This chapter argues that an understanding of international HRM (i.e. the policies and processes of HR management in MNCs) is dependent on an understanding of comparative HRM (i.e. an understanding of the reasons for cross-national differences and similarities in HR practice). This section therefore explores how the differences in national business systems explored in the first part of the chapter create differences in human resource practices between different societies.
Much research in the field of international and comparative management has followed a unitarist ‘one best way’ perspective, with cross-national differences either downplayed or simplified into cultural divergences from the dominant US ideology of management. Not only does this contradict the hypotheses of institutionalist researchers into the nationally specific development of capitalism, but it also runs contrary to a wide range of comparative research in HRM, organisational studies and industrial relations, indicating that national rules and understandings are of considerable importance in affecting the nature of the employment relationship.
For example, the work of the LEST school
Whitley: Collective business system that incorporates workers and managers within corporate strategies of core companies to promote innovation and organisational capability in design, problem-solving and production. However, limited institutional pluralism.
Hall and Soskice: Coordinated market economy, significant institutional regulation beyond the market. Active state role in finance provision and promotion of inter-firm cooperation reduces market uncertainty and promotes cooperation within hierarchies and between them. (Maurice et al., 1986) found substantial differences between France and Germany in the relative pay levels and degree of authority of workers at different levels of the corporate hierarchy.
Subsequent research has found significant differences, even between European Union countries, in areas as central to the employment relationship as recruitment (Windolf, 1986; Quack et al., 1995), training (Sako, 1990; Felstead et al., 1994) and pay practices (Festing et al., 1999; Black, 2001; Almond, forthcoming), while differences in industrial relations and employee representation systems have been thoroughly analysed (cf. for example, Ferner and Hyman, 1998; Bamber and Lansbury, 1998 etc.).
Equally, there is now a substantial body of research examining the degree to which ‘Anglo-Saxon’ models of HRM are applicable to other cultures and societies (Sparrow and Hiltrop, 1994; Brewster, 1991; Gooderham et al., 1999; Clark, 1996). While such analyses have different emphases, and different interpretations on the degree of commonality or dissimilarity between nations in the means by which firms manage the human resource, it is sensible to conclude that significant differences between countries continue to exist.
The significance of these differences impacting on HR policy and practice can be illustrated by examining the use of part-time employment in the EU. The issue of part-time employment is of particular interest here for a number of reasons. Firstly, for employers, using part-timers is frequently seen as a method of matching labour supply and demand on a temporal basis. It would thus appear to fit within familiar arguments within the HRM and organisational literatures for – numerical – ‘flexibility’ (Guest, 1987; Atkinson, 1984; Sparrow and Hiltrop, 1994; Chapter in this volume).
Second, since the early 1990s, increasing the level of part-time employment has been promoted by the European Commission as a means of combating unemployment (Commission of the European Communities, 1993). There are thus, at least apparently, strong reasons to imagine that this practice might have become more popular throughout the European Union. This supposition is generally confirmed by the available statistics.
Over the decade covered, an increased proportion of employment became part-time in all of the EU countries, with the exceptions of Denmark, Greece and Sweden (in the last case, there was subsequently an increase to 17.8 per cent in 2001).
Part-time employment as a percentage
Notwithstanding these trends, however, there remain very substantial differences between the countries in the extent to which the practice is used. A range of factors join together to explain such differences. It has been suggested, for example, that the high rate of part-time employment in the UK can be explained by a wide range of social and economic factors: the concentration in ownership in services such as retail and catering, enabling employers to plan staffing levels at a very detailed level; long male working hours; a lack of affordable childcare facilities; the increased supply of students for parttime work; and welfare state policies such as the system of National Insurance exemptions, among other factors (cf. Almond and Rubery, 2000: 283).
In Spain, meanwhile, the level of part-time employment, though increasing, remains very low by European Union standards. Alongside the comparatively low degree of female participation in the labour market, which given the gender division of household labour is likely to affect the extent to which there is a large group of workers seeking part-time employment, the most significant factor here is probably the fact that fixedterm (full-time) employment contracts – very widely used in Spain – offer employers a considerable degree of numerical and temporal flexibility without the same need for recourse to part-time employment.
