Analysis of differences in performance appraisal in an international context

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1 Analysis of differences in performance appraisal in an international context Jana Cocuľová Prešov University of Prešov, Faculty of Management, Department of Management 17. novembra Prešov Slovakia Abstract The paper deals with the issue of a selected human resource management practice in the context of international human resource management. The aim of the paper is to analyse the differences in performing a selected personnel practice performance appraisal, through the comparison of and subsidiaries of multinational companies operating in Slovakia. In order to achieve the objective, the research study was conducted on a sample of 44 companies from September to November The research objective was to verify whether there exists a statistically significant difference in selected aspects of performance appraisal between and subsidiaries of multinational companies operating in Slovakia. The research objective is investigated with the help of four statistical hypotheses using the Mann Whitney U test. Keywords: International human resource management, human resource management practices, multinational companies, performance appraisal. Introduction In the past year there has been an increase in the number of multinational companies (MNCs), which carry out their activities outside their home country. The entry of MNC on the host country market may be a difficult process since the host environment is often different from the conditions of the home country. This requires that the MNC has to seek the right balance between the application of its own management practices and the need to adapt to the conditions of the local environment of the host country. This finding has inspired a number of various scientific studies dealing with the issue of the operation of MNCs in the host countries. The research pays particular attention to the issue of HRM, because non-acceptance of procedures by host country workers may result in reduced performance of workers and ultimately the underachievement of the objectives of the MNC. 1. Literatury review Globalization has created new conditions for the operation of companies associated with the ability to enter into new markets beyond the national borders. An important condition for the acquisition of the international competitive advantage is that companies entering into new markets integrate local business differences and effectively transfer knowledge and technology across borders to other countries [1]. However, it should be noted that due to cultural and institutional differences it is not always possible to transfer human resource management (HRM) practices to other countries, since the implementation of HRM practices is strongly influenced by the characteristics of the culture in which the organization operates [2]. Recent research indicates that organizations in different countries are different also in their policies and practices of HRM [2]. This research noted, that the transfer of personnel policies and practices to different countries can be quite difficult. The main obstacles are associated with the culture of the host country and the institutional environment. Cultural values and cultural differences are not the only factors that affect the management and behavior of individuals. Human behavior is also partly dependent on the internal social structures that affect people either as support or restriction through their roles and positions in various institutions. The institutional theory and research in the last 20 years have focused primarily on the influence of social forces in the organizational structure. The main idea is that social institutions systematically affect 61

2 business practices in the structures and processes that reflect the national pattern. The research attempted to give an empirical answer to how an organization creates an institutional system which is appropriate for the local environment [3]. Multinational companies are often trying to find balance between the need to standardize its own HRM practices beyond national borders and to adapt them to local practices and customs [4]. Kostova and Roth have identified this phenomenon as "institutional duality (dualism)"[5]. One of the dominant theories in this field is the American management theory. Although this management theory led mainly to the faith that universal HRM practices that can be used anywhere, research shows that managerial attitudes, values and behavior are different in regards to the national culture. There is not a one single universal way of managing because the ethnic differences and variations in addition to other factors require different management practices [3]. Regarding the transfer of management practices in the host country, the question is to what extent are companies able to transfer HRM practices since it largely depends also on the national business environment of the host country and its institutions, which can either facilitate or preclude the transmission [6]. In connection with the transfer of HRM practices, three general strategic international orientation of human resource management are listed [7]: 1. Adaptive orientation Adaptive orientation is characterized by the fact that the HRM systems in subsidiaries are adapted to the conditions of the local environment. 2. Export strategy In the case of applying the export strategy, HRM practices are transferred to subsidiaries due to the perception of accuracy and efficiency of practices created for the conditions of the parent company. 3. Integration strategy Multinational companies using the integration strategy seek to create generally acceptable practices that are applied in the parent company and also in the subsidiaries. Several scientific studies dealing with the issue of transfer of HRM practices have led to the idea to conduct research, which aimed to analyze the way of carrying out of HRM practices on a sample of local (national) companies and subsidiaries of MNCs in Slovakia. The focus was to determine whether MNCs operating in Slovakia previously applied approach of localization, and thus adapt the HRM practices to the conditions of host country or they use the approach of standardization instead. For this purpose, the research has been carried out in Slovakia. 2. Methodology The aim of the research study is to determine whether there exist differences between and subsidiaries of MNCs operating in Slovakia in performing HRM practices. Given the fact that HR management covers a wide variety of HRM practices, the attention was focused only on one specific HRM practice performance appraisal of employees. It was assumed that there are statistically significant differences in performing of performance appraisal between and subsidiaries of MNCs. The practice performance appraisal was analyzed in terms of several aspects that represent the dependent variables: Frequency of carrying out of performance appraisals. Use of a formal performance appraisal system. The use of various methods of performance appraisal. The use of performance-oriented rewarding system. The research was conducted on a sample of 44 companies operating in Slovakia, where 63.6% presented national companies and 36.4% were subsidiaries of MNCs operating in Slovakia. Data collection was conducted by using a questionnaire during the months of September to November To meet the research objective four statistical hypotheses were tested by using the Mann Whitney U test. 62

