international business unit VIII Case Study

Unit VIII Case Study

Bodolica, V., & Waxi, M. (2007). Chicago food and beverage company: The challenges of managing international

assignments. Journal of the International Academy for Case Studies, 13(3), 31-42.

Please answer the following questions after reading the case study:

1. Which staffing framework do you recognize in this case study? Explain its characteristics and the advantages to

using this type of framework?

2. Would this type of staffing framework affect Paul’s ability to get things done? Why, or why not?

3. Explain if any of the other staffing frameworks would be any better? What can you recommend to the company’s

headquarters in this sense?

4. Why does Paul want this job? Is Paul a good candidate for this expatriate position?

5. What comments can you make on expatriate management in general? And what comments can you make on the

expatriate recruitment policy in particular?

6. What are the different expatriate compensation methods you recognized in the text? What are the advantages

and disadvantages of these different expatriate compensation methods?

7. What do you suggest to the U.S. headquarters’ human resources manager in order to improve the expatriate

satisfaction/compensation?

Your submission should be a minimum of three pages in length in APA style; however, a title page, a running head, and

an abstract are not required. Be sure to cite and reference all quoted or paraphrased material appropriately in APA style.

MBA 6601, International Business 1

Course Learning Outcomes for Unit VIII

Upon completion of this unit, students should be able to:

10. Explore international human resource management and staffing approaches associated with
multinational enterprises (MNEs).

Reading Assignment

In order to access the following resource(s), click the link(s) below:

Khatri, N. (2000). Managing human resource for competitive advantage: A study of companies in Singapore.

International Journal of Human Resource Management, 11(2), 336–365. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=4219940&site=ehost-live&scope=site

Overman, S. (2016). Tapping talent around the globe. HR Magazine, 61(1), 46–51. Retrieved from

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=112810959&site=ehost-live&scope=site

Story, J., Barbuto Jr., J., Luthans, F., & Boviard, J. (2014). Meeting the challenges of effective international

HRM: Analysis of the antecedents of global mindset. Human Resource Management, 53(1), 131–155.
Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=94063588&site=ehost-live&scope=site

Taylor, S., Beechler, S., & Napier, N. (1996). Toward an integrative model of strategic international human

resource management. The Academy of Management Review, 21(4), 959–985. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=9704071860&site=ehost-live&scope=site

Unit Lesson

Value-Chain Management

The purpose of any business organization is to create value that people want. There are numerous ways to
do that, but two ways seem to dominate business strategy.

Cost leadership: A business tries to build a product for less cost than a competitor can do it. This works well
if the product is a commodity or manufactured with a set pattern or process than can be mass-produced.

Differentiation: In this scenario, a business tries to build a product that is different or unique and that fills a
need. This type of value creation leans towards customizing a product or developing a new and different
product.

Whichever strategy businesses follow they outperform their competition by offering more value relative to the
price they charge. In their search to create more value, companies search into each business function to find
ways to improve efficiency and production. That is where the value chain comes into play.

The value chain is a list of the primary activities that a business conducts as it produces a product. It is a
value chain because each step adds value to the product produced. The purpose for breaking it down into this
format is to study each step and evaluate if the company needs it, if it can make it more productive, or if it can

UNIT VIII STUDY GUIDE
Managing International Operations,
Part 3: Value-Chain Management,
Human Resources, and Operations

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4219940&site=ehost-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=112810959&site=ehost-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=94063588&site=ehost-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9704071860&site=ehost-live&scope=site

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be outsourced. The value chain is composed of primary activities and support activities. Primary activities
include:

 product design,

 operations,

 outbound logistics,

 marketing, and

 after-sales service.

If the firm has a competitive advantage—being it a special skill, capability, or technology—in any specific
primary activity, that would make it a core competency. Core competencies are actions that add the most
value to the product.

Support activities include the following:

 procurement and in-bound logistics;

 human resource management;

 information technology systems; and

 finance, accounting, and risk management.

In the Unit I lesson, access to more resources and more markets were reasons to establish international
business operations. By dispersing value-chain activities around the world, each primary activity must be
coordinated so that its value-creating output merges seamlessly with the others.

Human Resource Management (HRM)

Global HRM is the placement of people and the management of policies that add the most value to the
company. Placing people is one part of the function, but managing policies that govern their placement, such
as selection, hiring, compensation, training, promoting, and termination, make up human resources. Global
HRM goes even further by taking into account sensitivity of cultural, political, and economic variables. Many
countries restrict the use of workers from outside countries. For example, in Vietnam, foreign ownership is
restricted to 49% of all companies with a few exceptions, and foreign managers have restrictions on how long
they can work in the country (Vietnam, 2015).

There is statistical evidence that HRM adds value to the company. Human resource management drives
company productivity and strategic performance (Taylor, Beechler, & Napier, 1996). There is also evidence
that superior HRM practices add more value to companies than standard practices (Khatri, 2000). Both
studies add strength to the argument that HRM is as important as other company functions such as
manufacturing or marketing. Here we will examine two policies that global HRM must contend with that
domestic companies do not: expatriates and staffing frameworks.

Facts about Expatriates

Expatriates are company executives sent to work in countries where they are not legal residents but where
their firm has a plant, branch, or subsidiary. One type of expatriate is a home-country national where the
expatriate is a legal resident of the country in which the parent company has its headquarters. Another type of
expatriate is called a third-country national where the expatriate is neither a legal resident of the country
where the parent company is headquartered nor a legal resident of the country in which the subsidiary is
located.

The growth of globalism has strongly increased the demand for expatriates. 70% of the world’s growth will
come from emerging economies in the next decade (The world turned upside down, 2000). According to the
United Nations Conference on Trade and Development, there are 82,053 parent corporations with 807,363
international subsidiaries around the world (Number of MNCs in the world, 2010).

The main reason people accept jobs as expatriates is to grow their skill set in diverse circumstances and
learn decision-making in uncertain environments. Companies seek executives who can solve problems and
create opportunities. Exposure to different situations allows executives to find different paths that allow them

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to grow and broaden their horizons. Other reasons include better quality of life, career development, and
financial wealth (HSBC, 2015).

The cost of a full-time high-level executive is expensive for any company. Companies have adopted several
policies that still allow executives to participate as an expat. First, there is the commuter assignment. The
executive visits the foreign site for short periods while still commuting on weekends. Next, there are
assignments that seek out expats that the firm can hire as a local employee. A local employee receives
considerably less pay with less moving and travel costs.

Selection of expats depends on several variables relating to what the company needs and what the executive
needs. As key indicators on an executive’s suitability for international assignments, the company looks for
executives who have leadership expertise, flexibility and adaptability, and technical skills in what the company
produces (Brookfield Global Relocation Services, 2012).

Once a company selects an executive, preparation includes cross-cultural training, possibly language
lessons, and social etiquette. Probably the best source of preparation success is consulting with previous
expats who worked and lived in the same or similar location.

Compensation for expats depends on the reason for the assignment. If the assignment is in response to a
threat or weakness in the company’s position, the company compensates the expat for fixing the problem.
The compensation for needed or difficult assignments is higher than if the company is sending the expat just
to get experience. There are different schedules of compensation, but the most common is a base salary plus
a foreign-service premium and cost-of-living allowances. Sometimes, there are allowances for housing, taxes,
and transportation.

Repatriation of expats indicates that not all participants fared well upon returning to the parent company.
Statistics indicate about one third of expats went on to have faster promotions and new assignments worthy
of their international experience (Shaffer, Kraimer, Chen, & Bolino, 2012). It would seem that HRM emphasis
is on selection and preparation of expats without planning a repatriation process.

Expatriate failure does occur. Failure is when a firm calls an executive home due to inadequate operational
performance or the violation of some cultural etiquette that is upsetting to the resident population. The
historical failure rate is 5% of all expats with China (19%) and India (7%) being the locations with the highest
failures (Brookfield Global Relocation Services, 2012).

Staffing Frameworks

Staffing policy for a subsidiary sets the premise for the optimal ratio of local workers to expatriates. Once the
staffing policy is set, secondary policies of selection, compensation, training, and repatriation are established.
There are three different guidelines of staffing that parent companies use to select the staff for a subsidiary.
They are ethnocentric, polycentric, and geocentric.

Ethnocentric: This staffing framework frames the culture of the parent company as better than other cultures
it might encounter. Centralized companies prefer this type of staffing as it supports command and control from
the parent company. Top-level executives selected for subsidiaries will come from the parent company. Back
in Unit VI, the discussion of organizational culture mentioned Toyota’s placement of over 700 executives in
their automobile plants (Fackler, 2007). This is an example ethnocentric staffing. The advantage of this type
of staffing is to keep the core values surrounding product production in place. The disadvantage is that high-
level decision-making leaves out highly qualified executives from the subsidiary’s home country.

Polycentric: This staffing concept supports placement of staff from the country in which the subsidiary
resides. The home office recognizes that business practices differ in each country and that a local workforce
would have fewer difficulties in dealing with regulations and government bureaucracy. Decentralized
companies, such as fast food companies, prefer this method as decision-making is pushed down to the local
level. Hiring local executives is much cheaper than filling the spot with a highly paid executive from the home
office. The disadvantage is that allegiance to parent company’s values is questionable. Local executives do
not necessarily share organizational values as an expat would.

Geocentric: This staffing concept works by placing people with the best skills despite their background,
origin, or culture. Their mantra is that ideas and innovations are everywhere if one is willing to open one’s

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mind. Some evidence does suggest that this staffing concept produces the best financial performance (Barta,
Kleiner, & Neumann, 2012). The disadvantage is the difficulty in finding well-trained people who can relocate
to different countries multiple times.

Operations

The operations activity of the value chain is the “bread and butter” of any company. An operation activity is
literally the conversion of inputs into outputs. This sector makes the product that the customer buys. Do not
be confused if the product is tangible or intangible. Operations make the product or generate the service. For
example, an oil pipeline company does not provide a tangible product, but they make it possible for oil to flow
to market. The operations activity must be compatible to the company’s competitive strategy. Operations must
align with the five following factors:

1. Efficiency and cost: This explains why many companies move their manufacturing plants overseas.
They are seeking a reduction in operational costs. For the companies seeking the cost leadership
position, this is very compelling.

2. Dependability: At first, companies built their plants close to their customers so that price and delivery
were reliable. Later, as transportation became cheap and reliable, companies found they could
operate overseas and ship anywhere. This is still an important factor for those companies with only
one or two large customers.

3. Quality: The product itself must perform as promised, be reliable and functional, and the company
must offer an after-the-sale warranty on maintenance parts and service.

4. Innovation: Quite often, the operations sector is responsible for research and development (R & D). In
some companies, R & D is a support function. Worth noting is that the majority of consumer R & D
has moved overseas to emerging economies (The world turned upside down, 2000).

5. Flexibility: Operations must gear up to make different products and adjust for the volume of output.
Some food producers optimize their assembly lines to produce different products as seasons dictate
which fruits and foodstuffs are available.

Offshore manufacturing became a trend in the 1960s when companies first opened plants in Taiwan and
Singapore. When companies found they could meet the factors above in an overseas location, the push to
move operations out of the country moved quickly. Since that period, China has become the main location for
manufacturing. In 2013, China ranked first in manufacturing, up from number four in just 20 years
(Meckstroth, 2015).

Operational change is a normal part of business, but global integration and a speedup in communications
technology and transportation now give a competitive advantage to the agile company that can turn on a dime
in response to change.

References

Barta, T., Kleiner, M., & Neumann, T. (2012). Is there a payoff from top-team diversity? McKinsey Quarterly.

Retrieved from http://www.mckinsey.com/business-functions/organization/our-insights/is-there-a-
payoff-from-top-team-diversity

Brookfield Global Relocation Services. (2012). Global relocation trends: 2012 survey report. Retrieved from

http://img.en25.com/Web/BrookfieldGRS/2012_GRTS

Fackler, M. (2007, February 15). The ‘Toyota way’ is translated for a new generation of foreign managers.

New York Times. Retrieved from
www.nytimes.com/2007/02/15/business/worldbusiness/15toyota.html

HSBC. (2015). Expat explorer survey. Retrieved from www.expatexplorer.hsbc.com/survey/

Khatri, N. (2000). Managing human resource for competitive advantage: A study of MNEs in Singapore.

International Journal of Human Resource Management, 11(2), 336–365.

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Meckstroth, D. (2015). China solidifies its position as the world’s largest manufacture. Retrieved from
http://www.mapi.net/blog/2015/09/china-solidifies-its-position-world%E2%80%99s-largest-
manufacturer

Number of MNCs in the world. (2010). Retrieved from

http://www.numberof.net/number%C2%A0of%C2%A0mncs-in-the-world/

Shaffer, M., Kraimer, M., Chen, Y., & Bolino, M. (2012). Choices, challenges, and career consequences of

global work experiences: A review and future agenda. Journal of Management, 38(4), 1282–1327.

Taylor, S., Beechler, S., & Napier, N. (1996). Toward an integrative model of strategic international resource

management. The Academy of Management Review, 21(4), 959–985.

The world turned upside down. (2000). The Economist. Retrieved from

http://www.economist.com/node/15879369

Vietnam. (2015). Retrieved from

https://ustr.gov/sites/default/files/files/reports/2015/NTE/2015%20NTE%20Vietnam

Journalof the International Academy for Case Studies, Volume 13, Number 3, 2007

CHICAGO FOOD AND BEVERAGE COMPANY:
THE CHALLENGES OF MANAGING
INTERNATIONAL ASSIGNMENTS

Virginia Bodolica, University of Quebec in Outaouais
Marie-France Waxin, American University of Sharjah

CASE DESCRIPTION

The primary subject matter of this case concerns the management of expatriate managers
with a particular focus on their recruitment and compensation. Secondary issues examined include
the internationalization strategies of a multinational company and particularly the alignment of
international strategy and headquarters’ orientation regarding the international human resource
management policy. The case has the difficulty level of six (appropriate for second year graduate
level). The case is designed to be taught in three class hours and is expected to require five hours
of outside preparation by students.

CASE SYNOPSIS

The Chicago Food and Beverage Company (CFB Co.) is an American multinational with
subsidiaries in North America, Europe and Asia. The case is about the alignment of CFB Co.
internationalization strategy and the orientation of the head office in regard to its international
human resource management (IHRM) policy and management of international assignments, with
an emphasis on expatriates’ recruitment and compensation. The case describes the international
development of the company and the subsequent expatriation of Paul Fierman, the head of the
Vietnam subsidiary. Paul’s three-year mandate includes the preparation and execution of the
strategy to synergize the three Asian subsidiaries (Singapore, Hong Kong, Vietnam) with the
collaboration of the head of the Pacific Rim, which should allow CFB Co. to conquer the Asian
market. Six months after his arrival, Paul Fierman is disappointed by the financial conditions of his
contract and by his relationships with local colleagues, not to mention the difficulties his wife has
been having adapting to this new environment. The discussion of this case in class allows
introducing and illustrating the theoretical concepts related to the following topics: 1)
internationalization strategies and international human resource management policies; 2) strategic
management of international postings; and 3) advantages and disadvantages of different
international compensation methods.

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

EVOLUTION OF CHICAGO FOOD AND BEVERAGE COMPANY
FROM 1960 TO 1998

Chicago Food and Beverage Company (CFB Co.) is an American multinational which was
established in Chicago in 1963. The company is specialized in the production of all kinds of fruit
jams, canned fish, meat, vegetables, and non-alcoholic beverages. CFB Co. is primarily an American
company and until 1985, it concentrated exclusively on the U.S. market. Due to its reputation as a
high-technology intensive company and its capacity to adjust to the changing market demands, CFB
Co. grew rapidly. It expanded all over the U.S. through its five national subsidiaries based in
Chicago, New York, Atlanta, Los Angeles and Portland. In 1985, CFB Co. became the fifth largest
American producer in the food and beverage sector. In 2003 its revenues amounted to several billion
U.S. dollars (US$).

Since the long U.S. recession of the 1980s, CFB Co.’s management wanted to expand abroad
so that the company wouldn’t be so dependent on the already saturated domestic market. However,
Mr. Brandon Long, CEO of the company since it was established, stubbornly opposed the idea. In
late 1984 Mr. Long retired and was replaced by Mr. Bill Stevens who always dreamed of CFB Co.
becoming a global power. With top management’s approval, CFB Co.’s foreign expansion plans
finally started and at the beginning of 1985, the company went international. The foreign expansion
plans included two growth strategies: the company would either purchase small foreign enterprises
operating in the same sector or establish joint ventures with foreign food and non-alcoholic beverage
producers. CFB Co. expanded to Europe first, and between 1985 and 1990, the company acquired
three local enterprises in Belgium, France, and Germany.

Following that, from 1991 to 1998, CFB Co. turned toward the Asian market, installing three
joint ventures in that region. According to CFB Co.’s managers, there was a huge potential for food
processing and distribution in the Asian market because firstly, it accounted for over 60% of total
world population, and secondly, Asian consumers’ expenditures were increasing three times more
rapidly than those of North Americans. Therefore, the company’s expansion to this region was
thought to be of crucial importance for its economic health. Thus, the first joint venture specializing
in Asian fruit-based jam production was established in 1991 in Singapore. The second joint venture
which was created in 1995 in Hong Kong produced canned fish, meat and vegetables. The third joint
venture, started in 1998 with a Vietnamese subsidiary based in Haiphong, specialized in the
production of all kinds of non-alcoholic drinks, fruit juices, and sodas. Although some of their
clients are based in the neighbouring countries, each joint venture produces its own products which
are basically distributed on the local market. There is no cooperation between subsidiaries since they
are considered as completely independent entities from each other.

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

CREATION OF CFB VIETNAM JOINT-VENTURE IN 1998

CFB Vietnam, created one year after the beginning of the Asian economic crisis, is a joint-
venture between CFB Co. (which owns 49% of capital) and a local state-owned enterprise (which
owns 51% of capital). It was CFB Co.’s largest investment in Vietnam. The joint venture formula
was chosen due to the mutual advantages it offered to the parties involved. On the one side, CFB
Co. was gaining rapid access to the Vietnamese market, benefiting from the lands, buildings, and
other infrastructure of the local enterprise and from the cheap national labour costs. On the other
hand, the Vietnamese counterpart was benefiting from the accrued capital, high technology transfers,
and American know-how. Therefore, the joint venture was rapidly granted with the licence to
produce and distribute non-alcoholic drinks in the Vietnamese market. During its first year of
functioning, the multinational invested more than US$ 2 million in bottling equipment. In three
years, the subsidiary became the second biggest non-alcoholic beverage producer in Vietnam. It had
only one competitor in the market: Vietnam Drinks Company, which was the national producer of
all kinds of drinks and had its headquarters in Ho Chi Minh City.

The subsidiary is located in Haiphong, the third largest city in Vietnam after Ho Chi Minh
and capital city of Hanoï. Haiphong is one of the three cities of the Northern economic triangle
(Hanoi – Haiphong – Quangninh) and is very popular among foreign investors. CFB Co. management
had chosen Haiphong for its economic dynamism and its accessibility to the sea, rail and air
transport. Haiphong represents a main gateway by the sea to the Northern provinces of Vietnam,
facilitating fluvial commercial exchanges not only with the whole country but also with
neighbouring countries. The subsidiary’s activities, its production, bottling factory, and
administrative buildings, are all concentrated in one site situated at the Northern periphery of
Haiphong. CFB Vietnam’s primary mission was to produce exclusively for the national market, with
an objective to export its products to neighbouring Asian countries over the next three years.

CFB CO. RESTRUCTURING IN 2000

At the end of 1999, CFB Co. started to lose money in all of its foreign operations. National
and international competition grew in all markets and consumers became quality-oriented. Even
though the company’s main operations in the U.S were still profitable, the figures were declining
significantly as compared to the 1998 levels. The modest profits from the U.S. plants were not
enough to offset the losses reported abroad.

In 2000, U.S. headquarters analysed the situation and decided to undertake a radical strategic
change. In order to reduce costs and achieve greater profits, the company’s management decided to
regroup its food and beverage production activities into three regional zones: United States, having
its center in Chicago; Europe, with its regional center in Brussels; and Asia, with its center in
Singapore. In other words, the subsidiaries which previously enjoyed exclusive rights in their

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

respective local markets had to be integrated into “three regional networks: United States, Europe,
and Asia”.

This strategy was expected to allow CFB multinational to find synergies within these three
regional zones and thus to assure a significant increase in revenues per region. For instance, CFB
Co.’s management wants the Vietnamese subsidiary to export its non-alcoholic drinks to the whole
Asian zone, helped by the distribution systems of other regional subsidiaries from Hong Kong and
Singapore. It is therefore necessary to create and implement common distribution and
communication strategies. The main objectives are to reduce costs, to increase revenues and to
promote CFB Co.’s activities in the whole Asian region.

CHANGES IN EXPATRIATES’ COMPENSATION POLICY IN 2002

Back in 1985, when CFB Co. started its international expansion, the company did not have
any experience in the field of expatriation management. Since the initial stage of foreign growth
strategy, only a small number of expatriates were used. Therefore, the Chicago management team
opted for a flexible expatriate compensation approach: the negotiation method. According to this
method, each expatriate is handled case by case; the components included in the compensation
package represent the final outcome of negotiations between the expatriate and the company.
Moreover, this compensation formula is beneficial due to its administrative simplicity, requiring
little information on costs of living and tax issues in host countries. Over the years, however, the
multinational company penetrated several European and Asian markets and, therefore, the number
of its expatriates increased considerably. Hence, starting in 1998 CFB Co. employed constantly
about 25 American expatriates. With increasing expatriation development, the negotiation method
became less effective, more time consuming, and rather expensive. In order to keep its costs under
control, CFB Co.’s senior management decided that a significant change in its current expatriate
compensation philosophy would be needed.

In 2002, Chicago human resources department (HR), which manages the company’s
expatriates, adopted a new and mixed compensation approach. In light of this approach, different
compensation systems are proposed to senior and junior expatriates. Seniors, expatriates having
more than six years of international experience, are compensated according to the international
method. In this case, a specific international scale is applied to all senior expatriates. During their
expatriation period, senior expatriates are compensated using the international compensation scale
and once they are back in their home countries, they reintegrate the standard national compensation
scale. Expatriate juniors, having less than six years of international experience, are compensated in
line with the home country method, which uses the balance sheet approach. According to this
method, the parent company allows it’s expatriate to make the same expenditures in terms of
accommodation, goods and services in the host country as those that would have been incurred in
the home country had the employee remained at home. Moreover, the company commits to maintain

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

the purchasing power of its expatriates in the host country, making some adjustments to the home
compensation package in order to balance additional expenditures in the host country due to a higher
cost of living index. The key purpose of this approach is to ensure that expatriate employees are no
better or worse off as a result of an international assignment.

The summary of important events in the evolution of CFB Co. is presented in table 1.

Table 1: Summary of important events in the evolution of CFB Co.
Year Important event

1963 Creation of Chicago Food and Beverage Co., Chicago, United States

1963-1985 Expansion in United States, five American subsidiaries based in Chicago,
New York, Atlanta, Los Angeles and Portland

1985 Beginning of the international adventure

1985-1990 Acquisition of three European local companies: Belgium, France, Germany

1991-1998
1991
1995
1998

Conquest of the Asian market:
Joint venture Singapore;
Joint venture Hong Kong;
Joint venture Vietnam

1999 CFB Co.’s economic slowdown

2000 CFB Co.’s strategic change and restructuring: creation of three regional
networks: United States – Europe – Asia

2002 Introduction of the new expatriates’ compensation policy: the mixed
compensation method

2004 Recruitment and expatriation of Paul Fierman to Haiphong (Vietnam)

PAUL FIERMAN’S EMPLOYMENT WITH CFB CO. AND
HIS EXPATRIATION TO VIETNAM IN 2004

Paul Fierman, a 34-year-old American, was appointed General Director of CFB Vietnam at
the end of March 2004, with a mission to lead the subsidiary and to implement the new
organizational strategy.

Obtaining this expatriate position was not a difficult endeavour for Paul. In 1995 he earned
his bachelor’s degree in marketing from Johnson Business School, at Cornell University in New
York. After graduation, Paul took a position as product vice-manager in the marketing department
at the New York subsidiary of CFB Co. Three years later, he became carbonated non-alcoholic

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

beverages’ manager for the Eastern American region. After two years in this position, Paul was put
in charge of both carbonated and non-carbonated non-alcoholic drinks in the U.S. market. As a
country manager, he was paid US$ 300.000 annual base salary and 10% to 15% commission on
sales. Although Paul was satisfied with his job, he wanted to reorient his career towards general
management positions in this company. Therefore, in 2002 he decided to undertake a full-time
Master in Business Administration studies in international management at Harvard Business School
in Boston. After completing his MBA, Paul wanted to come back to CFB Co., but in order be able
to reach the pinnacle of his career, he thought he needed to acquire some international professional
experience. The only international experience he had so far was a year spent in Oxford, Great
Britain, as an exchange program student.

Paul Fierman’s employment for CFB Co. is summarized in table 2.

Table 2: Paul Fierman’s professional evolution
Year Professional evolution

1995 Bachelor’s Degree in Marketing, Johnson Business School, Cornell
University, New York;
Recruitment by CFB Co., New York subsidiary, product vice-manager

1998 Regional product manager: Eastern U.S. markets, carbonated non-alcoholic
beverages

2000 Country brand manager: U.S. markets, carbonated and non-carbonated non-
alcoholic beverages

2002-2004 Master of business administration in international management, Harvard
Business School, Boston

2004 Expatriation to Haiphong, Vietnam

During his M.B.A. studies, Paul kept in touch with his former supervisor at his first position
within CFB Co., Allan Roger, marketing director of the New York subsidiary. Just before graduating
from his M.B.A., Paul called Allan to discuss about his potential return to the company. Allan, very
enthusiastic about this perspective, told him:

“Mike Shannon, the expatriate Managing Director of CFB Vietnam, has just returned to the
U.S. unexpectedly due to health problems. Since Mike’s departure was not planned, the headquarters
are desperate to replace him as soon as possible. If you are interested, you can send me your
application for the position of Managing Director in Haiphong, and I will forward it to the General
Manager in Chicago. In my opinion, Paul, you have a high professional potential in this company.
Your lack of international experience is a problem…, but it does not mean that you would not be
able to prepare and implement, in collaboration with the regional director of Pacific Rim, the new

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

strategy aiming at integrating the three Asian subsidiaries. This expatriation would be an exceptional
training experience for you, preparing you for a higher level managing position within the Chicago
headquarters on your return to the U.S., three years later.”

With his experience within CFB Co. and his high recommendations, Paul Fierman was a
good candidate for this three-year expatriate position. He was perceived as a promising young
manager due to his excellent academic background and the outstanding professional results he
achieved during his employment within the company.

At that point, things went very fast. In March 2004, thanks to Allan’s intervention and
contacts, Paul met directly with the General Manager in Chicago. Two weeks later, a notice of
approval had been sent to Paul from the Chicago HR department, officially confirming his managing
position within CFB Vietnam. Robert Greenberg, managing director in charge of the Pacific Asia
region, had been informed about Paul’s nomination by Chicago’s General Manager himself. One
month later, in April 2004, Paul began his new position in Haiphong. Before his departure he spent
a couple of weeks preparing his move and organizing the rental of his house in New York. His wife
Carrie and their seven-year-old daughter Rachel joined him two months later in Haiphong. These
two extra months gave Carrie enough time to have her dismissal accepted by her employer. In the
meantime, Paul settled into their new Vietnamese house and enrolled their daughter at Haiphong
international school. Before his departure, Paul bought three books on Vietnam in order to get some
preliminary knowledge about the general business context of the country. However, his readings on
culture and the economic and political history of Vietnam seemed to be too disconnected from
today’s business reality.

One week before his arrival in Vietnam, Paul had a three hour meeting with Robert
Greenberg in New York. Robert showed him the outlines of the corporate strategy aiming at creating
synergies among the three Asian subsidiaries. Since then, they never spoke to each other directly
anymore.

PAUL AND ARRIE’S FRUSTRATION SIX MONTHS AFTER
THEIR ARRIVAL IN HAIPHONG

Six months after his arrival in Vietnam, Paul was feeling extremely frustrated. Sadly, he
begins to explain to his wife Carrie:

“I have two big problems. My first one is related to the financial conditions of my
expatriation contract. When I applied for this expatriation position in Vietnam, I expected to benefit
from an excellent compensation offer, as all the other expatriates I had met before in the CFB Co.
internal conferences had enjoyed. Although the final result of negotiations with the HR manager
from headquarters varied from one expatriate to another, all of them were generally managing to
negotiate at least double their previous salaries and lots of mobility, protection of purchasing power,
accommodation, and hardship allowances. I thought that this expatriation to Vietnam would be not

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

only a springboard for my career but also a good financial move. Unfortunately for me, the expected
financial gain did not materialize. I am one of the five expatriates out of 25 who have less than six
years of international experience. My compensation is therefore calculated according to the balance
sheet approach. Of course, the cost of living in Haiphong is significantly lower than in New York
and the company had provided me with a nice house and a good company car. Nevertheless, I feel
upset and frustrated. The expatriates from other multinational companies that I met in Hanoi and Ho
Chi Min City enjoy better living conditions. In addition, they live in far more attractive cities than
Haiphong. As I am the only American expatriate in CFB Vietnam, I feel isolated and frustrated.
Since my arrival in Haiphong, I have practically worked alone in order to make the things work. The
expatriates from CFB Hong Kong and CFB Singapore subsidiaries are all seniors, they are paid
according to a far more advantageous compensation scale, plus they are living in very modern cities
where all the usual distractions Americans are accustomed to are available. Furthermore, these two
Asian subsidiaries employ several expatriates who are all collaborating closely in order to achieve
their objectives together. Between Hong Kong and Singapore, the expatriates are used to pay each
other regular friendly visits. My own salary does not allow me to enjoy the week-ends that my
counterparts from Hong Kong and Singapore are enjoying.”