Furthermore, the differences between countries go beyond differences in the extent to which a given practice is used. It is important to bear in mind that the specific form a given policy takes will also differ between countries. For example, the part-time working week is much shorter in the UK (15.4 hours), than in, say, France (23.1 hours),(EIRO, 2002). This is important because it means that the implications for employers of using part-time labour are likely to be different.
Again, the reasons for this discrepancy can readily be explained by institutional factors: for example, women returning to the workplace after childbirth in France are much more likely to seek full-time employment than their UK counterparts, a fact explicable in terms of the better childcare provision in the former country, and the lesser degree of wage inequality between women and men, meaning it makes more sense, economically, to share pai work more evenly within couples than in the UK.
As a consequence, in France, part-time employment, while popular with employers, is very often entered into only when full-time employment is not available, hence those constrained to work part-time will seek comparatively long working hours in order to maximise their earnings. In the UK, meanwhile, there is a ready supply of labour for short-hours part-time employment (mainly women with caring responsibilities and students), as we have seen.
The point here is that the employer policy of using part-time employees is likely both to be adopted to different extents, and to take different forms, in different countries, and that the explanations for these cross-national differences are to be found in employer calculations as to what is an appropriate policy in a given national institutional and societal setting. The explanations for cross-national differences, therefore, may include such factors as the nature of capitalism in the country, the labour market system, the education and training system, the regulatory system, and the ‘system of social reproduction’, including the nature of the welfare state (cf. Rubery et al., 1999).
Similar arguments can be applied equally to other substantive elements of the employment relationship (see, for instance, Almond and Rubery (2000: 285) on the UK training system; Gonzalez-Menendez (1998) on the practice of profit sharing in a range of EU countries). They apply all the more strongly to industrial relations systems, i.e. the interaction between employers and trade unions, as well as the legal regulation of the employment relationship. For example, it is perfectly feasible for a large firm operating in the UK or USA to operate unitarist HRM policies and avoid having to negotiate with trade unions.
This is not the case in most EU countries, where there is generally some combination of collective bargaining at a level higher than that of the firm, often extended to all relevant employers in a sector, for example. Equally, at the firm or workplace level there are often legal requirements for either co-determination mechanisms such as works councils, a requirement for firms with any union members to engage in company-level collective bargaining, or both .
As the above examples make clear, the human resource policy choices made by firms are generally influenced by a complex set of interrelated institutional forms within society. Thus, at least to some extent, national institutional and cultural environments create tendencies towards national ‘systems’ of human resource management, in parallel with wider national business systems. Keeping this firmly in mind, we now highlight some of the more important features of systemic effects on national patterns of human resource management within those countries examined in part.
Many of the concepts behind recent models of HRM are seen, at least by UK academics, as originating in the United States (cf. Guest, 1990; Sparrow and Hiltrop, 1994). It is certainly the case that the USA is the birthplace of modern management (Chandler, 1977), and that, at least at first glance, firms in the USA have a relative lack of institutional, legal or cultural ‘constraints’ on the means by which they manage their workforces.
As was explained above, the US business and employment systems are seen as market-based (Whitley, 2000), in the sense that the degree of active regulation of firms’ activities by the state is relatively low. This clearly extends to the regulation of the employment relationship. It is well established that the USA has the weakest system of employment protection among major industrialised countries (OECD, 1998).
Indeed, the relative ease and cheapness of dismissing employees is likely to have informed some of the early messages of ‘hard’ HRM (Tichy et al., 1982). The message that people ‘have to be obtained cheaply, used sparingly and exploited as fully as possible’ (Sparrow and Hiltrop, 1994: 7) is clearly more feasible to put into practice in the USA than in some of the more actively regulated employment systems of continental Europe.
