Mar 26, 2015 - implications regarding what factors managers should consider in developing HR practices for foreign subsidiaries of MNCs, especially in India.
Human Resource Management Practices of Japanese Companies in India: Dealing with the Transfer–Adaptation Dichotomy
Mohan Pyari Maharjan Tomoki Sekiguchi
Maharjan, M. P., & Sekiguchi, T. (2017). Human resource management practices of Japanese companies in India: dealing with the transfer-adaptation dichotomy. Journal of Asia Business Studies, 11(3), 323-341. https://doi.org/10.1108/JABS-09-2015-0152
Author Note: We would like to thank Prof. Dr. Dr. Fabian J. Froese, Guest Editor of Journal of Asia Business Studies and two anonymous reviewers for their insightful and constructive comments during the review process.
Human Resource Management Practices of Japanese Companies in India: Dealing with the Transfer–Adaptation Dichotomy Abstract Purpose: Based on the international human resource management perspective, this paper aims to explore and explain the human resource (HR) practices of Japanese multinational companies (MNCs) operating in India. Design/methodology/approach: This paper applies qualitative methodology. The study is based on 17 semi-structured interviews that were conducted within the subsidiaries of 10 Japanese MNCs in India. Findings: The respective HR practices are differently influenced by cultural and institutional factors. Cultural similarity, unique social context and the evolving labor market shape the HR practices of Japanese MNCs in the Indian context. Research limitations/implications: The generalizability of findings might be limited because of the nature of methodology. Future research could collect additional qualitative data and conduct quantitative studies to test the findings of this research. Practical implications: A unique combination of HR practices could be formed by addressing the changes in the local institutional environment and retaining the core philosophy of the parent company. Originality/value: This research adds value to the transfer–adaptation dichotomy by presenting how institutional and cultural factors differently influence the transfer of respective HR practices.
Keywords: Japanese MNCs, human resource management, India, transfer of HR practices, local adaptation Paper type: Research paper
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Introduction Japan is the fourth largest foreign investor to India accounting for around seven percent of total foreign direct investment inflows into India (FDI Statistics, 2014). The Japan Bank for International Cooperation (2014) reports India as the top most-promising country for overseas business operations in the medium-term (next three years or so) as well as longterm (next ten years or so). For the successful operation of any international business, human resource management has increasingly been referred to as one of the top most crucial aspects of management (Schuler et al., 1993; Dowling et al., 2008). Scant literature is available on how Japanese companies manage their human resources in India (for example, see Jain, 1987; Sparrow and Budhwar, 1997; Miah and Bird, 2007; Budhwar et al., 2009). Every country has a different way of conducting business that is based on their national business systems (Edwards and Rees, 2006), which contains cultural and institutional factors (Ferner and Quintanilla, 1998). MNCs thus need to understand the management practices prevalent in the host context. It is imperative for them to acknowledge the ways to create a blended set of practices that represent both the parent company and the host country ways of doing things (Pudleko and Harzing, 2008). Whether it is preferable to transfer the HR practices from the parent company or follow the practices prevalent in the local environment has long been argued (Beechler and Yang, 1994; Ferner, 1997; Khilji, 2003; Myloni et al., 2004). These decisions about the transfer–adaptation dichotomy depends on various cultural and institutional factors that are embedded in the national business system of both the MNCs’ parent and host countries. In light of the above background, this paper investigates the HR transfer–adaptation dichotomy of Japanese companies in India. Japan is considered as a pioneer of modern managerial practices in Asia (Nakamura and Fruin, 2012), while India is one of the most prominent emerging economies of the world. Hence, the paper contributes to the field of
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Asian business and management by investigating various mechanisms, specifically the role of cultural and institutional factors that shape the HR practices of MNCs from a developed country operating in an emerging country within Asia. The findings also have practical implications regarding what factors managers should consider in developing HR practices for foreign subsidiaries of MNCs, especially in India. Theoretical background Several theoretical frameworks have been developed to understand the HR practices of MNC foreign affiliates (e.g., Perlmutter, 1969; Rosenzweig and Nohria, 1994; Pudelko and Harzing, 2007). For the research purpose, this paper refers to the cultural and institutional approach, as well as the standardization versus localization framework. The cultural approach states that different nations have different cultural dimensions (Hofstede, 1991; Trompenaars and Hampden-Turner, 1998) and these differences cause cross-national differences in most management functions (For example, Schneider and De Myer, 1991 “strategic decisions”; Puffer, 1993 “leadership styles”; Jackson, 2000 “human resource management”). National culture is defined as the values, beliefs and assumptions embedded in the particular environment (Hofstede, 1991), which are also reflected in the organizational culture (Hofstede, 1985; Mead, 1990). Therefore, while transferring parent HR practices in a culturally distinctive country, MNCs must be sensitive to the predominant values and attitudes of the host environment (Edwards and Kuruvilla, 2005). The transferability of HR practices across countries depends on the national cultural distance (Kogut and Singh, 1988; Liu, 2004). That is, the cultural distance between the MNC parent country and the subsidiary host country inhibits the implementation of parent company HR in the subsidiary (Aoki et al., 2014) while cultural closeness facilitates it (Ngo et al., 1998; Wasti, 1998).
