International HR

7/29/2019 International HR

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Friedrich-Alexander-Universitt Erlangen-NrnbergBetriebswirtschaftliches Institut

Lehrstuhl fr Betriebswirtschaftslehre,

insbesondere Internationales Management

Prof. Dr. Dirk Holtbrgge

Consequences of transnational strategies for IHRM practices.Evidence from German MNCs

Dirk Holtbrgge

Alex T. Mohr

Working Paper 1/2004

Prof. Dr. Dirk Holtbrgge,Lehrstuhl fr Internationales Management, Universitt Erlangen-

Nrnberg, Lange Gasse 20, 90403 Nrnberg, Tel.: (0911) 5302-452, e-mail:[email protected], http://www.im-fau.de

Dr. Alex T. Mohr, Bradford University, School of Management, Emm Lane, Bradford, BD9 4JL,UK, Tel. 44(0) 1274 234353, e-mail: [email protected], http://www.brad.ac.uk/acad/management/external/peopleatmohr.php
mailto:[email protected]://www.im-fau.de/http://www.im-fau.de/mailto:[email protected]


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Consequences of transnational strategies for IHRM

practices. Evidence from German MNCs

Abstract. This paper analyses the consequences of multinational corporations (MNCs) move

towards integrated transnational networks (ITNs) which leads to an increase in the

interdependency of organizational entities. We suggest that this increased interdependency

requires new ways of coordination that change the nature of international human resource

management (IHRM) practices in MNCs. In this paper, we present a framework that addresses

these effects and empirically test it using data from a questionnaire survey among 142 overseas

subsidiaries of German MNCs. The findings suggest that shifts towards integrated transnational

networks have consequences for the use and design of a number of IHRM instruments. We

conclude by discussing the implications of our findings for IHRM practitioners and scholars.

Introduction

The globalization of markets and the growing international competition require companies to

fundamentally rethink their traditional (international) 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 (Ghoshal, 1987). 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 (Porter,


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1986). The resulting interdependency among the (sub-) units of the MNC implies that individual

subsidiaries, which have hitherto only been responsible for their position in their local market

(atomistic perspective), increasingly have to contribute to improving the competitive position of

the MNC as a whole (holistic perspective). 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. According to Bartlett and Ghoshal (1998), this

can most efficiently be ensured by establishing integrated transnational networks (ITNs). ITNs

are created by substituting decentralized decision processes for hierarchical control of

headquarters over subsidiaries abroad. While in hierarchical organizations structural and

technocratic instruments can be used ITNs require different co-ordination and control

mechanisms that guarantee the integration of globally dispersed activities. More specifically,

coordination in ITNs has to rely mainly on informal, soft and personnel instruments (Harzing,

1999, Martinez and Jarillo, 1989). 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 (Harvey, et al., 2001). 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 (Pucik, 1992). 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; theprovision of management training; the use ofinternational 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 (e.g. Banai,

1992, Boyacigiller, 1990, Harzing, 2001, Law, et al., 2004, Shay and Baack, 2004, Tung, 1987),

while other aspects of IHRM are discussed less frequently; (2) Most extant research in IHRM is


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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 (for exceptions see Harris and Holden, 2001, Richey

and Wally, 1998, Wolf, 1997); (3) Prior studies usually focus on IHRM practices in certain

countries or regions, such as the Asia-Pacific Rim (e.g. Bae, et al., 2003, De Cieri and Dowling,

1997, Rowley, et al., 2004), Mexico (e.g., Gomez, 2004, Paik and Teegarden, 1995) or Eastern

Europe (Fey, et al., 2000, Holtbrgge and Welge, 1998, Weinstein and Obloj, 2002) while

MNC-wide issues are addressed only rarely. Our study contributes to closing these gaps by

empirically analyzing how the implementation of integrated networks and the increasing

interdependency of subsidiaries influence IHRM practices in MNCs. The paper proceeds as

follows. The ensuing section presents our conceptual framework and discusses our hypotheses

based on a brief review of the relevant IHRM literature. We then outline the measurement of our

variables and the sample used for testing our framework. The ensuing section presents and

discusses our findings. Finally, a conclusion summarizes the implications of our study and points

out its limitations.