While this lack of regulation reduces the ‘constraints’ or ‘barriers’ faced by employers, whether it leads to enhanced business performance is quite another issue. From this regard, it is interesting to note that more recent US HRM models frequently promote the concept of employment security (cf. for example, Pfeffer, 1994), on the grounds that workers with longer-term prospects within the organisation are likely to be more committed to it.
Aside from the relative lack of protective legal regulation of most areas of the employment relationship, collective regulation is also generally weak. Although there are firms and workplaces, particularly in manufacturing sectors, where trade unions have considerable defensive strength, trade union density and, above all, influence are low by any sensible comparative measure. Equally, there is a very low level of collective bargaining coverage.
Even to the extent that collective regulation does exist, it is uncoordinated, with virtually no sectoral regulation, and very little cooperation between rival employers, or indeed active coordination of trade union policies across firms. Thus, to a much greater extent than elsewhere, ‘systems’ of employment regulation are largely firm-based, with a generally high degree of managerial autonomy in setting human resource policies.
One consequence of these factors is a very wide variety of practice within US firms. However, this does not mean that institutional and social factors are absent. The large size of firms, due partly to the early establishment of mass markets and hence mass production (see above), led to the widespread diffusion of Taylorist management practices, and formalised management systems (Chandler, 1977). Although the economic efficacy of Taylorism came to be questioned following the rise of competition from Japan, it remains the case that US firms tend to be relatively centralised and formalised in their setting of policy (Ferner et al. forthcoming).
Another characteristic of many US employers is an ideological, and sometimes violent, opposition to the concept of trade unionism (Babson, 1999). When, following the crisis of the 1930s Depression, it became necessary for large corporations to accommodate organised labour, the collective agreements reached in this era were effectively quasi-legal contracts, which represented a constraint on the adaptability of firms’ HR practices.
This in turn led to further attempts to escape organised labour (Katz, 1985). Equally, a significant group of large employers successfully avoided trade union influence through the use of paternalist, human-relations-style personnel strategies, sometimes referred to as ‘welfare capitalism’ (Jacoby, 1997). From the late 1970s onwards, the competitive threat from the Far East, combined with increasing pressures on corporations to maximise shareholder value, led many firms partially to break with the tenets of Taylorism and existing collective bargaining structures.
While some firms attempted change through the use of employee involvement programmes (Appelbaum and Batt, 1994), others sought to reimpose management unilateralism (Thelen, 2001; Wever, 1995). Aggressive attempts have been made to reduce the inflexibilities caused by collectively negotiated job classification systems, work rules and seniority provisions, and in some cases to reorganise production along more flexible lines, inspired by the Japanese example (Katz and Darbishire, 1999).
In spite of these attempts at change, and the lack of regulatory constraints in the sphere of employment relations, attempts to develop ‘soft’ or ‘best practice’ HR policies in the USA have been rendered difficult by the increasingly short-term nature of US capitalism. Many of the policies favoured by advocates of the more humanistic models of HRM are difficult to square with the lack of employment security inherent in the US labour market, making, for instance, the development of strong internal labour markets difficult to achieve.
In marked contrast to the US system, in Germany organisational autonomy in human resource and employment relations policy is limited through three main channels. First, there are relatively strong firm-level institutions of co-determination. Large German firms usually (although not always) have a works council. This body has extensive co-determination and consultation rights, particularly at times of organisational change affecting the workforce.
Alongside this, worker representatives are to be found on the supervisory boards of directors of large German enterprises. Second, sectoral collective bargaining is deeply entrenched within the German system as a method of wage determination. Sectoral bargaining covers more than 80 per cent of German employees, creating a high degree of standardisation in pay and working conditions within industries. Thirdly, training and human resource planning policies are greatly affected by strong initial vocational training institutions.
These are governed by a tripartite system, with the state and trade unions, as well as employers’ associations, governing national and sectoral vocational training policy, hence shaping the labour supply available to firms. Such institutions have sometimes been seen as ‘barriers to HRM’ (i.e., as preventing moves towards US models of HRM. This would seem to be supported by findings that although German firms have recently shown increased levels of interest in mechanisms imported from the English-speaking world, such as performance-related pay, attitude surveys and developmental assessment centres, these often meet with considerable resistance by employee representatives (Muller, 1999).
