Word count: 4963

Transnational Trajectories: Emergent Strategies of Globalization and a New Context for Strategic HRM in MNEs

by

Allen D. Engle, Sr.

011 BTC

Eastern KentuckyUniversity

521 Lancaster Avenue

Richmond, Kentucky40475USA

Peter J. Dowling

VictoriaUniversity of Wellington

Level 11

Rutherford House

Wellington, New Zealand

Mark E. Mendenhall

University of Tennessee, Chattanooga

615 McCallie Avenue

Chattanooga, Tennessee, 37405 USA

Word count: 4963

Transnational Trajectories: Emergent Strategies of Globalization and a New Context for Strategic HRM in MNEs

Introduction

Strategic thought, as practiced by executives and conceptualized by a growing world-wide network of management researchers, has been a central interest for forty years (Bruton, Lohrke & Lu, 2004; Mintzberg, 1994; Ricart, et al., 2004). Increases in the volume and criticality of global trade is widely reported in the international business literature (Buckley & Ghauri, 2004; Govindarajan & Gupta, 2000; Sparrow, Brewster & Harris, 2004: Chapter 2). The aim of this conceptual review is to investigate recent developments in the wide-ranging domain of strategies as practiced by global firms and the impact of these new strategies on research on strategic human resource management in MNEs.

Our central thesis is that the latest generation of global strategies is characterized by: 1) a more decentralized analysis process, 2) greater reliance on those unique resources and perspectives – “asymmetries”- available to locally embedded individuals and business units to scan, evaluate and package innovations for potential delivery across the global firm (Miller, et al., 2002); and 3) a far more integrated and balanced relationship between the authority and responsibilities of a corporate headquarters and an increasingly differentiated array of geographically dispersed units. Further, this integrated, balanced strategic approach has created a radically new context for strategic HRM in MNEs. Global control based upon “differentiated coordination” will require the recruitment and selection, training and development and compensation of more strategically aware employees (Bartlett, Ghoshal & Beamish, 2008: 464).

A New Context: Strategic Movement in Global Firms

Few academic fields have undergone the dynamic and conflicting changes that characterize strategies of globalization. Existing paradigms, be they the resource-based view (Bowman, et al., 2002: Bruton, et al., 2004), competitive advantage models, (Porter, 2008), entrepreneurial models, or environmentally contingent “population ecology” approaches (Rickart, et al., 2004), have been criticized as being overly simplistic. Some authors have questioned the very idea of a global strategy (Rugman & Hodgetts, 2001; Hafsi & Thomas, 2005) describing “a Tower of Babel populated by strategic researchers” (Hafsi & Thomas, 2005: 511) while others have called for a return to a fundamental review of topics, theories and models useful to develop the field (Bruton, et al., 2004) or called for an even more basic reconceptualization of the complex and dynamic domain of strategic management at the metaphor level (Lamberg & Parvinen, 2003; Morgan, 1986; Weik, 1989).

More optimistic researchers have presented a new generation of models of globalization to capture the dynamic complexity of international operations. Many of these new approaches focus on a capacity for flexibility and change – innovation – in strategic activities, processes and relationships mandated by steady state turbulence in technology, institutions, industrial preferences and hypercompetitiveness. These new broader conceptualizations of global strategy replace centralized, segmented, sequential, strategic change or redirection – what we will call changes in “trajectory” – with a more complex, balanced and decentralized description of strategic evolution (Bartlett, Ghoshal & Beamish, 2008; Doz, Santos & Williamson, 2001; Evans, Pucik & Barsoux, 2002).

In this paper we envision strategic changes as a change in trajectory. Any alteration in products, functional processes or entering competitively into new market segments that impacts a significant number of units or processes is a strategic change in trajectory. These changes in strategic direction of the global firm, the movement in or out of geographic regions, major revisions in products or value chain processes, that are planned and executed to enhance competitive position, are associated with the broad term flexibility. It is flexibility, the ability to redirect and reconfigure firm resources, that is at the heart of these new models of global competitive capability. Emergent strategies, often initiated and championed by individuals, small informal groups or units cooperating across functional, cultural and product boundaries, are critical processes to deliver requisite flexibility and innovation (Liedtka, 2000).