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The institutional approach argues that the organizations in a particular context become similar due to the traditional values and practices embedded in it (Whitley, 1992) and that they are under social influence and pressure to adopt appropriate practices (DiMaggio and Powell, 1983; Scott, 2001). DiMaggio and Powell (1983) maintained three kinds of such pressures: coercive, normative and mimetic. Some practices may have to act in accordance with laws and regulations (coercive) and some may require modification based on the professionalization of an employee group (normative isomorphism), while some need to be imitated to avoid uncertainties (mimetic isomorphism). In uncertain situations, organizations tend to adopt standards with either benchmarking or imitating other similar and successful organizations in a given context (DiMaggio and Powell, 1983; Scott, 2001). The distinctive cultural and institutional characteristics of a host country limit the transfer of HR practices from the parent company and, thus, MNC subsidiaries need to pursue localization (Beechler and Yang, 1994; Ferner, 1997; Khilji, 2003; Myloni et al., 2004). However, subsidiaries are also an integral part of MNCs and, therefore, are subject to a significant amount of control (Martinez and Jarillo, 1989), as well as facing pressures to replicate the organizational characteristics of the parent company (DiMaggio and Powell, 1983). Hence, MNCs pursue the standardization of more distinctive practices in the subsidiaries, based on the standards of the parent corporation or some other global standards (Doz et. al., 1981; Prahalad and Doz, 1987; Rosenzweig and Nohria, 1994; Pudelko and Harzing, 2007). Therefore, the underlying assumption of the standardization–localization (or integration–responsiveness) framework is that MNCs face two opposing pressures while managing their subsidiaries: whether to standardize the practices within an entire MNC or adopt the local practices. Standardization refers to implementing the parent HRM practices in their subsidiaries, based on those employed at home or best practices learned from other
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sources. The aim of standardization is to establish coordination and cohesion of activities across the subsidiaries. Localization is to address the specific way of doing things as per host countries. That is, to act and behave according to the norms of the host environment. As mentioned earlier, localization becomes requisite due to the distinctive cultural and institutional environment of the host country (Doz, et. al., 1981; Prahalad and Doz, 1987; Rosenzweig and Nohria, 1994; Lu and Bjorkman, 1997; Pudelko and Harzing, 2007). To sustain and to captivate the benefits from the subsidiary business, MNCs must seek to make a balance between standardization and localization (Gunnigle et al., 2002). Moreover, the real challenge is to integrate the opposing approaches of standardization and localization into one overall strategy (Pudelko and Harzing, 2008). The increasing pace of globalization has beheld the business expansion of more and more MNCs in the emerging countries. The selection of human resource practices in these economies is a critical issue (Miah and Bird, 2007) because of the distinctive socio-cultural, political and economic environment (Napier and Vu, 1998; Budhwar and Sparrow, 2002), lack of local managerial expertise (Delios and Bjorkman, 2000; Ando, 2014) and a greater uncertainty in the environment (Bartlett and Ghosal, 1999). The business environment in an emerging country is continuously changing. One stream of literature says that these changes cause significant influence in the adoption of differed HR practices (Cooke, 2009). Hence, rather than adopting institutionalized practices, MNCs may tend to address the changed expectation of their employees and may follow a different practice other than the locally prevalent ones (Bjorkman et al., 2007). In such economies, employees might be particularly receptive to innovative HRM and respond positively to distinctive HR practices despite being antithetical to local practices and norms (Gamble, 2006). Another research stream claims that due to the uncertainty prevalent in such economies, MNCs prefer implementing those practices that are well known and have worked successfully at home (Rosenzweig and Singh,
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1991; Bartlett and Ghosal, 1999). Yet another stream says that the HR practices are always a blended set representing both parent and subsidiary values (Jain et al., 2012). The above explanations imply that the cultural and institutional factors influence the standardization or localization of HR practices in the host countries, and this is particularly critical in the emerging countries due to the ongoing changes in the institutional environment. Therefore, looking through these four concepts, we will be able to understand how the Japanese companies in India deal with the transfer–adaptation dichotomy while forming their HR practices. Japanese MNCs are basically known for their strong centralization based on expatriate managers (Kopp, 1994; Kopp, 2000; Delios and Bjorkman, 2000; Legewie, 2002; Belderbos and Heijltes, 2005). They manage through implementing cultural control (Harzing, 2001; Pudelko and Tenzer, 2013) and are sensitive to the local environment. For example, while there are higher turnover rates and lower educational levels of workers, they are less likely to transfer or implement their long-term-oriented system (Taira, 1980; Amante, 1993). India is a fast-growing emerging country and the institutional environment is still evolving with many uncertainties. Hence, in the recent context of the growing expansion of Japanese companies in India, it will be interesting—as well as essential—to understand the various mechanisms shaping the HR practices of Japanese companies in their subsidiaries in India. Based on the above background, this paper seeks to answer the following research questions: 1.
