Human Resource Management in Multinational Corporations

Human Resource Management in Multinational Corporations

Standardization of HR Practices, Market Entry Modes, Organizational and

Contextual Factors

Preface

Kienbaum, one of the leading German management consult-

ing and executive search companies, and ESCP Europe, the

world's first and one of the most renowned European busi-

ness schools, have been cooperating for several years now

in the area of international human resource management.

Especially in the field of international labor markets, as well

as global compensation and benefits practices, Kienbaum

and ESCP Europe’s Chair of Human Resource Management

and Intercultural Leadership, held by Prof. Dr. Marion

Festing, have been working together successfully, which has

resulted in numerous joint publications, studies and the

CEE-Conference on Labor Markets and Compensation

Trends, first held in 2012.

Driven by the various requests made by our multinational

clients to support their international expansion strategies, we

have started this study on human resource (HR) practices in

mergers and acquisitions (M&As) versus newly established

foreign companies (greenfield investments) and their global

standardization. Both procedures are common during inter-

national expansion strategies and pose specific challenges

for the management and HR professionals of our globally

operating clients.

The aim of this study is to provide an overview of prevailing

practices and insights into how to proceed successfully in

aligning HR processes and policies after an M&A situation

compared to common approaches in greenfield investments.

Thus, HR managers and professionals could benefit from

approved practices and instruments applied in the market, in

order to adjust or to complement their own approaches and

instruments and thus master expansion strategies success-

fully and develop and establish group-wide aligned policies

and processes.

We would like to express cordially our thanks to the numer-

ous participants among our clients for their valuable input

and contributions to this inquiry, and special gratitude is ex-

tended to Prof. Dr. Marion Festing and Ihar Sahakiants for

managing and carrying out this study.

Dr. Alexander von Preen

Managing Director/Partner

Kienbaum Management Consulting GmbH

Gummersbach, October 2013

3

Executive Summary

This report summarizes the results of three surveys which

were distributed by Kienbaum Management Consultants and

ESCP Europe Berlin to Kienbaum consultants and multina-

tional corporations (MNCs). The project focuses on HR prac-

tices in M&As versus newly established foreign companies

(greenfield investments) and their global standardization.

The data indicate definite differences between HR-related

work in greenfield and M&A sites.

» In foreign greenfield locations, HR efforts are concen-

trated on staffing and are highly dependent on the

overall availability of a qualified workforce.

» In M&A sites, HR practices, such as compensation

and performance measurement, directed at existing

personnel are the focus of HR managers’ attention.

» The importance of collective bargaining is higher in

M&A sites compared to greenfield investments.

» The emphasis on planned and existing personnel

structures and practices varies at different stages of

greenfield investments and M&As. This is reflected in

checklists of HR practices based on the results of the

surveys.

With respect to the standardization of HR practices within the

global operations of multinational corporations, such as staff-

ing, performance measurement, compensation and benefits,

and job evaluation, or HR systems, such as Human Re-

sources Information Systems (HRISs), the results demon-

strate the relatively widespread implementation of globally

standardized practices. The extent of such standardization

varies depending on the hierarchical levels within organiza-

tions and on relevant practices.

» A job interview is a frequently standardized selection

tool, especially for management employees below the

top management level.

» Standardized performance measurement systems are

broadly used by MNCs for all employee groups, ex-

cept for manual workers.

» Compensation systems are frequently standardized

for management employees at all hierarchical levels,

particularly with respect to the structure of pay and

the use of local market targets to determine rewards.

» About one-third of all the companies use standardized

analytical job evaluation schemes for their top man-

agers (36%) and other management employees

(37%).

» The majority of companies using global job evaluation

schemes standardize non-analytical job evaluation

(24%), while a smaller fraction of the surveyed corpo-

rations (13%) implement analytical evaluation

schemes.

Finally, survey findings with respect to the importance of

HR-related contextual and organizational factors are re-

ported.

» Trade unions were reported to have the largest im-

pact on fields such as protection against dismissal,

working time, and performance measurement.

» General pay levels in target companies and benefits

offered were indicated as the most important factors

influencing employer attractiveness for potential job

applicants.

» Particular difficulties related to the recruitment of

technical employees, especially in the fields of infor-

mation technology and production, were reported.

The results of this study are relevant for HR managers and

decision makers, who are considering expansion into a

new foreign location, and for those planning and imple-

menting global HR strategies throughout the international

operations of respective MNCs.

4

Content

Figures ........................................................................................................................................................................................ 6

Tables.......................................................................................................................................................................................... 7

Abbreviations ............................................................................................................................................................................. 8

Introduction ................................................................................................................................................................................ 9

Description of the Sample ............................................................................................................................................. 11

Endnotes for the Introduction ...................................................................................................................................... 16

Chapter 1 – Differences Between HRM in Foreign Greenfield Companies and M&As ...................................................... 17

Consideration of HR-Related Factors at Different Stages of Establishing a New Company and in M&As ........... 23

Planning Phase.......................................................................................................................................................... 24

Implementation Phase ............................................................................................................................................... 26

Post-Establishment/Post-Merger Integration Phase .................................................................................................. 28

Endnotes for Chapter 1 ................................................................................................................................................. 30

Chapter 2 – Standardization of HR Practices ........................................................................................................................ 31

Human Resources Information Systems ..................................................................................................................... 31

Staffing ............................................................................................................................................................................ 32

Performance Measurement ........................................................................................................................................... 35

Compensation and Benefits ......................................................................................................................................... 37

Pay Mix ...................................................................................................................................................................... 39

Job Evaluation ............................................................................................................................................................... 45


Chapter 3 – Considering Organizational and Contextual Factors ...................................................................................... 49

Employment Relations .................................................................................................................................................. 49

Accounting for Country Specifics with Respect to Staffing Activities ..................................................................... 52


Final Remarks .......................................................................................................................................................................... 56

Endnotes for Final Remarks ......................................................................................................................................... 57

References ................................................................................................................................................................................ 58

Contact/Authors ....................................................................................................................................................................... 61

5

Figures

Figure 1. International Presence of the Surveyed Companies ..................................................................................................... 14

Figure 2. Importance of Qualified Workforce Availability .............................................................................................................. 17

Figure 3. Relative Importance of Collective Bargaining Agreements ........................................................................................... 18

Figure 4. Relative Impact of Employee Representations ............................................................................................................. 18

Figure 5. The Importance of HR-Related Issues in Greenfield Investments ................................................................................ 20

Figure 6. The Importance of HR-Related Issues in International M&A Phases ........................................................................... 21

Figure 7. Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield Investments ............ 22

Figure 8. Relative Importance of Selected HR-Related Areas in the Implementation Phase of M&As ........................................ 23

Figure 9. Global Standardization of Methods Used for Selecting Top Management Employees ................................................. 33

Figure 10. Global Standardization of Methods Used for Selecting Other Management Employees ............................................ 34

Figure 11. Global Standardization of Methods Used for Selecting Technical and Clerical Employees ....................................... 34

Figure 12. Global Standardization of Methods Used for Selecting Manual Workers ................................................................... 35

Figure 13. Use of a Globally Standardized, Formalized Performance Measurement System ..................................................... 36

Figure 14. Use of the Performance Measurement System to Support Decisions ........................................................................ 36

Figure 15. Global Standardization of Compensation Elements for Top Management Employees .............................................. 37

Figure 16. Global Standardization of Compensation Elements for Other Management Employees ............................................ 38

Figure 17. Global Standardization of Compensation Elements for Technical and Clerical Employees ....................................... 38

Figure 18. Global Standardization of Compensation Elements for Manual Workers ................................................................... 39

Figure 19. Global Standardization of the Pay Structure ............................................................................................................... 40

Figure 20. Use of Globally Standardized Local Market Targets to Determine Pay for Top Management Employees ................. 41

Figure 21: Use of Globally Standardized Local Market Targets to Determine Pay for Other Management Employees .............. 41

Figure 22. Use of Globally Standardized Local Market Targets to Determine Pay for Technical and Clerical Employees .......... 42

Figure 23. Use of Globally Standardized Local Market Targets to Determine Pay for Manual Workers ...................................... 42

