J.1748 8583.1997.tb00271.x

Country of origin effects and HRM in
multinational companies
Anthony Femer, University o Wanoick
f

n Vol. 6, no. 4 of NRMJ, Guest and Hoque (1996) examine differences in the HR practices
of German, US and Japanese greenfield subsidiaries in Britain. The authors’ empirical
analysis, based on survey data, starts from the notion that ‘national cultures’ are
different ’and that this is manifested in the organisational cultures which are then
communicated to overseas subsidiaries’ (p. 53). Yet despite the empirical evidence from ti hs
and other research, the study of the ’country-of-origin’factor in multinational companies
(MNCs) remains surprisingly underdeveloped. In particular, the differences between
multinationals of differentnationalities are rarely set within a convincing analytical context.
The present article aims to develop a more systematic analytical framework for examining
country-of-origin issues.
The issue of ownership is central to a number of important policy-related and academic
debates in the area of HRM and IR. One line of argument is that, with increasing
globalisation, MNCs are becoming stateless players, detached from individual nation states
(eg Economist, 1995). Evidence for this includes, for example, the growth of strategic
international alliances and joint ventures, cross-national mergers, the rise of business
divisions headquartered outside the ’home’ country, and so on. However, much contrary
evidence suggests that even the most global of companies remain deeply rooted in the
national business systems of their country of origin. The notion of the global corporation
transcending national boundaries is, very largely, myth. For example, Porter’s (1990) notion
of the ’competitive advantage of nations’ implies that the success of international
companies springs from characteristics of their national resource bases. Hu (1992) and
Ruigrok and van Tulder (1995: ch. 7) have argued that, on several dimensions, MNCs exhib-
it national characteristics. For very few of the world’s largest companies is production
highly ‘intemationalised’:thus less than a score of the Fortune top 100 companies have more
than half their production facilities or their workforce outside the country of origin
(Ruigrok and van Tulder, 1995: 1569). Even where the home base does not account for the
bulk of sales, operations and employment, the home nation is almost always the primary
locus of ownership and control. Board and senior management positions are staffed dispro-
portionately - often overwhelmingly - by home country nationals, strategic decisions tend
to be made in the home nation, and innovative activities (research and development) are
also disproportionately located there. Finally, although ’the global firm is exposed to many
jurisdictions, it usually has a home government and a home tax authority.’ It ‘therefore has
a legal and a fiscal nationality that matters to it more than others’ (Hu, 1992: 117).
At a general level, writers such as Elger and Smith (1994) have emphasised that
international competition is rooted in the specific arrangements of national systems, and
that national economies compete to impose their version of economic development. The
competitive advantage of a particular version of capitalism creates strong pressures for its
dissemination, a process in which MNCs are key protagonists. Thus Japanese MNCs, as
~ ~ ~ ~~ ~~ ~

HUMAN RESOURCE MANAGEMENT JOURNAL - VOL 7 NO 1 19

Country of origin effects and HRM in multinational companies

representatives of the currently ’hegemonic’ capitalist power, are seen as transmission belts
for the business and work organisation practices of Japanese capitalism.
Dissemination by MNCs of practices in such areas as HRM may be one expression of
what Streeck (1991) has called ‘regime competition’. Streeck was concerned that weakly-
regulated systems would attract footloose capital away from those with better employee
protection. One can, however, t r Streeck‘s question on its head by asking whether MNCs
un
from strong regulatory systems adopt and export the practices of their parent country, and
whether ti gives them a competitiveadvantage in the host countries where they operate. If
hs
SO, they may actually form a conduit for the export of elements of more highly regulated
HR/IR regimes into countries with more permissive systems. In short, are MNCs proxies in
the competition between highly regulated national models of employment relations and
highly deregulated ones?
Thus, are the patterns found in British MNCs characteristic of European multinationals
more generally, or are there substantial differences in approach with, for example, French,
German or Swedish ones? Do other European MNCs have more efficient or effective ways of
managing their international labour force? If so, how far are they linked to specific character-
istics of the national business ‘culture’, including - as Guest and Hoque (1996) hypothesise -
its institutions of HRM? Do multinationals act as vehicles for ‘transmitting’HR/IR practices
from the parent country business culture to the host countries in which they operate, or do
they attempt to drop what they see as the constraining elements of their business systems
once they leave their own borders? For example, is the alleged long-termist orientation of
the German system, and its tendency to treat human resources as investments rather than
costs, exported along with its foreign direct investments?How far do MNCs act as forces for
convergencearound the practices of the most ’successful’ national business regimes?
The next section critically surveys the literature on the ‘country-of-origin’ effects.
Subsequent sections set out an analytical platform for exploring such effects in relation to
HR/IR, and consider some issues of research strategy in the area of national differences
between MNCs.

LITERATURE

There is a relatively small body of research pointing to systematic differences in the ways in
which MNCs of different nationalities manage their human resources. A selection of such
studies is summarised in Figure 1.
A number o generalisations emerge from such studies. First, they provide substantive supp-
f
ort for the notion that nationality of ownership is a significant determinant of MNC
behaviour. Thus a long series of studies has found US MNCs to be relatively centralised and
formalised in the management of HR; their headquarters set or influence policy on wage
systems, collective bargaining, union recognition, welfare and training policies (eg Bartlett
and Ghoshal, 1989 161-3; Bomers and Peterson, 1977;Hamill, 1984; Negandhi, 1986;Yuen
and Hui Tak Kee, 1993; Young et al, 1985). Other research suggests that they have been
consistent innovators in IR, introducing productivity bargaining into Britain in the 1960s,
along with fixed-term agreements (Endenvick, 1985: 11519), and have often tried to avoid
union recognition in Britain or Ireland (Gunnigle, 1995), or to resist pressures for sectoral
bargaining.
US styles of multinational HRh4 have typically been contrasted with Japanese and
‘European‘ styles. The foremost characteristic of Japanese companies referred to in both
survey-based and qualitative studies is the strong but informal centralised coordination of

20 -
HUMAN RESOURCE MANAGEMENT JOURNAL VOL 7 NO 1

Anthony Ferner, University of Warwick

FIGURE 1 C O ~ ~ O ~ O ~ ~ fZ J C s
studies o M N P

Authors Study Selected findings

Bartlett and lntrtuirws with 236 manaxers i n three Differences in imrdinating mechanisms in Japanese. US, and European
Ghoshal. 1989 US, thrw Japnnrsennd three European firms - use of consensus decision-making, formalised systems and
MNCs. ’socialisation’ respectively

Beaumont e t al, Sumq i $ l R in 232 subsidiaries of High levels of non-unionism, particularly in smaller firms, even where
1990 Gcrnian MNCs in GB. parents mognised unions. Low incidence of German-styleemployee
involvement arrangements.

