Subsidiary Managers and the Transfer of. Companies Institutional Work at the Intersection. Human Resource Practices in Multinational

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1 Anne Tempel/Peter Walgenbach* Subsidiary Managers and the Transfer of Human Resource Practices in Multinational Companies Institutional Work at the Intersection of Multiple Institutional Frameworks ** Abstract We develop a conceptual framework to show how agency can be integrated more centrally into new institutionalist work on practice transfer in multinational companies. Drawing on the discussion on institutional multiplicity, we show the potential for agency that subsidiary managers enjoy at the intersection of multiple institutional environments. Referring to structuration theory, we analyze the conditions that shape whether managers can realize this potential. We argue that the nature of host country rules and the abundance of resources at subsidiary level create situations in which subsidiary managers are either enabled or constrained in their ability to influence the transfer process. JEL-Classification: F23, M12, M16, P51. Keywords: Multinational Companies; New Institutionalism; Practice Transfer; Structuration Theory; Subsidiary Managers. 1 Introduction A key theme in institutionalist research on multinational companies (MNCs) is the influence of home and host country institutions on the cross-national transfer of management practices (see particularly Almond and Ferner (2006); Ferner (1997); Kostova, (1999); Kostova and Roth, (2002); Kristensen and Zeitlin, (2005); Morgan (2001); Westney (1993)). Studies in the comparative institutionalist tradition integrate agency into their arguments, for example, by drawing on Oliver s (1991) typology of strategic responses to institutional pressures (e.g., Ferner, Almond, and Colling (2005); Tempel et al. (2006)), or * Anne Tempel, Heinrich-Heine University of Düsseldorf, Universitätstrasse 1, Düsseldorf, Germany, anne.tempel@uni-duesseldorf.de (corresponding author). Peter Walgenbach, Friedrich-Schiller University of Jena, Carl-Zeiß-Straße 3, D Jena, Germany, peter.walgenbach@uni-jena.de. ** We are indebted to Tony Edwards and Anthony Ferner for their very helpful comments on earlier drafts of this paper and for access to data. We would also like to thank Markus Reihlen, two anonymous reviewers and the participants of the WK Organisation 2011 for their very helpful comments. 230 sbr 64 July

2 by considering the micro-politics involved in the transfer process (e.g., Dörrenbächer and Geppert (2009; 2011); Geppert and Matten (2006); Kristensen and Zeitlin (2005)). In contrast, in the majority of new institutionalist studies on practice transfer in MNCs, authors focus primarily on how pressures to be isomorphic with the parent company and the local institutional environment are reflected in subsidiary practices (e.g., Gooderham, Nordhaug, and Ringdal (1998); Rosenzweig and Nohria (1994)). In these studies authors implicitly assume that adaptation is something that is accepted by parent company managers as necessary, given the nature of the local institutional environment. They therefore neglect the role that subsidiary actors play in shaping the degree of adaptation. Thus, these studies tend to suffer from a narrow application of new institutionalist arguments, in particular isomorphism and legitimacy (Kostova, Roth, and Dacin (2008); Phillips and Tracey (2009)). Moreover, they fail to draw on current developments in new institutional theory (Phillips, Tracey, and Karra (2009)), for example, the discussion on institutional work, defined as the purposive action of individuals and organizations aimed at creating, maintaining and disrupting institutions (Lawrence and Suddaby (2006)). Kostova and Roth ((2002); see also Kostova (1999)) represent exceptions in the new institutionalist tradition who do consider subsidiary actors agency. These authors identify two key factors which they argue influence transfer success and subsidiary responses. The first relates to the institutional distance between the home and host country institutional environments. The authors contend that where institutional distance is large, subsidiary members (both managers and employees) will have difficulty in correctly understanding and interpreting the practice, and hence, transfer will be impeded. The second factor concerns the relational context within the MNC. Kostova and Roth (2002) argue that the relational context, i.e., the degree of dependence, identity, and trust between parent and subsidiary, affects the motivation of subsidiary members to engage in the transfer process. In our paper, we contend that Kostova and Roth s (2002) treatment of agency is conservative on two counts. First, it does not consider the potential for agency which subsidiary actors have at the intersection (Campbell (2004)) of multiple institutional environments. The potential for agency that springs from institutional multiplicity has become an important strand of discussion in new institutionalism (see, e.g., Delmestri (2009); Friedland and Alford (1991); Seo and Creed (2002)). This discussion tries to explain how actors, who according to new institutional theory are shaped by institutional prescriptions, can perceive alternatives and bring about change. Second, Kostova and Roth (2002) do consider the effect of the dependence between parent and subsidiary on the transfer process. However, they emphasize the nonsymmetrical, hierarchical relationship between parent and subsidiary and focus solely on the subsidiary s one-way dependence on the parent company for resources such as capital, technology, and knowledge. Therefore, the authors may not have given enough consideration to the fact that MNCs are not necessarily hierarchical monoliths (Birkinshaw and Hood (1998)). Instead, MNCs display a range of different parent-subsidiary relationships, from those based on tight, centralized control to more decentralized, loosely coupled networks and sbr 64 July