Figure 24. Market Targets with Respect to Pay Level and Structure for Top Management Employees ...................................... 43

Figure 25. Market Targets with Respect to Pay Level and Structure for Other Management Employees ................................... 43

Figure 26. Market Targets with Respect to Pay Level and Structure for Technical and Clerical Employees ............................... 44

Figure 27. Market Targets with Respect to Pay Level and Structure for Manual Workers ........................................................... 44

Figure 28. Global Standardization of Job Evaluation Schemes for Top Management Employees .............................................. 45

Figure 29. Global Standardization of Job Evaluation Schemes for Other Management Employees ........................................... 46

Figure 30. Global Standardization of Job Evaluation Schemes for Technical and Clerical Employees ....................................... 46

Figure 31. Global Standardization of Job Evaluation Schemes for Manual Workers ................................................................... 47

Figure 32. Impact of Employee Representations on Selected Issues in the Organization ........................................................... 51

Figure 33. Impact Factors on the Success of Staffing Activities .................................................................................................. 53

6

Tables

Table 1. Respondents by Location ............................................................................................................................................... 11

Table 2. Locations of Headquarters of the Surveyed Companies ................................................................................................ 12

Table 3. Annual Turnover of the Surveyed Companies ............................................................................................................... 12

Table 4. Employee Groups in the Surveyed Companies ............................................................................................................. 13

Table 5. Industry Affiliation of the Surveyed Companies .............................................................................................................. 13

Table 6. Foreign Greenfield Investments vs. International M&As Initiated by the Surveyed Companies .................................... 14

Table 7. Average Number of Months from the last Foreign Company Establishment.................................................................. 15

Table 8. Involvement of the HR Function in the Preparation of the New Foreign Site and M&A Projects ................................... 19

Table 9. Stages of Establishing a New Company (Greenfield Sites) and M&As .......................................................................... 19

Table 10. Relative Importance of HR-Related Issues in Greenfield Investments and M&As ....................................................... 20

Table 11. Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield Investments and

M&As ............................................................................................................................................................................................ 21

Table 12. HR Checklist for the Planning Phase of Greenfield Investments ................................................................................. 24

Table 13. HR Checklist for the Planning Phase of M&As ............................................................................................................. 25

Table 14. HR Checklist for the Implementation Phase of Greenfield Investments ....................................................................... 26

Table 15. HR Checklist for the Implementation Phase of M&As .................................................................................................. 27

Table 16. HR Checklist for the Post-Establishment Phase of Greenfield Investments ................................................................ 28

Table 17. HR Checklist for the Post-Merger Integration Phase of M&As ..................................................................................... 29

Table 18. Use of HRISs ................................................................................................................................................................ 31

Table 19. Global Standardization of HRISs .................................................................................................................................. 32

Table 20. Benefits and Obstacles to a Globally Standardized Staffing System ........................................................................... 32

Table 21. Proportion of the Total Number of Employees Worldwide who Are Members of a Trade Union.................................. 49

Table 22. Proportion of the Total Number of Employees in the Surveyed Hungarian Subsidiaries who Are Members of a Trade

Union ............................................................................................................................................................................................ 50

Table 23. Existence of a European Works Council ...................................................................................................................... 50

Table 24. Impact of Employee Representations, Average Scores ............................................................................................... 51

Table 25. Relative Importance of Collective Wage Agreements, by Employee Group ................................................................ 52

Table 26. Impact Factors on the Success of Staffing Activities .................................................................................................... 53

Table 27. Intensity of Problems Related to Staffing, by Employee Group ................................................................................... 54

Table 28. Intensity of Problems Related to Staffing Activities, by Functional Area ...................................................................... 54

7

Abbreviations

CEE Central an Eastern Europe

ESPP Employee Stock Purchase Program

HQ Headquarters

HR Human resources

HRIS Human resources information system

HRM Human resources management

M&A Mergers and acquisitions

MNC Multinational Corporation

UK United Kingdom

USA United States of America

8

Introduction

This report presents the results of a project conducted by

Kienbaum Management Consultants and ESCP Europe

Berlin. It extends the previous joint work on various aspects

of Human Resource Management (HRM) in Central and

Eastern European (CEE) countries, which included reports

on directors’ remuneration in listed public companies,1 the

labor market, and employment conditions,2 and covers more

general HR-related issues in the foreign subsidiaries of mul-

tinational corporations (MNCs).

The structural and procedural complexity of HRM in MNCs’

foreign sites represents a challenging issue. The majority of

work presented in both the academic and practitioner-

oriented literature on the topic is dominated by research on

mergers and acquisitions, including aspects such as the role

of human resources (HR) in international mergers and acqui-

sitions (M&As),3 HRM in different types of M&As,4 the con-

tribution of HRM to the success of M&As,5 the role of expat-

riates in M&As,6 the impact of M&As on top management

careers,7 and M&A-related HR problems.8

However, the overemphasis on HRM issues in M&As in the

extant literature does not diminish the importance of HR-

related topics in foreign companies established via alterna-

tive market entry or company establishment modes.9 In-

deed, choosing the right international market entry mode is

one of the most challenging tasks faced by MNCs expanding

their operations into a new foreign country. It is therefore not

surprising that the determinants of this choice have also

been extensively studied by academic researchers.10 How-

ever, only a few studies are dedicated to specifics related to

the labor force and prevalent HR systems as determinants of

the choice between greenfield investments and M&As. Some

of these studies discuss, among other things, the issue of

expatriates, who are usually more frequently employed in

foreign greenfield sites rather than acquired companies,11

which is also related to the question of “managerial con-

straints on greenfield investments” or the “human resources

endowment”12 of MNCs. Other studies investigate the im-

pacts of unionization,13 institutional and human resource

distances,14 and cultural differences on the choice of foreign

market entry mode,15 or the effect of specialized human as-

set intensiveness on the choice between M&A and allianc-

es.16

Another challenging issue specifically with respect to HR

practices is the global standardization and local customiza-

tion of respective systems.17 The standardization of HR

practices can be defined as “‘global’ HRM characterized by

highly integrated [international] IHRM strategies, principles[,]

and instruments”.18 It is argued that the extent to which HR

practices can be transferred to foreign subsidiaries or

adapted to local idiosyncrasies depends on the respective

institutional contexts as well as the nature of practices.19 In

the academic literature, the standardization and localization

of various areas of HRM in MNCs have been analyzed, in-

cluding HR development20 and training, staffing, perfor-

mance management, and compensation.21 Based on a mul-

tiple case study, it was found that German companies more

often standardize areas such as training, careers, and per-

formance management, while the standardization of staffing

practices and compensation is less common.22

Probably one of the most challenging fields for worldwide

standardization is that of compensation and benefits.23 In-

deed, an equalization of the monetary value of rewards

throughout the globe seems to be extremely difficult to im-

plement, first of all due to the large variation in cost-of-living

and income differentials among countries.24 Moreover, even

the unification of pay schemes is impeded to a large extent

by local institutional contexts, related above all to the role of

the local trade unions.25

Our project aims at contributing to the discussion on HR

practices in greenfield investments and M&As by showing

HR-related differences between these two market entry

modes as well as presenting a practical checklist for factors

that need to be considered in various stages of establishing a

new foreign company or launching an acquisition project.

The present study was also designed to deliver survey-based

data on the global standardization of HR practices such as

human resource information systems (HRIS), staffing prac-

tices, performance measurement, compensation and bene-

fits, and job evaluation. Thus, the objective of the project is

twofold: To explore the specifics of HRM in greenfield com-

panies abroad and foreign mergers and acquisitions (M&As),

on the one hand, and the standardization of HR practices, on

the other hand.

The report is structured as follows. Following the next sub-

section, which introduces the surveys and describes the re-

spective samples, we present the results of Surveys 1-3 with

respect to differences between HRM practices in foreign

greenfield companies and M&As. Information on the im-

9

portance of qualified workforce availability, collective bargain-

ing agreements, and the impact of employee representations

is based on the results of Survey 1 (Kienbaum consultants in

various foreign locations). The remaining data in the chapter

is based on the combined results of all the surveys. Further-

more, we present findings related to the standardization of

HR practices throughout MNCs’ foreign operations. These

results are based on Surveys 2-3 (headquarters and subsidi-

aries of MNCs). Finally, we describe the results of Survey 1

related to selected organizational and contextual factors in-

fluencing HR activities in MNCs.