What are the core features of HR practices that Japanese companies follow in India?
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Why do they choose to follow such practices?
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How do they settle on a particular set of HR practices?
Human Resource Management in the Research Context
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In what follows, a brief description is presented on the general characteristics of Indian HRM and Japanese HRM in order to understand the research context. Human resource management in India Private companies in India are reported to be surrounded by familial and social acquaintances. HR practices such as recruitment, training, promotions and lay-offs are ad hoc, and HRM policies and practices are strongly influenced by social, cultural, economic and political factors (Budhwar and Khatri, 2001; Kanungo and Mendoca, 1994; Sahay and Walsham, 1997; Sparrow and Budhwar, 1997; Venkata Ratnam, 1995). However, changes brought by economic liberalization in 1991 initiated transformations in HRM as well (Venkata Ratnan, 1995; Som, 2008; Budhwar, 2009b). There have been some clearly noticeable HRM changes in Indian organizations, such as a separate HRM/HRD department, preference for experienced employees in recruitment, a significant increase in the level of training and development, and a move towards performance-related pay and promotions (Sparrow and Budhwar 1997; Bordia and Blau, 1998; Saini and Budhwar, 2014; Budhwar et al., 2006a; Bhatnagar, 2007; Bjorkman and Budhwar, 2007). The changing trend indicates that managers working in Indian organizations have begun acknowledging the need to recruit and retain skilled labor for improving productivity (Budhwar and Singh, 2009). Most of the above-mentioned changes in Indian firms are associated with the experiences of MNCs in India and abroad because the Indian companies view HR practices of MNCs as benchmarks and are likely to adopt similar practices (Venkata Ratnam, 1998; Budhwar, 2009b; Saini and Budhwar, 2014). Indian management institutions also use approaches and language similar to those used in the West. Additionally, the majority of Indian managers attend British or American courses; therefore, the practices that Indian companies imitate are mostly related to Western style. Consequently, institutional pressure created in India is a mix of Indian and Western practices. For example, India was originally a
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hierarchical society and local companies had long-term, seniority-based systems, but economic liberalization has created a shift toward performance-based practices. The literature reveals that Indian companies are restructuring themselves to modern values and tending to follow more structured, formalized and progressive HR practices (Bordia and Blau, 1998; Budhwar and Boyne, 2004; Budhwar, 2009a). The past studies further corroborates that many companies in India are facing a high level of employee turnover. For example, IT-enabled and business process outsourcing firms are known as successful sectors in India and have a structured and formalized HRM system similar to those of their MNC counterparts from Western countries. However, they are facing ever-increasing employee turnover problems (Budhwar et al., 2006a; Budhwar et al., 2006b; Kuruvilla and Ranganathan, 2010). Therefore, the scholars suggest that the current system that has been perceived as modern must be modified, providing flexibility and empowerment to employees with a good feedback system and open communication, leading to a healthy and stimulating work environment (Budhwar, 2009b). Human resource management in Japan Reflecting the organizing principle of a “family-like” and people-centered approach, Japanese HR practices are unstructured and flexible, with many unwritten rules (Ouchi, 1981; Endo, 1998; Morishima, 1999). These practices basically comprise lifetime employment, seniority pay and promotion, and strong organizational commitment (Moore, 1987; Sekiguchi, 2013). Japanese companies manage all of their employees under the same HRM system, regardless of job type. The job descriptions are often vague and may not be known before joining the company (Robinson, 2003; Sekiguchi, 2006). Jobs are flexibly designed and have lower functional specialization (Lincoln et al., 1986). Japanese companies focus more on periodic hiring of new graduates; they are not hired for specific jobs, and even their major
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field of study at school is often regarded as an unimportant factor (JILPT, 2003). In the selection process, more emphasis is placed on characteristics relevant to general employability, such as personality and intelligence, rather than functional or technical expertise (Peltokorpi, 2012). In order to increase the flexibility of employee skills and abilities, Japanese companies place considerable emphasis on job rotation and on-the-job training (Koike, 1992; Morishima, 1995; Sparkes and Miyake, 2000; JILPT, 2003). They are also less likely to emphasize on-the-job performance, in part because of the lack of clarity regarding job boundaries; thus, seniority is embedded in pay increases and promotional decisions (Morishima, 1995; Sekiguchi, 2006). Method This study used qualitative methodology. The scholars suggest using this approach when there is a lack of previous research and a clear need for in-depth understanding of the subject matter (Eisenhardt, 1989; Miles and Huberman, 1994; Eisenhardt and Graebner, 2007; Yin, 2009). Qualitative research is a valuable means of investigating dynamic processes in the organization (Pettigrew, 1992). Hence, for exploratory and explanatory research (Piekkari et al., 2011) such as that conducted in this study, qualitative studies are the most appropriate method choice (Yin, 2009). According to the Embassy of Japan in India, 1209 Japanese companies were registered in India as of October 2014. A qualitative study with 10 Japanese subsidiaries was conducted based on 17 semi-structured interviews in March 2014. The target companies were located in Delhi and Haryana. Companies from different sectors such as manufacturing, trading, information and communication service, and employment agencies were included to have a proportionately representative case targets. The target companies were established from 1995 to 2008, following the economic liberalization of 1991. Further, companies having more than 5 years of experience in India were included to reduce the risk of not receiving