3 A. Tempel/P. Walgenbach federations (see particularly Andersson, Forsgren, and Holm (2007); Bartlett and Ghoshal (1998); Hedlund (1986)). The nature of these relationships has implications for the structuring of resource transactions within MNCs (Taylor, Beechler, and Napier (1996)). Moreover, subsidiaries can have resources that are useful to both the parent company and the MNC as a whole (Birkenshaw and Hood (1998); Bouquet and Birkinshaw (2008a); Gupta and Govindarajan (1991)). Where subsidiaries and their managers can build up such valuable resources, the parent-subsidiary relationship is one of mutual dependence rather than a one-way dependence (Ambos, Andersson, and Birkinshaw (2010)). In our paper, by addressing these two points we show how the potential for agency can be integrated more centrally into new institutionalist work on the transfer of practices in MNCs. We focus on subsidiary managers agency in the context of the forward transfer of human resource (HR) practices. Subsidiary managers are boundary spanners between headquarters and subsidiaries (Vora and Kostova (2007)), and the key actors at subsidiary level in charge of dealing with practice transfer (Kostova (1999)). Forward transfer concerns attempts by headquarters management to transfer practices to their subsidiaries. Our paper is structured as follows. In Section 2, drawing on the new institutionalist discussion on multiplicity and agency, we consider the potential which subsidiary managers have at the intersections of multiple institutional environments to influence the transfer process. In Section 3 we unpack the conditions that shape whether subsidiary managers can realize this potential by referring to Giddens (1984) structuration theory and the new institutionalist discussion on institutional work (Lawrence and Suddaby (2006)). We argue that the nature of institutional rules in the host country environment and the extent of valuable material resources possessed by subsidiaries influences whether and how subsidiary managers can realize their potential for agency in the transfer process. In Section 4 we develop a conceptual framework to identify which combinations of institutional rules and subsidiary resources facilitate and constrain the capacity of subsidiary managers to undertake institutional work. We also consider the types of institutional work that subsidiary managers are likely to undertake when faced with these rules-resources constellations. We illustrate our arguments with empirical examples of HR practice transfer in MNCs. In Section 5 we conclude the paper by discussing the implications of our framework for future empirical research on subsidiary management agency in MNCs. 2 Institutional Multiplicity and the Potential for Subsidiary Management Agency New institutionalists have long been criticized for their portrayal of organizations as passively conforming to institutional pressures (see for example Beckert (1999); DiMaggio (1988); Hirsch and Lounsbury (1997); Oliver (1991)). Several scholars have pointed to institutional multiplicity as a fruitful way to integrate agency into new institutionalism (see particularly Clemens and Cook (1999); Creed, Scully, and Austin (2002); Greenwood and Suddaby (2006); Seo and Creed (2002)). Their arguments recognize that actors are not necessarily faced with one single institutional logic, but with multiple, contradictory logics (e.g., Borum and Westenholz (1995); Delmestri (2009); Friedland and Alford 232 sbr 64 July