Framework and Hypotheses

The main characteristic of ITNs is the increased interdependency between differentiated (sub-)

units of the MNC as activities and resources are integrated regionally or even worldwide

(Bartlett and Ghoshal, 1998). This increased interdependency will require changes in IHRM

practices in as far as they can contribute to efficiently cope with, and exploit the benefits arising

from this interdependency. Previous studies have shown that several areas of IHRM contribute to

the co-ordination of globally dispersed activities of MNCs. These include staffing (e.g., Harzing,

2001), (intercultural) training (e.g., Earley and Peterson, 2004), the use of international teams

(e.g., Harvey and Novicevic, 2002), and performance evaluation and reward systems (e.g.,

O'Donnell, 2000). Based on the arguments of these studies, we expect the following functions to

be influenced by the degree to which MNCs have implemented integrated network structures.

Recruitment and selection of subsidiary managers.

Training of subsidiary managers.


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Use of international management teams at subsidiary level.

Performance evaluation and reward systems applied to subsidiary managers.

The following chart shows our conceptual framework, which includes the effects of a move

towards an ITN on these four areas of IHRM as well as three control variables. Below we willdiscuss each of the influences in turn.

Figure 1. Conceptual framework

Recruitment and selection of subsidiary managers

We suggest that the selection of adequate subsidiary managers is important for the co-ordination

of an integrated network. Thus, if our basic assumption is correct, the degree to which an ITN is

implemented will be reflected in the criteria used for the selection of subsidiary managers. In si-

tuations of complex material and organizational interdependencies among the (sub-) units of a

MNC, managers need to have specific experience that allows them to take into account the trans-

national perspective in managing their subsidiary and coordinating the cross-border configura-

tion of value activities. First, we suggest that the integration of a subsidiarys operations into the

overall cross-border configuration of value activities of the MNC requires managers to be able to

manage input relationships and output relationships with other sub-units of the MNC in various

Choice of subsidiary managers

International experience of subsidiarymanagers

Number of horizontal rotationssubsidiary managers

% of third country nationals (TCN)

Use of international managementteams on subsidary level

Training of subsidiary managers

Degree of implementation of an integratednetwork

Resource interdependencieso Input Interdependencies

o Output Interdependencies

Control variables

Importance of subsidiary

Cultural distance between home andhost country

Size of subsidiary

Performance evaluation and rewardsystems


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countries. The closer this interaction, the more important it is for a manager to be able to effi-

ciently deal with, and economize, on the differences between different countries in which the

MNCs subsidiaries are located. We suggest that a managers ability to meet this requirement in-

creases with his/her international experience and internationally experienced managers will

therefore be more likely to head highly interdependent overseas subsidiaries. Thus we expect,

that

H1a: The higher the interdependencies of a foreign subsidiary with other (sub-)

units of the MNC, the greater will be the international experience of the subsidiary

manager.

A second IHRM instrument that may be used to promote a transnational orientation of subsidiary

management are systematic international job rotations (Feldman and Thomas, 1992). It has long

been recognized that the international transfer of managers can serve as an important mechanism

of coordination, although the focus of the argumentation has traditionally been placed on the

coordination between a specific subsidiaries activities and HQ activities, rather than on coordi-

nation between various/all sub-units of the MNC (Edstrm and Galbraith, 1977). Horizontal

rotations of managers among different national sub-units may facilitate the coordination of

MNCs in a number of ways (Ensign, 1999). They allow managers to gain experience with, and

knowledge about the operations of other MNC subsidiaries which can be assumed to be

conducive to managing the complex interdependencies that characterize ITNs. According to

Athanassiou and Nigh (2000: 472) such experiences allow subsidiary managers to acquire tacit

knowledge of the MNCs overseas activities and, thus, [] to make sense of the attributes

which make these activities similar to, different from, and interdependent with the MNCs

activities in other international markets. Horizontal rotations can also help to establish personal

contacts between managers from different cultural and organizational backgrounds and promote

their mutual understanding, trust and commitment. Moreover, communication problems can be

reduced and a worldwide corporate identity can be promoted. These effects of horizontalrotations are particularly relevant for highly integrated MNCs in which as argued above -

hierarchical coordination is less effective. We expect that subsidiary managers need to have


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experiences in different subsidiaries in order to understand the interdependencies between

different subsidiaries and contribute to the coordination in ITNs. Thus, we hypothesize:

H1b: The higher the interdependencies of a foreign subsidiary with other (sub-)

units of the MNC, the higher will be the likelihood of horizontal rotations ofmanagers.

