IHRM Cultural Impact on Company Values

“Cultural consequences of IHRM on company’s values,
behavior, institutions, organizations & across nation”
Course title: International Human Resource ManagementInternational Human Resource ManagementInternational Human Resource ManagementInternational Human Resource Management
Md. Abdul
Department of Business Administration
IDIDIDID
1201010181
1201010249
1201010205
1201010007
1201010091
1201010202
Major: Human Resource Management
Date of Submission:
1
Surma Tower, Sylhet
An Assignment onAn Assignment onAn Assignment onAn Assignment on
International Human Resource ManagementInternational Human Resource ManagementInternational Human Resource ManagementInternational Human Resource Management
Course code: HRM-404
Submitted to:
Md. Abdul Muhith Chowdhury
Senior Lecturer
Leading University, Sylhet
Prepared by:
Torch Bearer’sTorch Bearer’sTorch Bearer’sTorch Bearer’s
NameNameNameName
1201010181 Mahmudul Hasan
1201010249 Md. Alimuzzaman
1201010205 Mahmudul Karim Newaz
1201010007 Zakiatunnesa Uma
1201010091 Rabeya Rahman
1201010202 Masum Hussain
Semester: 10th
Batch: 30th
Major: Human Resource Management
Leading University, Sylhet
Date of Submission: 14 May, 2015
International Human Resource ManagementInternational Human Resource ManagementInternational Human Resource ManagementInternational Human Resource Management
Mahmudul Karim Newaz
14 May, 2015

2
AbstractAbstractAbstractAbstract
The objective of the study is to investigate and analyze the influence of culture on human
resource management practices. The research is expected to answer the importance question:
Are HRM practices influenced by national culture or not? It is generally accepted that the
practices of management is considered to be universal until Hofstede (1980:42) published the
seminal work: Culture’s Consequences: International Differences in Work Related Value in
1980. Hofstede’s work is the most popular in cross culture management studies so that his
framework in national culture will be used in this research. Structural equation model (SEM)
with Two Step Model Building Approach is used to test structural theory. It is used to test the
hypotheses model statistically to determine the extent to which the proposed model is
consistent with the sample data. SEM incorporates both confirmatory factor analysis and
multiple regressions to estimate a series of interdependent relationship simultaneously. The
results of descriptive analysis indicate that the national culture dimensions tend high for
collectivism, power distance, masculinity and uncertainty avoidance, quite different from
Hofstede (1980) findings that Indonesia has high collectivism, high power distance, and
moderate in masculinity and low in uncertainty avoidance. While in Second Order
Confirmatory Factor Analysis, collectivism, power distance and uncertainty avoidance are
confirmed as a dimension of national culture but masculinity are not.
In structural testing, it indicates that two hypotheses i.e. the influence of national
culture on career development and compensation are supported but the influence of national
culture on staffing and participative management are not supported. Organizational culture
also shows influence on staffing and participative management. One of human resource
management practices i.e. career development influence on organizational performance but
others such as staffing, participative management, and compensation does not. This study
shows that national culture and organizational culture influence on some of human resource
management practices. Therefore, this research supports the divergence theory that human
resource management practices are culture-bound.
Globalization is an important factor that influences organizations that compete for
customers with high expectations for performance, quality, and low cost. Trade barriers have
decreased with the advent of free trade zones in Europe, North America and Asia, including
the European Union (EU), North American Free Trade Agreement (NAFTA), and the
Association of Southeast Asian Nations (ASEAN). In addition to free trade zones, other
forces that facilitate globalization include reduced labor and production costs in
underdeveloped countries, increased demand for products that are similar across cultures
(e.g., cell phones), reduced global transportation costs, technology advancements (e.g.,
Internet), and internationally recognized standards such as ISO 9000. As a result, an
unprecedented number of organizations have increased the international focus of their
businesses. The influence of culture on HR roles is explored using Hofstede’s theory of
cross-cultural differences. The paper then explores actions that increase HR value and
competencies that increase HR effectiveness.