4 (1991); Giddens (1990); Scott (1994)). Such multiplicity creates conditions under which actors can perceive alternatives, thus rendering previously taken-for-granted assumptions more open to question and reflexivity (Clemens and Cook (1999); Sewell (1992); see also Campbell (2004)). The new institutionalist discussion on institutional multiplicity is clearly relevant to the MNC setting (Kostova et al. (2008)). New institutionalist and comparative institutionalist work on MNCs highlights that the operations of MNCs bring into interaction at least two key institutional domains. These are the home national business system of the parent company and the host national business system in which the subsidiary is located. The starting point of this work is the argument that firms are embedded in national business systems and have developed strategies, structures and ways of doing things that reflect the institutional constraints and opportunities of these business systems (Maurice and Sorge (2000); Whitley (1999)). As MNCs internationalize, headquarters actors are likely to be informed by these modes of operation and try to transfer them to their international subsidiaries (Ferner (1997); Westney (1993); Whitley (2001)). To do so, they use a variety of mechanisms, such as expatriating corporate managers, socialization, and standardized policies and procedures (see, e.g., Harzing (1999)). However, when MNCs do so, they meet the host country s institutional arrangements. These include the way labor or product markets are organized, the framework of regulations provided by the state, and subsidiary actors who are embedded in the norms and shared understandings that underpin these institutions. These institutions may encourage or impede the transfer of parent-country ways of doing things in the host country. Where institutional frameworks intersect, subsidiary managers serve not only as a bridge between the recipient unit [subsidiary] and the parent company (Kostova (1999)), but also as a bridge between home and host country institutional environments. Their position at the boundaries (Greenwood and Suddaby (2005)) or intersections (Campbell (2004)) of these distinct institutional frameworks is likely to sharpen their awareness of alternatives and to increase their capacity for reflexivity. Thus, when headquarters management seeks to transfer HR practices to its subsidiaries, reflexivity may be applied to the practices to be transferred and involve subsidiary managers questioning the norms and beliefs that underpin the practices. However, it is also possible that reflexivity may be directed at host country institutions such that subsidiary managers may see headquarters practices as viable ways of doing things and no longer take host country patterns as given. 3 Unpacking the Conditions Shaping subsidiary Management Agency Seo and Creed (2002) argue that the shift in the consciousness of actors from an unreflective and passive mode to a reflective and active one in situations of institutional multiplicity is only one part of the agency story. The other part is actors active exploitation of the contradictions between multiple institutions and the mobilization of different sbr 64 July

5 A. Tempel/P. Walgenbach institutional logics to further their interests (see also Friedland and Alford (1991); Sewell (1992); Whittington (1992)). 3.1 Rules and Resources Whether actors are able to realize their potential for agency in situations of institutional multiplicity is not simply a question of whether they possess individual qualities such as talent, ingenuity, or charisma (Campbell (2004); DiMaggio (1988); Giddens (1984); Lawrence and Suddaby (2006); Meyer (2004); Walgenbach and Meyer (2008); in relation to MNCs see also Andersson et al. (2007)). Moreover, the increased reflexivity of actors does not imply that they become independent, autonomous agents capable of fully realizing their interests through strategic action (Lawrence and Suddaby (2006)), but that they have the potential to undertake institutional work within existing structures (Emirbayer and Mische (1998); Giddens (1984)). Giddens (1984) argues that in any concrete situation of interaction, human agents, or actors, draw upon structure: Structure enters simultaneously into the constitution of the agent and social practices, and exists in the generating moments of this constitution (Giddens (1984)). He conceives of structure as both a medium and outcome of social practices, and defines structure as rules that guide action and resources that empower action. According to Giddens (1984), rules enter into the interaction between actors through practical consciousness about the possibilities of agency in particular contexts. On the one hand, such rules are the basis of sense-making (signification) and represent interpretative schemes to make sense of what other actors say and do. This conceptualization of rules is similar to Scott s (2008) outline of the widely held beliefs and frames through which meaning is made, associated with the cognitive-cultural pillar of institutions. On the other hand, rules refer to rights and obligations (legitimation) and thus are linked to the sanctioning of social behaviors. This understanding of rules corresponds with Scott s (2008) normative and regulative pillars. Moreover, rules are rarely unambiguous in specifying behavior, but must be interpreted. However, rules differ in the extent to which they can be interpreted. Thus, at one extreme, rules may be open in nature, leaving considerable scope for interpretation and promoting heterogeneity of action. At the other extreme, rules may be constraining. This means that they are defined much more narrowly and either require or forbid a particular behavior (see also Clemens and Cook (1999); Giddens (1984)). Such constraining rules might limit the abilities of actors to act otherwise, but might also be used by actors to avoid change (Giddens (1984)). Further, Giddens (1984) argues that rules should not be conceptualized apart from resources, because resources form the capacity for agency and power. He describes two kinds of resources that could be combined in one medium. Allocative resources refer to the capabilities that generate command over objects, goods, or material phenomena. Authoritative resources refer to the capacities that generate command over actors (Cohen 234 sbr 64 July

