Human resource management in the subsidiaries of foreign firms in India

Abstract

Given the current economic climate, many companies see transfrontier operations as a logical, even unavoidable step in developing their own competitive potential. Increasing transfrontier operations by firms are making it more important than ever to understand how subsidiaries could be managed more effectively. A major component of this understanding appears to be in the field of Human Resource Management (HRM).

The research focus in HRM field in the past few years has been to identify the correlation of HRM practices with other organizational variables such as business strategy, structure, industry characteristics in the context of single nation firms. Present study aimed to extend this line of work to the context of multinational corporations.

The study addressed following questions: 1) What HRM practices are adopted by foreign firms in India? 2) Are there inter-firm differences in HRM practices in foreign firms in India? a) If yes, what factors do explain those differences? b) If no, what factors explain similarity? 3) How are HRM practices linked with other endogenous and exogenous variables?

Unit of analysis for the proposed study was ‘subsidiary of foreign firms of India.’ Endogenous concepts/variables were: corporate strategy, business strategy, energy strategy, headquarters’ international orientation, structure of international operations, cultural similarity between the parent company and the subsidiary, age and size. Exogenous concepts/variables were: nationally of the parent company and perceives labour market conditions to recruit skilled people.

Thirty three subsidiaries from diverse nationality, entry strategy, structure of international operations, and business line participated in the study. There were 14 subsidiaries of American MNCs, 16 subsidiaries of European MNCs, 2 subsidiaries of Japanese MNCs, and 1 subsidiary of an Asian country.

Data were collected through mailed questionnaire. Personal visits were also made to the companies to have better response from subsidiaries.

Methodology for the analyses included factor analysis, t-test, Kruskal-Wallis test, and regression. Some of the research findings are:

A) HRM practices in subsidiaries of foreign firms in India are characterized by:

1) High autonomy in subsidiary. 2) Heads of HRM functions are mostly Indians. 3) Low intensity of expatriates from the parent country and third country and third country at the top management positions in the subsidiaries. 4) Low expatriation of Indian managers at the parent company and others subsidiaries. 5) Indian labour market is perceived favorable to recruit skilled people. 6) Recruitment agencies and newspaper advertisement are the most important source of recruitment. Extent of campus recruitment is not high to recruit junior managers. 7) Attitude and skill for the job, learning ability, ability to work in group and customer orientation are the most important factors to select managers. 8) Training intensity has been found to be low at 10 days per manager per year. There is no significant difference in quantum of training between three group of managers namely junior, middle and senior managers. 9) Training programmes organized primarily for the purpose of learning the present job and for promotion. There is very little focus on training for foreign assignments and for language. 10) Formal class room training and national conference are extensively used for training of managers. 11) Performance appraisal is extensively use to identify training needs, salary decisions, promotion of managers and for succession planning. 12) Appraisal is primarily done on the basis of pre-set objectives are jointly set managers and their supervisors. Involvement of parent country managers in the appraisal of senior managers is somewhat low. 13) Compensation level is significantly lower than that of managers at the parent company. 14) Compensation decisions are primarily based on performance emphasis, internal consistency and overall HRM strategy of the organization. 15) Unions are seen as perceived as somewhat useful by the HR managers of subsidiaries of foreign firms in India.

B) There are significant differences between subsidiaries of US Based MNCs and subsidiaries of Europe based MNCs on HRM practices. American subsidiaries are characterized by higher cultural similarity with the parent company, higher percentage of expatriates at the top management position in the host nation, higher foreign training of managers, better compensation level, and lower unionization of employees as compared to the same in European subsidiaries.

C) Cultural similarity is positively related with extent of training abroad, trainers from abroad, and intensity of expatriates at the top management positions. Further, equity Participation by the parent company was found to be negatively related with autonomy in the subsidiary and positively related with cultural similarity between the parent company and the subsidiary.

D) Size and age are found to positively related with autonomy in subsidiaries. Size is the single most important variable to explain the autonomy in subsidiaries.

The findings of this study are likely to help practicing managers in MNCs to be proactive by developing an understanding of influence of different organizational variables on HRM practices. HR managers of Indian MNCs would be better able to choose the inter-unit integrating mechanisms by understanding the HRM implications of the chosen mechanism.