3
AcknowledgementAcknowledgementAcknowledgementAcknowledgement
At first, we are grateful to Almighty Allah for creating us in such a
beautiful country like Bangladesh and also for controlling our life.
For the mercy of Him, we have got such courage to start this
assignment on “Cultural consequences of IHRM on company’s“Cultural consequences of IHRM on company’s“Cultural consequences of IHRM on company’s“Cultural consequences of IHRM on company’s
values, behavior, institutions, and organizations & across nation”values, behavior, institutions, and organizations & across nation”values, behavior, institutions, and organizations & across nation”values, behavior, institutions, and organizations & across nation”
After that we would like to give thanks to our honorable
Head of the Department Prof.Prof.Prof.Prof. Dr. Tofayel AhmedDr. Tofayel AhmedDr. Tofayel AhmedDr. Tofayel Ahmed for giving us
the opportunity to study in this subject. We would like to express
our thanks to the librarian of Leading University for all his help
that we have received.
Our respected parents who gave us mental support and
inspiration for our assignment, there is a special thanks for them.
We also would like to give a lot of thanks to our honorable course
teacher, Md. Abdul Muhith ChowdhuryMd. Abdul Muhith ChowdhuryMd. Abdul Muhith ChowdhuryMd. Abdul Muhith Chowdhury for giving us a wonderful
opportunity to make such an interesting and valuable assignment
and giving us a clear concept about the assignment.
At last but not the least, without the help of our friends and
classmates it was quite impossible to prepare such kind of
assignment. They gave us some necessary information about this
topic which was unknown to us. So, we would like to give thanks to
all of them.

4
Contents
Subject page
i. Introduction 5
ii. Institutional perspectives 6
iii. Implications of cultural perspectives for IHRM 6
iv. Hall and Hall’s high and low context cultures 7
v. Hofstede’s study 7
1. Power distance 7
2. Uncertainty avoidance 7
3. Individualism versus collectivism 7
4. Masculinity versus femininity 8
5. Long-term versus short-term orientation 8
vi. Trompenaars and Hampden-Turner 8
1. Universalism versus particularism 8
2. Individualism versus communitarianism 8
3. Achievement versus ascription 9
4. Neutral versus affective 9
5. Specificity versus diffuseness 9
6. Sequential versus synchronic 9
7. Inner versus outer directedness 9
vii. HR Competency Implications 9
viii. The Impact of Organizational Culture on the HRM Practices 10
ix. The Impact of HRM on Organizational Performance 10
x. Performance Evaluation and Rewards Systems 11
xi. Recommendations 12
xii. Discussion 13
xiii. Conclusion 15
xiv. References 16

5
Introduction
The globalization of markets and the growing international competition require companies to
fundamentally rethink their traditional strategies. Multinational Corporations (MNCs) can no
longer limit their attention to merely managing the growth of foreign activities. To an ever
increasing extent they have to cope with, and economize on rapidly changing economic,
competitive, legal, political, and cultural conditions in the environments they operate in.
These developments have rendered traditional international strategies inadequate for
maintaining or achieving global competitiveness. In response, many MNCs have decided to
integrate their domestic and foreign operations into a transnational strategy. The core idea of
this strategy is to simultaneously exploit three main sources of competitive advantage:
economies of scale, economies of scope, and location economies. Exploiting all of these
dimensions simultaneously, however, requires changes to the way MNCs organize and
manage their globally dispersed operations. Instead of treating subsidiaries as a portfolio of
largely independent companies, they now need to be regarded as differentiated and integrated
elements of a complex configuration of value creating activities across national borders. The
resulting interdependency among the sub units of the MNC implies that individual
subsidiaries, which have yet only been responsible for their position in their local market,
increasingly have to contribute to improving the competitive position of the MNC as a whole.
From an organizational point of view, the concept of transnational strategy is associated with
a high need for cross-border co-ordination between interdependent domestic and foreign
operations.
The international human resource management (IHRM) function can be seen as the
main provider of these ‘soft’ coordination instruments and its importance has therefore
increased significantly. Thus, the process of globalization and the associated shift in
strategies changes the role and content of IHRM and brings it closer to the strategic core of
business. We suggest that changes in the strategic orientation of MNCs as reflected in
increased levels of interdependencies between organizational (sub-) units will thus manifest
themselves in changes in the use and nature of specific IHRM instruments. We suggest that
the following four IHRM tasks, in particular, contribute to the co-ordination of globally
dispersed activities in MNCs: the international transfer of managers; the provision of
management training; the use of international teams; and the design and implementation of
performance evaluation and reward systems. Through these four functions, IHRM can
support the development and functioning of an integrated network on strategic, organizational
and individual levels. Although the growing importance of IHRM is widely recognized in
international management literature, prior research in this field is limited in three ways:
(1) A large number of existing studies analyze the various problems associated with the
expatriation of employees while other aspects of IHRM are discussed less frequently;
(2) Most extant research in IHRM is directed towards operative problems associated with the
implementation of HR policies under different environmental conditions, while the
increasingly important strategic aspects of IHRM have received only scant scholarly
attention,
(3) Prior studies usually focus on IHRM practices in certain countries or regions.