6 (1990); Giddens (1984)). Berger and Luckmann (1967) and Lawrence and Suddaby (2006) argue that institutional work requires resources, but that they are not equally distributed between, controlled by, and available to all actors. Combining these arguments on the open compared to the constraining nature of rules and the abundance versus the lack of availability of resources, we distinguish conceptually between four different constellations of rules and resources, or the structure to which actors can refer (see Figure 1). We argue that in situations of institutional multiplicity, the extent to which actors are able to undertake institutional work and the type of institutional work that they are likely to pursue is shaped by the nature of the rules to which they refer and the extent to which they possess resources. Figure 1: Combinations of rules and resources on which actors can draw in situations of interaction Constraining Rules Open Abundance of resources A B Resources Lack of resources D C 3.2 Nature of Rules and Subsidiary Management Agency When headquarters management attempts to transfer HR practices to their subsidiaries, it is to host country institutional rules that subsidiary managers refer in their decisions regarding practice adoption. It is the nature of rules relating to the area of employment practice in question that are important. We ask to what extent there are legal regulations, dominant values and norms, and widely held beliefs relating to the practice that require or forbid a particular behavior, or leave scope for interpretation and a variety of behaviors. For example, where there are attempts to transfer diversity management practices, the nature of employment discrimination rules, norms about the acceptability of quotas for minorities, or widely held beliefs as to the definition of diversity are key. Focusing on the rules relating to the area of employment practice in question has two key advantages. First, it enables recognition that there may be open institutional spaces in countries with generally highly-regulated institutional systems (e.g., coordinated market economies such as Germany). Similarly, there may be some highly constraining institu- sbr 64 July

7 A. Tempel/P. Walgenbach tional spheres within otherwise open liberal market economies such as the U.S. and the UK (Crouch (2005); Deeg and Jackson (2007); Lane and Wood (2009)). Second, focusing on the level of employment practices helps to highlight that such differences in the constraining or open nature of institutions within national systems may be found not only between, but also within, institutional spheres. For example, institutional rules on collective bargaining allow for regional and sectoral differences (Allen (2004); Jackson (2005)). Similarly, constraining legal regulations, which can potentially require or forbid certain behaviors, are often enabling laws that need to be invoked and enforced by actors. For example, employee representation legislation in countries such as Germany and Spain requires that it is the workforce that must initiate setting up works counciltype structures. Research shows that actual employee representation practice in Germany is shaped by the institutional work undertaken by management and works councils at organizational level (Kotthoff (1994)). Such practices might range, for example, from management bypassing works councils and dealing directly with employees to powerful and respected works councils that work alongside managers as co-managers. Together, these arguments imply that the nature of rules cannot simply be understood from broad classifications of host country institutional environments, such as liberal and coordinated market economies (Hall and Soskice (2001)), or inferred from the static concepts of institutional distance and country institutional profile (Kostova (1999); Kostova and Roth (2002)). The key is the nature of the institutional rules faced by the actor in a particular situation (see also Blazejeweski (2009); Karnøe and Nygaard (1999)). 3.3 Availability of Resources and Subsidiary Management Agency The MNC literature highlights two key factors that contribute to subsidiary weight (Bouquet and Birkinshaw (2008b)): the strength of the subsidiary within the MNC network and the strategic significance of the host country for the MNC. The strength of the subsidiary within the MNC is linked to the role that the subsidiary plays in the MNC network. Bouquet and Birkinshaw (2008a) have synthesized the literature on subsidiary roles by differentiating between subsidiaries with a basic, intermediate, and advanced mandate. At the lower end of the range, managers in subsidiaries with basic mandates have few resources that are valuable to headquarters or sister subsidiaries. In comparison, managers in subsidiaries with advanced mandates, such as world responsibility for a particular product or headquarters responsibilities for a particular region or product division, enjoy an abundance of resources on which they can draw. They thus wield much greater influence and power within the MNC network. The role of subsidiaries not only influences their command over material resources (Giddens (1984) allocative resources ), but also over authoritative resources. For example, subsidiaries with advanced mandates have power over other actors in the MNC, particularly in loosely coupled, federative MNCs with decentered authority structures (see, e.g., Andersson et al. (2007)). 236 sbr 64 July