Our third argument builds on the insight that top management positions in foreign subsidiaries do

not necessarily have to be filled with nationals from the home country of the MNC (ethnocentric

policy) or with nationals from the host country (polycentric policy), but may also be staffed with

third-country nationals (geocentric policy) (Perlmutter, 1996). Coming from neither the cultural

background of the parent company culture nor from that of the subsidiary, third-country

nationals are expected to be more sensitive, more flexible, and more creative in dealing with the

complex interdependencies created by ITNs. Third-country nationals can also be assumed to

have a lower level of loyalty to either the home country or the host country as compared to home

or host country nationals respectively. They can thus be expected to be more loyal to the overall

MNC. The importance of these characteristics and thus use of TCNs as subsidiary managers can

be expected to increase with the degree to which a MNC has moved towards an ITN. Thus, we

formulate the following hypothesis.

H1c: The higher the interdependencies of a foreign subsidiary with other (sub-)

units of the MNC, the higher will be the use of third-country nationals as subsidiary

managers.

In addition to the size of the subsidiary as a control variable, we include the importance of the

subsidiary and the cultural distance between the HQ home country and the subsidiarys host

country (see our framework in chart 1). We expect the importance of the subsidiary to have a

direct influence on the IHRM areas addressed in hypotheses H1a to H1c. As regards the selection

of the managers, the need for internationally experienced managers, for managers with

experience in other subsidiaries of the MNC, and for managers from third countries increases

with the importance of a subsidiary in the ITN. We also include cultural distanceas a control

variable, since we expect it to affect two of our dependent variables. First, we suggest that

managers with international experience are preferred in subsidiaries located in countries with a


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large cultural distance to the home country of the MNC (Harvey, et al., 2001). Whereas it can be

argued that cultural distance does not require managers to have experience in other subsidiaries

(horizontal rotations), we also assume that cultural distance makes it more likely that third

country nationals will be chosen to head the respective foreign subsidiary.

Training of Subsidiary Managers

As has been shown above, ITNs are characterized by a high degree of interdependency between

the various units of the MNC and subsidiary managers are required to balance the needs for local

responsiveness, global efficiency, and world-wide learning (Bartlett and Ghoshal, 1998, Greger-

sen and Black, 1992, Prahalad and Doz, 1987). Subsidiary managers may, for instance, be ex-

pected to take decisions that are sub-optimal on the subsidiary level but enhance the global effi-

ciency of the ITN (Roth, et al., 1991). Therefore, subsidiary managers have to overcome their

predominant orientation towards local conditions and develop a holistic perspective of the objec-

tives and conditions of the overall MNC (Pucik, 1992). While still being commitment to local

operations, subsidiary managers need to show a high level of commitment to a MNC-wide

perspective.

These are new challenges and not part of the traditional job descriptions of subsidiary managers

and additional training is required to allow managers to carry out these tasks efficiently and thuscontribute to the co-ordination of ITNs. Besides knowledge of the political, economic and cultur-

al conditions of other countries, which positively affects cross-border interactions, we suggest

that the increased interdependencies of MNC (sub-) units increases the importance of managers

skills to efficiently interact across borders. Experiential intercultural training in particular has

been argued to reduce cognitive and emotional barriers of cross-border interactions and thus pro-

mote the relational aspect of communication (Cushner and Brislin, 1997, Gudykunst, et al.,

1996, Landis and Bhagat, 1996). As these interactions are crucial for the working of ITNs we ex-

pect that the need for such training rises with the implementation of integrated network struc-

tures. However, as opposed to country-specific cultural training usually provided for managers

assigned to a specific country we suggest that the implementation of an ITN requires the provi-

sion of general cross-cultural training. This enhances the fundamental awareness of cultural dif-


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ferences and allows subsidiary managers to consider influences from other parts of the MNC in

their decisions, and vice versa. Again, we expect these skills to increase in importance with the

level of a subsidiarys interdependence with other sub-units of the MNC. Thus, we hypothesize:

H2: The higher the interdependencies of the subsidiary with other (sub-) units ofthe MNC, the higher will be the intensity of general cross-cultural training of

subsidiary managers.