In spite of this, the argument that the German institutional system is incompatible with modern models of HRM can be challenged. Indeed, as Muller (1999) argues, the German system fosters the use of many HRM practices. For example, a strongly embedded system of initial vocational training contributes towards a relatively high emphasis on training within firms, often seen as an important component within softer models of HRM. Codetermination meanwhile, exerts pressures on German companies to guarantee employment security. This, as Hall and Soskice (2001: 24–5) argue, is likely to encourage firms to invest in firm-specific skills.
It also offers a significant mechanism for employee participation and involvement. Finally, industry-level bargaining has, in principle, the effect of equalising wages at equivalent skill levels across the country. This system makes it difficult for firms to poach workers from rival organisations, hence encouraging the development of strong internal labour markets (Hall and Soskice, 2001: 24–5).
Muller (1999) concludes that the effect of the German employment system is to create a form of ‘pluralist’ HRM. In other words, the system does not prevent the emergence of HRM policies and techniques; indeed, as argued above, it may in fact encourage many of them. However, the unitarist, non-union ‘ideal’ of HRM is generally unobtainable for medium and large firms in Germany.
It has to be added, though, that this system, while deeply embedded, is not quite as stable as it might appear. The twin influences of globalisation, particularly of capital (cf. Lane, 2000; Beyer and Hassel, 2002), and of reunification with the former German Democratic Republic, have created tensions within the German national system, such that the continued survival of the system outlined above has been brought into question in recent years (for contrasting views on this, see Hassel, 1999; Klikauer, 2002). However, it remains the case that the human resource policy decisions of firms operating in Germany are strongly influenced and regulated by the present system.
The employment system of the UK, as reflected in Chapter of this volume, is strongly associated with the notion of voluntarism. In other words, the UK state has historically tended to abstain from direct ‘interference’ in the conduct of employment relations, preferring to encourage trade unions and employers to regulate the employment relationship through collective bargaining. This can largely be explained through the traditional opposition to legal regulation which has been prevalent, albeit for different reasons, among both employers and trade unions (for further explanation, see Hyman, 2003).
Until the election of the Thatcher government, therefore, a relative lack of legal regulation of the employment relationship was combined with generally strong collective regulation at the workplace level, at least in manufacturing industry. However, such relations were generally seen as low-trust and defensive in nature, and the system became blamed for the poor performance of British manufacturing industry.
The ‘deregulation’ of the Thatcher and Major governments consisted primarily, in this sphere, of a legislative assault on the rights of trade unions (Dickens and Hall, 1995). This, along with other social and economic changes, led to sharply declining trade union influence at the firm and workplace level (c.f. Millward et al., 2000), and enabled the ‘individualisation’ of the employment relationship.
The increasingly non-union nature of much of the UK private sector would seem to make the UK employment system more amenable to (US) models of HRM.
However, as is the case in the USA, a lack of institutional constraints can also be interpreted as a lack of institutional supports for (soft) HRM. The lack of coordination in such central areas of the employment relationship as vocational training and pay determination means that, unlike in Germany, firms’ attempts to develop strong internal labour markets with extensive provision for training are likely to be hampered by the ‘poaching’ of employees from rival firms.
UK firms have hence placed a very heavy reliance on numerical forms of flexibility, rather than the more qualitative forms of flexibility favoured both by soft HRM models and theories of ‘flexible specialisation’. Hence, the increased liberalisation of the UK employment system has not led to the widespread adoption of ‘best practice’ models of HRM, but rather to a continuance and intensification of the traditional short-termist pragmatism of UK employers. In other words, the UK system creates ‘islands’ (often foreign-owned) of contemporary ‘best practice in a sea of pragmatism.
The lack of any institutional ‘lock-in’ to soft HRM means that firms, unionised or not, often eventually resort to management unilateralism to deal with immediate, short-term pressures (Almond et al., 2001).