Many models are available to choose from to explain the new, strategically critical role for those regional or local units traditionally considered as operational implementers. Evans, Pucik and Barsoux (2002: 52) describe IHRM’s role in global firms in terms of “building,” “realigning” and “steering” and connect steering with building organizational capability development for the future while performing in the present. This more strategic, albeit complex, role for operational employees requires managers of IHRM processes to take on the role of “change partner” and “navigator” (2002: 67). The goal is to provide a balance of formal integration via the traditional centralized processes of “rules, central procedures, and planning and hierarchy” in combination with the decentralized “informal mechanisms for coordination: lateral relationships, best practice transfer, project management, leadership development, shared frameworks, and the socialization of recruits into shared values” (Evans, Pucik & Barsoux, 2002: 83). Such a rebalancing requires that:

local leaders . . . while acting as local entrepreneurs also need to have a clear understanding of global strategy. Strategic management becomes a process that involves all key leaders around the world, and local managers need to have a global mind-set (Evans, Pucik & Barsoux, 2002: 84).

Doz, Santos and Williamson (2001: 59) argue that increasingly significant innovations – in products, systems and processes – and hence strategic adaptation can only be found “deeply embedded within the customer and its people [local employees] in the form of engineering and design principles, intelligence about end-user needs, industry norms, and competitive practices”. These locally embedded units are responsible for “sensing dispersed knowledge” and acting as “sensing units” and explorers (Doz, Santos & Williamson, 2001: 60-61). Secondary units must also be developed to act as “magnets” attracting this locally identified dispersed knowledge in an effort to convert knowledge into a viable product or service (Doz, Santos & Williamson, 2001: 81). These purpose built structures of global account units are designed to create a link between the specialist knowledge within the particular customer sites and the people “that could use this knowledge in the design of production processes used to create a [product]” (Doz, Santos & Williamson, 2001: 62).

Finally, a third set of units are responsible for operationalizing “metanational innovations”, charged to market and produce products for other major customers with slightly different applications around the world. The aim of these units is to design and produce products “as a set of application – specific standard products that could be adapted and used by any customer for a wide variety of . . . applications” (Doz, Santos & Williamson, 2001: 62-63).

Transference and the dissemination of knowledge across these three units is seen to be critical. Systemically a “corporate ‘knowledge map’ is able to provide inventories of different technologies, capabilities, and market knowledge within the MNE that may help ideas for innovation based on dispersed knowledge to emerge more easily. Thus, a ‘knowledge yellow pages’ or a ‘who’s who’ of in-house experts may play a supporting role” (Doz, Santos and Williamson, 2001: 172). On a more personal level, this information is held by a “carrier”, and if this individual fails to transmit the bundle of knowledge needed to grasp the essence of the innovation, the operating network will misunderstand it. Thus, “sponsors from the magnet organization, therefore, must choose appropriate carriers to convey the knowledge inherent in their innovation” (Doz, Santos & Williamson, 2001: 211-212).

Meta-national strategies and processes are envisioned as:

a global tournament played at three different levels: It is a race to identify and access new technologies and market trends ahead of the competition, a race to turn this dispersed knowledge into innovative products and services, and a race to scale and exploit these innovations in markets around the world (Doz, Santos & Williamson, 2001: 247).

Nohria and Ghoshal emphasize the capacity of subsidiaries to apply “slack resources” (described as pools of human, production or capital resources beyond those levels required immediately for local purposes) to stimulate “local-for-local”, “local-for-global” and “global-for-global innovation processes” (1997: 28-32). Significant changes in products, functions, processes and activities – changes in the direction of strategic flows, or trajectories – are increasingly seen to be triggered by local or regional units formally or informally operating as a highly integrated network composed of these “slack resource” pools. Sophisticated communication networks, interpersonal contacts, and social and cross cultural linkages all combine to provide the “requisite complexity” necessary to ensure a balance between local resource generation and the local creation and global adoption and diffusion of these strategic changes (Nohria & Ghoshal, 1997: Chapter 4, Chapter 9).