6
Institutional perspectives
According to the Concise Oxford English Dictionary (2002), an institution may be defined as
‘an official organization with an important role in a country’ or ‘an organization founded for
a religious, educational, or social purpose’. In the era of globalization there has been serious
debate concerning the status and viability of existing institutional arrangements, including
nation states. A common set of institutions can be found in most societies, including public
and private enterprises, public utilities, financial establishments, educational institutions,
trade unions and government/quasi-governmental agencies. The relative strength of these
institutions can vary, as can the manner in which they interact.
Implications of cultural perspectives for IHRM
Clearly, there are some powerfully intuitive connections between the cultural stereotypes and
orientations theorized by Hall and Hall (1990), Hofstede (2001) and Trompenaars (1993), and
observed manifestations of HRM across regions. Although such connections are far from
empirically proven, the following example of organizational practice might be regarded as
being influenced by culture:
• preferred organizational structures – flat/tall, consultative/authoritarian, and so on
(power distance);
• recruitment, whether based on merit or nepotism (achievement v. ascription, high
context);
• whether pay is individually determined (individualism v. collectivism);the level of
statutory regulation in employment (uncertainty avoidance);
• maternity, paternity, childcare provisions, and so on (masculinity v. femininity).
While, however, cultural theory can provide a useful conceptual tool for understanding and
judging comparative manifestations of HRM across borders, arguably its most telling
contribution relates to the awareness it provides of the potential for cross-cultural ambiguity
and misunderstanding in international team working.
Together, institutional and cultural theories provide a powerful conceptual frame for
analysing and explaining international variations in HR and employment practices. While
care needs to be taken to avoid overly deterministic links between such theoretical
perspectives and actual manifestations of HR within national or regional settings, which
denies the significance of enterprise autonomy and independent corporate strategies,
complementarities exist in the ‘predictions’ of institutional and cultural theory. For example,
a high incidence of performance-related pay may be found in countries that score highly on
‘individualism’ and which are strongly oriented towards neo-liberalism; each of these
theoretical contributions captures the value of individual competition and material gain.
Similarly, some correlation may be perceived between neo-corporatist and uncertainty
avoidance tendencies, each of which are associated with commercial climes that manifest
relatively high degrees of regulation and a preference for longer-term planning.

7
Hall and Hall’s high and low context cultures
Hall and Hall (1990) contend that context refers to ‘the information that surrounds an event;
it is inextricably bound up with the meaning of that event’. In low context countries
(including the former West Germany, Switzerland, Scandinavia and North America),
interaction between individuals tends to be explicit, unambiguous and formal in tenor. An
emphasis is placed on time management, deadlines and punctuality, and work and home life
is quite rigidly separated.
In high context cultures (e.g. Japan, Asia, Africa, Latin America, the Middle East and
southern Europe), it is assumed that most information resides in the person and therefore
greater emphasis is placed on ‘interpersonal chemistry’ and ‘body language’ as manifested in
informal, word-of-mouth, face-to-face communication. In such cultures activities may be
carried out simultaneously; there is less emphasis on time management, and a blurred
division between work and domestic activities. This theoretical contribution would seem to
have particular value as joint ventures between low and high context regions are becoming
more commonplace, potentially creating clashes in values, norms and mutual expectations.
Hofstede’s study:
Hofstede’s study has provided influential insights into varying cultural predispositions across
national barriers. Initially, four dimensions were identified that possessed universal
applicability across cultures, with a fifth subsequently being added. For each dimension,
Hofstede presented possible origins as well as consequences for management behaviour.
Power distance reflected the extent to which members of society are prepared to
accept a hierarchical or unequal power structure. It is apparent that in some societies the
relationship between superior and subordinate is adhered to with greater rigidity and
reverence than in others. This dimension clearly has explanatory value concerning varying
degrees of organizational hierarchy and propensity towards managerial consultation across
cultures. Northern Europe and the USA tend to have relatively low power distance, while
those in southern Europe, Asia, Latin America and Africa are relatively comfortable with
hierarchy and paternalism.
Uncertainty avoidance relates to the extent to which members of a society are
prepared to tolerate ambiguity and risk. In risk-averse countries or organizations, regulations
or institutional arrangements tend to be put into place to mediate the threat of uncertainty and
ambiguity. Rule-making and bureaucracy would be a common feature of working life in such
countries. In Europe, Germany, Italy and France tend to be risk-averse, while Britain and
Sweden are relatively orientated towards risk. Japan and Latin American and Mediterranean
countries also score highly on uncertainty avoidance. As Hofstede astutely observes, it is not
necessarily the risk-taking countries (the USA and Great Britain) that have achieved the
highest levels of economic performance in recent years.
Individualism versus collectivism: Individualism is prevalent in those societies in
which the primary concern of people is to endure the well-being of themselves, or their
immediate kin. In collectivistic societies, wider groupings and networks share extended
responsibilities and loyalties. Hofstede asserts that modern management policies and
practices tend to emanate from more individualistic societies (e.g. performance-related pay)
and that they therefore possess limited applicability in collectivistic and developing countries.