Bomers and lob security, bargniniiig power and European MNCs decentralise IR much more than US-based; USbased
Peterson, 1977 I R practices of US and European MNCs MNCs tend to centrake through close k t managerial supervision,
m Netherlands and Gerniany. profit-plan mechanisms or corporate financial controls.

Evans, Lank and Diferent national models of managenienl Different ’Japanese‘, ’LatinEuropean‘, ‘Germanu’ and ‘AngleDutch
Farquhar, 1989 deuelopnieiit in MNCs. approaches to career progression

Guest and Suwq of diferencrs in HRM in 85 US MNCs cxcrt wmcwhat more d i m t mtluence over HRM than other
Hoque, 1996 greeiijeld subsidiaries of US, lapnnese MNCs h m a n bubsidiaries differshongl from atereurypiial German
Cermnii and other MNCs in GB. practice

Hamill, 1984 Locus of decision-making in IR I-’ MNCs much mom centralised m IR decsion-making than Lurnpean
practice of 30 chemical and reflrchng grratrr production integrahon arid ethnncentnc managerial
rnxinrcring MNCs in UK. stylcs

lnnes and Sunrey $48 Gernm, /apanesisand lapanise companirz more likely hi ha! e smgle union deals nc+trilr.
Marris, 1995 US manufactiiring MNCs in Wales. clduu%and cnllecti e bargairung japanese and US hnns mom. likely tii
UIL, )oh rutation multikilling and autonomous work gmup5 (mrman
firms Ira51 likely to u c works counuls Japanese least likely to use PRP

Johansson and Difirrnces m globalisation strategies lapanms firms a .more global and ha e stronger mtcgration mechanisim
n
Yip, 1994 of 36 large US and Iapanesr MNCs, ex glohal gmiup mlrtinp, global budgetmg
usinx smi-structured intemiews.

Kopp, 1994 PustasfaiSIIRWI~ HRM in 81 japanesp,
of lRHM in Japanese MNCs more ‘ethnocentric’ than in US and European
European nnd US MNCs. MNCs, especially in use o expatriates in managerial postings and in low
f
‘glass ceiling‘ for local employees. As a result, Japanese MNCs likely to
experience HRM problems of skill scarcity, friction between parent and
host country managers, etc.

Negandhi, Orgunisafional structures, control US MNCs rely more on written policies and require more reporting
1986 processes and decision-making in 244 than German and Japanese MNCs.
subsidiaries of German, US and
/npanr;eMNCs.

Roberts and Siinvy of perceptions of union British MNC HQs - in contrast to US MNCs - exercise little control over
May, 1974 pressures in 32 British MNCs. subsidiaries’ IR policies, esp. collective bargaming and strike settlement.
Main rnle ‘giving advice on company policy.’

Rosenzweig and D e p ? of local ‘rsomorphism’ofHRM in Practices more affecting ‘rank-and-file’, and those more subject to local
Nohria, 1994 249Jnreixn affiliates o lapanese,
f norms, tend to be more like local practices. Japanese firms comparatively
Canadinn.French, German, Dutch. less like local firms.German and Swedish firms relatively unlike their
Swedish. Swiss and UK MNCs in the US. parents (ego” ’benefits’) because of degree of difference between local
and home practices.

Tun& 1982 U s e of expatriates in US arid lupanese Japanese MNCs more likely to use expatriates in senior management
MNCs. posts. Longer duration of expatnation, shonger back-up and training. US
firms had higher expatriate failure rates. Greater importance of HRM func-
tion in Japanese MNCs, strong authority in recruitment, compensation,
evaluation compared with HR function in US MNCs.

Wong and Study of centralisation and formalisation Hofstedian ‘power-distance‘ positively related to authority (centralisation
Bimbaum-More, irr Huiig K o g operations of 39 MNC and formalisation), Japanese and Swiss banks more highly formalised
1994 baiiksfrom 14 countries. including US, than average, and rely more on expatriates, than British, French or
Ccrninny, France, Netherlandsand UK. Dutch banks.

Yuen and Persimnel prtzcfires of 31 LlS nnd 21 US MNCs‘ practices more extensive (ex in areas of welfare, wage structure,
Hui Tak Kee, japanrse MNCs compared with 60 local training and development, communication with employees, performance
1993 firins operating in lrgalistic Singaporean appraisal) and more formalised and standardised. Japanese companies
riii~imnment. fairly similar to local companies.

Young, Hood and (Dc~lcriitrnliuttionof decision-making 111 US MNCs more likely to establish financial targets, more centralised on
Hamill, 1985 finance, operations and personnel, in 116 employment and personnel decisions, less likely to employ home country
US subsidiaries and 38 continental nationals at managing director level in UK.
Europeanlother subsidiaries in UK
f p s t a l survey).