10

Description of the Sample

This report presents the results of three different surveys,

prepared and conducted by Kienbaum Management Con-

sultants and ESCP Europe, distributed among three groups

of respondents: Kienbaum consultants (Survey 1) and the

foreign subsidiaries and corporate headquarters of MNCs

(Surveys 2-3) situated both in German and foreign locations.

Some of the questions in the surveys have been adopted

from the questionnaires used in the practitioner26 and aca-

demic27 literature.

Table 1 below presents the total number of responses by lo-

cation.

Table 1

Respondents by Location

Location Survey 1 Surveys 2 – 3 Total

Austria 1 2 3 (3.8%)

Czech Republic 1 1 (1.3%)

Germany 5 48 53 (67.9%)

Hungary 1 6 7 (9.0%)

Luxemburg 1 1 (1.3%)

Netherlands 1 2 3 (3.8%)

Poland 1 1 (1.3%)

Russia 2 2 (2.6%)

Singapore 2 2 (2.6%)

Sweden 1 1 (1.3%)

Switzerland 1 1 (1.3%)

USA 2 2 (2.6%)

Not specified 1 1 (1.3%)

Total 14 (17.9%) 64 (82.1%) 78 (100%)

11

Overall, without taking into consideration the results of Sur-

vey 1, the headquarters of the majority of companies that

participated in Surveys 2 and 3 (either subsidiaries of such

MNCs or headquarters as such) were located in Germany

(39 companies), the USA (six companies), and the UK (three

companies):

Table 2

Locations of Headquarters of the Surveyed Companies

HQ Location Subsidiaries surveyed HQs surveyed Total

Austria 1 1 2

France 2 0 2

Germany 10 29 39

Hungary 0 1 1

Italy 1 0 1

Japan 1 0 1

Luxemburg 1 0 1

Netherlands 2 0 2

Norway 1 0 1

Russia 1 0 1

Sweden 1 1 2

Switzerland 1 1 2

UK 3 0 3

USA 5 1 6

Total 30 (46.9%) 34 (53.1%) 64 (100.0%)

As presented in Table 3 below, the majority of the surveyed companies had an annual turnover over 1 billion Euro.

Table 3

Annual Turnover of the Surveyed Companies

Annual turnover Percentage of companies

Over 1 billion Euro 69.1%

251-500 million Euro 7.3%


751-1,000 million Euro 7.3%


Below 100 million Euro 3.6%

N = 55

Table 4 below shows the employee structure of the surveyed

companies. The average percentage of manual workers

amounted to 51.8%, while management employees, includ-

ing top management, constituted less than 9% of the total

headcount.

12

Table 4

Employee Groups in the Surveyed Companies

Employee group Average percentage

Top management employees 2.0%

Other management employees 6.7%

Technical and clerical employees 47.1%

Manual workers 51.8%

N = 48

The majority of the surveyed companies operated in the

manufacturing, wholesale and retail trade, and transportation

and storage industries (cf. Table 5 below):

Table 5

Industry Affiliation of the Surveyed Companies

Industry Count Count in

%

Manufacturing 27 42.2%

Wholesale and retail trade; repair of motor vehicles and motorcycles 5 7.8%

Transportation and storage 5 7.8%

Electricity, gas, steam, and air conditioning supply 4 6.3%

Financial and insurance activities 4 6.3%

Agriculture, forestry, and fishing 3 4.7%

Professional, scientific, and technical activities 3 4.7%

Other service activities 3 4.7%

Information and communication 2 3.1%

Administrative and support service activities 2 3.1%

Water supply; sewerage, waste management, remediation activities 1 1.6%

Human health and social work activities 1 1.6%

Arts, entertainment, and recreation 1 1.6%

Not specified 3 4.7%

Total 64 100%

13

The surveyed companies indicated that they had sites pre-

dominantly in Western Europe (96.5%), Eastern Europe

(77.2%), North America (73.7%), Asia (70.2%), and South

America (50.9%).

Figure 1

International Presence of the Surveyed Companies

More than a third (38.6%) of all the questionnaires were

completed by the most senior HR managers in the respective

companies.

With respect to market entrance modes, the majority of the

surveyed companies preferred to establish greenfield foreign

companies rather than be engaged in an M&A project.

Table 6

Foreign Greenfield Investments vs. International M&As Initiated by the Surveyed Companies

Market entry mode One foreign site Several foreign sites Not applied

Foreign greenfield

investments 7% 75.4% 17.5%

International M&As 19.6% 44.6% 35.7%

8.8%

21.1%

31.6%

35.1%

38.6%

50.9%

70.2%

73.7%

77.2%

96.5%

Central Africa

North Africa

Middle East

Australia and Oceania

South African region

South America

Asia

North America

Eastern Europe

Western Europe

14

On average, the last foreign greenfield investment was initi-

ated less than two years ago; the last international M&A pro-

ject occurred slightly more than two years ago.

Table 7

Average Number of Months from the last Foreign Company Establishment

Market entry mode Months

Foreign greenfield investment 22

International M&As 25

15

Endnotes for the Introduction

1 Festing, M., Sahakiants, I., von Preen, A. and Smid, M. (2011) 2 Cf., for example, Festing, M. and Sahakiants, I. (2011),

Festing, M. and Sahakiants, I. (2012) 3 Antila, E.M. (2006), Budhwar, P.S., Varma, A., Katou, A.A.

and Narayan, D. (2009), Lajara, B.M., Lillo, F.G. and Sempere, V.S. (2002), Schmidt, J.A. (2001), Schuler, R.S. (2001)

4 Cascio, W.F. and Serapio Jr, M.G. (1991), Chan, K.-B., Luk, V. and Wang, G.X. (2005), Lajara, B.M., Lillo, F.G. and Sempere, V.S. (2002), Larsson, R. and Finkelstein, S. (1999), Welch, C.L., Welch, D.E. and Tahvanainen, M. (2008)

5 Birkinshaw, J., Bresman, H. and Håkanson, L. (2000), Datta, D.K. (1991), Gong, Y., Shenkar, O., Luo, Y. and Mee-Kau, N. (2005)

6 Hébert, L., Very, P. and Beamish, P.W. (2005), Kabst, R. (2004)

7 Krug, J.A. and Nigh, D. (2001) 8 Schuler, R.S., Jackson, S.E., Dowling, P.J., Welch, D.E.

and De Cieri, H. (1991), Shenkar, O. and Zeira, Y. (1987) 9 Padmanabhan, P. and Cho, K.R. (1999) 10Andersson, T., Arvidsson, N. and Svensson, R. (1992),

Brouthers, K.D. and Dikova, D. (2010), Drogendijk, R. and Slangen, A. (2006), Harzing, A.-W. (2002), Hennart, J.-F. and Park, Y.-R. (1993), Kogut, B. and Singh, H. (1988), Müller, T. (2007), Tsang, E.W.K. and Yip, P.S.L. (2007)

11 Harzing, A.-W. (2002), Tsang, E.W.K. and Yip, P.S.L. (2007)

12 Hennart, J.-F. and Park, Y.-R. (1993) 13 Kwon, Y.-C. and Konopa, L.J. (1993) 14 Estrin, S., Baghdasaryan, D. and Meyer, K.E. (2009) 15 Drogendijk, R. and Slangen, A. (2006), Kogut, B. and

Singh, H. (1988) 16 Yin, X. and Shanley, M. (2008) 17Lu, Y. and Bjorkman, I. (1997), Pudelko, M. and Harzing,

A.-W. (2007) 18 Dickmann, M. and Muller-Camen, M. (2006, p. 582) 19 Parry, E., Dickmann, M. and Morley, M. (2008) 20 Tregaskis, O., Heraty, N. and Morley, M. (2001) 21 Dickmann, M. and Muller-Camen, M. (2006) 22 Ibid. 23 Festing, M., Eidems, J. and Royer, S. (2007) 24 Gross, S.E. and Wingerup, P.L. (1999) 25 Fenton-O'Creevy, M., Gooderham, P. and Nordhaug, O.