8
It is postulated that countries become more individualistic as they become more economically
advanced. English-speaking countries tend to be highly individualistic (notably the USA),
while higher degrees of collectivism are to be found in continental Europe, Asia, Latin
America, the post-socialist bloc and developing countries.
Masculinity versus femininity This dimension represents the extent to which
stereotypical male values such as high earnings, personal recognition and a challenging
career take precedence over ‘feminine’ preferences for good personal relations, employee
well-being and satisfaction, consensus orientation, nurturing and sharing. Highly masculine
societies include Japan, Austria and Latin countries, while Scandinavian countries and the
Netherlands are relatively feminine in orientation.
Long-term versus short-term orientation: Long-term thinking, prevalent in eastern
‘Confucian’-oriented thinking, stresses virtues such as persistence and perseverance and is
consistent with organizations building strategic plans over an extended time frame, while
western, short-term, thinking is associated with results ‘here and now’ and puts pressure on
businesses and employees to demonstrate immediate achievements. Hofstede’s study has
been highly influential in academic and commercial circles as it has highlighted the
significance of culture in international business engagements and in shaping managerial
behaviours across national boundaries. The study, through its strong empirical orientation,
sought to make tangible and quantifiable the nebulous notion of culture.
Trompenaars and Hampden-Turner
The work of Trompenaars and Hampden-Turner (1997) serve to supplement Hofstede’s study
by offering an alternative set of cultural dimensions, and by placing a focus on meanings, or
humans’ interpretations of the world around them. He identified five ‘relationship
orientations’, as follows:
Universalism versus particularism relates to the extent to which individuals are
inclined to apply universal principles or rules to social situations or events or whether they
are prepared to modify those principles according to each specific occurrence. While formal
notions of fairness and truth are regarded as significant in universalistic cultures,
particularism places a greater emphasis on the building and protection of relationships. Thus,
according to Trompenaars, in particularistic cultures witnesses to a road accident in which the
driver was breaking the speed limit would feel obliged to testify in favour of that driver if he
or she is a friend or relative. Western countries such as the USA, Australia and the UK
ranked high on universalism, while China, Latin and developing countries were more
particularistic in orientation.
Individualism versus communitarianism is reflective of Hofstede’s equivalent
dimension and essentially refers to whether the individual’s primary orientation is towards
the self or to common goals and objectives. In embracing a wider range of nation states in a
later era, Trompenaars interestingly unearths national cultural predispositions that would
seem to contradict the thrust of Hofstede’s analysis.
Achievement versus ascription refers to the extent to which social status is achieved
either by what people have done, that is, what they have achieved through their own exertions
(educational qualifications, performance measurements, etc.), or through who they are, as a
product of birth, family, gender, age or religion. It is argued that the USA, the UK and

