Against the backdrop of the ever-increasing internationalization of companies, a recent study looked at the difference in the extent of international integration across various human resource management (HRM) practices in Multinational Companies (MNCs). The study results suggest that person, information and formalized-based mechanisms are used to varying degrees depending on the type of HRM practice being integrated. Person-based integration mechanisms were found to be most commonly used for HRM integration, through the likes of international HRM committees, while reward related integration typically involved high information-based mechanisms, often through companywide reward related HRIS systems.
Key Topics: International HR integration; HRIS; Reward systems
Title of Reviewed Article: Modes of integration of human resource management practices in multinationals
Researchers: María Jesús Belizón (University College Dublin), Michael J. Morley (University of Limerick), and Patrick Gunnigle (University of Limerick).
Publication: Personnel Review, 2016, Vol. 45 No. 3, pp. 539-556.
Setting the Scene
As MNCs and their international subsidiaries have become more prevalent and important, there has been growing interest in MNCs’ ability to achieve integration internationally of its policies and procedures (Kim et al., 2003). Centralized integration typically aims to place decision making at the top of the hierarchy in MNCs, with less scope of adaption at a subsidiary level (Ferner et al., 2011; Smale et al., 2013). Past research has highlighted difficulties in integrating HRM policies and practices, not least as such integration can be seen as an attempt to control subsidiaries (Smale et al., 2013). The current study looks to examine international integration in relation to HRM practices, including performance appraisal systems, training and development, pay and rewards, industrial relations and employee involvement.
This study uses Smale et al. model (2013) to test the use of people-, centralization- and formalization-based integration for the aforementioned HRM practices. People-based integration relates to integration of such things as international teams and committees, and deployment of employees from the head office to subsidiaries. Research suggests that companies with high people-based integration have greater shared values, trust, vision, and norms (Gupta & Govindarajan, 2000; Kim et al., 2003). Formalization-based integration refers to the integration of formal standardized policies and procedures, such as the employment of HR shared services centres. Companies exhibiting high formalization-based integration typically have high standardization and bureaucracy, with reduced scope for local decision making (Child, 1972; Kim et al., 2003). Lastly, information-based integration relates to the flow of information internationally through various channels including databases, email, and intranets, and in the HR context would include human resource information systems such as those for pay and benefits management.
This study posits three research questions:
Hypothesis 1 – “The use of people-, information- and formalization-based integration mechanisms for HRM practices will be positively related to the employment of centralization-based mechanisms within the HR function.”
Hypothesis 2 – “Person-based mechanisms aimed at achieving centralization and control will be employed more uniformly across all HRM practices than formalization and information-based mechanisms.”
Hypothesis 3 – “MNCs will be more inclined to use information-based mechanisms for the integration of hard HRM practices in the areas of compensation and performance appraisal systems than for the integration of soft HR practices in the areas of training and development, organizational learning, succession planning, employee involvement and employee representation.”
How the research was conducted
This study took data from 452 MNC subsidiaries, which were located in Ireland and Spain. Data was collected through a HRM survey, which was part of INTREPID (Investigation of Transnationals’ Employment Practices: An International Database). 42 percent of MNCs in the dataset were from the US, while the vast majority of companies (90%+) were from either the services or manufacturing sectors.
The survey assessed HR policies and practices employed by MNCs in their international subsidiaries and information was collected in relation to the level of centralization of various HR policies and practices, namely, training and development, industrial relations, pay and performance, employee involvement and communication.
Taking this survey information, the researchers analyzed a number of HRM practices, namely performance appraisals for managers; succession planning; establishing pay levels relative to market comparators; employee involvement; and engagement with trade unions.
People-based, information-based, and formalized-based integration mechanisms for HRM were also measured via the survey.
Key Research Findings
Formalized-based mechanisms were found to be the most prevalent integration mechanisms used by MNCs, with HR reporting from subsidiaries to HQ being reported by 92% of participant companies, and 37% were identified as using a HR shared service model.
Personal-based mechanisms were also found to be popular integration mechanisms, with 66% of companies having an international HRM committee, and 57% having expatriates from HQ located at subsidiaries.
Information-based mechanisms were least prevalent, but still relatively common, with 58% reporting that they had HR information systems, including compensation and benefits programs, that were used internationally.
In relation to the hypotheses, support was found for Hypothesis 1 as centralization-based mechanisms for HRM were found to be related to use of other people-based mechanisms, and with both the use of information-based and formalization-based mechanisms.
People-based mechanisms were found to be most uniformly used across the various HRM practices. Although the results did not show a significant relationship between use of expatriates and the centralisation of HRM practices. Thus, Hypothesis 2 was only partly supported by the results.
The results suggest that MNCs are more likely to use information-based mechanisms when integrating internationally their compensation and performance systems, than for the international integration of other HRM practices. This finding supports Hypothesis 3.
Information-based mechanisms were found to be most commonly used in the integration of reward practices and performance appraisal systems, while being used to a much lesser extent for the integration of other MRM practices. This supports previous research which indicated that the use of HRIS lends itself more to the integration of more analytical and structured HRM practices (Ball, 2001).
The results of this study also support the idea that people-based integration mechanisms, through international HRM committees, are commonly used to facilitate the international integration of various HRM practices. As Ferner et al. (2011) contended, these committees provide a platform to create and discuss HRM policies internationally across locations.
Interestingly, use of expatriates was not found to relate to high HRM integration. This may be explained by the fact that, given the costs of expatriation, companies are increasingly using internal formal and informal networks in their HRM integration practices and these could potentially act as a substitute for the value traditionally placed on expatriates (e.g. Collings et al., 2008; Evans et al., 2011).
Organizational and Reward Implications
This study provides important insight into the role of HRM integration in international organizations and demonstrates some of the mechanisms through which international HR integration can be achieved. The analysis on the preferred methods of integration should be useful to HR decision makers in international companies, although as always practitioners should be mindful of assuming a one size fits all approach and give careful consideration to the unique circumstances of their own company in devising a HRM integration approach.
This study provides a comprehensive examination of various types of HRM practices integration in MNC while also providing insight into how integration can differ depending on the particular HR practice concerned. Further research would benefit from analysis of HRM practices integration across a broader international environment as well as examining a larger data set of companies of a more extending period of time.
Source Article: Belizón, M. J., Morley, M. J., & Gunnigle, P. (2016). Modes of integration of human resource management practices in multinationals. Personnel Review, 45(3), 539-556.
Published by: Emerald Group Publishing Limited
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Child, J. (1972). Organizational structure and strategies of control: a replication of the Aston Study. Administrative Science Quarterly, 17(1), 163-177.
Ferner, A., Tregaskis, O., Edwards, P., Edwards, T., Marginson, P., Adam, D. & Meyer, M. (2011). HRM structures and subsidiary discretion in foreign multinationals in the UK. The International Journal of Human Resource Management, 22(3), 483-509.
Gupta, A. K. & Govindarajan, V. (2000). Knowledge flows within the multinational Corporation. Strategic Management Journal, 21(4), 473-496.
Kim, K., Park, J. H., & Prescott, J. E. (2003). The global integration of business functions: a study of multinational businesses in integrated global industries. Journal of International Business Studies, 34(4), 327-344.
Smale, A., Björkman, I., & Sumelius, J. (2013). Examining the differential use of global integration mechanisms across HRM practices: evidence from China. Journal of World Business, 48(2), 232-240.
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