(2008) 26Armutat, S., Döring, H., Festing, M., Frühe, C., Nell, E. and

Werner, W. (2007) 27 CRANET. (2006)

16

Chapter 1 – Differences Between HRM in Foreign Greenfield Companies and M&As

One of the most important aspects of foreign investment de-

cisions is choosing the market entry mode, including answer-

ing the question as to whether a new company should be es-

tablished (greenfield investment), or whether M&As dealing

with an already existing foreign company should be preferred

instead. While there are several other major factors influenc-

ing such a decision (including access to existing markets,

products, contracts, and expertise), this study addresses the

human resource aspects related to two basic equity country

entry modes—foreign mergers and acquisitions (M&A) ver-

sus greenfield investments (start-ups). The focus of the

above two entry modes is based on the assumption that,

contrary to non-equity entry modes such as licensing or ex-

ports through agents, the management of human resources

in these companies is one of the most crucial issues faced

by respective MNCs. In this respect, we also do not specifi-

cally consider so-called ‘brownfield’ investments, in which

foreign investors purchase an existing company but conduct

an all-encompassing restructuring of the acquired firm, which

can, for instance, include replacing equipment and the labor

force.1 Here, this type of investment falls either under green-

field investments (in the case of a completely newly estab-

lished company on the premises of an acquired firm) or

M&As (in the case of the partial use of the acquired compa-

ny’s resources).

First of all, the results from Survey 1, distributed among

Kienbaum consultants, showed that the overall availability of

a qualified workforce in general is more important during

greenfield investments than during M&As (cf. Figure 2). This

fact can be explained by the takeover of the acquired com-

pany’s personnel within an M&A process, including a quali-

fied workforce.

Figure 2

Importance of Qualified Workforce Availability

On the other hand, the Kienbaum respondents indicated that

collective bargaining in M&As plays a more important role on

average than in greenfield investments. About 28% of all re-

spondents indicated that collective bargaining agreements

are highly or rather highly important in M&As compared to

21% of responses, which attributed a rather high importance

to such agreements in the case of newly established (green-

field) foreign companies (cf. Figure 3).

71%

21%

21%

50%

7%

29%

Greenfield investments

M&As

High importance Rather high importance Medium importance

17

Figure 3

Relative Importance of Collective Bargaining Agreements

However, a similar percentage of respondents ascribed low

or rather low importance to collective bargaining agreements

in both M&As and greenfield investments, for instance in

countries such as Singapore and Russia.

Similarly, the impact of employee representations was esti-

mated as being higher in M&As than in foreign greenfield in-

vestments (cf. Figure 4), one of the reasons for which could

be the necessity to deal with legacies with respect to collec-

tive bargaining left from the previous owner of the company,

especially in the case of former state-owned enterprises with

high unionization rates.

Figure 4

Relative Impact of Employee Representations

The surveyed companies indicated that in the cases of both

foreign greenfield investments and international M&As, there

was only a moderate involvement of the HR function in the

preparation process (cf. table 8 below) and more attention

14%

21%

14%

50%

43%

7%

7%

21%

21%


M&As

High importance

Rather high importance

Medium importance

Rather low importance

Low importance

8%

21%

33%

29%

8%

21%

33%

29%

17%


M&As

High impact

Rather high impact

Medium impact

Rather low impact

Low impact

18

was paid to HR-related issues in foreign greenfield invest-

ments than to M&As. This could be explained by the higher

involvement of the surveyed companies in foreign greenfield

investments (Table 6), on the one hand, and on the higher

emphasis on staffing in such companies, on the other.

Table 8

Involvement of the HR Function in the Preparation of the New Foreign Site and M&A Projects

Market entry mode Not at all Hardly Partially To a large

extent

To a very

large extent

Greenfield investments 6.0% 14.0% 38.0% 32.0% 10.0%

M&As 8.1% 29.7% 43.2% 13.5% 5.4%

For the following analysis, in order to ensure the comparabil-

ity of results with respect to different stages of both market

entry modes analyzed, we differentiated between the follow-

ing three major phases of foreign greenfield investments and

international M&As: Planning, implementation, and post-

establishment/post-merger integration phases (cf. Table 9).

Table 9

Stages of Establishing a New Company (Greenfield Sites) and M&As

Description of the respective phases Greenfield sites Mergers and Acquisi-

tions

Planning of the transaction by answering the questions

“whether, when, and how”2 the project is to be carried out, in-

cluding the analysis of the current economic context and op-

erational and legal planning.

Planning Planning

Greenfield investments: Legal procedures related to the regis-

tration of the site; employee recruitment, selection, and staff-

ing; site development.

M&As: Preliminary agreements; due diligence process; negoti-

ations with the parties; signing the contract.

Implementation Implementation (including

due diligence)

Greenfield investments: The newly established company is ful-

ly operational.

M&As: At this stage, a combination (integration) of different

management and operational systems into one entity takes

place, including HR and cultural integration.

Post-establishment Post-merger integration

19

On the one hand, both our Kienbaum and company re-

spondents indicated an overall higher importance of HR-

related issues in the last two stages of M&As compared to

establishing new foreign companies, whereas the post-

merger integration phase was reported to be of the highest

importance of all (cf. Table 10). On the other hand, HR-

related issues at the planning stage were reported to be im-

portant in foreign greenfield investments, which partially ex-

plains the fact that HR functions in the surveyed companies

were more often engaged in preparing greenfield invest-

ments (cf. Table 8).

Table 10

Relative Importance of HR-Related Issues in Greenfield Investments and M&As

Stages Greenfield investments M&A

Planning 2.0 2.1

Implementation 1.8 1.7

Post-establishment/post-merger integration 2.1 1.4

1 – high importance; 5 – low importance

However, a direct comparison of answers presented in Fig-

ures 5 and 6 shows that a greater percentage of respondents

ascribed a high importance of HR-related issues to all three

stages of M&As compared to greenfield investments abroad.

Figure 5

The Importance of HR-Related Issues in Greenfield Investments

34%

39%

26%

41%

42%

39%

18%

16%

31%

7%

2%

2%

2%

Planning phase

Implementation phase

Post-establishment phase

High Rather high Medium Rather low Low

20

Figure 6

The Importance of HR-Related Issues in International M&A Phases

While there is a very large discrepancy between the per-

ceived importance of HR-related issues in the last stage of

greenfield investments and M&As, it is the implementation

phase which probably has the largest differences in objec-

tives and processes between the two respective market entry

modes. These differences are first of all related to more ex-

tensive staffing activities in greenfield investments as op-

posed to M&As. Thus, in order to identify the major HR-

related differences, we asked our respondents to evaluate

the importance of areas such as staffing, executive search-

es, compensation, training, job evaluation, outplacement,

and performance management in the implementation phase

of greenfield investments and M&As.

On average, both the Kienbaum and company respondents

indicated that staffing and executive searches were more

important during the implementation phase of greenfield in-

vestments, while compensation, outplacement, performance

management, and job evaluation were more important in the

implementation phase of M&As. According to the experts

surveyed, training is equally (moderately) important in the

implementation phases of greenfield investments and M&As.

Table 11

Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield In-vestments and M&As

HR-related area Greenfield investments M&A

Staffing in general 1.6 2.7

Executive search 2.0 2.4

Compensation 2.2 2.1

Training 3.1 3.1

Performance management 3.1 2.4

Job evaluation 3.3 2.9

Outplacement 4.2 3.0


35%

43%

69%

35%

47%

21%

16%

8%

10%

12%

2%

2% Planning phase

Implementation phase (incl. due diligence)

Post-merger integration phase


21

However, a detailed comparison of the data showed that

about 8% of respondents estimated the importance of train-

ing in greenfield investments as high compared to around

4% of the surveyed companies in the case of M&As (cf. Fig-

ures 7 and 8).