3 3. Results and discussions The aim of the research study was to verify the existence of statistically significant differences between and subsidiaries of MNCs in the area of performance appraisal of employees by using of methods of inductive statistics. For the purpose of achieving the research aim four statistical hypotheses were tested. H1: There exists a statistically significant difference between and subsidiaries of MNCs in the frequency of performance appraisals. The first factor, which was the subject of the analysis, is the frequency of performance appraisals. It was examined how often this HRM practice is performed. The results suggest that in the case of most of local companies, performance appraisal is carried out maximum once per year. In the case of subsidiaries of MNCs it is very similar but the results can be evaluated as more positive for this category of companies by the reason that there is only one company which carries out performance appraisal less than one a year, see Graph 1. Graph 1: A comparison of and subsidiaries of MNCs in terms of frequency of performance appraisals subsidiaries of MNCs more than 4 per year 4 per year 2 per year 1 per year less than 1 per year 7.14% 6.25% 3.57% 6.25% 25% 17.86% 62.5 Source: own processing. The hypothesis H1 was verified by the Mann Whitney U test. Since the value of p 0.05, the hypothesis was rejected. It can be concluded that and subsidiaries of MNCs do not differ in the frequency of performance appraisals. It is clear that in most organizations (both local and international) performance appraisal is performed once per year. Results are shown in Table 1. Table 1: Testing of the existence of statistically significant difference in the frequency of carrying out of performance appraisal Source: output of program Statistics 21. H2: There is a statistically significant difference between and subsidiaries of MNCs in the use of formal performance appraisal system. 63

4 Part of the research was to find out whether companies have created and implemented a formal system for evaluating employee performance. Experience shows that in many cases, Slovak companies performance appraisal is conducted informally, without clearly defined rules and conditions what can be evaluated very negatively. Better results have been found in subsidiaries of MNCs, because all but one subsidiary have implemented a formal performance appraisal system. The comparison of and subsidiaries of MNCs is presented in Graph 2. Graph 2: A comparison of and subsidiaries of MNCs in terms of using of formal performance appraisal system subsidiaries of MNCs no rather no don t know rather yes yes 6.25% 14.29% 14.29% 93.75% Source: own processing. It was assumed that and subsidiaries of MNCs statistically differ in regard to the use of formal performance appraisal system. The assumption was tested by the Mann Whitney U test, which confirmed the assumption, therefore H2 is accepted. The results confirmed that subsidiaries of MNCs evaluate their workers with a formal system as opposed to. This also suggests that MNCs apply their own performance appraisal system also in the context of a host country in which the subsidiary is located. Results hypothesis H2 testing are shown in Table 2. Table 2: Testing of the existence of statistically significant difference in use of formal performance appraisal system Source: output of program Statistics 21. H3: There are statistically significant differences between and subsidiaries of MNCs in use of selected methods of performance appraisal. A partial aim of the research is to determine the differences in the application of selected employee evaluation methods. The objective of the survey was to examine whether MNCs use selected methods of performance appraisal in a different rate in comparison to. Attention was focused on three selected methods, namely: Rating scale. Interview. Questionnaire. 64

5 The Graph 3 shows a comparison of and subsidiaries of MNCs in the use of selected methods for performance evaluation. The research results indicate that the use of the rating scale and questionnaire is very similar in the category of and subsidiaries of MNCs. The difference is evident in the case of the use of the assessment interview, which is the dominant method for employee evaluation in subsidiaries of MNCs. In the case of the questionnaire is the most often used method for evaluation of employees. Graph 3: A comparison of and subsidiaries of MNCs in use of selected methods of performance appraisal rating scale never rarely sometimes often very often subsidiaries of 45.45% 27.27% % % % 0 interview 7.14% subsidiaries of 7.14% 7.14% 14.29% 64.29% 23% 15% 27% 19% 15% 0 questionnaire subsidiaries of 25% % 31.25% 32% 12% 16% 2 2 Source: own processing. The assumption of the existence of statistically significant differences in the use of selected methods of performance appraisal was tested by the Mann-Whitney U test. Hypothesis H3 was accepted for a single variable the rate of use of the interview. The results confirmed that the and subsidiaries of MNCs statistically differ in the use of this method during performace appraisal. This finding demonstrates that MNCs partly apply the standardization approach, as they do not adapt this HRM practice fully to the conditions of the host country. The results of hypothesis H3 testing are shown in Table 3. Table 3: Testing of the existence of statistically significant difference in using of selected methods of performance appraisal Rating scale Interview Questionnaire Source: output of program Statistic 21. H4: There is a statistically significant difference between and subsidiaires of MNCs in the degree of using of performance-oriented rewarding system. The last aspect, which is the subject of performed analysis is the reward system and its link to the system of performance appraisal. In conditions of Slovakia, there is often a reward system based on the use of fixed 65