their foreign operations, highly reliant on establishing an international network of Japanese
expatriate managers (Bartlett and Ghoshal, 1989; Bartlett and Yoshihara, 1988; Johansson
and Yip, 1994; Kopp, 1994; Tung, 1982; Lincoln et al, 1995). This ‘ethnocentricity’ of their
international HRh4 does not necessarily mean that HR/IR policies are standardised; rather,
it is frequently reported that they adapt to local conditions (eg Yuen and Hui Tak Kee, 1993).
A second general conclusion from the literature is that nationality manifests i s l more in
tef
relation to some issues than others, and that for all countries, ‘rank-and-file’ IR issues are
more likely to exhibit ‘local isomorphism’ (Rosenzweig and Nohria, 1994) - that is, to
resemble the practices of the local environment. The argument is that issues such as wage
determination, hours of work, forms of job contract and redundancy procedures are highly
subject to local institutional arrangements, and are therefore less likely to be stamped with
the influence of the parent country. In the more regulated systems, issues such as work
organisation, training, and employee participation may also be highly determined by local
regulation. Other aspects of HR/IR, such as payment systems, management development,
or employee communications are generally less likely to be regulated by the local system
and hence more susceptible to the imprint of country-of-originfactors.
Gaps in the literature
The literature on MNCs and nationality suffers from several limitations which restrict the
conclusions that can be drawn. First, most of the comparative work is survey-based (see
Figure 1).Response rates to international company surveys are typically very low (eg 8-9 per
cent in the case of Kopp, 1994) and sample sizes are sometimes small - for example, the
survey by Guest and Hoque (1996) of greenfield sites included only 14 German-owned
plants. There are few detailed qualitative comparative case studies that could throw light on
the complex processes and linkages involved, although there are a number of important and
useful studies on the behaviour of MNCs of one country - eg Morns and Wilkinson (1995),
among the very many on Japanesecompanies.
A second drawback is that most comparative studies focus on the effect of ownership on
general management processes such as co-ordination, formalisation and decentralisation;
few studies concentrate specifically on HR/IR, and where they do, it is often on fairly
narrow aspects such as expatriation (eg Kopp, 1994).
Third, the comparative literature concentrates overwhelmingly on US and Japanese
companies. ’European’ companies, where included, are frequently lumped together (eg
Kopp, 1994).One of the major qualitative studies generalises about the ‘traditional means of
cc-ordination in European companies’ on the basis of an in-depth study of three MNCs, one
Dutch, one Anglo-Dutch, and one Swedish (Bartlett and Ghoshal, 1989: 163-5). The authors
come to the conclusion that the ’European’model rests on ’socialisation’through the ‘careful
recruitment, development, and acculturation of key decision makers’ (p. 163), a
characterisationso broad as to be applicable to virtually any MNC. European MNCs merit
greater attention. Several European countries are major MNC home bases in their own right.
Aggregate world employment of home country MNCs exceeded one million for each of
seven European countries; French, German, UK,Swiss and Dutch MNCs each totalled more
than one million employees outside their respective home countries (Bailey et al, 1993). In
terms of individual MNCs, German and British firms in particular rank prominently among
the world’s largest firms.

22 HUMAN RESOURCE MANAGEMENT JOURNAL - VOL 7 NO 1


METHODOLOGICAL PROBLEMS

A variety of models of explanation underlie analyses based on the ‘country-of-origin’effect.
Many studies do not problematise the issue at all, considering only how MNCs of different
national origins differ in their behaviour. Others have tried to unpick some of the constituent
elements of the nationality variable, although there have been few if any attempts at a
systematic analytical model for exploring national differences.
One type of explanation rests on differences in the historical pattern and phasing of
international expansion by national capital (eg Bartlett and Ghoshal, 1989). The legacy of
foreign direct investment along imperial trade routes by British or Dutch companies would
be an example (Jones, 1996). Another characteristic form of explanation refers to features of
national business culture. An important subset of this rests on the academic industry
generated by Hofstede’s analysis (1980) of ’culture’s consequences’. Wong and Birnbaum-
More (1994),for example, have constructed hypotheses about MNC behaviour on the basis
of Hofstede’s analysis of ’power distance’, that is the perception by individuals of the degree
of interpersonal power or influence exerted over them by their superiors in the organisation
(Hofstede, 1980: ch.3). They found that the acceptance of unequal power distances in the
bank’s home society was ‘highly sigruhcant in explaining the centralisation of authority in
the bank operating in Hong Kong’ (Wong and Bimbaum-More,1994: 115).
Other ‘business culture’ types of explanation exploit known national differences in the
organisation and style of management. Prominent here is the analysis of differencesbetween
Japanese and other MNCs (eg Bartlett and Yoshihara, 1988).The reliance of Japanese MNCs
on expatriate managers and intensive communicationsthrough fax, international travel and
global group meetings constitutes an international version of the typical Japanese
management processes of consensus-building (nernawashi)and shared decision-making
(ring).The attempt to export a system inherently unsuited to the demands of international
management can lead to growing problems of ceordination for Japaneseh4NCs.
A more deep-seated methodological issue arises out of the interpretation of ’country-of-
origin‘ effects. Is this an explanatory variable in its own right, or is it a proxy for other more
immediate causal factors? Do differences between Japanese and US MNCs, or between
British and German companies, reflect some inherent quality of ‘Japaneseness’ or
’Britishness’? Or rather, do they stem from differences in factors such as phase of
internationalisation, corporate structure, proportion of operations represented by overseas
operations, and so on? For instance, the high usage of expatriation by Japanese MNCs, and
their failure to integrate local managers, may be a consequence of the relatively late
internationalisationof these f r s
im.
One response to such ambiguities would be to conduct research that systematically
excludes such sources of variation by comparing firms of similar ages, structures, strategies,
and so on. The ‘residue’ of difference that remains may be attributed unambiguously to
‘national’differences.However, ti can only partially address the problem and may indeed
hs
miss much of the point. Differences in phases and patterns of internationalisation,
organisational structures etc, may themselves be typical of different ’national business
systems’, to use Whitley’s phrase (1992a). Humes (1993), for example, has pointed to
different historical patterns of international development in European, American and Asian
h4NCs. Late multinationalisationis a reflection of a constellation of elements of the Japanese
model of development, including late industrialisation, reliance on an export model of
internationalisation and relative economic isolation. To take another example, MNCs in



countries like Sweden or Switzerland, with smaller home markets, are likely to be more
‘international’ in terms of the proportion of their foreign operations than are those of
Japanese or US MNCs (and more likely to expand through acquisitions).
This strengthens the case for grounding an examination of national MNC differences in
an analysis of the national economic and business cultures out of which they have emerged.
A further implication is that individual characteristicscannot be treated in isolation. Features
such as corporate size and structure form part of a constellation or cluster of features, and
acquire their significance in relation to the cluster as a whole. Thus the impact of, say, small
size in German or Swedish companies may be different compared with small size in British
or US MNCs.
The question of interpretation is bound up with a related difficulty: how to untangle the
deep-seated, long-lasting impacts of the ’nationality’ variable from those that are more
contingent and transient. The transient may be mistaken for some embodiment of national
difference. For example, some distinctive aspects of international HRM in Japanese MNCs
may reflect the fact that Japan is in a transitional phase from export-led to direct investment
internationalisation, and these aspects may be expected to disappear in a relatively short
timescale. The danger of exaggerating the persistence of national factors is characteristic of
the Hofstedian approach to national culture. Hofstede’s implication that the variables he
studied are in some ways inherent properties of national psyches - ’I believe that the pidure
of national variety [in power distance], with its very old historical roots, is likely to survive
for a long time yet, at least for some centuries’ (1991: 47) - deserves to be treated with
caution. Schmidt (1993) has argued, for example, that the characteristic French business
’style’ of authoritarian, bureaucratic firms with rigid divisions of task and low discretion at
middle and lower levels of the hierarchy has been transformed in recent years. This is
evidenced in the democratisation of authori6 structures in the managerial hierarchy, the
decline of elite recruitment to career positions from the grundes ides, and a more flexible,
less authoritarianculture of IR (Rojot, 1990).
The need, precisely, is to untangle ’layers’ of difference according to how deeply they are
lodged in fundamental formative episodes and experiences in national development. In
short, it is imperative to take into account the dynamics of nationality as a factor affecting
the behaviour of MNCs.The modernisation of political institutions, the rapid pace of
technological change, the internationalisation of production itself, and changing patterns of
international markets and competition, are all likely to modify pre-existing national
structures - although not necessarily in the direction of convergence of different national
systems on a single model.