Carrie was not surprised. She had many times noticed the sad mood of her husband in the
past few months… She encouraged him to continue. “What is your other problem?”

“My second problem is related to my work. I feel very frustrated by the results of my work
in the subsidiary and the relationships I have with my Vietnamese colleagues. The financial situation
of the subsidiary six months after my arrival is very bad: declining revenues, decreasing motivation
of Vietnamese plant workers and staff, lack of cooperation on behalf of local management, etc. The
implementation of the new organizational strategy is far from even getting off the ground! I have
to handle all these problems alone. I have the impression that my work does not produce any of the
expected results… What about you, Carrie, how do you feel?”

Carrie’s situation was hardly encouraging. Carrie seemed to be getting more and more
depressed and irritated. Before their departure from U.S., she had been starting her fourth year of
employment at the New York Stock Exchange as a financial analyst. Even though she liked her job
and had good prospects for advancement in her career, she seemed enthusiastic to accompany her
husband to Vietnam for the entire expatriation period. Thus, she could spend more time with their
daughter. Carrie collected her thoughts and her courage and replied to Paul:

“To me, who have never left the North American continent, Vietnam seemed to be an exotic
country… and I thought, before our departure, that your expatriation would be a very new, enriching
experience. However, this experience turns out to be hard to get through. Life here in Haiphong is
not what I had imagined. Being used to work, I am getting bored staying home all day long. I also
miss my family and friends whom we were used to visiting regularly in New York. Besides that, I
have to admit that Haiphong’s heat and humidity are really unbearable for me… And finally, I am
also very worried for Rachel. The fact that she has arrived in the middle of the school year in the

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

local Anglophone school prevents her from making any friends, as her classmates do not speak
English outside the classroom. Rachel no longer wants to do her homework and cries every morning
before going to school… We definitely cannot go on like this! What will we be doing, Paul? I hardly
recognize our family, which is normally so happy.”

SELECTED QUESTIONS FOR CASE DISCUSSION

Topic 1: Alignment of International Strategy and Headquarters’ Orientation Regarding
the International Hrm Policy

1. Which internationalisation strategies do you recognise in this case study?
2. What is the HRM orientation adopted by the headquarters? What comments can you

make concerning this choice? What can you recommend to the company’s
headquarters in this sense?

Topic 2: Expatriation Management

1. Is Paul Fierman a good candidate for this expatriation position?
2. What comments can you make on the expatriation management in general? And what

comments can you make on the expatriate recruitment policy in particular?

Topic 3: Compensation of International Staff

1. What are the different expatriate compensation methods you recognised in the text?
What are the advantages and disadvantages of these different expatriate
compensation methods?

2. What do you suggest to the U.S. headquarters’ human resources manager in order to
improve the expatriate satisfaction / compensation?

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

Appendix 1
Map of South-East Asia

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

Appendix 2
Chicago Food and Beverage Co. organizational chart

Chicago Food and Beverage Co. (CFB Co.)
Headquarters: Chicago (United States)

Regional zone: UNITED STATES
Regional center: Chicago

Regional zone: ASIA
Regional center: Singapore

Regional manager: Robert Greenberg

Chicago
subsidiary

New York
subsidiary

Atlanta
subsidiary

Los Angeles
subsidiary

Portland
subsidiary

Belgium
subsidiary

Germany
subsidiary

France
subsidiary

Singapore
subsidiary

Hong Kong
subsidiary

Vietnam subsidiary
(Haiphong)

Manager: Paul Fierman

Regional zone: EUROPE
Regional center: Brussels

Appendix 3
Compensation packages

Table 1: Annual compensation package of a junior expatriate employee: balance sheet approach

Employee: Paul Fierman
Position: General manager of CFB Vietnam
Country: Vietnam
Reason for relocation: New assignment
Effective date of change: 5April 2004

Item Total amounts
US$

Paid in US$ Paid in local currency VN
dong

Base salary: 320,000 160,000 2602240000

Hardship allowance (20%) 64,000 64,000

Trip allowance 25,000 25000

Housing deduction – 22,000 – 22,000

Car deduction – 5,000 – 5,000

Tax equalization – 43,200 – 43,200

TOTAL 338,800 178,800 2602240000

Cost of leaving allowance index: Haiphong: 84; New York: 100
Exchange rate: US$ 1 = 16,264 VN dong

Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007

Table 2: Annual compensation package of a senior expatriate employee: international method

Employee:
Position: General manager
Country: Hong Kong
Effective date of change:

Item Total amount (US$) Paid in US$ Paid in local
currency HK$

Base salary 400000 200000 1560000

Cost of living allowance 25000 195000

Overseas service premium (20%) 80000 80000

Trip allowance 35000 35000

Schooling allowance 10000 10000

Taxprotection 50200 50200

Housing and car provided

TOTAL 600200 375200 1755000

Cost of living allowance index: Hong Kong: 110; New York: 100
Exchange rate: US$ 1 = HK$ 7.8

MEETING THE CHALLENGES OF

EFFECTIVE INTERNATIONAL HRM:

ANALYSIS OF THE ANTECEDENTS

OF GLOBAL MINDSET

J O A N A S . P. S T O R Y, J O H N E . B A R B U T O J R . ,
F R E D L U T H A N S , A N D J A M E S A . B O V A I R D

The full force of globalization has hit today’s organizations, and it is clear that

there are many cultural and human problems. International human resource

management (IHRM) is being asked to better understand and develop multi-

national organizational leaders to meet the challenges. A prominent solution

that is receiving increased attention is the construct of global mindset, which

has growing rhetoric but little research support. To help fi ll this need, after

fi rst theoretically framing global mindset as made up of one’s cultural intel-

ligence and global business orientation, this study identifi es and empirically

tests some theory-driven antecedents. Utilizing a diverse sample (N = 136)
of global leaders of a well-known multinational, we found that personal, psy-

chological, and role complexity antecedents were related to the participants’

level of global mindset. The practical implications of these fi ndings for effec-

tive international human resource management conclude the article. © 2

Wiley Periodicals, Inc.

Keywords: international management, global mindset,

psychological

capital, role complexity

Correspondence to: Fred Luthans, University of Nebraska-Lincoln, Lincoln, NE 68588-0491, Phone: 402.472.2324,

Fax: 402.472.5855, E-mail: fluthans1@unl.edu.

Human Resource Management, January–February 2014, Vol. 53, No. 1. Pp. 131–15

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.2156

T
he arrival of globalization has led to
organic growth and overall increas-
ing numbers of multinational organi-
zations with accompanying demand
for leaders capable of operating effec-

tively in such an environment. The challenges
facing international human resource manage-
ment (IHRM) in meeting these needs are daunt-
ing. Although IHRM has been dealing with
selection, training, and development issues

for years, there is now a realization that tradi-
tional assumptions and approaches are no
longer sufficient (e.g., Meyskens, Von Glinow,
Werther, & Clarke, 2009). New thinking on
the part of both IHRM scholars and actual
multinational organizational leaders is re-
quired (Pfeffer, 2005). The construct of
“global mindset” has emerged to help fill this
need at both the academic and practice levels
of IHRM.

132 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

The meaning of global mindset in recent
years has ranged from skills, attitudes, and
competencies to behaviors, strategies, and
practices (for a comprehensive review, see
Levy, Beechler, Taylor, & Boyacigiller, 2007)
and from individual to organizational levels
(Beechler & Javidan, 2007; Perlmutter, 1969;
Rhinesmith, 1992). For example, Levy and
colleagues (2007) have defined global mind-
set as the ability to be open to and articulate
various cultural and strategic realities at both
the local and global levels, while encompass-
ing these multiple perspectives. Age, educa-
tion, job tenure, international management
training, nationality, and willingness to work
abroad have each been related to global mind-
set (Arora, Jaju, Kefalas, & Perenich, 2004).
Other variables have also been tested as ante-
cedents of global mindset such as curiosity,
language skills, personal history, and authen-
ticity (Clapp-Smith & Hughes, 2007), as well
as the overall global strategy of the organiza-
tion (Murtha, Lenway, & Bagozzi, 1998).

Although as indicated earlier, there is
much speculation as to what can promote a
global mindset, unfortunately to date there is
very little research support. There is a need to
systematically identify some important ante-
cedents and empirically analyze their rela-
tionship to measurable indicators of global
mindset. This type of research is required for
an evidence-based IHRM approach to mul-
tinational organizational leadership devel-
opment (Pfeffer & Sutton, 2006; Rousseau,
2006). Thus, the purpose of this study is to
address this need by empirically examining
the relationship between greatly respected
Fortune 100 multinational corporation lead-
ers’ (N = 136) personal, psychological, and
job-role complexity characteristics and two
theoretically supported indicators of their
global mindset: cultural intelligence and
global business orientation. Specifically, our
research question is whether multinational
organizational leaders’ personal (education;
languages; low-, mid-, and top-level man-
agement; international business trips; and
international business assignments), psy-
chological (psychological capital composed
of the positive psychological resources of
hope, efficacy, resilience, and optimism), and

role-complexity characteristics are related to
the two indicators of their global mindset.
After first providing an overview of global
mindset and deriving theory-driven hypoth-
eses for the study, we examine the proposed
relationships in a path analysis and then pres-
ent the results and implications for effective
IHRM.

Global

Mindset

Taking a macro-level approach, Perlmutter
(1969) was one of the first to describe global
mindset as a geocentric orientation that mul-
tinational organizations have while doing
business. Then at the micro level, Rhinesmith
(1992) identified global mindset as an iden-
tity leaders have of viewing the world as a
whole that would allow them to value differ-
ences, manage complexity, and scan the
global environment for business trends. This
micro-level trend has continued through the
years and is the focus of our study as well. For
example, Kefalas (1998) conceptualized one’s
global mindset as having a global view of the
world and the capacity to adapt to local envi-
ronments. Murtha et al. (1998) operational-
ized global mindset in terms of managers’
cognition of international strategy and orga-
nization. Gupta and Govindarajan (2002) de-
scribed a conceptual framework of global
mindset in terms of market and cultural
awareness and openness, and the ability to
integrate differing perspectives. Bouquet
(2005) studied global mindset and reported
three overarching behaviors related to it—the
capacity to process and analyze global busi-
ness information, the capacity to develop re-
lationships with key stakeholders around the
world, and the capacity to use globally rele-
vant information while making decisions for
the organization.

More recent and most relevant to our
study is Beechler and Javidan’s (2007) descrip-
tion of global mindset as leaders’ knowledge,
cognitive ability, and psychological attributes
that allow them to lead in diverse cultural
environments. Similarly, in a comprehensive
review, Levy, Taylor, Boyacigiller, and Beechler
(2007) described global mindset as the abil-
ity to be open to and articulate about various

ANTECEDENTS OF GLOBAL MINDSET 13

Human Resource Management DOI: 10.1002/hrm

Global mindset

involves mental

fluidity to adapt to

the global demands

facing multinational

organizational

leaders and also a

strategic business

orientation they

have that evaluates

complex markets

and maximizes

global business

opportunities.

cultural and strategic realities at the local and
global levels, while encompassing these mul-
tiple perspectives. Taken as a whole, this pre-
vious literature shares some common tenants
pointing to what constitutes global mindset.
Specifically, global mindset involves mental
fluidity to adapt to the global demands facing
multinational organizational leaders and also
a strategic business orientation they have that
evaluates complex markets and maximizes
global business opportunities. We feel these
two important dimensions of global mindset
are best represented by cultural intelligence
and global business orientation.

Two Indicators of Global Mindset

As described earlier, many conceptualizations
of global mindset exist in the literature, but
to date there is very little research support.
However, it is apparent that global mindset
does indeed have distinct characteristics.
Specifically, a common theme is that an indi-
vidual with a global mindset must be able to
be culturally adaptable and also have an acute
sense of the global business environment
(e.g., see Kedia & Mukherji, 1999; Kefalas,
1998). Thus, for this study, we propose that
global mindset have the two key indicators of
cultural intelligence (and cognitive, motiva-
tional, and metacognitive subscales) and
global business orientation.

Cultural

Intelligence

Earley and Ang (2003) proposed that cultur-
ally intelligent individuals are capable of de-
veloping a common mindset derived from
available information even in the absence of
detailed prior knowledge of local practices
and norms. Thus, a culturally intelligent per-
son has the capability to acquire behaviors
often “on the spot” that are needed in a com-
pletely different environment. Furthermore,
culturally intelligent individuals are not only
required to think about or understand their
new environment, but they also must act in
appropriate ways. According to Thomas and
Inkson (2004), the ability to connect knowl-
edge to practice is called mindfulness, which
also has been connected with global mindset.

Three components of cultural intelligence
can be considered indicators of a global mind-
set: cognitive, motivational, and metacognitive.
While the construct of cultural intelligence
involves a fourth component (Earley & Ang,
2003), the behavioral, we do not include it as
an indicator of global mindset because “mind-
set” is an internal construct that does not di-
rectly incorporate a behavioral or observable
component.

The cognitive component describes how
individuals use the cultural knowledge avail-
able to them. Specifically, individuals are
more self-aware and in tune with their social
environment and the information available
to them. According to Earley and Ang (2003),
other characteristics necessary for the cog-
nitive component of culturally
intelligent individuals are cog-
nitive flexibility, inductive and
analogical reasoning, and a high
degree of adaptability. The second
cognitive component is the moti-
vational facet. This describes the
motivation of a person to adapt
their behaviors according to a new
cultural context. Individuals must
be open, confident, and consis-
tent in order to be motivated to
act in culturally appropriate ways.
In addition, the metacognitive
component describes the capac-
ity to acquire new behaviors that
are appropriate for a new culture.
Individuals understand their own
cognitive strategies and control
their cognitive processes by focus-
ing in nuances (Thomas, 2006).
Thus, the metacognition describes
individuals’ cultural conscien-
tiousness and awareness while
interacting with culturally diverse
groups.

Cultural intelligence as an
indicator of global mindset has also had some
support in the literature. For example, Earley
and Ang (2003) reasoned that culturally intel-
ligent individuals had both the wisdom to
choose the best path and the perseverance
to succeed in global settings. A person with high
cultural intelligence has a greater capability

134 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

For multinational

organizational

leaders to have

a global mindset,

they must be

culturally intelligent

and also have a

global business

perspective. Both

dimensions are

needed in order to

not only integrate

the complexity of

the global business

environment,

but also to act

in culturally

appropriate ways.

to “store” and categorize their experiences
than a person with low cultural intelligence.
Thus, their mindsets are different. However,
cultural intelligence should not be equated
with global mindset. For example, Earley,
Murnieks, and Mosakowski (2007) compared
global mindset and cultural intelligence.
They categorized cultural intelligence as “a
person’s capability to adapt effectively to new

cultural contexts and it has both
process and content features”
(p. 83). They reported that since
cultural intelligence focuses only
on cultural differences and inter-
actions, the construct is narrower
than that of global mindset, yet
they are interrelated. Thus, we
would argue that global mindset
is a broader construct, as it takes
into consideration the complex-
ity of the interaction that may or
may not be related to cultural dif-
ferences, but cultural intelligence
is certainly a major component of
global mindset, and there is con-
siderable overlap.

Thomas (2006) described cul-
tural intelligence and global
mindset as the capacity of indi-
viduals to thrive in cross-cultural
situations. Also, Levy, Beechler
et al. (2007), whose definition
we are mainly drawing from in
this study, indicated that cultural
intelligence may be key for the
development of a global mind-
set. In fact, their definition sug-
gests that cultural intelligence
and global business orientation
are important indicators of some-
one with a global mindset. Thus,
it follows that for multinational
organizational leaders to have a
global mindset, they must be cul-

turally intelligent and also have a global busi-
ness perspective. Both dimensions are needed
in order to not only integrate the complexity
of the global business environment, but also
to act in culturally appropriate ways (e.g., see
Kedia & Mukherji, 1999; Kefalas, 1998).

Global Business

Orientation

As indicated, the second dimension of global
mindset we use in this study is global busi-
ness orientation. This orientation describes
individuals’ attitudes toward international-
ization and their ability to adapt to new busi-
ness environments (see van Bulck, 1979).
Traditionally, global business orientation has
been operationalized as a macro-level vari-
able. However, as defined, global business ori-
entation is an individual-level construct that
is related to a manager’s attitude and ability
to adjust to different environments (Levy,
Beechler et al., 2007; Nummela, Saarenketo,
& Puumalainen, 2004). This means that indi-
viduals have an awareness and knowledge of
global markets and practices with a structure
and process to mediate the very volatile envi-
ronment. Those with a global orientation
make decisions based outside one’s culture
and embrace diverse perspectives (Taylor,
Levy, Boyacigiller, & Beechler, 2008).

Similar to cultural intelligence, global
business orientation has also been opera-
tionalized as global mindset. For example,
Harverston, Kedia, and Davis (2000) studied
the relationship between managerial mindset
and an organization’s engagement in inter-
national activity and reported that global
orientation of managers had a significant
relationship with “born” global firms (i.e.,
firms that started their business operating
internationally). Furthermore, managers of
such born global firms had more interna-
tional experience than gradual global firms’
managers. Finally, managers of born global
firms were reported to have higher risk toler-
ance than managers of gradually globalizing
organizations.

The relationship between global mindset
and effective internationalization of small
and medium-sized companies has also been
established by Nummela and colleagues
(2004). In their study, global mindset was
measured as global orientation to business—
with elements of proactiveness, commitment,
and international vision. Findings indicated
that international work experience and mar-
ket characteristics had a positive relationship

ANTECEDENTS OF GLOBAL MINDSET 135

Human Resource Management DOI: 10.1002/hrm

with global mindset. Global mindset also had
a positive relationship with financial indica-
tors of international performance.

In other research, Nadkarni and Perez
(2007) studied the role of domestic mind-
sets in organizational internalization and
reported that the complexity of a domestic
mindset makes a difference while interna-
tionalizing, as leaders are more able to use
the knowledge acquired in the domestic mar-
ket in the global market. Finally, Taylor et al.
(2008) used global business orientation to
operationalize global mindset and reported
that top management orientation mediated
the relationship between organizational cul-
ture and HRM practices with organizational
commitment. Specifically, global orienta-
tion impacted employee commitment. They
concluded that top management orienta-
tion shaped employees’ attitudes toward the
organization.

As evidenced in those studies, many lib-
erties and generalizations have been used to
operationalize global mindset in research.
Thus, for this study in addition to the Levy,
Taylor et al. (2007) definition and the out-
lined connections previously, we draw from
a global mindset research framework recently
proposed by Story and Barbuto (2011) in
which both global business orientation and
cultural intelligence (cognitive, motivational,
and metacognitive components) serve as a
basis for managerial mindset. Specifically, as
shown in Figure 1, we identify global mindset
as an interaction of both global business ori-
entation and cultural intelligence. Thus, indi-
viduals with a global mindset focus on global
operations and markets, but are also aware
and sensitive to the needs and characteristics
of the local environment and culture.

It is important to note that although the
present study defines and measures global
mindset by the two indicators of cultural
intelligence and global business orientation,
as we pointed out in the introductory com-
ments, there are numerous other concep-
tions in this growing literature. We posit that
these two theory-driven dimensions of global
mindset serve as a good point of departure
for understanding and operationalizing the

construct and empirically analyzing some of
its potential antecedents.

Antecedents of

Global Mindset

As indicated in the introductory discussion
outlining the purpose of our study, based on
existing theory we propose that personal,
psychological, and job-role complexity would
be good candidates for antecedents related to
leaders’ global mindset as indicated by cul-
tural intelligence and global business orienta-
tion. Identifying and testing such anteced-
ents can contribute to IHRM understanding
and effective use in developing multinational
organizational leaders’ global mindset. An as-
sumption of our model aligns with the so-
called Chattanooga model (Osland & Bird,
2008) in which the development of global
mindset can be perceived to emerge as a dy-
namic process. Our proposed model assumes
that leaders enter into a global or cross-
cultural context with certain characteristics
and various levels of global competencies (we
call this Phase 1 of the model—namely, edu-
cation, level of management, number of lan-
guages spoken, and number of international
business trips). Once entered into the global
environment, leaders encounter a variety of
experiences in which they tie one of these
present experiences with past experiences
that constitutes a sense-making process of

FIGURE 1. Indicators of Global Mindset

Globa

Mindset

Cognitive

Motivational

Metacognitive

CQ
Global

Busines

Orientation

Cultural

Intelligence

136 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

learning and acquiring global capabilities (we
call this Phase 2 of the model—namely, inter-
national assignment experience and com-
plexity of global role). The number and
nature of the various global or cross-cultural
key experiences becomes critical to the global
mindset development process, including
the critical factor of having high-level
challenges.

In sum, the multinational organizational
leader enters the global environment with
certain characteristics that make him or her
more “permeable” to the global experience.
At the same time, the more these experiences
are rich and challenging, the more they con-
tribute to the development of global mindset.
In addition to the personal background and
role complexity characteristics and interna-
tional assignment experiences, we also pro-
pose psychological resources are antecedents
to one’s global mindset. These psychologi-
cal resources are operationalized and mea-
sured by the now-recognized core construct
of psychological capital (PsyCap) consisting

of hope, efficacy, resilience,

and optimism

(Luthans & Youssef, 2004; Luthans, Youssef,
& Avolio, 2007). Importantly, this proposed
model is not intended to be exhaustive (see
Figure 2 for a picture of the model and sum-
mary of the hypotheses). However, this study
initiates empirical testing of antecedents rele-
vant to global mindset development that can
contribute to effective IHRM.

Study Hypotheses

Personal and Role-Complexity
Characteristics

The process of global mindset development is
complex and multifaceted. As presented in
our proposed model, before leaders enter in a
global or cross-cultural context, they have
certain personal characteristics and various
levels of global competencies. For example,
leaders who have a higher level of education
could feel better prepared to take on working

FIGURE 2. Hypothesized Model

Phase 1 Phase

Global
Mindset

PsyCap

Education

Experience
Abroad

Complexity
of Global

Role

H1a

H1b

Business
Trips Abroad

Level of
Management

Number of
Languages

ANTECEDENTS OF GLOBAL MINDSET 13

Human Resource Management DOI: 10.1002/hrm

abroad in a challenging role. This occurs in
the same way individuals with more educa-
tion tend to be selected to international jobs
based on their technical ability. Empirically,
Arora et al. (2004) found a significant link be-
tween a manager’s level of education and his/
her global mindset. While we do not believe
that education alone will lead to a global
mindset, level of education seems to be an
important contributor to seeking experience
abroad.

Besides education, those who hold higher
positions within the organization may per-
ceive that an international assignment or
challenging international role may be the
only way in which they can continue to
progress in their organizations. This percep-
tion may cause these leaders to take on the
challenge of going abroad and taking on
a demanding role. Of course, leaders who
take on international assignments may be
at higher levels of the organization because
of the nature of their job. Thus, while we do
not intend to imply causality, there may be a
potential link between level of management
and experience abroad.

Leaders who have more language skills
may also be selected to go on an international
assignment or, because they have developed
these abilities, they may seek an opportunity
to develop more by taking on an interna-
tional assignment with a complex role. At the
same time, leaders who take on international
assignments may feel the need to learn more
languages. Thus, there is a link between lan-
guage skills and international assignments.
Clapp-Smith and Hughes (2007) also reported
a link between foreign-language fluency and
a global mindset.

Finally, those who have traveled exten-
sively abroad for business may feel that
they are better prepared to take on the chal-
lenge and that they can grow more with the
company if they take on an international
assignment with a challenging role. In fact,
Boyacigiller, Beechler, Taylor, and Levy (2004)
proposed that international business trips at
the beginning of managers’ careers could
potentially help them develop a global mind-
set. This seems important, as one’s exposure
to an international business environment

may positively influence their international
careers.

In sum, and in accordance with Clapp-
Smith and Hughes (2007), personal history
may have an impact on global mindset. Thus,
we propose that leaders’ personal character-
istics, such as education, position within the
organization, language abilities, and experi-
ence such as short-term international busi-
ness trips, may facilitate leaders to live abroad
(international assignment) and take on a
complex global role (contributing to Phase 1
of global mindset development). This leads to
the first hypothesis to be tested in the study.

Hypothesis 1: Education, level of management
within the multinational organization, number of
languages spoken, and number of business trips
abroad will be positively related to (a) time spent
and experience abroad and (b) the complexity of
their global role.

International experience has been pro-
posed and related to

the development

of a global mindset (Black, Gregersen,
Mendenhall, & Stroh, 1999; Kobrin, 1994).
Trigger events involving cultivating curiosity
about the world, committing to learn about
how things around the world work, having a
clear understanding and articulation of one’s
own current mindset, having exposure to
diversity and complexity, and attempting to
integrate knowledge about diverse cultures
and markets (Gupta & Govindarajan, 2002)
have been associated with a global mind-
set (Clapp-Smith, Luthans, & Avolio, 2007).
These can accumulate to provide one with a
rich and extensive experience abroad.

Individuals who actually live abroad for a
longer amount of time become more exposed
to more cultural challenges and hardships.
Osland and Bird (2008) state that the various
cross-cultural key experiences are critical to
the development of a global mindset. Thus,
living and working in a global context can
trigger a new mental model in an individ-
ual (Mendenhall, 2008) or a global mindset
(Beechler & Javidan, 2007; Levy, Taylor et al.,
2007; Pless, Maak, & Stahl, 2011). This leads
to the following hypothesis to be tested that
can contribute to Phase 2 of our model.

138 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

Hypothesis 2: Leaders’ amount of time spent and
experience abroad will be positively related to their
global mindset indicators.

International management development
has been related to a global mindset develop-
ment (Stahl, 2001). These development pro-
grams can happen during an international
assignment that, according to Boyacigiller et
al. (2004), must be carefully managed. There
must be tasks or assignments that build on
the difficulty and complexity of the job in
order to impact the global mindset (Kobrin,
1994). Thus, while time spent and experience
abroad will arguably lead to a development of
a global mindset, the type of work you might
do may also contribute to its development.

Providing a challenging role (job assign-
ment) is one of the ways to lead to the
development of global mindset. Given
the importance of the contextual nature of
effective leadership development, it is impor-
tant to define role characteristics that would
be fit for a leader in a global environment, but
that is also challenging. Gregersen, Morrison,
and Black (1998) noted that effective leaders
operating in a global environment manage
uncertainty and ambiguity. Caligiuri (2006)
identified through focus groups and inter-
views unique functions that leaders who work
in a global environment must be able to effec-
tively carry out. Specifically, they need to
work efficiently and influence people from
different countries and nationalities (col-
leagues, subordinates, and internal and exter-
nal clients), speak many languages, develop
a global strategic business plan for their unit,
maintain the budget for their unit, and man-
age risks for their unit. Pucik and Saba (1998)
stated that leaders who operate globally
have to work across not only national bor-
ders, but also organizational and functional
boundaries.

Using this review as a point of departure,
we propose that some roles in a global envi-
ronment have different levels of complexity.
Those with a higher-complexity global role
will manage uncertainty and ambiguity more
frequently than those with a low-complexity
global role. They will also lead teams with
diverse values more frequently than those

with a low-complexity global role. They will
tend to use more than one language to execute
their job functions and with more frequency
than those with a low-complexity global role.
They will work to influence team members
and stakeholders from different countries and
nationalities more frequently than those
with a low-complexity global role. They will
coordinate people and processes in differ-
ent places more frequently than those with
a low-complexity global role. Finally, they
will work across national, organizational, and
functional boundaries more frequently than
those with a low-complexity global role.

In sum, leaders who have a higher-
complexity global role obviously work in
a complex environment. These leaders will
deal with challenges of the global environ-
ment more frequently than those with a
low-complexity global role. Thus, the third
study hypothesis that needs to be tested is the
following:

Hypothesis 3: The complexity of leaders’ global
role will be positively related to their global mind-
set indicators.

Psychological Characteristics

Besides the personal characteristics and role
complexity are the psychological resource an-
tecedents represented by positive psychologi-
cal capital, or PsyCap, which has been empiri-
cally demonstrated to have a valid measure
and be a higher-order core construct (Luthans,
Avolio, Avey, & Norman, 2007). This PsyCap
is defined as

An individual’s positive psychologi-
cal state of development that is char-
acterized by (1) having confi dence
(self-effi cacy) to take on and put in
the necessary effort to succeed at
challenging tasks; (2) making a posi-
tive attribution (optimism) about
succeeding now and in the future;
(3) persevering towards goals and,
when necessary, redirecting paths
to goals (hope) in order to succeed;
and (4) when beset any problems and
adversity, sustaining and bouncing

ANTECEDENTS OF GLOBAL MINDSET 13

Human Resource Management DOI: 10.1002/hrm

We propose that

PsyCap will aid

the development

of an effective

global leader (in

all phases), as

those with hope,

efficacy, resiliency,

and optimism

reflect a desire to

challenge oneself

and reflect an ability

to take advantage of

experiences, learn,

cope, and improve

upon them.

back and even beyond (resiliency)
to attain success. (Luthans, Youssef
et al., 2007, p. 3)

As a higher-order construct, there is an
underlying thread between the four compo-
nents of efficacy, optimism, hope, and resil-
ience that represent a positive assessment of
situations and the psychological resources to
draw from so that one can achieve success
based on personal effort, perseverance, and
striving to achieve success (Luthans, Avolio
et al., 2007; Luthans, Youssef et al., 2007).
These characteristics of PsyCap demonstrate a
passion for diversity, change, sense of adven-
ture, and self-assurance, which seem extremely
important for one’s global mindset. In fact,
PsyCap has been shown to be strongly related
to positive attitudes, behaviors, and perfor-
mance outcomes (for a recent meta-analysis,
see Avey, Reichard, Luthans, & Mhatre, 2011).