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concrete data for research purposes, due to the possible lack of familiarity with the Indian context. The main interviewees were HR managers or representatives. Local managers and expatriates were also approached for supplementary information. The interviewees’ ages ranged from the late 20s to the 50s. Although tenure varied among the interviewees, 90 percent of them had been working at the same company for at least one year. The interviewees were, therefore, familiar with their companies’ management practices and organizational cultures. The interview protocol for this study was developed before visiting each company. Interview questions covered such HR topics as recruitment and selection, training and development, performance appraisal and compensation, thereby representing major HR functions. The analysis of each HR practice is conducted through the lenses of cultural and institutional factors. That is, the focus of analysis rests on clarifying the cultural and institutional factors behind implementing each HR practice. Fourteen of the interviews were digitally recorded while notes were taken in all seventeen interviews. Interviews were conducted in English and Japanese, and averaged 40 minutes in length. The interviews were conducted by one of the authors, who is fluent in both English and Japanese. Insert Table 1 about Here
Table 1 shows the profiles of target companies and the positions of interviewees. To protect the privacy of the companies, a symbolic name is given to each of them. For each company, an interview transcript was created. Transcripts were coded into major HR practices and relevant categories/sub-categories in order to understand and analyze the characteristics of HR practices. The following section presents the findings. Findings
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The findings section is divided into two parts. In the first part, answers to the first and second research question will be presented. The second part presents a figure by integrating the findings and will answer the third research question. Recruitment and selection Experience and the organizational fit are the two core features found in the recruitment and selection practice. The findings indicate that the Japanese companies seek to confirm whether the candidates would be able to work within a “team-based approach” and whether they have a good understand of their company. The finding confirms the previous literature that they emphasize good attitude, loyalty and ethics, but it contradicts the idea that they focus on hiring fresh graduates (Budhwar et al., 2009). It appears that the reason why hiring is focused on experienced candidates is due to the lack of time to be able to train fresh graduates, as there is an immediate need to perform amidst tough competition. Screening the employees upon hiring is one of the top HR priorities because they seek to maintain the parent company philosophy of a team-based work approach. Thus, recruitment and selection becomes a hybrid set representing both parent and local features shaped by the parent company philosophy and the local institutional environment. Table 2 shows interview extracts that represent the core features of recruitment and selection practice. Insert Table 2 about here
Training and development Training and development were found to be less structured and scant within the majority of the companies. The findings depicted the three main facts behind this phenomenon: (1) that the size of target companies is smaller, (2) that the companies recruit experienced candidates and (3) that the market is evolving. The findings further indicate that the skills needed to perform a job are available in the local labor market.
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The observation suggests that the institutional environment and the characteristics of the subsidiary are decisive in shaping training and development practice. MNCs choose to utilize the locally available talent rather than take risky investments, due to the higher labor mobility and the immediate need to compete in the market. Only the established companies have intensive investments on employee development practice. It, therefore, appears that the institutional environment influences the training and development practices and the younger companies are subject to receiving a higher influence. This finding thus offers an additional note to the literature that the headquarters’ influence is greater for start-ups (Kynighou, 2014) by indicating the fact that the influence from the local institutional environment in younger companies is not less critical. Interview extracts are presented on training and development practice in table 3. Insert Table 3 about here
Performance appraisal and promotional decisions The majority of the companies mentioned that they apply a similar performance appraisal system in all branches and that it is not limited to their Indian subsidiaries, but is also applied in all other subsidiaries around the world. Basically, they use management by objective (MBO) with a 180-degree evaluation system in which evaluation is based on an employee’s self-assessment and the assessment by the person who is one level above the employee. The outcome of evaluation leads to salary increases and promotional decisions. However, promotion is not solely the result of performance evaluation; seniority and potentiality are also taken into consideration in the majority of the companies. The findings further indicate that the influence of seniority in promotional decisions is more a local consequence than a factor imported from the parent company.