Bartlett, Ghoshal and Beamish present a transnational solution to the complex dynamics of globalization, advocating a balance of global standardization, local customization and the diffusion of innovation (2008: 340). By combining the capacity for guidance and control inherent in structural “anatomy” with the “physiology” of integrative processes and a shared cultural “psychology” the transnational firm can successfully balance standardization, customization and the diffusion of innovation and coordinated the strategic responsiveness of the firm (Bartlett, Ghoshal & Beamish, 2008: 340-349). Central to this complex control system is the identification and development of global talent (also see Boudreau, Ramstad & Dowling, 2003). Balance between global coordination and local expertise can be fostered via a planned pattern of career experiences across functions, regions and product lines, empowering local managers and providing them with clearly delineated areas of self sufficiency, stretch assignments that focus the managers’ attention on regional or global issues, forced interdependence in operations, whereby subsidiaries must share and trade complementary resources in order to achieve their local goals (Bartlett, Ghoshal & Beamish, 2008: 459-461).

Transnational control is accomplished via a blend of structural design, resource allocation and, central to our discussion, career development of staff. Bartlett, Ghoshal and Beamish describe transnational strategies in terms of structures of “asymmetrical differentiation”, patterns of resource disposition forcing “interdependence” and complex coordination across these differentiated yet interdependent units based upon knowledge transfers and the need to “move knowledge by rotating people and by temporary co-location” (2008: 462-465). The key to an effective mind matrix is:

to sensitized local managers to broader corporate objectives and priorities. The goal is best reached by transferring personnel with the relevant knowledge or creating organizational forums that allow for the free exchange of information and foster interunit learning. In short, the socialization process is the classic solution for the coordination of information flows. (Bartlett, Ghoshal & Beamish, 2008: 465).

This critical need for coordination and divergent resources may explain the reported increase in joint ventures and other cooperative forms of strategic action (Holtbrugge, 2004).

Strategic HRM in MNEs in this new strategic context

Note that all four of these theories highlight, in various ways, the critical role of local and regional subsidiary personnel in identifying strategic opportunities, and designing packages of local solutions. Even more critically, these locals must envision the potential of these solutions at regional or even global levels and be motivated and technically and politically capable of championing these strategic change processes across the dispersed differentiated units of the global firm. The entrepreneurial identification and unimpeded movement of the “intellectual capital” embedded across the global firm provides a new critical contextual imperative for strategic IHRM (Peppard & Rylander, 2001). The rich, complex contextual mosaic of details that makes up an understanding of local conditions must be married in the minds of an increasing number of employees to a more encompassing and panoramic understanding of the firm’s global strategy in its totality, if the new strategic context is to be realized. Informal and human processes, the traditional domain of HRM, are critical to these differentiated emergent, opportunistic transnational trajectories. Quoting Bartlett, Ghoshal and Beamish: “Even more dramatic has been the role of HR experts as MNE’s tapped into scarce knowledge outside the home country and leveraged it for global competitive advantage” (2008: 349).

How have our models and theories of strategic HRM in MNEs reacted to this radically different strategic context? De Cieri and Dowling (2006) explicitly present strategy (operating at both the corporate and business levels) as an organizational factor directly impacting HRM strategies and practices. Additional factors in their framework of strategic HRM in MNEs explicitly speak to competitiveness, as well as flexibly balancing global integration and local responsiveness. Rapid, discontinuous changes in many geographic regions presently of a strategic interest to MNEs (e.g. central and eastern Europe, China, Indonesia and India) and the emergent “knowledge economy” are posited to be related to the creation of more intra-organizational networks and alliances in search of knowledge resources and cooperative collaborative opportunities (De Cieri & Dowling, 2006: 24).