For relevance to global mindset develop-
ment, PsyCap has also been shown to have an
impact in international environments (e.g.,
see Luthans, Avey, Clapp-Smith, & Li, 2008;
Luthans, Avolio, Walumbwa, & Li, 2005)
and, more directly, Clapp-Smith et al. (2007)
argued that PsyCap mediates the relationship
between cognitive capacity and cultural intel-
ligence in the development of global mind-
set. Accordingly, we propose that PsyCap will
aid the development of an effective global
leader (in all phases), as those with hope, effi-
cacy, resiliency, and optimism reflect a desire
to challenge oneself and reflect an ability to
take advantage of experiences, learn, cope,
and improve upon them. Thus the last study
hypothesis to be tested is as follows:

Hypothesis 4: Psychological capital will be posi-
tively related to the global mindset indicators.

Methods

Sample

Participants in this study were global leaders
from a widely recognized and respected Fortune
100 multinational corporation. The firm was
contacted by the researchers with an invitation
to participate in a university-sponsored study

on the attitudes and behaviors of global lead-
ers in multinational firms. The leaders with
specific international responsibilities were
identified by the organization and contacted
and endorsed via e-mail by the international
HR manager. A link was provided in the e-
mail to a website that contained the survey
questions along with a brief description of
the research project in the IRB consent form.
Participation was voluntary, and in order to
protect participant anonymity, all partici-
pants were assigned a code and no names
were collected.

Return rates were calculated as the actual
number of surveys completed by the partici-
pant global leaders. Of the 599 surveys dis-
tributed to the leaders, 161 were
returned, a 27 percent return rate.
Of the 161 returned surveys, 136
provided complete data that were
used to develop the path analy-
sis. The participant leaders were
30 percent female and 70 percent
male, with an average age of 44
years. Twenty-two percent had
obtained bachelor’s degrees, 6 per-
cent did some graduate work, 56
percent obtained master’s degrees,
and 5 percent PhDs. The remain-
ing 9 percent had high school
diplomas or an associate degree.
Thirty-nine percent identified
their ethnic descent as Asian, 9
percent Hispanic or Latino, 28 per-
cent as white/Caucasian, while the
remainder identified themselves as
“other.” Forty-one different nation-
alities were identified in the sample
ranging from Chinese (6) to Syrian
(1). Seven percent of the study par-
ticipants spend most of their work
time in Africa, 44 percent in Asia,
28 percent in Europe, 10 percent in
Latin America, 8 percent in North
America, and 3 percent in Oceania.

Measures

With the available sample size (N = 136), we
chose to employ a path analysis modeling
framework that captures the structural

140 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

relations between constructs but simplifies
the measurement portion of the model by
utilizing summary measures for each con-
struct. Thus, all measures included in the
model were evaluated in isolation through
confirmatory factor analysis (CFA) in order to
examine their factor structure and construct
validity. The overall fit and psychometric
properties of each latent variable were as-
sessed during this process.

Global Mindset

Global mindset was measured using three
subscales of the Cultural Intelligence (CQ)
Questionnaire (Ang, Van Dyne, Koh, & Ng,
2004) and also global business orientation
(Nummela et al., 2004). Acceptable psycho-
metric properties and support for the con-
struct validity of the CQ have been demon-
strated by previous research (see Ang et al.,
2004, and Nummela et al., 2004, for a review).
Metacognitive CQ and global business orien-
tation were assessed by four items, motiva-
tional CQ by five items, and cognitive CQ by
six items. Some sample items for each of the
four subscales include the following: “I am
conscious of the cultural knowledge I apply
to cross-cultural interactions” (metacognitive
CQ); “I know the legal and economic systems
of other cultures” (cognitive CQ); “I enjoy in-
teracting with people from different cultures”
(motivational CQ); and “Internationalization
is the only way to achieve our growth objec-
tives” (global business orientation). All re-
sponses are anchored on a six-point Likert
scale ranging from 1 = “strongly disagree” to
6 = “strongly agree.” Each of these global
mindset components demonstrated accept-
able internal consistency in this study, as
measured by Cronbach’s alpha (metacogni-
tive CQ = 0.80, cognitive CQ = 0.89, motiva-
tional CQ = 0.84, and global business orien-
tation = 0.89), as well as overall global
mindset (0.89).

To assess the appropriateness of aggregat-
ing each of the subscales into a single factor
of global mindset, we conducted a CFA with
a second-order measurement model for the
leader sample. All items for each subscale
were set to load on their respective subscale.

Standardized factor loadings range from 0.58
to 0.91 (metacognitive CQ = 0.60–0.77, cog-
nitive CQ = 0.65–0.91, motivational CQ =
0.58–0.83, and global business orientation
= 0.67–0.91). Each of the four subscales was
then set to load onto the global mindset fac-
tor with standardized factor loadings for the
second-order overall global mindset construct
ranging from 0.41 to 0.85. All item loadings
were significant at the p < 0.05 level on their respective latent factor as well as each com- ponent loading on the second-order factor global mindset. Based on Hu and Bentler’s (1999) recommendations, results of the CFA suggest a close fit of the model to the data: χ2(147) = 219.98, p < 0.05; SRMR = 0.06; RMSEA = 0.06, p = 0.18; CFI = 0.95 for the sample.

Overall, the CFA results support that the
four global mindset components do repre-
sent an underlying latent core construct of
overall global mindset; thus, we are justi-
fied in utilizing a single composite score of
global mindset for model parsimony. In cal-
culating a composite global mindset score,
we employed a two-step process by creating
subscale scores and then using the subscale
scores to create the overall composite vari-
able. First, we averaged (averages were used
instead of sums to adequately control for lim-
ited item-level nonresponses) the items from
each of the four subscales to create four sub-
scale scores. We then averaged the four
subscales to obtain the total score that was
used in the model. This approach has the
benefit of allowing each item to contrib-
ute equally to the subscale score and each
subscale score to contribute equally to the
composite score (i.e., subscales with a larger
number of items are not allowed to dominate
the composite score relative to subscales with
a smaller number of items).

Personal Characteristics

Education was assessed by the question “What
is the highest level of education you com-
pleted?” Organizational level was assessed by
the question “What level best describes your
position within the organization?” Number of
languages spoken was assessed by the question

ANTECEDENTS OF GLOBAL MINDSET 14

Human Resource Management DOI: 10.1002/hrm

“How many languages do you speak?” Amount
of business trips abroad was assessed by the
question “How often do you leave the coun-
try for business?” Experience abroad was as-
sessed by the questions “Have you ever lived
abroad?” and “How long?” Composite expe-
rience abroad was then calculated as a combi-
nation of the two questions by assigning a
score of zero if the leader indicated they had
never lived abroad and the number of years
lived abroad if they indicated they had lived
abroad.

Psychological Characteristics

Psychological capital was measured using the
24-item PsyCap questionnaire (PCQ; Luthans,
Youssef et al., 2007). Acceptable psychomet-
ric properties and support for the construct
validity of this PCQ have been demonstrated
by previous research (see Luthans, Avolio
et al., 2007). Six items in this PCQ represented
each of the four components that make up
PsyCap. These items were adapted for the
workplace from the following widely ac-
cepted standardized scales: (1) hope (Snyder,
Sympson, Ybasco, Borders, Babyak, & Higgins,
1996); (2) resilience (Wagnild & Young, 1993);
(3) optimism (Scheier & Carver, 1985); and
(4) efficacy (Parker, 1998). Some sample items
for each of the four subscales include the fol-
lowing: “I feel confident helping to set tar-
gets/goals in my area of work” (efficacy); “If I
should find myself in a jam at work, I could
think of many ways to get out of it” (hope); “I
always look on the bright side of things re-
garding my job” (optimism); and “I usually
manage difficulties one way or another at
work” (resiliency). All responses for the PCQ
are on a six-point Likert scale ranging from 1
= “strongly disagree” to 6 = “strongly agree.”

To assess the appropriateness of aggregat-
ing each of the subscales into a single factor of
PsyCap for model parsimony, we conducted
a CFA with a second-order measurement
model for our sample. The six items were set
for each subscale to load on their respective
subscale. Each of the four subscales was then
set to load onto the PsyCap factor. Twenty-
one of the 24 standardized items loaded sig-
nificantly on their respective latent factor at

the p < 0.05 level, as well as each of the four component loadings on the second-order fac- tor PsyCap. The three items (#13, #20, #23) that were not significant loadings were all negatively phrased and were reverse-scored. Residual correlations were added between the three reverse-scored items to account for the shared residual variance due to negative wording. Results of the CFA were as follows: χ2(245) = 323.64, p < 0.01; SRMR = 0.07; RMSEA = 0.05, p = 0.67; and CFI = 0.91 for our sample. Based on Hu and Bentler’s (1999) recommendations, results from the CFA suggest close fit for the second-order factor model. Overall, the CFA results support that the four PsyCap components do represent an underlying latent core construct of overall PsyCap.

Initially, the efficacy and hope PsyCap
components demonstrated adequate inter-
nal consistency in this study (efficacy = 0.79,
hope = 0.76), but resilience (α = 0.60) and
optimism (α = 0.55) showed only moder-
ate internal consistency. A revised item-level
CFA model excluding the three low-loading
reverse-scored items (#13, #20, #23) resulted
in a similar-fitting model: χ2(185) = 256.36,
p < 0 .01; SRMR = 0.06; RMSEA = 0.05, p = 0.46; and CFI = 0.91 for our sample. Since the revised model is based on different data than the initial CFA, including the three low- loading items (i.e., the second model is based on three fewer variables, which results in 69 fewer variance-covariance and 3 fewer mean structure elements to be reproduced), no direct tests of the equivalency of these models are available. Consequently, the three items that showed low loadings on their respective factors in the initial CFA (#13 on resilience: λ = 0.15; #20 on optimism: λ = −0.01; and #23 on optimism: λ = 0.09) were excluded from computation of the summary score used in subsequent modeling. This decision was sup- ported by a traditional item analysis as well. The resulting PsyCap components showed improved internal consistency (resilience = 0.60, optimism = 0.72). Standardized factor loadings for the remaining 21 items on their first-order factors ranged from 0.29 to 0.76 (hope = 0.44–0.72, efficacy = 0.33–0.75, resil- ience = 0.29–0.67, and optimism = 0.49–0.76).

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Human Resource Management DOI: 10.1002/hrm

The overall PsyCap score used in subse-
quent modeling was computed in the same
two-step manner, as previously described for
the global mindset composite variable. The
overall PsyCap score showed strong internal
consistency (α = 0.85). Standardized factor
loadings for the four first-order constructs on
the second-order overall PsyCap construct
ranged from 0.58 to 0.99.

Complexity of Global

Role

Six questions assessed the complexity of the
global role. The questions were drawn from
the relevant literature and created by the au-
thors. Content validity was established by ask-
ing and obtaining agreement from a panel of
experts in the field if the questions were as-
sessing complexity of global roles. The scale
consisted of six questions measured by a
seven-point Likert-type scale ranging from
1 = “strongly disagree” to 7 = “strongly agree.”
High scores indicate the high complexity of
the global role and low scores low complexity
in the global role. “My job requires me to co-
ordinate people and processes in different lo-
cations frequently” is a sample item. Item 1,
“My job requires me to manage ambiguity
and uncertainty frequently,” was found to
have low correlations with other items when
administered to the current sample and was
dropped due to ambiguity and misfit with the
rest of the item set. Confirmatory factor analy-
sis showed that the remaining five items were
indeed measuring one factor: χ2(5) = 8.42, p =
0.13; SRMR = 0.03; RMSEA = 0.07, p = 0.14;
and CFI = 0.99. Based on Hu and Bentler’s
(1999) recommendations, results from the
CFA suggest close fit for the unidimensional
model. Standardized factor loadings for the
five-item measure of complexity of the global
role ranged from 0.46 to 0.88, and the com-
posite measure demonstrated adequate inter-
nal consistency in this study, α = 0.76.

Analytic Plan

To test the study hypotheses, we conducted a
path analysis using manifest composite indi-
cators of model constructs. Path analysis is a
special case of structural equation modeling

(SEM). Manifest composite measures were cho-
sen rather than a latent variable structure to
preserve the theoretical model but reduce the
number of estimated parameters due to
the sample size. In traditional covariance-
based SEM, the sufficient statistics are the
variance-covariance matrix and a vector of
means rather than the number of partici-
pants, and model degrees of freedom are
based on the number of unique sufficient sta-
tistics. The number of participants contrib-
utes in ensuring that each of these sufficient
statistics is approximated with sufficient pre-
cision. The modeling process results in a set
of estimated parameters that most effectively
reproduce the sufficient statistics. Due to the
sample size available in this study, the poten-
tial use of latent variables became prohibitive
because of the increased number of parame-
ters required by latent variables and the in-
creased number of sufficient statistics to be
reproduced. By utilizing a path-analysis ap-
proach based on observed variables, the nine
manifest variables (and zero latent variables)
result in 45 unique elements of the variance-
covariance matrix and 9 elements of the
mean structure to be reproduced in the mod-
eling process. Twenty-three parameters are
then estimated by the path model to repro-
duce the sufficient statistics, which is a 6.8
participants/parameters ratio. Alternatively,
attempting to model global mindset, PsyCap,
and complex global role as latent variables
with manifest indicators (four subscores,
four subscores, and five items, respectively)
results in 190 variance-covariance and 19
mean structure elements. The number of
unique elements to be reproduced by the
model then exceeds the available sample
size, and the 56 estimated parameters results
in a 2.4 participants/parameters ratio. For
these reasons, among others, most SEM
guidelines pertaining to necessary sample size
indicate a minimum of N = 250 for the use of
latent variables (for example, see Kline, 2010).

Calculation of composite scores was
described earlier in the Measures section.
These calculations are consistent with tra-
ditional classical test theory methods of
deriving total scores to approximate latent
scores. Since item-level data is available, and

ANTECEDENTS OF GLOBAL MINDSET 143

Human Resource Management DOI: 10.1002/hrm
Global mindset

was significantly

predicted by

complex global

role, psychological

capital, and

marginally by

experience abroad,

suggesting that

leaders with a more

complex global

role and higher

psychological
capital, and

potentially more

experience abroad,

also have a higher

global mindset.

latent variable modeling would have been
preferable had the sample size been larger,
structural (i.e., regression) effects were disat-
tenuated for unreliability in the manifest
indicators. Global mindset, complex global
role, and PsyCap were modeled as single-
indicator latent variables where the residual
term was fixed at (1 – ρ

α
) times the variance of

the manifest indicator, where ρ
α
is the previ-

ously reported internal consistency estimate
observed in this sample, and the loading was
fixed at 1.0 for model identification. This
serves the purpose of distinguishing the pro-
portion of observed variance attributed to the
true latent construct from the proportion of
observed variance attributed to measurement
error as would have been the case had we
used a latent variable structure.

Results

Means, standard deviations, and correlations
are presented in Table I. We used Mplus ver-
sion 6.1 (Muthén & Muthén, 1998–2010) to
conduct a multivariate path analysis using
maximum likelihood (ML) estimation. Global
mindset was regressed on complex global role
and experience abroad. Complex global role and
experience abroad were then regressed on the
leaders’ education, the number of languages
spoken, the number of business trips taken,
two dummy-coded contrast variables repre-
senting the leader’s job classification (C1: 0 =
top management, 1 = middle management;
and for C2: 0 = top management, 1 = low
management), and PsyCap. PsyCap was also
allowed to have a direct effect on global
mindset.

Based on Hu and Bentler’s (1999) recom-
mendations, results of the path analysis sug-
gest a close fit of the model to the data using
ML estimation: χ2(11) = 15.13, p = 0.18;
SRMR = 0.04; RMSEA = 0.05, p = 0.45; CFI
= 0.93 for our sample. Unstandardized esti-
mates, standardized estimates, and standard
errors for all structural paths based on ML
estimation are presented in Table II.

Global mindset was significantly predicted
by complex global role (B = 0.17, p < 0.01), psychological capital (B = 0.43, p < 0.01), and marginally by experience abroad (B = 0.04,

p = 0.06), suggesting that leaders with a more
complex global role and higher psychologi-
cal capital, and potentially more experience
abroad, also have a higher global mindset.
Thus, Hypotheses 2, 3, and 4 were supported.
Complex global role was predicted by the
number of languages spoken by the leader
(B = 0.26, p < 0.01), psychological capital (B = 0.59, p = 0.02), and marginally by the number of business trips abroad (B = −0.14, p = 0.07). These results suggest partial support for Hypothesis 1b. Experience abroad was significantly related to the number of business trips taken (B = 0.31, p = 0.04). This result suggests partial support for Hypothesis 1a and suggests that speaking more languages, having a higher psy- chological capital, and perhaps taking on business trips may be related to a

more complex global

role, but that a leader’s complex
global role is not related to their
management level or level of edu-
cation. As would be expected, tak-
ing more business trips abroad is
related to more experience abroad.

Global mindset was found
to be indirectly predicted by the
number of languages spoken
(B = 0.04, p = 0.03) and marginally
by psychological capital (B = 0.10,
p = 0.052), but not by the num-
ber of business trips (via complex
global role: B = −0.02, p = 0.10;
via experience abroad: B = 0.01,
p = 0.17). These tests of indirect
effects further suggest that learn-
ing multiple languages and per-
haps having an increased level of
psychological capital may further
lead to a leader having a higher
global mindset as a function of first increas-
ing the leader’s global role complexity (see
Figure 3 for a summary of the results).

Common Method Variance

Because the data were collected from a single
source, common method variance can be a

144 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

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ANTECEDENTS OF GLOBAL MINDSET 145

Human Resource Management DOI: 10.1002/hrm

potential problem. We addressed the com-
mon method variance problem in two ways.
First, Harman’s single-factor test was con-
ducted on the nine manifest variables
outlined in Table I using exploratory factor
analysis with maximum likelihood extrac-
tion in the SPSS 19.0 software environment.
Three factors with eigenvalues greater than 1
were extracted, accounting for a cumulative

32.70 percent of the variance (13.43 percent,
13.60 percent, and 5.66 percent variance ac-
counted for, respectively). However, the par-
ticipant’s job classification is a categorical
variable and operationalized in all prior mod-
eling activities as two dummy-coded contrast
variables (top vs. middle management, top
vs. lower management). As the exploratory
factor analysis procedure in SPSS does not

T A B L E I I Unstandardized (B) and Standardized (β) Parameter Estimates, Standard Errors (SE), and
Inferential Decisions for Model Structural Effects

B β SE
Direct Effects

CGR → GM 0.173 0.327 0.050*

PC → GM 0.433 0.316 0.122*

Abroad → GM 0.035 0.146 0.019†

PsyCap → CGR 0.593 0.228 0.259*

Educ → CGR 0.075 0.103 0.065

Lang → CGR 0.257 0.263 0.086*

Trips → CGR −0.139 −0.164 0.077†

C1 → CGR −0.237 −0.126 0.186

C2 → CGR −0.175 −0.077 0.239

PsyCap → Abroad 0.786 0.137 0.517

Educ → Abroad 0.029 0.018 0.129

Lang → Abroad 0.145 0.067 0.173

Trips → Abroad 0.309 0.165 0.154*

C1 → Abroad 0.120 0.029 0.364

C2 → Abroad −0.541 −0.107 0.457

Indirect Effects

Educ → CGR → GM 0.013 0.034 0.012

Lang → CGR → GM 0.044 0.086 0.020*

Trips → CGR → GM −0.024 −0.054 0.015

C1 → CGR → GM −0.041 −0.041 0.034

C2 → CGR → GM −0.030 −0.025 0.042

PsyCap → CGR → GM 0.102 0.075 0.053†

Educ → Abroad → GM 0.001 0.003 0.005

Lang → Abroad → GM 0.005 0.010 0.007

Trips → Abroad → GM 0.011 0.024 0.008

C1 → Abroad → GM 0.004 0.004 0.013

C2 → Abroad → GM −0.019 −0.016 0.019

PsyCap → Abroad → GM 0.028 0.020 0.023
*Indicates statistical signifi cance at the p < .05 level. †Indicates marginal signifi cance at the p < .05 level.

146 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

allow for proper designation of the contrast
variables as categorical, the exploratory factor
analysis was replicated using Mplus 6.0 by ex-
tracting one-, two-, and three-factor solutions
using the robust weighted least squares esti-
mator (WLSMV) and properly designating
the contrast variables as categorical (i.e., di-
chotomous) variables.

The one-factor model did not fit the
data adequately (χ2(27) = 67.59, p < 0.001, RMSEA = 0.10), but the two- and three-factor

models did (two-factor: χ2(19) = 18.47,
p = 0.49, RMSEA < 0.01; three-factor: χ2(12) = 5.80, p = 0.93, RMSEA < 0.01). Chi-square difference tests for comparing nested models suggest that the two-factor model fits better than the one-factor model (Δχ2(8) = 43.74, p < 0.01), but the three-factor model does not achieve better fit than the two-factor model (Δχ2(7) = 11.43, p = 0.12). While this diagnos- tic procedure does not conclusively rule out the presence of common method variance,

FIGURE 3. Path Analysis With Standardized Solution for Model of Antecedents of
Global Mindset

Note: * indicates statistical significance at the p < 0.05 level. A plus (+) indicates statistical significance at the p < 0.10 level. Dashed paths indicate failure to reject a H0: b = 0. Factor loadings and error variances for all single-indicator latent variables were fixed to the standardized value shown to

disattenuate the model for unreliability in the manifest composite measures.

G
lo

b
a
l M

in
d
s
e
t

Experience
Abroad
Education

# Languages

Top vs. Mid
Management

Top vs. Low
Management

# Business Trips
Abroad

P
s
y
c
h
o
lo

g
ic
a
l

C
a
p
ita

l
Global
Mindset
PsyCap

.10

0.15

ML Fit Information:

C
o
m

p
le

x
G

lo
b
a
l

R
o
le

Complex
Global

Role

.22

1
1
1

.32*

.15+

.33*

.10

.23*

.26*

−.16+

−.08

−.13

.14

.02

−.11

.07

.17*

.03

χ2(11) = 15.13, p = 0.18
SRMR = 0.04
RMSEA = 0.05, p = 0.45
CFI = 0.93

ANTECEDENTS OF GLOBAL MINDSET 147

Human Resource Management DOI: 10.1002/hrm

evidence from Harman’s single-factor test
suggests that a common method factor due
to the singular data-collection instrument is
not the sole source of covariation found in
the model.

As a second assurance that the reported
results are not biased by a common method
factor, a confirmatory factor analysis (CFA)
on indicator-level data was conducted to
allow indicators to load on their theoretical
constructs while controlling for the effects
of an unmeasured latent methods factor
as discussed in Podsakoff, MacKenzie, Lee,
and Podsakoff (2003). The primary analytic
model involves only manifest variables, and
results without the latent common methods
variance factor are reported in Table II and
Figure 3. When a common methods factor
was included in the model, the model was no
longer identifiable due to insufficient degrees
of freedom.

As an alternative consideration, a CFA
based on theoretical measurement models
where feasible and a latent common methods
variance factor was conducted. Due to the
sample size, not all item-level data were used.
Complexity of the global role was measured
by the five item indicators, global mindset
was measured by the three subscale scores of
the Cultural Intelligence (CQ) Questionnaire
(Ang et al., 2004) and also the global business
orientation score (Nummela et al., 2004), and
psychological capital was measured by the
four subscores of hope, resilience, optimism,
and efficacy based on the 21 items used to
construct the overall PsyCap score as previ-
ously described. Time abroad, education,
number of languages, and number of busi-
ness trips were measured as single indicators.
The dummy-coded contrast variables of lead-
er’s job classification were excluded due to
the added estimation complexity introduced
by modeling categorical outcomes in the con-
text of a complex CFA with small samples.
These 17 indicators were allowed to load as
described on their theoretical constructs as
well as cross-load on a latent common meth-
ods variance construct.

This model achieved approximate fit to
the data: χ2(85) = 122.437, p < 0.01; RMSEA = 0.05, p = 0.37; CFI = 0.93; SRMR = 0.06.

Standardized factor loadings demonstrating
adequate discriminant validity between the
theoretical constructs and the common meth-
ods variance (CMV) construct are reported
in Table III. Note that all standardized load-
ings are greater for the theoretical construct
than the CMV construct with the exception
of an item from the complexity of global role
construct.

Discussion

The development of a global mindset has
emerged in recent years as an answer to help
meet the challenges facing today’s global
leaders. There are many definitions and rec-
ognized complexities involved with what
goes into a leader’s global mindset. However,
to date, few theory-driven models of global
mindset have been formulated and empiri-
cally tested. This study tested one such model
that links the development of a global mind-
set to the personal, role, and psychological
characteristics of multinational organiza-
tional leaders. The model has two phases in
which global mindset development may take
place. The first phase takes into consider-
ation the personal characteristics of leaders
and their global competencies including in-
ternational business trips they have taken,
but before they actually enter the interna-
tional environment in the form of an inter-
national assignment or global leadership
role. The second phase of the model exam-
ines the quality and amount of time spent
abroad on an assignment, along with the
complexity of their role.

This proposed model assumes that some
leaders are better prepared or have character-
istics that allow them to take advantage of
the developmental experiences provided. The
analysis determined which of these character-
istics are more relevant to the development of
global mindset as indicated by theoretically
supported and measured cultural intelligence
and global business orientation. The study
results indicated partial support for the over-
all model and study hypotheses as shown in
Figure 3.

More specifically, in Phase 1 of the model,
the analysis indicated that the number of

148 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

international business trips individuals took
contributed to their international experi-
ence, but these trips only marginally contrib-
uted to the complexity of their global role.
The opposite was the case for number of lan-
guages learned. Multilanguage proficiency
was directly related to the complexity of their
global role but did not relate to their inter-
national experience. Education and level of
management did not contribute to the model.
In other words, the results both support con-
ventional wisdom and run counter to it in
terms of how to develop global mindset.

At the general level, the results indicate that
two dimensions of the model play a relatively
larger role in the development of global mind-
set: complexity of global role and psychological
capital. As indicated, the role of positive psy-
chological capital has been conceptually linked
to global mindset development (Clapp-Smith,

Luthans et al., 2007) and, of course, has been
demonstrated in previous research to have a
robust impact on desired employee attitudes,
behaviors, and performance (see the meta-
analysis of Avey et al., 2011). This study now
provides empirical evidence that PsyCap is
also related to global mindset. On the other
hand, contrary to conventional wisdom, this
study found that international assignments
only marginally contributed to global mind-
set development. Overall, these findings have
IHRM implications not only for better under-
standing, but also the practical development
of a global mindset.

Practical Implications

In terms of the most significant results rele-
vant to effective IHRM are the number of lan-
guages spoken, the leader’s role complexity,

T A B L E I I I Standardized Factor Loadings Between the Theoretical

Constructs and the Common Methods Variance Construct

Theoretical
Construct

Common Methods
Variance Construct

Complexity of Global Role

Item 2 0.50 0.12

Item 3 0.12 0.76

Item 4 0.73 0.49

Item 5 0.67 0.22

Item 6 0.75 0.34

Global Mindset

Metacognitive CQ 0.64 0.04

Cognitive CQ 0.51 0.30

Motivational CQ 0.71 −0.12

Global Business 0.35 −0.01

Psychological Capital

Hope 0.88 0.10

Effi cacy 0.60 −0.06

Resilience 0.47 0.03

Optimism 0.64 −0.17

Single Indicator Constructs

Travel Abroad 1.00 0.01

Educ 0.99 0.15

Lang 0.81 0.58

Business Trip 1.00 0.04

ANTECEDENTS OF GLOBAL MINDSET 149

Human Resource Management DOI: 10.1002/hrm

and the leader’s psychological capital. These
findings have important implications for
global mindset development. In particular,
language skills were found to be the most im-
portant personal characteristic that is related
to global mindset. This finding supports pre-
vious research by Clapp-Smith and Hughes
(2007) and Konyu-Fogel and Cole (2011).
Considering that this is a skill that leaders can
develop by taking language instruction, this
becomes an evidence-based practical guide-
line for effective IHRM.

The numbers of international business
trips correlated with overall international
experience but did not share a relationship
with their role complexity. This means that
those who take multiple trips abroad for
their job may lead them to take on an inter-
national position, but this travel may not
contribute to their role complexity. Travels
abroad are not found in this study to be
directly correlated with global mindset. This
finding goes against conventional wisdom
and Boyacigiller and colleagues’ (2004) sug-
gestion that international trips might lead to
a global mindset. Our study results suggest
that international travel may be overrated
as a developmental technique for IHRM.
This could be explained by the fact that such
trips most often entail staying and dining at
five-star Western-style establishments with
local hosts trying to impress and accommo-
date. Such visitors never really experience the
grassroots culture and values, and thus this
does not contribute to their global mindset
development. However, despite this finding
we would still say that international trips are
better than nothing and should still be con-
sidered but with the caveat that the visitor try
to experience the local culture. Visitors should
proactively try to “get out of the hotel” and
not only dine at local restaurants, but, if pos-
sible, visit the homes of locals or even expats.
The same is true of trying to get out of the
big cities and experience the potentially more
relevant cultures of the small cities of a given
country.

Interestingly, our findings also challenge
another main assumption put forth by many
scholars that international assignments are
key for the development of a global mindset

(e.g., Black et al., 1999). An assumption of
their hypothesis is that individuals who live
abroad for a significant amount of time are
more exposed to multicultural challenges
and hardships. However, based on our find-
ings one can also develop a global mindset
by undertaking a globally challenging role
and not just by living abroad. This does
not mean that this international experience
isn’t important (as moderately correlated
with global mindset), but that the complex-
ity of their job role may be more relevant to
their global mindset than just living abroad.
Living abroad may turn out to be like visiting
abroad. That is, those on international assign-
ments may be living in an insular enclave of
those like themselves, sealed off from the
local culture.