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The reason behind the standardized performance appraisal systems could be attributed to the fact that this is more an internal process than other HR practices and is more culturesensitive (Bailey et al., 1997; Hempel, 2001; Woods 2003). The similar hierarchical society that is common within Japan and India might have resulted in the applicability of the Japanese evaluation system to the Indian context. Further, this finding could be attributed to the fact that the performance evaluation, unlike other HR practices, is mostly initiated by the parent company to set a global direction (Chew and Horwitz, 2004). Moreover, in such an institutional context, where there is a lack of structured and perceived transparent local evaluation system, MNCs import their parent evaluation system to ensure organizational justice (Jhatial et al., 2012). This finding further supports the fact that the cultural factors become more influential when the institutional base is not clear or under-developed (Vaiman and Brewster, 2015). Therefore, these observations show that evaluation systems are less affected by the external institutional environment, such as the labor market, but are more affected by the culture embedded within the organization and the parent company’s standardization policy. The main features and interview extracts are presented in Table 4. Insert Table 4 about here
Compensation The findings on compensation practice indicate that the basic pay is principally determined on the basis of market rate. The findings further reveal that the majority of the companies have performance-based pay systems. This finding seems to contradict the above-mentioned finding on promotional decisions in which the seniority factor is taken into consideration. The fact is that the promotion indicates upgrading to a higher position and does not necessarily imply a higher salary, for which the employee must show the requisite performance as well. Therefore, the companies, in terms of pay increments, are basically using the performance-
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based system. Thus, the findings show that the Japanese companies are not transferring their seniority-embedded compensation practice into their subsidiaries in India. The fact that the performance-based pay system is prevalent among Japanese companies suggests that this practice is more influenced by the Western companies operating in India. Hence, the observation suggests that the normative or mimetic isomorphism, in which companies in a particular environment follow or imitate institutionalized standards (DiMaggio and Powell, 1983), shapes the compensation practice. The findings are thus contradictory to the literature which reveals that Asian firms are less likely to have performance-based systems in their subsidiaries in Asia in comparison to Western firms (Taira, 1980; Amante, 1993). To compete effectively and efficiently, MNCs standardize the compensation practice according to the other players in the market regardless of where they operate. The finding thus indicated the institutional environment as the major source to shaping the compensation practice and is a much-localized practice. Table 5 shows interview extracts and the core features. Insert Table 5 about here
Japanese expatriates in the key positions and local employees as HR managers The findings confirm the previous literature that the Japanese companies extensively use Japanese expatriates and all key management positions are filled by them. Hence, the headquarters’ rules and regulations are basically replicated in the subsidiaries’ practices, and changes occur according to the local contexts. The findings further show that all of the companies have an HR manager position. The HR manager is responsible for the basic screening of new hires and is involved in conducting interviews. HR has little decision-making power and is viewed as a support
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function; a facilitator to dealing with HR issues. An HR manager is always a local employee who works under the direct guidance of a Japanese expatriate or a local senior manager who in turn reports to the Japanese expatriate. A Japanese expatriate stated the following as a reason behind appointing local employees as HR managers: “HR cannot be handled by Japanese expatriates alone because of the various caste and religion systems in India. So we have a local HR manager. But we do have employees working in this company from different castes and religions. We do not know how the local HR or the GM of general affairs department, who is also a local manager, is striking a balance among all these things.” No labor unions and low attritions Labor union issues and the attrition problems are known as the two most significant challenges faced by the companies operating in India (Budhwar et al., 2006a; Budhwar et al., 2006b; Kuruvilla and Ranganathan, 2010; Saini & Budhwar, 2014). However, the findings of this study reveal that this is not the case in our target companies. None of the companies we interviewed had labor unions. The findings indicated that some characteristics of Japanese-style management, such as a participative management system, flat organizational structure, open communication, friendlier work environment and employee empowerment, all contributed to remain nonunion companies. Because these particular features developed trust between the employees and the management and resulted in a good employee-management relationship, the employees did not have to look for additional sources to whom to speak up or to convey their comments and grievances to the management. The Japanese management characteristics further resulted in low attrition rates. The following comment and many others reflected this phenomenon:
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“I think the reason behind the low attrition rate is our culture of participative management and the concept of empowering employees. Also, as we are a rapidly growing company, employees find more responsibilities and contribute to value creations. And that’s what makes them stay.” (HR manager, C2) However, it appears that the Japanese companies in India, as in the majority of other subsidiaries in the world, have yet to provide clear career paths to the local employees, as all key positions are held by Japanese expatriates. The findings further revealed that the employees who choose to leave the company have often contributed to this reason. It seems that the Japanese companies are able to maintain their core features in their subsidiaries basically through the recruitment and selection practice; that is, by recruiting only those who fit their organizational philosophy, such as recruiting those individuals who can work in a team, has a long-term working attitude in the same company, is ready to work in a flat structure and finds compatibility with working in a hierarchical but friendlier environment. Furthermore, the 180-degree performance appraisal systems and the performance-based compensation appear to play a crucial role in retaining the employees. The above findings presented the HR practices that the Japanese companies followed in India and the underlying reasons behind them. The findings suggest that recruitment and selection is blended and that training and development practices are less transferred while the performance appraisal method is the most transferred practice and compensation is localized. The applicability of Japanese-style management features in India, the cultural similarities, distinctive social structure and the local institutional environment were found to be decisive in making such a combination of HR practices. In the following section, the above findings are integrated in Figure 1. This figure summarizes the findings and shows how HR practices have originated and been adjusted and finally integrated within a new set of practices.