The current Japanese system, as established in the postwa years, is based primarily on the institutionalisation of two policies, namely seniority-based wages and ‘lifetime’ employment.
It is important to understand fully the meaning of ‘lifetime’ employment. This does not refer to all the employees of a firm, and neither is it a general practice across the Japanese economy. Rather, in larger companies, or groups of companies, there is an entrenched practice of hiring core employees from the pool of young talent available.
Once recruited, such people will remain within the company group until they are aged between 55 and 60, with a corporate undertaking not to dismiss such workers except in very exceptional circumstances (Japanese Ministry of Labour, 1995). Hence, core employees have had extensive guarantees of career-long employment. However, at the same time, to achieve flexibility in labour costs and to be able to offer employment security to a core group, employers also created a separate group of temporary workers it could lay off easily.
Flexibility was also achieved through varying the overtime hours of permanent workers, and through putting intense pressures on firms in the supply chain in order to adjust overall system labour costs (Koshiro, 1994). As Ornatowski (1998) argues, this system was neither created by employers alone, nor was it the simple result of Japanese cultural values. Rather, it was the direct result of union demands for living wages and no lay-offs, followed by management accession to these demands for core employees, incorporating them into a system that maintained overall labour cost flexibility (Koshiro, 1994).
This system, alongside a financial system that favoured growth over short-term profit maximisation (see above), helped to foster many of the well-known work organization practices of the larger Japanese manufacturing companies, later imitated by Western firms without the support of the accompanying human resource policies. It is, therefore, a combination of these practices, rather than any single policy, which contributed to Japanese economic success.
In recent years, however, faced with wider pressures on the nature of the Japanese business system, and declining economic success, there has been much talk of change in the Japanese human resource management system. In particular, the seniority system of determining pay and promotion is seen as being replaced by performance- based pay systems, increasingly labelled as an ‘annual salary system’.
However, such speculation may be premature; although it is true that some large firms have begun to replace seniority-based pay and promotion systems (nenko), with more Westernised performance-based systems (nen posei), such firms remain a minority – around 10 percent of large firms in 1998 – and even some of this minority guarantee wage levels within a more performance-related system (Ornatowski, 1998).
Equally, the performance-related elements tend to apply more to managers than to shopfloor workers. Equally, although there have been several cases of large Japanese firms making (core) employees redundant for the first time, it would be wrong to conclude that this marks the end of this pillar of the Japanese system. Although the lack of ability to dismiss workers within the system would seem, from an orthodox point of view to present rigidities, defenders of the Japanese system (cf. Ornatowski, 1998; Imai and Komiya, 1994) argue that offers of long-term employment continue to encourage strong employee loyalty and motivation, internal communication and long-term training, as well as pointing out that the system has always had substantial ‘flexibility’ owing to the presence of a large non-core workforce.
This part of the chapter has argued that the institutional nature of national business systems, and differences in the regulation of employment relations, join together to create nationally distinct modes of practice of HRM. Such effects on employer practice frequently go beyond the regulation of the workplace, to wider elements of the national business and societal system, including diverse elements such as the nature of the welfare state, the means by which firms obtain finance, etc.
Turning to the regulation of employment, some analyses of HRM in more actively regulated countries have argued that wide-ranging collective or individual rights for employees constrain employees, reduce flexibility and constitute ‘barriers to HRM’. However, we have argued that in many ways the institutional form of employment relations in Germany, or in the larger firms in Japan, would appear to support many of the practices found in ‘best practice’ HRM models. In some ways this is unsurprising, given that the inspiration for many of the original HRM models was the competitive threat that Japanese firms posed to US firms.
The field of comparative HRM (the comparison of personnel practices between firms in different countries) is often neglected, yet is important in establishing the links between personnel policies, institutional systems of regulating businesses, economic success and social cohesion. Furthermore, an understanding of how a given policy (or set of policies) is interpreted across a range of countries is a critical issue for those responsible for human resource strategies in firms that transcend national boundaries. With this in mind, we turn to an examination of HRM within such firms.
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