9
western societies tend to be achievement oriented, while Asian cultures and those in
developing societies place greater value on ascribed characteristics.
Neutral versus affective relates to the extent to which feelings and emotion, or
impersonality and rationality, are expressed in interpersonal encounters. According to
Trompenaars, and Hampden-Turner (1997), Japan has a highly neutral culture, while Mexico
is strongly affective or emotional.
Specificity versus diffuseness relates to the distinction drawn between the individual’s
private and public spaces. In specific cultures, compartmentalization occurs between work
and private life, while in more diffuse societies various spheres of life are closely integrated,
and the ‘whole person’ is involved in business relationships. As with other dimensions, a
broad separation is apparent between western societies and others, with western countries
tending towards specificity.
Sequential versus synchronic distinguishes cultures on the basis of their perceptions
of time. Some nationalities and regions are most oriented towards monochrony, which
assumes that time is linear and sequential, while others are polychronic, where time is
multiple and diffuse. In the former, activities tend to be separated into sequences, while in the
latter, individuals are inclined to undertake several activities at the same time. This dimension
also relates to the extent societies are oriented towards the past, present or future.
Inner versus outer directedness reflects fundamental notions as to whether individuals
and groups can control their own destiny, or whether external factors and luck play a decisive
part. In inner-directed societies, it is believed that strategic choices and planning are
important in shaping organizations and their environment, while outer directedness
emphasizes the force of political conditions and ‘acts of God’. Personal networking has a
high premium in outer-directed societies.
HR Competency Implications
As organizations globalize, cultural sensitivity and understanding is vital for HR managers to
add value. Globalization increases the mix of cultures, languages, perspectives, as well as the
number of expatriates. Effective HR managers must also develop business knowledge, HR
content expertise, influence skills, and personal credibility. These skill and knowledge
requirements become more salient in global organizations. HR managers need to become
more knowledgeable about the legal environment in Europe, Asia, and other parts of the
world that are rapidly expanding. For example, the European Community (EU) is far more
protective of employee privacy rights than the U.S. and employment discrimination laws vary
across countries. HR managers must comprehend several local business practices,
employment laws and HR practices, communicate effectively across nationalities, and gain
the trust of individuals with a wide range of backgrounds and even languages. As
organizations expand globally, the number of variables that must align for new organizational
initiatives increases exponentially, and that makes mastery of change management more
challenging. In summary, the need to be competitive has driven many organizations to
expand internationally, presenting increased challenges for human resource management.
Ulrich’s multiple HRM role model helps describe the important implications of global trends
and cultural implications for HR managers who must continue to demonstrate and increase
organizational value.

10
The Impact of Organizational Culture on the HRM Practices.
Organizational culture and its environment factors in which organization exist determines the
way of managing the organization. The relationship between organizational culture and
human resources practices can be explained as follows. When the member of organization i.e.
employees, understand and internalized the organzationanl culture which can be said as the
way things are done around here, it will enable for employee to choose strategy, and
behavior that fit with their personality as well as with the main routines of organization
activities. Since Indonesia is belong to country with high power distance and low uncertainty
avoidance, it is likely that organizational culture that fit with this condition is narrow type.
Parochial culture is characterized by the tendency to give much attention to some factor such
as family relationship, social relation, and personal background, and less attention to
capability and competency needed to perform the task.
Basically, parochial culture is just like a family culture, where the superior-
subordinates relation is imbalance. In this culture, hierarchy is not just division of
responsibility and duty, but it symbolized power and authority. The main power is on the one
hand, a powerful person such as the owner or the founder of the company, where “the
destiny” of an employee depends on the hand of the most powerful person (the boss). There
is a division of work, the boss is the planner, and the other is the doer. In the high power
distance society, good leader or good manager in the eye of the employees is someone who
can act like a good father (Hofstede, 1997). This type of relationship will lead to less
participative management in decision making.
The Impact of HRM on Organizational Performance
Research indicated that organization performance is better in the companies where there is
congruency between national culture and human resources practice. In the unit business level,
where its manager consciously practice human resource policies in accordance with country’s
value, the performance of business unit i.e. return on assets (ROA), and return on sales is
better and employee bonus is bigger. If the human resource management practices is not
suitable with basic values shared by employees will cause employee are dissatisfied,
uncomfortable and uncommitted. Employee will feel distracted or alienated, because their
values are difference from company expectation, and therefore, theoretical organizational
commitment and their job satisfaction will be low, and in turn they may want to quit from the
job. When this condition happens for a long time, organization performance will decrease.
Conversely, when human resource practice fit with the values shared by employees,
organizational performance will be high.
Performance Evaluation and Rewards Systems
Evaluation and reward systems are important mechanisms for implementing strategies.
Agency theory, for example, suggests that the goals of individual managers (i.e. the agents)
are not necessarily compatible with the strategic goals of the company they work for (i.e. the
principal). Thus, due to goal incongruence and self-interested behavior on the part of the
subsidiary management, the latter may take decisions that are not congruent with those
desired for the overall MNC. Attempts to align these goals are made difficult by the