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Insert Figure 1 near Here
The upper part of the figure illustrates how HR practices in Japanese companies originated. First, headquarters sends the expatriates to deal with HR. The expatriate may manage HR by himself or herself, but the HR practices are communicated through a local manager. So, decisions come from the headquarters, are guided by expatriate managers, and then are finally passed to other staff through a local facilitator (the local HR manager). The middle part of the figure explains the main body forming the HR practices. Here, “what” indicates an HR practice, such as recruitment and selection, while “how” explains the core features of that practice. For example, in recruitment and selection, experience and organizational fit are the two main aspects that Japanese companies are dealing with while forming their recruitment and selection practices. “Why” designates the reasons behind the “how.” For example, in recruitment and selection, the reason behind hiring experienced employees is the fact that the competition is very tough and there is less time available to train employees; the company needs someone to be able to work as soon as he or she is hired. And, the reason for checking the organizational fit is to ensure that the candidate is ready to work in a team-based environment and acknowledges the corporate culture. Therefore, the resultant HR is a hybrid form that is shaped by the influence of institutional environment and the parent company’s core philosophy. The lower part of the figure shows the Japanese management features that have been applied by all of the Japanese companies. These features are integrated within the main body of HR practices and, finally, a new set of HR practices is formed. In short, Japanese subsidiaries in India have blended HR practices, as well as applied the values of their parent companies.
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Past literature did not refer to all of the aspects of the what, why and how components of forming the HR practices in a single figure. This figure thus contributes to a clear understanding of HR formation of MNCs in their foreign subsidiaries. However, the figure is exclusively based on the research context and, thus, caution should be taken during generalization. Discussion The aim of this paper was to explore and explain the HR practices of Japanese companies operating in India. The key issue was to uncover the reasons behind transfer– adaptation decisions on HR practices, with a particular focus on cultural and institutional factors embedded in the national business systems. The findings suggest that the degree of cultural similarity, a distinctive social structure, ongoing institutional pressures and parent company core philosophy shape the HR formation in their subsidiaries. The respective HR practices are differently influenced by cultural and institutional factors. The findings indicated that Indian social features such as placing value in seniority and openness to participative management have contributed to the adoption of Japanese management in India. The similar cultural characteristics and social norms between India and Japan have played a critical role in forming HR practices. According to Hofstede’s (1991) cultural dimensions, both Indian and Japanese cultures are characterized by high collectivism, high power distance and long-term orientation. Furthermore, the management system in both India and Japan are strongly bonded by human relationships (Sinha, 1995; Abo, 2006, Ramamoorthy et al., 2007). Respect, effort and dedication are much more valued than the abilities and financial performance of the employees (Kanungo and Mendonca, 1994; Budhwar and Khatri, 2001; Chatterjee, 2007; Cappelli et al., 2010). These cultural similarities facilitated the transfer of certain features of HR practices and, thus, lend further empirical weight to the previous similar literature (Ngo et al., 1998). Moreover, it adds value
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to the literature that Japanese management is more acceptable and adaptable in Asia (Abo, 2006), and specifically in developing countries (Wasti, 1998). With a confirmation that the Japanese companies extensively use Japanese expatriates to manage their foreign subsidiaries (Kopp, 1994; Kopp, 2000; Legewie 2002; Belderbos and Heijltes, 2005), the findings of this study further revealed that the HR function is managed through a local HR manager. The local HR manager works as a facilitator to implement the HR practices. The findings suggest that the creation of the position of a local HR manager is an obvious thing in such contexts in which the social system is complex because of social relations based on numerous castes and religions, which is difficult for an outsider to comprehend. Therefore, it appears that the complex social system of caste and religion embedded in Indian social structure and the less familiarity of Japanese expatriates with such local norms and values result in appointing a local facilitator to implementing a set of particular HR practices. This finding further sheds light on the dissimilarities between India and Japan because of the caste and religion system that is embedded in Indian society. Hence, the cultural similarity, on one hand, facilitates the transfer of practices; on the other hand, the management of HR practices becomes complicated because of the distinctive social structure. The findings of this research add value to the previous literature that MNCs usually combine home and local practices while forming HR practices in their foreign subsidiaries. Rosenzweigh and Nohria (1994) discussed the ways in which HR practices are shaped through different forces. This paper, in the similar vein but in a different setting of MNCs from a developed country in an emerging economy, detailed the core features of HR practices and explained the reasons behind such arrangements. Further, this study focused on influences from the cultural and institutional environment and identified how and why the respective HR practices are differently influenced by such forces. For example, since the recruitment and selection has to directly deal with the external labor market and determines
