Term Paper

The Golden Triangle for MNCs: Standardization towards Headquarters Practices, Standardization towards Global Best Practices and Localization

Markus Pudelko Anne-Wil Harzing

Version December 2007

Accepted for Organizational Dynamics

Copyright © 2007 Markus Pudelko and Anne-Wil Harzing. All rights reserved. Prof. Anne-Wil Harzing University of Melbourne Department of Management Faculty of Economics & Commerce Parkville Campus Melbourne, VIC 3010 Australia Email: [e-mail] Web: www.harzing.com

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The Golden Triangle for MNCs: Standardization towards Headquarters Practices, Standardization towards Global Best Practices and Localization

Markus Pudelko, Anne-Wil Harzing

EXECUTIVE SUMMARY One of the most complex challenges that multinational corporations (MNCs) face is harmonizing the opposing forces of standardization versus localization. Based on a large-scale survey of headquarters (HQs) and subsidiaries of American, Japanese and German MNCs, we provide evidence that MNCs can no longer afford to define standardization simply as the worldwide adoption of HQ practices. Standardization can take place towards two different poles: HQ practices and global best practices, wherever they originate from. As we believe managing the challenge of localization versus standardization towards either HQ or global best practices is the key to MNC success we call it the Golden Triangle for MNCs. We also argue that it is often standardization towards global best practices that is more relevant than either standardization towards HQ practices or localization. Hence our study supports what have been called geocentric or transnational corporate models, where worldwide learning and knowledge transfer is paramount, regardless of where the knowledge in question originates. Introduction Globalization and MNCs are two closely interlinked phenomena. On the one hand, the growing importance of MNCs is considered to be a key ingredient of the globalization process.

Bibliography: For information on the integration versus responsiveness controversy in an overall strategic context, we suggest the following readings: C.A. Bartlett and S. Ghoshal, Managing Across Borders. The Transnational Solution (Boston: Harvard Business School Press, 1989); C.K. Prahalad and Y.L. Doz, The Multinational Mission: Balancing Local Demands and Global Vision (New York: The Free Press, 1987); A. Morrison, D. Ricks and K. Roth, “Globalization versus Regionalization: Which Way for the Multinational?”, Organizational Dynamics, 1991, 3, 17-29. Texts that inform about the standardization-localization debate in the specific context of human resource management are: P.M. Rosenzweig “The Dual Logics behind International Human Resource Management: Pressures for Global Integration and Local Reponsiveness”, in G. Stahl and I. Björkman (eds), Handbook on Research in International Human Resource Management (Cheltenham: Edward Elgar, 2006, 36-48); A. Ferner, “Country of Origin Effects and HRM in Multinational Companies”, Human Resource Management Journal, 1997, 7, 19-37. With regard to the modernization of both the Japanese and the German management models, please see: R. Dore, Stock Market Capitalism: Welfare Capitalism. Japan and Germany versus the Anglo-Saxons (Oxford: Oxford University Press, 2000); K. Yamamura and W. Streeck (eds), The End of Diversity? Prospects for German and Japanese Capitalism (Ithaca: Cornell University Press, 2003). Specifically on Japanese HRM, see: M. Pudelko, “Japanese Human Resource Management: From Being a Miracle to Needing One?”, in R. Haak and M. Pudelko (eds), Japanese Management: The Search for a New Balance between Continuity and Change (Houndmills: Palgrave, 2005, 184-212). Specifically on German HRM, see: M. Müller, “Unitarism, Pluralism, and Human Resource Management in Germany”, Management International Review, 1999, special issue 3, 125-144; H. Wächter and M. Muller-Camen, “Co-determination and Strategic Integration in German Firms”, Human Resource Management Journal, 2002, 3, 76-87. Finally, information on the American management system as a role model for both Japan and Germany can be obtained from: M. Pudelko and M. Mendenhall ”The Japanese Management Metamorphosis: What Western Executives Need to Know about Current Japanese Management Practices”, Organizational Dynamics, 2007, 3, 274-287; C. Dörrenbächer, “Fleeing or Exporting the German Model? – The Internationalization of German Multinationals in the 1990s”, Competition and Change, 2004, 8, 443-456. 18 Bios Markus Pudelko is Reader in International Business at the University of Edinburgh Management School. He earned a Masters in Business Studies from the University of Cologne, a Masters in Economics from the Sorbonne University, a Masters in International Management from the European university network ‘Community of European Management Schools’ (CEMS) and a PhD from the University of Cologne. His current research is on headquarter-subsidiary relationships, comparative HRM, Japanese management, management research in China and cross-cultural management. His latest co-edited book publication is Japanese Management: The Search for a New Balance between Continuity and Change (2005, Palgrave). Anne-Wil Harzing is Professor in International Management at the University of Melbourne. She has a BA in Business & Languages from the Hogeschool Enschede; a MA in Business Administration & International Management from Maastricht University, both in the Netherlands and a PhD in International Management from the University of Bradford. Her research interests include international HRM, expatriate management, HQ-subsidiary relationships, cross-cultural management and the role of language in international management. She has published about these topics in journals such as Journal of International Business Studies, Journal of Organizational Behaviour, Strategic Management Journal, Human Resource Management, and Organization Studies. Since 1999 she also maintains an extensive website (www.harzing.com) with resources for international and cross-cultural management. (Tel: [phone], email:[e-mail]) 19