8 For the MNC, the strategic significance of the host country reflects the importance of the host country market to the performance of the MNC (Bouquet and Birkinshaw, (2008b)), expressed, for example, in market size. It also reflects location-specific advantages of the host country (Forsgren, Holm, and Johanson (2005); Kogut (1985)). Such advantages may spring for example from cheap labor and compliant governments. Equally important are skills and capabilities specific to the location which have developed from local institutions, such as education and training, and inter-firm relations (Kristensen and Morgan (2007)). 4 Subsidiary Management Institutional Work in the Context of Practice Transfer We now consider the capacity of subsidiary managers for agency in the context of practice transfer in the different constellations of rules and resources outlined above. We argue that institutional multiplicity in MNCs, and the specific combinations of rules and resources that subsidiary actors can refer to and draw on, have implications for the extent and type of institutional work which they are likely to undertake. We propose that the capacity for subsidiary managers agency is likely to be greatest in the rules-resources constellations A and B. In both cases, subsidiary managers have valuable resources, such as a world product mandate or access to a key market. These managers can draw on such resources to negotiate whether and in what way they will adopt the practices mandated by headquarters actors. However, we argue that differences in the nature of institutional rules between these two constellations will lead to differences in the type of institutional work that subsidiary actors are likely to undertake. In rules-resources constellation A, the constraining nature of the institutional rules relating to the area of employment practice in question limit subsidiary managers in their ability to act otherwise. Thus, this constellation limits the ability of subsidiary managers to go against local institutional rules and implement HR practices mandated by headquarters. At the same time, combined with the valuable resources on which subsidiary managers can draw, it provides the basis for managers to resist practice transfer. Therefore, we argue that in situations in which host country rules are constraining and subsidiary resources are abundant, subsidiary managers are likely to engage in the institutional work of defending local practices, either by resisting practice transfer or considerably watering down mandated practices. To illustrate this point, we cite the following case: To reduce labor costs, a British-owned pharmaceutical MNC sought to internationalize a policy of outsourcing support functions. Managers of those foreign subsidiaries in which the ratio of outsourced workers to internal employees was significantly lower than in domestic operations were pressured to increase outsourcing. This was the case in the German subsidiary of the company. This subsidiary had a significant standing in the company. It was one of the largest subsidiaries in the company and had key production facilities for central products. The German market was also very important for the company. The German Works Constitution Act includes comprehensive legal provisions on employee representation and provides a framework for management-works council negotiations on a wide range of HR issues, including outsourcing. Aided by the abun- sbr 64 July

9 A. Tempel/P. Walgenbach dance of subsidiary resources, the German HR manager used these legal provisions to argue that it was very difficult to increase the number of outsourcing workers. He was successful in decreasing parent company pressure to do so: I am happy that I am able to say no to such influence the last defense is always German employment law (Tempel (2002)). A further example was found in an American-owned consumer and health products MNC. Its British subsidiary played a key role in the company because of its large manufacturing and research and development sites. Managers in the British subsidiary were able to resist pressure from headquarters actors to implement a global policy on diversity. The policy included targets for women in management positions. The managers rejected the policy on the grounds that it implied positive discrimination, which is outlawed by British and European legislation (Ferner et al. (2005)). These examples show how subsidiary managers in Britain (a liberal market economy) and in Germany (a coordinated market economy) were able to defend local practices because of the constraining nature of the institutional rules underpinning them. Thus, these examples support our argument on the usefulness of focusing on the nature of institutional rules relating to the area of employment practice rather than at a generalized, national level. These two examples also illustrate how constraining institutional rules that are regulative in nature can provide subsidiary actors with the basis for defending local practices. Kostova et al. (2008) propose that there are rarely pressures from the host environment for local isomorphism apart from the regulatory and legal domains. In contrast, we argue that the ability of subsidiary managers to undertake institutional work in situations of institutional multiplicity is not limited to host country regulations, but can also relate to local norms and cognitive frames. To illustrate this point, we cite the example of the rapidly growing and economically very successful German subsidiary of a U.S. management consultancy. Managers in that subsidiary were able to resist the transfer of a global performance-related pay system that infringed societal norms in the host country concerning too wide earning differentials between high and lower performers (Almond, Muller-Camen, Collings, and Quintanilla (2006)). Similarly, in a U.S.-owned engineering company, managers of the British subsidiary, which represented a key location within Europe that employed over 80% of the MNC s European workforce, were able to prevent the transfer of a standardized appraisal system that included forced rankings. They did so on the grounds that the rankings went against host country norms on fairness in dealing with competent performers (Edwards, Colling, and Ferner (2007)). These examples show how subsidiary managers use local rules and abundant resources to actively defend local practices. However, it is conceivable that subsidiary managers in situation A do not need to actively defend local practices because other local actors, such as trade unions or works councils, do this for them by vetoing or blocking practice transfer. For rules-resources constellation B, the implications for the type of institutional work that subsidiary managers are likely to undertake are less clear compared to those in constellation A. On the one hand, equipped with valuable resources, subsidiary managers have 238 sbr 64 July