Figure 7

Relative Importance of Selected HR-Related Areas in the Implementation Phase of Greenfield In-vestments

Interesting in this respect is also the fact that while there is a

very large perceived discrepancy in the importance of gen-

eral staffing during the implementation phase of greenfield

investments and M&As, the importance of executive search-

es is estimated as almost equally as high in both market en-

try modes, which can be explained by an often high turnover

of management employees in acquired companies within the

first few years after the acquisition, as reported in the litera-

ture.3

57%

37%

23%

8%

9%

10%

34%

33%

42%

23%

17%

10%

28%

3%

22%

28%

26%

29%

15%

25%

7%

8%

5%

34%

24%

16%

18%

2%

8%

21%

59%

18%

Staffing in general

Executive search

Compensation

Training

Job evaluation

Outplacement

Performance management


22

Figure 8

Relative Importance of Selected HR-Related Areas in the Implementation Phase of M&As

In several cases, additional HR practices were addressed by

Kienbaum respondents as being very important in the im-

plementation phase of M&As, namely HR diagnostics and

HR M&A project management. In the same phase of green-

field investments, the development of a merger roadmap and

team development were indicated as important HR-related

practices.

Consideration of HR-Related Factors at Different Stages of Establishing a New Company and in M&As

Given the HR-related differences in various stages of foreign

greenfield investments and M&As, companies starting their

operation in a new location abroad face multiple challenges

with respect to different aspects of HR management in for-

eign sites. Based on the responses of the participants in our

surveys, we present several checklists comprising the factors

which need to be considered in different phases of establish-

ing a new foreign company and in M&As. In the respective

survey questions, we asked about the relative importance of

each of the factors, which then allowed us to present the re-

sults in the form of rankings, whereby the most important fac-

tors are presented at the top of the list and the least im-

portant at the bottom of the list.

20%

33%

20%

4%

8%

18%

22%

22%

53%

25%

24%

18%

45%

32%

24%

22%

38%

39%

27%

22%

7%

16%

4%

25%

22%

22%

10%

4%

4%

8%

6%

16%

4%

Staffing in general

Executive search

Compensation

Training

Job evaluation

Outplacement

Performance management


23

Planning Phase

In the planning phase of establishing a new company, gen-

eral workforce availability in the respective countries and re-

gions and the planned staff structure at respective enterpris-

es were reported to be of primary importance.

Table 12

HR Checklist for the Planning Phase of Greenfield Investments

Importance

score Factors

1.25 Workforce availability, in general

1.34 Planned staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)

1.39 Employee relations, in general

1.51 Social contribution regulations, in general

1.53 Planned pay agreements

1.66 Planned operating and working time regulations

1.75 Global company culture

1.80 Collective wage bargaining regulations, in general

1.81 Planned individual agreements

1.86 Planned collective agreements (e.g., company-level agreements)

2.10 Planned regulations relating to the company pension plan and other company-level social benefits

2.26 Planned cooperation with trade unions and works councils

1 – important; 3 – not important

In the case of M&As, existing staff structures and agree-

ments with respect to the target company, and not the gen-

eral HR-related situation, should be considered in the first

place, according to the Kienbaum and company respondents

in our surveys.

24

Table 13

HR Checklist for the Planning Phase of M&As

Importance

score Factors

1.31 Existing staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)

1.41 Existing pay agreements

1.47 Existing collective agreements (e.g., company-level agreements)

1.49 Existing operating and working time regulations

1.51 Existing individual agreements

1.53 Existing regulations relating to the company pension plan and other company-level social benefits

1.53 Local company culture




1.76 Working environment


2.04 Existence of trade unions

2.06 Trade union membership rate


25

Implementation Phase

In the implementation phase of establishing a new foreign

company, planned personnel structures, general workforce

availability, and planned pay agreements were stated to play

the most important role.

Table 14

HR Checklist for the Implementation Phase of Greenfield Investments

Importance

score Factors

1.28 Planned staff structure (how many staff, qualifications, functional areas, age, fluctuation rate)


1.44 Planned pay agreements


1.47 Planned individual agreements

1.47 Planned operating and working time regulations



1.72 Global company culture

1.75 Planned collective agreements (e.g., company-level agreements)

1.84 Planned regulations relating to the company pension plan and other company-level social benefits

2.11 Planned cooperation with trade unions and works councils


In the implementation (including due diligence) phase of in-

ternational M&As, existing staff structure, individual (includ-

ing pay) agreements, as well as existing operating and work-

ing time regulations are the focus of attention. On the other

hand, the issue of general workforce availability in the local

country plays a far less important role than in foreign green-

field investments.

26

Table 15

HR Checklist for the Implementation Phase of M&As

Importance

score Factors
















27

Post-Establishment/Post-Merger Integration Phase

In this phase of greenfield investments, the most relevant

factors that should be considered during the post-

establishment phase are very similar to those considered

during the post-merger integration phase of M&As. These

are mainly factors related to the existing situation in the focus

company.

Table 16

HR Checklist for the Post-Establishment Phase of Greenfield Investments

Importance

score Factors
















Nevertheless, also in this phase, general workforce availabil-

ity in the host country is perceived by the respondents in our

surveys as playing a less important role in M&As than in

greenfield investments, which means that in acquired com-

panies during the post-merger integration, the HR function

still profits from the personnel structures of the acquired en-

terprise and is less concerned with the condition of the ex-

ternal market than is the case in newly established foreign

companies.

28

Table 17

HR Checklist for the Post-Merger Integration Phase of M&As

Importance

score Factors
















29

Endnotes for Chapter 1

1 Meyer, K.E. and Estrin, S. (2001) 2 Picot, G. (2002) 3 Krug, J.A. and Nigh, D. (2001), Walsh, J.P. (1988), Walsh,

J.P. (1989)

30

Chapter 2 – Standardization of HR Practices

This chapter presents a summary of the results of Surveys 2

and 3 (headquarters and subsidiaries of MNCs) on the global

standardization of selected HR practices, including HRISs,

staffing, performance measurement, compensation and be-

nefits, and job evaluation. The main objective of this part of

the report is to identify practices that are most frequently

standardized throughout the worldwide operations of the sur-

veyed companies, rather than to answer the question why or

under which conditions such standardization takes place.

Thus, in this section we do not differentiate between different

market entry modes but focus instead on HR systems and

processes.

Human Resources Information Systems

The overwhelming majority of the surveyed companies used a HRIS (cf. Table 18 below).

Table 18

Use of HRISs

Answer Options Response Percentage

Yes 81.3%

No 15.6%

To some extent (payroll accounting only) 1.6%

Other (is being currently implemented) 1.6%

N = 64

However, although the global implementation of HRISs is

considered to be an efficient tool for controlling the foreign

operations of MNCs1, only 44.4% of the surveyed companies

reported that their HRIS was standardized globally. The re-

maining companies either do not have such a standardized

system (44.4%), have only a partially standardized HRIS

(5.6%), or are implementing such a system at the moment

(5.6%).

31

Table 19

Global Standardization of HRISs


Yes 44.4%

No 44.4%

Is being implemented 5.6%

Yes, but only in part 5.6%

N = 54

Staffing

Globally standardized staffing systems offer numerous ad-

vantages to MNCs. However, their implementation is also

hampered by a number of obstacles, related mostly to coun-

try-specific differences associated with HR.2 Table 20 below

summarizes some of these benefits and obstacles.

Table 20

Benefits and Obstacles to a Globally Standardized Staffing System

Benefits Obstacles

» Global database of qualified talent

» Quick identification of candidates to meet the

needs of a specific location

» Provision of a consistent message about the

company to candidates worldwide

» Quality of all hires is ensured

» Better understanding of country/regional needs

by all HR

» Global succession planning is enabled

» Global HR personnel have access to the latest

versions of products/tools

» Shared vision of HR globally

» Comparisons of staffing results across locations

» Global database as an internal benchmark of

achievement in different parts of the world

» Legal requirements across countries

» Educational systems across countries

» Economic conditions across countries

» Ability to acquire and use technology

» Labor market variations

» Availability of translated tools

» Role of HR in hiring varies across regions

» Familiarity with a tool or practice varies

» Limited local resources for implementation

Source: Adapted from Wiechmann, Ryan, & Hemingway (2003, p. 82).