11
information asymmetry and other barriers that can exist between the principal and the agents.
Direct monitoring of subsidiary managers, for instance, in order to bring their objectives in
line with the MNC’s overall objectives is difficult given the distance, national boundaries,
differences in language and culture, as well as potential national allegiances Alternatively,
subsidiary managers’ and overall objectives can be aligned by designing and implementing
appropriate systems that reward managers’ performance instead of monitoring their behavior.
Thus, systems that link compensation closely to corporate strategy are more adequate
as they can be expected to focus the subsidiary managers’ efforts on contributing to achieving
the objectives of a firm. While the traditional way of linking managers’ performance to
company performance has been to use the subsidiary’s performance as an evaluation
criterion, this is no longer sufficient in MNCs moving towards an ITN. Rather, in ITNs
subsidiary managers are not only responsible for the performance of their subsidiary, but are
also expected to contribute to the performance and competitiveness of the entire MNC.
Therefore, in addition to traditional subsidiary-based criteria like the subsidiary’s profit or
similar measures, MNC-wide criteria must be used which reflect the exploitation of cross-
border synergies, the support of other sub-units as well as the contribution to world-wide
organizational learning. We expect that the use of such MNC-wide for evaluating subsidiary
managers’ performance increases with increasing interdependency of a subsidiary. Again, we
include the importance of the subsidiary, the cultural distance as well as subsidiary size as
control variables. It can be argued that with the increasing importance of a subsidiary its
performance becomes more important for the overall MNC and MNC-wide measures are thus
more likely to be applied to measure subsidiary managers’ performance. Regarding cultural
distance between MNC home country and subsidiary host country we expect an influence as
subsidiaries which operate under conditions that differ significantly from those in the home
country can be assumed to have a comparatively higher degree of autonomy to adapt to the
specific local conditions. Thus, we expect the use of local performance criteria to be more
important and cultural distance thus to be negatively related to the use of MNC wide-criteria.
As regards the size of the subsidiary, it could be argued that the contribution of a subsidiary
to the overall MNC and thus the need for a close link between managers’ performance and
MNC-wide performance increases with a subsidiary’s size.
Recommendations:
Based on the assumptions and evidence discussed above, we conclude with some suggestions
for this might wish to proceed.
1. Report effect sizes to help readers assess the practical significance of findings. Do not
rely exclusively on statistical significance tests.
2. Report standard deviations, not just means of study variables, and do so separately by
country. Such information is necessary to estimate within-country variance in key
variables (in addition to between-country variance) and can also be used to estimate
effect size measures that later researchers may need.
3. Consider the possibility that the significant degree of intra-country variation (e.g. as
indicated by small country effect sizes) in culture variables may make national culture
mean scores less useful than previously believed. By implication, any measure based
on national culture means may also need to be re-visited.

12
4. Recognize that significant intra-country variation implies more managerial agency
and discretion and makes it more feasible to develop an HR system or organization
culture that is not isomorphic with national culture (mean scores).
5. If it is hypothesized that national culture constrains and enhances the effectiveness of
management practices and/or organization cultures, then research should be designed
such that statistical interaction effects are estimated. Both statistical and practical
significance should be reported and evaluated.
6. Do not equate a country effect with a national culture effect. Recognize that country
dummy variables estimate the total effect of country and, as such, provide an
upwardly biased estimate of the national culture effect. If hypotheses are about the
influence of national culture, then national culture scores should be used, not country
dummy variables as a proxy. To the extent possible, use conceptual models and
measures that capture other important country characteristics beyond national culture.
7. Use hierarchical linear modeling (HLM) and/or HLM logic. For example, to measure
the effect of national culture on a dependent variable a researcher would, as a first
step, ordinarily use country as a level 2 independent variable to explain variation in
the dependent variable. That analysis would yield an intraclass correlation coefficient
(ICC), which estimates the total amount of variance explained by country. As a next
step, specific level 2 characteristics of country would be added to the model to see
what portion of the total country effect is explained by each specific country
characteristic.
8. Although the focus of this article has been on quantitative national culture research,
there are alternative approaches to the study of national culture and its effects. One
thing that makes culture such an interesting area of study, the challenge in describing
and observing culture, also makes it a challenging area to study. Quantifying and
capturing the most important cultural differences, especially across a wide array of
countries, is a demanding task. Alternative methodologies may provide insight into
the success in doing so, as well as suggest different avenues and ways of thinking
about and studying national culture.
Discussion
The results of our study show that there is a link between the strategic re-orientation of firms
towards a transnational strategy, as measured by their implementation of an integrated
network structure on the one hand, and their management of a number of core functions of
IHRM related to the management of overseas subsidiaries. Generally, this influence seems to
depend on the level to which firms have created input interdependency for overseas
subsidiaries, whereas there is no empirical support for a similar role of the level of output
interdependency. More specifically, there appears to be a link between a subsidiary’s level of
input interdependency and the level of subsidiary managers’ international experience. This is
in line with our hypothesis, which was based on the argument that higher levels of
interdependency require managers to be better able to coordinate their subsidiary’s activities
with other internationally dispersed operations. Internationally experienced managers would
thus be more suitable for the position of subsidiary manager. Our result that the level of

