)
Some of the theories are based on the concept of national culture and its influence
on MNCs. (see slide 21)
Importantly, we will come across the use of these theories in many textbooks when
analysing HRM in MNCs.
Importantly, we have to make sure we understand these theories and USE them to
discuss questions, examples and assignment questions!
When you do an assignment you will be marked on the use of theory to explain your
examples.

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Debates and theories of IHRM

in MNC Ethical and Social Issues
Convergence and Divergence theory/debate
Cultural and institutional theory/debate
Local responsiveness vs. global integration
Host country and home country influence

We learn three famous models to understand MNCs and their IHRM

Hofestede Model
Perlmutters model
Bartlett and Ghoshals model

These debates are very KEY in IHRM literature. If you know these theories well you can
understand how an MNC operate, the strategies and organisational strategies they
chose and why they make such choices. SO YOU CAN THEN UNDERSTAND THE 10
FORMULAS

These debates are very key to doing your assignments and

understanding next weeks lecture.
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Convergence and Divergence

Ethical and Social Issues
Convergence vs. Divergence debate (see 1.7.)
In management theory these are two dominant schools of thought. These two
schools of thought have advocated two different views about the world and how
management practices have emerged in organisations.
Simply put, convergence and divergence means THIS: are management practices
and IHRM in organisations are they adopting the same practices, global one best way
approach (Convergence) or is it different in firms in different countries because of
different national characteristics present in each country? (divergence)
The extent to which organisations are similar or different across nations
Convergence (1.7.1 in additional notes)
It is called the one best way approach/ universalist approach.

based on the assumption that country differences do not matter.

Firms can use the same proven practices all over the world irrespective of country the
firm is based in.
Assumption that as technology progresses the world will adopt the western (US)
approach to management.
This is to say that western management practices can be adopted by even a
developing country.

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Divergence view
Ethical and Social Issues
Divergence view (see 1.7.2 in additional notes)
Apposite of convergence
These academics have attacked the assumption in the convergence school.
They say there is no one best way to management of IHRM that can be
adopted by any firm in any country.
Importantly national differences in culture and institutions do matter and
because of these differences you cannot export a US model and make it
work in for example India!

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So there will be variations in HRM and managerial practices across different

national boarders and there are explanations as to why these differences
exists. So national cultural differences, values, society, religion all have an
impact on the way HRM is managed in an organisation or country. And
these differences prevent firms from adopting a proven practice from the US!

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Examples of convergence and

divergence Ethical and Social Issues
Convergence theory :

Divergence theory:

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Slide 21 of 19

Pick your brain

Ethical and Social Issues

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We know now what an MNC is all about;

We understand that IHRM in an MNC is very important and a

complex matter;

Importantly, we now know the 10 formulas for understanding HRM in

MNC;

To understand HRM in an MNC ( see the 10 formulas) we have to

know some theoretical models.

We now understand convergence and Divergence theory.

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For next week

Ethical and Social Issues
We look at the next theory: cultural and institutional
theory
Read the handouts and case study
Each person will discuss 2 formulas and tell the class
about it with examples.
The class will not start without each person presenting.
Any questions please ask me/email me.

E-mail : mahesha@apiit.lk

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