Country of Origin Effects on Subsidiaries Management and Human Resources Practices

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How can the country of origin of a multinational corporation impact on management practice in their foreign subsidiaries and what other factors may impact on the implementation of HRM and IR practices in MNC subsidiaries?

Regarding the country of origin (COO) effect, I have focused on the strong impact that multinational corporations have on management practices in their foreign subsidiaries, through their ethnocentric or national systems strategy. According to Van Tulder (1995; cited by Harzing and Noorderhaven) "even the most global MNC's in many respects still appear to be strongly rooted in their country of origin". The ethnocentric approach by MNCs is an example of "cross national isomorphism" (Ferner, 1997), which occurs when MNCs successfully transfer COO management practices into host country operations. Despite the impact of the globalization process, which increases the connectivity and interdependence of the world's markets and businesses ( Scholte, 2000), the ethnocentric strategy is still used nowadays by MNCs.

Another detactable COO effect is the use of expatriates by the parent company. The continued hiring of home country nationals for key management positions aids in preserving the COO effect. According to Ferner (1997; cited by Harzing and Niels, 2003) the management preferences of the home country nationals will become embedded in organizational cultures, procedures and processes in their foreign subsidiaries.

The standardization of management policies is another COO effect. According to Kopp (1994; cited by Ferner, 1997) American MNCs can measure and reward manager's perfomance in their foreign subsidiaries.

Other than COO effect there are other factors which may impact the implementation of human resource management (HRM) and industrial relations (IR) practices in MNC subsidiaries. My focus was on local institutional pressures, cultural distance, trade unions and geographical distance. Concerning local institutional pressures, according to Rosenzweig and Nohria (1994; cited by Ferner, 1997) HRM and IR issues are to transmit local isomorphism, in order to resemble the practices of the local environment .

Regarding cultural distance is what Dulfer (1990) calls ‘Degree of strangeness', and the greater the cultural distance between the home country and the host,the harder it will be for the MNC to transfer home country practices.

About trade unions, Rosenweig and Nohria (1994; cited by Myloni et al, 2004) argue that if a union represents subsidiary employees, subsidiary HRM and IR practices may be close to those of local firms.

Concerning geographical distance, according to Harzing and Noorderhaven (2005) the geographical isolation of nations such as Australia/New Zealand creates constrains in the tranfer of knowledge,impeding the transfer of HRM and IR knowledge in MNC subisdiaries. In addition, i have also included language standardization and subsidiary characteristics.

Ethnocentric Strategy

An ethnocentric strategy is what Whitley (1992; cited by Ferner,1997) calls a ‘national business system'.The COO effect attempts to illustrate how the headquarters (HQ) of a multinational corporation may influence the overall management practices of their foreign subsidiaries. First of all, a MNC is an enterprise that manages production establishments or delivers services in at least two countries (Dowling and Welch, 2004).

The ethnocentric approach by MNCs is based on the concept that approaches to management can be extended from the COO to foreign subsidiaries. Through the ethnocentric apoproach the MNC parent company may gain direct control over the management practices of its foreign subsidiary. This is reflected in centralization of managerial authority. As described by Hollinshead and Leat (1995) the creation of management knowledge is done in the COO and is transferred to MNC subsidiaries.

The management board of most MNCs is made up of nationals of the home country....
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