The golden triangle: standardization, localization or dominance?

One of the central questions in the literature on MNCs is the extent to which their subsidiaries act and behave as local firms (local isomorphism) versus the extent to which their practices resemble those of the parent company or some other global standard (internal consistency). One of my research programs thus attempts to provide an insight into the interplay of cultural, institutional and organisational factors that affect the transfer of HRM practices across borders.

Convergence vs. divergence in US, Japanese and German MNCs

A first paper (Pudelko & Harzing, 2007a) in this stream contributes to two recurring and very central debates in the international management literature: the convergence vs. divergence debate and the standardization vs. localization debate. Using a large-scale sample of multinationals headquartered in the US, Japan and Germany as well as subsidiaries of multinationals from these three countries in the two other respective countries, we test the extent to which HRM practices in subsidiaries are characterized by country-of-origin, localization, and dominance effects.

Our results show that for German and Japanese subsidiaries the dominance effect is most important, i.e. their practices appear to converge to the dominant US practices. For US subsidiaries localization effects are particularly important. Hence our results lead to the rather surprising conclusion that for what might be considered to be the most localized of functions - human resource management - convergence to a world-wide best practices model (also called dominance effect) is clearly present for Japanese and German MNCs.

triangle

The golden triangle

In a second paper (Pudelko & Harzing, 2008) based on our large-scale survey of headquarters (HQs) and subsidiaries of American, Japanese and German MNCs, we argue that MNCs can no longer afford to define standardization simply as the worldwide adoption of HQ practices. Standardization can take place towards two different poles: HQ practices and global best practices, wherever they originate from. As we believe managing the challenge of localization versus standardization towards either HQ or global best practices is the key to MNC success we call it the Golden Triangle for MNCs.

We suggest that MNCs might limit transfer of practices to what they consider to be their core competencies and converge to best practices in other areas. For Japanese and German MNCs their core competences usually lie in the area of Manufacturing rather than Human Resource Management. Hence our study supports what have been called geocentric or transnational corporate models, where worldwide learning and knowledge transfer is paramount, regardless of where the knowledge in question originates.

Management practices in Europe

A final paper in this series (Pudelko & Harzing, 2007b) investigates whether the term European Management is justified or if national differences between management practices within Europe render this concept meaningless. We argue that up to the late 1980s, management practices in Europe were still rather diverse, heavily influenced by different national traditions and institutional differences. From the early 1990s onwards, under the context of globalisation, convergence tendencies became more prevalent. However, the focal point was not so much a specific European management model, but the American model instead.

For the future we predict a more multi-polar world in which the virtual monopoly of the United States in setting the standards for best practices in management will weaken. In contrast, the European approach, which takes a more balanced approach between economic efficiency and social concerns, might become more important, providing an additional source of inspiration, both within Europe and beyond.

References

  • Pudelko, M.; Harzing, A.W. (2007a) Country-of-Origin, Localization or Dominance Effect? An empirical investigation of HRM practices in foreign subsidiaries, Human Resource Management, 46(4): 535-559. [Winner of the 2007 Ulrich-Lake award for the best paper published in Human Resource Management.] Available online... - Publisher’s version
  • Pudelko, M.; Harzing, A.W. (2008) The Golden Triangle for MNCs: Standardization towards headquarters practices, standardization towards global best practices and localization, Organizational Dynamics, 37(4): 394–404. Available online... - Publisher’s version
  • Pudelko, M.; Harzing, A.W. (2007b) How European is management in Europe? An analysis of past, present and future management practices in Europe, European Journal of International Management, 1(3): 206-224. Available online... - Publisher’s version

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