The relative importance of role complex-
ity over just living abroad is very relevant for
effective IHRM because it can be practically
done. Although it is still important to point
out the many challenges that exist in select-
ing the right person for international assign-
ments and that many failures may occur,
according to the findings in this study, if the
assignments are not challenging, they only
marginally may lead to the development of
a global mindset. This goes in line with what
was also suggested by Boyacigiller et al. (2004)
that international management development
needs to be carefully managed.

The specific guideline for effective IHRM
is that job assignments need to be carefully
managed for the development of a global
mindset. The tasks or assignments must build
in the difficulty and complexity of the job in
order to impact the global mindset (Kobrin,
1994). In this sense, working effectively and
influencing people from different countries
and nationalities become a key challenge.
Leading teams with diverse values, frequently
using multiple languages to execute their
job functions, create a challenging, com-
plex work role. The coordination of people
and projects in different places, and working
across national, organizational, and func-
tional boundaries are also characteristics of
challenging job assignments. In sum, work-
ing with and leading diverse teams and stake-
holders in different locations, from different

150 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

IHRM needs to

carefully design

job assignments to

make sure they are

challenging and

provide leaders with

the opportunities

to work in such

complex job roles.

functions, and that speak different languages
characterizes a challenging global role that
allows for global mindset development. Being
able to transcend cultural differences and
bring different groups together becomes key
to not only global mindset development, but
also effective leadership (Graen & Hui, 1999).
Thus, IHRM needs to carefully design job
assignments to make sure they are challeng-
ing and provide leaders with the opportuni-
ties to work in such complex job roles.

In terms of psychological capital, these
positive resources provide individuals the
strength to take advantage and persevere in
their careers. In a complex global environ-
ment, negative responses and confusion may

lead individuals to become closed-
minded or inflexible (Bartunek,
1988). On the other hand, those
having high psychological capital
are more able to overcome these
trials and tribulations. Hope pro-
vides individuals the willpower
and motivation to achieve their
goals and the pathways to success-
fully reach these goals (Luthans,
Youssef et al., 2007). Thus, more
hopeful leaders are better able to
tackle the challenges associated
with a multicultural environ-
ment. Hopeful leaders will find
different and perhaps more cre-
ative ways to achieve their goals.
Efficacy provides leaders the con-

fidence to succeed in a task (Bandura, 1997).
This means that high levels of efficacy allow
the leader to mobilize the motivation and
cognitive resources to effectively operate in
a multicultural setting. Resiliency is the abil-
ity to bounce back from setbacks and adver-
sity (Luthans, Youssef et al., 2007). Resilient
leaders are more adaptable and more com-
fortable dealing with challenging situations.
They often challenge their own assumptions
about the way they view the world (Luthans,
Youssef et al., 2007). This resiliency resource
seems especially important when operating
under a stressful and complex multicultural
environment. Finally, optimistic individuals
make positive attributions to events and have
positive future expectations (Luthans, Youssef

et al., 2007). This means that they are more
open and are able to broaden their cognitive
processes in response to global complexities
and thus contribute to their global mindset.

PsyCap has also been related to other
desired employee attitudes, behaviors, and
performance outcomes (Avey et al., 2011).
It is key for IHRM that PsyCap has been
experimentally demonstrated to be open to
development in an online training interven-
tion (Luthans, Avey, & Patera, 2008) and to
cause performance to improve after train-
ing intervention (Luthans, Avey, Avolio, &
Peterson, 2010). Recent longitudinal research
also supported the causal impact of PsyCap
on both supervisor evaluations and objec-
tive performance (Peterson, Luthans, Avolio,
Walumbwa, & Zhang, 2011). In other words,
PsyCap is open to development and may have
a causal impact on not only performance, but
also global mindset.

In sum, the implications of these findings
for effective IHRM are threefold. First, the
importance of a challenging role significantly
relates to global mindset and it is also related
to the amount of languages a person speaks.
Second, trips abroad and international assign-
ments may be overrated as having develop-
mental value for global mindset. However, if
managed carefully to ensure getting grassroots
cultural experiences and in the case of inter-
national assignments making sure the leader
has a challenging, complex job role involving
multicultural dimensions, these international
experiences can still offer development of
global mindset. Finally, psychological capital
is related to the complexity of a global role
and global mindset, proving to be a key con-
struct for global mindset development. These
findings allow practical guidelines for effec-
tive IHRM that are evidence-based and not
based on anecdotal or conventional wisdom.

Study Limitations

Despite the study’s strengths and practical
implications, some potential limitations need
to be acknowledged. Data were collected from
a single source, which may potentially lead to
the single-source bias effect. We addressed
this limitation by conducting two statistical

ANTECEDENTS OF GLOBAL MINDSET 151

Human Resource Management DOI: 10.1002/hrm

If our focus is how

to explain and

develop a global

mindset, we do

know that a higher,

more complex global

role also increases

a global mindset,

so it remains that

the strength of the

relationship may be

more important than

the direction.

tests: Harman’s single-factor test and a confir-
matory factor analysis (CFA) on indicator-
level data which allows the indicators to load
on their theoretical constructs while control-
ling for the effects of an unmeasured latent
methods factor (see Podsakoff et al., 2003).
These analyses demonstrate that despite
single-source bias potential, the data analyses
do not appear to be affected by it.

Another potential limitation is the sam-
ple size (N = 136), which led to a more simpli-
fied model and potential reliability problems.
However, the trade-off for the size of the sam-
ple was that these participants were restricted
to a well-known, multinational firm that was
ideal for the study of global mindset. A final
potential limitation was also a strength, which
was the diversity of the sample. Cultural dif-
ferences may have impacted some of the
results. For example, the amount of inter-
national business trips may be unique to US
managers in their decision of living abroad.
On the other hand, this may be less impor-
tant to European managers because they are
more likely and more used to visiting and
working in many different countries.

While we do believe our model has two
phases and we may unintentionally imply
causality at places, it is important to point
out that we only established relationships,
and these certainly could go either way. For
example, a leader with a global mindset may
be chosen to have a complex global role; thus,
having a complex global role is a prerequisite
for global mindset. While we theoretically
argue for one direction in formulating the
study hypotheses, it does not mean that is
the only or right direction. This may be a
limitation, but in terms of practical and theo-
retical implications for IHRM, our recommen-
dations do not change. If our focus is how to
explain and develop a global mindset, we do
know that a higher, more complex global role
also increases a global mindset, so it remains
that the strength of the relationship may be
more important than the direction.

For the future, research can benefit from
testing other possible antecedents such as per-
sonality, management education, and leader-
ship styles to see if they lead to global mindset
development. Other studies probably could

benefit from a different operationalization
of global mindset or a different theoretical
model. Since this study is just initiating the
empirical analysis of the antecedents of global
mindset, more sophisticated research such as
longitudinal, experimental, and qualitative
designs would benefit the field. However, this
study serves as a very important step for help-
ing meet the challenges facing IHRM, and
it identifies some evidence-based practical
guidelines for global mindset development.

Conclusion

Today’s global environment has led to many
changes in the ways multinational organiza-
tional leaders conduct business as
well as the need for IHRM to iden-
tify and develop the necessary
characteristics to be effective in
such complexity. Training and de-
velopment of leaders are not just
one component of the IHRM pro-
gram; they now have become top
priority (Stroh & Caligiuri, 1998).
Global mindset is becoming rec-
ognized as an overlooked, unique
characteristic necessary for effec-
tively working globally. Thus, de-
velopment of leaders and staff
should focus on global mindset
development. In this study, the
complex process of global mind-
set development that takes into
consideration the leader’s per-
sonal, psychological, and role-
complexity characteristics were
analyzed. Our findings are impor-
tant, as they provide evidence-
based management practice for
IHRM management.

In training and developing
staff and leaders capable of effectively work-
ing in a global environment, it is important
for effective IHRM to take into consideration
the characteristics that lead to global mind-
set development. In this study, the number of
languages a leader spoke was one of the few
personal characteristics relevant for the devel-
opment of a global mindset. In our model,
leaders who spoke more languages had a

152 HUMAN RESOURCE MANAGEMENT, JANUARY–FEBRUARY 2014

Human Resource Management DOI: 10.1002/hrm

more complex global role, which in turn led
to a global mindset. Another personal char-
acteristic that was moderately correlated to
global mindset was experience abroad. This
was also related to the amount of business
trips a leader took. However, we found if lead-
ers actually live abroad, then they are moder-
ately likely to increase their global mindset.
Yet, merely taking international business trips
did not seem to increase their global mindset.

Complexity of the role of a leader was
shown to directly impact global mindset.
Leaders who have more challenging and

complex assignments were found to have a
stronger relationship with global mindset.
These rich experiences seem important to
global mindset development. Psychological
characteristics represented by positive psy-
chological capital were also found to directly
impact global mindset. Leaders who are more
hopeful, confident, resilient, and optimistic
also have a higher level of global mindset.
As indicated in this study, the antecedents of
global mindset are varied and complex but
offer promise of helping IHRM effectively
meet the challenges that lie ahead.

JOANA S. P. STORY is an assistant professor of management at the Nova School of
Business and Economics in Lisbon, Portugal. She received her PhD from the University

of Nebraska-Lincoln. Her research has been published in journals such as the International

Journal of Human Resource Management, the Journal of Leadership and Organizational

Studies, and the Journal of Leadership Studies, among others. Her current research in-

terests include global leadership, global mindset, leadership and management in emerg-

ing markets, ethics, corporate social responsibility, and sustainability.

JOHN E. BARBUTO JR. is the director of the Center for Leadership in the Mihaylo
College of Business and Economics at California State University Fullerton. He has

written over 88 refereed journal articles in his career, including publications in Human

Resource Management, Leadership Quarterly, Group & Organization Management, the

International Journal of Human Resource Management, the Journal of Management

Education, and the Journal of Leadership & Organizational Studies, among others. His

current research interests include servant leadership, work motivation, constructive de-

velopment, global mindset, and most leadership constructs.

FRED LUTHANS is the University and George Holmes Distinguished Professor of
Management at the University of Nebraska-Lincoln. A former president of the Academy

of Management, he is currently an editor of three journals and author of several books

and numerous articles. His research at fi rst focused on what he called O.B. Mod. (or-

ganizational behavior modifi cation) and in recent years what he has termed “positive

organizational behavior (POB)” and “psychological capital (PsyCap).” He has been ac-

tively doing teaching, research, and consulting in Europe, Southeast Asia, South Korea,

and especially China over the past 35 years.

JAMES A. BOVAIRD is an associate professor of educational psychology at the University
of Nebraska-Lincoln; director of the Statistics and Methodology Unit of the Nebraska

Center for Research on Children, Youth, Families and Schools; and co-director of the

National Center for Research on Rural Education. He is a quantitative methodologist and

psychometrician specializing in latent variable modeling and applied research design.

His work has appeared in methodological journals such as Behavior Research Methods,

Structural Equation Modeling, and Educational and Psychological Measurement. His cur-

rent research interests include multilevel latent variable modeling, measuring contextual

effects, and effi ciency-of-measurement designs.

ANTECEDENTS OF GLOBAL MINDSET 153

Human Resource Management DOI: 10.1002/hrm

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O Academy of Management Review
1996, Vol. 21, No, 4,

959

-385

TOWARD AN INTEGRATIVE MODEL
OF STRATEGIC INTERNATIONAL HUMAN

RESOURCE MANAGEMENT

SULLY TAYLOR
Portland State University

SCHON BEECHLER
Columbia University

NANCY NAPIER
Boise State University

This article builds on previous work in intemational human resourc

management by drawing on concepts from the resource-based view
of the firm and resource dependence to develop a theoretical mode

of the determinants of strategic intemational human resource manage-
ment (SIHRM) systems in multinational corporations. The article the

offers propositions concerning the relationships between a number of
key determinants and the multinational corp>oration’s overall SIHRM
approach, the design of a particular affiliate’s HRM system, and the
HRM system for critical groups of employees within the affiliate.

As multinational corporations (MNCs) and their overseas affiliates
have become increasingly important players in the global economy, inter-
est in and research of the strategies and management practices of these
firms have also grown (e.g., Hamel & Prahalad, 1985; Ohmae, 1990; Porter.
1986; Prahalad & Doz. 1987; Rosenzweig & Singh. 1991). Although research-
ers have explored numerous issues internal and external to the MNC,
there is a growing consensus that a key differentiator between the corpo-
rate winners and losers in the 21st century will be the effectiveness of the
human organization (Bartlett & Ghoshal, 1994, 1995; Pfeffer, 1994; Pucik,
1992; Tichy, Brimm. Charan, & Takeuchi, 1992; Ulrich & Lake, 1990).

In an effort to effectively leverage human resources to implement the
intended strategies of organizations, researchers and practitioners alike
have begun to explore the theoretical and empirical linkages between
human resource management (HRM) and strategy both in the domes-
tic (e.g., Butler, Ferris, & Napier, 1991; Fombrun, Tichy, & Devanna, 1984;
Lengnick-Hall & Lengnick-Hall, 1988; Schuler & Jackson, 1987; Wright &

We are very grateful to those who commented on earlier versions of this article: Taly

Bauer, Rot)ert Eder, Mauro Guillen, Stan Slater, and Pam Tiemey. We also acknowledge the
insightful and constructive comments of the three anonymous reviewers.

959

960 Academy ot Management Review October

McMahan. 1992) and international contexts (e.g.. Adler & Ghadar. 1990;
Kobrin. 1992; Milliman, von Glinow. & Nathan, 1991; Schuler, Dowling, &
De Cieri, 1993). In this article, we draw on a number of recent models of
strategic international human resource management (SIHRM). which have
greatly furthered our understanding of the factors that influence the design
of an MNCs SIHRM system. Work in the strategy and organizational theory
fields also has generated a number of theoretical perspectives that provide
valuable frameworks for understanding SIHRM. In this article, we draw
on two such frameworks, the resource-based theory of the firm (e.g.. Barney,
1991; Conner. 1991; Penrose, 1959; Wernerfelt. 1984) and resource depen-
dence (e.g.. Pfeifer & Salancik, 1978) and apply these frameworks to exam-
ine SIHRM at three distinct but interrelated levels of analysis: the MNC
a s a whole, the affiliate, and individual groups of employees within the
affiliate. Resource-based theory adds to prior models of SIHRM the funda-
mental notion that in order to provide value to the business, the SIHRM
system of global firms should be constructed around specific organiza-
tional competencies that are critical for securing competitive advantage
in a global environment (Pucik, 1992). The resource dependence framework
helps identify those situations in which MNCs will exercise control over
the SIHRM system of their affiliates.

This article begins with a definition of terms and a brief review of
the contributions of prior models of SIHRM to the field. We then describe
a model of SIHRM that elaborates a system that examines both the determi-
nants and the evolution of SIHRM systems over time. After laying out the
model, we suggest a number of propositions to guide future research.
Finally, we conclude with suggestions for further development, both theo-
retical and empirical, to expand our understanding in this important area.

DEFINITION O F TERMS

Before proceeding with an overview of current theories of SIHRM, i

is important to distinguish between international human resource man-
agement (IHRM) and strategic international human resource management
(SIHRM). In keeping with Schuler and colleagues’ (1993) and Lado an

Wilson’s (1994) work, we define the MNCs IHRM system a s the set of
distinct activities, functions, and processes that are directed at attracting,
developing, and maintaining an MNCs human resources. It is thus the
aggregate of the various HRM systems used to manage people in the
MNC, both at home and overseas. By including headquarters (HQs)

this definition, we recognize that the parent company can become simply
another one of the units of the MNC (cf. Hedlund, 1986).

Strategic Human Resource Management (SHRM), in contrast, is used
to explicitly link HRM with the strategic management processes of the
organization and to emphasize coordination or congruence among the
various human resource management practices (Schuler & Jackson, 1987;
Wright & McMahan, 1992). Thus, SIHRM is used to explicitly link IHRM

1996 Taylor, Beechler, and Napier 961

with the strategy of the MNC. Following Schuler and colleagues’ work.
(1993: 720). we define SIHRM a s “human resource management issues,
functions, and policies and practices that result from the strategic activi-
ties of multinational enterprises and that impact the international con-
cerns and goals of those enterprises.” With these definitions in mind, we
now provide a brief overview of current theories of SIHRM.

OVERVIEW OF CURRENT THEORIES OF SIHRM

In recent models ot SIHRM (Adler & Bartholomew. 1992; Adler 8E
Ghadar. 1990; Evans & Lorange, 1989; Kobrin. 1992; Milliman. Von Glinow,
& Nathan. 1991; Schuler et al.. 1993), authors adopted a strategic, macr

perspective and focused on the SIHRM system a s a way for MNCs to
effectively manage and control their overseas operations. Although still
in its infancy (Laurent, 1986), the recent work in SIHRM has been built on
antecedents that are decades old (e.g., Edstrom & Galbraith. 1977; Franko,
1976; Heenan & Perlmutter. 1979; Perlmutter. 1969). Models found in the
current literature have been used explicitly to tie the SIHRM system of
the MNC to either its stage of internationalization (e.g., Adler & Ghadar,
1990; Milliman et al., 1991) or to its international strategy (e.g., Kobrin,
1992). In most of these models, researchers adopted a contingency perspec-
tive and focused primarily on the fit of the SIHRM system with the goals
of the firm.

In this literature (e.g.. Milliman et al., 1991), fit is defined a s “the degree
to which the needs, goals, objectives, and/or structure of one component
are consistent with the needs, demands, goals, objectives, and/or structure
of another component” (Nadler & Tushman. 1980: 40). As an example, Adler
and Ghadar’s (1990) model of SIHRM is based on the central idea that as an
MNC moves through the product life cycle, it will face different pressures to
respond to external and internal cultural diversity. As the authors stated,
“The central issue for MNCs is not to identify the best international HRM
policy per se, but rather to find the best fit between the firm’s external
environment, its overall strategy, and its HRM policy and implementation”
(Adler & Ghadar. 1990: 245).

Some researchers in SIHRM recently addressed the need for flexibility
a s well a s fit (e.g., Milliman et al., 1991; Schuler et al.. 1993). According to
Milliman and colleagues, flexibility is defined as “the capacity of HRM to
facilitate the organization’s ability to adapt effectively and in a timely
manner to changing or diverse demands from either its environment or
from within the firm itself” (1991: 325). These authors argued that as the
firm becomes increasingly internationalized, the need for flexibility will
increase, and the most flexibility will be required in the most advanced
stage of internationalization.

Schuler and colleagues’ (1993) model is the most recent of the SIHRM
models, and it captures all the important factors identified by the previous
writers. Rather than tying SIHRM directly to either product/organizational

962 Academy of Management Beview October

life cycle or to the MNCs strategy, these authors build on the work of
Prahalad and other strategy writers (Bartlett & Ghoshal, 1989; Prahalad,
1975; Prahalad & Doz, 1987; Prahalad & Hamel, 1990). Schuler and his
colleagues postulated that the fundamental issue users of SIHRM must
address is the tension between the need for interunit linkages (integration)
and the challenges faced by each affiliate in order to operate effectively
in its local environment (differentiation). The dual needs for integration
and differentiation, orginally identified by Lawrence and Lorsch (1967), are
parallel to the concepts of internal and external fit (Milliman et al.. 1991).

In addition to the strategic components. Schuler and colleagues (1993)
specified that both exogenous and endogenous factors influence the de-
sign of the SIHRM system of the firm. The exogenous factors these authors
identified include industry characteristics and country/regional character-
istics, whereas the endogenous factors they described include the struc-
ture of international operations. HQs’ international orientation, competi-
tive strategy, and experience in managing international operations.

All of the models described previously have helped to advance re-
searchers’ theoretical understanding of the linkages between human re-
sources and strategy in MNCs in a number of ways. First, they have shown
how and why the stage of internationalization or international strategy
of the MNC is tied to its approach to SIHRM. a linkage that has received
some recent empirical support (Kobrin, 1992; Rosenzweig & Nohria. 1994).
Second, they have helped to identify critical variables, in addition to
strategy, that are important in determining the SIHRM of a firm, such a s
industry (Kobrin, 1992; Schuler et al., 1993), international experience of the
MNC (Adler & Ghadar, 1990; Milliman et al., 1991; Schuler et al., 1993),
organizational structure (Schuler et al., 1993), headquarters’ (HQ) interna-
tional orientation (Hedlund, 1986; Schuler et al., 1993), and the host country’s
cultural and legal environments (Adler & Ghadar, 1990; Milliman et al..
1991; Schuler et al.. 1993). Third, these models have pointed to the need
for the SIHRM system to address the tension between the dual imperatives
of local responsiveness and global integration. Finally, a s both Kobrin
(1992) and Schuler and colleagues (1993) pointed out, the ability to design
the SIHRM system such that it optimally balances these different forces
will have performance implications for both the MNC and the individ-
ual affiliate.

The model of SIHRM presented next is both an extension of and an
addition to previous work. Although incorporating many aspects of SIHRM
proposed in previous models, including a contingency approach, in the
present model, we also draw on resource-based theory and resource de-
pendence. These two frameworks help to identify four critical considera-
tions that were not developed in previous SIHRM models: using the MNCs
home HRM system a s a resource for building its global SIHRM system;
using SIHRM differentiation among types of affiliates; using SIHRM differ-
entiation among types of employees; and being more explicit in how

1996 Taylor. Beechler. and Napier 963

SIHRM systems evolve over time. The next section describes our model of
SIHRM, which is used to address these critical issues.

THE SIHRM MODEL

How a firm’s systems, among its other attributes, enable it to achieve
success relative to competitors is the central idea of the resource-based
theory of the firm (Barney, 1991; Penrose, 1959; Wernerfelt, 1984). To generate
a competitive advantage, the resource must be valuable, rare, imperfectly
mobile, and inimitable (Barney, 1991; Conner. 1991). Lado and Wilson (1994:
699) described application of this theory to HRM in the following way:
“The resource-based view suggests that human resource systems can
contribute to sustained competitive advantage through facilitating the
development of competencies that are firm specific, produce complex so-
cial relationships, are embedded in a firm’s history and culture, and gener-
ate tacit organizational knowledge.” The HRM function is unique because
both the outputs (the employee behaviors) of the system and the system
itself are potential sources of competence. Following this logic, we define
HRM competence a s the tangible (e.g.. HR planning systems, international
sales training programs, selection tests) and intangible resources (e.g.,
shared mindset, ability to attract qualified employees to work for the firm,
affiliate managers’ experience in negotiating with the local government)
that allow a firm to outperform its competitors.

We can distinguish between resources, including HRM competence,
at three levels within the MNC First, there are the parent company’s
resources that originate from a particular configuration of economic, cul-
tural, human, and other resources in a given country (Porter, 1990); these
resources are not differentiated between firms domestically, but they can
give MNCs an advantage when competing outside their home countries.
For example, because of governmental tax incentives. German firms have
highly developed employee training and development programs (Pfeffer,
1994) that result in skilled employees who can give the firm an edge over
competitors from other countries.

The second source of potential competitive advantage for MNCs is at
the parent company level and represents the unique bundle of assets
and capabilities that the MNC has developed over its lifetime. Firms are
idiosyncratic because throughout their unique histories they accumulate
different tangible and intangible assets (Nelson & Winter, 1982). As an
example. 3M’s excellence in managing innovators represents a bundle of
assets and capabilities at the parent company level. The combination of
these two levels of resources (national and firm) is parallel to Bartlett and
Ghoshal’s (1989) notion of admin is (ra (ive heritage.

Finally, in addition to national- and firm-level resources, resources
at the affiliate level may provide a source of competitive advantage for
the MNC at the local, regional, or global levels. For example, a Japanese
firm’s Singapore affiliate may develop efficient HRM selection policies to

964 Academy of Management Review October

deal with the high labor market mobility there. If the policies are not
useful for other affiliates (e.g.. those in the United States or ior the parent
company), then this resource is useful only at the one affiliate. However,
if the MNC can successfully transfer these policies to other environments
that have high mobility in their labor markets, they may develop into
parent company-level resources.

The origin of the resource—national, firm, or affiliate—is likely to
affect its usefulness in other locations (see also Laurent. 1986; Schneider.
1988; Schuler et al., 1993). The usefulness of a particular element of an
HRM competence, like any other resource, may be confined to its place of
origin (it is context specific) or it may be effective across countries (it is
context generalizable). For example, a U.S. MNC with a matrix structure
that produces high-quality decisions may not be able to use this resource
in its affiliate in France, because the French prefer a clear and fairly
stringent hierarchical decision-making system (cf. Hofstede, 1980; Laurent.
1983). Thus, resources, including HRM competence, can be context specific
or context generalizable. depending on their usefulness outside the loca-
tion in which they were developed. This distinction is important in the
choice of SIHRM orientation, a s we will describe next.

The Parent Company’s SIHRM System

Our model is used explicitly to examine the SIHRM system at three
levels: the parent company, the affiliate, and specific employee groups
within the affiliate (see Figure 1). The resource-based theory of the firm
enables us to view the determinants of the SIHRM system at each of
these levels and the evolutionary process of change over time from a
new perspective. We begin at the organization level by asking: What
determines the SIHRM system oi an MNC? In answering this question, we
present the first part oi our model, which is focused on the parent company,
and we discuss the determinants oi the SIHRM system at that level.

Prior work on SIHRM (e.g., Rosenzweig & Nohria. 1994; Schuler et al.,
1993; Yuen & Kee, 1993) suggests that there are two key aspects of the
SIHRM system at the parent company level: the parent company’s SIHRM
orientation and the parent company’s SIHRM functional focus. Because
the SIHRM functional focus is a minor component of the model we present,
it will be discussed only briefly before we examine the SIHRM orientation.

An MNCs SIHRM functional focus is defined a s those functional as-
pects (e.g., selection techniques, compensation schemes) oi the parent
company’s home HRM system that the firm transfers to its affiliates or
focuses attention on developing within them. SIHRM functional focus is
most strongly influenced by the parent company’s home HRM system. The
parent firm will have developed its greatest resources in the HRM areas
that top management believes are critical to the successful completion of
organizational tasks, and hence these HRM functions will be the focus of
their transfer to affiliates. We do not develop propositions concerning
these relationships because, although the links can be surmised from

1996 BeechJer, and Napiez 965

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966 Academy ot Management Review October

resource-based theory and should be acknowledged (James, Mulaik, &
Brett, 1982}, they are beyond the scope of this article.

We define the MNCs SIHRM orientation as the general philosophy or
approach taken by top management of the MNC in the design of its overall
IHRM system, particularly the HRM systems to be used in its overseas
affiliates. This SIHRM approach is important because it determines the
way in which the MNC will manage its IHRM function, including, for
example, whether it will have an IHRM director at headquarters and
whether it will set up mechanisms to share HRM policies and practices
with and between affiliates. The MNCs SIHRM orientation determines
its overall approach to managing the tension between integration and
the resultant pressure for internal consistency and differentiation and
the pressure for external consistency. Drawing on ideas from prior
work in international management and SIHRM (e.g., Hedlund, 1986;
Perlmutter, 1969; Rosenzweig & Nohria, 1994; Rosenzweig & Singh, 1991),
we can identify three generic SIHRM orientations in MNCs: adaptive, ex-
portive, and integrative.

An adaptive SIHRM orientation is one in which top management of
the MNC attempts to create HRM systems for affiliates that reflect the local
environment (low internal consistency with the rest of the firm and high
external consistency with the local environment). In an adaptive SIHRM
orientation, differentiation is emphasized, and the MNC generally copies
the HRM systems that are being used locally by hiring competent human
resource specialists or managers who have knowledge of local practices.
This approach is consistent with a polycentric approach to MNC manage-
ment a s originally defined by Perlmutter (Heenan & Perlmutter, 1979;
Perlmutter, 1969), but it is broader than this term’s current usage in the
literature, which now refers almost exclusively to the staffing of top man-
agement positions of affiliates (Adler, 1991; Dowling, Schuler, & Welch,
1994; Tung, 1988). In MNCs utilizing an adaptive SIHRM orientation, we
would expect to find almost no transfer of HRM philosophy, policies, or
practices either from the parent firm to its overseas affiliates or between
overseas affiliates.

An exportive SIHRM orientation is one in which top management of
the MNC prefers a wholesale transfer of the parent firm’s HRM system
to its overseas affiliates (high internal consistency and low external con-
sistency), replicating in its overseas affiliates the HRM policies and prac-
tices used by the MNC in its home country. This orientation emphasizes
high integration of the affiliate’s HRM system with that of the parent
company, and it is consistent with previous literature describing an eth-
nocentric approach to MNC management (Heenan & Perlmutter, 1979;
Perlmutter, 1969); again, it includes all HRM functions, not just the staffing
of top management.

MNCs with an integrative SIHRM orientation attempt to take “the best”
approaches and use them throughout the organization in the creation of
a worldwide system (Bartlett & Ghoshal, 1989). According to this SIHRM

1996 Taylor. Beechler. and Napier 967

orientation, the focus is on substantial global integration with an allow-
ance for some local differentiation. This approach is consistent with, but
broader than, what previous authors have described a s a geocentric ap-
proach to MNC management (Heenan & Perlmutter, 1979: Perlmutter, 1969).
The integrative SIHRM orientation combines both characteristics of the
parent company’s HRM system with those of its overseas affiliates (high
internal consistency and moderate external consistency). Thus, transfer
of HRM policies and practices occurs, but it is just a s likely to occur
between overseas affiliates a s between the parent company and its affili-
ates. In addition, the transfers can go in any direction: affiliate practices
can be transferred to the parent company and vice versa.

As these descriptions imply, the SIHRM orientation of an MNC reflects
different roles for the HQs and affiliates in the SIHRM design. Although
an adaptive SIHRM orientation allows for design decisions of the affiliate’s
HRM system at the affiliate level, an exportive SIHRM orientation places
almost all control in the hands of the parent company. An integrative
SIHRM orientation, which allows for an affiliate’s input and adaptation,
represents shared decision-making responsibility between the parent
company and the affiliate for the design of the SIHRM system.