32

Our study focuses on the global standardization of employee

selection methods, which represent—as shown in the previ-

ous chapter of this report—a key HR practice not only in the

implementation phase of greenfield investments, but also

during the same phase—mostly with respect to the executive

search—of M&As. We asked our respondents about using

the following standardized tools to select employees in their

locations worldwide: Job interviews, assessments centers,

and qualifying tests.

Overall, the majority of respondents stated that they did not

standardize employee selection methods, especially with re-

spect to manual workers. Throughout all the employee

groups, less than half of all the companies implemented

standard HR tools worldwide.

While slightly below 40% of all companies standardized job

interviews to select top management employees, less than a

quarter of all the respondents indicated that they used

standard assessment centers or qualifying tests for this em-

ployee group (cf. Figure 9 below).

Figure 9

Global Standardization of Methods Used for Selecting Top Management Employees

Several respondents reported a partial standardization of

their selection practices, e.g., for the first and second man-

agement levels. In respect to management employees below

the top management level, our respondents stated a higher

level of global standardization for selection methods.

39%

21%

24%

59%

53%

56%

2%

26%

21%

Job interviews

Assessment center

Qualifying tests

Yes No Non-existent

33

Figure 10

Global Standardization of Methods Used for Selecting Other Management Employees

Again, the respondents indicated the partial standardization

of employee selection, e.g., for the highest management le-

vels, as well as with respect to standardized employee selec-

tion tools such as an employee interview guide.

With respect to the global standardization of selection me-

thods for technical and clerical employees, standardized job

interviews were implemented in almost 41% of the surveyed

companies, which even exceeds the respective percentage

in relation to top management. However, the global use of

standardized assessment centers and qualifying tests was

stated as being rather modest (15% and 16%, respectively),

possibly due to high costs related to the implementation of

assessment centers—especially in international settings—

and varying institutional contexts in foreign locations.3

Figure 11

Global Standardization of Methods Used for Selecting Technical and Clerical Employees

44%

33%

29%

55%

46%

51%

2%

21%

21%

Job interviews

Assessment center

Qualifying tests

Yes No Non-existent

41%

15%

16%

59%

64%

65%

21%

19%

Job interviews

Assessment center

Qualifying tests

Yes No Non-existent

34

In the case of manual workers, all the selection methods

were predominantly reported to have not been standardized

throughout the operations of respective MNCs, job interviews

being the only method quite often standardized worldwide.

Figure 12

Global Standardization of Methods Used for Selecting Manual Workers

Performance Measurement

Performance measurement is a key component of perfor-

mance management systems in organizations. The im-

portance of efficient HR performance management systems

in MNCs is well documented in the academic literature.4

The overwhelming majority of the respondents indicated that

they used globally standardized performance measurement

systems for top-level and other management employees.

More than half of all the respondents stated that such a sys-

tem was implemented for technical and clerical employees.

With respect to manual workers, a global performance

measurement system was implemented in about a quarter of

all surveyed companies. The latter fact could be explained by

the rather strong influence of employee representatives in

this area, whereby organizational practices related to the

management of manual workers are especially susceptible to

the impact of collective bargaining agreements (see section

“Considering organizational and contextual factors”).

24%

3%

3%

63%

48%

63%

13%

48%

33%

Job interviews

Assessment center

Qualifying tests

Yes No Non-existent

35

Figure 13

Use of a Globally Standardized, Formalized Performance Measurement System

The globally standardized performance management sys-

tems implemented by the surveyed companies were reported

to be used to support decisions in various fields, including

headcount and career planning, advanced training programs,

and compensation and benefits. For top management em-

ployees these systems were used mostly for determining re-

wards. For the remaining employee groups, performance

measurement was implemented predominantly as a tool to

support decisions related to training.

Figure 14

Use of the Performance Measurement System to Support Decisions

71%

75%

52%

26%

29%

25%

48%

74%

Top-levelmanagementemployees

Other managementemployees

Technical andclerical employees

Manual workers

Yes No

0% 20% 40% 60% 80% 100%

Top-level management employees

Other management employees

Technical and clerical employees

Manual workers

Compensation and benefits Advanced training programs Career planning Headcount planning

36

Moreover, our respondents indicated that they used formal-

ized performance measurement systems for target setting,

succession planning for key staff, and talent management.

Compensation and Benefits

Given the caveats related to the global standardization of

reward systems in MNCs,5 we asked our respondents not

only to state the compensation elements standardized

worldwide, but also the extent of such standardization with

respect to the pay structure and local market targets. A con-

sideration of the above factors is necessary, due to various

assumptions underlying the notion of global standardization

which—given substantial differences with respect to econo-

mic conditions across the world6—predominantly extend be-

yond absolute pay levels. For instance, it might appear sur-

prising that base pay was stated to be the most frequently

standardized pay form (cf. Figure 15 below). However, the

notion of globally standardizing base pay does not necessari-

ly mean setting similar pay levels across the globe but refers

rather to the standardization of the pay setting procedure (in-

cluding total market targets described below).

Figure 15

Global Standardization of Compensation Elements for Top Management Employees

More than 60% of the surveyed companies standardize base

pay and individual bonuses for top management employees.

Company pension plans as well as benefits and perquisites

for top managers are also quite often standardized in the

surveyed companies. Conversely, employee stock purchase

programs (ESPP) and stock options were reported to be the

least frequently standardized compensation schemes for this

employee group, and almost half of all companies do not im-

plement such compensation plans for their directors at all.

However, in about 50% of the remaining companies such

schemes are standardized around the globe.

The patterns of the global standardization of pay elements

for other management employees presented in Figure 16 be-

low are very similar to those for top managers (cf. Figure 15).

However, with respect to all compensation elements, less

companies standardize compensation elements for this em-

ployee group.

63%

60%

38%

27%

26%

54%

45%

37%

37%

38%

25%

26%

41%

52%

3%

25%

48%

48%

5%

3%

Base pay

Individual bonuses

Group bonuses

Employee stockpurchase programs

Stock options

Company pensionplans

Benefits andperquisites

Yes No Non-existent

37

It is interesting that—unlike in the case of top management

employees—base pay was reported to be globally standard-

ized by a fewer number of companies than was the case with

respect to individual bonuses.

Figure 16

Global Standardization of Compensation Elements for Other Management Employees

Compensation elements provided to technical and clerical employees are reported to be far less standardized worldwide than

those for managers.

Figure 17

Global Standardization of Compensation Elements for Technical and Clerical Employees

57%

59%

35%

23%

20%

48%

44%

43%

38%

45%

26%

26%

42%

51%

3%

20%

51%

54%

10%

5%

Base pay

Individual bonuses

Group bonuses


Stock options



Yes No Non-existent

48%

39%

23%

15%

5%

38%

39%

52%

58%

58%

32%

36%

56%

58%

3%

18%

53%

59%

7%

3%

Base pay

Individual bonuses

Group bonuses


Stock options



Yes No Non-existent

38

As expected, the lowest level of the global standardization of

all compensation elements was reported for manual workers

(cf. Figure 18 below). The reason for this could lie in the ne-

cessity to comply with local collective bargaining agree-

ments, which in some cases will not allow for standardizing

pay even with respect to local market targets. Nonetheless, a

fairly large percentage of the surveyed companies standard-

ized compensation elements such as base pay, company

pension plans, and benefits (each time over 25% of re-

spondents). However, individual bonuses, which were re-

ported to be among the most frequently standardized for the

remaining employee groups (cf. Figures 15–17), are far less

frequently standardized for manual employees.

Figure 18

Global Standardization of Compensation Elements for Manual Workers

Pay Mix

According to recent survey data,7 the overwhelming majority

of US-American and Western European MNCs implement

global compensation strategies, above all, with respect to the

pay structures (i.e., pay mix or shares of pay elements as a

percentage) in relation to local market targets.

In our survey we asked our respondents to state if they

standardized pay structures across their international opera-

tions, in what cases local market targets were used (e.g.,

with respect to the absolute levels of total direct cash or with

respect to specific compensation elements as a percentage

of base pay), and which local market targets (e.g., mean or

median values) were used to determine local pay.