INFLUENCE OF NATIONAL BUSINESS SYSTEMS
MNCs continue to be rooted in their countries of origin. But what featum do they ‘absorb’
from their national background? One argument is that cr~ss-nati~nal differences are in any
case diminishing in the face of the economic and technological foxes of convergence, includ-
ing the activities of MNCs themselves (for a summary of the debate, see Sparrow and Hiltrop,
1994 ch. 6). However, there are grounds for thinking that national models are likely to retain
their specific features. The existence of systematic national differences in aspects of business
organisation has been demonstrated by international surveys of corporate practice (notably
in the HR/IR field, those of the Price Waterhouse/Cranfield project [Brewster and Hege-
.
wisch, 19941; and of IBM/Towers Penin [summansedby S p m w and Hiltrop, 1 9 :37471).
94



In recent years, a significant body of analytical literature has strengthened the theoretical
and empirical underpinnings of the notion of the distinctiveness of ’national business
systems’ (see especially Lane, 1989; Whitley, 1992a; Whitley and Kristensen, 1996). It is
argued that different elements of business systems interrelate in a complex whole, giving
rise to characteristic patterns of business behaviour in different countries which persist over
time. Writers explicitly or implicitly adopting t i kind of ‘national system’ approach have
hs
explored elements such as corporate governance, managerial structures and functional div-
isions of labour, IR and labour market institutions, training systems, workplace organ-
isation, and so on, often in a comparative perspective (eg Maurice et al, 1986; Lane, 1994;
Marginson and Sisson, 1994; Stewart et al, 1994).An important thread of research in the com-
parative IR field has examined how long-lasting national patterns were generated by crucial
episodes in historical development, including the process of industrialisation, and the legacy
of premodern forms of social organisation (eg Fulcher, 1988; Sisson, 1987; Crouch, 1993).
Another strand of literature has adopted a ’culturalist’ perspective, rather than the
primarily institutionalist or structuralist approach of the business systems scholars. The
culturalist school has focused on the impact on business styles of national cultural attitudes
and mental schemas. Prominent here is the work of Hofstede (1980) on individual
perceptions o power and authority, orientations to individualism and collective action, and
f
attitudes to the short or long term (see also Trompenaars, 1992).
The key analytical question is how far such national differences in business systems
inform the behaviour of MNCs from different countries. The linkages from the general level
of the business system to the behaviour of MNCs need to be specified. In general, there are a
number of constraints on the assimilation by MNCs of their home country business culture.
First, it has already been noted that ’local isomorphism’ is more likely in certain areas of
HR/IR because of the constraints of host country regulation or practice. Second, some
elements of national business systems make little sense in isolation from the constellation of
features in which they are integrated in the home nation. In the words of Lincoln et a1 (1995:
428) they ‘do not travel well.‘ For example, Japanese MNCs may not be able to adopt home-
country personnel management techniques in their foreign operations because the elaborate
formal systems that exist are so predicated on Japanese corporate culture. Or again, Japanese
MNCs in Europe prefer to use expatriate managers because of the difficulty of finding
managers in local labour markets with the right degree of commitment, given the European
norm of managerial inter-firm mobility in pursuit of career advancement (pp. 430-1). In
short, the greater the ’cultural distance’ - what Diilfer (1990: 264-5) calls ‘degree of
strangeness’ - between the home country and the host, the harder it will be for the MNC to
transfer home-country philosophies and practices.
Where MNC managements have strategic choice, two primary strategies are available to
them. The first is to adapt to the environment of the host country, adopting local patterns
which may differ considerably from those of the country of origin. One reason for doing so
may be that the firm adopts a particular international ‘division of labour’ that makes the
transfer of home country practices redundant. As Dedoussis (1995) argues, for example,
Japanese MNCs often reproduce a core-periphery relationship with their foreign
subsidiaries in which the latter perform relatively low value-added activities. In such
circumstances, MNCs do not necessarily wish to transfer to their subsidiaries practices
which may be typical of core firms in Japan such as lifetime employment and seniority-
based promotion systems.



The second alternative for MNCs faced with strategic choice is to attempt to create what
might be called ’cross-nationalisomorphism’; that is, to introduce country-ofa$$.n patterns
into host country operations. In some cases ti may imply the establishment of ’enclave’
hs
systems of training, work organisation, and so on, which are located in the host
environment, but in some senses alien to it. This may be the case (as is discussed further
below) with the recruitment of workforces with the motivational characteristics and skills
mix appropriate to the imported form of organisationalpractice.
Other variants are possible. One is that MNCs develop their own ’internal isomorphism’
that approximatesneither to home or host country practices but is sui generis. Another is that
the interaction of home and host country variables gives rise to shifting patterns of MNC
behaviour which show some consistency as between MNCs of the same national orip, but
vary according to how a given home country model interacts with Werent host country
environments;as Innes and Morris (1995 30)put it, the behaviour of MNCs in host countries
may be a synthesis or ’hybrid’ in which host country norms mediate the influence of the
home country ’blueprint’. However, the evidence on such patterns, particularly on MNCs
from different European countries, is patchy and in many cases virtually nonexistent.

