Localisation v Standardisation PDF

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Localisation v Standardisation Increased global competition involves the need for MNCs to realise both global integration and local responsiveness. Balance between these two pressures will vary depending on the extent to which the multinational adopts the global or local approach. This approach utilising common management practices is intended to foster a feeling of equal treatment among managers involved in cross-border activities and aims at a common understanding of what is expected from employees. A standardised approach is favoured by IBM who believe it promotes efficiency, effectiveness, consistency and transparency. Evans et al (2005) confirm this aim of global standardisation or global integration of HR practices being to reach consistency, transparency and alignment of a geographically fragmented workforce around common principles and objectives.

The challenge facing many multinationals is to create a system that operates effectively in multiple countries. This requires the multinational to recognise and develop HR practices that are appropriate for their local markets, employment laws, cultural traditions to offer local advantages. This recognition is the aim of realising local responsiveness or localisation, to respect local cultural values, traditions, legislation or other institutional constraints such as government policy and/or education systems. Attempting to implement methods and techniques that have been successful in one environment may be inappropriate in another. To gain understanding of how MNEs might balance these global and local pressures in HRM systems, the host-country environment becomes relevant. Effective multinational management requires sensitivity and adoption to host-country requirements and customs regarding employment, such as hiring, reward and promotion practices, and respect for local cultural institutional traditions. In other words, organisations must be culturally sensitive. Dowling et al. (2017) argue that standardisation should be an aim of many firms hoping to cope with the challenges of globalisation. In highly internationalised organisations such as Google and Amazon, they attempt to standardise IHRM practices on a worldwide basis.

Factors driving localisation 1. 2. 3. 4. 5.

Culture Institutional environment Mode of operation Firm size and maturity in context of host country Subsidiary role

Cultural environment

Localisation concerns a convergent perspective on culture and is broken down into 3 aspects; staffing choices, cultural differences between head offices and subsidiary and work behaviours. Expatriates are frequently used to oversee the successful implementation of appropriate work practices. At some point, multinationals will replace expatriates with local staff with the expectation that these work practices will continue as planned. This polycentric approach assumes that appropriate behaviour will have been instilled in the local workforce through training programs and hiring practices, and that the multinationals way of operating has been accepted by the local staff in the manner intended. Localisation of hostcountry staffing is more likely to ensure compliance local customs and employment regulations. The extent of cultural differences between the headquarters and subsidiary will have a bearing on the level of adaptation required in implementing HR and work practices. Triandis (2002) found that cultures where work is based on more integrated social ‘relationships’ may value a more complete balance of intrinsic and extrinsic cultures characterised by personal independence and isolation (individualism) as well as rapidly changing personal and social contexts may emphasise extrinsic rewards. If certain cultures become offended or unhappy with standardised practices that may go against their culture, it could have negative effects on the business. Fayol-Song (2011) highlights the need for MNCs to adopt a localised policy in China as it is a place in which it is inherently difficult to do business. Liberman and Tarbiorn (2000) mention that practices can be standardised if they do not conflict with local conditions.

Institutional environment Institutional settings shape the behaviour and expectations of employees in subsidiaries. The institutionalism perspective indicates that institutional pressures may be powerful influences on HR practices. Institutional norms and values may be based on the features of a national business system for example the education system or the industrial relations system. A good example of the impact of institutional environment on IHRM is staffing approaches. A study by As-Saber found that there is a clear preference for using HCNs in key positions by MNCs operating in India. This suggests that the major reason for HCN preference was the belief that an Indian manager would know much more than an expat manager could learn in years on the job. Country of origin effect – implies that multinationals are shaped by institutions existing in their country of origin and they attempt to introduce these parent-country based HRM practices in their foreign subsidiaries. This is done particularly in ethnocentric firms. It is easier for US firms to export practices to the UK rather than Germany due to less stringent legislation. Adaptive strategy Host-country effect – refers to the extent to which IHRM practices in subsidiaries are impacted by host country context. Reverse diffusion can also be observed in some situations where foreign subsidiary practices are adopted by the HQ. exportive strategy. Mode of operation

Ownership and control are important factors that need to be taken into consideration when multinationals attempt to standardise work practices. In the case of the open-door policy in China, an example of the differing degrees of control experienced by organisations is Shanghai Bell and Motorola. Shanghai Bell were ultimately forced into taking part in a joint venture with Chinese state-owned enterprises. The organisation was unable to take control over staff from the joint-partner in the venture and as a result found it very difficult to operate the business. Contrastingly, Motorola who entered into the market a bit later, conditions had changed, and the company were able to establish a wholly-owned subsidiary and could transfer processes and practices from the host-country organisation. The ability to independently implement processes and procedures is naturally higher in wholly-owned subsidiaries.

Firm-size Larger companies can typically draw on greater resources and int. experience than smaller ones. Organisations can adopt two different approaches: greenfield and brownfield Greenfield is setting up a wholly owned subsidiary from scratch without interference from the host-country’s government. Brownfield is bringing together something that was already there, like in a merger or acquisition.

Subsidiary role Organisations are realising that levels of expertise differ across the organisation and that not all ‘innovation’ and best practices originate from the headquarters. Gupta and Govindarajan differentiate a subsidiary based on the intensity of their engagement in knowledge transfer and the direction of the knowledge transfer.

Low inflow

High outflow

Low-inflow

Local innovator

global innovator

High-inflow

Implementer

Integrated player...