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the types of future employees, it is more influenced by the local institutional environment and the parent company philosophy and, thus, is comprised of both local and parent features. Likewise, training and development, and compensation are more influenced by the institutional factors and are less transferred, while cultural similarities facilitate implementing the standardized performance appraisal system. The findings of this study further suggest that not all developing countries might be lacking the technical and/or managerial expertise and thus the localization decision may not rely on such factors as was indicated by previous literature (Delios and Bjorkman, 2000; Ando, 2014). The finding lends further support to the fact that wholesome transfer or localization does not happen and transferability or the adaptability varies across the practices (Taira, 1980; Rosenzweigh and Nohria, 1994; Lu and Bjorkman, 1997; Tayeb, 1998). Throughout the findings, it is evident that Japanese MNCs are integrating the opposing approaches of standardization and localization into one set of HR practices. They make unique combinations based on the ongoing change of the local institutional environment, cultural factors and the core parent philosophy. Overall, this research adds value to the standardization—localization framework and transfer—adaptation dichotomy by presenting how the institutional and cultural factors of the national business systems differently influence the standardization or localization of particular HR practices in the foreign subsidiaries of MNCs. It further contributed to the understanding of Asian business and management by exploring how MNCs from a developed country settle on a particular set of HR practices in their foreign subsidiaries in an emerging country within Asia. The generalizability of findings is limited, due to the nature of qualitative methodology. Hence, a statistical test of the findings could be the subject of a future study. Future research could further include data from multiple sources to enrich the understanding and test the findings. In addition, the findings might be different in the case of targets from
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parts of India other than Delhi and Haryana because of the cultural distance across the areas/states within the country (Beugelsdijk et al., 2015), as India is known for its diversity and multiple cultures (Pereira and Malik, 2013). Hence, it will be interesting to see future research that explores and compares the HR practices of Japanese companies in other parts of India. Furthermore, it is beyond the scope of this paper to generalize whether the findings of this study adhere to the HR practices of other MNCs operating in India or in other emerging countries. As the MNCs are strongly affected by their country of origin (Ferner, 1997; Ngo et al., 1998), they might behave differently. However, this study provides a base for conducting future comparative studies on the HR practices of MNCs from different countries operating in an emerging economy, especially within India. Implications for practice The findings have some crucial practical implications. First, they give insights to the managers of Japanese MNCs to forming the HR practices in their subsidiaries in India. Second, they have implications for the practice of HRM by Indian firms. Although Westernstyle HRM is becoming more popular and prevalent, Indian firms can benefit greatly from learning and adopting the features of Japanese-style HRM, such as team-based approaches and employee empowerment through participative management. Doing so can enable Indian firms to avoid a high level of employee turnover and increase labor productivity through employee motivation and commitment. Third, the findings have implications for MNCs from other countries that are currently operating or will operate in India. By learning how Japanese MNCs develop HR practices in their Indian subsidiaries, these companies may be motivated to utilize some of the Japanese-style management techniques in their Indian subsidiaries. Moreover, a key message to the HR managers is that a combination of HR practices that address the changes in the local institutional environment as well as retain the core
20
philosophy of the parent company might be a better way to form HR practices in an emerging country. Conclusion This paper contributes to the understanding of the processes by which Japanese MNCs develop HR practices in their Indian subsidiaries. Through an understanding of how and why various HR practices in Japanese companies in India have originated and been adjusted and integrated, the findings shed light on the role of institutional and cultural factors that influence the transfer of Japanese HR practices from headquarters to the Indian context. The findings especially suggest that some practices (e.g., recruitment and selection, training and development, compensation) are greatly influenced by institutional factors in the process of transfer and adjustment, whereas other practices (e.g., performance appraisal) are mainly influenced by cultural factors. Further, it was identified that the similar cultural characteristics and social norms, such as valuing seniority and a willingness to practice participative management, facilitate the adoption of a Japanese approach to management in India. Additionally, to be able to compete in the local market, the MNCs make unique combinations of HR practices and are not reluctant to following the locally institutionalized practices, whether they are shaped by the other foreign players or by the local competitors. As the paper is based on Asian countries and explores on MNCs from a developed country and its subsidiary in an emerging country within Asia, we believe it offers a significant contribution toward the understanding of Asian business and management, as well as added avenues for future research.