What determines the choice of SIHRM orientation? According to prior
models (Kobrin, 1992; Schuler et al., 1993), the choice of SIHRM orientation
is affected by the firm’s international strategy. In addition, proponents of
resource-based theory and other researchers (e.g., Beechler & Taylor, 1994;
Taylor & Beechler, 1993) suggest that the top management of an MNC must
believe that it has an HRM competence that is context generalizable in
order for it to be transferred outside of the parent company. These relation-
ships are described next and illustrated in Figure 1.

The role of strategy. Consistent with the resource-based theory
of the firm, an MNC can be viewed a s a network of resource transactions
among organizational subunits located in different countries (Gupta &
Govindarajan, 1991). In large part, an MNCs strategy will determine
how these resource transactions are structured among the various sub-
units. Following Porter’s work (1986), we identify two generic MNC
strategies: multidomestic and global. Within this article, we assume that
a firm has correctly identified the nature of its industry—global or
multidomestic—and has chosen an international strategy appropriate to
this industry.

A multidomestic strategy is one in which the MNC manages its over-
seas affiliates a s independent businesses, where the activities of one
overseas affiliate do not affect the activities of another affiliate. MNCs
generally follow a multidomestic strategy when the local market demands
a high degree of adaptation of the firm’s products and processes. In this
case, there is little interdependence between the procurement, manufac-
turing, or marketing activities across the MNC, and the ties between
the organizational subunits tend to be primarily financial (Porter, 1986).

968 Academy of Management Review October

Consequently, resources developed or acquired in one part of the MNC are
generally not useful in creating competitive advantage in other locations.

MNCs following a global strategy, in contrast, use the resources de-
veloped or acquired in one part of the firm to create competitive advantage
in other parts of the firm (Ohmae, 1990). In MNCs following a global strat-
egy, overseas affiliates are managed a s interdependent businesses. A
global strategy requires a high level of integration, which, in turn, de-
mands high levels of coordination and control of activities across the
MNCs overseas affiliates (Gupta & Govindarajan, 1991; Rosenzweig &
Singh, 1991: Roth, Schweiger, & Morrison, 1991). Thus, a critical difference
between a multidomestic and global strategy is the level of interdepen-
dence or resource exchange among the organizational subunits (CoUis,
1991; Gupta & Govindarajan, 1991; Porter, 1988). In addition, a multidomes-
tic strategy places demands that are different from those of a global
strategy on the human resources needed to implement the strategy and
on the capacity of the HRM system to help integrate the activities of the
firm (Kobrin, 1992).

As described previously, MNCs that follow a multidomestic strategy
localize their operations and are relatively independent. Because an adap-
tive SIHRM orientation is focused on local adaptation, we predict the fol-
lowing:

Proposifion J: MNCs following a multidomestic strategy
will adopt an adaptive SIHRM orientation rather than
an exportive or integrative SIHRM orientation.

In firms that pursue a global strategy, the higher levels of integration
required between affiliate and parent company operations lead to the
need for higher levels of control, which, in turn, drives demands for internal
consistency. However, a s Bartlett and Ghoshal (1989) noted, increasingly,
firms competing in global industries must be simultaneously globally
integrated and locally responsive. Thus, in spite of the drive toward inter-
nal consistency, differences in local environments create the need for
differentiation (Lawrence & Lorsch, 1967). This need to simultaneously
integrate and differentiate leads us to the following proposition:

Proposifion 2; MNCs following a global strategy will
adopt an integrative SfHRM orientation rather than an
adaptive or exportive SIHRM orientation.

Even though we believe that this proposition is true generally, we
acknowledge that when firms first adopt a global strategy, some will not
simultaneously adopt an integrative SIHRM orientation at the onset, opting
instead for an exportive SIHRM orientation. For firms that are changing
from a multidomestic to global strategy, the demands for internal consis-
tency will generally outweigh the demands for local responsiveness. In
addition, the high level of uncertainty experienced by newly globalizing
firms may lead them to utilize known systems at the outset (Rosenzweig &
Singh, 1991). For example, when Procter & Gamble entered into the interna-

1996 Taylor, Beechler, and Napier 969

tional arena in the postwar era, its management exported their marketing
strategies wholesale to their overseas operations. Only when this strategy
failed did they move toward an approach that was more balanced between
integration and local responsiveness (Bartlett & Ghoshal, 1989).

The role of HRM competence and top management’s beliefs. Research-
ers in IHRM (Beechler & Yang, 1994; Schuler et al., 1993) and in international
strategy (Collis, 1991; Roth, 1995) suggest that top management plays a
key role in determining the identification of resources and competences.
By top management we mean the key corporate decision makers whose
views determine the overall international strategy of the firm and its
general approach to implementing that strategy. In some firms this could
be the president or CEO alone, whereas in other firms it may be all of the
senior-level managers, including the director of IHRM. Here we focus on
top management’s beliefs concerning the existence and context generaliz-
ability of its HRM competence a s the other major determining factor that
influences which SIHRM orientation the MNC will adopt. In stating the
following propositions, we assume that (a) the parent company possesses
an HRM competence and (b) top management has accurately perceived
this to be a competence.

Top management’s perception of HRM competence can be defined a s
the belief, expressed in corporate a s well a s personal communications,
that the firm’s way of managing its employees gives the company an
advantage over its competitors. In addition to perceived HRM competence,
top management may or may not believe that this competence is useful
beyond its national borders. When top management does not perceive its
HRM competence to be a resource that can be used in other contexts
outside the home country of the firm, then there will be no incentive to
transfer its HRM system across borders. Thus, the MNC will adopt a SIHRM
orientation that utilizes the HRM practices in use in each affiliate’s loca-
tion, regardless of the international strategy of the firm. These predictions
are supported by preliminary empirical results from a study of approxi-
mately 200 lapanese and American affiliates in Southeast Asia (Beechler,
Najjar, Ghosh, Dirdjosuparto, & Sieh, 1996), which found that perceived
HRM competence is a key determinant of the level of similarity between
the parent company’s and affiliate’s HRM system.

Proposifion 3; If top management perceives that the
MNCs HRM competence is context specific, the MNC will
adopt an adaptive SIHRM orientation rather than an ex-
portive or integrative SIHRM orientation.

When top management perceives the firm’s HRM competence will be
useful beyond its national borders, it will choose an SIHRM approach that
leads to a sharing of HRM policies and practices—either an exportive or
an integrative orientation. This perception does not necessarily have to
be the result of the MNCs international experience; rather, it can come
from the personal experiences and beliefs of top management or from

970 Academy of Management Review October

their observation of the experiences of other MNCs. Because integrating
operations through a sharing of practices is not important to firms follow-
ing a multidomestic strategy, an MNC will adopt one of these two ap-
proaches only if it is following a global strategy.

Proposifion 4: If top management perceives that the
MNCs HRM competence is context generalizable, and if
the firm is following a global strategy, the MNC will
adopt either an exportive or integrative SIHRM orienta-
tion rather than an adaptive SIHRM orientation.

Evolution of the parent firm’s SIHRM orientation. Once a firm has
chosen an SIHRM orientation, it will not necessarily retain that orientation
over its lifespan. First, the beliefs of top management concerning the
context generalizability of its HRM competence change according to the
MNCs overseas experience or top management turnover. Second, the firm
may change its international strategy and, consequently, its SIHRM orien-
tation, in order to respond to changes in industry technology or competitors’
actions (see Figure 2).

Top management’s beliefs regarding the context generalizability of
the MNCs HRM competence can be changed by its experience (either
positive or negative) with its SIHRM orientation (Lant, Milliken, & Batra,
1992). Feedback will increase the chances that top management will have
an accurate assessment of both the organizational resources that are
valuable outside of the MNCs home country and the limits to their transfer-
ability. Success will confirm the MNCs approach to SIHRM. Failure, in
the form of greater HRM problems in the affiliate than those experienced
by competitors (e.g., higher turnover, higher wages, lower productivity),
will facilitate the learning process a s management is confronted with
disconfirming information. Failure can force top management to examine
two aspects of its SIHRM orientation.

First, is top management’s belief about the context generalizability
of its HRM competence accurate? If top management finds through perfor-
mance problems in its overseas affiliates that its HRM competence is in fact
context specific, it will abandon an exportive or an integrative approach.
Alternatively, top managers who originally believed that the firm’s HRM
competence was context specific may find over time that it is actually
context generalizable. In addition, the actions of competitors, particularly
successful ones, may indicate to a firm following an adaptive SIHRM
orientation that its approach is not a s effective a s the approaches of its
competitors. Thus, a competitor may force top management to reexamine
its belief about the context specificity of its HRM competence and to try
an SIHRM orientation (e.g., exportive) it had previously rejected.

The appropriateness of the firm’s SIHRM orientation to its interna-
tional strategy may also come under review a s the firm’s experience over-
seas increases (see Figure 2). For example, a competitor’s success abroad
with a different SIHRM orientation may lead top managers to examine

1996 Taylor. Beechler. and Napier 371

nGURE2
Evolution of Strategic International Human Resource

Management (SIHRM)

Orientation

la. For MNCs ioUowing a global strategy in which top management initially
believes that the firm’s HRM competence is context specific

Adaptive
SIHRM

Orientation

Positive Periormance

Negative Performance

Exportive
SIHRM Orientation

lb. For MNCs following a global strategy in which top management initially
believes that the firm’s HRM competence is context generalizable

Exportive
SIHRM

Orientation

Positive Performance

Negative Periormance

Integrative
SIHRM Orientation

2. For MNCs following a multidomestic strategy in which top management ini-
tially believes that the firm’s HRM competence is context generalizable

Exportive
SIHRM
Orientation
Positive Performance
Negative Performance

Adaptive
SIHRM Orientation

972 Academy of Management fleview October

the appropriateness of their SIHRM orientation to its international strategy.
MNCs following a global strategy that initially chose an adaptive SIHRM
orientation because top management believed that the MNCs HRM com-
petence is context specific may, over time, find that the performance of
their overseas affiliates is below that of competitors and, consequently,
move toward an exportive SIHRM orientation. The reason they will move
toward an exportive rather than an integrative SIHRM orientation after
failure is that the mechanisms to identify and transfer the best HRM prac-
tices in their overseas affiliates are not in place. Such mechanisms a s
having regional or global meetings of affiliate HR directors, transferring
HRM materials (e.g., performance appraisal forms to affiliates) or posting
of the HR director of the affiliates to the HQs of the firm were not developed
when the firm was using an adaptive SIHRM orientation.

In contrast, when MNCs that follow a global strategy and have an
exportive SIHRM orientation encounter problems, the need to maintain
integration will inhibit wholesale abandonment of HRM transfer. Although
performance problems can lead top managers to question their beliefs
about the context generalizability of the parent company’s HRM compe-
tence and to initiate a search for practices that can be shared among
affiliates versus those that need local adaptation, some mechanisms for
sharing the HRM competence will exist. As a consequence, these firms
will be able to move more easily toward an integrative SIHRM orientation
than MNCs that originally followed an adaptive SIHRM orientation.

MNCs following a multidomestic strategy that have chosen an export-
ive SIHRM orientation because of top management’s belief in the context
generalizability of the firm’s HRM competence may find, over time, that
this SIHRM orientation is not appropriate. Top managers may find that
the firm’s HRM competence is actually context specific, or they may find
that the cost of instituting and maintaining an exportive SIHRM is not
warranted, given the low need for integrative mechanisms to sustain a
multidomestic strategy. As a consequence, such an MNC that encounters
performance problems in its affiliates abroad will usually move toward
an adaptive SIHRM orientation over time.

As this discussion has shown, one of the main components of the
corporate-level SIHRM system is the firm’s SIHRM orientation, which is
influenced by the international strategy of the firm a s well a s top manage-
ment’s belief in the context generalizability of its HRM competence. How-
ever, this belief can change over time because of experience, and the time
required for a change is dependent on such factors a s managerial inertia
(Snell & Deal, 1994) and competitive pressures.

National origin. Before ending this section, we briefly discuss the
relationship of national origin of the MNC to its SIHRM orientation, al-
though no formal propositions will be offered because this characteristic
does not directly influence the outcome variables in our model. Top man-
agement of MNCs from the same country may share assumptions about
the contest generalizability of HRM competence, because cultural beliefs

1996 Taylor, Beechler, and Napier 973

that are prominent in a country influence the values, beliefs, and hence
decisions of top management (Abo, 1994; Florida & Kenney, 1991; Lincoln &
Kallenberg, 1990; Rosenzweig & Nohria, 1994; Rosenzweig & Singh, 1991).
As a consequence, the SIHRM orientations of MNCs based in the same
country are likely to be more similar to each other than to the SIHRM
orientations of MNCs based in other countries.

Moreover, firms from countries in which there are strong institutional
pressures will be even more likely to adopt similar SIHRM orientations
(Lincoln, Hanada, & McBride, 1986). For example, there is evidence that
Japanese firms, which face home environments with strong homogeneous
institutional pressures, often adopt similar SIHRM orientations when op-
erating overseas (in this case, an exportive SIHRM orientation) (Putti &
Chong, 1985; Sing, 1991; Thong, 1991; Yeh, 1991). Therefore, we would expect
that MNCs from home environments in which there are strong homoge-
neous institutional pressures will exhibit a greater similarity in SIHRM
orientation with other MNCs from this country than will MNCs from home
environments in which there are either weak or heterogeneous institu-
tional pressures. However, national origin does not help us predict which
of the three SIHRM orientations MNCs from a given country will adopt.

The Affiliate’s HRM System

As shown in Figure 1, the model depicts relationships between the
corporate-level SIHRM orientation and the affiliate’s HRM system. The two
main components of the affiliate’s HRM system are (a) the degree to which
the HRM system is similar to that of the parent company and (b) the
HRM functions that are similar to those of the parent company (focus of
similarity). Because focus of similarity, like SIHRM functional focus, is
not central to our model, it is not included in Figure 1 and will not be
discussed further.

Degree of similarity oi affiliate’s HRM system. As mentioned pre-
viously, the MNCs SIHRM orientation is a key determinant oi the level
of transfer of the MNCs HRM system to its affiliates. One outcome of
this transfer is consistency of systems (Rosenzweig & Nohria, 1994;
Rosenzweig & Singh, 1991; Westney, 1990), which facilitates a high level
of integration and control. For example, in a firm with an exportive SIHRM
orientation, there is a high degree of control by the parent company over
an affiliate’s HRM system through the high level of transfer of HRM policies
and practices. At the other end of the continuum, an MNC with an adaptive
SIHRM orientation has the lowest level of control over an affiliate’s HRM
system because there is no transfer of HRM policies or practices. An inte-
grative SIHRM orientation indicates moderate control by the parent com-
pany over the affiliate’s HRM system. Users of this orientation utilize poli-
cies and practices found throughout the MNC system, including HQs, but
they focus on the best practices, some of which may be local. Based on
the above discussion, we offer the following proposition, using similarity
of HRM a s an indicator of control by the parent company:

974 Academy of Management Beview October

Proposition 5: The highest degree of similarity between
the parent company’s HRM system and the affiliate’s
HRM system will be found in MNCs following an export-
ive SIHRM orientation. A moderate degree of similarity
will be found in MNCs following an integrative SIHRM
orientation. The lowest degree of similarity will be found
in MNCs following an adaptive SIHRM orientation.

Recent work in the international strategy literature (e.g., Bartlett &
Ghoshal, 1989; Gupta & Govindarajan, 1991; Rosenzweig & Singh, 1991;
Roth & Nigh, 1992; Westney, 1990) suggests that the SIHRM orientation will
not be applied uniformly to all affiliates, leading us to one of four variables
that influence degree of similarity of affiliate’s HRM: the affiliate’s strategic
role. The logic linking the importance oi the affiliate’s strategic role in
determining the degree oi similarity (and hence control) is based on con-
cepts from resource dependence. This logic has been supported by empiri-
cal research in SIHRM showing that the greater the dependence of the
affiliate on the parent company, the more the affiliate’s HRM system is
controlled by HQs (Martinez & Ricks, 1989).

The resource-dependence approach {Aldrich, 1976, 1979; Pfeffer &
Salancik, 1978) is based on the premise that an organization is unable to
generate all the resources necessary to maintain itself, and therefore it
is dependent on other actors. Organizational stakeholders will attempt to
initiate control over the actors with whom they have exchanges, in order
to ensure that the resources necessary to achieve organizational objectives
are obtained in an effective and efficient manner (Anthony, 1965; Green
& Welsh, 1988). There are three key factors that determine the depen-
dence of one actor on another. First is the importance or criticality oi the
resource to the continued operation and survival oi the operation (Blau,
1964; Thompson, 1967). Second is the extent to which an interest group (or
individual) has discretion over the resource’s allocation and use (Pfefier &
Salancik, 1978). Third is the extent to which there are alternatives to the
resource (Blau, 1964; Pfeffer & Salancik, 1978; Thompson, 1967). Because
the parent company relies on its foreign affiliates for certain essential
resources, the parent company is dependent, to varying degrees, upon its
affiliates and affiliate employees (Ghoshal & Nohria, 1989). As the parent
company’s dependence on the resources controlled by an overseas aiiiliate
grows, the more control the parent company will want to exercise over
the affiliate (Ghoshal & Nohria, 1989).

The degree oi dependence of the MNC on a particular affiliate, and
hence the degree oi control it will exert over the affiliate’s HRM system,
is determined in large part by the affiliate’s strategic role. The strategic
role of an affiliate can be defined by the amount and direction of the
resource flows between the parent company and the overseas affiliate
(Gupta & Govindarajan, 1991). Gupta and Govindarajan’s framework,
which is based on resource-dependence assumptions, specifies four kinds

1996 TayJor, Beechier, a n d Napier 975

oi affiliate roles, based on knowledge ilows: (a) global innovator, with high
outflow of resources to the parent company and low inflow of resources to
the affiliate; (b) integrated player, with high outflow and high inflow; (c)
implementor, with low outflow and high inflow; and (d) local innovator,
with low outflow and low inflow. Gupta and Govindarajan focused on
two dimensions of resource flows: volume and direction. They made the
unstated assumption that these dimensions are determinants of the criti-
cality of the resource, but they did not explicitly address the importance
oi criticality or substitutability of a resource to an MNCs control over
the affiliate.

As the resource flows between the affiliate and the parent company
increase, the resource dependence and, hence, the need ior control will
increase (Pieffer & Salancik, 1978). The resource dependence of the parent
company on its affiliates is highest ior those affiliates with the greatest
outflows of resources to the rest oi the organization: global innovators and
integrated players. At the same time, however, greater reliance by the
parent company on the aifiliate will increase the power of the affiliate
over the parent company (Gupta & Govindarajan, 1991).

With regard to the global innovator, because there is a low inflow of
resources, the affiliate is not highly dependent on the parent company for
resources, whereas the parent company is highly dependent on the affili-
ate. Hence, the parent company will attempt to exercise high levels oi
control over their global innovators, but these affiliates will simultane-
ously have the power to resist these control efforts. In the case of integrated
players, a high inflow and outflow of resources creates reciprocal interde-
pendence between the parent company and the affiliate. Consequently,
the parent company will attempt to exert high levels oi control over these
affiliates, and they will have less power than global innovators to resist
this control. The parent company will not attempt to exert high levels of
control over either implementors or local innovators, because the parent
company’s resource dependence on these aiiiliates is low. At the same
time, we would expect to iind higher control of the parent company over
implementors than over the local innovators, because implementors are
characterized by a high inflow of resources, but local innovators have low
levels of both resource inflows and outflows.

Again, using similarity oi HRM systems a s an indicator of the control of
the parent company over the affiliate, we offer the following propositions:

Proposition 6: There will be the highest degree of similar-
ity between the parent company’s HRM system and the
affiliate’s HRM system in affiliates that are integrated
players.

Proposition 7: There will be the lowest degree of similar-
ity between the parent company’s HRM system and the
affiliate’s HRM system in affiliates that are local inno-
vators.

976 Academy of Management Review October

Proposifion 8; There will be a moderate degree of similar-
ity between the parent company’s HRM system and the
affiliate’s HRM system in affiliates that are global inno-
vators and implementors, although there will be more
similarity for global innovators than for implementors.

In addition to the strategic role of the affiliate, the degree oi similarity
between the parent company’s and affiliate’s HRM systems also will be
influenced by three other factors that constrain the exercise oi the control
oi the parent company: method of affiliate establishment (Rosenzweig &
Nohria, 1994) and the cultural and legal distances of the affiliate from
the parent company (Milliman et al., 1991; Rosenzweig & Nohria, 1994;
Rosenzweig & Singh, 1991; Schuler et aL, 1993).

Researchers have found that the type oi investment used to establish
the affiliate will afiect the degree of similarity between the parent com-
pany’s and the affiliate’s HRM systems (Rosenzweig & Nohria, 1994), a
relationship suggested by previous theory (Schuler et al., 1993). An affiliate
that is established a s a greenfield (brand new) operation is likely to have
a higher level of HRM similarity with its parent company for several
reasons. First, expatriates who establish the affiliate are likely to utilize
HRM policies and practices that they know, leading to organizational
imprinting (Bartlett & Ghoshal, 1989; Stinchcombe, 1968). Second, a green-
field operation does not have to contend with employee resistance to
changes in the systems already in place, making it easier to institute the
parent company’s HRM policies and practices. In contrast, an MNC that
establishes an overseas affiliate in partnership with a local firm, or one
that buys a preexisting firm, will experience greater institutional pressures
to utilize local HRM practices, because the local operation, prior to the
arrival of the MNC, had functioned under a local HRM system.

Proposition 9: The degree of similarity between a parent
company’s HRM system and an affiliate’s HRM system
will be greater in affiliates established as greenfield op-
erations than in those acquired or established as shared
partnerships.

The iinal influence on the affiliate’s HRM system is the host country’s
environment (Rosenzweig & Nohria, 1994; Schuler et al., 1993). This includes
the legal environment, particularly with regard to labor issues, a s well
a s the cultural environment in which the affiliate must operate. These two
variables both influence the degree to which the MNC is able to transfer its
parent company’s HRM system overseas to achieve internal consistency.

Culture has a strong iniluence on the viability of using management
systems in one country that were developed in another country (Hofstede,
1993). All other things being equal, the more similar the host country’s
culture is to that of the home country, the easier it is for an MNC to achieve
internally consistent HRM practices, because greater similarity of cultural
values and norms reduces the barriers to utilizing HRM policies and prac-

1996 Tayior, Beechler, and Napier 977

tices developed at HQs. Although cultural similarity or dissimilarity will
probably not greatly aiiect an MNC that has an adaptive SIHRM orienta-
tion because the HRM system is adapted from local practices, in general,
the more dissimilar the cultural environment of an affiliate to the cultural
environment of the home country oi the parent company, the more diificult
it will be for the MNC to transfer its HRM system abroad. Thus, we predict
the following:

Proposition 10: The greater the cultural distance between
the host country of the affiliate and the home country of
the MNC, the less similarity between the parent com-
pany’s HRM system and the affiliate’s HRM system.

The legal environment surrounding the aifiliate also can constrain
the transier of HRM practices abroad (Rosenzweig & Nohria, 1994). For
example, the legal structure in China restricts managers with regard
to such essential HRM functions a s hiring and firing (Von Glinow &
Teagarden, 1988). Consequently, we can expect that greater similarity
oi legal environments will allow the MNC to achieve greater similarity
between the affiliate’s HRM system and the parent company’s HRM system,
whereas dissimilarity of legal environments will have the opposite eiiect.

Proposifion Ji: The greater the legal distance between
the host country of the affiliate and the home country of
the MNC, the lower the degree of similarity between the
MNC parent company’s HRM system and the affiliate’s
HRM system.

Evolution of the affiliate’s HRM system. Similar to the parent com-
pany’s SIHRM orientation, the affiliate’s HRM system does not remain
static. In addition to the effects of experience, there can be a change in
either the degree oi control desired by the parent company over the affiliate
because oi a change in its strategic role, or there can be a change in focus
brought about by a change in the parent company’s own HRM system.

As an affiliate’s strategic role changes within an MNC, the MNC may
need to exert more or less control over the affiliate’s HRM system. In
addition, if the roles of a significant number oi aifiliates change, then the
SIHRM orientation of the firm may need to change. For example, an MNC
with an adaptive SIHRM orientation and primarily local innovator affili-
ates may find that over time it must integrate them more tightly into the
MNC, a s Ford is now doing under its new chairman Alex Trotman {Business
Week, 1994). Environmental change may make a once successful adaptive
SIHRM orientation inappropriate, reducing the overall performance of the
MNC if it is not changed.

Affiliate Employee Group’s HRM System

The iinal part of our model of SIHRM focuses on the HRM system that
is applied to particular groups of employees within an aiiiliate. We again

9f9 Academy of Management Review October

use the resource-dependence perspective to analyze the forces that shape
how any one group oi employees is managed. Just a s MNCs are more or
less dependent on a particular aifiliate, at the individual level, particular
employees may have specialized skills and knowledge that are more or
less important to the iunctioning of the affiliate and to the MNC a s a whole
(Edstrom & Lorange, 1984). To the extent that employees have discretionary
power over their resources and to the extent that this knowledge is com-
pany specific and situation specific, the MNC is dependent on these em-
ployees and will want to exercise control over them (Pfeffer & Salancik,
1978). For the MNC, the SIHRM system represents an important control
mechanism by which it can ensure that overseas employees will act in
the best interests oi the iirm, because staffing, appraisal, compensation,
and development can be used to direct and control individual behavior.

A basic assumption of ours is that, just a s in the case oi affiliates, not
all employee groups are created equal. Some groups will be more critical
to the implementation of an affiliate’s strategic role and to the MNCs
competitiveness. For example, scientists in an overseas R&D laboratory
have arguably more potential impact on the overall competitiveness of
the MNC than the administrative staff in the same affiliate. Thus, even
though the overall level of control over the affiliate’s HRM system will be
determined primarily by the MNCs SIHRM orientation, not all employees
in the affiliate will experience the same level of control. Consequently,
similarity between the parent company’s system and the affiliate’s HRM
system will be highest ior employees of the affiliate who are crucial to
the implementation of the affiliate’s strategic role.

This differentiation in HRM systems among types oi employees has
been recognized by Rosenzweig and Nohria (1994) and Evans and Lorange
(1989). Although in most models there is a distinction between white-
collar and blue-collar employees, the main emphasis is on white-collar
employees; however, in our present model, we explicitly recognize that
nonmanagerial employees may be more critical than executives to the
implementation of the affiliate’s role. For example, many Japanese firms
consider shop-iloor workers to be crucial to the affiliate’s performance,
and they export HRM policies from the parent company to govern these
groups of employees while simultaneously allowing HRM policies for for-
eign managers to be largely localized (e.g., Fucini & Fucini, 1990). This
notion leads us to the following proposition:

Proposifion 12: The highest degree of similarity befween
a parent company’s HRM system and an affiliate’s HRM
system will be vis-d-vis fhe groups of employees who are
most critical to the MNCs performance.

Evolution of the HRM system vis-a-vis a group of employees. Similar
to the SIHRM orientation of the firm and the HRM system of the affiliate,
the HRM system used vis-a-vis a particular group of employees will not
necessarily remain static. Over time, a particular group of employees

1996 Taylor, Beechler, and Napier 979

may acquire greater importance to achieving the goals of the MNC. For
example, although design engineers in the U.S. affiliates of Japanese car
makers were initially only utilized for modifications to products for the
local market, the increasing importance of non-Japanese markets led some
Japanese car makers to rely more on these design engineers for original
design work, which is reflected in products for both U.S. and non-U.S.
markets.

CONCLUSIONS AND IMPLICATIONS

This article builds upon recent work in international human resource
management (e.g., Adler & Ghadar, 1990; Milliman et al., 1991; Schuler et
al., 1993) by integrating concepts irom the resource-based view of the firm
(e.g., Barney, 1991; Conner, 1991; Wernerfelt, 1984) and resource depen-
dence (e.g., Pieffer & Salancik, 1978) to develop a theoretical model of the
determinants oi SIHRM systems in MNCs. Even though there is still much
theoretical and empirical work to be done in this critical area of interna-
tional competitiveness, this model represents an important step forward in
thinking about the determinants of SIHRM systems in multinational iirms.

There are a number of important contributions oi this model. First,
through it we acknowledge the critical role that the HRM competence oi
the parent firm, a s perceived by top management, plays in the transfer of
HRM policies to aifiliates in other countries. HRM competence, like any
context-generalizable resource the firm possesses, has the potential to
give the MNC a competitive advantage in the global marketplace. Identi-
fication of perceived HRM competence a s a critical iactor in global integra-
tion shiits research attention to elements within the firm that can iniluence
the design oi the SIHRM system and opens up an important avenue for
further research.

A second contribution is that through this model we recognize that
the role of top management is pivotal in SIHRM design. Top management
is crucial in determining both whether the MNC possesses an HRM compe-
tence and whether this competence is useful outside of its home country.
An area for further development that could not be fully explored in this
article is an analysis oi the factors that influence the ability of top manage-
ment to perceive an MNCs HRM competence and those factors that lead
management to decide whether the firm’s HRM competence is context
specific or context generalizable and, hence, transferable. For example,
the international experience of the top management team at HQs or the
MNCs capacity to learn from the success and failures of its competitors
in transferring HRM to a host country may be critical determinants of the
transfer oi an HRM system and the integrative capabilities within the MNC.

The third contribution of this model, based on the resource-
dependence framework, is that through it we distinguish between both
aifiliates and groups of employees within those affiliates based on how

980 Academy of Management Beview October

critical they are to the successful implementation of the MNCs strategy.
Because resources are rare and valuable (e.g., Barney, 1991), a key strategic
design decision revolves around determining who will receive the limited
resources within the firm and who will be involved in making those re-
source allocation decisions. Although many researchers (and HRM manag-
ers) have focused their primary attention on expatriates or white-collar
workers because of their oiten implicit assumption that these employees
were most important to the MNCs success, this assumption may not reflect
the realities of today’s global business.

