The effects of market economy type and foreign MNE subsidiaries on the convergence and divergence of HRM

Abstract

This study explores patterns of human resource management (HRM) practices across market economies, and between indigenous firms and foreign MNE subsidiary operations, offering a novel perspective on convergence and divergence. Applying institutional theorizing to improve our understanding of convergence/ divergence as a process and an outcome, data collected from nine countries at three points in time over a decade confirm that convergence and divergence occur to different extents in a non-linear fashion, and vary depending on the area of HRM practice observed. Patterns of adoption and convergence/ divergence are explained through the effect of institutional constraints, which vary between liberal and coordinated market economies, and between indigenous firms and foreign MNE subsidiaries. The study contributes a more graded conceptualization of convergence/ divergence, which reflects the complex dynamic reality of international business.

A framework for comparative institutional research on HRM

“…Overall, Cranet data indicates that while there is evidence of directional similaritypractices increasing or decreasing in the same way across countriesthere is no evidence of countries becoming more alike in the way they manage people (Mayrhofer, Brewster, Morley, & Ledolter, 2011). Not only are there distinct national HRM regimes, but these regimes are tend to remain in the same relation to each other (Farndale, Brewster, Ligthart, & Poutsma, 2017). Farndale et al (2017Farndale et al ( , p. 1078 reveal that certain HRM practices, including compensation and wage bargaining practices, are particularly 'institutionally constrained' and unmalleable.…”

“…Not only are there distinct national HRM regimes, but these regimes are tend to remain in the same relation to each other (Farndale, Brewster, Ligthart, & Poutsma, 2017). Farndale et al (2017Farndale et al ( , p. 1078 reveal that certain HRM practices, including compensation and wage bargaining practices, are particularly 'institutionally constrained' and unmalleable.…”

Unraveling the MNE wage premium

“…Wages are strongly institutionally constrained by labor regulations. In a highly regulated labor market, MNEs thus have little discretion in setting wages and executing global compensation and wage-bargaining practices (Farndale et al, 2017). Moreover, labor regulations may also include collective bargaining agreements and bonus caps, which have been shown to drive a convergence in wages in developed countries (Alvaredo et al, 2017).…”

“…Although a few qualitative publications have shed some light on MNEs' role concerning employees' pay and work practices in the host countries in which they operate (e.g., Egels-Zandén, 2014;Tatoglu, Glaister, & Demirbag, 2016), we note that thus far the IB literature has paid scant attention to this topic. In the broader realm of wages, salaries, and compensation, 1 there are studies on the link between culture and pay practices (e.g., Schuler & Rogovsky, 1998;Van de Vliert, 2003), the compensation of international executives and expats (e.g., Hon & Lu, 2015;Southam & Sapp, 2010;Van Essen, Heugens, Otten, & Van Oosterhout, 2012) and, more generally, on the convergence and divergence of human resource management practices across market economies (Farndale, Brewster, Ligthart, & Poutsma, 2017). However, only very few focus on MNEs' wage payments to employees in their subsidiaries, such as Girma, Görg, and Kersting (2019) who examined how the proportion of foreign direct investment (FDI) in an industry cluster affects the wages paid by MNEs and domestic firms in China; and Clougherty, Gugler, Sørgard, and Szücs (2014) who studied how firms' international activity affects wages, though restricted to the effect of cross-border mergers on wages in the US.…”

Mapping the impact of home‐ and host‐country institutions on human resource management in emerging market multinational companies: A conceptual framework

“…For example, the growth of EMNCs has implications for the convergence and divergence debate in HRM (Farndale, Brewster, Lighart, & Poutsma, ). EMNCs add new institutional influences to the global economic mix and reduce the dominance of MNCs from the “liberal” market economies (LMEs; which include the United States, United Kingdom, and other developed, largely English‐speaking countries), and “coordinated” market economies (CMEs; including Germany, Scandinavia, and Japan) (Hall & Soskice, ).…”