10 the potential to negotiate with headquarters actors whether, and in what way, they will adopt the mandated practice. On the other hand, these managers are less constrained by local institutional rules and are thus able to act otherwise. Therefore, they are potentially able to adopt the practices mandated by the parent organization. We argue that faced with such situations, subsidiary managers are likely to interpret local practices and the institutional rules underpinning them. Such institutional work may be expressed in a number of actual responses, depending on the interests and the motivation of subsidiary managers to actively negotiate with headquarters actors over the terms of practice transfer. Thus, responses may range from resistance at one extreme to complete adoption at the other. Mid-way responses may involve adapting and modifying headquarters practices to translate them into the host country context or recombine them with local rules. For example, managers of a key British subsidiary of an American-owned engineering firm accepted in principle headquarters policies on monitoring and increasing the number of minority employees in their workforce. Although this is common practice in Britain, the managers argued that the policy needed to be adapted and relaxed because of low turnover and downsizing in the subsidiary (Ferner et al. (2006)). This response stands in contrast to the stance taken by managers in a German-owned pharmaceutical subsidiary in Britain with advanced mandates and a very successful track record. Subsidiary managers used the lack of trade union recognition and workplace representation to become an experimental location for a continuous production system desired by headquarters. This brought them success in further increasing the subsidiary s competitive advantages compared to the MNC s other European sites (Tempel (2002)). Figure 2 summarizes the likely responses of subsidiary managers in the different rulesresources constellations. Figure 2: Types of institutional work most likely to be undertaken by subsidiary managers in the different rules-resources constellations Constraining Rules Open Abundance of resources A Defending B Interpreting Resources Lack of resources D Using institutional spaces C Adapting sbr 64 July

11 A. Tempel/P. Walgenbach In contrast to the first two cases, we propose that the capacity of subsidiary managers for agency is likely to be considerably smaller in rules-resources constellations C and D. In both these constellations, subsidiary managers lack sufficient resources to draw on to defend local practices. Thus, it is difficult for them to prevent practice transfer or negotiate effectively the terms of implementation with headquarters actors. However, we argue that the type of institutional work that subsidiary managers are likely to undertake in these constellations will differ. In rules-resources constellation C, subsidiary managers not only lack sufficient resources to defend local practices. The open nature of local institutional rules also provide managers with little basis to justify that adopting mandated practices is problematic or impossible. Therefore, we argue that institutional work in this situation is likely to take the form of subsidiary managers adapting local HR practices to headquarter mandates, with minor adjustments to local rules where necessary. Compared to cases A, B, and C, rules-resources constellation D is the most problematic situation for subsidiary managers to be in. On the one hand, the constraining nature of institutional rules, which either prescribe or forbid particular behaviors, makes it difficult for constellation D managers to act otherwise and to adopt mandated practices that go against local rules. On the other hand, these managers do not have the resources, and thus the ability and power, to defend local practices against the transfer attempts of headquarters actors. Hence, they risk that the subsidiary for which they are responsible will not be able to secure future parent company investment or may be sold off or closed. An alternative way of attempting to increase their legitimacy in the eyes of corporate actors would be for subsidiary managers to find less constraining institutional spaces within the local environment. Thus, we argue that institutional work is likely to take the form of using institutional spaces in the local environment that place fewer constraints on their ability to implement headquarters practices. For example, as a result of poor economic performance, the German subsidiary of an American-owned MNC that manufactures and services IT equipment lost the majority of its production operations through downsizing. Thus, it was reduced to a subsidiary with only a basic mandate. Headquarters actors enforced a rationalization program and cost-cutting targets on their subsidiaries. It was very difficult for the German subsidiary s managers to meet these targets because of the metalworking industry collective agreement which applied to the subsidiary. The agreement stipulated a 35-hour working week and left very little scope for linking payment to individual performance. To achieve the costcutting targets, subsidiary managers used the restructuring of the subsidiary to change the collective bargaining arrangements of its operations. They extracted all but the production operations from the restrictive metalworking collective agreement. Further, they made company-level agreements with a service sector union for the remainder of the subsidiary s operations. These agreements enabled them to achieve much greater flexibility in working time arrangements, introduce the company s new variable pay policy, and ultimately to meet the mandated cost cutting targets (for more details, see Tempel et al. (2006)). 240 sbr 64 July