In addition to its contributions to the SIHRM field, the model described
in this article also has implications for the more general field of interna-
tional management. For example, regarding application oi the resource-
based view oi the firm to international strategy formulation and implemen-
tation, one important issue raised in this article is that of level of analysis.
As we indicated in our model, because the MNC is a complex organiza-
tional network consisting oi many subunits, resources can exist at multiple
levels within the firm and may or may not be useful outside a given level
or context. This argument implies that in extensions of resource-based
theory to MNCs, researchers and practitioners should be careful to distin-
guish between resources at these different levels. In addition, the determi-
nants of the context generalizability oi a resource and the ways in which
managers can judge whether a particular resource is useful beyond the
context in which it was created are important areas for further study.
These distinctions are useful not only regarding the relationships between
parent companies and their affiliates, but also regarding other organiza-
tional forms, such a s international joint ventures, cooperative agreements,
and so on. Finally, in the model presented in this article, we emphasize
the dynamic nature of the SIHRM system of MNCs. This focus provides a
link between traditional models oi international management and recent
work on the learning organization (Cohen & Levinthal, 1990; Levitt & March,
1988; Pucik, 1988).

In conclusion, although the human organization has been cited by
writers in all fields of international business a s a key differentiator be-
tween the corporate winners and losers in the next century, the iield oi
intemational strategic human resource management is in its early stages
of development. The model and propositions developed in this article
represent an important step in providing theoretical and empirical re-
search guidelines that may oifer researchers a better understanding of
the determinants of SIHRM. They also offer practitioners, both those in
top management as well a s those in HRM, a way to conceptualize their
SIHRM system from a perspective that emphasizes the unique configura-
tion oi resources their firm possesses; the model and proportions can
help to explain how those resources can be mobilized to meet the unique
challenges intemational management ofiers.

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Sully Taylor is an associate professor oi international management at Portland State
University, She received her Ph.D. in human resource management and international
business from the University of Washington. Her research focuses on international
human resource management issues, including the eifective design ot global human
resource management systems, the transier of Japanese management practices
abroad, and the management of women expatriates.

Schon Beechler is an associate professor of management and intemational manage-
ment at Columbia Business School. She received her Ph.D. irom the University of

1996 Taylor, Beechler, and Napier 985

Michigan in sociology and management. Her research focuses on issues oi coordina-
tion and control in multinational corporations and the evolution of Japanese manage-
ment practices at home and abroad.

Nancy Napier is a proiessor of management and intemational business at Boise
State University. She received her Ph.D. degree from The Ohio State University.
Her research interests focus on the links between strategy and human resource
management and on international human resource management and issues facing
global employees.

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Talent Acquisition

TAPPING
T A L E N T S

AROUNDTHE

GLOBE
Your map to landing the
best candidates abroad.

By Stephenie Overm an

Larry Harding has seen what can happen when companies wade into unfamiliar territory
when recruiting overseas, f In one case, administrators at a large U.S. university hired
local employees as independent contractors to manage study abroad programs in a Euro
pean Union country. Unfortunately, the university didn’t consider the implications of
employment regulations there that define what constitutes an employee vs. an indepen
dent contractor. The institution was sued and forced to pay a settlement of $500,000
in back taxes and damages for improper worker classification, ‘ll As executive

director at global consultancy Radius, Harding has heard plenty of similar
horror stories—and he will likely encounter many more as U.S. companies

continue to expand their reach across the globe. Unfortunately, wing
ing it just won’t work when hiring overseas. A U.S.-centric organi

zation needs to know not only how to decipher foreign laws
and tax codes but also how to tailor its recruitment

strategy for different geographies and sell
its brand to local talent. >

February 2016 HR Magazine 47

Talent Acquisition

The Rising Cost of Global Talent
D on’t assume you’ll save money by swooping into a new market to

scoop up talent. In fact, the shortage o f skilled labor in various regions

of the w orld has pushed w ages up to levels that som etim es exceed
those in the U.S., says Lilac Nachum, an international business pro
fessor at Baruch College at the City University of N ew York.

“The pay levels fo r top managerial positions in Sao Paulo are

higher than in N ew York and London,” she says. “Engineers in Russia

earn more than their counterparts in Silicon Valley.”

Moreover, finding experienced executives in Europe and Asia can

also come w ith a big price tag, says Alex Khatuntsev, w h o w orks for

Actelion Pharmaceuticals Ltd., a Swiss company. Such individuals are

accustomed to being very well-com pensated in their home markets.

W ith labor costs rising steeply, U.S. companies should have a
backup plan to target specific regions, says Kevin O’Marah, chief con

te n t officer at SCM World. “Vietnam is very popular— the costs are
low. Indonesia and Malaysia are also im portant markets.”

M an y U.S. org an izatio n s are ta k in g a more
strategic approach to finding overseas talent
because they are seeing th a t job seekers no lon
ger flock to them. Gone are the days when U.S.
companies were considered the m ost desirable
employers in the world and thus had their pick
of the best available talent anywhere.

T h a t’s w hy it’s im perative for em ployers
to globalize their talen t acquisition strategies
along w ith other aspects of the business.

Lilac N achum , an in tern atio n al business
professor a t Baruch College at the City Univer
sity of N ew York, says she frequently hears from
U.S. executives th a t hiring people in another
location has become a m ajor challenge. “M any
refer to it as their biggest challenge,” she says.

The time to start planning is long before the
first global recruitm ent efforts tak e place. A
company should begin thinking about a global
talent acquisition strategy as soon as it knows
it w ants to move into a foreign m arket, advises A lexandra Levit,
au th o r of Success for Hire: Simple Strategies to Find and Keep
Outstanding Employees (ASTD Press, 2008). H R professionals
can play a lead role in developing th a t strategy, perhaps in collabo
ration w ith global consultants, academics, industry experts, and
government and local authorities.

To get a sense of the unique recruiting challenges a company
may face in different places, follow H R Magazine on a quick trip
around the world.

Expanding
To Europe
M a n y U .S .- b a s e d c o m
p a n ie s fa il to fu lly g ra sp
how d ifferen t rec ru itm en t
can be in other p arts of the
w orld, says Alex K h a tu n t
sev, an H R d irecto r a t bio-
p h a rm a c e u tic a l co m p an y
A ctelion P h arm ac eu tica ls
Ltd. in Z u rich an d a c e rti
fied professional coach. He
cites several key differences
b e t w e e n d o m e s t i c a n d
E u ro p e an ta le n t m a rk e ts,
including the following:
• The concept of “employ
m e n t a t w ill,” a co m m o n
U .S. te rm t h a t m e a n s an
employee can be dismissed
fro m a c o m p a n y fo r an y

reason and w ithout w arning, does not exist in European employ
m ent law. Unless “just cause” can be established, it is difficult
to discharge employees in Europe w ithout incurring substantial
liability.
• E uropean com panies are accustom ed to asking— an d can d i
dates generally are com fortable answ ering— personal questions
th a t w ould be ill-advised in the U.S., such as w hether the c andi
date has children or holds certain political or religious beliefs.
• Any assessm ent in stru m en ts such as p erso n ality tests m ust
be thoroughly validated in the U.S. due to concerns ab o u t p o s

sible bias, w hile such tests
are n o t subject to the same
requirem ents in Europe.

A n o th e r ch allen g e in
E u ro p e a n d else w h e re :
A co m p an y th a t is well-
k n o w n in th e U n ite d
S tates m ay n o t have th e
same brand recognition in
an o th er country, says O li
ver Schiltz, a Zurich-based
p rin c ip a l w ith executive
se arch firm H e id ric k &
Struggles.

F o r e x a m p le , it m ay
m ake business sense for a
U.S. b io tech co rp o ra tio n
to expand to Switzerland,
w hich is a hotbed for b io
tech em ployers, b u t th a t
d o esn ’t m ean job seekers

Top Sources of Quality Hires
j Search and staffing firm s

Social professional netw orks

4 6 %
4 9 %

51% 5 2 %

3 6 %

2 7 %
2 5 %

14% 16%
20%

+1 o
United States Canada Brazil Spain Mexico

Source: 2015 G lo ba l R e cru itin g Trends, Linkedln.

4 8 HR Magazine F e b ru ary 2016

there will be interested in applying for work. Even American com
panies th a t have a great product, career development o p p o rtu n i
ties and com petitive salaries may struggle to com pete for talent
against m any sim ilar organizations th a t locals are more fam iliar
w ith. “T he good people have options,” Schiltz says.

C onsultants such as Schiltz can help employers to both build
their brand abroad as well as search for m ultinational employees.
“We can be the door-opener for U.S. com panies” moving into a
new area, he says.

Before a search takes place, he w orks w ith the client com pany
to weigh the hiring implications of its location decisions. Typical
questions th a t often arise: W h a t does it mean to move into Swit
zerland? W h a t is the health system like? H ow are the schools? “ I
can answ er these questions,” Schiltz says. “ Someone from Bos
ton o r San Francisco can ’t.”

For example, he advised an American business against locat
ing a regional hub in the Swiss m o u n tain s. “It may be a b etter
ta x deal, b u t nob o d y w ill com e w ork
for you,” he told the client. “You need
to be close to cities.”

Frank Sprague learned about global
ta len t acquisition challenges th e h ard
way. W hile w orking in the N etherlands
as senior technical recruiter for educa-
tional-tech com pany B lackboard Inc.,
he co u ld n ’t u n d erstan d why he w asn’t
gettin g any response to a job posting.
Eventually, he learned th a t D utch can
d id a te s e x p e c t to be h ire d th r o u g h
agencies, so he fo u n d an experienced
staffing com pany to p artn e r with.

In the Czech Republic, on the other
h and, recruiting relies heavily on refer
rals because hiring decisions are more
relationship-based, Sprague says.

W h a t a ttr a c ts to p c a n d id a te s in
E urope is a co m b in atio n o f generous
benefits, flexibility in term s o f w ork
time and location, signing bonuses, and
solid long-term incentives, according to
Khatuntsev. Offering a high level of vis
ibility and a sense th a t a position will
have a strong im pact w ith in the co m
pany also matters.

W ithout the proper guidance, a U.S.
employer operating abroad may never
know why a job offer alienated a poten
tial hire. Salespeople in G erm any, for
exam ple, expect to receive a car allow
ance o r to be provided w ith a vehicle,
Sprague says. If th a t isn’t offered, “the

What attracts top candidates
in Europe is a combination of
generous benefits, flexibility
in terms of work time and
location, signing bonuses, and
solid long-term incentives.

p erson is n o t going to provide you w ith feedback. T h ey ’re just
going to scratch their head and w alk away.”

Going Abroad to Asia
A Harvard Business Review survey o f ab o u t 3 0 0 ,0 0 0 employ
ees in C h in a found th a t, from 2 0 0 7 to 2010, the perception of
Western companies as being the m ost desired employers to work
for fell by half. “Anecdotal evidence suggests th a t the advantage

has fu rth e r dim inished since th e n ,”
N ac h u m says. “ Sim ilar challenges
were also reported in India.”

A striking exam ple has been the
loss of employees a t tech g ian t IBM
to leading local softw are businesses,
notably Infosys in In d ia. “As local
com panies develop, they offer career
o p p o rtu n ities th a t m atch an d may
even exceed those o f foreign com pa
nies,” N achum says.

In C h in a , th e key to a ttra c tin g
to p talent lies in establishing strong
personal connections. “ Senior lead
ers look to their personal n etw orks,”
Sprague says. “We were able to sta rt
o u r office in S hanghai because of a
rela tio n sh ip w ith som eone w ho is
local. T h a t person has b ro u g h t in a
lot of new hires.”

W hile U.S. tech com panies gen
erally find it easy to re c ru it entry-
and midlevel employees in India and
C h in a, filling higher-level positions
is m ore difficult, says V inay Singh,
executive vice p resid en t o f h u m an
resources a t V ulcan M anagem ent.

H e re c o m m e n d s se e k in g c a n
d id ates w ho have been w o rk in g in
th e U n ite d S tate s a n d w h o w a n t
to r e tu r n to th e ir h o m e c o u n try .
“ Y ou’ll have th e c o m b in a tio n o f
som eone w ho is a local leader, w ho
k n o w s th e la n g u a g e a n d , a t th e

Getting Help
Going Global
As you get started on developing
a global talent acquisition strategy,
experts recommend that you:
■ Reach out to chambers of com

merce in the target country to ask
for resources.

■ Find an experienced executive
search firm with the help of pro
fessional associations such as the
Association of Executive Search
and Leadership Consultants and
work with groups such as the
Society for Human Resource
Management to exchange
knowledge and network with HR
leaders.

■ Connect with leading universities
and business schools that main
tain contacts with alumni around
the world.

■ Consider retaining a global busi
ness consultant and/or employ
ment attorney w ho specializes in
your target market.

February 2016 HR Magazine 49

Talent Acquisition

Major Job Boards Around the Globe

Job Board URL Target M a rk e t

Big4 Careers w w w .b ig 4 ca re e rs.com
Finance and consulting professionals
in India, Russia and other countries

Jobba.net w w w .jo b b a .n e t Japan

Laborum w w w .la b o rum .cl Latin Am erica (Spanish-language)

CareerOne w w w .careerone.com .au Australia and N ew Zealand

Job Space w w w .jobspace.co.za South Africa

Bayt w w w .b a y t.c o m M iddle East

51Job.com w w w .5 1 jo b .co m China

Indeed w w w .in d e e d .c o m Global

M onster w w w .m o n s te r.c o m Global

same tim e, w ho has A m erican know ledge an d com petencies,”
Singh says.

Reaching Out
In Russia and the Middle East, it is often challenging for U.S. com
panies to find local C-suite-level candidates w ho have well-devel
oped leadership skills and formal training, says Ken Daubenspeck,
founder and president of executive search firm Daubenspeck and
Associates in Chicago.

Executives in those regions may be promoted based on personal
relationships with top managers instead of functional competencies,
he says, and, as a result, succession-planning techniques are incon
sistent compared to Western practices.

The best strategy in those cases is to draw on the expertise of other
U.S. companies and local businesses to identify executives who are
knowledgeable about both U.S. practices and local culture and cus
toms, according to Daubenspeck.

W hile high-level IT and cybersecurity skills are in short supply
in both Russia and Middle Eastern countries, some employers have
successfully hired expatriates who then teach local workers the nec
essary skills and functions. Offering opportunities for continuing
education, as well as informal and formal mentorships, can be part
of an effective global recruitment strategy.

U.S. companies moving into Africa will find that recruiting and
hiring practices there can be similar to those in Western countries.
Kevin O ’M arah, chief content officer for SCM World, a supply chain
talent development firm, says candidates are often attracted to train
ing and development opportunities.

Nigeria has emerged as a magnet for global talent, but doing busi
ness there can be difficult, O ’M arah says. Nigeria is Africa’s larg
est oil exporter, but companies sometimes have concerns about cor
ruption and attacks by the terrorist group Boko H aram . He says
employers might consider seeking workers in neighboring Ghana,

w hich also has a sophisticated business
environm ent w ithout the problems pres
ent in Nigeria.

Emerging m arkets in A frica tend to
offer less expensive staffing alternatives
th a n m any other p arts of the world. In
these markets, “U.S. companies continue
to enjoy an advantage over local companies
in most sectors,” N achum says.

Navigating North
And South America
U.S. companies looking to expand north
and south of the border will find Canada
to be m uch like the U nited States in its
recru itm en t an d hirin g processes, w ith
slightly more E uropean policies, accord
ing to O ’M arah.

M exico is already a critical source of
workers for many U.S. companies and will become even more impor
tant in the next five years due to rising labor costs in China, O ’M arah
says. He recommends that U.S. companies looking to tap technical
talent in Mexico set up operations where there are already pockets
of infrastructure and partner with companies th at have strong ties
with local markets.

Brazil, another big player in the Americas, has cultivated a work
force with a high level of technical expertise, O ’M arah says, but the
country is also known to have lots of regulatory red tape.

One World, Many Strategies
Given all of the geographic differences, U.S. companies have much
to lose by applying a blanket approach to talent acquisition. Sprague
notes th a t, even w ith in th e U.S., his com pany alters its h iring
approach to accommodate different localities. “One size doesn’t fit
all, even in one company in one country,” he says.

And don’t forget th at employers’ work doesn’t end once they’ve
made the hires they want. Surveys repeatedly show that employees
in U. S. overseas operations are dissatisfied with too much centraliza
tion, according to Nachum.

“High levels of headquarters control are particularly daunting
for local employees in industries requiring adaptation to local m ar
kets, such as consumer goods and culturally sensitive goods such as
food,” she says. “The distance in the organization hierarchy between
headquarters and affiliates, compounded by the geographic and cul
tural distances between them, often make local talent feel th at it is
deprived of any meaningful voice in the decision-making process.”

The desire to be heard: perhaps th a t’s the one thing th at unites job
seekers and employees around the world. D3

Stephenie Overman is a freelance writer based in the Washington,
D.C., area.

February 2016 HR Magazine 51

Home

http://www.jobba.net

http://www.laborum.cl

http://www.careerone.com.au

http://www.jobspace.co.za

http://www.bayt.com

http://www.51job.com

http://www.indeed.com

http://www.monster.com

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articles for individual use.

Int. J. of Human Resource Management

1:2 April 2000 336-365

Managing human resource for competitive
advantage: a study of companies in
Singapore

Naresh Khatri

Abstract We sec two major streams of research in ihe strategic human resource
management literature; (I) the link between strategy and human n;source (HR) practice

and (2) the link between HR practices and fimi performance. There is a plethora of
theoretical perspectives on the first link. Unfortunately, there is not much empirical work.
The second link has seen a spate of empirical studies. However, mosi of them embrace
the universal perspective and the role of strategy as a contingency has not been
adequately addressed. This could potentially result in the underestimation of the impact
of HR practices on organizational performance. This study addressed the above tw

weaknesses in previous research in the strategic HR management field, Using a sample of
about 200 of the largest companies representing all major industries in Singapore, we
found that organizational strategy affects HR practices. Moreover, findings suggest that
the strategy-HR interaction accounts for more variation in firm performance than the
main effect of HR. Implications of the findings are discussed.

Keywords Smitegic human resource management: HR planning; HR strategy; con-
tingency; configuration; Singapore.

A consensus has emerged among scholars and practitioners alike that the business
environment has become more competitive than in the past because of globalization
(Ansoff. 1991; Hamel and Prahalad, 1996). In order to survive in this new era,
businesses have to focus even harder on their competitive strengths so as to develop
appropriate long-term strategies. Old practices and systems that have evolved over time
in a relatively stable environmental context are inadequate to meet the challenges posed
by the complex and dynamic business environments; of today.

The issue of how to counter the dynamic environmental forces falls in the domain of
strategic management research. Broadly, strategic management attempts to match (or
fit) an organization with its environment. There is a plethora of approaches suggested in
strategic management literature to achieve this match or tit. The majority of them are
biased in favour of economics however and thus focus predominantly on the industry
determinants of organizational performance (emphasis on the external portion of the
SWOT framework) (Lado and Wilson. 1994; Pfeffer, !995; Wright et al., 1994).
Undoubtedly, an organization must remain relevant to its external stakeholders’
demands, yet there is a need to correct this bias by paying more attention to analysing
finns’ internal strengths and weaknesses (Barney, 1995).

Naresh Khatri, Assistant Profes.sor, Nanyang Business School, Nanyang Technological
University. Mail Box: S3-B2-C-82. Singapore 639798. (tel: (65) 790-5679; fax: (65)
791-3697; e-mail: ankhatri@ntu.edu.sg)

The International Journal of Human Resource Management
ISSN 0958-5192 print/ISSN 1466-4399 online © 2000 Taylor & Francis Ltd

Khatri: Managing human resource for competitive advantage 337

The resource-based view of the firm overcomes the bias in the mainstream strategic
management literature by stressing the importance of firm-specific resources that can
provide competitive advantage to an organization on a sustainable basis. Resources are
‘anything that could be thought of as strength or weakness of a given firm, which
include tangible and intangible assets’ (Wemerfelt, 1984) or ‘skills, organizational
routines and processes” (Barney. 1991). In contrast lo the traditional external
perspective of developing strategy to match the environment (e.g. Porter. 1980, 1985),
ihe resource-based view is centred on the internal re.sources of the firm. The assumption
is that the origin of competitive advantage lies in possessing, acquiring and utilizing
internal resources in getting the firm ahead of its competitors. In short, while the
classical strategic management paradigm has an industry-environment focus, the
resource-based view is firm-ftx:used, with emphasis on links among strategy, internal
resources of the firm and performance (Wright and McMahan, 1992).

The resource-based view provided the necessary impetus to research in the strategic
human re.source management field (SHRM) (Wright and McMahan. 1992; Lado and
Wilson. 1994; Pfeffer, 1994). Scholars in this ;u”ea argue that the human resource
satisfies four conditions necessary to achieve sustainable competitive advantage; human
resource is valuable, rare, imperfectly imitable and has no substitutes. Competitors ean
easily duplicate competitive advantage obtained via better technology and products,
they suggest, but it is hard to duplicate competitive advantage gained through better
management of people.

There have been a number of studies on various aspects of managing human resource
strategically, especially studies on the link between human resource practices and
organizational pertbrmance. However, as noted by Becker and Gerhart. “given the
importance and complexities of the strategy research area, this body of work is
relatively small and most of the key questions are sorely in need of further attention”
(1996; 779). We undertook this study to overcome the dearth of empirical work in
SHRM.

One of the most important arguments in SHRM field is that HR practices that are
consi.stent with or support organizational strategy are more effective than those that do
not (Miles and Snow, 1984; Schuler and Jackson. 1987; Truss and Gratton. 1994).
Unfortunately, there is little empirical evidence to support the above view (Dyer and
Reeves. 1995; Lengnick-Hall and Lengnick-Hall. 1988; Wright and Shennan. 1998).
Thus, the focus of this study is to examine empirically if the fit of HR practices with
organizational strategy increa.ses their effectiveness. Specifically, we examine (1) the
link between strategy and HR practices and (2) the moderating effect of strategy on
the link between HR practices and organizational

performance.

Theoretical background

Two streams of research dominate the SHRM hterature: (1) the link between strategy
and HR management and (2) the link between HR practices and firm performance.

Link between strategy and HR management

The link between strategy and HRM can be further divided into two sub-streams: macro
and micro. The macro sub-stream focuses broadly oii the status and infiuence of HR
function in the organization. The focus of macro stream is not on individual HR
practices, but on the link of HR function with the business strategy. Several scholars
have put forward frameworks linking business .strategy with HR strategy in this area.
Five frameworks – Golden and Ramanujam (1985). Lengnick-Hall and Lengnick-Hall

338 The Intemational Joumal of Human Resource Management

(1988), Schuler (1992), Wright and McMahan (1992), and Truss and Gratton (1994) –
which have received much attention are discussed next.

Golden and Ramanujam (1985) proposed four types of linkages bet’ween HR
management and the strategic planning process: administrative, one-way, two-way and
integrative. In firms with an administrative linkage between HR and strategic planning,
the human resource management department plays the traditional personnel role. It
provides day-to-day operational support and is primarily involved in handling the
paperwork. Top managers and other functional managers generally view the HR
fiinction as relatively unimportant. The firms with one-way linkage between HR and
strategic planning have a sequential relationship between strategic planning and the HR
function. The HR function typically designs programmes and systems lo support the
firm’s strategic objectives. The HR function merely reacts to strategic initiatives. The
two-way linkage is characterized by a reciprocal and interdependent relationship
between strategic planning and HR function. Top management recognizes that business
plans affect and are affected by HR activities. The HR functitm is viewed as credible
and important. Companies having integrative linkage between strategic planning and
the HR function show a frequent and dynamic interaction, both fonnal and infonnal.
The senior HR executive is viewed as a true strategic business partner with other senior
executives.

Lengnick-Hall and Lengnick-Hall (1988) proposed a reciprocal linkage between
competitive strategy and human resource strategy. If competitive strategy dictates the
demand for skills/employees, human resource strategy determines organizational
readiness. Unlike most of tlie literature which explicitly or implicitly assumes
unidirectional relationship flowing from strategy to HR practices, the authors emphasize
that human resource strategy both affects and is affected by organizational strategy.

Schuler (1992) proposed the 5-P model, linking strategic busitiess needs with strategic
human resource management activities. The five ‘ P ‘ s ‘ stand for human resource phil-
osophy, human resource policies, human resource programmes, human resource prac-
tices and human resource processes. The author noted that strategic human resource
management consists of all activities affecting the behaviour of individuals in their
efforts to formulate and implement the strategic needs of the business. Further,
successful efforts at strategic HR management begin with the identification of strategic
business needs. If these needs are important to the success of the business, and if SHRM
can be instrumental in meeting these needs, then these needs should be systematically
analysed for their impact on human resources management aclivities including HR
philosophy, policies, programmes, practices and processes.

Wright and McMahan (1992) Identified six theoretical models (behavioural per-
spective, cybernetic models, agency/transaction cost tbeoiy, resource-based view of the
firm, power/resource dependence models and institutional theory) that are useful for
understanding both strategic and non-strategic determinants of HR practices. They
argue that the first four theories are applicable to strategic HR decision making. Tliese
attempt to view HR activities as being determined by proactive, strategically intended
decisions. The latter two focus on the institutional and political determinants of various
HR practices, and explain the non-strategic and dysfunctional determinants of HR
practices. The authors suggested that both types of theories are necessary for
understanding the role of HR practices in strategic management.

Truss and Gratton (1994) reviewed the major models of SHRM and identified five
key aspects of the SHRM process that should be included In any model of SHRM.
These are: external environment, overall strategy of the organization, the internal
organization (structural, cultural, political and psychological factors), human resource

Khatri: Managing human resource for competitive advantage 339

strategy and individual HR practices and outcomes (tnotivation, satisfaction, perform-
ance and comtnittnent of employees). One unique feature of the model is that it
explicitly recognizes the important distinction between intended HR strategy and
realized HR practices which has been ignored in most models on SHRM.

While the above perspectives explained macro-level relationships between strategy
and HRM, another sub-stream of research has chosen to examine these relationships at
the micro level. In one of the earliest works in the micro tradition. Miles and Snow
(1984)’ argued that the human resources management practices must be tailored to the
demands of business strategy. They noted that successful firms display a consistent
strategy supported by complementary organization structures and management pro-
cesses. They suggested that strategies pursued by companies can be classified broadly
into four types: defenders, prospectors, analysers and reactors. While defenders,
prospectors and analysers pursue consistent strategies, reactors lack any consistency in
their .strategies. Defenders are characterized as building human resources, prospectors
ys acquiring resources and analysers frequently have to ‘buy’ as well as ‘make’ key
human resources. When viewed from this theoretical perspective, firms pursuing

defender strategy would emphasize training programmes and internal promotion
(building human resources), while firms with a prospector strategy would spend

efforts on recruitment and selection (acquiring human resources) and performance-
based compensation. Ajialysers would focus their attention on HR planning.

In another influential work in the micro sub-stream, Schuler and Jackson (1987)
provided a detailed treatment of the three competitive strategies (innovation, quality-
enhancement and cost-reduction) and the required role behaviours. They argued that it
is more useftil to think about what is needed from an employee who works with other
employees in a social environtnent and that these needed employee behaviours are
actually best thought of as needed role behaviours. Based on the different role
behaviour requirements in different competitive strategies, they recommended a set of
HR practices for each .strategy.

Research on the relationship between overall strategy and HR practices has been
predominantly theoretical in nature so far. Thus, empirical studies are very much
needed to test the validity of the above theoretical frameworks. Further, empirical
studies can help us refine these frameworks or., in fact, may allow us to develop new
and more valid frameworks.

Link between HR practices and firm performance

In contrast to the dearth of empirical work on the strategy-HR practices relationship,
the relationship between HR practices and organizational performance has been the
subject of significant empirical examination (Arthur. 1994; Huselid. 1995; Huselid and
Becker, 1996; Gerhart and Milkovich. 1990: Ichniowski et al., 1994; Koch and
McGrath. 1996; Pfeffer. 1994; Terpstra and Rozell. 1993). Previous research has used
one of the following three ways to examine the effectiveness of HR practices on firm
performance: universalistic, contingency or configurational (Delery and Doty, 1996).
Researchers in the universalistic perspective are tnicro-analytical in nature and posit
that some HR practices are always better than others and that all organizations should
adopt these practices. Contingency theorists argue that, in order to be effective, an
organization’s HR practices must be consistent with other aspects of the organization.
A common contingency factor identified in this line of research is bu.siness strategy.
The configurational theories are concerned with how the pattern of multiple independ-
ent variables is related to a dependent variable rather than with how individual

340 The Intemational Joumal of Human Resource ManagemetU

independent variables are related to the dependent variable. According to the con-
figurational perspective, in order to be effective, an organization must develop an HR
system that achieves both horizontal and vertical fit. Horizontal tit refers to the internal
consistency of the organization’s HR practices, and vertical fit refers to the congruence
of the HR system with other organizational characteristics, such as firm strategy (Delery
and Doty, 1996).

Guest (1997) termed universalistic, contingency and conligurational perspectives as
intemal fit (HRM as an ideal set of practices), extemal fit (HRM as strategic integration)
and configurational fit (HRM as bundles), respectively. The author noted that there is
empirical support for each of three perspectives but consistently stronger support for the
intemal fit model, and the general approach represented by this stream of research is
sufficiently encouraging to suggest that it is continued and improved.

MacDuffie (1995) and Lahteenmaki et ai (1998) argued in favour of ‘bundles* of HR
policies and practices and noted that effects of HR practices on organizational
pertbnnance are multiplicative rather than additive as assumed in prior research in
SHRM. This view is similar to that of Becker and Gerhart (1996) who observed that
any effect of HR practices lies in the architecture of the system, not in selecting so-
called best practices.