LINKS BETWEEN NATIONAL BUSINESS SYSTEMS AND MNC BEHAVIOUR

As suggested above, the basic idea of the concept of ‘national business systems’ is that
economic actors in different comtries are influenced by the national institutionalframework
in which they operate. Whitley (1992b) looks at how the co-ordination and control of
economic activities in different national systems is influenced by: financial institutions
determining access to capital; the system of property rights; the structure and policies of the
state, including its ownership role and its function in regulating markets; and labour market
institutions such as systems of skill training and certification, and forms of labour
representation. Whitley also considers more ‘cultural’ elements such as institutions
governing ‘trust’ relations and collective loyalties.
In ti section we illustrate some of the possible linkages between elements of national
hs
business systems and MNC behaviour, taking examples from the French, German and
British cases in particular. We discuss first the influence of corporate governance systems on
firms’behaviour, followed by the related question of forms of corporate control. Then t r ehe
more specifically HR/IR elements of national systems are considered: systems for defining
and developing managerial resources, the organisation of work and of workforce skills
within f r s and the role of the personnel function within the managerial division of labour.
im,
National systems of corporate governance and MNC behaviour
It has become commonplace in recent years to point to the varying systems o corporatef
governance in Britain and other European countries. Marginson and Sisson (1994 29-33)
contrast continental European (most notably German) ’insider’ systems with Anglo-Saxon
’outsider’systems. In the former, long-term bank credit and family ownership play a greater
role. This gives relative protection from the threat of hostile takeover, allowing concentration
on longer-term financial performance; for example, a relatively low proportion of profits is
paid out to shareholders. The ’insider’ model encourages firms to regard employees as
assets and a source of competitive advantage, and to grant them ‘stakeholder’rights such as
employee participation, whereas the ‘outsider’ system sees employees as ’disposable
liabilities’ and offers them few stakeholder rights.



What are the implications of governance for the behaviour of MNCs? First, Marginson
and Sisson suggest that MNCs’ responses to European employee involvement are
influenced by country-of-origingovernance structures. For ‘insider’ firms, European-level
participation structures such as European works councils extend rights already recognised
under domestic systems; for ’outsider’ firms, they are likely to be seen as a threat to the
shareholders’ rights of decision-making. Second, US and British MNCs’ relative freedom
from pressures of stakeholders other than shareholders may give them greater room for
manoeuvre in undertaking certain kinds of action. One area where this may be relevant is in
decisions on investment and divestment, and on ‘downsizing‘ of corporate operations. In
companies from outsider systems, significantly influenced by short-term share price
considerations,decisions to cut capacity and employment are likely to be based on markedly
different premises than is the case in insider f r s So too are the ways in which MNCs deal
im.
with the ’social’consequences of such decisions.
National systems of corporate control and MNC behaviour
Systems of corporate governance are intimately linked with another element of business
systems: forms of corporate control. According to Whitley (1992b: 39), Anglo-Saxon corpor-
ations ’internalise’ risk rather than sharing it with financial institutions, and as a result
develop ‘strong and often dominant finance departments and complex formal systems of
financial control.’ In Germany, however, formal financial control systems are less sigruficant,
and German companies place a greater reliance on informal face-to-face performance
management processes. A major question for comparative research, therefore, is the precise
consequence of nationally variable forms of financial control in h4NCs for the handling of
issues such as labour cost control, collectivebargaining, pay determination and performance
management.
British and US MNCs typically appear to have elaborate systems of control, through
budget-setting and monitoring systems, oriented to short-term financial performance
(Coates et al, 1992), and to have in place international systems of performance management.
Kopp’s survey (1994 587-9) showed that US firms were much more Likely than Japanese
firms to have standardised world-wide systems of performance evaluation. Research on
British MNCs and other large UK companies suggests that elements of staffing costs, such as
total payroll, overtime levels, and pay bargaining, are carefuuy monitored against budget,
with strong central intervention where necessary (eg Marginson et al, 1993: esp. 15-28).Such
systems are supplemented by elaborate formal mechanisms for measuring and rewarding
managers’ performance, including performance-related pay systems (eg Edwards et a/, 1996).
By contrast, German MNCs have much less stringent short-term performance
requirements, are less concerned with ratios such as earnings per share, and rely more on
mformal feedback and communications than on formal financial control measures (Coates et
al, 1992). Similarly, Japanese MNCs’ systems of performance management appear to rely
much less than Anglo-Saxon MNCs on arms-length formal systems and more on face-to-face
informal assessment - one reason that they are so ’expatiate-intensive’.Given that German
control systems appear to be more like the Japanese model, one may expect to find a similar
reliance on informal ’social control’devices such as expatiation in German MNCs.
A more general research question is how the highly formalised international systems of,
for example, British h4NCs operate in countries with different cultures of performance
management. Case study evidence suggests that standardised systems may be implemented
in practice in signhcantly different ways (eg Edwards et al, 1996; also Janssenset al, 1995).A
British MNC‘s formal appraisal systems may be interpreted very differently by a Spanish
~ ~~



subsidiary compared with a US subsidiary. How far, in other words, do country-of-origin
differences in MNC behaviour survive in form rather than substance?
A further aspect of authority and control which characteristically emerges from accounts
of national business systems is the degree of ’hierarchisation’of the f r .
i m French firms are
said to be taller, more rigidly organised pyramids - the ‘Eiffel tower‘ model to borrow the
term used by Trompenaars (1992)’ compared with the relatively flat structure of German or
British companies. In French firms, hierarchical position is seen as the ultimate source of
managerial authority, compared for example with German companies where authority rests
principally on technical expertise and knowledge (Stewart et al, 1994). Hofstede (1980 ch. 4)
has pointed to French cultural attitudes that score high on measures of ’power distance’ (the
perceived hierarchical gap between different authority levels in the enterprise) and
’uncertaintyavoidance’.
To the extent that MNCs exhibit the typical authority structures attributed to parent
country firms in general, consequences may be expected for the international management
of HR and IR.Assuming, for example, that French MNCs reproduce the stereotypicalsteeply
hierarchical authority structure, is international HR/IR management more centralised and
‘directive’ than would be the case in, for example, a British MNC? How will steeply
hierarchical French MNCs respond to the current trend towards less hierarchical, less
bureaucratically-integrated international corporate forms - networks, ‘federal’ firms,
internationaljoint ventures, strategic alliances, and so on? Will they be able to cope with the
revival of complex international ‘matrix’ management structures or with blurred authority
boundaries and loose, overlapping spheres of responsibility? Will they develop new, but still
nationally specific, responses to such challenges?
Managerial careers and management development
Comparative studies (eg Evans et af, 1989; Storey et al, 1991) have shown that there are
national differences in the way that managerial careers and management development are
organised. Evans et af (1989) identlfy clear national models of management development.
One, characteristic of both Japan and France, relies on elite recruitment. The selection of
potential managers at the point of entry is regarded as the most important determinant of
future careers in the French system (Lawrence 1992). ’Getting on’ in the organisation is seen
as the reward for political skills - the ability to form alliances, get powerful sponsors and
flaunt highly visible achievements. The Germanic tradition rests on formal apprenticeship
and functional rotation, followed by progression through functional career paths where
specialist technical expertise is developed. This contrasts with the increasingly generalist
culture of Anglo-Saxon management, exemplified by the prominence of business schools
and the MBA qualification,which have no equivalent in Germany. Generalist styles are also
predominant in large Dutch and Scandinaviancompanies.
Management development can be expected to play a central role in MNCs, because of its
importance in developing a cross-national corporate culture and integrating international
operations.As Hendry (1994 101-2) argues, the key question is what kinds of behaviour are
encouraged by differentnational management development systems, and how well-adapted
are these to the requirements of international management. Hendry goes on to suggest that
systems based, as in Germany, on functional specialists may be more adapted to an export-
led strategy,whereas generalist systems are ’particularlysuited to transnational operations’:
Rapid progress through a variety of jobs in different functions, locations, and businesses produces a
cadre of people able to manage a diversified international company. By the same token ... the ’political

