AN ANALYSIS OF THE COUNTRY-OF-ORIGIN EFFECT ON THE HRM POLICIES AND PRACTICES OF FINNISH MNCs OPERATING IN ITALY

Abstract

There is considerable debate in the literature as to the determinants of human resource policies and practices of foreign subsidiaries. Are these representatives of global emerging best practices and pointing to a convergence of Human Resource Management systems? Are they shaped by the cultural and institutional constraints of the host country? Or are they subject to country-of-origin effect? This study makes a significant contribution by examining the role of country-of-origin effect in the Italian subsidiaries of Finnish Multinational Corporations (MNCs); with the aim of exploring if and how it manifests itself and what are the main factors that strengthen or moderate this effect. Its originality lies in the approach, which takes into account both the cultural and institutional backgrounds of the studied countries. A questionnaire (adaptation of the CRANET questionnaire) was sent to all Finnish subsidiaries in Italy and survey data was complemented by four mini case studies. Findings have confirmed the presence of a marked country-of-origin effect in many HR areas (e.g. use of written strategies; selection; T&D) with a localised approach being used in other areas (e.g. Pay and Benefits; E.R. and flexibility) and an ‘integrated’ approach in the case of Appraisals. It has also emerged that a high degree of control is exerted by the Parent Company on the management of strategic employees while management of lower-level employees is entirely delegated to local managing directors, pointing towards a ‘dual’, mainly polycentric or regiocentric internationalisation strategy. Nevertheless internationalisation strategy per se is not sufficient in explaining why some less strategic areas of HR were found to also be subject to country-of-origin effect. When exploring the elements that influence this effect; factors identified by previous theoretical models have been confirmed and it has emerged that, in the case of countries characterised by great cultural and institutional distance, the relational context (and perception gaps in particular) may play a vital role in moderating the amount of control and autonomy exerted by HQs and host country managers respectively and hence will also influence the amount of similarity of local HR practices to the Parent Country’s. No indication of either final or directional convergence has been observed.