6 remuneration, without it depending on the worker s performance. Therefore, the parcial aim is to verify to what extent the reward system depends on the results of performance appraisal in the sample of local companies and subsidiaries of MNCs and thus whether they use performance-oriented reward systems. As Graph 4 shows, both groups of companies ( and subsidiaries of MNCs) use performance-oriented reward systems in most cases, which can be seen as a positive. Graph 4: Comparison of and subsidiaries of MNCs in using of performance-oriented rewarding system yes rather yes neutral rather no no subsidiaires of MNCs % 18.75% % 3.57% 14.29% 17.86% Source: own processing The attention was focused on whether and subsidiaries of MNCs differ in the degree of application of the performance-oriented rewarding systems. The statistical test shows that the assumption was not confirmed, therefore hypothesis H4 is rejected. Based on the results it can be concluded that the application of performance-oriented rewarding systems has become a standard, even in conditions of Slovak companies. The results are shown in Table 4. Table 4: Testing of the existence of a statistically significant difference in using of performance-oriented rewarding system Source: outsput of progam Statistics 21. The objective of the presented study was to compare the and subsidiaries of MNCs focusing on the way they carry out a selected HRM practice, performance appraisal. The attention is focused on four selected aspects of performance appraisal. Four statistical hypotheses test the existence of statistically significant differences between and subsidiaries of MNCs in terms of selected aspects are were tested using the Mann Whitney U test. Out of a group of six variables, the hypotheses were confirmed in two cases. It was confirmed that and subsidiaries of MNCs differ in the application of a formal performance appraisal system. It was found that Slovak companies in most cases do not have a formal system for evaluating workers, unlike to subsidiaries of MNCs. It is therefore clear that MNCs are aware of the importance of performance appraisal of their workes as an important tool for influencing worker s performance in a higher degree. If the employee has no feedback on his performance and the performance is 66

7 not continuously rated, he has no objective view of his work, which ultimately may affect his work motivation and his interest in further professional development. The second variable in which and subsidiaries of MNCs differ, is the rate of use of the interview as one of the methods of performance appraisal. The results confirmed that MNCs apply the interview in the most cases of performance appraisal as opposed to Slovak companies that use this method in a lower extent. Overall results confirmed that MNCs do not apply the localization approach fully. Since some statistically significant differences were found between and subsidiaries of MNCs, it can be noted that in some cases MNCs use their own ways in the implementation of performance appraisal and therefore some procedures of carrying of HRM practice are transferred to the host country. Within the research there were no other statistically significant differences identified between and subsidiaries of MNCs. This finding can be justified also by the fact, that globalization leads to the disappearance of differences in the way of performing of HRM practices between different countries and different cultures. Acknowledgement The paper has been elaborated within the project KEGA 042PU-4/2014 Human resource management in the period of globalization. References [1] GUPTA, A. and V. GOVINDARAJAN Knowledge flows and the stucture of control within multinational corporations. In Strategic Management Journal. Vol. 16, no. 1, pp ISSN [2] FERNER, A Country of origin effects and HRM in multinational companies. In Human Resource Management Journal. Vol. 7, no. 1, pp ISSN [3] MYLONI, B., HARZING, A-W, K. and H. MIRZA Host country specific factors and the transfer of human resource management practices in multinational companies. In International Journal of Manpower. Vol. 25, no. 6, pp ISSN [4] POUSTMA, E., LIGTHART, P.E.M. and U. VEERSMA The diffusion of calculative and collaborative HRM practices in European firms. In Industrial Relations. Vol. 45, no. 4, pp ISSN [5] KOSTOVA, T. and K. ROTH Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. In Academy of Management Journal. Vol. 45, no. 1, p ISSN [6] COCUĽOVÁ, J., KRÚPOVÁ, I. and N. SVEROZÁROVOVÁ Analysis of human resource management practices in comparison of MNCs subsidiaries and in Slovakia. In Journal of Management and Business: Research and Practice. Vol. 5, iss. 1, pp ISSN [7] RIEGE, A Actions to overdome knowledge transfer barriers in MNCs. In Journal of knowledge management. Vol. 11, no. 1, pp ISSN

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