As was the case for our first set of hypotheses, we include the importance of the subsidiary, the

cultural distance between home and host country, as well as the subsidiary size as control

variables. Important subsidiaries play a particular role for the overall strategy of the MNE in a

particular functional, regional, or product area. These can, for instance, be centres of excellence

commissioned with the global leadership for R&D. Because of this importance for the MNC, it is

likely that only the most capable managers will be put in charge. We therefore expect the

demand for subsidiary managers with cross-cultural competences to increase with the importance

of the subsidiary. It can also be argued that the larger the cultural distance between the subsidiary

and the headquarters, the higher will be the intensity of culture-specific training of subsidiary

managers instead of general cultural training. Thus, we expect an influence of cultural distance

on the level of general cross-cultural training.

International Teams

According to Bartlett and Ghoshal (1998) the requirements of the ITN cannot be met by

individual managers; rather managers have to work together in international teams to ensure an

MNCs global efficiency, local responsiveness, and its world-wide learning ability. Teams

consisting of managers from different cultural backgrounds can facilitate the decentralized

coordination of globally dispersed activities and enhance the self-organizing abilities of MNCs

(Govindarajan and Gupta, 2001, Harvey and Novicevic, 2002, Phillips, 1994). By combining theunique individual perspectives of their members, culturally heterogeneous teams are able to deal

with greater organizational complexity and diversity (Snow, et al., 1996). Furthermore, multiple

perspectives of team members are more likely to reflect the multiple perspectives needed to

ensure responsiveness, efficiency, and worldwide learning. Host country nationals may, for


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instance, act as proponents of efficiency whereas host country nationals make sure that the full

benefits of responsiveness can be reaped. Moreover, international teams foster global learning

and the sharing of best-practices across the MNC since they enhance the transfer of managerial

and technical knowledge and its synergetic combination and socialization across national borders

(Holtbrgge and Berg, 2004, Nonaka and Takeuchi, 1995). Similarly, international teams are

often suggested as important mechanisms for transferring and deploying tacit knowledge across

national borders (Athanassiou and Nigh, 2000, Subramaniam and Venkatraman, 2001).

Thus, in addition to the contribution that individual managers can make towards the development

of a transnational orientation, it has been argued that the implementation of ITNs requires the

intensive collaboration of managers in international decision and coordination teams. This is

expected to facilitate the coordination of geographically dispersed sub-units of MNCs organized

as ITNs. We thus expect that the move towards ITNs as reflected in growing subsidiary

interdependency increases the use of international teams and formulate the following hypothesis:

H3: The higher the level of interdependency of a foreign subsidiary, the greater

the likelihood that international teams are used at subsidiary level.

As was the case with our previous hypotheses we suggest that the importance of a subsidiary, the

cultural distance between the home country, and the size of a subsidiary can affect the use of

international management teams and include them as control variables. Since the decisions taken

by management at subsidiary level will have consequences for the overall competitive position

and/or profitability it can be expected that management teams instead of single managers are

used in order to allow for better decisions. We also expect that increasing cultural distance

between the home and host country increase the likelihood of international management teams

being employed with the purpose of taking into account different culture-bound perspectives. We

also include size as it can be expected that the likelihood of single managers being placed in

charge of a subsidiary reduces with the size of the subsidiary and teams are used instead.


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Performance Evaluation and Rewards Systems

Evaluation and reward systems are important mechanisms for implementing strategies (see, for

instance, Stredwick, 2000). 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 companythey 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 (O'Donnell, 2000). Attempts to align these goals are made

difficult by the 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 MNCs overall objectives is difficult given the distance, national

boundaries, differences in language and culture, as well as potential national allegiances

(Milliman, et al., 1991). Alternatively, subsidiary managers and overall objectives can be

aligned by designing and implementing appropriate systems that reward managers performance

instead of monitoring their behavior (Eisenhardt, 1989). 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 (Roth and O'Donnell,

1996). While the traditional way of linking managers performance to company performance has

been to use the subsidiarys 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 subsidiarys 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 (O'Donnell, 1999). We expect that the use of

such MNC-wide for evaluating subsidiary managers performance increases with increasing

interdependency of a subsidiary. Thus,

H4: The higher the level of interdependency of a foreign subsidiary, the higher

the degree to which subsidiary managers performance will be measured using

MNC-wide criteria.