28 HUMAN RESOURCE MANAGEMENT JOURNAL VOL 7 - NO 1


tournament’ which characterises the promotion system in ‘Latin’ firms such as the French may discour-
age overseas assignments because the manager is out of sight and therefore less well-placed to compete
for attention.
One may hypothesise that MNCs develop strategies for reducing the constraints of their
national systems: for example, French multinationals might differ from the national
stereotype in their modes of career progression and succession planning, in order to
encourage expatriation. There is some unsystematic evidence to support t i .For example,
hs
Barham and Devine (1991: 47-55) detail the systems implemented by Rh6ne-Poulenc to
create a cadre of international managers, from the stage of recruiting graduates onwards.
The Jeunes Cadres internationaux programme explicitly offers young high fliers the
opportunity of early international experience followed by a senior management
appointment in their home country. Problems of career opportunities for returnees following
international assignment are eased by the figure of the ’godfather‘ or mentor, a senior
manager in the expatriate’s home country with extensive networks of contacts. The
godfather advises on future career openings and negotiates on behalf of the expatriate with
prospective bosses.
At present, there appears to be little systematic inquiry in such areas. The question for
research, therefore, is to examine how national systems influence the policies and practices
of MNCs in respect of managerial careers, particularly at the international level.
Structuring and co-ordinating work
Comparative research has paid much attention to national differences in how work is
organised within firms. Thus French firms are said to divide tasks up rigidly between and
within ddferent strata in the hierarchy (Maurice et al, 1986; Poirson, 1993). German firms
exhibit a much more blurred horizontal differentiation of tasks and functions, and in
particular have a much greater overlap of maintenance and production functions and of
technical and supervisory work (Lane, 1989; Sparrow and Hiltrop, 1994: 270-3). Other
national systems have evolved characteristic patterns of work design. An example is the
Swedish experience of self-regulated group work and the participation of the workforce in
the design and operation of systems.
If MNCs are used to working in their home base with a particular set of workforce skills
and work organisation, is this reflected in their international operations? For example,
German MNCs are rooted in a home environment which attaches great importance to
flexible work organisation and to craft and functional skills based on publicly certified
apprenticeship schemes; do they make efforts to propagate ti by recruiting highly-skilled
hs
labour forces in the UK, inculcating flexible work practices, having a technically-skilled
stratum of supervisors? Or do they adopt local skill mixes and work organisation traditions,
exploiting locational advantages of lower labour costs? There is now a considerable body of
literature to suggest that Japanese MNCs pursue the ‘enclave’ strategy by ‘exporting’
patterns of work organisation based on a cluster of policies, from careful recruitment and
selection of ‘greenfield’ workforces to continuous vocational training, functional flexibility,
teamworking, and the systematic integration of quality into work operations (eg EIRR, 1992;
Oliver and Wilkinson, 1992).Much less is known, however, of European MNCs.
One could hypothesise that German and Japanese MNCs, rooted in business systems in
which the organisation of production assumes a central importance, would be more
concerned with the management of the issue internationally than perhaps British or French
companies. One factor is the availability of systems of control and evaluation capable of
~~~~



identifying and then ensuring the diffusion of practices from the home country. Here the
case study by Sewell and WiLkinson (1993: 144) of a Japanese electronics company in Britain
is instructive:
Production managers and team leaders are ... expected, on a monthly basis, to agree to targets with a
specified amount of labour. Standard times are produced in Japan... and are indicated in precise detail.
Times are provided to K-Electric [the British subsidiary] for a whole unit of finished goods, for the
sections of the factory, for activities within each section, and right down to the level of components to
be assembled or inserted i fractions of a second ... Assembly manuals, which include detailed
n
standard times broken down to the level of individual component insertion, are regularly updated in
Japan i the light of improvement in methods. Whenever an overseas factory makes an impmvement,
n
this fact, and the new method, is relayed back to Japanand the improvement is passed on to all group
factories the next time the manual is updated.

Nature of the Dersonnel function
The literature on the business systems of European countries suggests that there are
significant national differences in the role and organisation of the personnel function, for
example with regard to the degree of integration of personnel with business strategy, and
the extent of devolution of personnel issues to line managers (Brewsterand Larsen, 1992).
The key question, as before, is how far national patterns of personnel management
translate to the international level. The organisation of the personnel function in the country
of origin has been used to explain differences in the HR/IR management policies of MNCs.
One of the most developed arguments is to be found in Yuen and Hui (1993). In their
comparison of US and Japanese MNCs in Singapore, they focus on differences in the
personnel function in the two home-country business cultures. In the US, they argue, the
management of labour is posited on an ’economic-contractual’model of hiring and firing,
market-determined wages, and high labour mobility. Personnel departments have evolved
into large legalistic bureaucracies applying formalised and standardised personnel policies.
The preoccupation with compensation, labour market and wage surveys is reflected in the
HR/IR priorities of US subsidiaries in Singapore. By contrast, the Japanese model of HRM is
a ’human capital model’, based on ‘multidimensionalemployment relations’, social as well
as economic aspects, the predominance of internal labour markets, and a consequent
concern with recruitment, selection, training and development. These characteristics are
likewise reflected in the behaviour of Japanese MNCs’ Singaporeansubsidiaries.
Similar links may be made between differences in European styles of HRM and MNC
behaviour. In the German model (described by Lawrence, 1991), for example, sectoral
negotiations mean that personnel managers’ role in pay bargaining is limited to
interpretation and implementation. The statutory system of works councils conditions the
content and style of personnel managers’ work, encouraging a modus operundi that is
overwhelmingly legalistic, reactive, short-term and operational. Accordingly, the job is of
relatively low status in the hierarchy of management functions. This model is likely to have
consequences for international HRM in German MNCs. First, it raises questions about the
capacity of German h4NCs to manage their international labour force in a strategic fashion,
to develop international pay and performance management systems, to play a role in the
construction of international corporate ‘culture’, and so on. Second, the personnel function’s