Figure 19 shows that the surveyed companies predominantly

standardized pay structures for top-level and other manage-

ment employees, which is consistent with the current litera-

ture on global rewards.8

38%

21%

22%

14%

2%

32%

27%

62%

73%

68%

31%

33%

60%

65%

6%

10%

55%

65%

8%

8%

Base pay

Individual bonuses

Group bonuses


Stock options



Yes No Non-existent

39

Figure 19

Global Standardization of the Pay Structure

Here, the standardization of pay systems has various forms

such as, for instance, standardized pay structures within

broad bands. One company reported that the standardization

of compensation systems was implemented only for em-

ployees not covered by collective agreements.

Figures 20–23 below present respective responses based on

valid answers, i.e., only in case the respective compensation

elements were implemented by the firms studied.

In response to the question on the existence of standardized

local market targets with respect to the level and structure of

pay, a large percentage of the surveyed companies indicated

that they used local market benchmarks to determine the pay

mix for top management employees, in particular with re-

spect to short-term variable pay (e.g., piece-rate, bonuses)

and long-term variable pay (e.g., profit sharing, stock op-

tions, etc.) as percentages of base pay. Nevertheless, over a

third of all surveyed companies indicated that they used local

market targets to determine absolute compensation levels of

total direct cash (including base pay and short- and long-

term incentive plans) and base pay for their executives. In

such a case, local market targets were used more frequently

to determine total direct cash than base salary.

70%

56%

28%

12%

30%

44%

72%

88%

Top-level managementemployees

Other managementemployees

Technical and clericalemployees

Manual workers

Yes No

40

Figure 20

Use of Globally Standardized Local Market Targets to Determine Pay for Top Management Em-ployees

The respondents additionally indicated that they implement-

ed only to some extent standardized compensation systems

or used broad bands for each hierarchical level.

In the case of management employees other than execu-

tives, an increased reliance on local market targets to deter-

mine absolute pay levels was reported by the surveyed com-

panies. On the other hand, fewer companies used local mar-

ket targets to set pay structures for this employee group

compared to top managers.

Figure 21

Use of Globally Standardized Local Market Targets to Determine Pay for Other Management Em-ployees

37%

34%

51%

48%

63%

66%

49%

52%

Absolute level of total directcash

Absolute level of base pay

Short-term variable pay as apercentage of base pay

Long-term variable pay as apercentage of base pay

Yes No

41%

38%

45%

45%

59%

62%

55%

55%

Absolute level of total direct cash




Yes No

41

With respect to non-management employees, local market

targets were used far less frequently to determine pay than

for those holding management positions (cf. Figures 22 and

23 below).

Figure 22

Use of Globally Standardized Local Market Targets to Determine Pay for Technical and Clerical Employees

Figure 23

Use of Globally Standardized Local Market Targets to Determine Pay for Manual Workers

34%

29%

28%

26%

66%

71%

72%

74%





Yes No

27%

27%

21%

17%

73%

73%

79%

83%





Yes No

42

Replying to the answer on the particular market targets with

respect to pay level and structure, the overwhelming majority

of respondents stated that they referred to the median levels

and percentages within the compensation mix to define pay

for all employee groups (cf. Figures 24–27).

Figure 24

Market Targets with Respect to Pay Level and Structure for Top Management Employees

Figure 25

Market Targets with Respect to Pay Level and Structure for Other Management Employees

20%

17%

14%

17%

68%

69%

71%

58%

9%

11%

6%

17%

4%

4%

8%

8%



Short-term variable pay as a percentage ofbase pay

Long-term variable pay as a percentage ofbase pay

Mean Median Above the median Below the median

18%

17%

16%

14%

69%

68%

67%

63%

9%

11%

8%

14%

4%

4%

8%

9%






43

Figure 26

Market Targets with Respect to Pay Level and Structure for Technical and Clerical Employees

Figure 27

Market Targets with Respect to Pay Level and Structure for Manual Workers

23%

24%

22%

18%

63%

62%

64%

58%

12%

12%

13%

21%

2%

2%

3%






26%

24%

18%

27%

63%

62%

63%

58%

7%

10%

8%

15%

5%

5%

11%






44

Job Evaluation

Recent studies have underscored the importance of global

job evaluation systems for the operations of MNCs.9 Given

the variety of job evaluation methods, we asked our re-

spondents (from Surveys 2 and 3) not only to indicate if the

job evaluation systems were standardized worldwide, but al-

so whether they implemented an analytical (based on an

identification and assessment of separate key elements of

each job) or a non-analytical (e.g., job rankings or job classi-

fications) global job evaluation for various employee groups.

In more than 40% of cases, the respondents indicated that

they used global job evaluation schemes for management

employees of all hierarchical levels, analytical job evaluation

being the most frequently standardized method.

Figure 28

Global Standardization of Job Evaluation Schemes for Top Management Employees

Interesting in this respect is that about one quarter of com-

panies did not implement any job evaluation schemes at all.

However, this is consistent with research conducted in single

countries. For instance, a survey of companies in the UK

showed that over 40% of the surveyed companies either had

never operated formal job evaluation or had abandoned such

a system.10

47%

31%

36%

29%

36%

34%

24%

33%

30%

Job evaluation in general,including:

Non-analytical job evaluation

Analytical job evaluation

Yes No Non-existent

45

Figure 29

Global Standardization of Job Evaluation Schemes for Other Management Employees

With respect to technical and clerical employees, the overall

implementation of global job evaluation schemes is slightly

below 40%. About the same percentage of the surveyed

companies (26% and 25%) reported that they used standard-

ized analytical and non-analytical job evaluation systems.

Furthermore, our respondents indicated that they referred to

company-level and industry-wide collective bargaining

agreements for both clerical and technical employees (if ap-

plicable) and manual workers.

Figure 30

Global Standardization of Job Evaluation Schemes for Technical and Clerical Employees

48%

30%

37%

29%

33%

34%

24%

37%

29%




Yes No Non-existent

39%

26%

25%

42%

50%

49%

19%

24%

25%




Yes No Non-existent

46

Over 30% of the surveyed companies reported that they

used global job evaluation schemes for manual workers. As

expected, a rather low percentage of respondents indicated

that they used standardized analytical job evaluation sys-

tems, which is consistent with the academic research on the

use of job evaluation, whereby companies tend to use non-

analytical schemes for manual workers, due to the existence

of well-defined skill and job classifications, or not to use job

evaluations for this employee group at all.11 There are also

indications of the often negative attitudes of worker represen-

tations towards job evaluation in general.12

Figure 31

Global Standardization of Job Evaluation Schemes for Manual Workers

33%

24%

13%

45%

49%

52%

22%

27%

35%




Yes No Non-existent

47


1 Hannon, J., Jelf, G. and Brandes, D. (1996), Pucik, V. and Katz, J.H. (1986).

2 Wiechmann, D., Ryan, A.M. and Hemingway, M. (2003). 3 Delmestri, G. and Walgenbach, P. (2009). 4 Cascio, W.F. (2006), Cascio, W.F. (2011). 5 Dickmann, M. and Muller-Camen, M. (2006). 6 Mattson, R. and Turetsky, D. (2008). 7 Coleman, P. (2008). 8 Gross, S.E. and Wingerup, P.L. (1999). 9 Cf., for instance, Ganesan, S. (2011). 10 Armstrong, M. and Baron, A. (1995). 11 Ibid. 12 Ibid, Ghobadian, A. (1990).

48

Chapter 3 – Considering Organizational and Contextual Factors

The impact of organizational and contextual factors on HR-

related activities has already been described in the earlier

subsections of this report dealing with the consideration of

respective determinants in different stages of greenfield

investments and M&As, including such factors as the im-

portance of qualified workforce availability, the relative

importance of collective bargaining agreements, and em-

ployee representations. This section continues in this vein

to describe the employment relations contexts of the sur-

veyed companies as well as country-specific factors which

have an impact on the success of staffing activities.

Employment Relations

About half of the respondents (45%) stated that the worldwide unionization rate of their employees does not exceed 10%.