In an integrative framework of strategic HRM in MNEs bordering on a meta-analysis of recent research, Schuler and Tarique present model elements related to the significance of “inter-unit linkages” and the “vertical alignment between corporate strategy and HRM” (2007, in-press: 8-9); “balancing consistency and autonomy” in HRM processes and policies across units (pp. 11-12); and, of particular interest to our discussion, a growing recognition of the importance of “identifying and developing leaders who are capable of functioning effectively on a global scale and with a global perspective”(p. 16) and the potential for “global careers” to facilitate strategic interests (p. 17). In a similar vein, Budhwar and Sparrow present an integrative model of cross-national HRM processes that posits “organizational strategies and policies” as an “inner contextual variable” impacting HRM practices. These strategies and policies act in combination with a series of contingent variables (dominant technology, size, age, life cycle stage, ownership and structure, union status, stakeholder interest, etc.) and “National Factors” (national culture, national institutions, industrial sector, competitive dynamics) that provide the firm with a “HRM meta-logic” (2002: 387).

However, the impact of the contextual variable of strategy operating on the global level remains elusive. Budhwar and Sparrow (2002) have raised the issue as to whether cross-national differences in HRM occur because the “various meta-logics and contingency factors” predispose organizations within one country to one type of domestic HR strategy. In addition, they question whether each type of strategy is evidenced by the same patterns of HR policies and practices or are there “culturally equivalent variations” (Budhwar & Sparrow, 2002: 394). An empirical review using data from a web-based survey informed by several case studies is presented by Brewster, Sparrow and Harris (2005). Their analysis led them to conclude that informal “global networking” not only facilitates knowledge transfer, but “these global networks . . . are used increasingly to cut through bureaucracy and to act as important decision-making groups” (2005: 965). These authors highlight three “key processes” linked to global HRM: 1)talent management/employer branding; 2)international assignment management; and 3)managing an international workforce. Commenting on their findings, Brewster, et al. (2005: 966) note:

Once again we see the need for a far more strategic perspective to the management of international assignments. Organizations are actively considering ways of measuring the value of international assignments and are investigating alternative to traditional ling term assignments.

A number of reviews of international HRM have stressed the need to move beyond the ethnocentric centralization of a global firm’s domestic point of origin and learn to discern and incorporate the institutional, cultural and historical factors that vary across regions and nations (Brewster, 2004: Martin-Alcazar, Romero-Fernandez & Sanchez-Gardey, 2005). Wright, Snell and Dyer (2005) review the results of a recent conference on strategic HRM in a global context in terms of themes related to the validity of theories of strategic HRM developed in the US for contexts outside the US, the generalizability of US exported “best practices” of HRM, and the impact of local institutional factors as they may act to restrict the strategic choices available to global managers in the area of international HRM.

Scullion and Starkey (2000) present the results of a survey on centralization of IHRM practices from thirty UK-based international firms. Ten companies were assessed as following “centralized” HR roles and processes, 16 companies were described as following “decentralized” HR roles and processes, and four firms were described as “transitioning” from decentralized to more centralized HR roles and processes. It is interesting to note that all three types of firms recognized the need to manage executive career development and provide opportunities for expatriate mobility. Even the more decentralized firms stated that:

corporate HR was increasingly effective in influencing operating companies and divisions to support international transfers for strategic management purposes in the decentralized companies even though tensions between the short-term needs of the operating companies and the long-term needs of the business were more pronounced in these companies (Scullion & Starkey, 2000: 1070).

The strategic imperative for “learning, knowledge acquisition and adaptation [as] important potential sources of competitive advantage” was cited as the reason for this willingness to emphasize career development across boundaries. It was also noted that the HRM function needed to demonstrate how it contributes to an environment in which learning can flourish and demonstrate how “HRM policies and practices contribute to the learning of new skills, behaviors and attitudes which support the strategic objectives of the organization” (Scullion & Starkey, 2000: 1074). The role of strategic HRM in MNEs is to partner with corporate strategists to share the “stewardship of core competence and organizational learning” (Scullion & Starkey, 2000: 1076). Ordonez de Pablos (2003) also provides empirical support for the connection between HRM’s efforts to identify and map human capital and sustained competitive advantage in Spanish firms. Finally, Kelly (2001) provides an assessment highlighting proactive strategic role of local units effecting international HRM practices as well as the indirect, yet distinct voice that HR has at the Board level amongst British-owned MNEs and foreign owned subsidiaries operation in the UK.