experience of ‘shared authority’ through the German co-determination system will colour
managerial HR decision-making in a multinational context, notably in respect of employee
participation and involvement. Although Beaumont et ul (1990) found a reluctance of
German MNCs in Britain to replicate German forms of employee involvement such as

30 HUMAN RESOURCE MANAGEMENT JOURNAL-VOL 7 NO 1


works councils (also Guest and Hoque, 1996),it is noteworthy that German MNCs have
been in the vanguard of experiments with European works councils from the mid-1980s
(Hall et al, 1995).

RESEARCH STRATEGIES

The arguments presented above have two principal implications for research strategy. First,
there is a need to assess the extent to which (and the precise manner in which) national
business characteristics influence the behaviour of MNCs from different countries of origin.
One can expect that MNCs will strongly exhibit the impact of their national roots,
particularly in those countries, such as Sweden, the Netherlands and Switzerland, where
domestic MNCs account for a high proportion of output and employment; conversely, one
may anticipate a greater dissimilarity between MNCs and national norms in countries,
notably Italy and indeed Japan, where the international company sector is small in relative
terms. However, a key research question is how far MNCs are able to escape the constraints
imposed by their national heritage: can French MNCs, for example, develop new structures
and styles of international management that avoid the limitations of bureaucratic and
hierarchical centralism?
Secondly, to the extent that MNCs do embody typical national characteristics,what aw the
implications for the internationalmanagement of I and HR? Do Fmch MNCs exhibit more
R
centralised control of personnel management in subsidiaries than British firms?Are German
MNCs less reliant on formal control systems than their US counterparts?Is the mle played by
expatriates in international ’social control’ (Edstrom and Galbraith 1977) and cultural
integration within the corporationdifferent in Japanesecompared with Swedish companies?
Systematic survey evidence is needed to establish the prevalence in MNCs of typical
national characteristics.One area, for example, is that of international corporate control - the
number o different hierarchical levels and the division of labour among them; the nature of
f
international management control systems; the way the budgetary process handles IR and
personnel management issues; the extent and functions of expatriation. Another area
concerns the role of the pemnnel function: the size, structure and international role of the
function; its relationship to strategic business matters; its representation in key decision-
making forums, etc.
Survey work needs to be supplemented by careful qualitative case study research to
follow through complex linkages, explore processes, and uncover how decisions are really
made. For example, surveys show that Japanese firms typically make greater use of
expatriates, but there is relatively little detailed work giving a feel for the precise
mechanisms whereby expatriate managers act as ‘agents’of central control, nor for the types
of intervention they make in the subsidiary. One area for exploration is the relationship
between formal structure and actual management behaviour in subsidiary operations. The
existence of formal systems of, say, performance management says relatively little about
how they are operated in practice in host environments, especially where they are not
traditional parts of the management culture.
The choice of countries of origin for such research should reflect the need to explore the
impact of systematic differences in national business systems for MNC behaviour. The
previous section has suggested some m a s in which comparison may be fruitful. There is
clearly sufficient‘interesting’variation on key dimensions such as corporate governance or
work organisation patterns among the major European MNC home countries. Given this,



one research strategy would be to examine MNCs from countries - such as Geman&France
and Britain - whose national business systems have already been subject to sustained
analysis in a comparative framework.
A further consideration is how MNCs of different parent countries interact with the bus-
ness systems of different host countries. One criterion for selecting host countries to study is
the degree of regulation. Are MNCs from highly regulated countries less likely to adopt local
practices in ’permissive’host countries and more likely to export their own practices? Or is
there a ‘Gresham‘s law‘ of national business systems in which many aspects of ’progressive’
social regulation, such as employee participation in the enterprise and consensual employ-
ment relations, are lost when firms work in permissive environments (eg German firms in
Britain)? As Guest and Hoque (1996: 52) argue, by looking at deregulated host countries like
the UK, ‘we can ... explore the impact of national ownership and of managerial choice in a
context relatively unconstrained by local institutional arrangements.’ Conversely do firms
operating in highly-regulated host countries attempt to evade the constraints that these
impose? One may hypothesise that the impact of national differences may be muted in
strongly-regulated host systems, although there is some evidence that even in such systems
MNCs attempt to reduce constraints on their corporate autonomy (egShire,1 9 ) 94.
A second criterion for selecting host countries is ’cultural distance’ between the home and
host counq. The ’visibility’ of the country-of-origin effect may be masked where home and
host countries are very similar. For example, a UK MNC’s international financial control
system may appear ‘invisible’ in the company’s US affiliate which could be seen as
conforming to local norms. By contrast, it would be more recognisable as a nationally-
specific feature in the company’s French subsidiary, given the ambient culture’s resistance to
such systems. In short, it would thus be necessary to examine MNCs in host countries that
are sufficientlydifferent to allow the country-of-origin effect to come through.
Such considerations also influence the choice of issues to study. As suggested above, there
are a range of HR areas where host country regulation is likely to be minimal, and the
MNC’s need for cross-national isomorphism is at a maximum: notable in ti respect is the
hs
management of managerial careers and performance. On the other hand, there are HR issues
where the influence of the host country is likely to be stronger - as evidenced by surveys
such as Hamill (1984) - and the interest of the MNC in cross-nationalcoherence is less: for
example, pay determination of manual workers, or the collective representation of the
workforce and of employers. Research would need to consider both types of issue.
The salience o country-of-origin features is likely to be influenced by sectoral factors. It is
f
possible to hypothesise, for example, that the transmission of country-of-origin influence
will be more marked in MNCs operating in more ‘globalised’ industries (ie in industries
such as vehicles, chemicals or electronics),in which operating u i s are more integrated into
nt
the international corporate strategy of the parent company. In industries that are more
’polycentric’ in structure (parts of the food and drinks or textiles and clothing sectors, for
example),with individual subsidiaries geared to serving national markets, the higher degree
of management autonomy and lower degree of integration into the international corporate