12 5 Conclusion and Implications for Future Empirical Research In this paper we develop a conceptual framework of how agency can be better integrated into new institutionalist studies on HR practice transfer in MNCs. Drawing on the new institutionalist discussion on institutional multiplicity, we point to the potential for agency that subsidiary managers enjoy at the intersections of multiple institutional frameworks. Then, referring to Giddens (1984) structuration theory and the notion of institutional work (Lawrence and Suddaby (2006)), we unpack the conditions that shape whether subsidiary managers are able to realize this potential. We argue that the nature of host country rules to which they refer and the abundance of resources on which they can draw create situations in which subsidiary managers are either enabled or constrained in their potential for agency. Thus, we identify different rules-resources constellations and differentiate between them in terms of the extent and type of institutional work that subsidiary managers are likely to undertake. Moreover, in relation to the open compared to constraining nature of institutional rules, we argue for a focus on the rules relating to the area of employment practice in question, rather than on broad national-level host country institutional environments. By doing so we enable a more nuanced classification of rules, one which takes into account regional, sectoral, and organizational-level variation within host country environments. The examples we use to illustrate our arguments stem from qualitative investigations of a limited number of home and host countries. Large-scale, quantitative research of HR practice transfer in a wider range of home and host countries is therefore needed to test our conceptual framework and theoretical reasoning. To unpack the conditions that shape subsidiary management agency, we hold constant a set of important company-level, subsidiary-level, and individual-level contingencies that affect key variables in our framework. Future empirical research should also consider how these contingencies shape the extent and type of institutional work that subsidiary managers undertake in the different rules-resources constellations. Two key company-level contingent factors are important. The first concerns the MNC s country of origin and how this shapes the extent to which headquarters management tries to standardize HR practices and enforce practices on their subsidiaries. For example, empirical studies have shown that American-owned MNCs tend to standardize their HR practices to a much greater extent than do MNCs of other nationalities, such as European MNCs (e.g., Child, Faulkner, and Pitkethly (2000); Harzing (1999); Negandhi (1983)). A second factor relates to differences in MNC strategy and structure (global, transnational, and multinational) and how these shape headquarters-subsidiary relationships and resource distribution within MNCs (Bartlett and Ghoshal (1998); Ghoshal and Nohria (1993); Prahalad and Doz (1987)). In global MNCs, in which forces of global integration dominate those of local responsiveness, most assets, resources, decision-making, and responsibilities are centered at headquarters. Thus, subsidiary autonomy is relatively small and dependence on headquarters is high. In contrast, multinational MNCs, in which forces of local responsiveness dominate those of global integration, are characterized by the decentralization of assets and resources to subsidiaries. In this type of MNC, subsidiaries sbr 64 July