While the previous research on the HR practices-perfonnance litik has demonstrated
that HR practices affect organizational penFormance significantly, it has raised a couple
of important questions. First, most of the empirical research has been conducted in the
United States.^ Whelher or not HR practices affect performance in other countries
remains an empirical question for further testing. Second, with some notable exceptions
such as studies conducted by Huselid and his colleagues (Huselid, 1995; Huselid et ai.
1997), much of the research has looked at a single or a few HR practices at a time
(Becker and Gerhart, 1996). This approach is appropriate in the exploratory phase but
quite deficient or even inappropriate considering that a single or a few HR practices
may show a spurious significant relationship with perfomiance because of being
correlated with HR practices that actually influence performance. Therefore, the natural
research progression is to examine the impact of many HR practices simultaneously so
that their independent effects can be better understood.

HR practices in Singapore: a background

Most of the studies on HRM issues in Singapore fall into two categories. The first
category of studies follows the traditions of labour economics and the level of analysis
for these studies is the economy or society at large (e.g. Pang, 1993; Islam and
Chowdhury, 1997; Shaw et ai, 1995). There is no consideration of HR issues at the
organizational level. Studies in the second category, on the other hand, are micro-
analytical and most of them are limited to studying the employee tumover problem,
which is the most important problem companies in Singapore face (e.g. Cheng and
Brown, 1998; Debrah, 1993. 1994; Koh and Goh. 1995). The link between strategy and
HR practices and between HR practices and performance outcomes is rarely considered.
Cunningham and Debrah’s (1995) study is an exception. Their study investigated HR
competencies needed to manage HR function strategically. Nonetheless, we provide a
brief overview of HRM in Singapore and recommend interested readers to refer to
Cunningham and Debrah (1995), Debrah (1993, 1994) and Wilkinson (1986) for a
comprehensive coverage of HR scene in Singapore.

The extemal environment of organizations in Singapore is quite complex and
influences their HRM practices to a large extent. The major environmental pressure is

Khatri; Managing human resource Jbr competitive advantage 34

the acute labour shortage resulting in a tight labt)ur market and the consequent
government regulations on the recruitment of foreign workers. The unemployment rate
at the time of the study was as low as 2.6 per cent. Singapore depends quite heavily on
a large pool of both skilled and unskilled foreign workers, who represent about 20 per
cent of the labour-force (Islam and Chowdhury. 1997).

The labour shortage has been the main feature of the economy for nearly two
decades. Organizations face serious difficulty in recruiting employees. A still more
formidable problem they face is high employee turnover as organizations vie for
employees and in many cases ‘poach’ employees. Because of labour shortage,
employees, especially non-managerial, pick and choose jobs. Job-hopping is quite
prevalent and accompanying job-hopping is the poor attitude of employees.

To tide themselves over the problem of job-hopping, companies are using a strategy
of core and peripheral employees (Debrah, 1993). The core employees are treated well
so that they stay with the company and the operations of the company remain
unaffected. Singapore has subsidiaries of both Eastern and Western corporations. Fisher
and Shaw (1992) found evidence of the impact of the headquarters on HR practices in
Singapore subsidiaries. Thus, HR practices in Singapore have a mixed influence from
the West and the East. There is no noticeable influence of unionization on HR practices
because unions in Singapore are neither strong nor militant (Fisher and Shaw. 1992).
The National Trade Union Congress has a symbiotic relationship with the government
and employers (Islam and Chowdhury. 1997).

Shaw et al. (1995) examined the role of Singapore government in HR practices. The
authors observed that Singapore’s government has taken an interventionist role not only
concerning broad issues of economic policy but with respect to HRM activities as well,
and it has focused heavily on productivity improvement. The government also
encourages the adoption of business practices which seem to work well in other
countries. The process of selective imitation was found to be the pervasive mind-set in
Singapore, encouraged by government and professional organizations. The authors al.so
observed that similarities between local and foreign firms in Singapore are likely to be
a product of firms conforming to local government standards and to the mutual
imitation processes operating between Singapore and foreign firms.

HR managers in Singapore and many other Asian countries are facing difficult
challenges. However, with challenges come opportunities. For example, MacLachlan
(1996) noted that East Asia is the be.st place in the world to be a personnel or
developmental professional because of the focus on recruiting, development and
retaining staff. However, we believe that, at present. HR managers in Singapore and
other Asian countries iire not up to the challenge because of the lack of strategic
approach to HRM and lack of HR competencies (Cunningham and Debrah. 1995;
Debrah, 1994; Khatri. 1998; Khatri and Chong, 1999). For example. Debrah (1994)
found that the ad hoc nature of HRM policies and practices of companies in Singapore
contributes significantly to the job-hopping phenomenon. Cunningham and Debrah
(1995) reported that line managers and executives take over some of the functions of
HR managers because HR managers lacked the skills necessary to perform their duties
competently. Khatri (1998) noted that companies in Singapore under-utilize strategic
HR activities in two important areas; recruitment/selection and training/development.
Companies were found to use employment tests rarely and give little emphasis, if any.
to the validity of selection instruments. The most common approach to .selection was
the use of unstructured interviews and unstructured interviews have very low validities,
if any. The author concluded that job-hopping in Singapore could be attributed to a
significant extent to poor recruitment and selection practices. Further, the author found

342 The International Journal of Human Resource Management

that companies in Singapore neglect some critical aspects of training and development,
such as evaluation of training programmes, training needs analysis and cost-benefit
analysis. In another study, Khatri and Chong (1999) found that poor management
practices had much greater influence on employee turnover than bad attitude of
employees. Factors under the control of management contributed a unique variance of
37.6 per cent and uncontrollable factors (bad attitude and labour sht>rtage) a meagre 5
per cent of (he unique variance to the turnover model. All the above studies suggest that
HRM in Singapore is not a particularly well-managed function. We think that, given the
competitive environment companies in Singapore face now. they will contribute to their
own extinction by ignoring the vital role of strategic HRM.

Hypotheses

We propose two sets of hypotheses. The first set contains three broad/macro hypotheses
based on both universal and contingency perspectives. The second set contains nine
micro hypotheses (involving individual HR practices) based on the contingency
perspective.

Many authors have found evidence suggesting that HR practices have a direct and
positive effect on firm performance (Arthur. 1994; Huselid. 1995; Huselid and Becker,
1996; Gerhart and Milkovich, 1990; Ichniowski et al.. 1994; Koch and McGrath. 1996;
Pfeffer, 1994; Terpstra and Rozell, 1993). Many of these practices revolve around work
involvement and participation in decision-making processes of front-line employees in
the organization. The research literature has largely argued for the universality of such
practices and their impact. However, as most of these studies have been done in the
United States, there is a need to test the universality of effects of HR practices using
samples of organizations in other countries. Therefore, our first hypothesis is;

Hypothesis I: HR practices are positively associated with organizational perform-
ance in Singapore companies.

Youndt et al. (1996) argued that on the surface the universal and contingency
perspectives appear to be competing but they are. In fact, complementary. Further, they
noted that while the universal approach helps researchers examine the benefits of
consistent HR practices across all contexts, the contingency perspective helps us look
more deeply into organizational phenomena that have their roots in situationally
specific circumstances and management practices. In addition, when we consider the
different theoretical perspectives of Miles and Snow (1984), Schuler and Jackson
(1987) and others, and empirical studies by Arthur (1992), Youndt et al. (1996) and
Deiery and Doty (1996). we could argue that high-performance practices vary across
strategies. Thus otir second and third hypotheses are as follows;

Hypothesis 2: The extent of HR practices is dependent on organizational
strategy.

Hypothesis 3: The link between HR practices and performance is moderated by
organizational strategy.

Our next set of hypotheses considers specific HR practices and their relationship with
strategy. Miles and Snow’s typology (1978) of four strategic archetypes has been used
very often in previous research (e.g. Hambrick, 1983; Namiki, 1989; Zahra and Pearce,
1990). Further, the same authors wrote an influential article (1984) specifically linking
the strategy archetypes with HR practices. In this study, we have used their typology to

Khatri: Managing human resource for competitive advantage 34

examine the moderating influence of business strategy on the link between HR practices
and organizational performance.

Defenders

Defenders operate in a narrow domain and protect it aggressively. They achieve this
with high degree of efficiency. A defender strategy calls for centralized decision making
with an emphasis on formalization and standardarization of jobs and tasks. Defenders
are usually found in matured industries. The basic strategy of defenders is to ‘build’
human resources (Miles and Snow. 1984; Hiltrop, 1996). This means that a defender
company typically engages in little recruiting above entry level, but has extensive
training and development programmes. Moreover, the tasks are standardized, narrow
and routine to achieve efficiency. As a result, participation of employees in decision
making is not encouraged. Defenders operate in a stable industry and protect the niche
they occupy. Consequently, they do not need any elaborate HR planning exercises.
Compensation is position- or seniority-based and performance appraisal is process-
oriented (Miles and Snow, 1984). Moreover, the role of HR may be limited to proper
file maintenance/record keeping. Golden and Ramanujam (1985) characterize this as an
administrative linkage between business strategy and human resource management. In
view of the above :u-guments, we propose the following hypotheses:

For companies pursuing a defender strategy:
Hypothesis 4\ The amount of training will be positively associated with

peribrmance.
Hypothesis 5: The amount of HR planning will be negatively associated with

performance.

Prospectors

Prospectors are virtually the opposite of defenders. They continually search for new
products/markets and create new goods and services. A prospector’s domain is thus
broad and unstable. It is in a continuous state of development because with additions of
new products or markets come retrenchments in some of the existing products or
markets. A good degree of flexibility needs to be incorporated into the technological
.system to ensure a good fit with the changing domain. The technological system is not
contingent only upon the organization’s current product mix but also the future mix.
The solution appears to be the creation of multiple technologies with a low degree of
standardization, routinizatlon and mechanization. Thus, prospectors need a decen-
tralized market-based design with low specialization and a lot of participation from the
employees. A prospector strategy requires much support from the HR department to be
able to meet the ever-changing need for talent/professionals. The HR department needs
to be proactive and involved in all major strategic decisions. Prospectors typically seek
to buy in talent – a strategy that should involve sophisticated recruitment/selection,
including extensive psychological testing at all levels of the organization but limited
training. Compensation practices of prospectors tend to be outcome-based (Miles and
Snow, 1984). Hence the following hypotheses:

For companies pursuing a prospector strategy:
Hypothesis 6: The greater emphasis on selection tests and structured interviews in

the selection process will be positively associated with pertbrmance.

344 The International Journal of Human Resource Management

Hypothesis 7; The amount of training will be negatively associated with
performance.

Hypothesis 8: The greater participation of employees in decision making will be
positively associated with perfonnance.

Hypothesis 9: Performance-based compensation will be positively associated with
performance.

Analysers

Analysers are a hybrid of defenders and prospectors. It means that they operate in stable
as well as changing markets. For their products in a stable market domain, they operate
efficiently. They watch their competitors for new ideas in their turbulent market
domain. Analysers are tnoderately decentralized. Consistent with hybrid nature of
overall strategy of analysers, their HR practices are likely to be hybrid of HR practices
of defenders and prospectors.

There is one unique feature of analyser strategy, that is, analysers make much use of
planners and analysts, and organizations pursuing analyser strategy need to be large
enough to be able to maintain the duality in their structtire and their broad domain. An
analyser strategy may also require a lot of emphasis on HR management like a
prospector strategy.

For companies pursuing analyser strategy:
Hypothesis JO: The amount of HR planning will be positively associated with

perfonnance.
Hypothesis IT. The amount of training will be positively associated with

performance.
Hypothesis 12: The greater employee participation/involvement in decision making

will be positively associated with pertbrmance.

Reactors

Reactors lack a consistent strategy. As a result. HR practices of reactor companies are
likely to lack consistency too. We propose no hypotheses here, although all analyses
performed on other three strategic archetypes have also been performed on companies
pursuing reactor strategies to discern any patterns in their HR practices.

Methods

Sample and data collection

Singapore, being small, presents problems of sample size in most of the studies. In this
research, we would have liked to select a small number of industries to be able to
control for industry effects on organizational strategies, HR practices and firm
performance. However, none of the industries had a sufficiently large number of
companies with the result that we had to include companies from all of the industries
in Singapore. The ‘Singapore 1000’ directory provided the sampling frame for the
study. Based on our discussions with HR managers and other practitioners, we excluded
the construction industry of Singapore from the sample because of highly unorganized
HR departments and practices in that industry. In addition, companies having a turnover

Khatri: Managing human resource for competitive advantage 345

of less than S$ 15 million (1 US$ equals approximately S$1.70) and employing fewer
than forty employees were e.xcluded. This was done because companies too small do
not have a full-fledged HR department. After applying the above selection criteria, we
were left with a total sample of 915 of the largest companies in Singapore.

Firm-level data on organizational strategy, HR practices and firm performance were
collected with a questionnaire. The questionnaire had two sets. Set I was to be
completed by the Chief Executive Officer (CEO) and contained a measure of
organizational strategy and subjective financial and non-financial measures of firm
performance. Set 2 was to be completed by the head of HR function. It included
measures of HR practices.

The tirst wave of the questionnaires was mailed to the CEOs in July 1997. The CEOs
were requested to complete Set I, enclose it in an envelope provided for the purpose,
and seal the envelope. They were then to pass on the sealed envelope along with
incomplete Set 2 to the head of HR function in their companies. The heads of HR
function were to complete Set 2, enclose it in an another envelope and seal the
envelope. They were then to enclose the two sealed envelopes in a bigger business reply
envelope to retum them to us.

Thanks-cum-reminder cards were mailed after about two weeks. Usually, the ihanks-
cuni-reminder cards work best if sent within a week. However, since the questionnaire
had two sets to be completed by two different individuals, a gap of two weeks was
con.sidered more appropriate. The second wave of the questionnaire was mailed six
weeks after the ihanks-cum-reminder card. The cover letters in the second wave were
addressed to the head of HR function in.stead of the CEO. We mailed the third wave of
the survey after another six weeks. The cover letters in the third wave were addressed
to the CEO with similar instructions as above. All our data were collected before the
onset of the present Asian economic crisis.

Of the total 915 companies in Singapore selected for the study, 222 responded. Six
questionnaires were non-usable. Ten companies responded with only set 1 and another
twelve companies sent only set 2. The remaining companies (194) returned both
completed sets. The first wave yielded a response rate of 13 per cent, the second wave
ne\t 7 per cent, and the third wave the remaining 4 per cent with an overall response
rate of 24 per cent. Considering that two different respondents were involved, we find
the response rate satisfactory. Typically, the response rate for such surveys in Singapore
hovers around 15 per cent. The higher than normal response rate can be attributed to the
Total Design Method (Dillman, 1978). We succeeded in conveying to respondents that
this was an important study and questionnaires were presented well, using colours and
extra envelopes.

In all, fifteen industries were represented in the sample. The bulk of the companies
were from four main industries in Singapore: industrial/engineering, manufacturing,
electronics and banking. Each of these industries had twenty or more companies.

Measurement of strategy

Gibbons (1994) used Conant et ai’s measure of strategy successfully in his study of
Singapore companies. This prompted us to adopt Conant et o/.’s (1990) measure of
Miles and Snow’s four strategic archetypes; defenders, prospectors, analysers and
reactors. Conant et ai operationalized organizations into above four strategic types
using eleven close-ended questions. Each question had four response options which
characterize the four generic strategies of the Miles and Snow typology. The

346 The International Journal of Human Resource Management

categorization of organizations into strategic types was based on the ‘majority rule’ in
that the organization was classified as pursuing the strategy if the number of response
options for a particular strategy was high. For example, if the majority of the response
options selected were defender type, then the organization would be classified as a
defender. Conant et al. also provide guidelines for classification of companies into
strategic types in case of a tie. According to these guidelines, if there is a tie between
the reactor and one or two other strategies, the organization is classified as a reactor. If
there is tie between or among non-reactor strategies, the organization is classified as an
analyser, a hybrid strategy.

Measurement of HR practices

HR practices covering four major HR functional areas of recruitment/selection, training/
development, performance appraisal and compensation/benefits were included in the
study. In addition, we included relevant HR practices commonly considered to improve
company performance from HR planning and employee participation/involvement
literature. Thus, the six sets of HR practices form natural bundles (MacDuffie, 1995).
Table I summarizes HR practices according to the major HR functions that have been
demonstrated, theoretically or empirically, to affect performance positively in the
previous research. The exhibit includes four practices under recruitment and selection,
six practices under training and development, two practices under compensation and
benefits, four practices under employee participation and live practices under perform-
ance appraisal. In addition to the practices in Table 1, we identified nine practices under
human resource planning.

The HR practices were measured using a six-point Likert scale ranging frotn 1,
“strongly disagree’, to 6, ‘strongly agree’ (see Appendix I for details).

The recruitment and selection scale included four items: use of employment tests,
performing validation studies on selection methods/instninients. providing realistic job
previews and conducting structured and standardized interviews.

The employee relations/participation scale was adopted from Delery and Doty (1996)
and included three items: “employees are allowed to make decisions’, “employees are
asked to participate in decisions’, and “employees have open communication with
supervisors’.

The perfonnance-appraisal scale was constructed using the following two items: (1)
supervisors discussed performance with their subordinates, and (2) appraisal process
involved consultation between the supervisor and his or her subordinates.

The compensation scale was made up of four items: (1) performance in the job as
important in detennining earnings of employees. (2) promotion based primarily on
seniority (reverse-coded), (3) company has comprehensive flexible benefits scheme and
(4) company reviews benefits regularly.

Five items comprised the training and development scale: (1) employees of the
company go through training programmes every few years, (2) company has formal
training programmes to teach new employees skills to perform their jobs, (3) training
needs analysis. (4) cost-benefit analysis of training programmes, and (5) evaluation of
training programmes.

The HR planning scale included nine items: (I) HR department as integral part of
company’s strategic planning process. (2) HR activities aligned with overall corporate
strategy, (3) HR department has explicit statement of its mission and goals. (4) HR
accorded an important role in the company, (5J HR has as much say in corporate

Khatri; Managing human resource for competitive advantage 347

Table 1 Summary of the research studies suggesting/finding link between HR practices
and performance

HR practices Authors

Recruitment ami selection
Use of etnployment tests

Realistic job previews
Structured and standardized interviews

Validation studies on methods used

Training and development
Formal training programmes for new

employees
Training needs analysis of training

programmes
Cost-benefii analysis of training

programmes
Evaluation of training programmes
Formal on-lhe-job training to enhance

promotability

Formal off-the-job U”aining to increase

promotability

Compensation and benefits
Performance-based cotnpensation

Employee relations/participation
Employees given opportunity to

suggest improvements
Employees allowed to make decisions

Employees often asked by supervisors
to participate in decisions

Superiors keep open communication

Performance appraisal
PerFormance measured with objectively

quantifiable results
Performance measurement includes

quality criteria
Superiors discuss peformance with

subordinates
Performance appraisal includes goal-

setting
Promotion bitsed primarily on merit

Huselid (1995); Koch and McGrath (1996);
Delaney et at. (1989); TerpsttB (1994)

Not studied previously

Terpsu-a and Rozell (1993); Koch and McGrath

(1996)
Koch and McGrath (1996);

Terpstra (1994)

Pfeffer (1994); MacDuffie (1995); Huselid (1995)

Not studied previously
Terpstra (1994)

Terpstra (1994)
Arthur (1992): Hiitrop (1996); Huselid (1995)

Arthur (1992); HiltrDp (1996); Huselid (1995);
MacDuffie (1995)

Pfeffer (1994); MacDuffie (1995); Hiitrop (1996);
Delany et aL (1989); Huselid (1995)

MacDuffie (1995): Delery and Doty (1996):
lchniowski et ai. (1996)

MacDuffie (1995): Delery and Doty (1996);
Arthur (1992); Hiitrop (1996): Ichniowski
etal. (1996)

Pfeffer (1994): Deianey cf a/. (1989); Delery and
Doty (1996); Arthur (1994): Hiitrop (1996)

Pfeftcr (1994); Arthur (1992); Delaney et aL
(1989)

Roberts (1995); Kravetz (1988)

Roberts (1995); Ghorpade and Chen (1995)

Youndt et al. (1996); Kravetz (1988)

Gratton (1995): Schuster (1986)

Gratton (1995)

matters as other departments, (6) HR activities fully integrated with each other, (7) the
head of the HR department participates in executive/steering committee meetings, (8)
the extent of information flow between HR department and other departments, and (9)
the treatment of HR function as a specialized ftmction.

348 The Intemational Joumal of Human Resource Management

We assessed internal consistency of the scales by computing Cronbach alphas and
determined unidimensionality using factor analysis. The HR planning scale showed
good reliability (a = .89) and the principal component analysis extracted a single factor.
The three-item employee participation scale and the two-item performance appraisal
scale too showed good internal consistency (a = .88 in each case) and single factors in
the factor analysis.

Factor analysis using principal component analysis of recruitment/selection, training/
development, and compensation/benefits practices in the study showed two factors in
each case. We computed cronbach alphas for each factor and renamed the scales. Using
employment tests and performing validation studies on selection methods loaded onto
one factor. We labelled it ‘use of employment tests’. The Cronbach alpha was .76. The
remaining two items {providing realisiic job previews and conducting structured/
standardized interviews) loaded onto the second factor and together had a Cronbach
alpha of .70. We named the factor ‘u.se of structured interviews’.

Similarly, two items (pertomiance in the job as determinant of earnings and
promotion based on seniority (reverse-coded)) were combined into one scale labelled
‘performance-based compensation’ ( a = . 7 3 ) . The remaining two items (company has
flexible benefits scheme and company reviews benefits regularly) were combined into
another scale named ‘flexible benefits’ ( a = . 7 5 ) .

The factor analysis of five items on training and development also revealed two
factors. Two items (employees go through training programme.s every few years and
company has fonnal training pmgrammes to teach new employees skills to perfbrm
their jobs) were consistent and loaded on one factor which we named “amount of
training” ( a = . 8 2 ) . Three items (training needs analysis, cost-benefit analysis of training
programmes and evaluation of training programmes) loaded on the second factor
labelled ‘training effectiveness’ ( a = . 9 t ) .

Mea.surement of performance

Delaney and Huselid (1996) have noted that the examination of altemative dependent
variables should provide important confirmatory information on the a.ssociation between
HR practices and firm perfomiance. It is quite likely that various HR practices affect
different measures of pertbrmance differently. In this study, we use two financial
indicators: percentage growth in sales in the last three years (labelled ‘sales growth’ for
convenience) and percentage profit margin in the last three years (labelled ‘profitabil-
ity’) (see Appendix II). In addition, perfonnance included three non-financial
indicators: public image and goodwill, quality of services and efficiency of operations.
Since the three non-financial indicators showed good internal consistency ( a – . 7 4 ) and
unidimensionality (single factor in factor analysis), they were combined into one scale
termed ‘non-financial performance” (see Appendix II).

The firm perfonnance using the above indicators was measured subjectively. Thai is,
the performance indicators in the study were included in Set 1 of the survey to be
completed by the CEOs. All HR practices were included in Set 2 of the survey to be
completed by the HR managers. The use of two respondents served two purposes. First,
it helped minimize the self-report biases (possible attribution effect). Second, it also
enhanced objectivity in another way. The CEOs are much more knowledgeable about
company performance and thus more accurate in reporting it. Similarly, HR managers
know more about HR practices and thus likely to be more accurate in reporting HR
practices.

Khatri: Managing human resource for competitive advantage 349

Results

Strategic archetypes

The companies in the sample were classified into four types – defender, prospector,
analyser and reactor – using the scheme provided by Conant et al. (1990). The
classification suggests that, while analyser strategy was by far the most commonly used
business strategy in companies in Singapore (ninety companies, 41.7 per cent of the
total sample), the reactor strategy was the least common (twenty-five companies, 11.6
per cent). The number of defenders and prospectors was fifty (23.1 per cent) and 39
(18.1 per cent), respectively.

Descriptive statistics

Table 2 provides the zero-order correlations of HR practices and performance
measures. The table shows significant positive correlations between HR practices,
suggesting that HR practices are not independent of each other. HR practices also show
significant correlations with profitability, sales and non-financial perfonnance. For
example, while performance-based compensation had significant positive relationship
with all three types of performance, flexible benefits show only a marginally significant
positive relationship with non-financial performance ( r ^ . 1 1 , p<.10). Employee participation showed a highly positive relationship with non-financial performance ( r = . 2 1 , p<.01), but insignificant correlations with profit and sales. The ratio of HR employees to the total number of employees in the organization had insignificant correlation with sales, but negative and significant correlations with profit and non- financial performance (r^-.I,*^. p<.05 and r ^ - . U . p < . 1 0 , respectively). Consultative performance appraisal had positive and significant correlations with profit and non- financial performance (r=.19, p<.OI and r = . 1 3 , p < . 0 5 . respectively), but no correlation with sales. Use of structured interviews showed positive correlations with profit and non-financial performance. Use of employment tests had no significant correlations with any of three peribrmance measures. Amount of training and training effectiveness/ evaluation had positive and significant correlations with profit (r=.17, p<.01 and r = . I 4 , p<.O.'i, respectively) and non-financial performance ( r = . I 8 , p<

.01

and r = . 1 4 , p < . 0 5 , respectively) but no significant correlations with sales.

Hypotheses testing

We performed moderated regression to test Hypotheses 1 and 3. Strategy was measured
as a categorical variable in this study. As a result, we used dummy variables for each
strategy type and performed three moderated regressions, one each for three dummies
of defenders, prospectors and analysers. Results are presented in Tables 4 to 3c.^ In the
first step, we entered the two control variables, size of the organization (number of
employees) and the dummy variable for the correspi^nding strategic type. All HR
practices were entered in the second step. The third step included all the

interaction

terms involving HR practices and the corresponding strategy. For companies pursuing
defender strategies, while the main effect of HR practices on the profitability was
significant at p < . 0 5 , it was only marginally significant lor sales and non-financial peribrmance (p<.10). The main effect of HR practices for prospectors on profitability was highly significant (p<.01), but insignificant for sales and non-financial perform- ance. Analysers showed a somewhat similar pattern. Main effect of HR practices was significant on profitability (p<.05), marginally significant on sales (p<.lO) and

350 The Intemational Journal of Human Resource Management

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Khatri: Managing human resource for competitive advantage 351

insignificant on non-financial performance. In sum, HR practices had a significant direct
effect on profitability of companies of all strategic types, but marginal or insignificant
direct effects on sales and non-financial performance, Thu.s. Hypothesis 1 that high
performance HR practices would be positively associated with performance in
Singapore companies received only a modest support.

Hypothesis 2 posits that HR practices in companies vary according to the strategies
pursued by them. We performed a one-way ANOVA to compare the means of HR
practices across four strategic archetypes. Results are presented in Table 3. Results
show that flexible benefits in companies pursuing prospector and analyser strategies
were significantly higher than companies pursuing either defender or reactor strategies.
While defenders used performance-based compensation significantly less than other
three strategy types, there was no significant difference in the use of performance-based
compensation between prospectors, analysers and reactors. Prospectors and analysers
made use of significantly higher consultative performance appraisals than reactors, and
analysers showed significantly greater emphasis on the effectiveness of training
programmes than did defenders.

There were insignificant differences between four strategy types for the remaining
HR practices such as employee participation. HR planning, use of structured interviews,
use of employment tests and amount of training. On the whole, findings provide a weak
support for Hyp

Hypothesis 3 states that the relationship between HR practices and performance is
moderated by organizational strategy. This hypothesis received strong support. The
interaction terms of HR practices and strategic types in step 3 (see Tables 4a to 4c)
showed highly significant effects across three performance measures and across three
strategic archetypes, with one exception, the profitability of prospectors.

Findings on Hypotheses 1 and 3 suggest that business strategy had a highly
significant moderating influence on the link between HR practices and performance.
Thus, to isolate the specific effects of HR practices on three performance measures (or,
in other words, to test Hypotheses from 4 to 12), we ran three regression analyses (three
performance measures) for each of the four strategic archetypes, Thus, in all, there were
twelve regression models. We developed the best-fit models using forward and
backward elimination methods. Results are presented in Table 5.

Hypothesis 4, that the amount of training would be positively associated with
performance for companies pursuing a defender strategy, received only a partial
support. The amount of training for defenders showed a positive and significant
relationship for non-financial performance only. It had no significant effect on
profitability and sales. Similarly. Hypothesis 5. that HR planning would have a negative
relationship with performance for defenders, received partial support. It had a negative
and significant effect on non-financial performance but no significant impact on
profitability and sales.

Hypotheses 6 to 9 pertain to prospectors. Hypothesis 9, that performance-based
compensation would be associated with firm performance for prospector companies,
was supported, as refiected in positive and significant regression coefficients of
performance-based compensation on profitability and non-financial performance.
Hypothesis 8. that employee participation would be positively associated with the
performance of prospectors, was only partly supported. Employee participation showed
a positive and significant effect on the growth of sales of prospectors but insignificant
effect on profitability and non-financial performance. Hypotheses 6 and 7, on the use of
selection tests and amount of training, were not supported.