13
output interdependency is not associated with this dependent variable on a statistically
significant level, however, needs further examination.
The results imply that different types of interdependencies may require different
abilities. I.e. whereas international experience may be helpful in managing input
interdependencies, it may be of less use when dealing with output interdependencies. The
latter may require different skills. As output interdependencies relate to the use of a
subsidiary’s outputs it may be the case that these outputs mainly go to the HQ and the inter-
cultural complexity is thus reduced to the binational dimension. Input interdependency on the
other hand, relates to the sources of the subsidiary’s inputs, which may include a wider
variety of culturally distinct entities, such as the HQ and MNC subsidiaries in third countries.
International experience may therefore be more important in subsidiaries, in which input
interdependencies are crucial. The results do not show a link between the increasing
interdependency of subsidiaries and the use of management rotations for subsidiary
managers. MNCs of the subsidiaries included in our sample thus do not seem to consider
management rotations to be an integral part of the move towards implementing the
transnational solution. Horizontal rotations of subsidiary managers were seen as crucial for
simultaneously taking into account the three requirements for efficiency, local
responsiveness, and global learning. We regarded them as important for spreading best
practices across the MNE network of subsidiaries for reaping the full advantages of an
integrated network structure. Our results, however, imply that the degree of interdependence
did not have a discernible effect on the use of horizontal rotations.
The results have shown that the level of input interdependency of a subsidiary has a
positive effect on the use third country nationals, reflecting an increasingly geocentric
staffing policy. At the same time, however, increasing output interdependency has no
discernible effect on the use of TCN. This may again be explained by the fact that
subsidiaries that mainly provide inputs to the HQ may not need the specific competences
offered by TCNs. Dealing with the home country and sourcing from other sub-units of the
MNCs may be regarded as less challenging, and thus does not warrant the use of a TCN.
According to our results the use of TCNs as subsidiary managers increases with the
importance of a subsidiary. This is in line with our argumentation above.
As regards training our findings suggest that the intensity to which subsidiary
managers receive general cross-cultural training varies with the progress towards an ITN. A
number of researchers have suggested that the new organizational challenges faced by MNEs
require a re-thinking of the design of training measures. This has been supported by our data,
although there is a clear link only between the level of input interdependency of a subsidiary
and the level of training received by the subsidiary managers. No significant relationship
exists regarding the level of subsidiary’s output interdependency and the level of cultural
training the subsidiary managers in our sample had received. These results again imply
different consequences of different types of interdependency. It could be argued that different
types of interdependency create different requirements for subsidiary managers, and that
input interdependency in particular leads MNCs to provide cultural training to their
subsidiary managers. As regards the results for our control variables, the importance of a
subsidiary has again a significant influence, whereas the cultural distance is not a significant
predictor of the intensity to which subsidiary managers had received general cross-cultural

14
training. The latter finding may be explained by the fact that only managers that have little
cross-cultural competences receive cross-cultural training. Important subsidiaries will be run
by managers who have cross-cultural competences anyway and who do not need further
cross-cultural training.
The results show that input and output interdependency influence the use of
international management teams in subsidiaries. This is in line with various proponents of the
transnational strategy and its organizational implementation via integrated networks Bartlett
and Ghoshal (1998), for instance, recommend the use of management teams as individual
managers would not be able to simultaneously take into account all three dimensions
included in the ‘transnational solution’ when making decisions. The results regarding the
control variables imply that the importance of the subsidiary has a positive influence on the
use of international management teams whereas there is no statistically significant influence
of cultural distance or subsidiary size.
Finally, the results show that the degree to which German MNCs make use of global
performance evaluation and reward systems also depends on the level of a subsidiary’s input
interdependency though not on the level of its output interdependency. This implies once
more that input and output interdependency have distinct effects and that input
interdependency is the more important of the two when analyzing determinants of IHRM
practices. The statistically significant influence of the subsidiary’s importance is also in line
with the results for our previous hypotheses, again underlining the role of this variable for
future research.

