HRM practices in subsidiaries of US, Japanese and German MNCs: Country-of-origin, localization or dominance effect?

This paper contributes to two recurring and very central debates in the international management literature: the convergence vs. divergence debate and the standardization vs. localization debate. Using a large-scale sample of multinationals headquartered in the US, Japan and Germany as well as subsidiaries of multinationals from these three countries in the two other respective countries, we test the extent to which HRM practices in subsidiaries are characterized by country-of-origin, localization, and dominance effects. Our results show that for German and Japanese subsidiaries the dominance effect is most important, i.e. their practices appear to converge to the dominant US practices. For US subsidiaries localization effects are particularly important. Hence our results lead to the rather surprising conclusion that for what might be considered to be the most localized of functions – HRM – convergence to a world-wide best practices model is clearly present for Japanese and German multinationals. The lack of country-of-origin effects for Japanese and German multinationals leads us to a conclusion that is of significant theoretical as well as practical relevance. Multinationals might limit export of country-of origin practices to what they consider to be their core competences and converge to best practices in other areas. . HRM PRACTICES IN SUBSIDIARIES OF US, JAPANESE AND GERMAN MNCS: COUNTRY-OF-ORIGIN, LOCALIZATION OR DOMINANCE EFFECT? For at least four decades the international management literature has been characterized by two recurring and very central debates: on the macro (country) level the so-called convergence vs. divergence debate, which remains a key point of controversy in cross-cultural management; and, on the meso (company) level, the standardization vs. localization debate, one of the central questions in the literature on multinational corporations (MNCs). While on a theoretical level this latter debate has been mainly conducted with regard to management practices in general, human resource management (HRM) has occupied a particularly important position in empirical studies in this field. In this paper we adopt a broad definition of HRM as the activities that a company conducts to use its human resources effectively. Since HRM deals with the management of people, it is often seen as one of the functions that will be least likely to converge across countries and where MNCs are more likely to localize their practices than to export their country-of-origin practices. While our literature review below shows that there is considerable support for this assumption, the question remains whether the increasing importance of globalization and the evergrowing presence of MNCs will not diminish the localization of practices. In this context, the dominance effect assumes particular importance. It occurs when management practices of subsidiaries are neither shaped in accordance to the host country (localization), nor to the home country (country-of-origin effect), but according to that country which sets the standards for what are perceived global ‘best practices’. Much of the research in this area has focused on in-depth studies of a limited number of countries and has not allowed us to systematically compare the existence of country-of-origin, localization and dominance effects. This study therefore employs a very carefully matched design in which we investigate the same three countries (the USA, Japan and Germany) as home and host