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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 dist-

ance between MNC home country and subsidiary host country we expect an influence as subsi-

diaries 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 cul-

tural 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 in-

creases with a subsidiarys size.

Method

Sample

In a first step the largest 200 German companies in terms of turnover were identified using the

Hoppenstedt Directory of German firms. From this group we eliminated companies that were

owned by a non-German parent firm in order to avoid home-country effects on our findings. Wethen deleted firms with less than eight foreign subsidiaries and a foreign share in turnover of less

30 percent of overall turnover. After applying these criteria, 60 out of the original 200 companies

remained in our list. For each of these 60 MNCs we then identified the largest 8-12 majority-

owned overseas subsidiaries using company reports and information published on the compa-

nies websites. We limited our sample to majority-owned subsidiaries in order to increase the

likelihood that the German MNCs rather than a local partner firm decided over IHRM practices

at subsidiary level. This resulted in a list of 600 subsidiaries. A three-page questionnaire was

mailed to the highest-ranking German expatriate in each of these subsidiaries. We expected these

managers to have management experience in both headquarter and the subsidiary and thus to be

knowledgeable about the issues addressed in this study. The mailing yielded 147 responses and

142 completed questionnaires (response rate of 25.4 percent). The distribution regarding industry


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and location of the 142 overseas subsidiaries in our sample is shown in Table 1. A comparison of

responding and non-responding firms concerning industry, corporate parent, and size revealed no

significant differences thus minimizing a potential non-response bias. However, regarding the

location of the subsidiaries, Asia was slightly over-represented.

Table 1. Sample characteristicsLocation

Industry WesternEurope

EasternEurope

NorthAmerica

SouthAmerica

Asia Africa PacificOcean

Total

Pharmaceuticals 2 4 2 0 5 0 0 13Chemicals 15 6 7 2 11 0 0 41

Automobiles 9 3 3 1 5 1 0 22Services 4 0 1 3 1 0 1 10Construction 4 4 2 0 2 0 0 12Capital Goods 4 3 5 1 5 0 0 18Electronics 5 0 1 0 2 0 0 8Transport 1 0 0 0 1 0 0 2

Publishing 5 1 2 0 1 0 0 9Others 2 0 1 1 3 0 0 7Total 51 21 24 8 36 1 1 142

Measures

The different IHRM policies as the dependent variables in our study were measured as follows.

Respondents were asked to indicate the number of previous assignments and the percentage of

third-country nationals in the top management team of the respective subsidiary. The use ofhorizontal rotations was gathered by asking subsidiary managers to state the location of the

former assignment. A previous assignment in a third country was regarded as a sign that

horizontal rotations are used and coded with a value of 1. If the previous assignment took place

in the home country we assigned a value of 0 instead. Although this does not take into account

the fact that some firms require a home country assignment between two overseas assignments,

for example, in order to re-familiarize the mangers with home country/company vision, we chose

this measure to keep the complexity of the questionnaire at a manageable level. The intensity of

culture-general trainingwas measured on a 5-point Likert-type scale. In order to measure the

existence of international management teams we used a dichotomous variable. We assigned a

value of 1 if the subsidiary was run by an international management team, and a value of 0 if the

subsidiary was managed by an individual.For the amount of MNC-wide rewards the respondents


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were asked to indicate the percentage of their annual bonuses which is based on the economic

performance of the overall MNC, similar to Barner-Rasmussen (2003).

The degree of subsidiaries interdependency as a proxy for a MNCs progress in implementing

an ITN was measured as the amount of resource outflows to, and resource inflows from othersubunits of the MNC. Similar to Astley and Zajac (1990) and Gupta et al.(1999) we measured a

subsidiarys interdependence with other (sub-) units of the MNC as the percentage of the

subsidiary's total cost that can be attributed to imports from, and exports to other (sub-)units of

the MNC. Whereas input interdependency relate to a subsidiarys reliance on inputs from other

(sub-) units of the MNC, output interdependencies relate to the extent to which the subsidiarys

output is used within the MNC network rather than sold off to third parties.