Table 21

Proportion of the Total Number of Employees Worldwide who Are Members of a Trade Union


0% 17.5%

1%-10% 27.5%

11%-25% 22.5%

26%-50% 15.0%

51%-75% 12.5%

76%-99% 5.0%

100% 0.0%

N = 40

In this respect, it is especially important to consider differ-

ences in trade union coverage among the countries. For

instance, in the majority of the Hungarian subsidiaries

analyzed, the proportion of unionized employees was equal

to or below 10% of the total payroll (cf. Table 22 below).

49

Table 22

Proportion of the Total Number of Employees in the Surveyed Hungarian Subsidiaries who Are Members of a Trade Union


0% 28.6%

1%-10% 42.9%

11%-25% 14.3%

26%-50% 0.0%

51%-75% 0.0%

76%-99% 0.0%

100% 0.0%

I don’t know 14.3%

More than 40% of the surveyed companies had a European works council.

Table 23

Existence of a European Works Council


Yes 42.1%

No 57.9%

The respondents indicated that employee representations

had a rather high impact on decisions in fields such as

protection against dismissal, working time, and perfor-

mance measurement, followed by base pay. The weakest

impact was reported with respect to share-based pay,

which is normally provided for management employees and

is thus not covered by basic collective bargaining agree-

ments.

50

Table 24

Impact of Employee Representations, Average Scores

Selected organizational issues Average score

Protection against dismissal 2.2

Working time 2.4

Performance measurement 2.9

Base pay 3.0

Training 3.1

Benefits 3.2

Variable pay 3.3

Company pension plans 3.4

Share-based pay 4.4

1 – strong impact; 5 – weak impact

Figure 32

Impact of Employee Representations on Selected Issues in the Organization

37%

22%

3%

12%

10%

6%

14%

12%

15%

30%

43%

26%

17%

17%

4%

7%

10%

27%

18%

22%

41%

41%

25%

4%

37%

38%

31%

7%

5%

19%

17%

27%

10%

14%

21%

10%

8%

8%

10%

14%

20%

76%

28%

19%

17%

Protection against dismissal

Working time

Training

Base pay

Variable pay

Share-based pay

Company pension plans

Benefits

Performance measurement

strong rather strong moderate rather weak weak

51

Overall, according to the Kienbaum partners surveyed,

manual workers were stated to be the most affected em-

ployee group, with top management being the employee

group least affected by collective bargaining agreements.

In general, this answer pattern was consistent across all

the countries, apart from Singapore, where collective wage

agreements were reported to have no importance for all

employee groups.

Table 25

Relative Importance of Collective Wage Agreements, by Employee Group

Employee groups Score

Manual workers 2.7

Clerical employees 3.1

Technical employees 3.3

Other management 4.1

Top management 4.4


Accounting for Country Specifics with Respect to Staffing Activities

This section of our report presents the results of Survey 1

with respect to factors influencing the success of staffing

activities, on the one hand, and difficulties related to the

recruitment of specific employee groups, on the other.

There is a consensus in the academic literature that em-

ployer attractiveness depends on the organizational attrib-

utes of the company.1 Our respondents reported that the

most important factor influencing the success of staffing

activities is the general pay level in the firm, followed by

factors such as benefits offered and working conditions.

52

Table 26

Impact Factors on the Success of Staffing Activities

Impact factor Score

General pay level in the company 1.8

Benefits offered by the company 1.9

Working conditions in the company 2.1

Affiliation with a foreign corporation 2.2

Industry affiliation 2.4

Company size 2.4

Legal form 3.6


The high importance of pay, benefits, and working condi-

tions was reported mainly in Germany and Austria. Affiliation

of a target company with a foreign corporation was stated to

be especially important in Russia, Singapore, and the Neth-

erlands. In the Czech Republic, industry affiliation was

stated as the most important factor in increasing the attrac-

tiveness of a job opening.

Figure 33

Impact Factors on the Success of Staffing Activities

Overall, difficulties hiring technical employees were report-

ed (cf. Table 27), and the issue of a lack of technical em-

ployees seems to be especially important in countries such

as Austria, Germany, Russia, and Singapore.

14%

29%

7%

43%

29%

21%

43%

14%

29%

50%

43%

43%

64%

36%

14%

36%

36%

7%

21%

14%

7%

71%

7%

7%

7%

7%

Industry affiliation

Legal form

Affiliation with a foreign corporation

Company size

General pay level in the company

Working conditions in the company

Benefits offered by the company

High impact

Rather high impact

Medium impact

Rather low impact

53

Table 27

Intensity of Problems Related to Staffing, by Employee Group

Employee groups Score

Technical employees 1.5

Other management 2.2

Top management 2.4

Manual workers 2.8

Clerical employees 3.2

1 – high intensity; 5 – low intensity

With respect to problems related to the recruitment of

employees from certain functional areas, it is more difficult

to recruit employees in the fields of information technolo-

gies (mainly in the Czech Republic and Germany) and

production (cf. Table 28 below). Specialists in the latter

functional field were reported to be especially rare in Rus-

sia, the country which—as stated above—also experiences

major problems recruiting technical employees.

Table 28

Intensity of Problems Related to Staffing Activities, by Functional Area

Functional area Score

IT 2.2

Production 2.3

Logistics 2.6

Sales 2.6

Purchasing 2.7

Finance 3.0

HR 3.0

Storage 3.3

Marketing 3.4

1 – high intensity; 5 – low intensity

54


1Turban, D.B., Forret, M.L. and Hendrickson, C.L. (1998).

55

Final Remarks

The results of the present study indicate that, overall, there

are significant differences with respect to human resource

management in greenfield investments and M&As. On the

one hand, companies initiating foreign M&A projects may

profit from existing HR structures and know-how and rely

on the existing personnel resources in acquired companies.

On the other hand, local institutional arrangements, above

all, with respect to employment relations can also make the

initial operation and redesign of operations more difficult,

which is consistent with the extant academic research on

market entry strategies.1

With respect to the global implementation of HR practices,

our results present a snapshot of practices, the degree of

worldwide standardization of which varies considerably for

different employee groups. Even in relation to practices

such as compensation, which is highly dependent on local

idiosyncrasies, there is a wide range of globally standard-

ized pay determination methods based on local market

targets.

Descriptions of the perceived influence of contextual fac-

tors on HR activities show additional determinants, which

may facilitate or inhibit the implementation of efficient HR

practices, namely employment relations contexts and

qualified workforce availability.

This report does not aim at analyzing why companies

decided to choose one of the two major market entry

modes. The majority of the surveyed companies were large

organizations with a wide presence across the globe,

which—relying on the academic literature on the topic2—

can explain the reported prevalence of greenfield invest-

ments over M&As carried out by companies. An investiga-

tion of the HR-related determinants of market entry mode

choice may constitute a challenging new project.

We hope that this report will serve as a useful practical

guide for HR managers and decision-makers planning new

foreign operations.

56

Endnotes for Final Remarks

1Brouthers, K.D. and Dikova, D. (2010), Estrin, S., Baghdasaryan, D. and Meyer, K.E. (2009).

2 Cf., for instance, Harzing, A.-W. (2002).

57

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60

Contact

Dr. Alexander v. Preen

Geschäftsführung und Partner

Kienbaum Management Consultants GmbH

Ahlefelder Straße 47

51645 Gummersbach

Fon: +49 2261 703-602

[email protected]

www.kienbaum.de

Dr. Hans-Georg Blang

Mitglied der Geschäftsleitung und Partner

Kienbaum Management Consultants GmbH

Beethovenstraße 12–16

60325 Frankfurt/Main

Fon: +49 69 963644-69

[email protected]

www.kienbaum.de

Authors

Prof. Dr. Marion Festing

Rektorin und Inhaberin des Lehrstuhls für

Personalmanagement und Interkulturelle Führung

ESCP Europe Wirtschaftshochschule Berlin

Heubnerweg 8-10

14059 Berlin

Fon: +49 30 32 007-153

[email protected]

www.escpeurope.de/pif

Dr. Ihar Sahakiants

Wissenschaftlicher Mitarbeiter

Lehrstuhl für Personalmanagement und Interkulturelle

Führung

ESCP Europe Wirtschaftshochschule Berlin

Heubnerweg 8-10

14059 Berlin

Fon: +49 30 32 007-120

[email protected]

www.escpeurope.de/pif

61

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Human Resource Management in Multinational Corporations