352 The International Journal of Human Resource Management

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Khatri: Managing human resource for competitive advantage 353

Table 4a Main effects of HR practices on performance and influence of their interaction
with strategy on performance (defenders)

Variables

STEP 1: Controls

Size (no. of employees)
Strategy (defender)

STEP 2: HR practices

Flexible benelits (CBI)
Performance based
Compensation (CB2)
Employee participation (EP)
HR planning (HRP)
HR ratio (HRR)
Performance appraisal (PA)
Use of structured Interviews (SRI)
Use of employment tests (SR2)
Amount of training (TDl)
Training effectiveness (TD2)

STEP 3: HR practices and strategy

CBI X defender
CB2 X defender
EP X defender
HRP X defender
HRR X defender
PA X defender
SRI X defender
SR2 X defender
TDi X defender
TD2 X defender

Overall F

F probability

Non-financial
performatice

^ AR^

.099 .014

.000 .095

.026

.238**
– . 0 6 2
-.097

.002

.009

– . 0 4 3

.101

.059

interaction

– . 0 7 2 .095*
.414

– . 9 2 7 ^
.865

– . 0 0 9
-.62r

.931-^
– . 5 2 7 *

,773^
– . 0 1 0

. 2 ^

1.84

.02

Profitability

P AR^

.069 .027^
– . 1 4 9 *

– . 1 4 7 * . I I I *
-.011

.015
– . 0 9 9
-.187**

.183*

.100
– . 0 2 9

.127

.on

-.173 .122**
.807-̂

1.353**
-2.014**

.250**

.194

.137
– . 2 5 7
– . 1 5 3

.483^

.260

2.53

.001

Sales growth

/3 AR^

.069 .006
– . 0 4 5

-.159^ .097*
.097

.072

.270**

.017
-.154
-.049
-.094

.060
-.028

– . 4 5 9 .118**
-1.168*
– . 1 7 6
1.409*
.068
.390

-1.239**
.427*

– . 1 5 3
– . 5 1 2

.221

2.03

.01

Notes

+ significant at p<.IO; * significant at p < ,05; ** significant at p < . O l ; **• significant at p < . 0 0 1 . N = 194.

Hypotheses 10 to 12 are related to analysers. Hypothesis 10 that the use of HR
planning would be positively associated with the perfonnance of analysers received
partial support. Results in Table 5 show that the use of HR planning was positively and
significantly associated with the sales growth of analysers. Employee participation was
positively associated with non-financial performance of analysers but showed no

354 The International Journal of Human Resource Management

Table 4b Main effects of HR practices on performance and influence of their interaction
with strategy on performance (prospectors)

Variabtes

STEP 1: Controls

Size (no. of employees)
Strategy (prospectors)

STEP 2: HR practices

Flexible benefits (CBl)
Performance based
Compensation (CB2)
Employee participation (EP)
HR planning (HRP)
HR ratio (HRR)
Performance appraisal (PA)
Use of structured interviews (SRI)
Use of employment tests (SR2)
Amount of training (TDl)
Training effectiveness (TD2)

STEP 3: HR practices and strategy

CBl X prospectors
CB2 X prospectors
EP X prospectors
HRP X prospectors
HRR X prospectors
PA X prospectors
SRI X prospectors
SR2 X prospectors
TD 1 X prospectors
TD2 X prospectors

R’

Overall F
F probability

Non-flnanciat
performance

.070 .012
,085

– . 0 3 5 .080
.02!

.229*
– . 1 2 0
– . 1 0 8
-.037

.001
.009

.149*

.044

interaction

– . 0 5 6 .196**
3.080**
-.115
– . 0 9 8

.012
-1.588**

1.752**
.166
.148

– . 0 4 2

.288

2.96

.001
Profitability

)S AR^

.078 .008

.044

-.122 .160**

.033

.059
-.158*^
– . 1 8 5 * *

.138

.158*

-.071

.158*

.114

.462 .039
1.124″”

– . 2 2 5
– . 0 8 0
-.129
– . 2 0 9
-.208

.072
– . 0 8 3
– . 3 0 7

.207

1,88

.01
Sales growth

P AR’

.063 .031*

.163**

– . 1 6 0 .076
.102

.033

.241**

.021
– . 0 9 9
– . 0 4 4
– . 0 4 8

.031
-.067

-.517 .093*
.224

1.152*
-1.123^

.048
-.702

.420
– . 2 5 0

.809*

.410

.200

1.79

.02

Notes
+ significant at p < . 1 0 ; * significant at p < . 0 5 ; ** significant at p < . O I ; *** significant at p < . 0 0 1 . N = ! 9 4 .

significant relationship with profitability and sales, thus providing only a partial support
to Hypothesis 12. Amount of training was significantly positively related to profitability
of analysers but its relationship with sales and non-financial performance was
insignificant. Thus, Hypothesis 11 received partial support.

We want to make more observations on the study findings that are not related to any

Khatri: Managing human resource for competitive advantage 355

Table 4c Main effects of HR practices on performance and infiuence of their interaction
with strategy on performimce (analysers)

Variables
STEP 1: Controls

Size (no. of employees)
Strategy (analyser)

STEP 2: HR practices

Flexible benefits (CBl)
Performance based
Compensation (CB2)
Employee participation (EP)
HR planning (HRP)
HR ratio (HRR)
Perlormance appraisal (PA)
Use of structured interviews (SRI)
Use of employment tests (SR2)
Amount of training (TDl)
Training effectiveness (TD2)

STEP 3: HR practices and strategy

CB! X analyser
CB2 X analyser
EP X analyser
HRP X analyser
HRR X analyser
PA X analyser
SRI X analyser
SR2 X analyser
TDl X analyser
TD2 X analyser

R̂

Overall F
F probability

Non-financial
performance

fi AR^

.077 .006
– . 0 0 8

– . 0 0 3 .086
.062

.244**
– . 1 3 2
– . 1 0 8
– . 0 4 0
– . 0 1 8
-.002

.148^

.004

interaction

– . 2 9 9 .125**
– . 4 7 1

.381
2.126**

.034

.426
– . 3 9 6

.180
-1.112**
– . 1 9 8

.217

Z03

.01
Profitability

/3 AR”

.058 .034**

.174*

– . 1 3 4 .105*
.026

.047
-.138
-.154*

.119

.106
-.031

.142^

.075

-.237 .092*
– . 7 9 0

.305
-.451

.107
-.562
1.269**
.133
.498
.424

.231

2.17

,003

Sales growth

fi AR’

.071 .018
– . 1 1 3

-,144^ .096″̂
.117

.000

.291**

.039
– . 1 0 5
– . 0 8 7
– . 0 5 9

.032
– . 0 0 6

.756* .112*
– . 3 5 9
-.071

.537

.092
– . 0 6 2

.473

.184
– . 6 3 9 *
-.987**

.226

2.07

.01

Notes
+ significant at p < , l O ; * significant at p < .05; ** significant at p < . 0 ! ; *** significant at p < . 0 0 1 . N = 194.

of the proposed hypotheses but are important and interesting nonetheless. Employee
participation, amount of training and the performance-based compensation mostly have
a positive influence on performance (see Table 5). Flexible benefits mostly show a
negative association with perfonnance. Another interesting result is that the majority of
the significant relationships for defenders are negative. The results in Table 5 also show

356 The International Journal of Human Resource Managemetit

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that the relationships of HR practices across three performance measures vary
significantly. Only occasionally can one find an HR practice which shows a significant
relationship for more than one performance measure.

Discussion

The study findings provide interesting insight into three major aspects in the SHRM
field: (1) impact of overall strategy on HR practices, (2) direct effect of HR practices on
organizational performance, and (3) moderating influence of overall strategy on the link
between HR practices and organizational performance.

Results provide a weak support for the hypothesis that the amount of HR practices
varies according to the organizational strategy. Performance-based cotnpensation was
practised more in companies pursuing prospector strategies than in the other three types.
This finding is intuitively appealing and is consistent with Miles and Snow’s (1984)
framework and assumptions. As prospectors are constantly lotsking for new niches and
opportunities, outcome management is especially important to them. It is interesting to
note that both prospectors and analysers had greater reliance than defenders and
reactors on flexible benefits. Analysers and prospectors also made greater use of
consultative performimce appraisal practices than reactors. One possible reason for both
analysers and prospectors sharing similar HR practices may be the competitive outlook
that is taken by these iwo strategic perspectives. This is seen in their need to identify
new niches or test possible opportunities. Under such circumstances, employees in such
organizations would have to be committed to the organizations in order to exert greater
effort in new situations. The greater effort of analysers in evaluating the effectiveness
of their training programmes compared with others is an indication of their emphasis on
use of elaborate analysis in strategic decision making.

Despite the above relationships between strategy and HR practices that could be
explained as a function of the strategy, there were a number of HR practices that do not
seem to depend on the strategy of the firm (out of the ten sets of HR practices examined
in the study, significant differences were observed only in four cases). The practices that
did not vary with strategy include employee participation, HR planning, use of
structured interviews, use of employment tests in the selection process and the amount
of training. Why is this so? We believe that institutional theory (Wright and McMahan,
1992; Huselid et aL, 1997) explains the relative homogeneity of these practices across
four strategic archetypes in our study (Fisher and Shaw, 1992; Shaw et al., !995). For
example. Shaw et al. (1995) observed that Singapore’s government has taken an
interventionist role not only on broad issues of economic policy but on HRM activities
as well. The government also encourages the adoption of the business practices that
seem to work well in other countries. The authors found the process of selective
imitation to be the pervasive mind-set in Singapore. They also noted that similarities
between local and foreign firms in Singapore are likely to be the product of firms
conforming to local government standards and to the mutual imitation processes
operating between Singapore and foreign firms. The Productivity and Standard Board
encourages companies to copy currently popular HR practices from both the East and
the West. The uncritical imitation of HR practices is. however, inconsistent with both
the resource-based and the contingency perspectives. The resource-based view suggests
that a company shotild have unique HR practices that add value to the firm to gain
sustainable competitive advantage. By copying from others, firms cannot achieve
sustainable competitive advantage. The imitation is not appropriate according to the
contingency perspective either. The contingency perspective suggests that companies

358 The Intemational Joumal of Human Resource Management

should identify HR practices that fit their organizational strategies and cultures (more
discussion later).

Surprisingly, our findings on the direct influence of HR practices on perfomiance
suggest that HR practices have a stronger direct effect on profitability than sales growth
and non-financial performance (quality, image/goodwill and efficiency of operations).
Intuitively, one would expect more significant effect of HR practices on non-financial
performance. In fact, direct effect of HR practices on sales growth and non-financial
performance is rather weak. The significant relationship between HR practices and
profit is encouraging and is in agreement with findings from other studie.s (Huselid.
1995; Gerhart and Milkovich, 1990). On the other hand, the general lack of relationship
of HR practices with sales and non-financial performance is puzzling. Certainly, more
work is needed to uncover the reason for this lack of relationship.

Looking at the whole sample, the study findings lend a strong support to the idea that
organizational strategy is a major contingency factor affecting the HR practices-
performance link. This issue is perhaps the most discussed in the SHRM field, yet with
no empirical evidence to support it (Wright and Shennan, 1998; Lahteenmaki et ai.
1998). Our findings thus provide the much needed evidence. In fact, our analysis
suggests that the effectiveness of HR practices is perhaps more contingent upon strategy
than believed in ihe past (Miles and Snow. 1984). Further, previous .studies which
examined only the direct effects of HR practices on performance might have
understated the effect of HR practices on performance because of nol taking into
account strategy-HR practices interaction which in this study on the whole appears to
contribute more to performance than the direct effects.

The role of strategy as a contingency factor Ls strengthened even more by the
evidence that HR practices unmatched with the appropriate organizational strategy
could have a negative influence on performance. For example, we found that HR
planning was positively associated with sales growth of analysers but negatively
associated with non-financial performance of defenders. It means that HR planning is
not always a gotwl thing. Further, many HR practices had a significant negative effect
on performance of defenders and reactors indicating thai more of HR activities/practices
do not necessarily lead to better performance. Similarly, flexible benefits schemes are
among the latest trends in HR area. However, we found tbem negatively related to
performance in many cases. This may mean that the importance of strategy as a
contingency bas lo be carefully considered before even taking on the institutional norm
of adopting HR practices and expectations that others have adopted in their
organizations. In sum. we need to consider carefully the overall organizational strategy
before we implement HR practices.

Another Interesting finding Is that direct and interaction effects of HR practices vary
a great deal according to the performance measures. For example, employee
participation had a more significant effect on non-financial perfomiance than on either
profitability or sales growth. Let us t:ike another example. For defenders. HR planning
and amount of training had a positive influence on non-financial performance bui no
significant effect on profitability and sales growth. On the other hand, performance-
based compensation and employee participation had a significant positive effect on
profitability of defenders but insignificant, effect on non-financial performance and
sales growth. None of the above four practices had any relationship with sales growth
of defenders. The same pattem emerged for other three strategies. Similarly, in :i study
of HR practices in Taiwan, Huang (1998) found the impact of HR practices to differ by
tbe type of performance indicator or outcome. Our findings are also consistent with
Guest’s (1997) argument thai tiie influence of HR practices Is likely lo vary from one

Khatri: Managing liuman resource for competitive advantage 359

performance indicator to the other and that multiple indicators of performance need to
be used in SHRM studies.

The above findings (the moderating influence of strategy and HR practices affecting
performance outcomes differently) suggest that the configurational perspective is valid.
If more variables, such as age, size and culture of the organization, are included in the
analyses, we may find unique configurations of organizational level vju^iables, set of HR
practices and performance outcomes (MacDuflie. 1995; Guest. 1997; Sheppeck,
1998).

Another notable finding pertains to the status or importance of HR function in
companies in Singapore, Our findings suggest that the role of HR function in Singapore
companies still remains secondary. However, there are some encouraging signs. The
mean scores on HR planning items suggest that HR activities are increasingly being
aligned and integrated with the organization’s overall strategy. HR function wa.s an
integral part of organizational planning in many organizations and HR managers
frequently participated in strategic planning meetings. This may signal the increasing
two-way interaction impact between strategic planning and human resource manage-
ment (Golden and Ramanujam, 1985). Another evidence of this interaction effect is the
significant interactions between the HR function with other departments. Our own
observations on the evolution of the HR function in Singapore suggest that the HR
function is in transition. Companies have realized the importance of HRM and recent
salary surveys show that HR executives are among the best-paid in South. Ea.st Asia
{The Straits Times, 1995). Many organizations have changed the title of the personnel
function to HRM and have restructured it to tnake it more independent in the last few
years. There is also an increasing trend for HR managers to report directly to the CEO
and to participate in strategic planning/steering committee meetings. In the next few
years, we believe that the status of HR function should get a further boost as the HR
role becomes even more crucial in corporations that expand into the turbulent Asian
region.

Conclusion

The study reported three important findings; (1) overall strategy affects HR practices,
(2) HR practices have a direct effect on organizational performance, and (3) strategy
tnoderates the relationship between HR practices and organizational performance.
Surprisingly. HR practices were found to have greater impact on profitability than non-
financial performance. Thus, strategic posture does influence HR practices.

At a very practical level. HR managers should not copy HR practices from other
companies blindly. They need to understand fully the strategies pursued by their
organizations. Further, they have to determine the desirable performance outcomes. The
interplay of organizational strategy and performance outcomes should detemiine the
appropriate bundle of HR practices companies need to pursue.

The logic of the resource-based view suggests that only HR practices that are unique
and which add value to the organizational performance can provide sustainable
competitive advantage. Thus, HR practices that are adopted in response to the
institutional environment are not likely to provide any advantage. The contingency
perspective provides a similar prescription. Companies need a unique set or bundle of
HR practices to support their unique cultures and strategies.

An important issue that clearly needs more attention is the relative influence of direct
effect of HR practices vis-k-vis the effect of HR-Strategy interaction on the company
performance. The study findings indicate that the latter has relatively more effect on

360 The Intemational Joumal of Human Resource Management

company perfonnance than the fonner. Thus, previous research that looked only at the
direct effect of HR practices on performance might have underestimated the overall
impact of HR on the company bottom line.

Dtws status of HRM or integration of HR function with organizational strategy
depend on the type of organizational strategy? This is an important research question in
SHRM field which remains unanswered. Further, there is not much empirical work on
the influence of organizational culture on HR practices. We believe that organizational
culture is as strong a contingency variable as organizational strategy, if not more. Thus.
scholars need to look into this very important but unexamined research issue.

The SHRM literature is full of quantitative studies. However, in-depth qualitative
studies are so rare. This form of research is very much needed to enable scholars
develop more comprehensive and valid models and frameworks (Becker and Gerhart,
1996; Boxal, 1996; Dyer, 1985; Guest, 1997). Qualitative research also shifts focus
from content to process which is consistent with the shifting focus of HRM field from
planning to strategizing.

Mintzberg’s distinction between intended and emergent strategies is also relevant for
HR strategy. Although HR strategy is at the heart of SHRM, there are no empirical
studies on HR strategies. Do organizations have HR strategies in the first place? If so.
are HR strategies intended or emergent? This is an important research question which
would be best answered by qualitative studies.

The study has several limitations. First, the .study is based on self-reports and thus
susceptible to usual biases, although we tried to overcome the problem by u.sing
independent respondents for strategy and HR practices. Second, it is a cross-sectional
study. Consequently, it is not possible to establish cau.saUty firmly. Finally, all the
companies in the sample are from Singapore. Thus, we really are not sure to what extent
these findings are generalizable to other countries in the region.

Acknowledgements

t am grateful to Mark Huselid and Abdul Rasheed for their helpful comments on the
earlier version of the paper. Many thanks to the two anonymous reviewers for many
constructive comments which were of greai help in improving the manuscript a gcKxl
deal. This reseaich was funded by the Academic Research Fund, Nanyang Techno-
logical University, Singapore. An earlier version of paper was presented at the
Academy of Management Conference, San Diego, California.

Notes

1 In tact. Miles and Snow (1984) include both macro and micro issues in their article. We include
this study in micro stream simply because, in addition to macR) discussions, it discusses HR
practices specific to each of the lour strutegic archetypes.

2 Empirical studies in SHRM field in other parts of tlie world are slowly emerging. Lahteenmaki
et al. (1998) examined the relationship between HR practices and performance in Finnish
companies, Lee and Chee (1996) studied the impact of competitive strategy and participative
HRM on firm performance in South Korean manufacturing firms, and Huang (1998)
investigated the type of the link between HR and strategy (operational, managerial or strategic)
in Taiwanese business firms.

3 We included all HR practices and alt their interaction terms with strategic types in the
moderated regression analysis to make comparison acn.>ss three performance measures and
three strategic types more meaningful. Some of the terms with low regression ciiefficienis in
steps 2 and 3 could have been omitted to enhance the Tit of tlie models though.

Khatri: Managing human resource for competitive advantage 361

Appendix 1

We u.sed the following scale:
I = strongly disagree, 2 – disagree. 3 = somewhai disagree. 4 = somewhat agree
5 — agree, 6 — strongly agree

For example
(1) In the selection of new employees, my company often uses employment tests (e.g.
ability tests, personality tests, paper and pencil tests, work sample tests, etc.),

managerial I 2 3 4 5 6 non-managerial I 2 3 4 5 6

Use of Employment Tests
(I) In the selection of new employees, my company often uses employment tests (e.g.
ability tests, personality tests, paper and pencil tests, work sample tests, etc.), and (2) my
company conducts validation studies on instruments/methods used in employee selection.

Use of Structured Interviews
(1) in the hiring process, ptilenlial employees are often provided with a realistic picture
of the job and the company, including the negative aspects, and (2) my company
conducts structured and standardized interviews (as opposed to unstructured interviews)
for selection of jobs.

Amount of Training
1I) Employees in my company normally go through training programs every few years,
and
(2) [here are formal training programs to teach new employees the skills they need to
perform their jobs.

‘IVaining EtTectlveness/Evaluation
(1) My company conducts systematic analysis to determine the needs for training
programs, (2) we conduct cost-benefit analysis to assess the effectiveness of our training
programs, and (3) we evaluate our training programs to determine whether the training
objectives are met.

Performance-based Compensation
(1) Job performance of an individual is very important in determining the earnings of
employees in my company, and (2) promotion is based primarily on seniority (reverse-
coded).

Flexible Benefits
(1) My company has elaborate/comprehensive flexible benefits scheme, and (2) my
company constantly reviews and updates the range of benefits to meet the needs of
employees.

Employee Relation Practices
(U Employees are allowed to make many decisions in their job, (2) employees are often
asked by their supervisor to participate in decisions, and (3) superiors keep open
communication with employees in their job-
Consultative Performance Appruisal
(1) The superior will normally di.scuss the performance of his/her subordinates with
Ihem, and (2) perfonnance appraisal includes the supervisor setting objectives and goals
of subordinates for the period ahead in consultation with them.

HR Planning
(I) Human Resource Department is an integral part of my company’s strategic planning
process, (2) the formulation and implementation of human resource activities arc in line

362 The International Jourruil of Human Resource Management

with overall corporate strategy, (3) the Human Resource Department in my company has
an explicit statement of its mission and goals, (4) the Human Resource Management
function is accorded an important role in my company, (5) the Htiman Resource
Department in my company has as much say in corporate matters as other departments
such as Finance. Marketing. Production, etc., (6) all human resource activities in my
company (selection, training, compensation, appraisal, and employee relations) are fully
integrated with one another, (7) does the head of Human Resource Department
participate in executive/steering committee meetings? (8) what is the extent of
information flow between Human Resource Department and other departments in your
organization7 And (9) Engineering. Marketing, Finance and Accounting are considered
as specialized functions and employees are placed in these functional areas based on
their specialized training/expertise. To what extent is the Human Resource Department
in your company treated as a specialized function?

HR Ratio

HR Ratio = Number of HR employees/Total number of employees in the organization

Appendix II

Subjective non-financial performance as reported by the CEO.

Compared to other companies in your industry, please rate your company’s performance
over the past three years on the following indicators.

Poor Below Average Above Excellent
Indastry Industry
Average Average

1. public image and 1 2 3 4 5
goodwill

2. quality of services 1 2 3 4 5
3. efficiency of 1 2 3 4 5

operations

Subjective tinancial performance as reported by the CEO.
I. Please tick your company’s average profit margin over

the last three years.

U
u
•

loss
break-even
I%_4%
5%-9%

•
•

•
a

!0%-
15%^

1 growth 1

• 1 4 %

19%

than

over

15^19%
20%~

49%

than

25%

the last three years.

100%

2. Please tick your company’s average annual

Q declining
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mba 6601 unit VIII case study

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mba 6601 unit VIII case study

Running Head:
1 UNIT VIII CASE STUDY

1 UNIT VIII CASE STUDY

2 UNIT VIII CASE STUDY WILLIAM FIEDLER COLUMBIA SOUTHERN UNIVERISTY STAFFING FRAMEWORKS ARE POLICIES THAT SET THE PREMISE FOR THE RATIO OF LOCAL WORKERS TO EXPATRIATES IN SUBSIDIARIES THAT ARE MULTINATIONAL.

3 IN THE CASE OF CHICAGO FOOD AND BEVERAGE COMPANY, THE STAFFING FRAMEWORK USED IS ETHNOCENTRIC STAFFING (KHATRI, 2000).

THIS IS WHERE THE PARENT COMPANY HIRES MANAGEMENT STAFF IN THE SAME NATIONALITY AS THE PARENT COMPANY.
The hired staff is referred to as expatriate.
4 PAUL WAS APPOINTED TO REPLACE MIKE SHANNON, AN EXPATRIATE FROM THE U.S AS THE GENERAL DIRECTOR OF CFO VIETNAM.

5 THE COMMON CHARACTERISTIC OF ETHNOCENTRIC STRATEGY IS HIRING ALL TOP MANAGERS FROM THE SAME COUNTRY AS THE PARENT COMPANY.
It also values the company culture of the parent company than foreign hence transferring it to subsidiaries’ management. On the other hand, its advantages include;
4 PRESERVATION OF CORPORATE CULTURE WHEREBY THE SUBSIDIARIES ARE LED BY PEOPLE WHO ARE FAMILIAR WITH THE OPERATIONS OF THE PARENT COMPANY.
In addition to that, it gives employees the chance to work abroad where they can gain exposure to increase their critical thinking skills (Bodolica, 2007).

This form of staffing affected Paul because despite understanding that he would be staying in Asia for three years, he felt discouraged due the time limit, and this affected his performance. Besides that, the fact that he had to adjust to the company culture fast was overwhelming because he had to leave the skills he had gained from his home country and this affected his capacity to perform fully (Overman, 2016). In addition to that, the relocation fees and time to adjust to the cultural differences would also be overwhelming for Paul. Aside from that, Paul might fail to understand the needs of the local employees and customers as well as overcoming the cultural barriers. Paul has the needed educational background.
3 HOWEVER, HIS LACK OF EXPERIENCE WORKING ABROAD WOULD BE A CHALLENGE FOR HIM.

The other staffing framework s that could be adopted by Paul are; geocentric and polycentric staffing frameworks.
4 POLYCENTRIC STAFFING FRAMEWORK RECRUITS TOP MANAGEMENT AND OTHER SKILLED PERSONNEL MOSTLY FROM THE HOST NATION.

6 THE SUBSIDIARIES ARE ALL TREATED AS INDIVIDUAL ENTITIES HENCE DECREASING THE CHALLENGE THAT THE LOCALS FACE IN DEALING WITH THE RULES AND REGULATIONS OF THE PARENT COMPANY.

4 AS FOR GEOCENTRIC STAFFING, THE COMPANY RECRUITS TOP MANAGEMENT WITHOUT CONSIDERING THE CANDIDATES NATIONALITY AS LONG AS THEY HAVE THE REQUIRED SKILLS.

THIS PROMOTES INNOVATION AND CREATIVITY AS SKILLS ARE OUTSOURCED GLOBALLY.

6 I WOULD RECOMMEND THE USE OF POLYCENTRIC STAFFING FRAMEWORK BECAUSE THE FOODS AND BEVERAGE INDUSTRY IS MOSTLY INFLUENCED BY CULTURE.
It would hence be wise to hire local people that are familiar with the tastes and preferences of the locals (Khatri, 2000).

Paul wants the job so as to advance his career by reaching the pinnacle and in order to do so, he requires international exposure.
6 BASED ON HIS EDUCATIONAL BACKGROUND, HE HAS A BACHELOR’S DEGREE IN MARKETING FROM JOHNSON BUSINESS SCHOOL AND AN MBA INTERNATIONAL MANAGEMENT FROM HARVARD (BODOLICA, 2007).
He also has the needed knowledge and skills to be a managing director. He has prior experience from the company he worked for. His decision to move to Vietnam to become the General Director will be smart financial decision for him and his family. He would hence make an excellent candidate for this position despite not having any experience working in an international field.

3 AS THE COMPANY EXPANDS OUTSIDE THE HOME COUNTRY, EXPATRIATE MANAGEMENT CAN BE A GREAT MEANS TO ADVANCE ITS CULTURE.

THERE ARE HOWEVER DISADVANTAGES TO THIS FORM OF STAFFING FRAMEWORK.
The staff can encounter some problems overseas including; high costs of living, cultural differences, relationship issues, and hindrances that can affect job performances. As for expatriate recruitment policy, the company has to consider a lot of factors before settling for the suitable candidate. Being a top performer does not hence guarantee qualification. The process requires scrutinizing the candidates and determining those with high emotional intelligence, interest in local culture, flexible and sociable employees. These are some of the things involved in expatriate recruitment policies (Overman, 2016).

6 THERE ARE THREE COMPENSATION METHODS THAT CAN BE SEEN IN THIS CASE STUDY;
the international method, country compensation approach, and negotiation approach.
7 THE NEGOTIATION APPROACH OCCURS WHEN THE EMPLOYER AND EXPATRIATE DECIDE ON A MUTUALLY AGREEABLE PACKAGE.
The advantage of the approach is that it is easy to administer and very flexible (Khatri, 2000). On the other hand, it can be very expensive and time consuming.

7 INTERNATIONAL METHOD IS USED WHEN AN EXPATRIATE HAS OVER SIX YEARS EXPERIENCE.

THIS METHOD IS HENCE IDEAL FOR COMPANIES WITH MANY EXPATRIATES.

THE HOME COUNTRY COMPENSATION METHOD IS MEANT TO KEEP THE EXPATRIATE LIVING IN THE SAME CONDITIONS AS THEIR HOME COUNTRY.

THE EXPATRIATE HENCE HAS THE SAME PURCHASING POWER IN THE HOST COUNTRY.
On the flip side, the method is not flexible and has potential re-entry problems. It also does not consider assignments of the same employees.

To improve the expatriate compensation, HR managers have to consider the current compensation policies.
7 THEY MUST PROVIDE EXPATRIATES WITH BENEFITS THAT CAN MEET THEIR NEEDS.

THEY SHOULD ALSO EXAMINE THE COMPENSATION OF OTHER EXPATRIATES THAT DO THE SAME JOB FOR COMPARISON PURPOSES.

THEY MUST ALSO CONSIDER THE EXPATRIATES MERIT AND EXPERIENCE WHEN DETERMINING THEIR COMPENSATION (BODOLICA, 2007).

8 REFERENCES BODOLICA, V., & WAXI, M.
(2007).

7 CHICAGO FOOD AND BEVERAGE COMPANY:

THE CHALLENGES OF MANAGING INTERNATIONAL ASSIGNMENTS.

JOURNAL OF THE INTERNATIONAL ACADEMY FOR CASE STUDIES, 13(3), 31-42.

Khatri, N. (2000).
9 MANAGING HUMAN RESOURCE FOR COMPETITIVE ADVANTAGE:

A STUDY OF COMPANIES IN SINGAPORE.

10 RETRIEVED FROM HTTPS://LIBRARYRESOURCES.COLUMBIASOUTHERN.EDU/LOGIN?URL=HTTP://SEARCH.EBSCOHOST.COM/LOGIN.ASPX?DIREC T=TRUE&DB=BTH&AN=4219940&SITE=EHOST-LIVE&SCOPE=SITE

Overman, S. (2016).
9 TAPPING TALENT AROUND THE GLOBE.

HR MAGAZINE, 61(1), 46–51.

10 RETRIEVED FROM HTTPS://LIBRARYRESOURCES.COLUMBIASOUTHERN.EDU/LOGIN?URL=HTTP://SEARCH.EBSCOHOST.COM/LOGIN.ASPX?DIREC T=TRUE&DB=BTH&AN=112810959&SITE=EHOST-LIVE&SCOPE=SITE

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