The importance of the subsidiary for the entire MNC as our first control variable was measured

on a single 5-point Likert-type scale from 1 (very low importance) to 5 (very high importance).

The cultural distance between Germany and the country of the subsidiary was measured using

the data provided by Hofstedes (1980) work, who found that cultures differ substantially along

the four dimensions power distance, uncertainty avoidance, masculinity and individualism. Sub-

sequently, Hofstede (2001) added the long-term orientation as a fifth dimension to his concept.

However, since the data was not available for all the countries in our study, we concentrated on

the original four dimensions. We use the index developed by Kogut and Singh (1988) which

allows to compute a composite index for each headquarters-subsidiary pair by combining the res-

pective differences along each of the four cultural dimensions. The cultural distance between

Germany, as the home country, and the respective host country was calculated using the follow-

ing equation:

/4})2/VD-{(DCD4

1i

iigijj =

=

CDj stands for the cultural distance between Germany and country j. Dij indicates the score for

host country j of the subsidiary as regards the cultural dimension i. D ij is the score for the parent

country g (Germany) on cultural dimension i. Vi is the variance of the index for cultural

dimension i. This formula corrects for the variance of each cultural dimension and averages

across the four dimensions. The higher the score, the greater the cultural distance between the


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host country of the respective subsidiary and Germany. Thesize of the subsidiary was measured

using the number of employees of the subsidiary.

Findings

Table 2 shows the means, standard deviations, and correlations among the indicator variables

used in this study. A first remarkable finding is the differentiated use of IHRM functions. On

average, the respondents have completed 1.75 previous foreign assignments prior to their current

assignment. Nearly one third of them have been appointed directly from another host country.

Contrary to the large attention this aspect receives in the literature only 4% of the subsidiaries

top management members are third-country nationals. The high degree of international

experiences may explain the fact that the intensity of culture-general training is very low (mean

= 2.39). Surprisingly, nearly two thirds of the firms use international teams to coordinate their

worldwide activities. The average percentage of managers remuneration which is based on

MNC-wide criteria is 13.6% which is slightly higher than the 10.4% that Barner-Rasmussen

(2003) found in his study of foreign subsidiaries in Finland.

A correlation analysis between the IHRM functions shows a number of statistically significant

correlations between the number of foreign assignments, the percentage of third-country

nationals, the intensity of culture-general training, the spread of international teams, and the useof MNC-wide reward criteria. Surprisingly, the percentage of horizontal rotations is negatively

correlated with all other IHRM functions. It seems that the respondents regard the first five

IHRM functions as complementary to each other and as contrary to the last one.


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Table

2.

Means,standarddeviation

sandcorrelations

Variab

les

M

ean

S.D.

1

2

3

4

5

6

7

8

9

10

1

In

ternationalexperience

1.75

1.0

4

2

H

orizontalrotations

.30

.46

-.24*

3

Thirdcountrynationals

4.08

7.3

5

.14

-.15

4

Training

2.39

1.6

6

.15

-.21

.06

5

In

ternationalteams

.73

.45

.10

-.52**

*

.21

.14

6

Performanceevaluation

13

.58

7.1

0

.26*

-.19

.13

.22

.14

7

In

putinterdependencies

20

.60

12.5

2

.20

-.03

.22

.25*

.28*

.27*

8

O

utputinterdependencies

18

.23

10.4

7

-.22

.01

-.02

.02

-.24*

-.07

-.02

9

Im

portanceofsubsidiary

2.74

1.5

5

.31**

-.53**

*

.13

.35**

.43***

.15

.09

-.01

10

C

ulturaldistance

1.97

1.0

6

-.09

.01

.00

.08

-.02

-.11

.12

-.08

-.02

11

Sizeofsubsidiary

2,4

65

4,4

35

-.12

.29*

-.16

-.32**

-.19

.15

-.14

.06

-.19

-.06

N=142

;*p

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