15
Conclusion
The findings of this study have reiterated the close link between international strategic
management and IHRM. They have shown that the level of input interdependence of overseas
subsidiaries, which increases with a move toward ITN currently propagated in literature on
international business strategy, influences a number of IHRM functions. The basic argument
behind this close link was the insight that IHRM instruments are to an increasing extent
regarded as measures that improve the co-ordination of MNC units organized as an integrated
transnational network.
Moreover, there are many different types of resources that can form the basis for
interdependence, including human resources, financial resources, and intangible, knowledge
based resources, in addition to flows of products and components. Future studies should
incorporate some of these different types of interdependencies and examine their influence on
IHRM. This, however, is beyond the scope of this paper and our intention was mainly to
examine the link between MNCs’ shift towards an ITN structure and a number of IHRM
instruments. Similarly, the results underline the role of a subsidiary’s importance for the
design of IHRM policies. Although, this relationship has already been analyzed in previous
research future research could tie in the importance of different subsidiaries with issues that
are related to the overall strategy of a MNC.
There are a number of limitations that need to be taken into account when interpreting
the results of this study. First, the empirical basis consisted of German MNCs. The
relationships between the implementation of an ITN and the various IHRM policy areas
discussed may be different for MNCs from other countries.
In a similar vein, it has to be mentioned that the subsidiaries of our sample are not
completely independent from one another, i.e. the 142 individual subsidiaries in our sample
were owned by only 52 MNCs. This may have led to distortions as MNCs may apply their
IHRM policies to all of their subsidiaries.
Secondly, it could be argued that further variables need to been taken into account. We
focused on the degree of input and output interdependency of subsidiaries as a proxy for the
progress of MNCs’ implementing integrated network structures within their move to
‘transnationalize’ their international strategy.
Overall, despite these limitations we think that the findings of this study have
contributed to enhancing our understanding of the relationship between strategic management
in MNEs and various areas of IHRM. Managers involved in IHRM tasks discussed need to be
aware of the changes that are caused by an MNEs move towards integrated network
structures. This holds true specifically for an increase in the level of subsidiaries’ input
interdependency. Such moves seem to cause a shift in the design and use of IHRM
instruments. More research is needed on the multiple links between strategy and IHRM in
MNCs.

16
References
1. Bae, J. and Lawler, J. J. (2000). Organizational and HRM Strategies in Korea: Impact
on Firm Performance in An Emerging Economy. Academy of Management Journal.
Vol. 43, No.3: 502 – 517
2. Delaney, J.T. and Huselid, M.A. (1996). The Impact of Human Resources
Management Practices on Perceptions of Organizational Performance. Academy of
Management Journal, Vol.39, No.4: 949 – 969
3. Dessler, Gary. (1997). Manajemen Sumber Daya Manusia. Penerjemah Triyana
Iskandarsyah. Penerbit PT. Prenhallindo Jakarta
4. Aguilera, R. V., & Dencker, J. C. (2004). The role of human resource management in
cross border mergers and acquisitions. The International Journal of Human Resource
Management, 15(8), 1355–1370.
5. Babcock, P. (2004). America’s newest export: White collar jobs. HR Magazine,
49(4), 50–57.
6. Benedict, A. (2006). 2006 Corporate social responsibility: United States, Australia,
India and China—A pilot study. Society for Human Resource Management
Workplace Forecast. Retrieved December 16 from
7. Babcock, R. D., & Du-Babcock (2001). Language based communication zones in
international business communication. The Journal of Business Communication, 38,
372–412.
8. Astley, W. G. and Zajac, E. J. (1990) 'Beyond Dyadic Exchange: Functional
Interdependence and Sub-Unit Power', Organization Studies, 11(4): 481-501.
9. Athanassiou, N. and Nigh, D. (2000) 'Internationalization, Tacit Knowledge and the
Top Management Teams of MNCs', Journal of International Business Studies, 31(3):
471-87.
10. www.geerthofstede.com
11. www.worldvaluessurvey.org
12. www.shrm.org

IHRM Cultural Impact on Company Values

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to IHRM Cultural Impact on Company Values

Similar to IHRM Cultural Impact on Company Values (20)

More from Masum Hussain

More from Masum Hussain (20)

Recently uploaded

Recently uploaded (16)

IHRM Cultural Impact on Company Values