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Table 1. Company profile Company Name
Establish ment Year
Number of Business Type Employees (Number of expatriates) 1500(19) Manufacturing & Sales (electronics)
C1
2003
C2
1997
100(50)
Sales and Marketing (wide range; from industrial equipment to TVs)
C3
2006
50(15)
C4
2007
64(10)
General Trading and Investment Information and Communication Services
C5
2008
40(6)
C6
1996
99(17)
C7
2005
40(10)
C8
2007
60(1)
C9
1995
300(8)
C10
2005
53(16)
Sales and Marketing (Chemicals) General Trading
Sales and Marketing (Machinery and Equipment) Employment Agency Manufacturing & Sales (Chemicals) General Trading
Interviewee
1. Deputy General Manager, HR (I)* 2. Assistant, Sales and Marketing (J) 3. Deputy Manager, IT (I) 1. Deputy General Manager, Human Resources Group (I) 2. Manager, Corporate Planning and Research Office (I) 3. Research Specialist, Human Resources Group (J) 1. Senior General Manager (I) 1. General Manager, Administration and Finance (J) 2. HR Manager (I) 1. Director (J)
1. Assistant Vice President, HR & General Affairs (I) 2. Deputy Planning and Coordination Officer, Corporate Staff Section (J) 1. Assistant General Manager, Corporate HR (J)
1. Managing Director (J) 2. Vice President (I) 1. HR Manager (I)
1. General Manager, AccountsFinance & Administration. (J) Source: Toyokeizai Data Service “Overseas Japanese companies: sorted by country, 2013”, homepage of the target companies and interview hearing. * Interviewee “I” refers to Indian employee, “J” refers to Japanese Expatriates
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Table2. Recruitment and Selection Main Features
Interview Extracts
Experience
“Previous experience is one of the most requisite core values.” – C5 “We have defined how much experience is needed for each field. – C2 “We look for experience because we are a small company […] we actually do not have enough time to train them.” – C7 “We are not a big company in India yet and it is difficult to arrange intensive training programs to raising the new employees.” – C4
Organizational fit
“The person might have the right skills but, if they do not have the right attitude, then they will not be an asset to the organization. So, as in Japan, we also look for the right attitude along with the right skill. […] And, in terms of interpersonal skills, teamwork is very important.” – C1 "Although the core values we seek differ depending on positions, we basically look for honesty, a positive mind and an intention to work for a long run. – C9 “The understanding of our company and the long-term perspective of working should be there.” – C10
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Table 3. Training and Development Main Features
Interview Extracts
Less investment
“Trainings do happen once in a while. We only have trainings for 1-2 days sometimes.” – C4 “Trainings in headquarters are scheduled, but here in the subsidiary we do not have a training calendar. Some trainings are conducted based on headquarters announcements.” – C10 “Depending on the business requirement and the skills of newly hired employees, we provide some training, which is basically the customized version of headquarters training. But, we do not have detailed and scheduled training programs.” – C5
Acquire skills from the
“We are a small company and the things do not go
market
systematically. Indian people leave their job quickly. But at the same time, it is also easy to get new ones.” – C6
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Table 4. Performance Appraisal and Promotional Decisions Main Features
Interview Extracts
MBO, 180° evaluation
“Performance appraisal system is something that we brought
system
from Japan. Subsidiaries all over the world use the same system.” – C4 “Performance appraisal is same as our parent company in Japan; we use MBO with 180°.” – C5 “We have completely the same PA system as of headquarters. […] We use MBO.” – C8
Seniority Consideration
“Promotion depends on the combination of performance and potentiality. Equally, tenure is also considered. We try to balance decisions on the basis of time (tenure) and role.” – C1 “As for my personal preference, I do not want to refer to seniority factors for any promotional decisions. But, we need to consider it due to the Indian social norms.” – C5 “Although we try to go for performance based system, it will be very odd for the Indian society, say, to appoint someone a manager who is only 25 years in age.” – C6
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Table 5. Compensation Main Features
Interview Extracts
Market rate
“The cost to the company and the market rate are bases for the initial salary.” –C2 “The basic salary depends on market rate and the previous salary of the candidate.” – C8 “We have structured bands for basic salaries. However, this is only an approximate figure. Negotiation also works.” – C10
Performance-based pay
“Tenure is not considered for raises. The average performer gets an average increase even if s/he has been working for a longer time. So the increment is exactly how they have performed at the job.” – C1 “For salary increases, there is nothing to do with seniority, only performance matters.” – C7
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Figure 1. Origin, adjustment and integration of HR practices in India by Japanese companies.
HQ guidance in standardization of polices and practices
Origin
Japanese Expatriates
Senior Local Managers
Human Resource Manager
What
How
Why
Result
Influenced by
Recruitment & Selection
Training & Development
Performance Appraisal
Compensation
Experience, organizational fit
Less investment, acquire skills from market
MBO, 180°, seniority concerned
Market rate, performancebased pay
Tough competition, no time to raise, need team orientation
Small company size, experienced employees, evolving market
Standardization, local social norms
Need to imitate others to attract and retain
Hybrid
Local
Transfer
Local
Institutional + parent philosophy
Institutional
Cultural
Institutional
A new set of HR Practices
Apply
Japanese practices: Participative management, flat & friendlier work culture, value to seniority 39
40