structure may mute the country-of-origin effect. On the other hand, globalised industries
may be more subject to pressures to converge around the practices of dominant finns (as in
the case of Japanese-led ‘lean production’ in automobiles), so that MNCs’ national identity
would become blurred. One aspect of research, therefore, would be to explore the influence
of sector on the nationality factor.
Finally, an understanding of country-of-origin factors would need to focus on different
levels within the corporation - both the global corporate level at which strategic decision-


Anthony Ferner. University of Warwick

making takes place and where international corporate systems are designed, and the level of
operations at which corporate-wide systems are implemented within a specific national
context. One reason for looking at both levels is that the existence of formal international
corporate systems may overstate the strength of the country-of-origin factor, and conversely,
their absence may understate country-of-origin influence. For example, a performance
management system for executives may be applied globally in an MNC, but its operation
and sigruticance in practice may differ very markedly in different countries of operation
according to the influence of local business culture; conversely, managers in the various
national subsidiaries of an MNC may tend to operate a similar culture of performance
management even where no formal system exists.

CONCLUSION

This article has attempted to clarify some of the issues surrounding the ’country-of-origin’
effect in multinationals. A considerable body of evidence exists to suggest that MNCs of
different national origins behave in signhcantly different ways, specifically in respect of the
cross-national management of personnel and IR issues. But existing research has failed to
systematically explore differences. Comparisons among MNCs of European origin are
extremely scarce despite their importance in the global economy and the a priuri grounds for
expecting sigruficantvariations in their behaviour.
A starting point for analysing the country-of-origin factor is proposed, based on the
notion that MNCs are anchored in a set of ~ t i ~ n a l l y - ~ p e characteristics which together
cifi~
make up national business systems. These characteristics are likely to influence the way in
which MNCs manage HR internationally. However, the correspondencebetween features of
national business systems and MNC behaviour is likely to be incomplete: first, because not
all elements are ‘exportable’, being too rooted in native cultural assumptions; and second,
because to varying degrees host countries present obstacles to the ’import’ of elements of
foreign business systems, and colour the operation in practice of those which are transferred.
These arguments suggest a programme of research aimed at generating a more
systematic knowledge of country-of-origin differences, and providing answers to a broad
range of important questions on the way in which MNCs of different nationality manage
HR internationally. Explanation would relate differences to identifiable elements of national
business systems: forms of corporate governance; control systems; the functional
organisation of management work; national cultural propensities, and so on.
Finally, further research could explore and explain differences in relation to the dynamics
of national systems. One line of argument is that international competition and the
globalisation of production systems are likely to lead to increasing convergence between
MNCs of different national origins. Indeed, MNCs themselves, by transmitting practices
across national borders, may be seen as key actors in the homogenisation of national systems
and thus the erosion of country-of-origin differences. On the other hand, there are also
grounds for anticipating the persistence of national differences in MNC HR behaviour, since
the characteristics of the national systems in which they are based reflect long historical
processes of cultural and economic development.
Moreover, the emergence of common trends in MNCs may paradoxically favour the
perpetuation of national differences between them. For example, Marginson and Sisson
(1994) have pointed to the trend towards Europe-wide business divisional structures in large
MNCs. These business divisions could be expected to follow business-specific (rather t a hn



national-subsidiary-specific)HR policies. At one level, therefore, one is seeing a convergence
of corporate forms. But it may be argued that F m c h multidivisional MNCs are likely to
adopt cross-nationalpolicies that are isomorphic to French business culture, British MNCs to
British business culture, and so on - whereas previously, MNCs would have acted in a more
polycentric and hence in a more locally isomorphic fashion, and national differences
between them would have been less marked.
Perhaps the most plausible working assumption is that national differences in MNCs will
continue. However, given the evidence that national systems are evolving (though not
always in the same direction), they will not necessarily be the same differences in the future
as hitherto.
Acknowledgements
I would like to thank Paul Edwards, Paul Marginson and Keith Sisson for their helpful
comments on a draft of this article. I am also most grateful to an anonymous HRMJ
reviewer for some pertinent and constructive criticisms.
Notes
1. As an HRM] reviewer has pointed out, a related complication is that firms that are all nominally of a par-
ticular nationality may have widely different experiences. A number of nominally French British or Dutch
MNCs, for example, originally flourished within a colonial setting during their home country’s imperial
expansion.Their experiences and development were markedly different from those of companies that were
founded and evolved within the mother country. See also Jones(1996 34-6) on such ‘free-standing’ intema-
tional enterprises.

2. There are signifwant methodological problems in analyses of national differences based on comparative
surveys of firms,such as the Price Waterhouse/Cranfieldstudies. National characteristicsare a composite
emerging from the returns of very heterogeneousfirms. This is a particular problem where there are a large
number o foreign MNCs operating in the economy, so that foreign MNCs have themselves contributed sig-
f
nificantly to the ’national’ picture. Countries such as Ireland, Spain, Britain, Belgium, Sweden and the
Netherlands all have highly internationalisedeconomies with a large population o foreign companies. It is
f
also a problem where the business culture is charaderised by a marked segmentation in organisation and
behaviour between the bulk of small and medium firms, and a stratum of very large companies, among
which the more important MNCs will be found. This leads to the suspicion that the overall indices for each
country may be amalgamationsof ‘bipolar’scores for clearly differentiablegroups of firms.

3. I am indebted to an anonymous HRMI reviewer for pointing out the importance of cultural distance. As
the reviewer has also noted, given the tendency of firms in early stages of internationalisationto operate in
culturally more similar host countries, the country-of-origin effect may be less detectable in earlier stages of
intemationalisation.(Equally,however, it needs to be borne in mind that the greater the cultural distance, the
greater the obstacles to the transfer of home country practices).

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