13 A. Tempel/P. Walgenbach enjoy considerable autonomy and are less dependent on headquarters. In transnational MNCs, in which both forces of global integration and local responsiveness are high, there is moderate centralization of decisions and resources. Subsidiaries in transnational MNCs enjoy some autonomy, and headquarters-subsidiary relationships are characterized by interdependence. The availability of valuable resources at subsidiary level is thus likely to be most abundant in multinational MNCs, moderate in transnational MNCs, and most lacking in global MNCs. A key subsidiary-level contingent factor affecting subsidiary autonomy is whether subsidiaries were set up or acquired by the MNC. Several studies have shown that acquired subsidiaries are likely to enjoy greater autonomy than greenfield sites (Rosenzweig and Nohria (1994); Schuler, Dowling, and DeCieri (1993)). An important contingent factor at the individual level of the subsidiary managers themselves relates to their nationality and career interests. Empirical research might take into consideration how the nationality and career interests of subsidiary managers influences their identification with the parent company or the subsidiary and thus with home or host country rules. Studies have identified differences between the orientation of subsidiary managers towards headquarters or subsidiaries depending on whether the managers are parent country nationals (PCNs), host country nationals (HCNs), and third country nationals (TCNs) (Gong (1993); Tarique, Schuler, and Gong (2006)). PCNs are ascribed a strong orientation towards headquarters because of their familiarity with the MNC s goals, policies, and practices. HCNs are argued to be orientated towards the subsidiary, due to their socialization in and knowledge of the host country environment. TCNs are accorded a more balanced orientation than the other two groups, although their number is small compared to PCNs and HCNs (Harzing (1999)). Against the background of these findings, it could be argued that in situation A, in which there are constraining rules and abundant resources, because of their strong headquarters orientation expatriates managers would be less likely than HCNs to be motivated to actively defend local practices. However, contrary studies (see, e.g., Banai and Reisel (1999); Black and Gregerson (1992)) indicate that nationality alone is not sufficient to predict subsidiary management orientation and motivation. Further, other authors argue that nationality needs to be supplemented with a consideration of the career aspirations of subsidiary managers, i.e., the extent to which the managers future career goals focus on the subsidiary, headquarters, or an outside firm (Dörrenbächer and Geppert (2009; 2010); Morgan and Kristensen (2006)). Moreover, the importance of nationality could differ depending on which subsidiary managers are the focus of research. A survey conducted by Harzing (2001) shows that while 40% of managing directors are PCNs, this was the case for only 17.2% of finance managers and just 2.2% of HR managers. To unpack the key variables that shape subsidiary management agency in the context of practice transfer, we present a static view of practice transfer and the headquarters-subsidiary relationship. However, as research shows, short-term decisions can have long-term consequences for relationships between headquarters and subsidiary managers (Dörrenbächer and Gammelgaard (2010); Kristensen and Zeitlin (2005)). Longitudinal research 242 sbr 64 July

14 would be useful in showing how subsidiary management agency is informed over time. Such research could for example investigate how far managers in constellations A and B can go in resisting transfer without provoking headquarters retaliation. It would also be useful in revealing the difficulties that constellation D managers may face in taking a tougher stance towards practice transfer once they have shown that they are willing and able to use institutional spaces. Our paper unpacks the conditions that shape whether actors can realize their potential for agency in situations of institutional multiplicity by focusing on subsidiary management agency in the context of forward HR practice transfer in MNCs. Regarding the generalizability of our framework to practice transfer in other areas of management activity, it can be argued that HR is the management function most strongly influenced by local institutional rules (e.g., Edwards (2011)). Therefore, subsidiary management agency and the predicted responses may be most visible in HR practice transfer. However, because practice transfer provokes challenges to institutional rules and modes of action, we argue that many of the same processes are likely to be observed in other management functions. Institutional multiplicity is particularly visible in the MNC context, in which two sets of institutional rationalities collide and contradictions between home and host country regulative, normative, and cognitive institutional pillars are particularly evident. We hope that our framework can also be informative for considering the potential for actors to undertake institutional work in other, less evident, situations of institutional multiplicity. References Allen, Matthew M. C. (2004), The varieties of capitalism paradigm: not enough variety?, Socio-Economic Review 2, Almond, Phil and Anthony Ferner (eds.) (2006), American Multinationals in Europe. Managing Employment Relations Across National Borders, Oxford: Oxford University Press. Almond, Phil, Michael Muller-Camen, David Collings, and Javier Quintanilla (2006), Pay and Performance, in Phil Almond and Anthony Ferner (eds.), American Multinationals in Europe: Managing Employment Relations Across National Borders, Oxford: Oxford University Press, Ambos, Tina C., Ulf Andersson, and Julian Birkinshaw (2010), What are the consequences of initiative-taking in multinational subsidiaries?, Journal of International Business Studies 41, Andersson, Ulf, Mats Forsgren, and Ulf Holm (2007), Balancing subsidiary influence in the federative MNC a business network perspective, Journal of International Business Studies 38, Banai, Moshe and William D. Reisel (1999), Would you trust your foreign manager? An empirical investigation, Journal of International Human Resource Management 10, Bartlett, Christopher A. and Sumantra Ghoshal (1998), Managing Across Borders, London: Hutchinson. Beckert, Jens (1999), Agency, entrepreneurs, and institutional change, Organization Studies 20, Berger, Peter L. and Thomas Luckmann (1967), The Social Construction of Reality, New York: Anchor Books. Birkinshaw, Julian and Neil Hood (1998), Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies, Academy of Management Review 23, Black, J. Stewart and Hal B. Gregersen (1992), Serving two masters: Managing dual allegiance of expatriate employees, Sloan Management Review 33, sbr 64 July

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